There are unintentional consequences of home prices rising quickly. Homes under contract will now have to appraise. Remember, appraisals are an analysis of past sold homes. Appraisals are not a prediction of things to come but of a defined transaction. I also heard that the time to close will also be extended because of the lack of appraisers left standing in the industry.
Sellers are recognizing the shortage of inventory and are reluctant to start with a low price to sell. In fact, many sellers are starting to raise their prices. Unfortunately, homes may not appraise especially if there are short sales and foreclosures in the same neighborhood or nearby.
The result will be an increase in contract failures. You may remember this illustration. I still don’t believe all of the foreclosures have been released by the banks. Housing is trying it’s best to jump start the economy. Remember, I am not an economist but the definition of a “fad” is “something that is embraced very enthusiastically for a short time, especially by many people”. In my opinion, prices have bottomed out and are rising. However, I am not confident that lenders will not release the shadow inventory soon because of the new market dynamics. Time will tell.
When only one segment of the economy is moving and granted housing is the engine, I just think this activity is a false sense of security. I hope not but you still should sell your home or buy your home --- NOW!
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