Eclipsing even the most optimistic expectations, July existing home sales registered a 2-year high this morning, jumping 7.2% from last month. According to Bloomberg, the National Association of Realtors (or NAR) reported that transactions climbed to a 5.24 million annualized pace, the highest rate since August of 2007.

NAR chief economist Lawrence Yun, the man who asserted the housing market’s slide had stopped back in 2006, is now quite certain the worst is behind us: “We are bouncing back, but we still need to wait until year-end before we see price stabilization.”

While on the surface, this report appears to be filled with nothing but rosy news, there is a kernel of caution amongst the positivity. Despite a jump in sales, inventory levels remained high, at 9.4 months’ supply. In other words, as buyers are coming back into the market, so are sellers.

This is a dynamic we have discussed previously here at Cirios Real Estate, and is a primary reason we are more cautious than most when it comes to this nascent housing market recovery. Even as some markets may stabilize, others will continue to fall until prices return to more sustainable, affordable levels.

Want to know which category your market falls into? Contact Cirios today!

This post first appeared on Minyanville.

Appraisers just can’t get it right.

During the housing boom, mortgage brokers, real-estate agents, and even borrowers sought out appraisals supporting the highest possible home price. Appraisers, fearful of losing business, inflated their valuation findings, which exacerbated the run-up in home prices.

Now, after nearly 4 years of home-price declines, appraisers are getting it wrong again — but in the other direction.

On May 1 — while the financial media focused on construing a blip up in housing data as signs of an imminent bottom — little was made of new appraisal guidelines that went live and immediately began to eat away at the core of the nascent housing “recovery.” To be sure, trade groups like the Mortgage Bankers Association and the National Association of Realtors (NAR) fought the revised rules, but to no avail.

Stemming from a lawsuit filed by New York Attorney General Andrew Cuomo alleging Washington Mutual (JPM) and First American Corp illegally conferred on the results of home appraisals with the goal of inflating prices, the new rules put up a Chinese wall between banks like Citigroup (C), Wells Fargo (WFC), Bank of America (BAC), and appraisers. The goal was to create an environment where appraisals would reflect an expert’s unbiased assessment of a home’s true value, rather than evaluations tailored to a lender’s desire to make a loan.

The new rules affect loans guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE), but since the 2 government-run mortgage giants effectively control the secondary mortgage market, they’ve become the defacto guidelines for the entire industry.

In order to separate lenders and appraisers, appraisal-management companies (AMCs), cropped up, offering banks access to a network of appraisers around the country. This makes the appraiser selection process random, preventing collusion. And while AMCs claim appraisers are selected using proprietary scoring algorithms that evaluate performance, the reality is that jobs are handed out on the basis of fastest turnaround time and lowest cost.

In short, we’ve traded bias for incompetence.

Readers of this column know that I have little, if anything good to say about the NAR — which is not only the Realtors’ trade organization, but a powerful Washington lobby. Nevertheless, earlier this week, when the NAR released data on existing home sales, their statement about appraisers’ role in killing purchase transactions was dead on the mark:

“The increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan. Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales.”

Currently embroiled in this very scenario, my firm, Cirios Real Estate, is witnessing first-hand just how bad the new appraisal rules are.

Assessing a property’s value in’t rocket science, despite appraisers’ claim that their extensive training and years of experience make them the only people qualified to determine home prices. All it takes is access to the right information, an understanding of what drives desirability, and a little pride in one’s work.

That last criterion is perhaps the most difficult to find. Appraisers earn a flat fee for their services, giving them little incentive to provide the best analysis possible. Knowing they can now earn repeat business by turning around jobs in 48 hours and charging less than their competitors, there’s little reason to go the extra mile to ensure appraisals take into consideration only the best information to come up with the best possible results.

Sure — there are good appraisers out there with integrity that offer up great analysis. But as lower priced, lower quality work becomes the norm (thanks to the new appraisal guidelines), the best appraisers will seek greener pastures – as well they should.

Lawrence Yun, the NAR Chief Economist, finally got it right when he said, “Sometimes policy can lead to unintended consequences.”

Breaking a trend of rising Pending Home Sales, the index of signed purchase contracts fell in January, down 7.7% from December, according to the National Association of Realtors (or NAR). The drop was more than twice as bad as economists’ expectations — and by “expectations” we mean wild stabs in the dark.

Pending Home Sales, which measure contracts signed in a given month, are considered a leading indicator of actual sales, which typically close 1-2 months later.

Notably, a trend discussed for the past few months here at Cirios persists: Sales activity in the West continues to outperform the rest of the country. In January, signed contracts dipped 13% in the Northeast and 12% in the South, but ticked up 2.4% in the West. New England is being hit particularly hard as Manhattan reels from the meltdown on Wall Street, sending home prices in the concrete jungle off the proverbial cliff. This shouldn’t be news to avid readers of this site — we’ve been on this trend for months.

Nevertheless, despite dour economic news and sickly data, the spin doctors over at the NAR remain hard at work. Lawrence Yun, living proof that being wrong for 1000 days running qualifies you to head up the biggest real estate lobby in the country, postulated that he “[expects] similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions.”

Just like they did this month Mr. Yun? Keep on spinning, sir.

Cirios Real Estate

Housingwire.com reports that pending home sales levels have fallen significantly since this time last year, according to data released by the National Association of Realtors (NAR). The NAR report on the same data is titled “Pending Home Sales Rise, Wider Gains Anticipated….”

So where’s the discrepancy? How can the exact same data tell one group that things are getting worse while another group sees it as an improvement? The answer is all in how you look at it. While the NAR points out that their pending sales index was up 5.3% in June relative to May, Housingwire.com thinks it’s more appropriate to compare apples to apples and compare June data to June data. This comparison shows a 12% decline from this time last year.

Who’s right? In this case, we strongly agree with Housingwire. Home sales always make a move up in the summer months, simply as a result of cyclical pressures on the market. By comparing May to June data, the NAR has successfully pointed out this fact. However, in claiming that this increase represents a reason to project overall improvement in the housing market, the NAR is grossly over-exaggerating the importance of that particular statistic. Such spin is commonplace for the NAR, which has been propagating the “buyer’s market” fallacy since the credit crunch began by whatever means available to it. (witness the NAR’s chief economist Lawrence Yun’s insistence the turnaround is just around the corner … since January 2006.)

In the uncertain waters of today’s real estate markets, it’s hard to know who to turn to for objective information and analysis. Many in the media will stake a claim to objectivity, but such claims are often exaggerated at best and ludicrous at worst.

In reality, objective information is not easily found and does not come cheap. In some cases, however, it is easy to see when a particular organization’s interests do not align in the least with anything remotely approaching objective analysis. This is clearly the case with the NAR, who’s analysis and reports should be avoided like the plague by anyone actually interested in the true state of the housing markets.