Purchases of homes are starting to rebound but will prices be able to rise? We are in a difficult period where inventory, distressed sales, and high unemployment are all keeping downward pressure on home prices. However, once employment or distressed sales subside, we have the potential to see upward pressure on home values. Consider the questions - Will you consider selling your home for less than you owe? Will you want to pay the purchaser of your home to buy your house? Will you have significant down payment funds to purchase your new home without selling your home for more than you owe? Most people will answer those questions with "NO". Most of us cannot afford and will not be able to purchase a new home without recouping the down payment funds we put in our current home. Therefore, we will all create upward pressure when the economy and employment improve.
The next question will be, how will appraisers be able to find comparable properties that will allow for rapidly rising property values. Today, we already have property value problems with significant distressed sales that are a large percentage of the purchase market. When there is a traditional sale, an appraisal is using a process called bracketing to determine market value. Bracketing is a method that uses at least one similar property in the neighborhood priced higher than the subject property and one priced below. While in theory this is a good practice and part of following Uniform Standard Property Appraiser Practices (USPAP) it will have a definite impact on property values when the economy improves.
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