Dan Levy, on Bloomberg.com writes “Home-Price Recovery May Be Undermined by Appraisals“. Real life examples are coming in from across the country about appraisal nightmares. In an effort to root out “influence” in the appraisal business, the new guidelines have created a series of problems for home buyers, sellers, real estate agents, lenders and appraisers. And, in the midst of all this confusion, the recovery of the real estate industry has again become the unintended victim.

To remove any appearance of impropriety, lenders are now required to utilize a “third party” to hire and manage the appraiser. There can be no direct communication between the lender and the appraiser. The introduction of the “third party” has increased costs and extended delays in getting appraisals ordered and completed. Appraisers are in a difficult situation. They are suppose to provide an independent opinion on valuation. But, in times of economic strife, the natural tendency is to err on the low side for appraisers. It’s the safe position.

However, the charge for the appraiser is to evaluate what the market will determine is the fair price for a property. That is, what a willing buyer and willing seller are able to establish is fair compensation for the change in ownership of the property. It is not the appraiser’s job to tell buyers and sellers the price for the transaction.

My experience with recent appraisals has been very disheartening. Broad assumptions such as “the market will continue to spiral down … forever” have resulted in ludicrous valuations. Over-reaching assumptions regarding loan rates, hold periods, contingencies and the like result in valuations that could never and will never result in a transaction. Even with recent “good news” regarding pricing and absorptions, I still see appraisals that predict dramatic declines in values and completely ignore recent transactions for their comps.

The doctrine of unintended consequences continues to rule American political strategy. If an ounce of cure is good, than a ton of cure should be even better. The pendulum of reasonableness got away from the regulators, I do not claim otherwise. The “hands off” attitude was too much and resulted in too many abuses. Likewise, the swing back of the pendulum has gone too far. Regulatory reform for the sake of political grandstanding will not right the economic conditions of this country. In fact, it may be holding us back from getting on with the business of true economic recovery.  Still a majority of economists, including Alan Greenspan and David Wessel, believe the US economy can not get stronger until housing recovers.

I believe we need to follow the suggestions of the Mortgage Bankers Association, the U.S. Office of Thrift Supervision and the Federal Reserve and declare these new guidelines for appraisers “flawed” and “scrap” them now, before they cause any more damage to the floundering real estate market.

As reported by Donald Luskin, of SmartMoney, Professor Robert J. Gordon, an economist working on the Business Cycle Dating Committee of the National Bureau of Economic Analysis (the group designated by the US Government to officially designate the start and end of recessions and other economic cycles), has stated the recession is over right now! Professor Gordon claims the decrease in claims for unemployment benefits tells him that the economy has begun to turn around.

The San Diego Daily Transcript reported that the unemployment rate in California and San Diego fell during the month of April. While the number of unemployed continued to rise, the rate of the increase has slowed. Employment is typically viewed as a lagging indicator of economic activity. Employers tend to delay hiring back workers until they are certain that economic activity is on the rise.

A leading indicator of economic growth is the real estate market. BusinessWeek.com asks, “Can a Housing Recovery Gain Ground?” Acknowledging that housing numbers are better in a monthly and year-over-year comparison, James Cooper of BusinessWeek.com states “the more than three-year plunge in home sales appears to have bottomed out.”

The members of the American Economic Association have decided that real estate is on the rebound. “Predictions by economists a year ago appear to be on target today, and that indicates good news for American homebuyers and sellers. Findings from a survey of economists in July 2008 on issues related to the hard-hit U.S. housing market are on the verge of being realized, according to the Keller Center at Baylor University’s Hankamer School of Business” according to NewsWise.com.

Jeffrey Mezger, the CEO of KB Homes agrees that housing is ready for a recovery. Daniel Taub of Bloomberg News reported that Mr. Mezger is feeling more confident about housing prices and sales. “If you go to Southern Cal, as an example, we’re seeing a floor on pricing. We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

In another San Diego Daily Transcript report, Jen Lebron Kuhney highlighted the recent San Diego home sales activity. Home sales are up 10% and prices are up 3%, comparing April to March 2009 numbers. Low home prices in Southern California and good mortgage rates are driving buyers back to the market.

The Los Angeles Times reported that mortgage interest rates should stay low throughout 2009. In a story by Mary Ellen Podmolik, she reports “the lending industry’s consensus is that rates won’t change dramatically soon.” She attributes the prediction to a couple of factors, first the Fed continues to buy large quantities of mortgage backed securities and second, the weakened economy seems to assure that the government will continue to keep the money supply high.

As further evidence of the swelling interest in real estate sales, take a look at the little town of Manteca, California, a town with a population of 64,000 and a median income of $59,300. In the heart of the Central Valley of California, surrounded by some of the best agricultural land in the world, this little town is closing escrow on a home purchase every 6 hours and 18 minutes of every day in 2009! Now that sounds like a real estate industry moving forward!

Last thought … the California State Tax Credits continue to push home sale forward. The plan was originally designed to run for 12 months, through March 1, 2010. A $10,000 state tax credit for the purchase of a new home, it was suppose to re-invigorate home sales and construction. Well, over 60% of that allocated tax credit has already been claimed and we haven’t even made it through the first three months of the plan. I would say that the plan has been a resounding success.

I would also say that the real estate market in California has been to the bottom and it is moving on up, taking with it the economy of the state and maybe even the nation. So, the ruling of the referees is upheld, after review of the instant replay, its’ official … the recession is over!