If your neighbors have lost their homes, you could pay the price when you try to sell or refinance — even if your credit is good.
Neighbors matter when it comes to putting a price tag on homes.
Appraisers use comparable sales data to calculate the value of a home, a number that lenders require for selling and refinancing. And sales in neighborhoods plagued by foreclosures knock down the value of homes.
The problem, which makes it much more difficult for borrowers to pull cash out of their homes, is another sign of how a sick housing market infects the entire economy, one neighborhood at a time. If borrowers are unable to refinance at lower rates, that could cause even more foreclosures, real estate experts say.
“The abundance of foreclosures has turned into a snowball effect,” said Karen Mann, a San Francisco Bay area appraiser.
Mortgage brokers and appraisers in California, Florida and Nevada — where inflated home prices have dropped the most — say more home owners are stuck in this situation.
Far-flung suburbs popular with first-time buyers have been hit the hardest by the foreclosure drag. In northern California, homebuyers often stretched to buy homes they couldn’t afford by borrowing as much as 100 percent of their home’s value, Mann said.
Now, some of those homeowners are walking away from mortgages and turning the properties over to their lenders.
Declining markets make comparable sales difficult — especially if there are no recent completed sales and a large number of nearby foreclosed properties on the market.
“It’s difficult to get a good assessment of what the valuations would be in this type of market,” said Global Insight economist Brian Bethune. “Everybody knows that there’s some downward pressure, but how much? This whole appraisal process has become a lot more complicated.”
