The Problem With Home Appraisals.

Bogus Home Appraisals May Derail Real Estate Recovery {From 24/7 Wall Street: Excerpt} Douglas A. McIntyre
Posted: June 24, 2009 at 5:10 am 24/7 Wall Street.

A huge number of home value appraisals may be wrong, with most of them being much too high. That is causing banks to back away from mortgages. A house that has been appraised for $400,000 might support a $350,000 home loan. If the bank looks a the property and says it is only worth $300,000 the mortgage application gets put into the waste basket.
The over-valuing of homes could kill a turnaround in real estate and make the persistent and hard drop in property values continue longer than many economists predicted that it would.....
One of the by-products of the appraisal problem is that sellers often have to take less money for their homes than they had planned. This further depresses the value of real estate and often makes sellers take on debt to pay the difference between their mortgages and the amount that they get for their homes. People who take on new, large debt burdens are not likely to be consumers. Real estate values are directly linked to consumer spending.
The problem is hard to solve. ......If lenders believe that the information that they are getting is routinely inaccurate, they may sharply curtail their overall mortgage operations. Risk and leverage are not words that bankers want to hear right now......

Comment: Housing will not bottom all at once. It will vary by region and won't truly rebound until housing affordability levels come up. This can happen only two ways; home buyers need to make more money or the prices of homes still need to come down.