June 30th, 2014
by Philadelphia Fed
After the nation experienced the worst housing crisis since the Great Depression, home valuation became more widely underestimated. Factors that help explain the incidence of low appraisals include measures of market inefficiency such as the concentration of foreclosures and a lack of prior mortgage-financed purchases, contract prices, property types, appraiser types, and tightened regulations. Low appraisals are also found to create challenges for many borrowers in troubled neighborhoods and make mortgages more difficult to obtain.