There’s been a lot of talk about the unsustainability of home prices in recent months. Back in July, Business Insider published an article in response to the S&P/Case-Shiller Home Price Indices. Svenja Gudell, a senior economist at Zillow, was quoted saying “Three straight months of national home value appreciation above 10 percent is not normal, not sustainable and, frankly, not very believable.” The October 29 release from the S&P/Case-Shiller Home Price Indices showed that through August 2013, the 10-city and 20-city composites increased 12.8% year-over-year, and compared to July 2013, the annual growth rates accelerated for 14 cities and both composites.

S&P/Case-Shiller Home Price Indices

Others have been discussing the home price increases and other data documented in the Property Intelligence Report (PIR) from real estate analytics firm DataQuick. As reported in National Mortgage News, DataQuick has stated that the national average appreciation rate is 16%, and it has been growing at an unsustainable rate that is not supported by economic fundamentals.

Home Prices, Sales, & Foreclosure Growth

Source: DataQuick, August 2013 Property Intelligence Report Summary Notes.

So, what can appraisers do to help? While the appraisal is just one of many factors that influence home prices, inflated appraisals can and do contribute to unsustainable growth in home prices. Whether an appraisal is intentionally or unintentionally inflated, it may become a benchmark against which other homes will be valued, thereby increasing prices in a neighborhood. (This article describes a particularly egregious example.) Therefore, it is vitally important that appraisers complete each appraisal ethically, accurately, and with credible support and justification.

Future posts in this series will discuss changes in the industry that are being implemented to help reduce these sorts of problems.