Just got back from moving a friend to Albuquerque. There is a hot real estate market there - but it isn't all of the market.
Nice places that are "reasonably" priced (250-300K), move very quickly. Lesser places that have been "bubble"-priced sit for months, then have their prices reduced. According to one real estate agent I know, the banks are beginning to turn down loan applications because these houses aren't appraising highly enough.
With 0% down, interest only, etc., there is very little margin for the banks, so now the tightening begins. The housing market in Chicago, once red-hot has stalled this summer also.
My brother has is a vy active real estate appraiser (he is the name partner in the top firm in his town) in a big market in the South. He says to me that things get hot, then they get cool...then they warm up slowly. And the whole things starts over again. His clients include all the big banks, and no one is worried.
I think we agree?
Ho, ho, ho!! The appraiser has a copy of the sales contract in front of him. So he knows the number he's supposed to come up with. The instructions are to find "similar" properties, yes, but the system invites selection bias. Since the appraiser has the sales contract in front of him, he's going to choose properties near that price.
Usually if the property doesn't appraise, it's because the appraiser sees that the buyer is trying to buy something at the bottom of his range; he can't allow that, so the property won't appraise. Then the buyer really wants to buy he can either come up with a larger down payment or make capital improvements to the property. Either way, the buyer will be at the top of his range by the time the sale actually goes through.