In 2018 appraisers charged into the new year with the same level of enthusiasm that had been prevalent over the previous several years due to the high volume of appraisal orders caused from the combination of low rates and increased equity. A significant amount of mortgage origination volume combined with the recovering property values from the meltdown a decade earlier caused appraisers to, once again, find themselves in the middle of a refi boom. Some real estate markets experienced inventory shortages and reduced marketing times which created a seller’s market. Now, it appears the refi boom is slowing considerably as rates continue to creep up and values are increasing at a more modest pace.
Much of the chatter among appraisers in 2018 involved Property Inspection Waivers (PIW), alternative valuation products, and raising the deminimis level from $250,000 to $400,000; all of which could reduce appraisal volume and opportunities for appraisers.
Fannie Mae’s and Freddie Mac’s change in policy regarding the use of PIWs impacted borrowers, lenders, real estate agents, and appraisers in 2017, and in 2018 the amount of PIWs offered to borrowers for certain eligible transactions increased. However, the impact of these were smaller than expected, since only a small percentage of borrowers were offered the PIW alternative, and only about half of those offered were actually accepted.
Rapid housing growth in certain markets fueled a misconception of a national appraiser shortage, which paved the way for lender acceptance in the mortgage market for alternative valuation products and proposed changes in policies. Most recently the push was to eliminate the appraisal requirement for loans under $400,000 on 1-4-unit properties. In addition, some lenders and AMCs reported lengthy appraisal turn times in select rural markets that experienced higher than typical purchase and refinance activity. If the requirement for appraisals is removed for loan amounts under $400,000, a significant amount of mortgage appraisal work could be eliminated, and the majority of mortgage origination appraisal volume in rural markets would be reduced.
As Lenders embraced the alternative valuation products citing concerns with appraisal turn times and increased cost, alternative valuation products such as hybrid or bifurcated appraisals were increasingly being offered to appraisers in 2018. However, appraisers appeared reluctant to accept the orders as guidelines, expectations, and fees remain unclear and broad.
What is the forecast for 2019?
2019 could be a challenging year for real estate appraisers for multiple reasons:
– Typical mortgage rates in 2018 ranged between four and five percent, with the Fed raising the rate four times at 0.25% each time.
– Predictions currently estimate two to three rate hikes in 2019.
– Median home prices are expected to rise 3% to 5% in 2019.
The combination of increased rates and higher home prices will result in higher payments to borrowers which could be a recipe that slows the purchase market in 2019. Refinance transactions are also expected to further decrease as mortgage rates continue to climb. With the expected reduction in both purchase and refinance transactions, the overall impact on appraisal volume in 2019 is predicted to be slightly less than 2018.
After a number of prosperous years being in the driver’s seat, some appraisers are beginning to find themselves bidding for appraisal orders. Competition among appraisers in some markets is heating up, and as a result fees could be impacted if appraisers choose to cut prices. The ebb and flow of the appraisal business could shift back to the lenders and AMCs.
Smaller AMCs are beginning to consolidate with larger AMCs acquiring their competition. Under-capitalized AMCs run the risk of failure, which is reminiscent of the past. As a result, some appraisers are reporting slow payment from select AMC clients, and it is expected that there will be several AMCs closing this year. Appraisers should carefully monitor receivables in 2019 and stay informed about which clients are slow to pay.
Appraisers should consider diversifying and expanding their business outside of mortgage origination work. Marketing and education will become a priority for appraisers in 2019 in order to set themselves apart from the pack. Specializing in niche areas of appraisal and increased appraisal knowledge can lead to further opportunities that many appraisers have not considered in the past. 2019 should bring an interesting and different mix of work to those appraisers that are prepared for the changes.