Newz: Rate Drops and Appraisers, UAD Overhaul, Avoiding Court
September, 30 2024
What’s in This Newsletter (In Order, Scroll Down)
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Avoiding Court: A Common Sentiment Among Appraisers (LIA ad below)
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Making Waves: Appraising Waterfront Property
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$850K Nantucket ‘Shack’ That Looks Set To Plunge Into the Sea
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New UAD Overhaul: What Appraisers Can Expect in 2025 & Beyond
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Sticky Prices
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The Fed is finally lowering interest rates. What does it mean for appraisers?
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Experts Predict Where Mortgage Rates Are Headed in 2025 as the Fed Cuts Rates
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Making Waves: Appraising Waterfront Property
Excerpts: Appraising waterfront properties involves a comprehensive evaluation of various factors that go beyond typical residential appraisals. By considering the unique aspects of water frontage, local regulations, environmental factors, and property-specific amenities, you can provide credible and comprehensive valuations that reflect the worth of these highly sought-after properties.
Understanding the depth, quality of the water, and type of shoreline is crucial, as these elements directly influence the property’s usability, aesthetics, and long-term stability. The importance of these factors cannot be overstated, and they deserve careful consideration in every waterfront property appraisal.
1. Water Frontage and Access
One of the most critical elements in appraising waterfront properties is the type and extent of water frontage. The value can vary significantly depending on whether the property is adjacent to a lake, river, ocean, or pond.
5. Depth of the Water
The depth of a water body significantly affects its usability, particularly for recreational activities like boating, fishing, and swimming. Shallow water might limit boating and can lead to stagnant water, which may contribute to unpleasant odors and an increase in insects like mosquitoes.
Conversely, deeper water is often clearer, supports a healthier ecosystem, and is more desirable for recreational use, thereby enhancing property value.
To read the details on all 8 factors, Click Here
My comments: Excellent article. Worth reading. The best I have read on this topic. Even if you never appraise a waterfront home, most people have been to a lake or other type of waterfront property on vacation. I live on an island in San Francisco Bay with water on all sides plus a small area on a nearby peninsula with 3 sides waterfront. I moved here in 1980 and appraised hundreds of waterfront properties including condos plus semi-detached and detached homes.
I lived for 25 years in three waterfront homes with boat docks in my city and am very familiar with with the issues above. I have appraised waterfront homes with 7 of the 8 factors in the blog post, except utilities as all were public utilities with no problems).
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New UAD Overhaul: What Appraisers Can Expect in 2025 & Beyond
By Dave Towne, September 20, 2024
Excerpts: I recently attended a Train the Trainer 1.5 day class about the new UAD/URAR, jointly facilitated by Fannie Mae, Freddie Mac and Aloft. About 20 other instructors from across the US were also present. This class is required before this new UAD material can be taught to other appraisers, under contract with the GSEs.
My info below is a limited high-level summary for the new UAD and URAR of what was presented, and what the appraiser community can expect to see, from now into 2026. It is not meant to be comprehensive; I may send out other info as I become more familiar with UAD 3.6 and the updated URAR.
Training for this new process for appraisers should begin occurring in 2025, Quarters 2.5-3.5. This training will be separate from the individual appraisal software provider training. Actual ‘live’ use of the new URAR and UAD v 3.6 won’t begin with limited lenders until 2025 Q3, so training early in the year may not be productive. The appraisal software providers will be offering their own specific training at approximately the same time frame.
FHA, VA and USDA will be incorporating this new process for their residential lending Reports in roughly the same time frame as will happen with GSE Reports. Specific data aspects within Reports required by them will be incorporated into UAD 3.6.
We learned that the Definitions for Q and C have been updated for more clarity. These will be in a new Appendix F-1, (available on the GSE web sites) which appraisers should review BEFORE beginning to do UAD 3.6 URAR Reports! Secondly, the Report will allow for better reporting of Q & C ratings for various components. And additional property amenities can be selected from a list or drop-down.
Keep an eye out for training classes offered, because you will need to become familiar with BOTH the UAD v 3.6 URAR requirements, distinguished from your brand of appraisal software’s process to complete Reports.
To read more, plus over 40 appraiser comments, Click Here
My Comments: Well written and understandable. Read the appraiser comments. Discusses some of the differences from the current forms. Online posts are mostly negative comments in appraiser groups, including the blog post above. If you don’t want to hassle with the changes, but don’t want to retire or quit, you can always do non-lender work. I have not done any residential lender appraisals since 2005.
All the major appraisal forms software vendors will have their own methods for working with the new Report formats. I’m looking forward to see how their software works.
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$850K Nantucket ‘Shack’ That Looks Set To Plunge Into the Sea
Excerpts: 2 bedroom, 1 bath, 696 sq.ft., Built in 1970
One of the most affordable homes on the island.
Located directly on the oceanfront beach in the Sheep Pond area of Nantucket Island. living room, kitchen, two bedrooms, new deck and outdoor shower, and full foundation plus basement.
Some of the best sunsets in this western facing location. Property is subject to coastal erosion.
A house on the same street listed last September, for nearly $2.3 million, that suddenly dropped to an astonishing $600,000 three months later.
Lot Description: Property is subject to coastal erosion and interested Buyer should have lot lines re-surveyed and consult an erosion expert. Five bedroom septic installed in 2018.
To read the listing, Click Here
My comments: Many homes in low lying areas in San Francisco Bay will be affected by sea level rise. Some are subject now to flooding during very high tides and rainfall from storms going into San Francisco Bay and out the Golden Gate Bridge. FEMA has mapped the areas, along with other low lying oceanfront properties on the Pacific Ocean’s West Coast. FEMA is mapping all U.S. coastal areas.
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When there’s no other manufactured homes in the neighborhood
By Ryan Lundquist
In the August 2024 issue of Appraisal Today
What do you do if you’re trying to value a manufactured home and there aren’t any comps in the market? I’ve been asked this a few times
Puzzle Approach: There isn’t one easy way to approach this, so when appraising something challenging I tend to look at a property like a puzzle where my goal is to find clues into value by considering a number of factors.
1) Older sales: There might not be any recent sales over the past 3-6 months, but what about older sales?
2) Competitive markets: If sales are sparse in the neighborhood or city, why not look to competitive markets?
5) Manufactured vs stick built: What’s the price difference between manufactured and stick built homes?
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Sticky Prices
By Brent Bowen September 23, 2024
Excerpts: What does it mean for prices to be sticky? In 1936, John Maynard Keynes coined the term ‘sticky’ when theorizing how price change in terms of wages did not always respond to changes in economic conditions. He theorized that this led to unemployment and contributed to business cycles.
Wages aren’t the only prices that are sticky. Real estate prices are sticky, too. Changes in supply and demand in a market do not always result in an immediate change in equilibrium/market prices. This is often truer with falling prices than rising prices.
Consider a scenario where you have 3 homes listed for sale in a neighborhood. All three would compete for the same buyer and are priced similarly. What if conditions in the market shift and demand drops? Showings decline and none of the 3 homes receive an offer. There are at least two things in the short-run which work against prices moving toward a new equilibrium level in response to the shift in demand. These cloud the seller’s perception and prevent a change in pricing in response to the changing market:
1) Anchoring bias – The sellers all have a desire to sell their home for the highest possible price, so cognitively their perception is going to be skewed toward the higher historical prices.
2) Herd mentality – Each seller will be keenly watching the other sellers to see how they respond. It is like a game of ‘who’s-going-to-blink-first’. If the other sellers aren’t lowering their prices, then each seller perceives that they are still priced well for the neighborhood, when in reality none of them are priced well given the shift in demand.
The answer to this question is market indexing. Most people are familiar with market indices on some level. Inflation has been prominent in our news cycle in recent years. Price indices like the Consumer Price Index (CPI) are how inflation is measured. Appraisers can use this same technique to create price indices for a subject property’s market to measure price differentials over time.
This technique allows the application of market change adjustments which vary over time in a way that mirrors the market, instead of trying to apply a ‘line of best fit’ to data which may not be linear.
This technique allows an appraiser to track an erratic market where prices may have been stable, increasing, and declining all within a short period of time.
To read more, Click Here
My Comments: Read this article. Excellent analysis of how to analyze market changes over a short period of time. I had never heard of this before. Really helps understanding today’s market changes.
MARKETS IN MANY AREAS, INCLUDING MINE, HAVE BEEN FLUCTUATING FOR AWHILE. RATES ARE DROPPING. THERE WILL BE MORE “ERRATIC” CHANGES. THIS ARTICLE CAN HELP!
A friend of mine has been trying to sell her “modular” home for awhile before she moved to Florida. The home did not sell after changing the price several times (other listings did this also). The home is in a popular location but the market has been very erratic this year. She will put it on the market early next year and found a couple whose home is being renovated to be house sitters while she is in Florida.
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The Fed is finally lowering interest rates. What does it mean for appraisers?
Excerpts:
Implications for Real Estate Appraisers
For real estate appraisers, the Fed’s rate cut is both an opportunity and a challenge. As mortgage rates fall, more buyers may re-enter the market, spurring increased transaction volumes. This uptick in market activity can lead to more appraisal assignments, particularly for purchases and refinances.
However, appraisers should be mindful of the possible “unintended consequences” of this rate cut. As Lawrence Yun, Chief Economist for the National Association of Realtors, noted, the rate cut could stoke demand without addressing the ongoing supply constraints. This could drive home prices higher, exacerbating the affordability crisis and adding pressure on appraisers to navigate an increasingly competitive and volatile housing market.
Additionally, appraisers will need to stay informed on how market conditions evolve, particularly as the Fed continues its monetary policy adjustments well into 2025. With more rate cuts expected, appraisers should anticipate shifts in buyer behavior, mortgage qualification standards, and housing demand (NAR-Instant Reaction).
Appraisers Must Stay Agile
The Fed’s 50 basis point rate cut represents a turning point in the post-pandemic economic landscape. While it may temporarily ease borrowing costs and improve housing affordability, the underlying supply issues remain. Real estate appraisers should prepare for both increased demand for their services and the potential for more complex valuations as housing prices react to changing market conditions. Staying informed and adaptable will be key to navigating this dynamic environment.
To read more, Click Here
My comments: Good analysis from our regular McKissock appraiser/economist Keven Hecht. Worth reading. I only included the appraiser section in the excerpts above. An excellent economic analysis of other factors is also included.
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The Magic Mortgage Rate That Could Psychologically Jump-Start the Housing Market
Sep 18, 2024
Excerpts: Mortgage rates, which have already dropped roughly a percentage point since May, should continue to trend down as the Fed signals further rate cuts. (Though interest rates and mortgage rates don’t directly correlate, they often move in the same direction.)
But where mortgage rates will land in the wake of the Fed rate cut remains to be seen.
Rates have been on a roller-coaster ride for years, hitting a low of 2.65% in January 2021 and a multi-decade high of 7.79% in October 2023. For the week ending Sept. 19, 2024, rates dropped to 6.09%, according to Freddie Mac, a low not seen in over a year.
While this downward movement is good news for homebuyers long kept on the sidelines due to affordability challenges, any rate above 6% might still present a mental stumbling block for those borrowers who feel they missed out on the ultralow rates of a few years ago.
However, “each improvement in mortgage rates has the potential to bring more buyers into the housing market,” says Realtor.com® senior economic research analyst Hannah Jones.
So what’s the magic mortgage rate number that could finally pull hesitant buyers off the sidelines and back into the game? It depends.
Why 6% still seems high
Though rates have dipped to 6.2%, it’s still a hard pill to swallow for many buyers who feel they missed out on the record lows of 2020 and 2021—even if they weren’t home shopping at the time.
The numbers tell the story: At a mortgage rate of 3%—common during the COVID-19 pandemic—a $400,000 home could have a monthly mortgage payment of roughly $1,686 (assuming a 20% down payment and standard loan terms). But when rates hit 6%, that same home suddenly required a monthly payment of $2,398—an increase of more than $700.
The psychological sweet spot of 5%
For many potential buyers, 5% seems to be the psychological sweet spot—the rate that could shift them from window shopping to making serious offers.
While rates around 5% might not be the historical lows of the pandemic years, they represent a more comfortable middle ground for buyers.
To read more, Click Here
My comments: This article focuses on buyer and sellers, but many who recently purchased their homes at high interest rates will want to refi.
In my area, with median home prices over $1,000,000, a 0.5% or 1.0% drop in rates would be a substantial drop in mortgage payments. “Starter” homes are around $1,000,000.
Several years ago a friend purchased a home in a nearby city with a 7% interest rate. The market was hot and he really wanted the home. I told him to refi when rates go down.
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HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, Click Here.
Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample go to www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.
My comments: Rates are going down finally!! Many appraisers have retired or quit, contributing to the coming appraiser shortage. In any businesses, including an appraisal business, you have too much work or too little work. For a day or so it is “just right” ;> This is my experience in 50 years of appraising.
The Market Composite Index, a measure of mortgage loan application volume, increased 11.0 percent on a seasonally adjusted basis from one week earlier.
The Market Composite Index, a measure of mortgage loan application volume, increased 11.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 11 percent compared with the previous week. The Refinance Index increased 20 percent from the previous week and was 175 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.4 percent compared with the previous week and was 2 percent higher than the same week one year ago.
“Mortgage applications increased to their highest level since July 2022, boosted by a 20 percent increase in refinance applications after a large increase the prior week. The 30-year fixed rate decreased for the eighth straight week to 6.13 percent, while the FHA rate decreased to 5.99 percent, breaking the psychologically important 6 percent level,” Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply. The refinance share of applications is now at 55.7 percent, and while the level of refinance activity is still modest compared to prior refi waves, they now account for the majority of applications, given the seasonal slowdown in purchase activity.”
Added Kan, “Average loan sizes were higher both for purchase and refinance applications, which pushed the overall average loan size to its highest in the survey’s history at $413,100.”
The refinance share of mortgage activity increased to 55.7 percent of total applications from 51.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.9 percent of total applications.
The FHA share of total applications decreased to 15.0 percent from 15.2 percent the week prior. The VA share of total applications increased to 18.3 percent from 16.8 percent the week prior. The USDA share of total applications decreased to 0.3 percent from 0.4 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.13 percent from 6.15 percent, with points increasing to 0.57 from 0.56 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) increased to 6.47 percent from 6.41 percent, with points decreasing to 0.50 from 0.55 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 5.99 percent from 6.12 percent, with points decreasing to 0.79 from 0.81 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to 5.47 percent from 5.42 percent, with points decreasing to 0.52 from 0.70 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged from last week.
The average contract interest rate for 5/1 ARMs increased to 5.76 percent from 5.66 percent, with points decreasing to 0.44 from 0.49 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100.
Ann O’Rourke, MAI, SRA, MBA
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