The housing market is entering a very interesting stage. We’ve seen steady, year-over-year home price appreciation for more than six years straight. You would think this is good news, yet lenders have causes for concern.
According to the latest numbers from the National Association of Realtors, home prices have risen 4.5 percent from one year ago. Las Vegas saw the biggest price increase with a 13 percent jump over last year, followed by Seattle and San Francisco with 12.8 percent and 10.7 percent gains, respectively. Meanwhile, the median price for an existing single-family home in July stood at $269,000, the highest median price on record.
With only a few exceptions, it remains a fairly strong market. But this year, price gains began to slow. As interest rates begin to rise, transaction volume is slowing, which is placing extra pressure on lenders that are already dealing with increasing production costs.
Below are three important lessons from the most recent housing figures, as well as some thoughts about how lenders can catch a break in a market that seems to be creating one challenge after another.
Takeaway #1 – Buyers Need Major Help
There’s no getting around it – it’s a tough market for first-time buyers. While the economy remains strong, in many areas, the increases in payrolls and incomes have not kept pace with housing prices. As a result, many buyers are making concessions and buying homes further away from the neighborhoods they desire.
A low inventory of homes for sale isn’t helping things, either. Inventory is lowest in the West and while slow price gains might seem to offer buyers some relief, mortgage rates have recently increased to over 4.5 percent. Home sales have been sliding for months, according to NAR, and are now at their lowest level in more than two years,
Takeaway #2 – We’re Heading Toward Bubble Territory
While not quite as severe as the pre-2008 market, there is a real likelihood that we’re in a real estate bubble. Unlike the 2008 bubble, however, today’s values aren't being driven by risky lending. However, many markets seem to be reaching a price ceiling, as evidenced by the slowing price gains.
Ideally, a softening in prices will loosen up inventories and give buyers a break. Some areas have seen an increase in inventory, according to NAR’s latest statistics, including Denver, Seattle, Portland, Nashville, San Jose and Santa Rosa (Calif.). A recent Fannie Mae study warned that Baby Boomers seeking to downsize their homes may end up lowering their asking prices because there are not enough Millennial consumers currently ready to buy their homes.
Takeaway #3 – Your Valuation Partner is More Important Than Ever
When prices are rising or falling quickly, or when they seem volatile, it takes true expertise to create a high-quality opinion of value. It also becomes more critical than ever to ensure the appraiser used for a particular property knows and understands the market and can demonstrate this fact to protect you from third party risk.
On the flip side, a more challenging market does give lenders an opportunity to set themselves apart by offering a better customer experience. That’s especially true when it comes to third party services such as appraisals, which are frequently the source of closing delays. A valuation partner that places a premium on customer service can contribute significantly toward creating a better borrowing experience.
It also pays to choose a partner that can make sure the appraiser you use understands his or her market. For example, at Valuation Partners, we document every appraiser’s office location on every order we receive. We also have a proprietary appraisal process that ensures no appraisal gets “stuck” or delayed on the way to a streamlined closing.
If you don't have faith that your valuation partner understands today's market or the risks lenders face, I highly encourage you to give us a call at (281) 313-1571 or drop us a note at email@example.com. We’d love to hear from you!