So you’ve found your dream house, you’ve worked with your lender, your mortgage interest rates are locked in for 30 days, your offer was accepted. Life is grand. Or is it? Many home buyers entering the market taking advantage of lower rates or refinancing based on those lower rates must still get through the hurdle of the home appraisal. Therein lies the rub.
As you know, the value of the property determines what mortgage programs you are eligible for and what mortgage rate you will receive. The appraisal assigns that value. At the moment, there is a severe shortage of licensed, certified Appraisers across the nation. The acute appraiser shortage is jeopardizing the gains the housing market is enjoying with the attractive lower rates and the favorable climate for refinancing to those lower rates.
Typically, buyers “lock in” their mortgage rates for a specified period, usually 30 days. The shortage of qualified appraisers is creating a logjam in processing closings. The backlog grows daily. With significantly slower completions on appraisals, the buyer, through no fault of their own, may find themselves facing expiration on their “locked in” rates or facing forced renegotiation at rising rates.
In markets that are competitive, home values can change as the inventory increases or decreases; therefore, a delay in the appraisal process can completely void the sale if timing causes the value to be below or above the original offer. The appraisal bottleneck is becoming an increasingly frustrating and volatile issue for the housing market.
According to the latest Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey, the share of home purchases that close on time has declined significantly in recent months, with many real estate agents pointing to slow appraisals as the main culprit. In April, over 76% of homes purchased with low down payment mortgages guaranteed by Freddie Mac or Fannie Mae closed on time. By August, the on time closing rate in the same sector had declined to just under 64%. That is at least a 12% decrease in on time closings in just a four-month period.
Brian Coester, Chief Executive Officer of Coester VMS, a national appraisal management company, warns, “The appraisal shortage is massive. You’re seeing significant delays, you’re seeing cost increases, you’re seeing rate [locks] expire.” Appraisal issues caused almost 11% of delayed closings in April and increased by nearly 50% to almost 16% by August. Delays cost buyers and sellers money.
Part of the problem in the appraisal process is the lack of appraisers. The number of appraisers is down by 22% since the beginning of the subprime mortgage crisis. Over 60% of the current appraisers are over the age of 50, and younger people do not seem to be attracted to the profession. Scott Robinson, President of The Appraisal Institute, tells us, “We are seeing an enormous amount of regulatory burden on the profession. Some regulation excludes the ability of folks to take on a trainee. It makes it difficult even if you have a young person interested.”
Appraiser apprentices were once allowed to perform full appraisals; newer regulations now require licensed appraisers to be present for the inspections. Without the ability to deploy apprentices to inspect properties, licensed appraisers are experiencing a much larger volume of work. A result of more volume with fewer qualified people to accomplish the work is creating a growing group of frustrated buyers and sellers waiting weeks or months for appraisals to move forward with closings.
With appraisals critically delayed the importance of interest rate movement is paramount.
This Week’s Mortgage Rate Summary:
Rates Trending: Slightly Higher
This week’s Freddie Mac Private Mortgage Market Survey (PMMS) moved mortgage rates upward from where they were last week. However, rates are still historically low as rates were only one basis point above 2016 lows before the increase.
Even the slightest increase could be short-lived with the job report modeling the ADP employment report showing a continued increase albeit an increase not meeting expectations. The Treasury yields and mortgage rates should retreat to very similar levels before the PMMS release.
Financial market professionals mostly support the Fed Fund Futures in giving the November meeting a 15.5% chance of producing a rate hike. A rate hike less than a week before a Presidential election seems unlikely. Most market watchers agree that December is the clear candidate for the most probable rate hike, the consensus is over a 57% chance that December will bring a rate hike.
With delayed closings becoming more prevalent, rates poised to rise before the end of the year, and industry professionals anticipating an upward movement in interest rates; buying is contingent on timing. If you are seeking to purchase or refinance, contact your lender now; all of these factors assign more importance in discussing your options and terms for locking rates with your lender. Experts agree, with end of year reporting, a Presidential election and a soaring housing market now is the time to determine your best position.