Could Home Appraisals Become a Regulation of the Past?

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The National Association of Realtors (NAR) reported This Week in Real Estate that the August Pending Home Sales Index (PHSI) rose to its second-highest level since 2018. NAR believes the housing market is starting to get a lift from lower mortgage rates and coupled with solid job growth, expects sales will continue to rise in the coming months and into 2020. Below are a few highlights from the fourth week of September that influence our business:

Pending Home Sales Rebound in August. After an unexpected decline in the previous month, pending home sales rebounded in August, largely led by gains in the West. The Pending Home Sales Index (PHSI), reported by the National Association of Realtors (NAR), is a forward-looking indicator based on signed contracts. The PHSI rose 1.6% from 105.6 in July to 107.3 in August, the second-highest level since 2018. On a year-over-year basis, sales were 2.5% higher than a year ago. Regionally, all four major regions saw an increase in the PHSI from both last month and a year ago, particularly in the West. The PHSI in the West grew 3.1% from July and was 8.0% up from a year ago. The gain in all regions suggests that the slump in the West over recent years appears to be over and the housing market is starting to get a lift from lower mortgage rates. With Fed interest rate cuts and solid job growth, NAR expects sales will continue to rise in the coming months and into 2020. At the same time, rising demand and tight inventory will continue to drive up home prices as well, making access to homeownership more difficult.

Appraisals Will No Longer Be Required On Certain Home Sales of $400,000 and Under. For the first time since 1994, certain home sales of $400,000 and under will soon not need an appraisal after federal regulators approved a proposal to increase the threshold at which residential home sales require an appraisal. Last November, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve released a proposal that would increase the appraisal requirement from $250,000 to $400,000, meaning that certain home sales of $400,000 and below would no longer require an appraisal. Last month, the FDIC and OCC signed off on the rule but were still waiting on the Fed to approve the rule change as well. Now, the Fed has also given the rule to change its stamp of approval, and with all three agencies signing off, the appraisal rule change will soon go into effect. Now, it’s important to note that the new rules do not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency. That means that loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac would still require an appraisal, per each agency’s rules.

Foreclosures At An 18-Year Low. Foreclosure starts hit an 18-year low in August and were down 23 percent compared to the previous August. Black Knight, in its First Look at August loan performance data, said there were 36,200 starts during the month, a 7.65 percent month-over-month decline. It was the fewest foreclosure starts since December 2000. Starts were only one indication of the general improvement in mortgage delinquencies. The number of loans in active foreclosure, i.e. the foreclosure inventory, fell to 253,000, slightly less than a half percent of all mortgaged properties. This is 5,000 fewer than in July and down 28,000 loans from the level in August 2018. The inventory is now the smallest it has been since 2005.

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