This coin originally appeared in the December 2021 issue of DS News magazine, online now.
There is little evidence to suggest that a deluge of foreclosures is about to hit the market. Still, economic forecasts show foreclosures are already on the rise and are expected to pick up again later this year or early 2022. That means appraisers need to be prepared.
Here’s the good news: The prognosis for 2022 is for a strong and solid housing market. Economists are calling for continued appreciation in house prices through 2022, as demand for housing continues to be strong.
There is also evidence that the supply imbalance is starting to correct itself with a steady increase in homeowner inventories, which should dampen some of the runaway increases in house prices that we have seen in some markets. However, it is important not to read an increase in supply as a flood of houses suddenly comes onto the market and disrupts prices. At most, what economists expect is a normalization of the market that would put behind us the ultra-competitiveness that we experienced in 2021.
Against this backdrop, economists believe that any potential inventory put on the market as a result of the release of owners’ forbearance is a good thing. Homeowners in difficulty can take advantage of the current market dynamics and sell their homes at the best price.
The reality is that there will be some homeowners who will not be able to reconcile the payments. We are already seeing an increase in the defaults. According to ATTOM Solutions, notices of default, scheduled auctions or bank foreclosures rose 34% in the third quarter of this year. This momentum is expected to continue well into the new year after nearly a year and a half of a moratorium on foreclosures. The magnitude of the spike will really depend on how lenders choose to approach distressed borrowers who are behind on their payments, but it won’t be close to the numbers we saw during the Great Recession of 2009. We are in a unique situation today. , because underwriting was much stronger than it was during the previous period of rapid inflation linked to the housing crisis. Today we are in a situation where we have never been, and we were not so prepared to be able to absorb the downturn.
Nonetheless, appraisers should be prepared to pivot to deal with the eventuality of an increase in foreclosures and appraisals of default activity. It means being objective and completing the valuation process as they would any other type of transaction, whether it’s a refinance or a purchase. It may sound easy, but appraisers should be aware that they do not approach foreclosures with a potential trade type bias.
For foreclosures, one of the biggest limitations for appraisers is that they will not have access to the property. This will require additional steps on the part of the assessor to try and determine the condition of this property, whether through increased due diligence of city records for the building permit activity or any other collection activity. of data.
Typically, foreclosure appraisals are done outside, and they’ll be driven by the property or someone will drive by the property to do some sort of appraisal.
However, appraisers should be aware that this could expose them to certain biases, although there is no chance that they have come into contact with the interior of the property, let alone the borrower and therefore could have. demonstrate a bias, don’t you? Despite the independent nature of the foreclosure valuation, it should not be viewed as presenting a zero risk of a biased trade, unconscious or not.
The key is to stick to the facts and avoid factors that can lead them down the path of a potentially delicate situation. One example focuses on the racial makeup of a neighborhood. It should not be taken as a factor in the development of your professional opinions. Most reviewers know this, they are trained on this, but it’s always a good reminder that it shouldn’t be a consideration.
Ultimately, when it comes to foreclosures, or any situation, assessors should always keep in mind that they are responsible for providing useful data and reliable and accurate results. It’s not just the number you provide; you are in charge of collecting data, formulating conclusions related to the assessment and providing useful information to the client on which to base a decision.
As the market moves and pivots, valuers need to stay on top of things to see what’s going on with prices and what’s going on with values.
Right now, we are emerging from a very overheated market. In some places, things are still overheated because of this lack of inventory and because of deflated interest rates which have driven up demand for refinancing. This dynamic has had some impact on affordability, part of the parameters analyzed by evaluators when drawing conclusions.
Here are some questions to consider: What is the inventory level? What is the pace of business activity? When will buying activity in a particular market burn inventory? All these points must be taken into account when correctly valuing an asset, in particular an asset in difficulty.
Other important considerations: stocks on hand in difficulty, sources of funding for purchases, and occurrence of all-cash purchases. As an appraiser, you have to read the market very, very carefully.
In conclusion, the prognosis for the market, in general, points towards more stabilization. While foreclosure activity is planned, it is not expected to disrupt the market in the near term. Whether assessing to support the purchase or refinancing transaction, or a default activity, the assessor is required to perform assignments without bias and a level of professional competence demonstrating an understanding market forces and influences.