Appraisal experts generally foresee a strong 2020 for the appraisal industry. The profession continues to evolve, and so does demand for different types of appraisal. Demand in general remains high, and an appraiser who anticipates trends—and gets out in front of them—can expect to prosper in the long run.
What to watch for in the next decade
Appraisers should monitor the key economic indicators daily, advises pundit Phil Crawford, who hosts “Voice of Appraisal,” America’s best-known appraisal podcast. He says he checks the 10-year Treasury rates every morning.
“Last year, 10-year Treasuries hit a low under 1.5 percent, causing a refinancing boom,” he recalls. “If the rate is 1.7 or less, appraisers will be busy; if it’s over two percent, less busy. That 10-year rate is everything. It influences values and economic conditions.
“I foresee 10-year rates staying low, or decreasing even more, so appraisers will be busy with bank work assignments. Keep in mind also that the ‘baby boom’ generation is starting to pass away. That will mean a substantial increase in estate work over the next 15 years. Appraisers have to start developing in the direction of that type of work.”
Several factors militate in favor of the appraisal profession, going into 2020, Crawford says, while a few danger signals lurk. The Federal Reserve continues to pump money into the overnight lending fund, for example, which might mean that banks in general are having liquidity issues. But consumer sentiment is generally optimistic, and housing supply is short, especially for first-time homebuyers.
“Take advantage of current conditions and decreased increased rates,” Crawford urges. “In Denmark, we see negative interest rates for the first time in history. If you see quantitative easing here, that’s good for borrowers but tragic and terrible for savers. This environment enables investment properties to dramatically increase in value, since investors can’t get yields anywhere else.”
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Where to focus your efforts
John Russell, senior director of government relations and business development for the American Society of Appraisers, notes that appraisals can be broken into two camps: mortgage origination, and everything else (including relocations, estates, and other assignments). He urges appraisers not to grow too dependent on the former, and to develop skills in the latter.
“Lenders are getting away from reliance on appraisers, in general,” he observes. “Appraisers will have to think outside the box. Make yourself available to the home-buying public, which might need appraisals on the pre-sale side. Offer yourself as an adviser.”
“You hold onto a model that’s solely driven by lender work at your own risk,” he warns. “Find agents you like, offer to come into their office and tell them what you see in the market, talk about the services you can provide outside of traditional lending. When they realize the value an appraiser can add, you’ll become a more useful resource.”
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Housing market trends for 2020
According to Jo A. Traut, appraisal curriculum and content specialist at McKissock Learning, the economic and housing trends that began in the second half of 2019 are likely to continue into 2020. Fannie Mae, Freddie Mac, and MBA foresee a continuation of low mortgage interest rates below four percent averaging 3.7 percent for 2020.
“As Germany and Japan and other global economies offer zero percent or even negative interest returns on investments, U.S. mortgage bonds offer a more profitable investment to foreign investors, which will continue to keep consumer mortgage rates below four percent,” she predicts.
“Despite low mortgage interest rates, affordable housing inventory will remain tight, thereby constraining the housing market for entry-level housing,” she explains. “Builders are confident of an increase in demand for new construction, especially for smaller, entry-level homes.
“Instead of urban expansion in major cities, many people are migrating to second-tier cities—escaping excessive property and income taxes and looking for more affordable housing options and a better living environment. Home buying by the millennial generation is expected to exponentially grow and these buyers prefer to live in suburban communities as long as the area offers mixed-use opportunities.”
Demand for different types of appraisals
Traut foresees an increase in the demand for evaluations and bifurcated appraisals in both residential and commercial valuations. More lenders are ordering alternative valuation services for servicing, quality control, and home equity loans. Accordingly, appraisers should become more specialized, seek new opportunities in the valuation arena, and embrace technology.
However, Dan Bradley, director of online appraisal curriculum for McKissock Learning, warns appraisers not to neglect traditional appraisals for residential mortgage loans. He says that while some appraisers make a good living doing right-of-way appraisals, assessment appeal work, and expert witness testimony, appraisals for mortgage lending continue to drive the market, and this will continue throughout 2020.
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“It’s unlikely that the Fed will make any drastic moves regarding interest rates during a Presidential election year,” he says. “I would expect the demand for appraisals to remain constant in the next year. Because the number of licensed and certified appraisers nationwide has remained stable to slightly declining, if the demand for appraisals remains the same, that means appraisal will be stable or modestly increasing.”
Although an increasing percentage of residential mortgage loans require no appraisal (e.g., Fannie Mae’s Property Inspection Waiver program, or PIW) there should still be a sufficient amount of purchase and refinance appraisal work out there to keep the appraisal profession viable for the foreseeable future, Bradley says. But if Senate Bill 1722 (The FHA Appraiser Eligibility Expansion Act) were to pass and go into effect, the number of FHA Roster appraisers could increase, which in turn could result in lower FHA appraisal fees in certain areas of the country.
“The national economy is healthy right now, with the unemployment rate at or near historic lows,” he says. “Some experts are predicting a recession in 2020 because the economy has been expanding for such a prolonged period that it has to go into recession eventually. I don’t want to make a prediction as to when a downturn might start. However, because 2020 is an election year, you can expect politicians on both sides to make major issues of inconsequential events.”
Article written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His byline has appeared in The Wall Street Journal, The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is www.josephdobrian.com, and he can be contacted at [email protected].
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