They say the only thing certain in life is change—and in today’s housing market, that couldn’t be more accurate. With interest rates on a slow decline, new housing starts rising, and affordability challenges persisting, real estate appraisers need to keep their eyes on the ever-shifting landscape.
Let’s dive into the latest trends that could impact your work as an appraiser, and don’t worry, we’ll make it fun along the way—because who doesn’t enjoy a good housing market analysis?
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1. Interest rates are falling (slowly but steadily)
After holding tight for over a year, the Federal Open Market Committee cut the federal funds rate by 50 basis points in mid-September, bringing the target range down to 4.75-5%. The Fed signaled more cuts ahead, but as of now, mortgage rates are still hovering around 6.5%. While this isn’t the dramatic drop homebuyers may have hoped for, it’s enough to start loosening the reins on affordability.
The good news for appraisers is that even a slight dip in rates could lead to an increase in refinancing activity (Freddie Mac). However, don’t expect a flood of transactions just yet. Many potential buyers and sellers are sitting tight, waiting for mortgage rates to fall even further.
Key takeaway for appraisers: Keep an eye on mortgage rate fluctuations, as they’ll directly impact both refinancing activity and housing demand. You may see a gradual increase in appraisal orders but don’t expect a tidal wave of new transactions just yet.
2. Housing starts are up, but builders are facing challenges
Single-family housing starts jumped by a solid 15.8% in August. Builders are eager to meet strong demand, but they’re still battling against high material costs, labor shortages, and lot availability issues (NAHB). While these supply-side challenges persist, the rise in housing starts is a positive indicator that the market is far from stagnant.
However, new home sales slipped slightly in August after a strong showing in July (NAHB). The demand is there, but many prospective buyers are still in a holding pattern, hoping for further declines in mortgage rates before making their move (Fannie Mae).
Key takeaway for appraisers: With new construction ramping up, you may see more appraisals for newly built homes. Pay close attention to local building trends and how they might impact property values, particularly as builders focus on more affordable housing options to attract first-time buyers.
3. Existing home sales hit a new low
Existing home sales continued to slide in August, reaching their lowest level in almost a decade (Fannie Mae). High home prices, coupled with the “rate lock” effect—where homeowners with low-rate mortgages are reluctant to sell and trade up for higher-rate loans—are keeping the market tight. Even as inventory slightly improves, the pace of home sales remains slow, especially for existing homes.
This scarcity of listings is helping to keep home prices elevated. In August, the median existing-home sales price was $416,700, up 3.1% from a year ago (Fannie Mae). While rising prices are good news for homeowners, they present ongoing affordability challenges for buyers, especially first-timers.
Key takeaway for appraisers: With fewer existing home transactions, expect demand for appraisals focused on refinancing and new construction. Don’t forget to account for the upward pressure on prices due to limited supply and strong demand.
4. Builder confidence is on the rise
Despite rising costs and challenges, builder sentiment is on the upswing. The NAHB/Wells Fargo Housing Market Index showed a modest increase in builder confidence for September. Builders are more optimistic about future sales as interest rates ease, and the expectation is that a loosening in monetary policy will lower the cost of construction loans and boost housing affordability (NAHB).
That said, builders are still cautious, particularly when it comes to pricing. Incentives and price reductions are becoming more common as builders try to attract buyers who are cautious in the face of higher mortgage rates.
Key takeaway for appraisers: As builder confidence rises and more homes come onto the market, be prepared to adjust your valuation approach. New construction can influence the pricing dynamics in your market, especially as builders use incentives to entice buyers.
5. Affordability remains the elephant in the room
Despite easing mortgage rates, affordability remains the biggest challenge for the housing market. Home prices, though slowing in their rate of increase, are still high, and incomes haven’t caught up. According to Fannie Mae, existing home sales in 2024 are expected to be the lowest since 1995. This ongoing affordability crisis is particularly challenging for first-time buyers, who continue to struggle with rising home prices and elevated borrowing costs.
Key takeaway for appraisers: Expect to continue dealing with affordability constraints in your valuations. As rates decrease and more buyers re-enter the market, you may see shifts in demand, but affordability will likely remain a key factor influencing property values, especially in areas with high demand and limited inventory.
Conclusion: Navigating the shifting Market
As we move into the final months of 2024, the housing market is clearly in transition. For real estate appraisers, these changes mean staying agile and adjusting to new economic realities. Whether it’s understanding the impact of falling mortgage rates, tracking new housing starts, or accounting for affordability issues, your role as an appraiser is crucial in navigating these shifts. Keep your eyes on the data, and don’t be afraid to adjust your approach as the market evolves.
And remember, in this market, the only thing more unpredictable than interest rates is the weather—so don’t leave home without your umbrella and your appraisal toolkit!
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