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Fannie Mae

Spiking housing supply & fewer buyers

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Finally. We’ve seen a massive change with housing inventory. But is it because sellers are rushing to list their homes? Nope. That’s not the culprit. Let’s talk about supply and some things on my mind about today’s market.

A wood rustric table with a gray background. The caption reads "housing supply is spiking."

UPCOMING (PUBLIC) SPEAKING GIGS:
7/26/22 Navigating the Shift (sign up here (for real estate community))
8/11/22 Realtist meeting (sign up here starting 7/27/22)
8/15/22 YouTube Live with Matt Gouge (details TBD)
8/25/22 State of Housing Brunch & Learn (sign up (for real estate community))

FIVE THINGS ABOUT TODAY’S HOUSING MARKET

1) The spike in housing supply is NOT due to sellers: 

In a short period of time, we went from having three weeks of supply in the Sacramento region to ten weeks. What is causing this change? It’s easy to pin this on sellers rushing to list, but that’s NOT the case. This is actually about fewer buyers getting into contract. We’ve seen close to two thousand fewer sales since May, which means listings that normally would’ve sold are still on the market. In other words, the spike in supply came from weakening demand rather than more listings hitting the market.

SUPPLY PROJECTION: 2.5 months of supply is a projection based on what volume looks like it will be by the end of July. This means the number will be more solid in two weeks once most sales for the month have closed in MLS. A range would be 2.2 months to 2.5 months if we wanted to go wider. I pulled these stats yesterday, and today my projection is 2.38 months for the region. Just a heads-up.

A line graph to show monthly housing supply since 2014 (and a quick spike lately).

Not kidding about fewer listings: Since the pandemic we’ve been seeing a subdued number of new listings, and there has NOT been a spike lately either (see blue line).

A line graph to show new listings since 2017 in the Sacramento region

Seriously, this is about buyers: If you don’t believe me about fewer sales, take a look at the black line (2022). Sales volume has taken a nosedive over the past few months, which has been the x-factor in adding to the pile of available listings. Remember, housing supply can grow from sellers listing more often or even buyers purchasing fewer homes.

A line graph to show 2022 volume through July (it's really down compared to other years).

2) Dating advice or real estate advice?

It seems like lots of housing advice sounds like dating advice lately.

– Be patient.
– Be realistic.
– You have one shot to make a first impression.
– Go all out with your best foot forward.
– It’s tough out there right now.
– It’s different today. Not like what it used to be. 
– It can take time to find the right person.

Sorry if that was cringe. Here are price drops to make up for it.

Price drops in the Sacramento region. This table shows the percentage of listings with a price drop (47.22% in the entire region)

3) Buyers aren’t getting appraisal waivers very often:

Getting an appraisal waiver from the lender during a purchase probably isn’t going to happen. It’s just not that common for lenders to let the purchase go through without an appraisal. It looks like fewer than ten percent of purchase loans are getting an appraisal waiver. Please note a lender’s appraisal waiver is not the same thing as a buyer removing the appraisal contingency. 

Data to show how often appraisal waivers are happening for Freddie Mac and Fannie Mae.

4) New construction volume is doing the limbo:

June was a brutal month for new construction sales in the Sacramento region. Per North State BIA data, volume was down 58% from last June and more akin to 2014 levels. This is a bigger hit than the resale market, which was down closer to 25% in volume last month.

a bar graph to show sales in the sacramento region of newly constructed homes in the month of june

5) No price range is immune from the trend:

No price point is immune from the sting of higher mortgage rates. Stats from the California Association of Realtors show all price ranges in June in the state saw fewer pending contracts. Of course, not all neighborhoods and property types are going to have the exact same temperature, but there is no mistaking an impact throughout the entire market. Or like the saying goes, all ships rise and fall with the tide.

A line graph to show pending volume has shrunk in every single price range in California

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here. I truly appreciate it.

Questions: What stood out most to you? Any advice you would add to the list? I’d love to hear your take.

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Just say NO to subjective language in real estate

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Is it a poor neighborhood? Is it rich? Is the neighborhood desirable or undesirable? Is it family-friendly? Is it crime-ridden? These are words some might use to describe certain neighborhoods, but they’re 100% off limits for appraisers (and probably other real estate professionals). Let’s talk about this.
 

A refresher & false narratives: I hope this will be a good refresher and encouragement to consider the power of language. But I also wanted to bring this up since media sources are starting to talk about Fannie Mae clamping down on appraisers by issuing a list of words not to use. Look, this list from Fannie Mae has been around for as long as I can remember. I even have a blog post from 2011 about these words. In short, this isn’t something new to bust appraisers. Yet there is no mistaking this list is timely for the real estate community today.
 
Fannie Mae says appraisers cannot use these phrases:
 
– “pride of ownership”
– “no pride of ownership”
– “lack of pride of ownership”
– “poor neighborhood”
– “good neighborhood”
– “crime-ridden area”
– “desirable neighborhood or location”
– “undesirable neighborhood or location”
    (B4-1, Page 536-537 in Seller’s Guide):

Why is this list important? Fannie Mae wants appraisers to stay objective about the criteria they use to describe and value properties. Appraisers need to not let their personal opinions, beliefs or subjective judgements about certain neighborhoods influence the content or outcome of an appraisal. Fannie Mae basically reiterates the Fair Housing Act in saying it is a prohibited practice to base the “opinion of market value (either partially or completely) on the race, color, religion, sex, handicap, familial status, or national origin, of either the prospective owners or occupants of the property being appraised or the present owners or occupants of the properties in the vicinity of that property” (B4-1 Pg 536 in Seller’s Guide).

Not about being politically correct: Sometimes when this conversation comes we might hear, “Dude, stop being politically correct,” or “Don’t get all woke on me,” or “It’s not your place to tell me what to say.” But this has nothing to do with being PC and everything to do with being professional, showing respect, and recognizing that words have meaning. The truth is there are always new things to learn and sometimes old dogs need to learn new tricks (myself included).

SUBJECTIVE LANGUAGE ISN’T USEFUL:

Pride of ownership: What does “pride of ownership” mean? Couldn’t pride mean something different depending on who you are talking to? Saying a neighborhood has pride or not doesn’t help anyone understand an area. So if someone says, “The neighborhood lacks pride and it’s a bad area,” that’s probably more of a declaration of personal bias rather than useful language to objectively describe an area.

Luxurious community: On the other hand when we say a location is luxurious, what does that mean? The word is so subjective because one person’s luxury is another person’s dump. That’s why I might suggest saying something like, “The neighborhood fetches some of the highest-prices in the zip code with homes typically above 5,000 sq ft., etc…” A focus on the facts is much more useful than a subjective word, right?

Family-friendly: It almost sounds okay to say, “This is a family-friendly neighborhood” because our society is so used to language like that. But what about saying, “This is NOT a family-friendly neighborhood”? I think sometimes when we insert a negative it’s a clue there is room for better language that doesn’t leave certain groups out. Let’s be real. Families live in all sorts of neighborhoods, so being a so-called good or bad area for families is highly subjective. Ultimately if you say an area isn’t fit for families, you’re probably talking about your own family or belief system more than anything.

What to do instead: It’s important to take inventory of the words we use and how our lingo might be perceived. I suggest weeding out subjective language that might in any way show bias or discriminate. So take a list like the one above and monitor your language. Being familiar with the Fair Housing Act and figuring out fact-based ways to talk about value and neighborhoods is the goal as it focuses on respect and not being swayed by personal opinions or beliefs. When describing neighborhoods I would suggest sticking to facts such as architectural styles, types of units, proximity to conveniences, school ratings, economic factors, condition of homes, and anything that would help sum up an area without imposing subjective words that show personal bias. Keep in mind I’m saying this as a non-lawyer, so this isn’t legal advice. Also, I’m not saying solely using the right words is the end-all solution for eliminating bias either.

I talked with a reporter last week about these words and he asked if I use these off-limits words in my appraisal reports. Heck no. I don’t know if he believed me or not, but words matter and I take that very seriously as an appraiser.

Anyway, that’s what’s on my mind. I hope it was helpful.

Questions: What do you think of the list above? Anything to add? Are there other phrases you’ve heard by the real estate community that you’d recommend weeding out? I’d love to hear your take.

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An explosion of appraisal waivers. Is that good or bad?

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Appraisal waivers have really exploded in recent years – especially during the pandemic. But how many are there exactly? Let’s look at actual numbers to walk away with some perspective. These stats are from January 2021 from AEI.

QUICK SUMMARY:

  • 47.4% of all Freddie Mac loans had a waiver
  • 44.5% of all Fannie Mae loans had a waiver
  • Waivers are far more common during refinances
  • Only 10-12% of purchases had an appraisal waiver in January
  • Non cash-out refinances have the most waivers (67-69%)
  • The higher your loan-to-value, the lower your chance of a waiver
  • Waivers have seen a dramatic increase during the pandemic

NOTE: This post is not about buyers removing the appraisal contingency. That is in a sense a “waiver”, but the topic here is Fannie Mae and Freddie Mac not requiring an appraisal.

What else do you see?

CLOSING THOUGHTS:

1) Crazy growth: It’s astounding to see nearly half of all loans getting an appraisal waiver, though for now most of these are refinances instead of purchases. Honestly, I would have guessed the purchase numbers were a little higher than reported.

2) Seeing numbers: What real estate professionals experience with appraisal waivers with their clients can really vary. For instance, if you work with FHA borrowers putting very little down, you probably don’t see many waivers, but if you work with conventional buyers putting 30-40% down, you’re going to see more. This is why seeing actual stats is so important.

3) There is place & danger: I’ll be the first to admit there is a place for appraisal waivers in today’s market. That may not sit well with some colleagues, but I don’t have a problem seeing them occur with no cash-out refinances where owners have massive equity. That’s a no-brainer. The danger comes when we start seeing too many appraisal waivers happen in the purchase market especially. The concern is waivers can essentially artificially inflate prices by helping some properties close higher than they should.

4) Big data favoring people with more money: Appraisal waivers are being given to people bringing more money to the table. That’s what the stats show and I get it from a risk standpoint. But with so much conversation about equality in real estate, I guess I find it ironic to see a waiver system implemented that is clearly giving more advantage to people who already have more wealth.

Thanks for being here.

SPEAKING GIGS CLARITY: Lately I’ve been getting asked to give in-person presentations, but I’m not there yet. I’m not vaccinated, so my answer will be NO until that happens. But then I’ll have to see how comfortable I feel too. For now I’m glad to speak by Zoom. Just a heads-up.

Questions: What stands out to you above? What are the positives and negatives of appraisal waivers? I’d love to hear your take.

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Working with appraisers during a pandemic

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Are appraisers still working? This is probably the question I’ve had most over the past week, so I wanted to unpack some thoughts.

1) Yes & No: Most appraisers are working and it seems like the bulk of appraisers working for lenders are still walking through the interior. There are definitely some appraisers who are not inspecting the interior though (myself included). Some sources say appraisers are deemed an “essential” service during the pandemic, though not everyone agrees. 

2) Exterior focus announced: Fannie Mae and various banks have announced a temporary emphasis on exterior-only and desktop appraisals. When hearing this it’s easy to think every future appraisal is going to be a “drive-by”, but that’s not the case. In fact, traditional appraisals are still going to be in play for various types of loans and my guess is they’ll be the product of choice as long as they’re available. There is lots of conversation too about appraisers technically focusing on the outside but also getting information about the inside of the home through photos and video. Here is a table Fannie Mae published on Monday show what is possible, but we’ll have to wait and see how it all unfolds in the local market. 

Keep in mind the lender sets the tone here and it’s not up to the appraiser to decide whether to do an exterior-only appraisal or not. However, an appraiser needs to believe a credible value can happen with a more limited scope of work, so appraisers won’t blindly say YES to an exterior-only appraisal if there’s not enough information. Lastly, just because a lender or AMC asks an appraiser to do something doesn’t mean the appraiser has to say yes.

3) Time: It’s going to take some time to see how this all shakes out. We’ll know much more in coming weeks. For instance, we haven’t heard from FHA yet.

4) Practical tips for real estate agents: It might help to take extra photos or video of a home before you list just in case it comes in handy for the appraiser. You might also consider being ready to talk with the appraiser about things such as layout, interior charm, age of improvements, quality of finish work, or anything you might understand more fully by actually walking through a home. If an appraiser is doing a desktop appraisal, I’m not certain the appraiser will call you or not, so you may want to include extra details in your MLS descriptions. This of course isn’t anything new because sharing property details is useful in any market. Please consider using my Appraiser Info Sheet to help tell the story of the property.

5) Private appraisals: If you are looking for a private appraisal, I can’t recommend enough being willing to color outside the lines. Would it be ideal to have the appraiser observe the interior in person? Yes. But during this pandemic it’s important to work with what we have and keep everyone safe. I have private clients who are working with me to use FaceTime to walk through a property (or the Google Duo app for an Android). I also have clients who have sent me 50+ photos of the interior and a very detailed written or verbal description of the property. Of course some appraisals for complex properties or geared toward court might need to wait.

6) Questions for appraisers: I’m not trying to ruffle feathers, but I think we’re at a place where it’s critical for appraisers to strongly consider whether they should be going into occupied homes. I have the utmost respect for peers, and that’s why I want to bring this up. So I ask, where is the line for us? At what point would you personally begin to pull back? How bad would it have to get? When is it deemed too risky for you and others? If you aren’t visiting your friends and family right now out of precaution, is it okay to go into homes of other people’s friends and family? I realize these questions are direct and there is also a cost to saying NO, but we have a serious situation going on right now. I have definitely lost business lately in light of saying NO to private clients, but that’s okay for this season. I don’t mention this to be combative and I hope to not be fielding angry emails all day. I love my peers and I’m concerned that we’re being asked to go inside homes right now. My strong opinion is we need to stop inspecting the interior of occupied homes. But put more lightly I’d say I think we’re at a place where appraisers need to show resistance to lenders for the sake of public health. Lastly, I realize not all areas of the country are the same in terms of COVID-19 cases (just in case you were ready to destroy me).

A few closing things.

Zoom session: If you want some background noise while quarantining, here’s a Zoom session I did yesterday hosted by KW Elk Grove. We talked about market stats, trends, and then fielded questions. It seemed like most questions were about how to see the current market and choosing comps. This is 100% off the cuff. Enjoy if you wish. Watch below or here.

New market update video: Here is a new market update video from two days ago. This is 20 minutes. Watch below or here.

Fresh daily visuals: During this pandemic I’ve upped my stats game and I’m finding new ways to visualize how the market is moving. Here are four images I’m updating every single day. If you have ideas for images too, I’m open ears. Remember, it’s tempting to focus on prices, but we see change happen first in the listings and pendings.

I hope this was interesting or helpful. Thanks for being here.

Questions: If you work in real estate, what types of appraisals are you seeing happen? If you are an appraiser, what’s your take on interior inspections?

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