How President-Elect Trump Will Reduce Appraisal Turn Times

In looking ahead at the residential mortgage business, I have some good news and some bad news.  

The good news is that the recent increase in appraisal turn times, which is causing some home sale and refinance transactions to be delayed, is about to ease. The bad news—which is actually driving the good news – is that the recent bull market in home sales is likely to have peaked, at least for the time being, a combination of seasonal factors as well as the recent surge in interest rates. 

For at least the past year, real estate appraisers have struggled to keep up with the volume of work coming their way. As a result, turnaround times for property appraisals and reports have increased.  

The reasons behind longer turn times are well known. 

There’s an acute shortage of qualified property appraisers. According to the Appraisal Institute, the number of appraisers has declined by 20% since 2007.  Nearly two-thirds of appraisers are 51 or older, while just 24% are between 36 and 50 and only 13% are 35 or younger. As more appraisers retire, not enough new and younger ones are coming in to replace them.  

While appraisers have been asked to comply with additional professional requirements and industry regulations since the real estate crisis, their fees have not gone up commensurately. The industry’s apprentice training structure is also fairly lengthy at 24 months.  

At the same time, the number of appraisals assigned to appraisers has grown, thanks to the booming home sale and refinance markets, which have been driven by historically low interest rates. The average rate on a 30-year fixed-rate mortgage has held below 4% for more than two years. So there’s been a big supply-demand imbalance.

Market dynamics are changing

But that looks like it’s about to change. Since Donald Trump was elected president in the early morning hours of November 9, the average 30-year mortgage rate has shot up by 50 basis points, one of the biggest one-month jumps in more than a decade. Actually, interest rates have been rising sharply since July, long before the election. The yield on the U.S. Treasury’s 10-year note, the benchmark against which long-term mortgage rates are set, is up a full percentage point since then.

One of the reasons behind the surge in rates since Trump’s election is the belief that his economic program will boost growth, which will raise inflation and therefore interest rates. At the same time, his plans for tax cuts and huge infrastructure and defense spending, while leaving Social Security and other entitlement benefits alone, will add trillions to the federal debt, which also puts upward pressure on rates.

Looking at the housing market, we just found out that sales of existing homes rose 2% in October from the previous month to an annual rate of 5.6 million, which is the strongest pace since February 2007. That’s up nearly 6% compared to the year earlier period.

However, we believe that may be the market peak for a while, and for a couple of reasons, not least of all is the spike in interest rates.

We are about to head into the natural cycle of a slower real estate market in the winter, with home sales easing in about half of the country. At the same time, home prices have surged, pricing many prospective buyers out of the market. According to the National Association of Realtors, the median price of an existing home sold in October was $232,200, 6% higher than a year earlier. And according to the S&P CoreLogic Case-Shiller indexes, prices are up over 40% since hitting bottom back in early 2012 and are now just 7% below pre-crash prices. It’s reasonable to ask how much longer we can expect the housing boom to continue in a high-rate, high-price environment. 

The Mortgage Bankers Association, in its most recent forecast, is predicting that 1-4 family mortgage originations will rise by 11% next year to $1.1 trillion. At the same time, however, refis are expected to plunge by more than 40% to $529 billion, with total originations falling 14% to $1.6 trillion. That forecast was made shortly before the election, when the MBA was predicting that 30-year mortgage rates would rise only modestly to 4.2%. That was based on the yield on the 10-year Treasury climbing to 2.3%, a level it has since surpassed. Clearly, mortgage rates are headed well north of 4%, which should further diminish both refis and purchase originations. 

While Trump’s victory may have sparked the surge in interest rates, his presidency will likely be otherwise beneficial to the housing and home finance industries, including the appraisal business.  

The president-elect’s transition team has already made clear its intention to dismantle the Dodd-Frank financial reform law, including the Consumer Financial Protection Bureau. While the details of what he might do are still premature, we can probably rest assured that a real estate man like Trump will not do things that make it more difficult for the industry to sell homes and close loans. At the very least, we can expect some rollback or easing of regulations that have added to longer appraisal turn times. 

What’s the solution to the shortage of appraisers? I believe the whole mortgage community will need to come together and work along with the government to find ways to draw more appraisers—including those from the younger generation—into the business.  

The bottom line? In the near term higher rates and the typical slowdown in the winter months will ease appraisers’ workload and turn times will improve. In the long term, higher rates will bring home prices down to more realistic levels. Prices should stabilize and ultimately we will have a healthier real estate market. That’s good news for everyone: real estate agents, mortgage originators and for the people who wish to pursue the American dream of homeownership.

For more information on appraisal turn times, click here.