The great Atlanta real estate market adjustment of 2022 is upon us. As everything shifts, the main players are whispering around the water cooler...will low appraisals be a problem now? Probably not a bad question as the changes in quarter 2 of 2022 were dramatic. As the Fed fights rampant inflation, buyers are faced with dramatic rate increases and sellers with a comparative lack of activity. Lenders and appraisers are also impacted; both industries are circling the wagons just a bit tighter as everyone waits for this market to settle.
No More Appraisal Gimmies
The real estate market coming out of Covid from about fall of 2020 through spring of 2022 was an anomaly. The Fed held rates artificially low by buying billions of dollars of mortgage backed securities; both administrations printed money and handed out billions like it was nothing. Both the stock market and national housing market went bonkers and home buyers were right in the middle of it all. In this frenzy, many deals were cash, many had very high down payments and others had either lenders waive appraisals or buyers that had cash to cover any appraisal below contract price. FNMA data shows that through the first half of 2022, only 8% of contracts had low appraisals. The screaming from real estate agents about low appraisals was over done drama. Expect that to change, the appraisal industry appears to be getting ready to tighten things up.
Appraisals After the Shift
It'll take a few months but the Fed is bound and determined to get inflation under control. They have one tool and they're using it, expectations are that there will be two to three more rate hikes before the year ends. The lenders and appraisal industry are adjusting as well. As the market balances, expect buyers to be more measured and lenders to be more inquisitive; while underwriting remained solid it's likely to get a bit enhanced. The appraisal industry is already sending notice out; underwriting will be tightened and special attention paid to current and projected market conditions. Closed sales are lagging indicators, no lender wants to be looking back in a slowing market. Appraisers are expected to fully develop the Market Conditions form and provide pending and active comparables in addition to closed sales; underwriters want to understand current conditions.
This adjustment isn't a bad thing, the market isn't likely to crater like last time. The circumstances, particularly the quality of loans, the number of cash deals and the limited inventory are the main differences. At this point, the move is to balance and that is needed, the housing market of the last year and a half was unhealthy and unsustainable.Posted by Hank Miller on