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2018 Market is Improving, But Challenges Remain

Valuation Views

When we look at how the housing market is shaping up this spring, we see plenty of reasons to be excited—but even more reasons to keep our enthusiasm in check.

First, the good news: Through the first quarter of 2018, the U.S. housing market has strengthened considerably compared to the second half of 2017. Interest rates have risen, though not as quickly as expected. Commercial banks are leaving the mortgage business, but the growth of community banks and regional banks is more than picking up the slack. Non-QM loan volume is growing, the capital markets securitization arena is picking up steam and the GSEs are issuing more trades. 

The not-so-good news? Housing is in very short supply. In fact, the total inventory of homes reached its lowest point—1.48 million during the fourth quarter of 2017—in 30 years, according to the National Association of Realtors (NAR). There is also only a 3.4-month supply of existing homes on the market, far below the average six-month inventory. Meanwhile, the National Association of Home Builders estimated that only 900,000 homes will be built this year, well below the roughly1.3 million homes needed to keep up with demand.

The shortage in housing supply is driving up home prices in many markets and creating multiple bid scenarios, which is keeping Millennials –often seen as the saviors of the housing market –from taking the home buying plunge. While it’s true Millennials are buying homes in increasing numbers, many are dealing with student loan debt and simply aren’t ready to settle down.

Another factor keeping the housing market in check is wages. While unemployment is now at 40-year lows, wages have not kept up with rising home prices, making affordability a challenge in a growing number of markets.

These trends are placing incredible pressure on both appraisers and the appraisal process. Appraiser shortages have become a reality in a growing number of markets, leading to longer turn times and trouble getting local market expertise. Rapidly appreciating values and overall market volatility are also making it difficult for appraisers to choose the right comps.

In a dynamic, fast-moving market such as the one we’re in, your choice of a valuation partner has a real, traceable impact on your success. The current real estate market underscores the importance of a trustworthy valuation partner that has a proven appraisal ordering process in place which ensures speed, quality and responsive service.

If you are looking for such a partner--or would like to share your thoughts on the outlook for housing, drop us a note at info@valuationpartners.com. We’d love to hear from you.