Posts About Appraisal and Appraisers written by the staff of The Robinson Real Estate Appraiser Group, Maryland.

The Rise of Multigenerational Living

A Response to Housing Affordability Challenges

The Baltimore metropolitan area, encompassing Baltimore City and surrounding areas to include Baltimore County, Howard County, Anne Arundel, Carroll County and others have witnessed a notable trend: an increasing number of families choosing multigenerational living arrangements as a practical response to the current housing challenges. Rising costs, lack of home inventory and the economic challenges of today’s market have buyers broadening their thought process on solutions.

The cost of housing in Baltimore and its surrounding counties has been rising steadily, outpacing wage growth and making it increasingly difficult for many buyers to afford housing. This coupled with the rise of healthcare, assisted living facilities, nursing homes and other elder care services have made multigenerational living (where multiple generations of a family choose to live together under one roof) become a viable option for many.  This arrangement also helps provide in-home housing for elderly relatives, adult children, young adults facing student loan debt or caregivers while maintaining some level of independence and privacy. 

In many cultures, multigenerational living has long been a traditional practice. The respect for elders, strong family ties, and the desire to provide care and support across generations contribute to the attractiveness of this living arrangement. 

When dealing with multigenerational households, there is typically the presence of an accessory dwelling unit (ADU). An Accessory Dwelling Unit, is a secondary housing unit that is located on the same property as a single-family home. Also known as granny flats, in-law units, or backyard cottages, ADUs (according to Fannie Mae) must include space for living, sleeping, cooking and bathrooms independent of the primary residence. They are designed to be smaller in size compared to the primary residence and are intended to provide additional housing options within existing residential neighborhoods. An ADU can be detached from the main dwelling, attached to the dwelling or within the dwelling. 

The regulations and guidelines for ADUs vary widely depending on local zoning laws, building codes, and community preferences. Many jurisdictions have specific requirements regarding the size, design, and occupancy of ADUs to ensure they are compatible with the character of the neighborhood and do not pose undue burden on infrastructure or parking.

Local and state governments may need to reassess zoning regulations and housing policies to accommodate the diverse needs of multigenerational households. This could include incentives for developers or builders to build multifunctional homes in support of accessory dwelling units (ADUs) to create separate living spaces within existing properties.

With the current state of the housing market and the changing needs of buyers, multigenerational living represents a flexible and innovative approach for our current demographic trends as well as addressing current housing inventory needs.  

Housing Shortage in Maryland

Maryland is facing a serious housing shortage that is impacting the entire state, but especially the Baltimore Metropolitan area. The low inventory of available homes combined with high interest rates has made it difficult for potential buyers to find an affordable home in the area. This has caused a decrease in overall real estate sales, and an increase in rental prices. As a result, many people are unable to purchase a home due to financial constraints.


Historical median data for Harford County, Baltimore County, Anne Arundel County and Cecil County all have shown a decrease of approximately 30% in closed home sales for the 1st quarter of 2023 compared to the 1st quarter of 2022. The current homes offered for sale have also decreased compared to last year’s data. Harford County homes for sale are down 19.2%, Baltimore County inventory is down 30.2% and Cecil County homes for sale are down 35.6%. With that being noted the median sale prices for each county have increased marginally.

 
So, why is the inventory amount for houses on the market so low??


One reason inventory is so low nationally is that many homeowners were able to lock in record low interest rates in 2020 and 2021. Mortgage rates have continued to  increase since then—the rate for a 30-year fixed mortgage reached 6.7% on March 9, nearly double that of a year ago, according to Freddie Mac. That means that homeowners who bought or refinanced with low interest rates are reluctant to sell their homes and buy another with a mortgage with a much higher interest rate.


Older Americans have decided to age in place. There is not much of an incentive for Baby Boomers to sell their home because of economic uncertainty. Demographics according to the National Association of Realtors owners used to sell every six or seven years but the typical seller in 2019 owned a home for 10 years. This amount is bound to increase due to the low rates of 2020 and 2021 – no one would willingly give up the low interest rates they locked into during this time.

 
Landlords are also not willing to sell. With rental rates rising and the high rates of return on investment, less and less investors are willing to sell and eliminate their lucrative cash flow. Approximately 33% of households rent their homes in Maryland: this is a large amount of inventory that will see no movement in the near future further adding to the bleak future of influx within the housing market.

 
The housing shortage in Maryland has been a long-standing issue, and it has only been exacerbated by the recent inflationary pressures. With the cost of living on the rise, the increase in interest rates for mortgages,  many households are struggling to find affordable housing and are unable to keep up with rising rents. Unfortunately, this issue doesn’t seem like it is going anywhere anytime soon. A big reason higher home prices have been sustainable is that housing inventory is markedly low. And until that changes, home prices are unlikely to drop in the near future.


*Historical data for the Baltimore Metropolitan Area was noted from quarterly reports provided by Bright MLS, Inc.

Do Rising Interest Rates Affect Real Estate?

Interest rates play a crucial role in the housing market. Lower rates typically promote an increase in demand for properties, this in turn drives up pricing, while on the flip side of that, higher interest rates reduce the demand since the costs of a mortgage increase deterring prospective home buyers. We have been in a special situation in the past few years with respect to the pandemic.  The Covid-19 pandemic caused so much chaos and instability regarding jobs, economic growth, recession and so many unknowns it left  Americans and the world with our heads spinning.   In an effort to stimulate and grow the economy the rates were lowered to record lows in past years in hopes to aid economic growth and stability in a very unstable time.The Federal Reserve pumped money into the economy, spending trillions of dollars on mortgage-backed securities to hinder another financial crisis. This move allowed lenders to offer rock-bottom interest rates, tumbling to the mid-2% range by the summer of 2021. With the low mortgage rates prices continued to increase since buyers could borrow more money for less than ever before. The low rates coupled with the available housing supply being low caused even further price increases in home values. With buyers fighting over the homes that were on the market, bidding wars were not that uncommon in portions of 2021 and 2022. 

In March of this year the interest rates began to rise in an effort to combat inflation and curb the continual rise of home prices across the country. So far, the Fed’s six hikes in 2022 have increased rates by a combined 3 percentage points . Generally, interest rate hikes will raise costs for homeowners and reduce buying power. As mortgage rates increase, houses become less affordable. An increase of 1% interest rate can have a significant impact on mortgage costs. You can expect monthly payments to increase by an average of 10-15% . Buying power decreases and homes become less attractive for purchase thereby reducing the demand for homes. Sellers are then forced with the question of whether to reduce their price to have their home be more attractive and affordable for purchase.  The area, supply, demand, location, home type, condition and income are a few things that need to be considered before putting your house on the market and/or lowering your current price. Interest rates have continued to have a major influence in the overall market.

Investors do not necessarily share in the despair of rising interest rates compared to the typical buyer. Rising rates means fewer people can qualify for loans and will choose to rent rather than buy. Rents are at an all time high due to the demand for housing. There is more possibility for higher rates of return on investments during times of high interest rates and overall demand for rentals.  The investors that pay cash for bartering reasons or the ability not to use a bank for the purchase of a home can receive a hefty stream of cash flow without the imposed rate variation from a conventional bank.  But as we all know…it is easier to make money when you have money!

In conclusion, real estate pricing and interest rates are in a relationship with one another that can not be broken, they are like a married couple, always trying to find the best balance for both parts to work smoothly for a greater benefit. 

Appraising Real Estate During a Pandemic

Along with the rest of the world appraisers have had to adapt to all things Covid. Being in an industry where you are entering into homes, being in one another’s personal space and typical interaction has become alarmingly apparent of risks and uncertainty.

Appraisers from the beginning of our national lock down were considered essential to continue the momentum of an economy that looked to be headed toward very unstable ground with the shock of the unprecedented closings and shut downs.

The banking industry was quick to adapt and move forward with business as “usual”. Masks and gloves were required upon entry, social distancing applied to all inhabitants within the home and due diligence for keeping everyone healthy and safe.  There were often people apprehensive and/or had compromised health issues that would not allow entry into the home, the lending institutions, in some cases, allowed an exterior only inspection with the aid of the real estate agent or borrower’s input/information coupled with interior photos of each room in order to ascertain an appraisal of the property. While there is nothing else better than an interior inspection to help determine the value, this was the best alternative considering the circumstances.

In order to ensure the economy would  stay on track the Federal Reserve lowered the rates to record breaking lows and generated quite the frenzy! The areas that we cover in Harford County, Baltimore County, Baltimore City, Howard County, Anne Arundel County, Carroll County and Cecil County have all seen values rise since the onset of the pandemic because of the lower rates and/or low inventory which also plays a part in this uptick in prices.

There is never a dull moment being an appraiser! There is a continual effort to balance and adapt to new hurdles, market  changes, lender requirements, methodology, report types, software changes and maintaining your sanity through a global pandemic. This virus has affected every person in every industry globally in some way or another, until this crazy ride is over Robinson Appraisal Group hopes you remain healthy and that 2021 can bring us back some joy and normalcy.

Is Fannie Mae Recruiting New Appraisers??

Could this be true? Is Fannie Mae trying to recruit new appraisers to enter the field? It seems as though over the past decade Fannie Mae has been trying to minimize and reduce the role of the appraiser with proposed changes by moving toward appraisal waivers, hybrid appraisals (also known as bifurcated appraisals) and automated valuation models. Well, it now seems that Fannie Mae has launched a new initiative to help recruit professionals into the real estate appraisal industry. In late 2018, Fannie Mae and Altisource combined forces to establish the Appraiser Diversity Pipeline Initiative (ADPI). The reason for this was to encourage career opportunities for new professionals interested in the real estate appraisal field.

One way of raising awareness is the providing of information through community events about how to become an appraiser, different career paths, what appraisers do in the field and real life experiences of an appraiser. These hosted events started in Baltimore and Philadelphia by the local Urban League Entrepreneurship Centers. In August of 2019 the Appraisal Institute (AI) became a part of this movement and will aid in expanding appraisal career workshops and facilitating incentives for new recruits that would include: appraisal software, scholarships for their appraisal education and other resources during the training process. 

So, what happened? Why does it seem now as if Fannie Mae wants more appraisers, instead of limiting us? In recent years appraisers have been concerned about our elimination by the hands of an Automated Valuation Model (AVMs), hybrid model appraisals and by increasing the amounts of education and field work needed to become a licensed or certified appraiser? 

Well…a few things are happening. The majority of appraisers are over 55 years old and will be retiring in a few years. This will cause a shortage of professionals in the field and the increased work load on the remaining appraisers will cause appraisal turn around times to lengthen: this is an ever growing problem with the current demands for quick turnovers from the lenders and management companies. The other possible explanation for the recent need for more appraisal is that FHFA (Federal Housing Finance Agency) confirmed that it asked Fannie Mae to pause any bifurcated valuation process that doesn’t result in an appraisal. This bifurcated valuation or hybrid appraisal includes an exterior observation of the property, sometimes including an interior inspection by a third-party: this third party inspection could be done by a real estate agent, a property inspector or even another real estate appraiser. The use of this type of bifurcated valuation process for lenders boils down to reducing turn-times for appraisals and lowering fees. Fortunately, the  pitfalls of this valuation were recognized and are being reconsidered. 

The only practical solution to the lessening amount of appraisers without compromising the relevancy or quality of appraisal reports are to encourage new entrants into the profession to replace the wavering supply of real estate appraisers. 

Through the ups and downs and all the talk of our profession being replaced by computer data, technology and automated options the news that the traditional role of an appraiser can not be expendable is a wonderful way to bring in the new year. May we all have a bright and prosperous 2020!

Interest rates are the highest in the past 7 years!!!

Interest rates for buyers with good credit or credit worthiness for a 30 year loan is approximately 4.875% while average buyers fall around 5%. A hike in rates have been talked about since last year with minimal increases until recently. Mortgage rates started around 4% at the beginning of 2018 and have seen a steady increase. With the positive retail sales data and the rising home costs due to low inventory in some of the major markets the interest rate hike is not a complete surprise.
Typically a rise in rates will slow down the rise of prices in this high demand/low inventory market but the demand of today’s buyer has not been derailed by the spike in interest rates thus far. We have had years of low interest rates, now with mortgage rates creeping up to 5% and gas prices rising a correction is looming for the typical buyer.
Borrowers that refinance their current loans make up a smaller portion of the mortgage business than at any time in the past two decades, which poses a challenge for lenders who already fear higher interest rates and climbing home prices could potentially stunt purchase activity.
In a January statement, Fed officials said they expected annual inflation to “move up this year and to stabilize” around the US central bank’s target inflation rate of 2%. The Fed has forecast three rate increases in 2018.
According to local real estate agents the Harford County real estate market is a bit more competitive than Baltimore and Cecil County markets. Properly priced properties typically sell within days of being listed many with multiple offers. This seller’s market may come to a screeching halt with interest rates beyond 5%, so if you are looking to buy or sell, keep an eye on trends and rates. An appraisal can help you make a decision to buy or sell in this ever changing market. Please contact Robinson Appraisal Group for any help you may need in your valuation process.

Enhanced Property Inspection Waiver

Fannie Mae has a new automated underwriting system called the “enhanced property inspection waiver” program. Fannie Mae’s no appraisal offer applies to refinance loans on single family homes or condos up to $1 million and Fannie Mae must have a physical appraisal for the same property with the same borrower in its database.

So where is the data or valuation coming from? Oddly enough it is our own reports that we send in through the Uniform Collateral Data Portal. This is a database where lenders enter appraisals for mortgages submitted to Fannie Mae or Freddie Mac; this was implemented just over 4 years ago. Imagine the large pool of data gathered by appraisers fed into this database that can now be used for developing automated appraisals. It is unnerving to think our industry has required us to give information to aid in our own possible extinction.

An argument is made to the effect that an additional program was needed to expedite the appraisal process due to the lack of appraisers in the industry and turn around time on reports are longer than expected. There are less appraisers in the workplace due to a large amount of appraisers hitting the retirement age and the minimal influx of new appraisers coming into the industry. This minimal influx is mainly due to current license and/or certification requirements. The Appraisal
Institute noted that the number of active appraisers has fallen approximately 9% since 2012 and expected a continuation in decline in the future. There has been lobbying toward the Appraiser Qualifications Board for a reduction on some of its college level education requirements in an effort to attract more people to the field.

Under the “enhanced property inspection waiver” program the loan applications that come through its automated underwriting system could increase to 10% for qualifying loans: formerly this was 3%.

This new program would be for “limited cash-out refis”. Fannie Mae’s director of credit risk, Zach Dawson, estimates that 25% of limited-cash-out refis could qualify for the new program. Loan amounts vary by region and the loan- to- value ratio cannot exceed certain limits.

As an appraiser in the field everyday I realize the importance of entering into a home and seeing with my own eyes the condition, the improvements, the deferred maintenance, working systems, presence of mold and/or recent dampness within a property. These are just a few items that could never be seen by dated data that was entered through an electronic portal years ago.

Everything is not always black and white or cookie cutter. Homes are like people, no two homes could ever be the exact same. Our current world is driven by technology without the need for interpersonal skills being admired or even needed due to programs assembling the most advantageous bottom dollar for big business. As appraisers we collectively enter and report on billions of dollars worth of of “big business” property, we state our findings, give valuations and provide support for the structure and integrity of this industry. Replacing our inspections/appraisals with a streamline program in an effort to save a few hundred dollars in a multi-billion industry in my opinion is like shooting yourself in the foot….you may inadvertently undermine your own interests.

Appraised Value, Market Value and Assessed Value…what’s the difference??

When people talk about the value of their homes there is  a wide variety of terminology…one home could have many different values. Between, the appraised value, listing price, market value and assessed value, who can keep it straight? But like … Read More..

Fannie Mae Easing their Standards

LOAN NOT APPROVED! This is the last thing a potential buyer wants to hear from a bank when trying to purchase a home, but now with Fannie Mae easing the financial standards of the debt to income (DTI) ratio. The DTI will be raised from 45% to 50% on July 29. What determines your DTI ratio? DTI is a ratio that compares your gross monthly income to your monthly payment on all of debt accounts. Included in this is your monthly credit card bills, auto loan payment, student loan payments, etc., and the monthly projected payments on the new mortgage. A $6,000 household monthly income and $2,500 in monthly debt payments, your DTI is 42 percent. Lenders use this ratio to evaluate your current debt load and to see how much you can responsibly afford to borrow. Less debt equals more borrowing power.  If you are loaded down with monthly debts, you’re at a higher risk of falling behind on your mortgage payments…this is not rocket science.

Researching data that spanned nearly 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have decent credit and are unlikely to default on their home loans. Significant enough to raise the ceiling and stick their neck out just a little bit more for buyers. Lenders are excited about the policy change giving those buyers just over the 45% threshold a chance in the marketplace. All applicants still need to jump through the multitude of hurdles when it comes to Fannie Mae’s underwriting criteria. The criteria entails down payment, credit history, income, loan-to-value ratio and a mountain of other financial criteria.

The largest population rejected because of high DTI ratios are the Millennials, who often stretch to pay their rent early in their careers. Millennials are the generation born between 1980-2000, which means that the bulk of Millennials are entering the prime home-buying age. They are a new targeted demographic with a lot of marketing being angled toward them in an attempt to attain their buying power: could this expanded ratio correlate with the Millennial?

Millennials are the demographic group helping Baltimore City gain population for the first time in a half century. Harford County is having a more difficult time attracting this market sector: Millennials are looking for mixed use communities, transportation, dining and shopping opportunities. Baltimore County also has tried to cater their communities around this sector of the population.

Regardless of what age or demographic you may lie in, Fannie Mae may not be your only option if your DTI is above 45% or even 50%. As of 2016 FHA (Federal Housing Administration) guidelines maximum debt to income ratio of approximately 55% with compensating factors. FHA does have a major drawback, it requires the borrower to keep paying mortgage insurance premiums for the life of the loan, well after the risk of financial loss to FHA has disappeared.

Having a hefty amount of debt, whether it be from student loans or shopping sprees, may not deter you from being a homeowner with the added help of Fannie Mae increasing the DTI ratio. With the decision of easing the financial standards of the DTI ratio to increase a broader base of buyers I hope it comes with an increased amount of caution for the future of the housing market. As an appraiser for properties in Baltimore County, Baltimore City, Harford County, Howard County, Cecil County, Carroll County and Howard County during the housing crash when the easing of requirements regarding lending money did not bode well I remain watchful on the recent decision for the broadening DTI. The housing market crash, which started in 2007 should be a constant reminder and lesson for the easing of standards and what sort of repercussions it could bring.

Listing Shortage!!!

Already this year we have seen a shortage in the supply of homes on the market. With the beginning of the spring season upon us buyers are waiting with bated breath ready to pounce on the purchase of their new home. Comparing active listings from last March (2016) to this March (2017) in the Baltimore Metro Area housing market (which includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County) the results are undeniable. The number of active listings declined by 15.8% to 9,453, the 19th consecutive month of declining year-over-year inventory levels and the lowest March levels in a decade.

Although this listing shortage seems to be problematic for buyers, there is an upside for the sellers. The basics of supply and demand states that when the demand for real estate is high, prices rise. When the number of available properties increases, prices usually drop. With anxious buyers waiting in the winds, a beneficial opportunity presents itself for the sellers.

With a shortage of homes in the market the homes typically spend less time on the open market with sellers receiving quick  offers close to the list price and some even higher to ensure the offer is accepted. The average percentage of original list price received at sale in March was 95.1%, the highest March level in a decade, exceeding the previous high set in March 2014 and 2013 of 93.2%. The median days-on-market was 42 days, down from 63 days last year, and at the lowest level in a decade.

Due to listing shortage, the homes that are available on the market are getting scooped up. Sales across the Baltimore Metro area was up 21.7% from last year to $923.8 million. March closed sales of 3,288 were up 16.8% compared to last year and set a record high for the decade.

This data was compiled by the Multiple Listing Service (MLS) data in MarketStats by ShowingTime’s database based on listing activity from MRIS (Metropolitan Regional Information Systems, Inc.).The Baltimore Metro Area housing market includes the City of Baltimore, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County in Maryland.

Low inventory, a strong demand for homes and springtime are a wonderful combination for a seller’s market. This is coupled with the fact the homes are typically on the market for less time than past years and the increase in sales makes this one of the best times to sell…in almost a decade! Listing inventory has not been this low in the peak spring season in quite a long time, if you are a seller or thinking about selling, this may be the best time to put your home on the market.

Interest rates, global events, inflation and tax reform are just a few economic variables that could help or hinder the future of the real estate market. The real estate market is constantly changing but the current storm of circumstances puts the seller in an advantageous position, one that may not last very long.