Business is booming for real estate appraisers right now. But the “shadow inventory” is looming. Do you have a backup plan?
If you’re a real estate appraiser, you’ve probably been busy for awhile now. Real estate agents are crazy busy. We appraisers have been swamped with purchase transactions as well as refinancing. Interest rates are on our side.
Remember the 1980s, when interest rates were sky-high? When 10 percent seemed like a great rate? Six percent for long-term mortgage money is really a great rate, historically speaking. I’m like you: I want 2.5 percent, but four or five, even six percent? We have been in fantasy land. I’m sure consumers are loving it. Appraisers are loving it. Real estate agents are loving it.
In terms of the market, Covid has done the opposite of what we expected. We thought nobody would want to sell their houses. We thought people wouldn’t want agents coming into their houses to show. We thought people would wait until this was all over to put their houses on the market.
To a degree, we thought wrong. Certainly some people probably didn’t want agents and lookie-loos traipsing through their houses during a pandemic. But here’s the thing: Scarcity equals value. And in the wake of Covid, people are changing their ideas about where and how they want to live. So there’s a lot of desire right now, and there’s a limited supply.
But what is lurking in the shadows?
I’m not trying to scare you, but if you haven’t heard of this term, Google it: Shadow Inventory.
What does that mean? In this context, it means delinquent loans. REO properties. Foreclosures on the horizon. Loans that were delinquent but there’s a reasonable expectation that they’ll become delinquent again. All of these make up what is known as “shadow inventory.” And this shadow inventory is on the rise.
It makes perfect sense. With Covid, a lot of folks haven’t been able to work, haven’t been able to make their mortgage payments. Renters are behind, landlords can’t kick them out, and that leaves property owners in a fix. Forbearance programs on government-backed loans have held off a wave of evictions and foreclosures, but when those programs end, an estimated 1.8 million mortgages will be in delinquency. And the delinquency rate for FHA mortgages has soared.
What’s gonna happen when those moratoriums lift?
The Real Deal: New York Real Estate News reports mortgage delinquency rates jumped to the highest in two decades. As we look at some of these numbers, it gets our attention.
I don’t know what will happen. Maybe big government will step in. But what if they don’t? Are we gearing up for a new housing crisis? At least banks aren’t making crazy loans anymore. Stated income. 125 percent loan-to-values. So it’s different now. But is it that much different?
Appraisers, you’re probably gonna be fine. If a lot of these houses go into foreclosure, you’re probably gonna have REO work to do, foreclosure work to do. But the shadow inventory is something to think about, and I encourage you to diversify your practice. If all your eggs are in one valuation basket — if you’re only doing refinances, if you’re only doing purchase transactions — what happens if (when) these rates start to go up?
“If you’re only doing refinancing and purchase transactions, you might want to diversify your practice.”
I hope it won’t be this year or next year. But at some point, these rates are going to go up. And if you’re only doing refinancing and purchase transactions, you might want to diversify your practice.
What skill set do you have that may help you in other areas? Maybe you get your home measurement credential. Take a class, take a second class, contact Hamp Thomas and take a written exam (it’s administered online right now), and you can become a home measurement specialist. There’s a whole book of business right there. Go to the brokerage firms and offer to measure houses. Offer to do a restricted appraisal report.
Look at the opportunities available to you. Maybe you take your appraiser hat off and provide consulting services. Maybe you become a real estate agent. Maybe you get into the tax appeal arena. There are so many ways to make money in this business.
One thing’s for sure: Most things change. If you don’t believe that, look in the mirror. Be ready and willing to adapt, or resist and be left behind — you get to decide.
In the meantime, Google “shadow inventory.” Do a little research. That inventory is growing. It’s gonna be interesting to see what happens.
We’ve been living in extremely interesting times for over a year now. Covid will hopefully go away soon, although perhaps not entirely. But the effects will linger, and the aftermath may also be … interesting. Be ready. Start increasing your knowledge base. Open your mind to opportunity.
We’ll talk about the near and far future at the ACTS Conference on April 14-16 in Bay St. Louis, MS. We’ll celebrate the past ten years of the NAA and discuss the future of our profession. Please join us! We’d love to have you.