As we all sit in anticipation of what the crude collapse means for the Houston market, has anyone had issues with appraisals coming in underwater? I noticed the HELOC market begin to dislocate between pre-approvals and appraisals over the summer, and just last night heard a story about a home in the Memorial Park area coming in $200k below contract price - the buyer was ecstatic to walk away.
That's a huge difference. What do you think caused it?
I too would like to know if there is more than just a seasonal trending of values. Seems odd that the oil crash is having an impact on values so quickly since it's only been a few months of downward pressure on oil pricing.
I am spending more time in the Houston / Galveston area cultivating business so it would be interesting to see some data on this.
For the appraisals I have purchased and seen the appraiser used recent sales comparables for determining their opinion of value for the lender. I did not see the price of oil mentioned anywhere on the report. I think oil prices will figure into the big lenders numbers and risk tolerance before an appraisers residential report will. When home sales slow an start selling at lower numbers then oil can be blamed.
People get excited and fall in love with houses and make big offers. With the low days on market and competition you have to go big to get a contract. That's fine if the buyer is paying cash but if it's financed and the comps didn't support the offer it should have been clear. The agent should have advised the buyer and the selling agent could have looked at the offer a little better. I tell sellers the highest offer is worthless if it will never close.
Ive already seen oil commentary and market condition adjustments in recent commercial appraisals. I suspect appraisals are going to become an increasing deal issue in 2015.
People (investors and home buyers) have been very comfortable investing in Houston RE since about 2011 because property values have steadily increased parallel to job growth (as much as 35% total in some markets near my home). The latest forecasts for 2015 are that the rate of Texas employment growth will come in at about 2-2.5% or about half that of 2014. That alone isn't enough to cause great distress, however, the level of new construction completion for Houston SFR is pretty high with new multi family units likely to be 50% higher than that of 2014 levels. The appraisers know this increased supply with lower job growth could cool the market and increase the risks of value declines in 2015-2016.
After being persecuted for overstating values during the last market peak of 2006-2007, you can be certain that appraisers are paying much closer attention to market trends, forecasts and indications.
Another factor that wasn't in 2007 is the huge amount of institutional investment. Since 2010, a handful of REITs have bought 10s of thousands of Houston area SFR and Multi Family units. This gives control of a major portion of the market to a small group of participants. stock market performance and how REITs react to any changes in the RE market could influence the overall market impact, to a greater or lesser degree.
To mitigate the increased risk, Flippers would do well to confirm ARV by getting actual "as complete" appraisals prior to purchase and landlords should stress test their holdings modeling a 1-2 year period with higher V&C loss, flat rents and extended marketing times to sell properties.
Just my $0.02 from Houston.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.