Will A Computer Tell You How Much Your House Is Worth?
Lower Mortgage Rates for Energy Efficient Homes?
Market Update – Is the Twin Cities one of the top markets in the country where you should buy this winter?
Will A Computer Tell You How Much Your House Is Worth?
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms.
Appraisals help lenders ensure that the estimated value of the property supports the purchase price and the mortgage amount. An appraisal that is off by a few percent could leave a homeowner owing more than their house is worth or lenders with insufficient collateral to cover defaulted loans.
Will this automated approach work? It is hard to see how an appraisal can be done without a human appraiser involved. There is so much variation in condition and functionally that cannot be assessed by a computer algorithm. There’s still no computer that can see, hear, taste, smell and touch the property. Until that happens appraisals with humans involved will continue be necessary to do accurate appraisals.
Lower Mortgage Rates for Energy-Efficient Homes?
Mortgage guarantors, insurers, underwriters, and security owners have recently observed that home buyers with lower monthly utility costs default less. Do these lower-risk home buyers deserve a lower interest rate? Lenders are starting to consider the idea of offering a lower interest rate for mortgages on energy efficient homes. Energy efficient mortgages (EEMs) encourage energy efficiency by giving buyers a better rate or more borrowing capacity to buy an energy efficient house or to cover the cost of new energy improvements.
There are several types of EEM products in use today; however, adoption remains limited. Developing programs in several states inject capital into traditional mortgage products to “buy down” the interest rate that is charged to borrowers as an incentive to finance energy retrofits. A third structure being tested assumes that the energy savings and reduced exposure to energy costs reduce the risk profile of the loan and on average should lead to better loan performance. The reduced risk justifies a lower interest rate, which in turn improves the loan pricing for borrowers, while leaving underwriting criteria unchanged.
There are now quantitative standards available to measure a home’s efficiency. The HERS Index is the industry standard by which a home’s energy efficiency is measured. The HERS or Home Energy Rating System was developed by RESNET and is the nationally recognized system for inspecting and calculating a home’s energy performance. Certified RESNET Home Energy Raters conduct inspections to verify a home’s energy performance and determine what improvements can be made to increase it. Home buyers will be attracted to buy homes that are not only more efficient, saving utility costs, but also being able to qualify for lower mortgage rates.
November Market Update
According to a recent Zillow report the Twin Cities was one of the top ten markets in the country where it makes the most sense to buy this winter. This ranking is based on an index they developed using the factors below. For potential buyers looking to make a move before rents and mortgage payments rise further, the report indicates our market compares favorably to most other markets in the country.
Here are the three factors that went into the index:
- The share of price cuts compared to a year ago: (In the Twin Cities the year over year over year actual selling price compared to the asking price has been declining since June indicating that sellers are beginning to cut prices.)
- Rent appreciation forecast: Metros where rents are expected to rise more over the next year are ranked higher on the index, because they offer the greatest opportunity for buyers to save money by picking up a mortgage rather than continuing to pay rising rents. (Year over year rents in the Twin Cities continue to increase modestly and are expected to continue to do so, although the rate of increase is expected to moderate.)
- Mortgage affordability: Metros that already have bad mortgage affordability will become harder for buyers as mortgage rates rise, so they are prioritized on this index. (Relative to other markets in the country the Twin Cities does not already have “bad” mortgage affordability. In our market mortgage rates have increased and median sale prices continue increase faster than income making mortgage affordability more difficult.)
The median sale price increased .4% between October and November, however the median sale price of homes sold in the Twin Cities has increased by 8.6% in the past year to $266,000. In comparison, the average annual increase for the previous 12 months has been 7.8%.
The number of closed sales decreased .2% between November of 2017 and November of 2018, continuing a trend of decreasing year over year sales that has been observed for 10 of the last 12 months. The combination of the low number of homes available for sale and higher interest rates continues to take its toll on the number of homes sold. The number of pending sales decreased by 5.7% however the number of new listings increased 11.8% compared to the same period last year. The increase in new listings is a hopeful sign that will be more homes available for sale in the coming few months and that the slide in the year over year sales volume will begin to reverse itself.
For more information, visit the Shenehon Center’s complete report for November 2018 at http://www.stthomas.edu/business/centers/shenehon/research/. The report is also available for free via email from Tousley at email@example.com