Dive Brief:
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A slow appraisals process could be giving cash buyers a notable edge over mortgage borrowers in the housing market, according to the Urban Institute.
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The Institute says a shortage of appraisers is one driver of delays in the process. That is compounded by variability in mortgage origination volumes, which leads to inconsistent turn times and costs for lenders and borrowers.
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Streamlining the qualifications and appraisals process, including the use of new technology, could help draw in and retain new appraisers who can promise consistency through greater numbers.
Dive Insight:
Conventional mortgage financing for new homes rose to 72% in Q1 2017, the second-highest percentage since Q4 2014, according to a National Association of Home Builders analysis of Census Bureau data. Meanwhile, 4.7% of new-home sales during the period were cash — down from 9.5% in Q4 2014. For existing homes, however, 27% of transactions in February were cash, representing the largest share of all-cash sales since November 2015.
Cash buyers are often investors and so can usually out-bid mortgage borrowers for homes. Investors typically rent out those homes or update and resell them at a higher price, reducing for-sale entry-level housing stock in the area.
The practice continues a trend prevalent during and after the recession, The Wall Street Journal reported, when investors snatched up foreclosed homes for cash; before the recession, those same investors bought homes with easily attainable mortgages, contributing to the period’s dramatic price increases.
Investors say they're banking on long-term demand for rental properties, the Journal notes. But with the supply of for-sale, entry-level homes already lagging demand, continued moves by investors to target entry-level inventory stands to reduce the stock available to buyers in the category.
First-time buyers, especially millennials, are expected to grow their share of the homebuying market in the coming years as the group's earnings increase and many experience life events commonly considered homebuying catalysts, such as getting married and having children. This group accounted for more than one-third of home sales in 2016, and could stand to grow their share as lenders address new buyers' financial constraints with loan products and other homebuying incentives geared toward the demographic.