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While the market seems to have made steady progress adjusting to the TILA/RESPA Integrated Disclosure (TRID) rules and TRID-induced delays,[1] a new contract-delaying culprit may be re-surfacing.
In addition to flashing yellow lights on affordability as home prices continue to rise faster than incomes, the housing market may be facing another hurdle stemming from appraisals. Data from the July REALTORS® Confidence Index, shown in Figure 1, indicates that 32 percent of contracts that were settled or terminated in the last three months had a delay, the highest share facing delays since the October – December 2015 period which was coincident with the implementation of TRID. July data also show that the share of contracts ending in termination has eased slightly lower, so the share of contracts settling on time has ticked down only modestly.
Figure 1
Issues obtaining financing were still the number one source of delays, according to REALTORS® reporting on the outcome of these concluded contracts, but appraisal issues were reported for more than one in four delayed contracts (see Figure 2).
Figure 2
Looking over time, in Figure 3, we can see that contract delays stemming from issues obtaining financing have been relatively consistent in recent months, and are much improved from the second half of 2015.
Figure 3
However, delays resulting from issues related to appraisals have been on the rise in 2016, as shown in Figure 4.
Figure 4
We do not have sufficient data from this survey to know whether these appraisal-related delays are a result of appraiser concern for housing market prices rising more quickly than normal or whether volume from a robust home sales market in the first half of 2016 and surprisingly strong post-Brexit refinance market has overworked the already reduced number of appraisers in the market. Comments from REALTORS® seem to indicate that both factors play a role. Several REALTORS® indicated that low appraisals were an issue while many others indicated that timeliness and delays due to a shortage of appraisers were a problem. Data from a separate survey of lenders shows that some lenders are noting too few appraisers[2] in the wake of the Brexit vote and an increase in non-TRID related delays.[3] Some REALTORS® have already indicated that they have extended closing dates on contracts to allow extra time to accommodate appraisal-related delays and still have an on-time settlement.
REALTORS® are well-advised to monitor this trend and use this information to manage buyer and seller expectations accordingly.
[1] TRID or Know Before You Owe is a new set of rules governing the closing process. These rules are intended to help make consumers more aware of risks and their liability, while streamlining the home financing process. However, they also introduced a new set of timelines that, in some situations, can add time to the process. Because time is money to lenders, early evidence also suggests that they may be passing some of the cost of delays onto consumers. TRID guidelines at http://files.consumerfinance.gov/f/201508_cfpb_tila-respa-integrated-disclosure-rule.pdf. NAR Research on TRID at http://economistsoutlook.blogs.realtor.org/?s=TRID
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