Home values are continuing to fluctuate across many major markets
Canada’s housing and mortgage markets may be calmer now than during the days of red-hot activity during the COVID-19 pandemic, but among the country’s appraiser community there are still plenty of challenges in the current environment.
While volume has slowed on the mortgage finance and presales transaction sides, property values are varying widely from market to market, with some regions witnessing slowdowns as others post monthly price gains.
That’s continued to make things interesting for appraisers, according to Keith Lancastle (pictured top), interim chief executive officer of the Appraisal Institute of Canada, who told Canadian Mortgage Professional that keeping astride of market trends was as important a consideration as ever for those individuals.
“When we look at pricing, I look at my newsfeed and I’ve got Article One that says the sky is falling and then Article Two says it was a booming month last month,” he said. “Which is it? One of these things is not like the other.
“It certainly always speaks to the very local nature of real estate. Certain markets have not been as directly impacted as others, but in a lot of respects even with some of the declines, we’re still above what we were pre-COVID.”
Some markets have seen prices drop off, Lancastle added, while others witnessed a decline that wasn’t as bad or was barely registered.
“I think it’s really important to recognize the drives for demand are still there,” he said. “The challengers for appraisers [in an] up market, down market is, this particular transaction: is it normal, is it an anomaly, or is it indicative of a trend?”
Housing starts in Canada dropped 10% in July compared to June, indicating ongoing supply challenges in the housing market.
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Appraisers grapple with prospect of surging prices – or a big drop
There’s little to indicate at present that a dramatic upswing in pricing in any of the bigger markets is set to transpire soon, he said, with employment figures remaining robust – and a significant downturn in those regions also looks improbable.
“There are some forecasts that are talking about contraction in some of the major markets, but it would be in markets where there was a lot of gain during the pandemic,” Lancastle said. “In most of those markets from what I’ve seen, it looks like we’re still at basically pre-pandemic levels.
“I think that if you see a big increase in unemployment, that would be a harbinger of a more pronounced retraction in terms of pricing.”
The twists and turns of the current market are bringing the value of appraisers into sharp focus, according to Lancastle, particularly given their ability to apply a methodical and nuanced approach to home valuations.
That’s despite the growing prominence of automated valuation models (AMVs) and algorithms, tools which Lancastle described as “serving a purpose in certain situations” but inferior to the appraiser’s more detailed view.
“Markets are complex and there’s no single triggers or pressure points that you can sell. It’s a combination of factors that always contribute to the performance of a market in any time. And that’s the challenge, from the appraisers to understand that,” he said.
“But that’s why a local appraiser with local expertise makes the most sense… When you’re in a volatile market, does [an] algorithm have the ability to take into account what happened in that market last month or is it based on data that’s three months old, six months old, nine months? And does it take into account the condition of the property, the individual property? I would say probably not.
“It looks and says, ‘This house is worth as much as the house next to it, which is worth as much as the house next to it, because they’re all basically the same house.’ It might be, and it might not be.”
What do mortgage brokers need to keep top of mind about appraisers?
Lancastle emphasized that the appraiser is there to provide an unbiased opinion of value and sober second thought, rather than having a vested interest in the outcome of the transaction.
“We’re seeing a lot of the offerings of the technology as an equivalent to offering a full appraisal. At the end of the day, it’s adequate in some circumstances, and certainly not all. And it’s never that kind of real-time, individualized analysis that comes with a full appraisal,” he said.
“The gold standard is still a full appraisal completed by a qualified professional. Does that come at a price? Yes, it does. Does it take time? Yes. So we reject the notion that these algorithms are as good in every set of circumstances – they’re not.”
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