Appraisal jobs not in the same boat with agents’, brokers’

Lamenting the effect of “the allure of easy money” on former tile salesmen and investment analysts, USA Today this week reported on the contraction of real estate jobs as the housing market normalizes. “As the housing market slows, there will likely be a lot of stories of people who are bailing out of their real estate jobs and other professions related to housing — appraisers, mortgage brokers and home construction workers — and many not by choice,” the paper said.

Appraisers are no strangers to doom and gloom predictions, nor, unfortunately, are they strangers to being lumped in with commissioned salespeople and considered part of the same job sector.  But the reality is that while as the housing pie shrinks there will be real estate agents and mortgage brokers who are left out in the cold, the same is not true to nearly the same extent for appraisers.

It takes forever and a day to truly enter the appraisal profession.  Trainees who started within the last couple years because of dollar signs in their eyes might be in for a rough time — but we think you’ll agree that “easy money” is not the best reason to become an appraiser in the first place.  New entrants who have a long horizon and are building a knowledge base, best practices and relationships for the long haul are the ones who will continue to do well.

As the housing economy normalizes, and “belts tighten,” due diligence will increase, not decrease.  Look at it from two different angles.  From a buyer/borrower point of view, when the housing market is 2003 hot, you can choose the loan program, lender and broker who can get you into your new home the fastest and most cheaply.  As lending standards ratchet up, you as a borrower have less low-hanging fruit to pick from and can’t count on the broker down the street undercutting the one you’re sitting across from.  From an underwriter standpoint, the more the revenue stream resembles a (comparative) trickle the less margin for error you’re comfortable with.  If housing values aren’t going through the roof anymore there will be fewer buyers on the secondary market and the ones there are will themselves have a lesser tolerance for risk.  All this points to the fact that the loans that aren’t going to be happening anymore are the quickie no-doc AVM-backed loans, not the kinds of loans appraisers help the decisionmakers sign off on.

Finally, a quarter of all loans made in the fourth quarter of 2005 were adjustable rate mortgages.  Trillions — with a ‘T’ — of dollars in loan payments will be spiking as 1-year, 3-year and 5-year adjustable rate loans adjust.  Many borrowers will not be able to afford the new monthly payments and will have to refinance again.  Many were counting on doing just that, in fact.  You don’t need a real estate agent to refinance, and increasingly you don’t need a mortgage broker, either — mortgage companies are handling refis themselves for loans in their portfolios more and more often.  So any reduction in agents and brokers will simply be amplified compared to appraisers.

Appraisers who have been in business as long as a la mode has have seen six or seven downturns in the mortgage lending cycle, and have gotten through each one just fine.  Just like the cry of “housing bubble” has been slung around too liberally lately, the impact of a normalization on the appraisal profession is likewise overstated.