A seasoned Alberta broker is pointing to increasingly “low valuations” since new mortgage rules were ushered in, concerned appraisers for default insurers have gotten ahead of themselves and any future correction in the housing market.
“We had one recent case where an Airdrie property was listed for $920,000, and it took us having to get appraisals from each of the three default insurers in order to get an appraisal of $885,000, which was still $35,000 below,” MaryAnn Guizzo, a broker and general manager for The Only Mortgage Company Inc., based in Calgary, told MortgageBrokerNew.ca. “What was really stunning is that the lowest appraisal was actually $650,000. How do you get that far out in left field? I absolutely do I think the insurers are telling their appraisers to get even more conservative since the mortgage rule changes.”
CMHC, for one, denies making any changes to its appraisal guidelines.
Still, an apparent gap between its appraisals and those of their clients is a perennial concern for mortgage professionals. Guizzo and others charge that the gap has widened this spring. While they’re hard-pressed to explain the larger differential – as much as 33 per cent in some cases – they are concerned it reflects a premature move on the part of insurers anticipating a possible market correction. The province hasn’t yet recovered from the last one in 2007/8, but a significant price drop this spring just hasn’t occurred.
Year-over-year sale across Alberta actually improved by 8.7 per cent in May to 5,659 units, although the average sale price dropped by 2.0 per cent to $357,086, according to the Canadian Real Estate Association. Data specifically for Calgary point to the more modest value decline of 0.5 per cent from a year ago. But, here again sales were up 4.0 per cent.
The trend has left Guizzo scratching her head to explain the growing number of her cases where appraisals have dramatically missed the mark. Some brokers suggest the gap may have something to do with increased caution on the part of lenders and insurers concerned about Alberta’s relatively high default rates, which have fallen only modestly from the 2008 correction. That could be exacerbated if Canadians find it hard to keep up with mortgage payments after the Central Bank moves to raise its key interest rate. Their recourse to refinancing has already been limited by new mortgage rule brought in this March.
“But we’re not going to see a significant increase in rates until 2013,” said Guizzo, a mortgage broker for 14 years, “so tell me why they’re worried about the appraisals now.”
Another Alberta broker has caught a glimpse of the same phenomenon worrying Guizzo, but only with some deals at the high-end of her market.
"In my experience, if there is going to be a fairly large gap between the purchase price, or estimated value, and the appraised value, it’s on higher-end properties,” said Renee Stribbell, an Edmonton mortgage broker. “That’s largely because of a lack of recent comparables in that segment, because of slower sales. It seems that appraisers may be having trouble finding recent comparables and the most recent ones are sometimes from a year ago, at least in my experience.”
Now in his third term as an AMBA director, Phil McDowell, a broker with Mortgage Alliance-Mortgages Are Marvelous, in Calgary, hasn’t seen any increased gap in his valuations and those of insurers. Still, he has picked up on an increasingly conservative approach in evaluating applications since the government moved to tighten qualifying terms for Canadian homebuyers.
“The insurers are being more conservative for those buyers most at risk -- those who have the least equity and the highest ratios,” he told MortgageBrokerNews.ca. “They seem to be taking their lead from what Minister Flaherty has been preaching over the last little while. Another consideration may be that delinquency numbers are higher, perhaps encouraging lenders and insurers to adopt a more conservative stance.”
In some cases, he’s now encountering a doubling-up of appraisals, where both the lender and the insurer are demanding separate valuations before signing off on a new purchase or, even, a refi.
“That just seems to be in cases where there is a foreclosure or private sale,” he said. “Not all lenders are acting that way. But what we are seeing is that there is a fair amount of inventory out there in Calgary and a house has to be priced right in order to move or even get showings.”