FHA Market Analysis Updates

Early this year, FHA announced updates to the Single Family Handbook, section 4000.1. Among the changes to the handbook are a clarification to the Minimum Requirements for Living Units and an addition to the Gross Living Area section to permit appraisers to use ANSI measurements. The section we are most concerned about is in the FHA Appraisal Requirements for Market Conditions and Changing Markets.

Revisions to the Appraisal Requirements for Market Conditions and Changing Markets section clarify appraiser requirements for analysis and reporting. Here are some of the highlights from the Handbook.

1. Definitions
   • Increasing Market refers to any neighborhood, market area or region that demonstrates an increase in prices or improvement in other market conditions as evidenced by a decrease of existing inventory and reduced marketing times.
   • Declining Market refers to any neighborhood, market area or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory and extended marketing times.
2. Standard
   • An analysis of market trends for at least the past 12 to 24 months preceding the effective date of the appraisal is necessary in order to establish a benchmark for reporting present market conditions.
   • [Added 1/18/2023] The analysis and valuation of properties to be used as collateral for FHA-insured financing must consider and properly address market trends in the subject’s market. The Appraiser must determine if the market property value trends are increasing, stable, or declining.
3. Required Analysis and Reporting
   • The Appraiser must analyze the broad market area first (neighborhood analysis), then analyze the specific market, and then report how the subject relates to its market area.
   • The Appraiser must provide support for conclusions regarding housing trends and overall market conditions as reported in the “Neighborhood” section of the appraisal report form.

Here are some of the key takeaways.

• Section 1 Definitions: DataMaster breakdowns and reports the required metrics (inventory and market time) from the appraiser selected data to allow the appraiser to easily see whether the market is increasing or declining.
• Section 2 Standards: DataMaster can analysis market trends for 12-24 months. DataMaster goes beyond the 12-24 month requirement and can analyze up to 72 months, if the appraiser imports 72 months of data. A longer view of the market helps to establish a benchmark and accounts for seasonality.
• Section 3 Required Analysis & reporting: Using DataMaster Market and Neighborhood analysis feature, appraisers can analysis the “broad market area” in the neighborhood section and the specific market area in the Market Conditions section. This allows for a direct comparison both graphically and with the use of charts on several key metrics.
  • Median or Average Price per Square Foot
  • Median or Average sales and list price
  • Median or Average Days on Market (DOM)
  • Median or Average List to sale price ratio
  • Median or Average housing supply
  • Total number of sales and listings annually and by month
  • Also, Transactions by terms to see if there is a change in financing type (Conv, FHA, VA, Cash)

These metrics meet the requirement to “provide support for conclusions.”

The FHA Market Condition changes go into effect on April 18, 2023. Now is the time to prepare for the new rules and to make sure your software is built for the latest. DataMaster gives you the data and the support you need to get everything done.