Key Trends in Property Valuation and Lending -- 2024 Recap and 2025 Outlook

As we close out 2024 and look ahead to 2025, we’re taking a look back at some of the trends and developments that impacted our industry and how they will inform mortgage lending and property valuation in 2025 and beyond. Based on 2024, what are lenders—and the appraisal management companies that support them—focused on as we look ahead to next year?

Home equity has big potential, for both lenders and borrowers.
Historically high and sustained home price increases have fueled an unprecedented run up in equity balances, with U.S. mortgage holders sitting on an average of about $200,000 in “tappable,” or available, equity balances. While the home equity market didn’t quite deliver the boom some were expecting in 2024, it still has huge potential for 2025 and beyond. According to home equity data from ICE, mortgage holders tapped $48 billion of their home equity in Q3 of this year, the largest withdrawal volume since the Fed initiated their tightening cycle in 2022. Even still, only 0.42% of available tappable equity was withdrawn in Q3 2024, well below the 0.92% average withdrawal rate that occurred in the decade leading up to the Fed’s rate hikes that began in 2022.

Whether homeowners use their equity for renovations, home additions or, what a lot of experts are predicting, for debt consolidation, the industry is gearing up for more home equity lending over the next few years. Leveraging home equity for debt consolidation may increase if delinquency data is any indication. According to Federal Reserve (Fed) data , seriously delinquent consumer debt in almost all forms, including credit card, auto and mortgage are up in 2024 compared to 2023. For many homeowners, tapping their equity will help them address growing debt concerns. 

 2024 saw an increased spotlight on AVMs.
This year saw an increased focus on Automated Valuation Models (AVMs), both for their relevance and benefits in the home equity lending space as well as for the new regulations that were introduced. Driven by advancements in technology, increased data availability and accuracy, as well as the need for faster and more cost-effective property valuations, AVMs will continue to gain traction, especially with home equity lending—typically a no- or low-cost offering by most lenders.

The increase in AVM usage for home equity lending was borne out in a data analysis CSS conducted this year that reviewed the types of valuation products our lender clients are using to originate home equity loans. The CSS Home Equity Valuation Analysis reviewed full loan portfolios for the first half of 2024 among lenders within the CSS footprint to track their preferences for various types of valuation products. The report found that lenders used AVM / Property Condition Reports on 35% of their home equity loans, representing a year-over-year increase of 20 percentage points. It’s the only valuation product category among five that had an increase. The others include Appraiser-Valued Hybrids at 25% (down from 34%), Full Appraisals at 17% (down from 21%), Non-Appraiser-Valued Hybrids at 11% (down from 17%) and Drive-by Appraisals at 11% (down from 13%). We expect to see the use of AVMs, as well as hybrids and evaluations, to increase in 2025 in the home equity lending space.

AVMs were also in the spotlight in 2024 due to the new multi-agency regulations introduced this year to ensure the accuracy and integrity of AVMs. Six federal regulatory agencies finalized the rule which requires mortgage originators and AVM providers to adopt policies and procedures to ensure that AVMs meet five quality control factors: 

• Ensure a high level of confidence in estimates
• Protect against data manipulation
• Avoid conflicts of interest
• Require random sample testing and reviews
• Comply with nondiscrimination laws 

The new requirements, which were introduced in July of this year and are set to go into effect on October 1, 2025, will drive increased efforts to test and improve AVM accuracy and bias mitigation as lenders gear up for full adoption.

Regulatory updates bring consistency to industry data usage.
On the regulatory front, another development in 2024 was the implementation on April 1^st of the new Uniform Property Dataset (UPD) guidelines from Fannie Mae and Freddie Mac. The UPD standardizes all required, conditionally required, and optional data elements for property data collection on all new GSE loans. Providers will have to adapt their processes to fulfill the new data requirements, including how the data is reported. As a result, lenders will have to train their underwriters how to read and interpret these new reports, so there will be quite a bit of training and education that needs to occur to get staff up to speed. CSS was one of the first providers to offer the new UPD to our lender customers, so we feel like we’re ahead of the game.

Looking ahead to 2025, we expect this requirement to promote the use of inspection-based appraisal waivers in the first-mortgage space. The FHFA recently announced an increase in the maximum loan-to-value (LTV) for full appraisal waivers, which can now be used on loans with up to 90% LTV. Inspection-based appraisal waivers, which is where the UPD would kick in, can go up to 97% LTV. While it’s not clear when, exactly, these increased LTV allowances will take effect, it will likely be the first part of the year which will lead more lenders to use these valuation products.

Technology will continue to drive innovation in valuation.
In 2024, the property valuation market continued to innovate with new technology to improve efficiencies, accuracy and productivity. Computer vision, which is used both at the time of inspection and during the appraisal review process, has recently gained traction and will play a bigger role in the valuation process in 2025 and beyond. For non-first mortgages, this technology allows borrowers to inspect their own properties and receive real-time responses on whether the photos they take will satisfy valuation requirements. This helps expedite the valuation process and makes it more cost efficient. On the appraisal review side, computer vision increases objectivity on the quality and condition ratings for both the subject property and the comps. This will be a significant improvement in the appraisal process since photos, heretofore, have been one of the most subjective elements of an appraisal.

You can’t discuss mortgage and valuation technology without mentioning artificial intelligence (AI). In our space, we expect AI to play a bigger role in streamlining the appraiser selection process. There is currently a lot of manual work involved in assessing and selecting the best appraisers, based on their quality ratings and turn times, workloads and even who might be out on vacation. AI will be able to consume that information quickly, taking all of these factors into account to point to the best appraiser for a specific property on a specific day. 

Technology is also playing a more significant role in preventing appraisal bias. For instance, new tech offerings can blur out or eliminate any pictures of prohibited subjects, religious artifacts or personal information, removing the potential for bias before it even gets to the AMC or lender. Also, technology and the new Uniform Residential Appraisal Report (URAR) forms will reduce the commentary on subject properties that can, even if unfairly, lead to bias charges.

Centralization and simplification are priorities. 
Another focus area we saw in 2024 that will continue to be a priority in 2025 is loan origination system (LOS) integrations. Centralization and simplification are primary drivers for lenders who  want everything in one place, integrated for maximum productivity. Up-to-date integrations with the top LOS providers will be a key priority as lenders look to streamline their operations and manage costs. For home equity title, CSS is expanding both our search data and LOS integrations so that we can offer property reports even faster than we have been. Integrations that lead to increased efficiencies and cost savings will be key for lenders in 2025.    

While 2024 didn’t deliver the housing market comeback some had hoped for, the challenging mortgage and property valuation landscape has prompted innovation, new solutions and more efficient processes. That puts lenders, appraisal management companies and title companies in a much better position to address what the housing market delivers in 2025.