FHA Market Analysis & Trends 2 — Questions and Answers
Question 1: In FHA appraisal, what does a declining months of supply statistic most directly indicate about a housing market?
- Increasing buyer demand relative to available inventory (Correct answer)
- Decreasing mortgage interest rates
- Rising construction costs in the area
- Reduced foreclosure activity
Correct answer: Increasing buyer demand relative to available inventory
Declining months of supply means homes are selling faster relative to what's listed, signaling stronger buyer demand and a tightening market.
Question 2: When performing market analysis for an FHA appraisal, an appraiser notices that list-price-to-sale-price ratios have risen from 96% to 101% over six months. This trend most likely indicates:
- A buyer's market with negotiating power shifting to purchasers
- A seller's market where buyers are bidding above asking price (Correct answer)
- Increased seller concessions reducing effective sale prices
- Market stabilization after a period of volatility
Correct answer: A seller's market where buyers are bidding above asking price
Ratios above 100% mean homes are selling above list price, a hallmark of competitive seller's market conditions.
Question 3: Under USPAP and FHA guidelines, which data source is considered most reliable for identifying market trends in residential appraisals?
- Zillow automated valuation estimates
- MLS sold data verified through public records (Correct answer)
- Assessor's appraised values for tax purposes
- Listing agent opinions of current market conditions
Correct answer: MLS sold data verified through public records
MLS sold data cross-verified with public records provides documented, arms-length transaction evidence that meets USPAP reliability standards.
Question 4: An FHA appraiser is analyzing a neighborhood where median days on market (DOM) dropped from 45 to 12 days over one year. What adjustment, if any, is most appropriate?
- A negative time adjustment because prices are likely falling
- No adjustment because DOM alone does not affect value
- A positive time adjustment to reflect appreciation during the marketing period (Correct answer)
- A negative adjustment for increased seller concessions
Correct answer: A positive time adjustment to reflect appreciation during the marketing period
Sharply declining DOM signals increasing demand and typically accompanies price appreciation, warranting a positive time adjustment for comparables sold earlier.
Question 5: Which FHA form requires the appraiser to specifically check a box indicating whether neighborhood property values are increasing, stable, or declining?
- Form HUD-92800.5B
- Fannie Mae Form 1004 (URAR) (Correct answer)
- Form HUD-27011
- Freddie Mac Form 70B
Correct answer: Fannie Mae Form 1004 (URAR)
The Uniform Residential Appraisal Report (Fannie Mae Form 1004/Freddie Mac Form 70) contains the Neighborhood section where value trend checkboxes are required.
Question 6: When an FHA appraiser identifies a neighborhood in transition from primarily owner-occupied to predominantly rental housing, this factor is best described as:
- An external obsolescence factor that must be quantified (Correct answer)
- A legal non-conforming land use condition
- A positive external factor increasing neighborhood density
- A physical deterioration condition requiring immediate reporting
Correct answer: An external obsolescence factor that must be quantified
Neighborhood tenure shifts toward rentals can indicate external obsolescence affecting property values, which appraisers must identify and measure.
Question 7: In FHA market analysis, the absorption rate is calculated by dividing the number of sales in a period by:
- The total number of active listings at period end (Correct answer)
- The median sale price of comparable properties
- The number of new listings added during the same period
- The number of expired and withdrawn listings
Correct answer: The total number of active listings at period end
Absorption rate = number of sales ÷ active listings, expressing how quickly the current inventory would sell at the current sales pace.
FHA Market Analysis & Trends 2
In FHA appraisal, what does a declining months of supply statistic most directly indicate about a housing market?