What 50 Feral Cats Reveal About the Housing Market’s AI Problem

Why It Matters

Widespread reliance on flawed AVMs threatens mortgage accuracy and investor confidence, increasing the risk of losses in securitized loan pools and undermining housing market stability. Without better oversight or hybrid appraisal approaches, borrowers, lenders and rating agencies may face greater financial and legal exposure.

Summary

Lenders and brokers are increasingly replacing traditional appraisers with automated valuation models (AVMs) — a trend accelerated during the pandemic — but those models miss critical on-the-ground details, like severe interior damage or infestations. The video uses the anecdote of 50 feral cats living in a house to illustrate how AVMs can produce wildly inaccurate valuations because they can’t inspect a property’s condition. That mismatch can leave loans and the investors who buy mortgage-backed securities holding mispriced collateral. Industry dynamics, including a relatively weak appraisal lobby and conflicted real-estate leadership, have hastened adoption despite the risks.

Original Description

What happens when the algorithm meets 50 feral cats? Jonathan Miller, the veteran appraiser and market analyst behind Housing Notes, is bringing his Housing Notes column to TRD. He stopped by our NYC office to unpack one of his latest pieces: why the push to automate home valuations may be moving faster than the market — or its collateral — can safely handle.

Read the full Housing Notes column here: https://bit.ly/4tSRCDC