How Long Do You Think It Will Be?

[hastalavista]

If you got out of the car and noticed the neighborhood had a really mixed composition or the structure was a beater you'd certainly slow down a little and give those questions a little more effort. Right? (the correct answer to that question is "of course, of course I would")

Glad to see there are other optimists on this forum.

Other than identifying the client/intended user & use (which is necessary in order to ensure the SOW used is appropriate to solve the problem), I can think of no other step in the appraisal process other than H&BU which (a) requires an appraiser to complete and (b) which, in my life, will never be able to be replicated by automation.

But, apparently, I'm wrong. Because in some markets,

HBU is of no consequence...

 

[Addie]

Regarding low supply = too the moon.

3 sides of supply and demand. Demand + price + supply = outcome.

Supply can be extremely low. Say 2 units when normal is 1,000 and prices still move lower. Why? Because there is no demand at x price. X price is too high at any supply level, even low.

That’s what we have now and will get worse. Low supply of homes because prices are too high to add your supply to the market due to need to exchange it out. Builders aren’t the answer because lumber and labor prices are going to kill them and they won’t be able to compete with existing homes. They will have negative profits.

So this cycle, going forward, prices need to lower to actually bring on supply and then demand. They need to lower to become in line with wage ratio. Usually low supply = high price. Until a piont and not really with units you need to exchange out like houses. When you have to sell an item to acquire that same item; it has very different economic principles than your average good.

 

[Joe Flacco]

Regarding low supply = too the moon.

3 sides of supply and demand. Demand + price + supply = outcome.

Supply can be extremely low. Say 2 units when normal is 1,000 and prices still move lower. Why? Because there is no demand at x price. X price is too high at any supply level, even low.

That’s what we have now and will get worse. Low supply of homes because prices are too high to add your supply to the market due to need to exchange it out. Builders aren’t the answer because lumber and labor prices are going to kill them and they won’t be able to compete with existing homes. They will have negative profits.

So this cycle, going forward, prices need to lower to actually bring on supply and then demand. They need to lower to become in line with wage ratio. Usually low supply = high price. Until a piont and not really with units you need to exchange out like houses. When you have to sell an item to acquire that same item; it has very different economic principles than your average good.

You need to go study supply and demand a little more.

 

[Terrel L. Shields]

Watch oil prices, $90 / Bbl will knock the socks off the economy.

 

[George Hatch]

I think that to the extent people sometimes buy the payments rather than the price, the effects of the outsized medical inflation rate and excesses in the energy and food inflation rates can combine to reduce the amount of income that's left over to use for housing. I think that could end up being of more effect on whether people might choose to stay in the starter home rather than moving up if they don't have to. If expenses are increasing faster than incomes then something has to give.

It's the same reason I think Universal Basic Income won't do much for most of the working poor because most of it will end up going straight into their housing. More people having $500 or $1000 more to spend every month will enable more competition at the higher prices. I think the recent increases in the minimum wage have already shown that.

 

[George Hatch]

Man, you really seem to be trying overly hard to chew on a HBU nothing burger.

I think it depends on what your workload looks like. I appraise a lot of land of various types, as well as properties with improvements that actually are at or past the end of their remaining economic life spans, or with non-conforming uses. I've had MANY assignments pivot on the basis of the property's HBU. So what you're calling a nothing burger has considerable utility to me.


You basically can't get to MV if you value the property on a less-than-HBU. That's the reason it's part of the process, even if you don't go any further on the obvious ones than asking yourself "is this the HBU" ? An appraiser who actually gets the answer to that question wrong when appraising something where that answer may not be so obvious to them is starting out in a bad spot.

Just as an example, last week I was working on a 7ac parcel of multi-family zoned land in a suburban location that's mostly built out. I had to do some serious scratching in order to come up with enough comparable sales data to get to a credible value. Some of my comps were in a different town with different development criteria, so I not only had to identify the subject's development potential, i also had to identify the respective potentials of each of my comps. 'Cause multi-family land isn't valued based on it's size, but rather on its yield.

The broker for the deal had sent over a COMPS printout of 20 site sales, but not one of them was zoned for multi-family, including some of the ones identified as such by COMPS. This is how I know that I found and identified far more relevant site sales than the (local hometown) broker was aware of.

I could not have completed that appraisal without employing my HBU analyses.

 

[Addie]

You need to go study supply and demand a little more.

Scenario. New construction is 10% higher than existing homes on average. (Making that number up) Due to labor costs and input costs, 2019 sees new construction 25% higher than existing home market.

You have 2 barrels of oil you bought at $50 with a carry cost of 3.5%. You have the option to go buy 3 barrels of oil for $100 with a carry cost of 5%. But to get these 3 barrels, you need to sell your 2. You don’t like the trade off so you don’t bring on your supply of 2 barrels. New barrels cost $125 and don’t compete very well as they are not affordable and the existing supply at $100 is better than new at $125, says the market.

If the scenario in paragraph 1 plays out, new construction won’t be real supply as it’s too expensive or will cause builders to go deep into the red as the drop prices below cost. So to bring on supply, those barrels of oil that represent houses need to come down to where that person sees value in selling their 2 barrels they bought at $50 for 3.5% and buying 3 for $x at 5%.

 

[Addie]

And #2 supply and demand isn’t a law, it’s a theory because people are involved and decisions can be made without knowledge. If you don’t know prices dropped, why would demand increase? It doesn’t. That why it’s theory due to people involved.

Since economics isn’t a law but theory. You can have a supply side giffen good. So demand side is positive correlated to price with a giffen good, supply side would be opposite, negative correlated. As price decreases, supply increases. Nothing says this cannot happen. Mix in inflation, cost of money doubling, less buying power, labor market, substitution, etc. Real estate can become and inferior good with rising wages as people decide vacation is better than new house at 2x’s cost carry as current one.

Nothing says can’t have supply-side giffen good and a House becomes an inferior good with wages increasing. Oh, except laws of economics does say that can’t happen but that’s been proven wrong by simple people’s perception is reality.

 

[Randolph Kinney]

And #2 supply and demand isn’t a law, it’s a theory because people are involved and decisions can be made without knowledge. If you don’t know prices dropped, why would demand increase? It doesn’t. That why it’s theory due to people involved.

 

[Randolph Kinney]

From the cyclical low point in home prices six years ago, a typical home price has increased by 48 percent while the average wage rate has grown by only 14 percent.

The average rate on the 30-year fixed mortgage is nearly a full percentage point higher today than it was at its most recent low in September 2017.

A monthly survey from Redfin found fewer potential buyers requesting home tours or making offers.

Evidence is now mounting that a growing number of first-time buyers are giving up and dropping out of the market altogether.

https://www.cnbc.com/2018/05/29/run...not-sustainable-realtors-chief-economist.html