This means that in order for homes to appreciate, people need to overpay for them. I don't agree with that logic.
No. If cash were required, then people would put up their own money. Buyers are using these purchases as put options. They can pay for or flip the property in the future if the market continues to go up. If it goes down, walk away from the put option (your miniscule down payment) and let the bank take the hit. Bankrupt or not, they walk away....just like 2009.
Cash equivalence as defined by MV isn't really cash equivalent when the buyer has zero risk of losing their investment. The cash buyer realizes a pull back in prices means they lost equity. There is no such loss with a 97% LTV since the loss is 97% the bank's loss not the borrowers. When the merry go round stops, prices are going to change. If inflation continues to rise, then interest rates HAVE TO RISE just as Yellen said before quickly being silenced by the PTB. And the difference in a payment on 300k at 3% and that of 6% is huge...people who can swing a payment on that at 3% are unlikely to swing the payment on 6%. So they cannot refi? But what about the simple problem when you have to move and selling to someone now borrowing at 6%? You take a haircut or short sell.
We are not Gypsy fortune tellers with a crystal ball - we are appraisers. Sure the market will eventually go down (it always does). But if your data shows you a rising market, don't fight it, dammit. It IS what is IS.
We are obliged to apply common sense adjustments and not to simply rubberstamp the speculations of Realtors and buyers with banks willing to lend any amount to anyone. In the process of a higher market we are also creating higher insurance rates and higher property taxes. The local governments and schools will be flush with cash next year.
Do you honestly think they couldn't tell which is bigger?
A ton of complaints and lawsuits over that very thing. So no, their are many that can't tell and don't bother to check. That is a "prudent" buyer? Nope.
Whether you think that is "prudent" or not is beside the point. Our job is to "read the market" and while it looked screwy a few months ago, its a lot clearer now...)
True but the end of such is predictable as it was in 2008. No, I can't tell you the exact hour but I was on record in Realty Times with other appraisers back in 2005 saying the market was over-heating and the longer it ran, the harder the fall.
Just as the prices are skyrocketing, inflation has doubled in a year, and doubling again puts it in the 1976-80 time frame and you recall how we "cured" that- 18% commercial interest rates, 15% home loans and what did the market do then? It went dead as a doorknob and people couldn't afford to move but many lost jobs and had to move and walk away from their homes. I recall one poor sap that bought a place and it was underwater. He was paying for it, but they were buying land for 412 expansion. He was offered less than he owed, went to court and lost, then filed bankruptcy.
There is a normal market- been pretty steady here from 2013 to 2020- up 5-6% annually. Last year up about 8%. So far this year 10%plus. It will return to the mean, sooner or later, and ignoring that is as dumb as rubber stamping every fantasy of a Realtor.
The premise that contract price IS market value or automatically SHOULD BE market value is one of the most incorrect premises an appraiser can make.
I recall a fellow years ago claiming that he always assumed a contract was market value and regardless the circumstance he never valued property OVER the contract price no did he value it UNDER the price except if it wasn't an arm's length transaction...oh, yeah. He was a Realtor, too.
the local Board of Realtors office
Since it appears you are a Realtor member - go to the board director (assuming you have one) and if you have anything in writing, put the question to them about the ethics. As a Realtor you can file a complaint to the board and it goes thru their process. Otherwise, if merely an agent, I would call up the agent's broker, remind him you are full fledged member and you don't appreciate the bad mouthing. If he doesn't respond, then file a formal complaint to the board.
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