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Home Appreciation

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Julio E. Sune Jr. (FL)

Senior Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Posted on Sun, Jun. 08, 2003
KENNETH HARNEY, Washington Report

Home appreciation slowing but far from stalled

The great American home appreciation money machine is showing some hints of slowing down, but for most consumers around the country, a house is still by far their best-performing asset.

The federal government's latest quarterly study of home price appreciation shows that the average American house grew in resale value by 6.48 percent from the first quarter of 2002 through the first quarter of 2003.

Houses in six states (including Florida) and the District of Columbia continued to appreciate at recession-defying double-digit rates. More than 40 major metropolitan areas reported double-digit year-to-year jumps in values -- a performance that is considered stunning by mortgage industry economists who predicted much lower rates in a weakening domestic economy.

Hottest-growth states in the latest study by the Office of Federal Housing Enterprise Oversight (OFHEO): Rhode Island, where the average home gained 14.6 percent in value from the first quarter of 2002 to the same period this year; the District of Columbia (counted as a state in the study), where values were up 12.3 percent; California (up an average 11.23 percent). Next were New Jersey (10.55 percent), Florida (10.18 percent) and New York (10.09 percent.)

Some individual metropolitan housing markets showed gains reminiscent of the go-go late-1990s -- as high as 15 percent in San Diego and Nassau-Suffolk on New York's Long Island. Four Florida metropolitan areas -- Fort Pierce/Port St. Lucie, Miami, Fort Lauderdale and West Palm Beach -- were among the 20 areas showing the highest appreciation rates.

(The full OFHEO Housing Price Index report, with data for 220 metropolitan areas, can be viewed online at www.ofheo.gov.)

The vast majority of houses nationwide gained in value at more modest rates -- and the most recent national annualized quarterly rate was just 3.8 percent, down from 5.2 percent the previous quarter. But the full year 6.48 percent average impressed housing economists, who had assumed rising unemployment and overseas shocks would put a brake on appreciation rates in most places.

''We had projected [an average] 4 percent for existing [resale] houses,'' said Douglas Duncan, chief economist of the Mortgage Bankers Association of America.

Undoubtedly contributing to the better-than-anticipated performance: today's 45-year lows in mortgage rates. With 30-year loans close to 5 percent and 15-year mortgages in the low 4 percent range, ''there is no question,'' said Duncan, that there is a connection between the cost of borrowing and current rates of housing inflation.

Bargain-rate mortgages allow buyers to afford a costlier home, and allow sellers to ask -- and get -- higher prices. For example, a consumer with roughly $1,320 a month to spend on principal and interest can afford a $200,000 fixed-rate 30-year mortgage at 7 percent, a $220,000 mortgage at 6 percent and a $250,000 loan at 5 percent. That 25 percent jump in affordable mortgage amount produced by just a 2 percentage point drop in the cost of money gets factored into a home's price by the alchemy of the free market.

Short-term gains in value may be impressive, but the year-in, year-out performances of homes has caught the eye of another top mortgage economist, Frank Nothaft of Freddie Mac.

Over the past five decades, he says, the average American single-family house has appreciated at between 4 percent and 5 percent annually. That includes national recessionary downturns and severe regional declines -- the Southwest in the 1980s energy bust and Southern California in the early 1990s -- where home values deflated for a few yeas only to bounce back later and recoup those losses.

The latest OFHEO study shows that the average American home grew in value by 38 percent over the past five years -- slightly above Nothaft's historical norms. On a state by state basis, however, houses have often far outdistanced the national average gains.

The average Massachusetts home appreciated by 73 percent in the last 60 months, according to OFHEO. The average California home is up 68 percent during the same period. The average home in the District of Columbia -- tops in the country -- is up by 78 percent over five years. The average Florida home appreciated 45 percent in the same period.

Doom and gloom ''bubble'' theorists, who predict a sharp downturn in housing values after such effervescent inflationary bursts, won't find much to support their case in the latest OFHEO statistics. For example, two of the highest-cost, highest-inflation markets of the late 1990s -- San Francisco and San Jose -- had been projected as home-value disaster areas in the wake of local economic reverses. But both are still chugging away, turning in annual gains.

In metropolitan San Francisco, where a starter home can set you back $600,000 or more, houses appreciated at 5.53 percent during the last year. In San Jose -- epicenter of the dot-com implosion -- the average gain was 4.52 percent.

None of this is to suggest that the potential for housing deflation has been wrung out of the American economy, especially in markets where unemployment takes a big jump. Low interest rates can't prop up home values when breadwinners aren't bringing home the bread. But in most markets, as the latest OFHEO data demonstrate, that's simply not happening.
Kenneth Harney, president of a Maryland consulting and publishing firm, is executive director of the National Real Estate Development Center. E-mail: [email protected]
:yellowblack:
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
I will give you odds that if you went into one of those red-hot markets and reviewed every appraisal you would not find one appraisal of market value. Every appraisal would be of fair value and every one would have a time adjustment. Even a 10% annual bubble price is only about .8% per month which when applied to an average marketing period of 90 days comes to 2.4%. Sounds like a time adjustment number to be. It is the institutional built in appraiser crutch number hitting algorithm. To don't make time adjustments, you don't work. My daughter purchased her first home 4 years ago in a metro area. Here is what the Realtor told me: "This house is a bargain. The present owner purchased it five years ago for $125,000. It is listed for $148,000, which is average market appreciation of 3% per year, everybody knows that. Your daughter can get it for $141,000 because the sellers countered a previous offer of that amount and she can buy it $7,000 below market value." It is all a ruse. Just appraise fair value and nobody will ever know the difference.
 

bradellis

Member
Joined
Jan 16, 2002
Austin,

What kind of odds- I'm ready to take that bet.

I have and do review these in the hottest markets in the country. Most appraisals do not have time adjustments- when the markets are this hot, you will often find plenty of new sales that are fully supportive. I see them daily.

Brad Ellis, IFA
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
The whole world is wrong....Austin is right! Wrong! :rofl: :rofl: :rofl: I agree with Brad on this one. I hardly ever see appraisers using time adjustments.
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Brad:
Look in the archives of this forum about a year ago January and you will find a lengthy debate I had on this subject with an appraiser and other appraisers around Charlotte, NC. They told me then that prices were going up so fast in Charlotte and the market was so hot that they had to make time adjustments on every appraisal just to stay even. One appraiser even told me that if he came up short he would just wait about a week and recently closed sales would come out and support the value he needed. Less than one year later I read that there were a record number of foreclosure sales around Charlotte, NC, at one point totaling over 16,000. This is all in the archives of this forum.
Further, if you will do an archives search of this forum about time adjustments you will find that there is more than ample support for my statement. I make statements based on the evidence I have seen, as I am sure you do. I don’t know what you have seen but what I have seen is on recorded in this forum including newspaper links.
I know local appraisers that have built their practice on time adjustments. Further, by using three cherry picked sales you can make about any number you want to anyway, so any evidence of time adjustments is just icing on the cake. Why is the time adjustment on the FNMA form? Why is a time adjustment described in appraisal texts? Why don’t you call FNMA up and tell them to take it out because you and Mike don’t think it needs to be in there?
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Then why do all of the big three ....Fannie Mae, VA, and FHA discourage the use of any positive time adjustments? I think it is only there so that when the market is declining you can make negative adjustments. :rofl: :rofl: :rofl:
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Mike:
I don’t know what you are rolling on the floor laughing at unless it is yourself. How is putting a time adjustment at the top of the form discouraging its use? Why don’t you to explain to me what FNMA, VA, & FHA would do if they wanted to encourage its use? According to your way of thinking if they really wanted to discourage time adjustments they would put it in bold capital letters and point arrows to it, that would really discourage it. :rofl: :rofl: at Mike!!
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Mike:
Why don't you tell the person that writes their manuals to talk to the person that writes their forms because obviously one of them has his/her head screwed on backwards. While you are talking to them, why don't you ask then which one of the 8 possible alogrithms for making size adjustments that is programed into all of their forms programs they perfer given that there is a possible range from zero $'s to $75/sf depending on ones choice? Then get them to reconcile the theory that the sequence of adjustments comes from the market with their form and explain how they want that done. I have a few more suggestions too but I don't want to over load you this early in the morning.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Ain't my job...and neither is tilting at windmills. I woke up at 5am this morning and needed a forum fix before I get to work.

Austin, you could be right...but you also could be wrong. In any event what you do flies in the face of what is done by 99% of the appraisers in this country. I choose not to swim upstream...too difficult at my age.
 
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