Housing Bubble Bursting?

[Big ole Boy]

Bubble shafts

I went into a golf store today and the guy next to me had all bubble shafts on his clubs ..... freeking nicest shafts I have ever hit with ... I only got one on my dang driver .....

.... bubble shafts are coming back folks .......

 

[Couch Potato]

.... bubble shafts are coming back folks .......

Not much is worse than getting shafted by the bubble. :new_infinity:

 

[Austin]

Legacy Of The Housing Bubble

This housing bubble situation has some interesting implications for the future of appraising. I am going to take the 7-hour USPAP class from the AI online and I was reading 2006 USPAP yesterday. I have had a USPAP class about 10 times and see something new every time I read it.
I was reading about retrospective, current, and prospective appraisals. There is a little gray area between the distinction between a retrospective and current appraisal and it all relates to prospective market conditions, so all three are in some way related. A retrospective appraisal is when the date of report is not the same as the date of appraisal or valuation and is subject to a different rule. A current appraisal would seem to require the date of appraisal to be as of the date of the report. If date of valuation was the day before the report by definition it would be retrospective because there is no defined period to distinguish the difference between retrospective and current unless it is clearly explained in the purpose and intended use. This all relates to prospective market conditions. In a retrospective appraisal the appraiser can’t use data or market information indicating a change in market trend that takes place after the date of retrospective appraisal. A current appraisal is a different issue and as of this date the issue of changing market conditions in the near future is highly significant. For example, if you are doing residential appraisals and all sale data took place prior to the date of appraisal and you live in an area where prices are leveling or dropping then you have a little dilemma. US PAP requires a market analysis. In a market with a stable trend a level A or B market analysis will do. Those levels of analysis are based on historical trends. A level C and D market analysis are based on a fundamental analysis, which means you must consider demographic trend to measure supply and demand. The net result of all of this is that in my view the legacy of the housing bubble will be a shift from current value appraising based on level A or B analysis to level C market analysis as the central focus of the current assignment. We will be required to demonstrate future demand and supply and base our current appraisals on hard demographics with supply and demand analysis. Any idiot can drive a race-car in a straight line, the art of driving comes into play when the driver heads into a turn.
As of this date in many areas, especially the one I live in, I would not waste my money on a current appraisal, but I would pay big bucks for a good fundamental market analysis. If you want to know why, ax me in about two years and I will tell you. No I don't live in an insane asylum but most of local investors apparently do. They let them out to work during the day.

 

[Randolph Kinney]

Austin, very enlightening post. Where would you get the demographic data? What would be an acceptable source?

 

[Austin]

Source of Demographic Data

Randolph:
The best and most reasonable source of demographic data I have found is "Standard to do business." stdponline.com The AI has an excellent on line course on how to use this service. If you are affiliated with the AI it only cost $350 per year. I highly recommend every appraiser take this AI on line class and subscribe to this service. It has aerials, topo maps, flood maps, demographics, templates for certain types of properties that you fill in some of the data and the program fills in the demographics. I checked into some other data services and you are talking in the thousands of dollars which is not reasonable for a small office.

For example, one of the templates is for apartments. A local developer this week announced 228 new apartments scheduled for construction to begin in June. The area population and number of house holds is dropping like a rock. Vacancies are already below 90% in apartments. The projection for his target market is 200 new households in the next five years. If he gets every one he starts out with a projected vacancy of about 10%. That is fudging the numbers in his favor. This is just one example of the insanity out there. I could spend the day giving examples.

I have had the AI class on H & BU and market analysis two times. I remember the first time I took the class in the early 90's. The instructors gave the example of Disney World. The hotel speculators over built the market so much that it took 16 years for the market to reach stabilized occupancy. Given what I know and read on this forum about Florida condo speculation, the market could be flooded for a decade or more. This housing situation could depress the real estate market for a long period. We can't have it both ways. Either we do a market analysis and act accordingly or we violate USPAP and pay the price down the line.

 

[Randolph Kinney]

Austin, thanks for the response. I could not find the web site you listed:

"Standard to do business." stdponline.com

I have the AI book, "Market Analysis for Real Estate", by Stephen F. Fanning, MAI. It has all the subjects you mentioned.

As for the level C analysis, the book describes level C as future oriented forecasting techniques for future demand and absorption by projecting population growth, income growth, and employment growth. This kind of data is not available to the general public. Academic institutions have made these kinds of studies or a consulting report that was hired out by some agency or private enterprise but in general, this kind of data is not available that I know of.

It appears to me that is kind of analysis (level C) is really meant for a certified general appraiser or economist.

The only thing I can do is watch the local MLS from month to month for sales and listings type data for a given area, a rear view or historical approach.

I find it paradoxical that new construction of homes by these national builders obviously had some basis for building them in the local markets that they chose. It most likely had level C & D analysis, however, the assumptions and projections may not be correct for today or going forward from the original report and analysis.

 

[Austin]

http://www.stdbonline.com/portal.aspx?page=home

Randolph:
Try the above link. Fanning was my market analysis teacher. There are all levels of C & D level analysis. What you say is true about level D analysis but all appraisers should learn to at least do a level A-C. That MLS stuff is a level B analysis.
Fanning told me his system is so refined that his clients will order something like a level C1, C2, or C3.... level market analysis. Level D requires surveying and market studies far beyond anything an appraiser would ever need to do.
We have at least got to know the future demand and keep up with existing and projected supply. Not knowing this is like walking around in a mine field. If demand is decreasing and supply is increasing, what does that suggest? Something has got to give sometimes if this keeps up.

 

[Randolph Kinney]

Austin, thanks for the link.

We have at least got to know the future demand and keep up with existing and projected supply. Not knowing this is like walking around in a mine field. If demand is decreasing and supply is increasing, what does that suggest? Something has got to give sometimes if this keeps up.

I can only know what I read. I read NAR. NAR says no problem, soft landing. I read DATAQUICK. DATAQUICK says no problem. I have a report published a year and a half ago by an economist dealing with the San Diego MSA. The report stated that new housing would be in demand for the next 10 years due to favorable job growth and population growth.

Somehow, I doubt these sources as being accurate or sensitive to the changing home market environment. It does take time, months, maybe a year or more for the public sources with a bias to acknowledge the change has already occurred.

 

[Pamela Crowley (Florida)]

Austin, thanks for the link.

I can only know what I read. I read NAR. NAR says no problem, soft landing. I read DATAQUICK. DATAQUICK says no problem. I have a report published a year and a half ago by an economist dealing with the San Diego MSA. The report stated that new housing would be in demand for the next 10 years due to favorable job growth and population growth.

Somehow, I doubt these sources as being accurate or sensitive to the changing home market environment. It does take time, months, maybe a year or more for the public sources with a bias to acknowledge the change has already occurred.

Yup.

IMO, we are now looking at years ahead of high vacancy rates in the SFR market. The builders are still building ????? - then NAR and others point at this as good and positive indicator????? Whole condo complexes are basically vacant and have been flipping between speculators - but the market still looks positive????? IMO, and I could be wrong, we are about to have many bad years with many houses and condo projects falling apart due to the neglect of the bank (or government) REO department owners.

No crystal ball here, just my own personal opinion based on everything I've been watching and what I'm now seeing.

 

[Randolph Kinney]

Yup.

IMO, we are now looking at years ahead of high vacancy rates in the SFR market. The builders are still building ????? - then NAR and others point at this as good and positive indicator????? Whole condo complexes are basically vacant and have been flipping between speculators - but the market still looks positive????? IMO, and I could be wrong, we are about to have many bad years with many houses and condo projects falling apart due to the neglect of the bank (or government) REO department owners.

No crystal ball here, just my own personal opinion based on everything I've been watching and what I'm now seeing.

Pam, here's the latest from NAR:

Housing Market Taking A Breather But Staying Strong

WASHINGTON (May 9, 2006) – The housing market is settling but should experience its third best year in 2006, with job creation and a growing economy offsetting some of the effects of rising interest rates, according to the National Association of Realtors®.

David Lereah, NAR’s chief economist, said the market is adjusting to higher mortgage interest rates. “Coming off a prolonged period of record sales, housing is taking something of a breather this year,” he said. “Even so, interest rates remain historically low, we’ve added about 2 million jobs over the last 12 months and the economy continues to grow – that will sustain healthy levels of home sales in 2006, but they’ll stay below the peaks experienced during the last two years.”

Here is NAR's latest forecast projecting out through 2007, published May 2006:http://www.realtor.org/Research.nsf/files/currentforecast.pdf/$FILE/currentforecast.pdf

Here is a NAR report that was issused for Mami, FL back in 2004 that is meant to refute a bubble market: http://www.realtor.org/Research.nsf/files/Miami.pdf/$FILE/Miami.pdf

For all the markets NAR reported on and forecast: http://www.realtor.org/research.nsf/pages/anti-bubblereports