Long Term Appreciation Rates and Predicting the "Bottom"

[Metamorphic]

I've been noticing that when I do my analysis of prior sales of comparables, the appreciation rate of properties that last sold before the boom...say 94 or earlier, have been getting down into the +3-6%APR range with increasing frequency. This rate of appreciation seems to be a reasonable and sustainable rate, which suggests that prices of these properties are at or are approaching some sort of realistic/rational level of value. While I'm sure that it is possible for property prices to sink below values, it seems reasonable that there would be some level of market resistance to sub-value pricing; in the same way that a market cant sustain a bubble, neither can it sustain a well.

I'm interested in what other's think of this take on the market, or if there's any other ways of spotting market bottoms.

 

[Mr Rex]

Look at some current census tracking data. The irrational boom in many areas was caused by investors, without the backing of demographics. That BS "f you build it they will come" was only good for 1 movie. Who is going to live in the houses? Its either owner occupied, rental, seasonal rental, or 2nd home. The bust is because the lenders (and appraisers) lost sight of the true demographics.

 

[panappr]

I've been noticing that when I do my analysis of prior sales of comparables, the appreciation rate of properties that last sold before the boom...say 94 or earlier, have been getting down into the +3-6%APR range with increasing frequency. This rate of appreciation seems to be a reasonable and sustainable rate, which suggests that prices of these properties are at or are approaching some sort of realistic/rational level of value. While I'm sure that it is possible for property prices to sink below values, it seems reasonable that there would be some level of market resistance to sub-value pricing; in the same way that a market cant sustain a bubble, neither can it sustain a well.

I'm interested in what other's think of this take on the market, or if there's any other ways of spotting market bottoms.

Idle hands, why are you analyzing 1994? Each bubble that has occurred since 1983 has lasted 1-2 years, followed by long periods of slow growth and there has always been a market correction. However, this particular bubble should have been named like a hurricane on the Gulf Coast. I think the best way to spot market bottoms is to follow the NODs and REO inventory then due an absorption analysis. No? The sub-market you referr to will have little to no risistance if the forcast is still headed south.

 

[Offshore]

Rex you’re no fun at all, where is your entrepreneurial spirit? I take it you don’t subscribe to the Orange County instant equity granite countertop theory

 

[Mztk1]

Look at some current census tracking data. The irrational boom in many areas was caused by investors, without the backing of demographics. That BS "f you build it they will come" was only good for 1 movie. Who is going to live in the houses? Its either owner occupied, rental, seasonal rental, or 2nd home. The bust is because the lenders (and appraisers) lost sight of the true demographics.

Yet it is the entire philosophy behind supply side economics.

Make the supply and the demand will follow.

We got near-ghost towns east and south of me that are proof trickle down is the BS you call it.

 

[George Hatch]

By definition, the "should be" value...isn't.

 

[Marcia Langley]

I suspect you'll (we'll) spot the bottom the same way we spotted the top. In hindsight.

Here the approach to the top started off looking like a flattening but shortly became very eratic. For about a year the prices were all over the place. The first real clue was the volatility combined with ever longer days on market. Then the drop became well defined.

There was no sure way to pinpoint the top as it was occuring.

But if you are just talking about indications to look out for I'd say declining inventory coupled with volatility in prices might indicate a move getting ready to happen. But no prediction is a sure thing. If that volatile state lasted for a year, it might be a mixed signal or those same clues could also be a signal of further decline pending.

 

[Metamorphic]

But if you are just talking about indications to look out for I'd say declining inventory coupled with volatility in prices might indicate a move getting ready to happen.

Funny you should mention.... I did this chart last week.

The Price Trend Chart is also very interesting.

It shows a flattening of the Whole market and an increase in the Subject Specific market. I'm not totally convinced the Subject Specific Q3 results are real in that there's actually an increase in prices occuring, but he fits with the idea of the volatility you're talking about. The subject specific data is a small data set to begin with (13 sales in Q3 so far) and only 1.5 of 3 quarters are in so a big sale or two could create some variability. But there's 180 sales in the whole market results so it should be pretty immune from high degree of variation and its showing flat.

 

[Riick]

You might want to have a look HERE
It's titled: The Elusive Bottom

 

[PropertyEconomics]

Third quarter activity is based upon roughly one and a half months and thus skews the analysis when compared against prior full quarters.
It would be interesting to note how many expired or cancelled listings you have as well to be included within the data set. Just another piece of data to consider.