Long Term Appreciation Rates and Predicting the "Bottom"

[Metamorphic]

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.

I've done that plot with the canceled/expired in there. Its a little too confusing for the eye. Two bars is pretty easy to see, 3, not so much.

 

[Terrel L. Shields]

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.

A catagory 5 at that...

 

[Marcia Langley]

Meta,

Good charts.

Also consider that the active inventory levels and new listing levels can't be read exactly as they have been in recent years. In the extreme decline we are experiencing there are considerations or factors that were not present in the past.

In the present environment low inventory numbers gleaned only from, say, MLS may not be a true picture. Some attention has to be paid to the fact that there are many owners who have given up selling because they are upside down. And to the fact that many banks are not listing their REOs. Attention to preforeclosure, foreclosure, and short sale rates along with a handle on vacancy or abandonment rates would temper the listing data.

 

[George Hatch]

In my region the relationship to watch has been the rate of sales compared to the total number of listings. When it's less that 4 months the prices increase. When it's between 4-7 months or so it's tapering away from the prior trend (whether that trend was for increase or decrease). When it's 8 months or more the prices decline.

It's kinda tricky to guage the inventory here, though. Some of the lenders are holding some foreclosures and are holding off on taking more homes back. Even so, the rate of foreclosures is still climbing. Meanwhile we're on track for having the slowest year for sales in the last 12 years. Put these three factoids together and I think it's going to take a while to work through the inventory in this region (SD County).

 

[Metamorphic]

Also consider that the active inventory levels and new listing levels can't be read exactly as they have been in recent years. In the extreme decline we are experiencing there are considerations or factors that were not present in the past.

In the present environment low inventory numbers gleaned only from, say, MLS may not be a true picture. Some attention has to be paid to the fact that there are many owners who have given up selling because they are upside down. And to the fact that many banks are not listing their REOs. Attention to preforeclosure, foreclosure, and short sale rates along with a handle on vacancy or abandonment rates would temper the listing data.

Do you think there's an audience for that level of analysis? My sense of the reader of your average mortgage related appraisal report is that they're not interested in, and perhaps not even intellectually capable of absorbing, much beyond "see, prices are decreasing", and "see, there's more listings and fewer sales", at that point they're happy that you checked the correct boxes on page 1 and they move on. I agree there's probably some merit in the appraiser doing that analysis for their own edification, but I'm not sure its ready for the loan processors.

 

[Mark to market]

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.

While the values may appear reasonable on your graph, I have heard a few suggest that the downward trend that many areas are experiencing tends to overshoot where the norm should have been before climbing back up.

On a separate note, I once tried calculating where my market should be by factoring in the devaluation of the dollar.

As Yogi Berra once said, it is tough to make predictions, especially about the future

 

[Riick]

^^^^
Typical market, Stocks, Coffee, Oil, Houses
.....prices overshoot on the upside (values beyond reason), and do the same on the downside (values below reason).

Look at Sales here....... back into the 1970s
.

 

[Mr Rex]

There was an article in the regional paper here today, talking about the Triangle market (Raleigh,Durham, Chapel Hill and surrounding counties) that indicated the market has shown a decline in the number of sales monthly has declined for the past 12 months, The source they quoted is an area appraiser that does some fairly sophisticated statistical analysis of the local markets for the local Realtors etc. His response to the "have we reached bottom" was that he wouldn't know that we were out of the woods until he saw 3 months of an increase in pending sales. Pretty much sums it up, we won't really know until its over.

 

[Marcia Langley]

Do you think there's an audience for that level of analysis?

Meta,

It depends on who your audience is.

Your OP simply asked how to forecast for a bottom. I tried to give you some clues to look for but also reminded you of the clues that would indicate the opposite.

I assumed you yourself were the audience for this not so scientific forecasting.

For data strong enough to use in a typical mortgage appraisal, you will not know until you have hindsight.

But what you put on your typical mortgage appraisal is not a forecast, it is based on actual data.

For example, the charts you posted did not indicate to me that the market is no longer in decline. But say you reach a point where it does look that way. But you also know that the listing data is contaminated by the temporing factors I mentioned. You would not mark anything other than 'declining' on your appraisal. How you present your justification analysis is a seperate issue.

Just because your client will accept a report for the sole reason that a chart that seems to justify stable or increasing check boxes is not a valid reason for doing it. You, as the appraiser, have to justify it to yourself.

It is not a matter of "What can I get past the UW." It is a matter of "Have I performed competently?"

When I convince myself that my market has turned around, I don't want to have to be in the position of having to switch back and forth between trend boxes on every other report or every other month.

A validation of a trend is based on a length of time.

 

[mwbode]

^^^^
Typical market, Stocks, Coffee, Oil, Houses
.....prices overshoot on the upside (values beyond reason), and do the same on the downside (values below reason).

Look at Sales here....... back into the 1970s
.

PERFECTLY PUT! Anyone that trades or follows the commodity market fully understands the trends and how they overshoot on both sides.