One Unit Housing Trends - How long a period?

[Richard Carlsen]

The 1004 report form calls for a statement on property values by checking one of the following condition boxes: Increasing - Stable - Declining.

This raises two questions I'd like to throw out for discussion:

What period of time do you consider the minimum appropriate/sufficient/necessary to determine one of the "trend" statements above that can be adequately defended?

What specific data do you use (if any) do you use as the basis for your interpretation of the market trends?

 

[Colorado Guy]

This really depends on the volume of sales for the subject neighborhood. You are best suited if you can find houses that have sold and then resold recently and to compare the two selling prices.

You can also check the neighborhood in the MLS and see what averages are for sales over the past 24 months.

For my area, I would say typically 24 months is plently of data to analyze to determine the market trend. But even with an active market, you have to be very careful if the market, like mine, is turning (then perhaps only 6 months or less is relevant).

I think it is just as important to the amount and timing of the data you use is to DISCLOSED what you used to determine your analysis.

 

[Jerry Bone Jr]

I've always used a 12 month time frame. But, if the market is up over the last year and down over the last 3 months, then disclose, disclose, disclose.

 

[Artemis Fowl]

It depends

Some markets exhibit seasonal fluctuations in volume and sometimes price. I think it appropriate to go 24 months in these cases. Many SFR markets have a surge of buyers just before the school year starts. If I go 6 months including July/August in that type of market...what is it going to do to my trend?

Data sample I use is defined by school district primarily, the neighborhood boundaries if enough data, price segment if not. Density in my market area allows some flexibility there. Methodology disclosed with enough detail that someone else could reproduce results.

As was pointed out to me elsewhere. The checkboxes I am providing support for are in the NEIGHBORHOOD section.

For the pic below:

Are values declining?
How about if I add 1 more qtr before it that is consistent with the series pattern (ex: $4.6million volume, $294k median)? What does that do to the trendline? Stable or declining?

 

[Mary Tiernan]

I like to think that if I typically search two years for the area, then it takes two years to develop a trend. I also find in these recreational based areas that an analysis by quarter and year is sometimes not sufficient - one large sale skews all the numbers. I like to compare month to month, usually less than 20 sales in each given month and look at each sale individually.

I must say I very rarely called any of my markets increasing over the past few years - except maybe some waterfronts.

I do notice that due to the economy in Michigan, the pool of buyers has declined on recreational property - however, sellers are not decreasing asking prices as yet. I typically note if there is an oversupply, state that due to seasonal trending and the propensity to list properties during the selling season, only in this area an accurate analysis of supply/demand cannot be accomplished. With the current decreased pool of buyers along with oversupply conditions, the market will need to be watched closely. I am thinking all those sit back and watch folks will be out looking to make that dream come true this summer and sales will pick up.

 

[Michigander]

2005 avg 214K

2006 avg 194K

2007 (so far) avg 178K

All same zip code. All sales reported in MLS. I would say “declining” is most probable.

 

[Mike Garrett RAA]

Most ERC companies are asking the appraiser to analyze the last 6 quarters to establish a trend line.

I would challenge Bob Hereford concerning his statement ... the best way to determine the market is to use the same property that has sold twice in, say, a year".

The problem with doing that is the second sale is usually a distress sale. No one, in their right mind, would buy a house and then re-sell it in a year...as a typical transaction.

Much of what we see with those types of sale are either a divorce, bankruptcy, job loss, or job transfer. On the positive side are legal flips where the property was purchased in poor condition, renovated, and then sold. In either case, these are not "typical" transactions. I also believe a single transaction does not a market make.

I prefer to use a broader data set for my analysis. A one square mile grid usually works well for me. I like to compare the current six month period to the preceding six month period. As an example, I might input into the search function a one square mile grid, a style of home, and bracket the total square footage. Maybe 20 or 30 sales will come up and by using the "Stats" function, it will give me the low sale, median sale, and highest sales price. It also provides an average days on the market.

I then change the time period to the preceding six month period. I might find another 15 or 20 sales which are similar in style, size, and geographic location. By comparing the median price of these sales I can determine the percentage of increase or decrease in sales prices. The broader the data set the greater my confidence in the results.

Our market (Bob and I are both in Colorado Springs) is experiencing an increase in the number of listings and a decline in the number of sales...IN MOST AREAS. The funny thing is that the sales prices have shown an increase over-all for the past year.

So, are we really in a declining market? I certainly don't want to be the only appraiser reporting that. I have discussed this with the three other appraisers in the family and also with a number of other VA appraisers. We all concur ... the market is stable at this time; however, there are indicators which could reflect a potential decline in values in the future.

Some of those indicators are...increased number of listings, expanding days on the market, lower sales price to list price (SP/LP Ratio), decline in building permits, increase in foreclosures, and the ever popular..."bad news in the media".

So, what is an appraiser to do? The box we check on the URAR form says....declining property values. Have your values actually declined? Is the glass half full or half empty? The media would like us to think the national economy is in total disarray and yet the stock market is in record high territory. Inquiring minds want to know!

 

[David Dietz]

I think the key is your market as some have commented some markets have enough sales data to make a determination with only six months some require 1 year to 2 years. I typically at a minimum will research one year of sales history in the market to start then go from their. Then I review the active listings and trends they are showing based on the history and price reductions. Then I figure an absorption rate based on the sales, listings and withdrawn properties so and so on. Very time consuming but in my market it is very necessary.

 

[Artemis Fowl]

The form does not appear to be asking what the "market" is doing but rather the "neighborhood" trends. My "market" is declining but I've seen some "neighborhoods" that have stable value trends.

I've asked this elsewhere...do you eliminate duplicate listings within a month (change price/relist/etc) before calculating absorption? The results can be vastly different...

 

[Jungle Boy]

As appraisers, we often have a "feel" for the market.
We don't know exactly how we come up with trends, values, etc, and often it's just a gut feeling.

I try not to explain too much in the report, as that may get me into trouble. I basically just fill in the boxes based on what agents, brokers and my gut says.