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Solid slowdown in appreciation

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Doug in NC

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Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Since mid-late last year, I have noticed a definite trend of leveling off in values. Through the past several years up to this time, appreciation has been at a consistent 3-5% increase on average.

Lately, I have done several appraisals where values appear to have changed very little in the past year. For relocated employees, they may even be forced to take a loss, in some cases.

I was just wondering if others are noticing this trend. A veteran realtor confirmed this to me today, as his client will be lucky to get what they paid for the home less than 2 years ago. I can't help but wonder if a contributing factor could be over-inflated appraisals from the past years of good economic times. Some people are going to be real unhappy when they find out they are losing money on their real estate investments. Hopefully, this will help lead to the weeding out of some "what number do you need" appraisers.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Doug:

Some of our high end properties started taking a hit almost two years ago: or so our small office thought... Others continued to hit the numbers and no significant change occurred, because you could always find a few sales to prove your point in that market... We haven't appriased much high end stuff lately as a result.

Of course there are now individuals and relo companies taking a minor to major hit. It seems to be the relo folks who 'had' to park their money in high end properties who are going to bear the brunt of this phenomenon. Interestingly some of the properties on which "we were the third appraiser" and it was claimed we came in 'way to low' are now finally going at auction: for about what we thought they were worth....

I think you have identified the cause. Depends on your market, but it should be interesting to watch!
 

rpayne

Freshman Member
Joined
Jan 17, 2002
I am seeing a slow down too. But it is not in all neighborhoods. The drop in appreciation is consistent, but not county wide. Stability seems to be on a street to street/ neighborhood to neighborhood basis. The funny thing is that the really "hot" neighborhhoods have cooled the fastest.
 

Austin

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Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
I have been in this business for about 28 years and have been through a lot of cycles. High-end properties are very cycle sensitive. When the market is hot, prices skyrocket. When the market is slow, the bottom falls out. Most lenders that lend on high priced properties use the theory that they are lending on the buyer’s income or ability to repay the loan and not on collateral value. They are only concerned with collateral value when the borrower is marginal. There is a slight problem with this theory: It tends to add to inflated prices of high-end properties and stabilize lower price level properties. My father was a Realtor-appraiser and I can remember back in the early 70’s when he and another appraiser were working on an assignment together. A big corporate executive was transferred out of town and he sold his house to the person that replaced him. He really stocked it to the guy who was coming here from NYC and didn’t know the difference. The S&L wanted to make the loan because the buyer was a big shot but the numbers just were not there. The appraisal assignment was not to find the price but to make the deal. I remember to Realtors doing appraisals for this S & L and they told me once they did about 30 appraisals one day working together. One drove and the other took pictures and they guessed the price. Back in those days it wasn’t hard to do since everything at the time was $40,000 or less. Wait until you see what happens to vacation homes. It will be a bloody sight. You are not a real appraiser until you have been through a deep cycle bottom out. Young appraisers don’t think it can happen because they have never experienced it. Wait until the phone doesn’t ring for 3 months and they will get the drift. I have beening doing work for the same bank since 1986, because they learned their lesson and I bailed them out. Now they have a new management team and they are heading right back into the mire. A VP told me recently that the definition of market price was the contract price or construction cost and my job was to send in reports to that effect. Here we go again. Another expensive education at tax payer expense.
 

Steven Bonner

Sophomore Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina

A VP told me recently that the definition of market price was the contract price or construction cost and my job was to send in reports to that effect. Here we go again. Another expensive education at tax payer expense.
And of course, that is the problem. Even many lending VP's don't know or care about the difference between "price" and "value", especially when one will get in the way of their rising career. Just ask Enron investors. It's easy to report the price, just look at the contract. Value is another matter.
 
Joined
Jan 16, 2002
Our area market is insane. Market is highly skewed due to an apparent "free for all" among market participants (i.e. buyers, sellers, real estate agents, builders, and bankers). Most homes are simply over-priced and many buyers are not well informed. Real estate agents are following the lead by adding tens of thousands to each new listing with no closed sales to justify such high asking prices. Builders are doing the same. Competition among lenders is ferocious, and appraisers are adding gasoline to the fire. Real estate as usual is still in denial about the effects of 9/11 and the recession. Inventory levels and days on market are increasing and the job market is shaky to say the least. Values are so inflated they never had any equity to begin with.

But what do I know, I'm only the appraiser.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
I'm seeing just about everything that the rest of you are here in the Denver market. Seller concessions, a buyer's market, sellers backing down on their sales prices, an increasing glut in the rental market (particularly high end homes), new construction subdivisions starting to post banners touting no payments for a year and the majority of the comps that come close to what the lender wants to see are pre 9/11 sales.
There is always a cyclical slowdown in my area over the winter months, but I am seeing more and more evidence that spring is not going to bring on a revival similar to those seen in the past 10 years or so.
The local news keeps announcing more layoffs on an almost daily basis and last week there was a big article about the high-end homes around the ski towns decreasing rapidly in value. Denver's growth over the past 10 years or so has been almost completely techie and financial and real estate people, a good portion of them being refugees from other areas of the country who were hit with hard times about 5 years ago. These are the exact same people who are getting laid off now and bailing out of the area (it seems they know the drill and when to bail out). The building trades are suffering mightily too.
Even the most optimistic economic hornblowers have recently become very, very quiet. It's as if everyone is hunkering down, waiting and wondering just how bad it's going to get, but I'm sure we haven't seen the bottom yet.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Dee Dee:
I have a friend in the tech industry who bought high and sold low 3 times in a row as she got transferred around from Silicon Valley to Colarado. Just bad timing but OUCH! It was really very difficult for her to gear up for a 4th purchase attempt, which occurred about 6 months prior to 9/11,
again in a market that may take a hit due to tech industry blues.

Granted that a certain segment of the very high end takes a hit when thing soften up, but is anyone else seeing a upper middle value decrease?

Our middle value homes are still going up a bit, though how much of that is low interest rates (wheee we can move to a bigger house and pay lesss!!) and a habit of assuming value increases....
 

Ron in AR

Sophomore Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arkansas
Austin, I figure you'll still be appraising after that VP is gone. I've seen that happen many times and I know you have also.

Around here, in many parts, we're just dreading the slowdown of a stable market. It's going to get very interesting.

Ron in AR
 
A

Anonymous

Guest
I, LIke DeeDee, live and work in a scenic, high tourism area. Our prices saw high appreciation for many years. Our newspaper even reported a few years ago that properties were increasing in value over 25% per year. Talk about the phone ringing off the hook. We had to explain that that was based on tax assessment data that hadnt been updated in 8 years. It was actually a one time 25% increase. OF course, the paper printed the correction on the back page.

I have seen a trend over the last 10 months to a leveling off in prices. And yes, if one researches the listing historoes of the comps the use, you can see the original price, all of the reductions, then the sales price. If one studies this, you can see the leveling off. Also, I have noted that marketing times have been going up. However, if you go back and look at the history data, it appears that they are on the market longer because of the seller/broker "optomistic" prcing. Once the price is reduced to a reasonable level, the marketing time at that price is about normal for our area.
 
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