Which is better for market conditon adjustments, data master or spark?

[Tim Hicks (Texas)]

Charts are only as good as the data that goes into it. I have one subdivision in Cleburne with low cost housing being built. 2600 sf for $280,000, 4000 sf for $340,000. The only truly comparable sales are from that subdivision. I have to make 40% quality adjustments for the comparable sales from other subdivisions. When you run the sales data, there was a 2-3 month period where the majority of the sales were from the low cost neighborhood. So, the median price goes something like $390k, $404K, $310K, $300K, 410K, $400K.

This is not a declining market. The data just skewed by this lower cost housing market. Sure, you can remove the low cost sales when appraising other properties, but when appraising the low cost housing the data for all comparable sales looks like a roller coaster graph. If big data does not know the market, then the data is truly GIGO.

 

[TerryRohrer]

That would represent an annual appreciation rate of 1.2%, which is actually lower than the current inflation rate of 2.7%

So the nominal appreciation rate is virtually nill, while the real rate is actually declining slightly since it is below the inflation level.

But the inflation level is a contrived measure that includes other assets and goods. I don't understand the comparison unless accompanied by an assumption that all goods and assets inflate and deflate at the same rates all the time.

 

[TerryRohrer]

Charts are only as good as the data that goes into it. I have one subdivision in Cleburne with low cost housing being built. 2600 sf for $280,000, 4000 sf for $340,000. The only truly comparable sales are from that subdivision. I have to make 40% quality adjustments for the comparable sales from other subdivisions. When you run the sales data, there was a 2-3 month period where the majority of the sales were from the low cost neighborhood. So, the median price goes something like $390k, $404K, $310K, $300K, 410K, $400K.

This is not a declining market. The data just skewed by this lower cost housing market. Sure, you can remove the low cost sales when appraising other properties, but when appraising the low cost housing the data for all comparable sales looks like a roller coaster graph. If big data does not know the market, then the data is truly GIGO.

That is a primary weakness of all the graphs and charts reflecting changes in average or median price changes. No one I have seen accounts for the difference in the product, there is just an assumption that it is always identical. Further, you would have to assume that all factors that impact value never change over time. I recall seeing hundreds of comments, particularly during the Covid years, where appraisers were concluding that typically detrimental conditions were not having any impact on prices. Yet those are never discussed or accounted for by proponents of the slap in a graph crowd. Those folks are generally the ones saying the market conditions adjustment is the easiest one for appraisers to support.

I seldom respect any conclusions drawn by anything connected to the GSEs because they can't be objective. But I just reread the FHFA study regarding market conditions adjustments and noted the following, the bolded statement with which I wholeheartedly agree (but that does not excuse appraisers from performing the analysis):

"This blog documents that appraisers underutilize and underestimate time adjustments, but does not attempt to determine the cause or propose potential solutions. One potential reason for underutilization is that these adjustments are some of the more analytically complex calculations appraisers might perform. Also, market information about comparable sales data can be sparse, decentralized, and observed with a lag."

 

[Tawfik Ahdab]

Terry wrote:

“But the inflation level is a contrived measure that includes other assets and goods.”

Maybe so. But it also reflects the changing purchasing power of the dollar. And since prices are expressed in dollars, it is relevant to all dollars spent - for housing as well as to any other goods and services.

 

[TerryRohrer]

Terry wrote:

“But the inflation level is a contrived measure that includes other assets and goods.”

Maybe so. But it also reflects the changing purchasing power of the dollar. And since prices are expressed in dollars, it is relevant to all dollars spent - for housing as well as to any other goods and services.

I'm not seeing any insight in the comparison.

"Since 1963, inflation has risen 896%, while housing prices have risen by more than 2,350%. During that same time, rent rose by 892%. That means rent has held pace with inflation, while homes have seen significant price increases, even when adjusted for inflation."

Is There a Correlation Between Inflation and Home Prices?

There is a correlation between inflation and house prices — in fact, there are correlations between inflation and any goods with a limited supply.

www.investopedia.com

 

[Fernando]

In my market area, the median sale price at year end 2023 was $415,000. At year end 2024 it was $420,000. That would represent an annual appreciation rate of 1.2%, which is actually lower than the current inflation rate of 2.7%

So the nominal appreciation rate is virtually nill, while the real rate is actually declining slightly since it is below the inflation level.

Monthly market conditions adjustments in small markets are often a fools errand unless they are derived from changes in prices of resales of the same property over time, on further condition that the property has not undergone significant alteration between the prior and the most recent sale.

You got to know stats. Are you going to conclude prices are increasing?
1.2% is not significant.

 

[Fernando]

I'm not seeing any insight in the comparison.

"Since 1963, inflation has risen 896%, while housing prices have risen by more than 2,350%. During that same time, rent rose by 892%. That means rent has held pace with inflation, while homes have seen significant price increases, even when adjusted for inflation."

Is There a Correlation Between Inflation and Home Prices?

There is a correlation between inflation and house prices — in fact, there are correlations between inflation and any goods with a limited supply.

www.investopedia.com

I was checking the hotel rates for Aulani resort in Hawaii.
Back in 2014 when we stayed at the Disney hotel, the room rate was like $500 something.
Rate for one night in March is now minimally $1,085.
Like housing prices doubling, everything has gone up.

 

[Tawfik Ahdab]

Perhaps a closer reading of my initial post would clarify that a 1.2% annual median price appreciation rate is lower than a 2.7% inflation rate.

I was not pointing to a historic contrast between national property price appreciation and cumulative iinflation since 1963. Just to the latest difference between the two in my market area.

 

[Fernando]

Perhaps a closer reading of my initial post would clarify that a 1.2% annual median price appreciation rate is lower than a 2.7% inflation rate.

I was not pointing to a historic contrast between national property price appreciation and cumulative iinflation since 1963. Just to the latest difference between the two in my market area.

So would a 1.2% annual median increase considered an increasing market for you to justify a market condition adjustment?

 

[Fernando]

Give me stats, I can spin it what you like. Been doing that for 1004MC as long as I can remember.