Why don't we use the AVM/AMC model to value stocks too?

[George Hatch]

The buyers and sellers value stocks. Apple for example trades 50 million shares per day. That is the same thing as having 50 million exactly identical comps every day.

you know exactly what a stock is worth at any moment based on the bid and ask.

The price isn't the question. It's exactly what the buyer is getting in exchange for that price that can either be known or unknown.

The actual attributes of an SFR and its comparables are known/knowable. Little/no trust in the seller is required.

 

[Gobears81]

In my area there is a shortage of listings and a lot of Bid Wars, interest rates come down, prices will go up again.

I've always thought of the shortage of listings being due to the interest rates being so high, as no one wants to lose their 3% mortgage. The general theory makes sense that prices go up with a decline in interest rates, but homebuyers opt to stay in their existing residence and renovate, due to the high prices, which further exacerbates the lack of supply. With more homebuyers coming in than exiting, it seems that they are often competing for the homes put up for sale by those moving to assisted living or estates. If interest rates come down, that could cause an increase in supply that may ease the bottleneck causing the high prices.

Just my hypothesis, could very well be proven wrong in time.

 

[J Grant]

I've always thought of the shortage of listings being due to the interest rates being so high, as no one wants to lose their 3% mortgage. The general theory makes sense that prices go up with a decline in interest rates, but homebuyers opt to stay in their existing residence and renovate, due to the high prices, which further exacerbates the lack of supply. With more homebuyers coming in than exiting, it seems that they are often competing for the homes put up for sale by those moving to assisted living or estates. If interest rates come down, that could cause an increase in supply that may ease the bottleneck causing the high prices.

Just my hypothesis, could very well be proven wrong in time.

That is part of it. The relative shortage kept prices higher, though inventory is starting to accumulate, and I do see signs of a price softening.

 

[CGinMN]

The actual attributes of an SFR and its comparables are known/knowable. Little/no trust in the seller is required.

Not really. The seller is the seller, the real property is the stock. Much more trust is required of the seller in RE. No trust is needed in the seller of a stock, only the platform on which it’s being traded. The attributes of both RE and stocks will always be in some part known, and in some part unknowable. What will this rent for? What should I do expect for vacancy loss? Will taxes go up after the purchase? When will I have to replace sewer line? What if the seller didn’t disclose something that is expensive to fix?

 

[Joe Flacco]

The price isn't the question. It's exactly what the buyer is getting in exchange for that price that can either be known or unknown.

The actual attributes of an SFR and its comparables are known/knowable. Little/no trust in the seller is required.

The buyer knows exactly what they are getting. Each share is exactly the same as the next share. If it was real estate it would be the exact same house with the exact same attributes. That would be looking at it based on the sales comparison approach.

If looking at it like the income approach, the market participants make decisions based on the quarterly financials. Actual and projections. Not really any different compared to looking at real estate income.

The market participants use all of the information available at the moment which is reflected in the price.

 

[George Hatch]

Not really. The seller is the seller, the real property is the stock. Much more trust is required of the seller in RE. No trust is needed in the seller of a stock, only the platform on which it’s being traded. The attributes of both RE and stocks will always be in some part known, and in some part unknowable. What will this rent for? What should I do expect for vacancy loss? Will taxes go up after the purchase? When will I have to replace sewer line? What if the seller didn’t disclose something that is expensive to fix?

Okay, so what attributes of an SFR would you say are unknowable to a buyer prior to the purchase? Significant enough to be of effect on the price?

Many transactions include a 3rd party home inspection and a 3rd party appraisal. Neither of which are primarily dependent upon what the seller reports.

 

[Joe Flacco]

You don't know if the HVAC is going to die early tomorrow or your well goes dry. You don't know if a company is going to shut down in your town tomorrow resulting in a loss of jobs.

 

[CGinMN]

I just listed several. You’re only thinking of real estate (physical), rather than real property (rights). The tangible stuff can be known fairly easily. There are cases where it can’t, think liquidation auctions where there is no right to inspect.

Again, I don’t think the seller of real estate is equivalent to the company that issued the stock. The seller of a stock is typically another holder.

 

[George Hatch]

You don't know if the HVAC is going to die early tomorrow or your well goes dry. You don't know if a company is going to shut down in your town tomorrow resulting in a loss of jobs.

They say that some businesses keep 3 sets of books....... That is not an example of some hidden defect that is unknown to everyone including the business owner.

 

[George Hatch]

Suffice it to say, the prospect of the unknown is much higher with some of these business interests than with the average SFR.