MARCH 14, 2025 – The following is from the Appraisal Institute’s ‘Appraisal Now’ email newsletter. The first time I saw regulators focus on Appraisal Review was during the 2005-2010 Financial Crisis. This is the second time. As such, appraisers should include more expense comparable data specifically (especially re Insurance!). Reviewers should focus more intently on expenses. Trust me, with bank examiners being given this guidance they are going to be laser focused on expenses in the Income Approach!! My experience is about 50% of appraisers provide a table of expense comparables with the individual expenses listed and then an analysis of each for estimating the individual subject expenses. About 50% do not provide any support and maybe will say maintenance typically ranges from $0.50 to $1.50/sf and I conclude at X. That is not support. I encourage those appraisers to step up their game. Because if examiners come across those appraisal reports with no detailed support, they will have that bank or credit union remove that appraiser from their approved list! And bank examiners only see black and white. They are not appraisers. They will see those appraisals with a table of 4 or 5 expense comparables and individual expenses listed. Then they will see those reports that do not have such tables. The latter is in trouble. Obviously, you should also have a table of subject actuals for the past 1-3 years, when available. Just my advice from 33 years of being in the bank appraisal review world and dealing with examiners and regulators.
Shalom,
The Mann
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Bank Examiners Highlight Key Appraisal Issues for 2025
Recent industry meetings between bank chief appraisers and bank examiner policy specialists have brought to light several key issues that appraisers should be aware of in 2025. These discussions reflect the evolving expectations and regulatory scrutiny surrounding appraisals, particularly in the banking sector. Below are the primary points of emphasis that emerged from these meetings.
Appraisal Quality Remains a Top Concern
Bank examiners continue to stress the importance of appraisal quality, underscoring the need for well-supported valuations that withstand regulatory and client scrutiny. Ensuring compliance with professional standards, proper market analysis, and credible adjustments remain critical in maintaining confidence in appraisal reports.
The Ongoing Concern Over Engaged Appraisers Not Signing Reports
A recurring complaint in these discussions—brought up annually—is the issue of appraisers engaged for assignments not signing their reports. This raises concerns about accountability, potential outsourcing issues, and the integrity of appraisal reports. Examiners urge banks and appraisal firms to reinforce best practices and ensure that the responsible appraiser is clearly identified in every report.
Data Center Appraisal Issues Persist
Data center valuations continue to pose challenges, with bank examiners revisiting concerns from previous years. These properties have unique valuation factors, including high infrastructure costs, evolving technology, and variable market demand. Appraisers working in this niche should stay updated on emerging valuation methodologies and market trends to address examiner expectations.
Ongoing Scrutiny of Participation Deals
Participation deals remain an area of focus, as they were last year. The complexity of these deals can introduce valuation challenges and potential risk exposure for financial institutions. Examiners urge appraisers to ensure transparency, provide thorough documentation, and carefully analyze risk factors when handling such assignments.
Increased Expectation for Reviewers to Challenge Assumptions
Another significant takeaway is that examiners expect review appraisers to question and push back on key assumptions made in appraisal reports. This aligns with a broader push for stronger due diligence and critical analysis. Appraisers should be prepared for increased scrutiny of their market assumptions, income projections, and comparable selection.
Heightened Focus on Expenses, Particularly Insurance Costs
Bank examiners also emphasized the need for greater attention to expenses in appraisal reports, particularly related to insurance. Rising insurance costs have become a growing concern, impacting property valuations and financial risk assessments. Appraisers should ensure that expense projections, including insurance, reflect current market conditions and provide adequate justification.
What This Means for Appraisers
With these continued and emerging concerns, appraisers should take proactive steps to ensure their reports meet heightened expectations. Strengthening report quality, addressing recurring industry concerns, and preparing for increased review scrutiny will help appraisers navigate the evolving regulatory landscape in 2025.
Tag Archives: Federal Reserve
STOCK MARKET UPDATE
UPDATE AUGUST 12, 2024 – One of the reasons I have followed the Elliott Wave Theory for 44 years is it has predetermined points where you need to realize a market isn’t going where initially thought and you need to reverse course. Yesterday, the major market indices (except the Russell 2000) crossed lines that said the recent correction was actually part of the ongoing bull market and not the start of a new bear market. This suggests the economy will be strong thru the 1st Quarter of 2025 at a minimum. Right now, I am seeing +2.0%-2.9% estimated for 3rd Quarter GDP. I suspect the 4th Quarter will be equally strong. Too early to see where 1st Quarter 2025 will be. Albeit, I think the market says there will be a bit of a hiccup then.
Gold is at new all-time highs. Silver is struggling, but should go up into the $30’s per ounce. I did take positions in Copper and Natural Gas as they are at lows that over the past 20 years have signal major bottoms. Cryptos have acted well since the downturn 10 days ago. CPI came in at +2.9% today. I will post about that tomorrow. Hope everyone has had a good Summer. – The Mann
AUGUST 2, 2024 – Wow, what a week this was. As everyone should know, I love Bear Markets way more than Bull Markets. It killed me to be all out bullish for the past 2 years. But, I rode the upturn to its fullest I think and sold all my stocks a week ago on Friday July 26th when the Dow was up about 700 points. And this week as 10-Year Treasury Notes and further out went below 4%, I locked in a 4.8% annuity for 3 years. Easier to sleep this weekend and beyond. Albeit, I did leave some play money to play the downside:) Bear markets are quicker and harsher than bull markets. Easy money to be made if the bear market is truly underway. On to some numbers and forecasts. This is going to be VERY LONG as I am going to layout a lot of specific targets for numerous markets. AGAIN NONE OF THIS INVESTMENT ADVICE. Just my hobby of forecasting the future.
One thing that annoys me most about most analysts are they make forecasts and don’t provide a point (aka as a stop-loss) where they say their forecast is wrong and has to be reconsidered. That leaves their followers not knowing what to do when the person they are following has missed a call. I never care when the market crosses a stop-loss point. Yes, it means my analysis was wrong and, if I traded it, I took a loss. But, if you take trades where your expected profit/loss ratio is at least 3-4/1, then the small losses are nothing compared to the large profits.
DOW 30 INDUSTRIALS – The DOW broke below the 39,411 level today that I mentioned would indicate the peak on July 18th was the Bull Market top. The only problem was this was a closing target, not an intraday figure. The DOW closed at 39,737. Also, the wave theory I follow does not clearly show a change in trend. With all other stock indices clearly in a Bear Market, I am going to assume the DOW is, too. If it gets back to 40,061-40,353, I will probably go short with a stop-loss around 41,000. If it is in a Bear Market, it should not see 41,000 again.
NASDAQ – The Bull Market top occurred at 20,691 on July 10. As I predicted a few weeks ago, the DOW has been much stronger than the NASDAQ. There have been several days recently where the DOW was up a few hundred points and the NASDAQ was down a few hundred. First support is around 17,000-17,500. It is very early, but I am thinking the Bear Market might bottom between 10,500 and 13,500. A 35%-49% decline would be moderate for the NASDAQ. In the past, major declines have been over 80%. Right now, it will take a move to a new high to end the Bear Market case. That isn’t ideal. But, sometimes that is all you have. Right now is not an ideal entry point to short the NASDAQ 100 or S&P 500. Although, I think some more carnage lies ahead next week, a rally after that back to anywhere around 19,000 on the NASDAQ 100 would give me a great place to short. I just am not sure it will ever get back to that level. Today’s close was 18,441. A Bear Market doesn’t like to give short-sellers an easy time either:)
RUSSELL 2000 – The Bull Market top actually occurred back in November 2021 at 2,459. The Bear Market rally topped at 2,300 on July 31. Today’s close was 2,109. If I can get a move back to about 2,172 to close a gap on the chart that occurred today, I will go short with a 2,300 stop-loss. My analysis suggests the high end of the Bear Market bottom range is 1,475 with 965 being the bottom end. Two separate wave relationships point to 965. So, I give that most weight. Thus, a short trade initiated at 2,172 would have an expected profit of 697-1,207 points with a stop-loss being at 128 points. That is a 5.5-9.4/1 profit/loss ratio. Those are the kind of trades I like:)
TREASURY BONDS – The rally I have called for continues and accelerated today. The US 30-Year Treasury Bond price closed at just over 125. Around a 4.1% yield. The main target is around 131 or about a 3.5% yield. The high-end price target is about 144 or about a 3.0% yield. I guess if I had to pick a stop-loss point it would be about 120.5.
ECONOMY – I have reiterated many times that economists waste their time trying to forecast the economy when the stock market tells us what is happening 6 months into the future. The market has correctly forecast the strong economy for the past 2 years and already said it will be strong through the end of the year. However, if the market is in a Bear Market, then it is telling us that next January and February will show us an economy in trouble. As I mentioned almost a year ago, a way early indicator was pointing towards a 2025 recession. The market is now pointing that way, too. And the market doesn’t get this wrong. My expectation is that the economists and pundits that have been dead wrong for two years about a recession occurring will start to say no chance of a recession in 2025 because the Federal Reserve starts lowering interest rates in September and interest rates fall significantly as I have forecast. Also, Trueflation is now down below 1.4%. The pundits will be overwhelming you with how great things are as inflation is tamed and mortgage rates are down, blah blah blah. I do hope they will be bullish right as the recession gets underway. As a reminder, when the yield curve (10-year minus 2-year Bonds) gets to +100bp we will be in a recession. It is down to about -20bp. The lowest I have seen in a year or two. We have lots of lead time to get from -20bp to +100bp. Could that lead time be 6-9 months as the market has indicated? Coincidence? 🙂
UNEMPLOYMENT – On July 1st, I posted it will be 4.4%-4.5% by year end. It went up to 4.3% in today’s report. The whole world now knows about the Sahm Rule (I will let you look it up to see what it is.). Supposedly, it was triggered today. I thought it already had been. I think there is a similar rule with a different name measured in a slightly different way. Everyone talks about its 100% perfect record predicting recessions since 1970 or such. What everyone doesn’t know apparently is that the rule has only a 50% accuracy rate when unemployment rates get adjusted after the initial announcement. A flip of the coin is definitely more accurate than economists and weather forecasters! But, it doesn’t help me in my analysis.
GOLD & SILVER – I am getting tired. If you are still reading, I am sure you are, too:) The gold target is still $2500-$2600. Silver looks extremely good with a move to the $34-$40 range likely. I will probably hop on this trade Monday morning.
LASTLY – One last thing came to mind. Over a year ago when the SVB debacle occurred, I posted about buying when no one else wanted to. Everyone predicted 400+ banks to close up and the housing market to crash. Here is what those experts cost you if you didn’t invest in those sectors. Granted no one would be able to buy at the exact low and high. But, the bull moves were as follows – The S&P Regional Index (KRE) bottomed at 34.52 and the recent top was 59.59. A 72% move. Even if you just caught the middle part of the move for a 50% profit remember all of those pundits that told you banks were in trouble. The S&P Homebuilders ETF (XHB) was around 64 at the time of the SVB event. But, the bull move had started a year earlier at 51. The recent top was an ALL-TIME HIGH at 121.23. Over the past 15 months it went up a measly 89%. If you threw in the towel today, you would have made over 70%. Remember to thank all of those people that have been predicting a housing market crash. And seriously folks, look up on YouTube or wherever the videos from around the SVB event forward and find those analysts that were forecasting armageddon – and NEVER EVER listen to them again!!!
I might be back here sooner than later. I live for bear markets. I get very active when they are occurring. This bear doesn’t hibernate:)
Shalom,
The Mann
FINAL RULE ON AVM QUALITY CONTROL STANDARDS
JULY 25, 2024 – The Federal Agencies have issued the Final Rule on Real Estate Valuations: Quality Control Standards for Automated Valuation Models. Hopefully, you can cut and paste the URL below. If not, go to an Agency website and type in the above words in Search and it should come up.
https://www.fdic.gov/news/financial-institution-letters/2024/final-rule-real-estate-valuations-quality-control-standards?source=govdelivery&utm_medium=email&utm_source=govdelivery
This guidance was desperately needed because we all know computer models actively seek out the skin color and/or gender of borrowers. Once they find this information and the borrower(s) is not of a specific hated class, then the AVM will apply a -20% adjustment to whatever initial value it generates. If the borrower is of a specific hated class, then obviously no downward adjustment is applied. Who knows, maybe even an upward adjustment is applied heh heh
Yes, sarcasm intended. What a freakin’ joke! Gotta watch out for them darn racist and sexist computer models;)
Shalom,
The Mann
https://www.fdic.gov/news/financial-institution-letters/2024/final-rule-real-estate-valuations-quality-control-standards?source=govdelivery&utm_medium=email&utm_source=govdelivery
This guidance was desperately needed because we all know computer models actively seek out the skin color and/or gender of borrowers. Once they find this information and the borrower(s) is not of a specific hated class, then the AVM will apply a -20% adjustment to whatever initial value it generates. If the borrower is of a specific hated class, then obviously no downward adjustment is applied. Who knows, maybe even an upward adjustment is applied heh heh
Yes, sarcasm intended. What a freakin’ joke! Gotta watch out for them darn racist and sexist computer models;)
Shalom,
The Mann
Reconsiderations of Value for Residential Real Estate Valuations
JULY 21, 2024 – The Federal Agencies have issued the ‘Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations.’ You can cut and paste this link to get to the website that will provide you additional information.
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240718a.htm
The only item I will point is the following quote:
“This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions.”
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240718a.htm
The only item I will point is the following quote:
“This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions.”
INFLATION UPDATE
AUGUST 11, 2023 – The August report came in at 3.3%, just below my forecast of 3.4%-3.5%. The 3-month annualized inflation rate is 3.1%. The 6-month annualized inflation rate is 4.4%. These figures bracket the annualized rate (3.3%) and thus indicate the annual CPI should be range bound for awhile.
Based on the data, my prediction for next month’s figure is 3.5%-3.6%. I like the data and am confident the next reading will be in that range or a tick lower like this month.
Through the October report, the annual CPI figure should be about as boring as a Miami weather forecast – 88 degrees/77 degrees, 88/77, 87/77, 88/76…I expect annual CPI to trend around 3.5% (plus or minus 0.1%-0.2%) through the October reading.
As an aside, the market is telling the Federal Reserve not to raise the Fed Fund Rate at its September meeting.
Til next month’s report.
Shalom,
The Mann
THE REMAINDER OF 2023 – ECONOMY
UPDATE JULY 27, 2023 – 2nd Quarter came in at a whopping +2.4%. Far exceeding expectations that were below +1.5%. So, we have an economy that has expanded, not contracted, this year! The stock market told us this would happen. For anyone you know that has been predicting a recession in 2023, please ask them if they admit they have been totally wrong. People need to admit their errors and stop being broken clocks. If they don’t, they have no credibility. As I note in my original post below, it is likely the current forecast of +0.5% and 0.0% for the remaining two quarters will change to the upside as the year carries on. Will the economy slowdown from +2.0%-2.4%? Yes. The stock market has said it will be stagnant the remainder of the year. But, will we see two negative figures in a row? The odds are near zero. Plan accordingly.
JULY 22, 2023 – It is all but guaranteed that the recession mongers will be wrong about such occurring in 2023. As I forecast earlier in the year, by Summer (i.e. now) those people would begin to move their prediction to a recession occurring in 2024. Enough time wasted on the large group of media and economists that are broken records.
So, what does the future hold. The past 12 months have been very easy to predict for the economy, housing, and inflation. IF you just read what the stock market (i.e. Dow 30) is telling us. Yes, it is that simple. And, yet, 99%+ of the public and pundits don’t do it.
The Dow 30 peaked in December 2022 after bottoming in October 2022. That told us to expect weakness thru April 2023. Sure enough, the Silicon Valley Bank collapse and the associated bank panic occurred in March and April.
Since December 2022, the stock market trended sideways for 8 months. Just this past week the Dow finally broke thru the 35,000 level after about 7(!) failed attempts. So, what does this tell us? It tells us that the economy is expected to be stagnant for the last 6 months of this year. And, based on this upside breakout, the economy should see an uptick in the 1st Quarter of 2024. This is a very early interpretation as the breakout just occurred this week and is only a small amount above the December 2022 high.
Is the stock market, and thus smart money, correct? Yes. As usual. 1st Quarter GDP was +2.0% (revised from the initial report of 1.3%). 2nd Quarter GDP is project to be +1.3%-1.4%. But, 3rd and 4th Quarter GDP are expected to be barely in positive territory. Exactly what the stock market has told us would be the case for the past 8 months – a stagnant Dow 30 forecasts a stagnant economy 6 months out.
Forecasts obviously vary. I have seen most to be around +0.5% for the 3rd Quarter and 0% for the 4th Quarter. But, I think those forecasts are trending up due to the strengthening housing market (that will be my next post, so please come back:) ).
The recession mongers will be screaming they told us the economy was caving. One, they have been calling for a recession for over a year (right after the actual recession just ended!) and GDP has come nowhere two negative quarterly figures in a row. Two, the stock market has forecast the ups and downs with 100% accuracy. It hasn’t been a broken record.
Based on my forecast that the CPI will trend up the remainder of the year, I suspect the market will tell the Fed to raise the Fed Funds Rate several more times. Note, the public is wrong to blame Powell for raising rates. He is simply doing what the Fed has done forever – following exactly what the market has told it to do. So, the market has obviously priced in all Fed actions ahead of the Fed meetings because the market told them what to do at the meetings!!!
But, I digress…..my point is the recession mongers will remain a broken record as they will continue to say that the Fed’s raising of interest rates is going to push us into a recession. As of today, the stock market says they are wrong and a recession is not going to happen. I put my money on the stock market instead of all of those economists that have been 100% wrong for the past year (and longer).
I believe my forecast of the housing market will be my next post. I will probably combine it with a brief discussion on banks.
Shalom,
The Mann
HAPPY 247th TO OUR REPUBLIC
JULY 4 – Hopefully, everyone had a fun and safe 4th of July. As we are half-way through this year, just a few items to mention.
I am seeing the first articles questioning all of those people that have been forecasting a recession. The tide is about to turn on all those who will have to admit they are wrong. People are finally starting to say hey we had the Recession last year. Thanks for joining the small club of us that have been saying this for a year now!
First Quarter GDP was revised upward from 1.3% to 2.0%. Second Quarter GDP forecasts are around 1% (Federal Reserve is projecting 1.3%). That would be an annual rate of 1.5%, which is in line with population growth. I am probably wrong about this, but I have always thought GDP growth should be about the same as population growth. If we look at a chart of the growth rates for both, we will see they have been declining in unison for 30+ years. I seriously doubt the last two quarters of this year will have negative GDP.
Lastly, Truflation analyzes 10 million data points (so they say) daily in comparison to the 80,000 data points (again, so they say) analyzed monthly for CPI. Thus, a quicker and more encompassing inflation rate is provided. Truflation is down to about 2% versus 4% for CPI, which will be about 3% in a few weeks when the next report comes out. Again, all of those people that a year ago were forecasting 10%+ inflation this year need to stand up and admit they were wrong.
Oh, the housing stock index I mention from time to time hit 80 this week. Up from a low of 53 last October. That is a nice 50% move the masses missed because the media was talking about the upcoming housing crash. Houses in my market are back to selling above list price and instantaneously, again. As I have posted, 7%+ mortgage rates are not an issue for people buying houses.
For a summary of recent economic data, this is worth checking out:
Strong economic data turns recession fears into recession doubts (yahoo.com)
Happy Birthday America!
Shalom,
The Mann
NEW INTERAGENCY ADVISORY ON EVALUATIONS
March 7, 2016 – For the first time since December, 2010, the Agencies have issued a statement on Evaluations. I will include the FDIC link below, albeit the Federal Reserve and OCC have similar links.
My feeling is nothing new has been added. There is a bit more talk about how to use tax assessments – hopefully, this will once again become more common now that The Great Depression II has run most of its course. Also, they make it clear that market value must be of real property only. FF&E in apartments and going concern properties must be valued separately, just like in appraisals.
Please pass the link below along to your bank contacts so everyone can stay informed. Thanks.
https://www.fdic.gov/news/news/fi
nancial/2016/fil16016.html
A GUEST POSTER’S VIEW ON THE ECONOMY
February 1 – Following is my first guest post. Bruce Cumming, Jr. is the author. He can be reached at 941.926.0800 or bcumming@hettemasaba.com.
We would like to note that from an academic-business perspective real estate is viewed as a sub-discipline of finance, finance as a sub-discipline of economics and the classical economist such as Adam Smith and David Ricardo referred to their discipline as “political-economy” linking economies with the political mode of a country, state, county, or municipality. The following is some economic theory and emerging issue that could impact real estate values.
According to the Austrian business cycle theory, central banks (such as the US Federal Reserve System and specifically its Federal Open Markets Committee) can set interest rates too low for too long, which can create an artificial boom and distort the accuracy of data on a trend line basis, often causing what is termed “malinvestment.” According to an article by Mauldin Economics, based upon a graph of the US 10-Year Treasury Rates going back to 1790, 10-Year Treasury Rates over the long-term averaged just less than 6% and the average over the last 50 years was 6.58%. The current 10-Year Treasury rate according to the US Department of the Treasury is 2.06%, or about 394 basis points below the 200-plus year average rate and 452 basis points below the 50-plus year average rate. The Federal Open Markets Committee just increased its rate for the first time since December 16, 2008, on December 17, 2015. The Federal Funds Rate has been between 0% and 0.25% for 7 years. The Federal Funds Rate is now between 0.25% and 0.50%. The US stock market has been in rapid decline so far in January of 2016.
The McKinsey Global Institute’s report, Debt and (Not Much) Deleveraging, dated February 2015, reports that between 2007:Q7 and 2014 worldwide debt have increased from $142 trillion to $199 trillion, an increase of $57 trillion, or 40.14%. Debt has not been liquidated during the so called Great Recession, but has been increased, thereby potentially distorting asset values.
It should be noted that the Green Street CPPI: All-Property Index (which was started in December of 1997) was 22.7% higher in December of 2015 than in December of 2007, its previous peak. Green Street tends to focus on investment grade real estate and is tightly tied to the capital markets. The Moody’s/RCA CPPI, which focuses on repeat sales of properties greater than $2,500,000 in value, saw its last peak in 2007:Q3 (165) and reached that same level in 2015:Q3 (165). The trough reported by this index was in 2009:Q4/2010:Q1 (96), so the index has increased 71.88% from trough to peak.
Austrian economists theorize that the artificial monetary boom ends when bank credit expansion finally stops, which is when no further investments can be found which provide adequate returns for speculative, or “Ponzi” borrowers. The Austrian business cycle theory asserts that the longer the artificial monetary boom goes on, the more speculative and “Ponzi” the borrowing occurs, the more errors and waste committed, the longer and more severe the workout period (e.g., bankruptcies, foreclosures, and short-sales) until equilibrium is achieved through market-based price discovery.
The Austrian business cycle theory is one of the precursors to the modern credit cycle theory, which is emphasized by Post-Keynesian economists at the Bank for International Settlements and by mainstream academic economists such as the late Hyman Minsky (PhD/economics, Harvard). Post-Keynesian Minsky taught at Brown University and the University of California at Berkeley among others. Minsky’s financial instability hypothesis is translated to real estate markets by borrower type.
Minsky theorized that a key mechanism that pushes an economy toward a financial crisis is debt accumulation by the private sector. He identified three types of borrowers: hedge borrowers, speculative borrowers, and “Ponzi” borrowers.
„ Hedge borrowers: can pay both interest and principal loan payments from current cash flows (e.g., traditional mortgage).
„ Speculative borrowers: can pay interest only loan payments, but must regularly roll over the principal (e.g., interest-only loan).
„ “Ponzi” borrowers: cannot pay interest or principal, and depend upon asset price appreciation sufficient to refinance the debt (e.g., negative-amortization loan), only asset price appreciation keeps the “Ponzi” borrower afloat.
If “Ponzi” borrowing is widespread enough during a credit boom when asset prices stop raising rapidly the “Ponzi” borrower can no longer operate profitably (or at all) and once asset prices start to decline the speculative borrower may not be able to roll over their loan principal and could face a technical, if not a real default. The final financial domino is the hedge borrowers who are unable to find loans despite the apparent soundness of the underlying assets. The market begins to unravel, that is to say, a “Minsky Moment” occurs.
Former PIMCO managing director Paul McCulley (MBA, Columbia) is credited with coining the phrase, “Minsky Moment,” when referring to the point in any credit cycle, or business cycle when investors begin having cash flow problems due to the spiraling debt incurred in financing speculative assets. At this point, a major sell off begins because no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in prices driving market clearing asset prices down as well as a sharp drop in market liquidity. The “Minsky Moment” comes after a long period of prosperity and increasing asset values, which has encouraged increasing amounts of speculation using borrowed money.
Austrian economist Ludwig von Mises (PhD, University of Vienna) who taught at New York University theorized that a financial crisis emerges when consumers seek to reestablish their desired allocation of saving and consumption at the prevailing interest rate. The ensuing recession or depression is the process by which the economy adjusts to the errors and wastes (malinvestment) of the boom, or bubble.
It remains too early in the current cycle to confirm that a “Minsky Moment” has occupied, or if the current stock market activity is a short-term correction that will rebound in a few weeks, or months.
It should also be noted that during that during the last downturn vacant land decreased in value at a far greater rate than improved properties that could be income generating. A paired repeat sales analysis study that we conducted indicated that vacant land was declining at a rate of about 1.35% per month (rounded) versus improved sales that were declining at a rate of about 0.75% per month (rounded). Land was declining in price at an 80% greater rate than improved property.
Generally, entitlements are only worth about what they cost during a normal market and are “usually worthless” during a downturn, such as we recently experienced.
The current macro-level economic activities have not yet impacted real estate values, they may and they may not. Time will tell…