Tag Archives: real estate

40-60 AND BUBBLES

JULY 18, 2022 – As a kid, the first thing I could read was the stock market page in the newspaper. Probably since I was 5 years old I have been analyzing markets.
Early on I recognized a 16-year pattern in the stock market. I lived thru the 1966-1982 sideways (down when adjusted for inflation) market. I noticed that the market went up significantly after WWII into 1966. And looking back, we can see that from 1982 to about 1998 (actually 1999/2000) the market soared again. It hasn’t been quite as clear since then.
However, in looking at bubbles I think a pattern exists. I recall an appraiser friend telling me that you make your ‘big bucks’ in your 40’s. I assume that continues thru your 50’s. That seems very logical. People from 40 years to 60 years old invest in stocks, buy real estate, buy boats and cars, on and on. This is when they have the most amount of money to invest.
So, let’s look back at the generation before the Baby Boomers. This generation was born from 1931 to 1947. Adding 60 years to the first people and 40 years to the last people, yields 1987 to 1991. Exactly when the S&L Crisis peaked and burst.
My fellow Baby Boomers were born from 1948 to 1964. Adding 60 and 40 years, yields 2004-2008. Again, right on target with the great housing bubble.
Generation X ranges from 1965 to 1980. Adding 60 and 40 years, yields 2020-2025. And here we sit in the middle of ‘The Everything Bubble.’ With the top already in place, I assume this means we bottom by 2025.
In the last crisis there was a funny bumper sticker going around – ‘Lord, give me just one more bubble!’ Sure enough, we got another one. So, for those that missed out on this one and are wondering when the next one will occur…..Generation Y (aka Millennials) ranges from 1981 to 1997. Adding 60 and 40 years, yields 2037 to 2041. A ways off for sure. And honestly, I don’t have a clue what will be in a bubble at that time. What is left? Maybe since cryptos came about after the last bubble, the next bubble will be something that has yet to be invented.
If you and I are around and remember this post, let’s have a chat in 2037:) Of course, let’s chat before that so we are invested early on in the bubble item(s).

Shalom,

The Mann

THE APPRAISAL OF REAL ESTATE – 15TH EDITION

SEPTEMBER 26, 2020 – The Appraisal Institute has published the latest edition of the industry’s bible.  I will let them describe noteworthy items in the new edition.  See below.  You can purchase it at their website.

“The Appraisal of Real Estate,” 15th edition, is a book that fits current times. It reflects a renewed commitment to the essential principles of appraisal and the sound application of recognized valuation methodology. In addition to updated information on changes in real estate markets and valuation standards, longtime readers of “The Appraisal of Real Estate” will notice these significant changes in this edition:

  • New chapters focused on applications of market analysis and highest and best use analysis;
  • Additional emphasis on identifying the property rights to be appraised in an appraisal assignment; and
  • Deeper discussion of accepted techniques for allocating value among real estate, personal property and non-realty items.

In this book, readers will notice the expanded discussion of market analysis and highest and best use, with new chapters clarifying these important concepts and demonstrating procedures for their application. Readers will also notice the relationship between market analysis and highest and best use is made explicit and described in a step-by-step analytic procedure. Lastly, the major development in this new edition is the emphasis on the necessity of definitively describing the property rights to be appraised in an appraisal assignment to ensure that all the necessary steps are taken to produce a credible value conclusion.

Order your copy today!

JUST ANOTHER RECORD BAD WEEK

MARCH 20 (EVENING) – I had thought the markets had calmed down and it wasn’t much of a week.  Then I read this was one of the worst weeks since 2008.  I thought last week was.  Or the week before that.

I don’t have much to add to my lengthy post two evenings ago.

New lows should be set next week.  The question is will we have the largest declines to date – which would see more 3000 point down days.  Or will this be a moderate decline.  It is tough to see the DOW taking on another 3000 point down day or two.  But, …..

In trying to fine tune a range for a bottom, nothing has changed the 14,400 to 18,400 figures.  But, 15,500-15,700 is now looking good for a more precise bottom.  As I said initially, I think the low will be towards the bottom of the range.  I just can’t see us having an intermediate term bottom above 17,000.

The subsequent rally should return to the 21,000 area.  I didn’t think much about that, but then I realized that could be a 40%-50% rally.  I guess that isn’t something to sneeze at.

But, first let’s get down to the bottom.

VOO did have -$1.3 Billion this week.  So, it moved to the outflow list.  But, for the week investors poured over $6 Billion into stock ETFs.  This is insanity as the market crashes.  When tens of billions of dollars of funds are being taken out of stock ETFs we will be nearing a bottom.  We have a long way to go.

Remember, no need to be alarmed about the number of China Virus cases soaring for the next 4 weeks.  Experts say the cases should peak out by the end of April.  When optimism kicks in at the cases leveling out and then declining, don’t get carried away.  We are still in a major economic downturn that has only just begun.

For those looking for some perspective re the virus.  Wuhan had its first case on November 17th.  This week no new cases were reported in all of China.  From nothing to nothing in 5 months.  I forget when we had our first case – mid-February?  5 months gets us to July.  But, we got on top of this earlier than China did and the virus doesn’t like temps above 80 degrees and Summer is coming.  So, things are looking real good for the USA to be working on wrapping this virus up in May and June.  Let’s hope, eh.

Regarding real estate….I have heard that renters are leaving apartments to go to rental houses.  Less chance of catching the virus in a freestanding house.  Also, people are recognizing what I have been screaming about for decades – big cities are dense and it is easy for a virus to spread to the masses.  Ask the Big Apple about that!  Suburbs and especially rural areas are where people need to move to.  The jobs will follow.  The decay in our largest cities will accelerate as crime festers, diseases run rampant, homelessness gets out of hand, taxes are too high, traffic is a nightmare, on and on.

Thanks to those that have sent me information to look at.  I have found several new sources I will follow.  I truly appreciate it.

We just got our first known case of the virus in Aiken today.  We shall see how it plays out locally.

Learn to enjoy time at home with the family….like we used to before the internet ruined everything.  Put a dent in those honey-do lists:)  I know I am getting a lot done around the farm.

Stay safe.

My next update will be Monday evening.

Godspeed.

The Mann

FF&E – FIRREA vs. USPAP

January 7, 2016 – Below is a question I received followed by my reply.  Happy New Year to all.

George – Hope your holidays were great and 2015 is finishing off strong.  I was hoping to get your opinion on an item below.

It’s just how non-realty items are reported in the appraisal report. No change at all in the new USPAP – I’ve just been inconsistent in how I treat it. Sometimes I show a $ allocation, sometimes I don’t and just say it is included in the value and has a positive effect on value. Either way, I’m always clear on whether non-real property items are in the value or not.

So just trying to nail down exactly what is right or what USPAP expects. I’ve seen personal property treated many different ways and some appraisers still don’t say anything about it… USPAP doesn’t say much on the topic.

Thanks for any input!

As stated in Standards Rule 1-4, part (G): When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items.

My question is what is the extent of “analyzing the effect on value?” For instance, in a multifamily property with appliances necessary for continued operation, do we need to actually state the estimated amount that the appliances contribute to value or is it sufficient to note that the market value includes all personal property items which contribute to the market value?  If the value needs to be broken down and allocated between real property and non-real property items – can the allocation be stated once near the beginning of the appraisal report or does the allocation have to be every place where there is a market value stated?

Just curious because I have heard several versions and I didn’t really see any Advisory Opinions on the topic.

============  MY REPLY ============================

Your question only exists because the ASB and AI and others won’t specifically address the various differences between USPAP and FIRREA.
The bottomline is USPAP does NOT require a value on the FF&E.  Albeit, it would probably help all clients to know such.  More info cannot hurt.
However, FIRREA DOES require values be allocated to FF&E and Business/Intangible Assets so that the appraiser provides the ONLY required value per FIRREA – Market Value As Is of REAL ESTATE ONLY.
So, when doing an appraisal for a Federally-Related Transaction, you MUST provide a value for the non-realty items.  It has been that way since 1990/1991.
Where you place it….well that is up to you.  But, technically, when you state Market Value As Is (as well as Upon Completion and Upon Stabilization) it should just be the Real Estate Only number.
However, 99%+ of appraisers state Market Value INCLUSIVE of FF&E and Biz Value and then have some kind of footnote or wording in parentheses saying ‘the above includes $1,400 of FF&E’. Something like that.  They let the Bank do the math to get to the real estate only number.
So, you can do it that way and you will be in line with your peers.  As I always tell appraisers though, if you want to stand out from the crowd provide what your client really needs, and in this case, state MV without the FF&E and Biz Value and then let the footnote say how much the FF&E and Biz Values are worth.

The reason banks need the Real Estate Only number is it is Federal law (FDICIA of 1991) that LTV must (!) be calculated on this number only.  Any MV number that includes FF&E and/or Biz Value is worthless to a bank!

Now, for non-Bank clients you can forget all of the above.  However, I still recommend providing the separate values.
I hope this helps.

Adding value to the appraisal of the future – by Ed Pinto

August 24, 2015 – Ed Pinto of the American Enterprise Institute was a closing speaker at the Appraisal Institute’s national conference in Dallas a few weeks ago.  One of the new items he presented is summarized below.  As the title suggests, the idea is to make the appraisal of the future value-added – instead of simply providing Market Price as has been the case for the past 80 years.  The primary focus of Ed’s comments is residential appraising.

His ideas follow.  I will not add any commentary.  Just sharing the perspective from an independent party that is in contact with FHA, FNMA, Freddie Mac, etc – Ed was a prominent FNMA employee in the 1980s.

Determine (methodology):

–Market cycle history*

  • Create and review 10-year nominal and real home price trend to determine current position in market cycle relative to equilibrium
  • If the real price trend currently at equilibrium, robust comparable sales approach is likely appropriate.
  • If the real price trend currently elevated or depressed, the lesser of investment and replacement cost approaches is likely appropriate.

–History of buyer’s (>6 mo.) and or seller’s market (<=6 mo.) for existing homes**

  • Determine whether a buyer’s or seller’s market based on months of home inventory divided by listings/sales rate; determine whether a buyer’s or seller’s market
  • If real prices are increasing, it is almost certain that a seller’s market is present
  • Market disequilibrium more likely the longer an uninterrupted seller’s market continues

–Buying power due to change in power leverage**

  • AEI’s Center on Housing Risk plans to incorporate into its Mortgage Risk Index by year end

–Land value and change in land share trends**

  • Calculate land value by extraction using exchange value minus replacement cost

–Whether real price change due to leverage growth or improving utility or a mix

  • Evaluate role played by income leverage vs. fundamentals (i.e. job & real income growth)

*For the MSA, the subject property’s market area and price tier,(zip code or below), and the subject property

**For the MSA and the subject property’s market area and price tier (zip code or below)