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Appraiser under valuing property?

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June 24, 2009 – Comments (5)

Yves has a post on property values and appraisers.  He critiques an article blaming"low appraisals" really and truly for not supporting bubbled housing prices.  As he goes into it, the article is supporting over priced housing.

Truthfully, all data to date on housing appraisals is biased by world population growth.  This post has a graph of world population growth. It isn't so easy to see, but there has been enormous exponential growth of human population for about 500 years now.  500 years is probably the framework where all modern beliefs about business have developed.  We have practically no data on how business looks with flat population, or declining population.  We have very good data on what happens in individual communities when people leave, with say Detroit.

Well, beliefs about housing being an appreciating asset, and this leads to an old, garbage, breaking-down home being valued for a price that will cripple a young family for life into actually buying.  But truly, a proper accounting practice should devalue that home over its life.  There could be a premium for location, but the world population growth has built far too much confidence in pricing beliefs.  A slowing world population growth would also have the effect of changing beliefs as the ratio of people starting their adult lives to people established will decline.

Personally, I tend to think population dynamics will play out in investments very differently in the future then they have in the past and beliefs that homes devalue with age, much like a car, will develop.  Indeed, a tear down home will also have negative value for the building which will reflect the cost of tearing down and hauling it to the dump.  The time frame for this kind of change is probably the next 100 years.

5 Comments – Post Your Own

#1) On June 24, 2009 at 11:08 AM, kaskoosek (37.40) wrote:

Dwot

 

What about gold? Is owning a specific amount sufficient?

 

These days a family has more than one house. 

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#2) On June 24, 2009 at 11:14 AM, tonylogan1 (28.22) wrote:

Great post +1 rec

In the short run, the drag on home prices will be a rise in interest rates, but I think the biggest long term drag on home prices will be property taxes.

They represent a larger source of loss for an owner than depreciation, and the amount of tax collected is heading up, not down.

Those states that choose to keep their income, sales tax, and property taxes low will be the bes places to buy (5+ years from now) to avoid this.

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#3) On June 24, 2009 at 3:02 PM, angusthermopylae (39.92) wrote:

From article:

New lending standards now mandated by Freddie and Fannie as a result of a settlement between New York State and the mortgage giants to settle charges that pressure from lenders had produced inflated appraisals requires that lenders get a second appraisal on 10% of the loans they sell to the mortgage giants.

Way, way back (about March 2008, I believe) you wrote an article that got me thinking, and I wrote this blog because of yours.  I tend to think that I was partially correct, but there was a systemic..."fraud" you could say...the required the new lending standards.

Good news, though, is that "they" (the banks, the real estate agents, etc.) are beginning to turn on each other, blaming everyone else for their problems.  I don't know about institutional memory and a guild-mentality, but I would imagine that, in the short run, appraisers aren't going to very yielding to the desires of the banks and real estate agents.

Man, I love a good fight...

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#4) On June 24, 2009 at 3:14 PM, rocksnot (29.09) wrote:

dwot, just letting you know, Yves is female.

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#5) On June 25, 2009 at 12:28 AM, dwot (40.93) wrote:

Oooops, thanks rocksnot. 

anqust, I will read your post when I am less tired.  I have poor comprehension right now.

Tony, for sure tax dollars will have to come from somewhere and home owners will be a prime target of "haves".

Kas, I do not own gold.  I watch gold, as I also watch cash.

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