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The recent Business Week cover on the housing crisis is definitely a tough pill for all of us homeowners that bought a new home in the past five years. If you haven't listened to the podcast and/or read the article this week, it is a must. It highlights the crisis in one of America's hottest markets - Las Vegas - and pushes all of us to hope that "what happens in Vegas stays in Vegas". Yet, it's creeping into a neighborhood near you with little relief in sight. As I listened to the podcast this morning, a thought continued to befuddle me about the utility of real estate appraisers in the cyclical housing market. Consider that homes that were once appraised at $800k are now selling for $480k (an example given for the Phoenix market) yet in both instances loans were approved based on values given by real estate appraisers. Their defense is that other homes were selling at the same price - so the home must be worth $800k. A little bit of the "greater fools theory," if you ask me. It seems that in turbulent times, whether it be the boom/bust of the housing market or the boom/bust of tech in the late 90s, investments always come back to real returns. "If there were no buyers, I would be willing to pay X to live in this house," instead of "I know that the value is going to go up so I want to participate in the appreciation." In the long-run, there are no greater fools then when you analyze returns from a return on investment lens versus through rose colored glasses "my neighbors were dumb enough to buy at that price, so it must be worth it." All said, I think it's time to finish the basement, because we may be in for a long haul.

Category(s): Valuation Thoughts
Posted by Brett Suchor at 10:37 PM | Permalink | Comments (0) | TrackBacks (0)