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Explanation of the statistical approach to establishing a value for residential real estate by Larry D. McGee, The Berkshire Group, Denver, Colorado 303-513-1436
Citation preview
Appraisal Institute Presentation
September 19, 2009
Breckenridge, Colorado
Objectives• Explanation of Various
Residential RE Statistical Models
• Relating sub-markets to the whole
• HVCC information from NAR
• Introduction to absorption rate pricing
Statistical Models-CS
• Case-Shiller – based on paired residential re-sales in 20 MSA’s - including Denver
• sold to Fiserv (S&P) which uses the data to develop indices to support sales of options + tradable futures on ChiMerEx
• is applicable only to residential resale’s • data is gathered from recorded information • calculated monthly using a 3 month rolling
average and published with a 2 month lag
Statistical Models-O
• FHFA (OFHEO)
• Released Quarterly
• Data from FNMA and FREDDIE, includes refinances
• Is a modified version of the WRS approach developed by CS
• Excludes sales made with jumbo, FHA, and VA financing and multi-family sales
Statistical Model-Z
• Uses the proprietary algorithm “Zestimate” for any given county using recorded data
• Refreshed daily• Demonstrates the Median Price• Offers a median MSA value by intuiting a
value for each individual property and applying that to all residential properties in a given county
• It is a SWAG developed from a WAG
Statistical Model-M
• Denver Local MLS Data from Metrolist Inc.
• Reflects true sale price, is not an index
• Is not weighted or seasonally adjusted
• Excludes most new homes sold
• Excludes private sales
• Does not include refinance information
• Suspect because of entry methods
Case-Shiller vs. Denver Actual
Comparison of Case-Shiller Index to Metro Area Combined Sold Prices
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Jan-03F
eb-03M
ar-03A
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ay-03Jun-03Jul-03A
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eb-04M
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pr-04M
ay-04Jun-04Jul-04A
ug-04S
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ec-04Jan-05F
eb-05M
ar-05A
pr-05M
ay-05Jun-05Jul-05A
ug-05S
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ct-05N
ov-05D
ec-05Jan-06F
eb-06M
ar-06A
pr-06M
ay-06Jun-06Jul-06A
ug-06S
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ov-06D
ec-06Jan-07F
eb-07M
ar-07A
pr-07M
ay-07Jun-07Jul-07A
ug-07S
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ov-07D
ec-07Jan-08F
eb-08M
ar-08A
pr-08M
ay-08Jun-08Jul-08A
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110.00
115.00
120.00
125.00
130.00
135.00
140.00
145.00
ACSP CS
Case-Shiller vs. OFHEO
Comparison of Case-Shiller and OFHEO
110.00
115.00
120.00
125.00
130.00
135.00
140.00
145.00
Jan-03F
eb-03M
ar-03A
pr-03M
ay-03Jun-03Jul-03A
ug-03S
ep-03O
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ov-03D
ec-03Jan-04F
eb-04M
ar-04A
pr-04M
ay-04Jun-04Jul-04A
ug-04S
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ct-04N
ov-04D
ec-04Jan-05F
eb-05M
ar-05A
pr-05M
ay-05Jun-05Jul-05A
ug-05S
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ec-05Jan-06F
eb-06M
ar-06A
pr-06M
ay-06Jun-06Jul-06A
ug-06S
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ec-06Jan-07F
eb-07M
ar-07A
pr-07M
ay-07Jun-07Jul-07A
ug-07S
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eb-08M
ar-08A
pr-08M
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235.00
240.00
245.00
250.00
255.00
260.00
265.00
270.00
275.00
280.00
285.00
CS OFHEO
Case-Shiller-OFHEO vs. Actual
Case-Shiller and OFHEO compared to Metro Combined Average Sold Price
100.00
120.00
140.00
160.00
180.00
200.00
220.00
240.00
260.00
280.00
Jan-03F
eb-03M
ar-03A
pr-03M
ay-03Jun-03Jul-03A
ug-03S
ep-03O
ct-03N
ov-03D
ec-03Jan-04F
eb-04M
ar-04A
pr-04M
ay-04Jun-04Jul-04A
ug-04S
ep-04O
ct-04N
ov-04D
ec-04Jan-05F
eb-05M
ar-05A
pr-05M
ay-05Jun-05Jul-05A
ug-05S
ep-05O
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ov-05D
ec-05Jan-06F
eb-06M
ar-06A
pr-06M
ay-06Jun-06Jul-06A
ug-06S
ep-06O
ct-06N
ov-06D
ec-06Jan-07F
eb-07M
ar-07A
pr-07M
ay-07Jun-07Jul-07A
ug-07S
ep-07O
ct-07N
ov-07D
ec-07Jan-08F
eb-08M
ar-08A
pr-08M
ay-08Jun-08Jul-08A
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$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
CS OFHEO ACSP
Case-Shiller Comparison
Denver in Comparison to Phoenix, AZ and the Composite 20 Market
50.00
60.00
70.00
80.0090.00
100.00
110.00
120.00
130.00
140.00150.00
160.00
170.00
180.00
190.00
200.00
210.00220.00
230.00
240.00
250.00
Jan-03
Mar-03
May-03
Jul-03
Sep
-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep
-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep
-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep
-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep
-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep
-08
Nov-08
Jan-09
Mar-09
May-09
AZ-Phoenix CO-Denver Composite-20
Zillow – Denver vs. United States
Denver Average Residential Sold Price
Average Residential Sold Price
$220,000
$225,000
$230,000
$235,000
$240,000
$245,000
$250,000
$255,000
$260,000
$265,000
$270,000
$275,000
$280,000
$285,000
$290,000
$295,000
$300,000
$305,000
$310,000
$315,000
$320,000
$325,000
$330,000
$335,000
$340,000
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Denver Median Residential Sold Price
Median Residential Sold Price
$175,000
$180,000
$185,000
$190,000
$195,000
$200,000
$205,000
$210,000
$215,000
$220,000
$225,000
$230,000
$235,000
$240,000
$245,000
$250,000
$255,000
$260,000
$265,000
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Denver Market Activity-MLS
Market Activity Active vs. Sold
Residential and Condo
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Aug
'07
Sep
'07
Oct
'07
Nov
'07
Dec
'07
Jan
'08
Feb
'08
Mar
'08
Apr
'08
May
'08
Jun
'08
Jul '
08
Aug
'08
Sep
'08
Oct
'08
Nov
'08
Dec
'08
Jan
'09
Feb
'09
Mar
'09
Apr
'09
May
'09
Jun
'09
Jul '
09
Aug
'09
Active
Sold
Average Days on Market for Metro Denver Residential
Average Days on Market for Metro Denver - Residential
859095
100105110115120125130
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2006 2007 2008 2009
Average Days on Market for Metro Denver Condo
Average Days on Market for Metro Denver - Condo
9095
100105110115120125130135140
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2006 2007 2008 2009
Residential Price Change AnalysisLocal Price Change Analysis
Year-to-Year Comparison Monthly Net $/SF Based on Contract Date - Residential
$151.26
$148.43
$156.39
$161.17
$165.46
$170.50
$167.66 $168.07
$162.98
$159.53$157.51
$153.02
$150.45
$155.13
$150.29
$153.20$154.44
$159.85
$153.07 $153.62
$145.41
$147.89
$137.35 $137.42
$132.10$134.16
$140.85$142.32
$144.45
$154.60$153.62
$150.87
$130.00$135.00
$140.00$145.00
$150.00$155.00
$160.00$165.00
$170.00$175.00
2007 $/sf 2008 $/sf 2009 $/sf
Condo Price Change Analysis
Local Price Change AnalysisYear-to-Year Comparison Monthly Net $/SF Based on
Contract Date - Condo
$139.75$141.58
$145.81
$149.42
$152.29 $151.34 $152.25
$148.76$147.31
$143.65
$136.74
$142.08
$136.92
$144.78$143.77
$147.36
$140.77
$147.76
$140.25$141.44
$136.57
$132.57
$124.33
$134.06
$121.03$119.48
$130.89
$133.94 $134.46$136.73
$137.91$140.18
$115.00
$119.00
$123.00
$127.00
$131.00
$135.00
$139.00
$143.00
$147.00
$151.00
$155.00
$159.00
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2007 $/sf 2008 $/sf 2009 $/sf
Seasonal Influx Index-Residential
Seasonal Influx Index% of Annual Sales Occurring Each Month Based on Contract Date - Residential
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
2006
2007
2008
AVG
Seasonal Influx Index-CondoSeasonal Influx Index
% of Annual Sales Occurring Each Month Based on Contract Date - Condo
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
200620072008AVG
Total Combined Number of Homes for Sale by Year-MLS
Total Combined Number of Homes for Sale
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
2006
2007
2008
2009
Total Combined Number of Homes Sold by Year-MLS
Number of Combined Homes SOLD
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
2006
2007
2008
2009
Total Homes sold in Metro Denver as reported by Metrolist
• 2003 – 47,966• 2004 – 54,012• 2005 – 53,005• 2006 – 50,244• 2007 – 49,789• 2008 – 47,837• y-t-d 2009 – 27,708• 2009 - 40,200 - Projected year end Excludes new homes sold onsite and private sales
Sold Price-Metro vs. HR
Comparison of Average Residential Sold Price for Metro Denver and Highlands Ranch
$200,000
$225,000
$250,000
$275,000
$300,000
$325,000
$350,000
$375,000
$400,000
$425,000
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Highlands Ranch
Sold Price-Metro vs. GVR
Comparison of Average Residential Sold Price for Metro Denver and Green Valley Ranch
$125,000
$150,000
$175,000
$200,000
$225,000
$250,000
$275,000
$300,000
$325,000
$350,000
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Green Valley Ranch
Sold Price-Metro vs. Wash Park
Comparison of Average Residential Sold Price for Metro Denver and Washington Park
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
$650,000
$700,000
$750,000
$800,000
$850,000
$900,000
$950,000
$1,000,000
$1,050,000
$1,100,000
$1,150,000
$1,200,000
$1,250,000
$1,300,000
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Washington Park
DOM for Metro vs. HR
Comparison of Average Days on Market for Metro Denver and Highlands Ranch
0
20
40
60
80
100
120
140
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Highlands Ranch
DOM for Metro vs GVR
Comparison of Average Days on Market for Metro Denver and Green Valley Ranch
0
20
40
60
80
100
120
140
160
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Green Valley Ranch
DOM for Metro vs Wash Park
Comparison of Average Days on Market for Metro Denver and Washington Park
0
20
40
60
80
100
120
140
160
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Metro Denver Washinton Park
HVCC Impact on the Housing Sales Market
• No Empirical Data
• NAR has developed Anecdotal Data
• Random Sample of 40,000 REALTORS
• 3,600 responses generated.
• The HVCC appears to negatively affect the processing time of a real estate closing
• Lost sales were reported by 37% of REALTORS reporting
Additional Time
• 76% of REALTORS reported additional time is needed to obtain an appraisal.
Appraiser Fees
• Reduced fees reported by ½ of Appraiser respondents.
Increased Costs to Consumers
• Percentage of Cost Increases
Unfamiliar Geographic Area
• 71% of Realtors reported an increase in out of area appraisers accepting assignments
Denver Absorption Rate
Denver Market Absorption Rate
0
5
10
15
20
25
30
35
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
We
ek
s
2005
2006
2007
2008
2009
Absorption Rate Pricing
• AR is the current inventory divided by
last months closed sales X 12 divided by 52
inventory _____________
lms x 12 / 52
AR Example
21,000 (current inventory)
_____________
(sales) 3000 X 12 / 52
Absorption Rate is 30.33 weeks or
7.58 months (buyers market)
What does it mean?
• A balanced sub-market is a 6 months supply
• Less than 6 months, a sense of urgency develops with buyers, prices go up:
Sellers Market • More than 6 months, a sense of urgency
develops with sellers, prices go down:
Buyers Market
Wrapping Up
• The various market statistical models trend with relative consistency in spite of different approaches
• Markets are very local, comparables must be geographically and temporally close
• HVCC is negatively affecting the market
• AP Pricing is leading REALTORS toward a better pricing model
Recommended