Serious question since you're in the industry, how do you square the current high appreciation values with the spike in annual inflation-adjusted home prices (similar to 2007) and inflation-adjusted price per square foot at an all time high (above and beyond 2007)? I‘m sure some of that growth is legitimate, and some may also be attributed to a perceived serious housing shortage (although I’m more of the thought that perception is closer to a serious desirable housing shortage). This is all while wage-growth continues to diverge and fall shorter.
Really appears that there are a lot of factors at play right now for me to objectively accept a blanket increase on assessed value for two years in this market without some reasonable balancing with other economic factors. I don’t know the nuances of the assessors formula…so this may be taken into account to some degree, but that 22% number from KCCI seems to indicate it really isn’t. That’s an obscene jump unrivaled by anything other than that seen in the early 2000’s. Consider me one that believes in some sort of restraint on assessments riding the most extreme peaks and valleys of market volatility. There’s got to be a better trend line that can be employed without going regressive.
I don’t have a crystal ball, but there are stark contrasts between now and 2007.
There has definitely been what you’ll hear economists call “irrational exuberance” in the market. I’m the surface, this looks and feels similar to pre-last-crisis but underlying funadamentals are different in my opinion.
First, I’d say we are legitimately under supplied in terms of US single family housing. People will argue about how much, but most say it’s in the several millions of units short. So that part is legitimate.
One understated element in all of this is the Millennial generation (largest in our country right now) hitting prime home buying age. Their household formation (I.e. getting married, having kids, etc) is coming later than previous generations, but we’re in the middle of that and it’s driving a lot of demand.
Second, there are Is a ton of single family inventory owned by institutional investors. A lot of people don’t know how much private equity bought up foreclosures during and after the 2008 crash. I’ve always believed (just my opinion) they helped but a bottom in the market that consumers would not have been able to and prevented the crash from being even worse. So while that was good news, the bad news is that they’ve continued their buying spree. Lots of attention now being paid to where their ownership is concentrated. A lot of housing advocates say too much in minority communities and stripping people of homeownership opportunities there. That is another story for another day. Regardless, this is undoubtedly contributing to under supply.
COVID changes the way people bought houses with work from home. And booming economy put a lot of money in peoples’ pockets they otherwise may not have spent. Record low interest rates are also a huge factor here because it gives you considerably more purchasing power.
Now you’ve got tens of millions of homeowners locked in at sun 3% interest rates asking themselves if they really want to move so they can pay more for a house and much higher interest rate to boot. So all a perfect storm.
In conclusion, I would say the shortage is more than just a perception. I worked at Fannie Mae from 2012-2018 and can tell you we went from mopping up the crisis to concern about housing supply (particularly the affordable variety) in a very short period of time. So while this has been hot topic in the news for a couple of years, this has been in the making for a while.
Your point about desirable housing stock is valid. The only place builders can really make a profit on anything remotely “affordable” is far from city commercial centers where commutes are just brutal. COVID work from home flexibilities changed some of this, but return to office could be problematic for some owners that made that leap.
Last thing I would add is that two metrics have historically proven to be pretty reliable indicators of a true bubble. One (which you elude to) is comparison of home price appreciation with wage growth. This part is a little bit concerning right now if you factor in inflation and what that means for affordability in general. The second is comparison of home price appreciation with rental prices. When that diverges it’s typical followed by trouble.
Both of these diverged dramatically during the mid 2000s. The bad news is that rental prices are skyrocketing (although some people will argue forebearsnce caused some landlords- corporate and private - to increase rents to make up for lost revenue). The good news is that it’s a better sign for home prices if these things stay in sync.
I remain somewhat optimistic on home values because underlying credit quality (I.e. borrower ability to repay) is materially better than in 2007 and has been for 13+ years now. Home equity also at an all time high which is another fundamental difference. Would not be surprised if it dipped but don’t see it falling off a cliff like 2007.
As for the assessors, a lot take a formulaic approach to this and are going to take advantage of rising values. Every city/county is a little different. They’ve got rising costs of labor, fuel, etc to run these municipalities so probably need the revenue. Problem for home owners is that their equity is really just on paper until it’s time to actually sell their house
