I love how the host was so shocked about the lack of home theater additions. One category that I was surprised not to see was adding master suites on to smaller houses. My business survived off these types of projects, since selling a small house was not so lucrative and expanding made more sense.
I came across a graph showing the history of existing house values from 1890-2010. The economist thta put it together was trying to illustrate that the average house value (adjusted for inflation in terms of today's dollars) should hover around $110,000 for the industry to remain economically sustainable. In the late 70s and late 80s we had boom-bust cycles where this value spiked $15,000. From 1997-2006 the average price of a house spiked almost $100,000. In order for the housing industry to function at normal capacity that value needs to return to $110,000 relative to inflation in terms of 2010 dollars. Right now we're around $130,000-$140,000 or so. This economist is saying that either we need to reduce the value of the average house or wait for inflation to catch up for things to return to normal.
We need to prevent another run on the values like we just saw or we'll end up right back in the same situation again and unfortunately the majority of spec builders who race to the bottom, building as many copies of the cheapest house possible are the ones gaining the largest amount of "free" value on their appraisals. These builders business models rely on the next appraisal to come in higher than the last sale to make their business model of undercutting the competition work. If you're providing the lowest comps in the area, you have the most room to be pulled up toward the middle in terms of value when compared to more expensive sales. Remember, spec houses are the only houses that provide NEW sales, so the existing houses are depreciated based on the NEW house sales in their area. Spec houses drive the values in the areas where they are built. This flaw in the system keeps getting exploited and causes our bubbles. The lending and appraisal fraud exasperates this fundamental flaw in the system. I'll be speaking at Reinvention in Chicago on 10/19 about Appraisal Reform and some simple solutions that could go a long way to curb this problem, so please come and join us!
http://www.intellectualtakeout.org/library/chart-graph/history-home-values-1890-2010 -------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
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