Appraisals: Step on the brakes?

August 9, 2005

Northern Virginia Housing Market Cooling?

The last two to three years it was unusual for a property not to appraise. Home values were rising rapidly, interest rates were low, the market was red hot. We have anecdotal evidence that the market is changing:

Market value appraisals on five out of five of our recent listings came in lower than our own market analysis and clients expectations!

How can this be? My property tax assessment rose 25% last year! My property must be worth 25% more. The one like mine down the street sold for X last year and 25% more than X is what mine must be worth and besides, my property is a lot nicer!

Last year's market data drive this year's tax assessment. Appraisals focus on market activity of comparables in the most recent period of time data is available; sometimes only the last few weeks. Market value is loosely tied to assessments. Buyers and sellers drive market value at any point in time.

The market has changed in the last few months. There are definite signs of market braking. Inventory is rising, it is taking longer to sell, there are fewer buyers as interest rates continue to rise and we see many price reductions on current listings and buyer incentives coming back to the new construction market.

Is the bubble bursting? We still don't think so. Just a normal market adjustment based on economic factors. The market is still great, just not red hot! Sellers may not get what they expect but nobody is losing money either. Sellers are extracting huge amounts of equity built up over the last several years.

What's bad about that picture?

Buyers: Be cautious but not afraid. Purchase for lifestyle changes and long-term gains in value...not short-term financial gratification.

Sellers: If you have owned property for a couple of years, you are making money, not losing.

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