Home equity: A strategy to success – NMP Skip to main content

Home equity: A strategy to success

National Mortgage Professional
Mar 07, 2006

The appraiser's perspective: Water property valuesCharlie W. Elliott Jr., MAI, SRAappraisals, pricing, values There probably has not been any subject more on the minds of property owners, lenders and appraisers than that of property values on and around the beaches, lakes and sounds throughout the United States. As most of us have observed, property values, at least for now, continue to go through the roof. Those of you who regularly read my columns know that recent appreciation in these areas has reached as high as anywhere from 25 to 40 percent. Not only are the square foot values increasing on the typical home, but the size of the homes are is increasing at a rate not seen in the past. What is it about people that makes us want to be on and around the water? Those scholars of evolution will be quick to point out that we came from the water, so why not revisit it? If one looks at a map of the country where the larger property value increases are taking place, it is easy to see that it is occurring around the rim of the continental United States. Beginning in Maine and moving around in a clockwise direction through Boston, New York, the Carolinas, Florida, the Gulf Coast, around to California and all the way up to the Seattle area, we are seeing this significant increase in property values. While there are other areas on the water experiencing property value increases, such as around lakes and rivers, the granddaddy of them all seems to be oceanfront and other near-ocean properties. Why is this? These properties have been here all along without such a strong rush to purchase in the past. Yes, they have usually been more in-demand than inland properties; however, there seems to be a great surge in values, especially for some of these properties, in the new millennium. While each location and situation is somewhat different and there is no one-size-fits-all explanation, listed below are a few of the reasons I attribute to this phenomenon. This is not just based upon my observations and opinions, but also that of many of my professional colleagues, such as bankers and economists. First, and this is more of a personal opinion than a professional one, people like to think that they are hobnobbing with the rich and famous. So where do they go? They go to the beaches and surrounding areas where such activity occurs. This increases the demand for such property. Such a theory may seem somewhat artificial; however, it can be very real, especially when the market is in an upward trend. Next, we live in a very affluent society. We are not just talking about the top one percent here. As in many less affluent areas, a much larger percentage of our populace has discretionary money to invest. Due to recent experiences, many of our investors have negative feelings toward typical investment vehicles such as stocks, bonds and mutual funds. Therefore, to avoid putting all of their eggs in one basket, they seek other investment vehicles, such as real estate, as a hedge. So what better way is there to invest than to own real estate and enjoy the opportunity to use it in a beautiful location? We have talked much about demand, but those of us with at least a modest education in economics know that supply is also an important part of the equation. Here, many economists believe lies a large part of the answer to why water properties are increasing in value at such a rapid rate. Yes, there are fewer acres along the coast to develop than inland. By looking at a map of our country, it would be easy to conclude that property at or near the water represents a small portion of all property. Perhaps as little as one percent of all property would be in this category, depending upon how it is accounted for. But this is not the only supply-driven issue. A significant issue relative to the supply of real estate is whether or not it is available in real time. We all know that the amount of land is more or less fixed, that it already exists and that it cannot change. On the other hand, the amount of marketable real property consists of property that has been developed or has been approved for development quickly. That would mean that such properties have met all environmental requirements as well as all federal, state and local development ordinances. Perhaps where water properties are of a concern, we have uncovered a substantial clue as to the real time supply. We all know that politics, physical infrastructure and environmental concerns delay the development of land on and near our beaches. Therefore, development of water properties is more expensive and time-consuming than that of inland properties. This places pressure on the market price because of the increased cost of development as well as the short supply due to the delay in availability. In some highly populated areas, development approvals may require five to 10 years. This places upward pressure on existing housing stock prices, causing substantial increases in value. Finally, one reason is simply that investors see values increasing in and around the water, so they jump inno pun intendedand compound the already volatile situation by adding fuel to the fire. This works to a point, but as we have seen in the stock market recently, once the market is oversold, prudent investors will realize the risk and pull back. In summary, the economic laws of supply and demand are at work along our seashores and waterways. There is a limited supply of that water view, that sandy beach and that refreshing atmosphere. Buyers of property are buying a lifestyle, one that is restricted by the availability of property for immediate use. This condition creates property price increases, which we know and cherish as appreciation and return on investment. Charlie W. Elliott Jr., MAI, SRA is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, [email protected] or through the company's Web site at www.appraisalsanywhere.com.
Published
Mar 07, 2006
Chairman Xu Sells Off Personal Assets To Avoid Default

The Evergrande saga continues as Chairman Xu Jiayin sells off 7 billion yuan ($1.1 billion) of his personal assets to prop up the deflating property giant.

Industry News
Nov 23, 2021
OptiFunder Secures $25 Million In Capital

OptiFunder, a warehouse management system provider for mortgage originators, raised $25 million in additional capital lead by Arthur Ventures, a growth capital firm focused on high-growth, founder-led and capital efficient B2B software companies.

Tech
Nov 23, 2021
Mortgage Company Donates $100K To High School In Memory Of Fallen U.S. Navy Corpsman

Cleveland-based CrossCountry Mortgage donated $100,000 to Milan Edison High School in memory of U.S. Navy Corpsman, Maxton W. Soviak, who died while assisting in the evacuation of Americans and refugees in Afghanistan in August.

Community
Nov 23, 2021
MISMO Seeks To Standardize Pre-Closing Title Data

Forming workgroup to focus on standardizing document datasets to streamline process and increase efficiency.

Industry News
Nov 23, 2021
Pandemic's Impact On Real Estate Around The World

Although the impact of the COVID-19 pandemic on the real estate industry has been well-documented within the United States, it’d be prudent to know how the global event impacted other countries as well. 

Industry News
Nov 22, 2021
Housing Market Potential Strengthens Modestly

First American Financial Corporation's Potential Home Sales Model for October 2021 reported that potential existing-home sales increased 0.1% month-over-month to 6.27 million, with household formation continuing to grow, largely driven by millennials.

Analysis and Data
Nov 22, 2021