Population and Housing Analysis - "But that's not on the FORM?!"

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

Once as a bank chief appraiser when reviewing a form appraisal of a home in Woodside, CA, I called the appraiser and asked him - "Where is the San Andreas Fault Line in relation to the subject property?"

His response was "It runs right through the Master Bedroom."

I then asked why he had not mentioned it and he said; "There is no check Box on the Form for that."

By then my opinion of him began to change, as I knew the fault Line ran through town. All of the comps were from the neighboring town of Atherton, across the freeway a couple of miles from the subject.

When asked why no sales from Woodside were used, he said; "After the Loma Prieta Earthquake, no one will buy in a town that has a fault running through it."

I then asked if the appraisal was subject to moving the home to Atherton and told him we needed it appraised "As Is - Where Is" under the market conditions that prevail as of the date of value.

"The point being, there are things that should be considered and analyzed in every appraisal because they have an impact on value.  Population changes are an important factor.  Embrace the data that follows and use it to make your self look like a stand-out in a sea of Licensee's. "

We try and use fresh Population and Housing information and in between the 10 year Census data. In doing so, we utilize the Department Of Finance (DOF) Population and Housing Report info that is published each year. It just came out for January 2007. Which means that all we have to do now is to up date it through this week.

Click below to read on . . . 

Take a look at the 48 cities in My Region and see the wide range of Growth Rates, some double digit, some positive, some negative and some static [less than 1/2%] What does Population changes have to do with real estate values when using Form reports? 

If there is no check box on a particular form, should we ignore Population and Housing changes? Or does the USPAP reference to the use of good valuation procedures mean we should be aware of and correctly employ all those procedures necessary to deliver a credible report, regardless of the form or format?

The more the market constricts, the fewer jobs there will be. Writing stronger, more muscular reports is a way to get customers coming back. Telling them what is happening in the market is a good thing whether it be Population, Jobs, Supply, Demand, or Value Trend issues. All are relevant, all need to be measured, compared, contrasted, analyzed. Being unaware of them is a bad thing once the market turns from boom to bust. Appraiser sins are not covered up by appreciation in declining markets

We use the Population Growth Rates in the Region, City and HABU analysis sections of reports as well as in Projections for Absorption in new projects. Each State may vary in how they collect and make this type of data available. This CA information is at the Dept. of Finance, www.dof.ca.gov in the Demographic section. It is FREE. What we do is to compare and contrast the Growth Rate in the City we are working in with that of the County or the Inland Empire Region as a whole.

So, on a current job in Victorville, the rate was 7.8% for the City, as compared to the County at 1.7% or the Region at 2.5%. We could say that our growth rate had been better than the Regional Average Rate by a 3/1 margin. That is a good thing. Good through 2006 anyway.

Now we need to see how the area is doing at the end of May 2007.  Has the Growth Rate changed in 2007?  Yes we know it has.  Why, builders have stopped building in some instances, in others they only build 1-2 at a time as they sell homes.  Listing Inventory has dramatically increased and the ratio of Listings to Sales is huge, 4/1 to 10/1 some days. Price Reductions are 2/1 to 4/1 over Sales. Concessions are propping up the Sales Prices by 5%-10%.

Then, we ask, why are housing prices going down now. With such strong growth last year, it doesn't make sense until you realize how the Population figures are calculated. Once you understand that factor in your own markets, you can write with authority, make you clients think you really know some good stuff.

What do you think about a County or a Region that has some cities going up 21.2% and others going down -9.5% at the same time.  What Appreciation Rate should be used, the Regional Average?  Probably not. Does Appreciation vary from city to city, yes it does. Can some markets in the same County be going up while others are going down? Yes they can.

Population data may help temper our thoughts of both the direction and magnitude of any Time Adjustments.  That is, if we are aware of what is happening in our markets.  If we do not know, the adjustments may still need to be made, only we do not make them, making our reports out of synchronization with what is actually happening in the  market.

If the market area population in my Region increased 25% since the last census or 3.57% per year, and Now it only increased 2.5% in the last year AND some cities went down in population, what does that mean?  It means that population growth decreased 40% from the average for the period.  Does knowing this help in estimating absorption of new and resale housing?

How many months of new homes are there in the region and added to that, how many months of MLS inventory is there?  Once an appraiser know these two things and knows the population growth rate, the can make an objective analysis of the Supply and Demand conditions.  It is a lot more than a check box on a Form.  Not all that hard, but it does require actual research. Balanced, Under Supplied and Over Supplied Market Conditions have previously been defined.

Even more finite, look at the city of Palm Desert and the growth rate of -0.3%.  It does not take all that much inventory before the market Supply is out of balance.

Worse yet, look at Twenty Nine Palms at -9.5%. Imagine an appraiser running out to this remote city to do a house, with no local MLS access, armed only with recorded deed information from a vendor and not knowing the population is going backward.  The opportunity for error is great.  There are homes in this market have have been listed for over a year and remain unsold.  Why, the population is declining.  It does not take that much inventory for an Over-Supplied market condition to exist.

An alert, skilled, forensic reviewer will pick up on Supply-Demand conditions and bring them into focus when the appraiser is being sued as a Loss Recovery Vehicle.  Taking out of area assignments becomes more prevelant as volume goes down.  Not knowing the Market Conditions when working out of town, is a dangerous thing.

Pasted below is a copy of the CA DOF Population and Housing E-5 Report for the two counties in my Region with comparative growth rate information.  Below is the link to the complete report.  You can download and save if in CA, or go to your State DOF to get yours.  CA DOF Demographic Section - - - -

There is nothing mentioned in this article that someone with a few hours of training cannot do, licensed or not.  Knowing what to do and correctly employing the appropriate process and procedures is a part of our USPAP Certifications.

Not knowing and not doing what is right for the market conditions prevelant at the time of the appraisal is dangerous for a licensee.  The easiest way to defend against not doing what is right, is to give up the license, then it does not matter, and USPAP does not apply. - - - If all of this is new to you, consider where you were trained. 

If at a exam prep school, you may not have the training needed to deliver credible reports in a changing market. Advanced Sales Comparison, Market Analysis and HABU courses are offered by most major appraisal organizations like the AI, ASA, NAIFA. Consider spending CE dollars not on Seminars but on Courses. You learn more in a Course than in a Seminar in my opinion, and the cost per CE hour is less.   

	Table 2: E-5 City/County Population and Housing Estimates, 1/1/2007
		Population-	-------------------------- Housing Units ----------------------------------							PPHH
				-------- Single --------		----- Multiple -----
	County/City	Total	Total	SFR	Condo	2 To 4	5 Plus	Mobile Homes	Vac.
	Riverside County	2,007									%
1	Banning	28,272	11,618	8,715	728	424	595	1,156	8.39	2.625	-0.2%
2	Beaumont	28,250	10,640	9,030	172	363	728	347	10.01	2.934	21.2%
3	Blythe	22,625	5,376	2,964	152	498	881	881	16.11	2.960	1.6%
4	Calimesa	7,414	3,322	1,833	113	57	64	1,255	8.16	2.399	-0.7%
5	Canyon Lake	10,969	4,391	4,000	160	6	84	141	9.95	2.770	-0.4%
6	Cathedral City	52,115	21,511	11,505	2,659	2,433	2,065	2,849	21.61	3.079	1.3%
7	Coachella	38,486	8,426	5,888	319	700	1,062	457	4.84	4.794	8.6%
8	Corona	146,164	45,127	31,516	2,186	2,225	7,587	1,613	3.65	3.347	0.3%
9	Desert Hot Springs	23,544	9,860	6,380	180	1,309	1,313	678	16.70	2.845	6.2%
10	Hemet	71,705	35,342	17,065	1,766	2,215	4,517	9,779	14.09	2.306	2.4%
11	Indian Wells	4,942	4,898	3,298	884	239	469	8	48.41	1.956	0.9%
12	Indio	77,146	26,464	17,068	878	1,542	3,795	3,181	18.38	3.532	6.9%
13	Lake Elsinore	47,634	15,587	9,881	2,451	728	1,742	785	8.12	3.321	15.4%
14	La Quinta	41,092	20,176	16,541	1,789	487	1,102	257	28.50	2.846	6.4%
15	Moreno Valley	180,466	51,939	42,125	891	1,716	6,164	1,043	5.50	3.663	2.7%
16	Murrieta	97,257	33,298	24,473	483	730	5,899	1,713	4.62	3.042	3.9%
17	Norco	27,361	7,221	6,806	137	9	177	92	2.26	3.201	-0.2%
18	Palm Desert	49,752	33,394	13,169	9,697	2,513	4,706	3,309	30.98	2.142	-0.3%
19	Palm Springs	46,858	33,250	11,952	6,609	2,543	9,915	2,231	33.43	2.085	0.2%
20	Perris	50,663	14,567	10,780	321	371	1,264	1,831	8.54	3.785	6.7%
21	Rancho Mirage	16,944	14,555	7,072	3,680	615	1,196	1,992	42.34	1.956	1.0%
22	Riverside	291,398	96,446	60,838	4,144	5,840	23,147	2,477	4.58	3.061	0.6%
23	San Jacinto	34,345	13,594	9,123	596	657	567	2,651	12.84	2.883	9.8%
24	Temecula	97,935	31,501	25,328	453	606	4,793	321	4.06	3.240	3.6%
	Balance Of County	538,288	201,294	141,641	4,214	3,752	6,707	44,980	14.21	3.085	3.6%
	Incorporated	1,493,337	552,503	357,350	41,448	28,826	83,832	41,047	13.04	3.043	3.2%
	County Total	2,031,625	753,797	498,991	45,662	32,578	90,539	86,027	13.36	3.054	3.3%
	San Bernardino County	2,007									%
1	Adelanto	27,139	8,304	6,443	148	382	823	508	15.55	3.715	9.2%
2	Apple Valley	70,297	24,866	19,322	726	2,089	1,686	1,043	7.96	3.056	4.2%
3	Barstow	23,943	9,949	5,524	356	1,292	1,662	1,115	16.97	2.858	1.0%
4	Big Bear Lake	6,207	9,444	7,952	326	366	410	390	73.08	2.432	0.5%
5	Chino	81,224	19,978	14,227	952	901	3,370	528	3.32	3.610	1.9%
6	Chino Hills	78,668	22,853	18,370	1,378	308	2,111	686	1.84	3.500	1.0%
7	Colton	51,797	16,197	9,607	602	1,063	4,110	815	7.40	3.436	0.1%
8	Fontana	181,640	48,075	38,243	1,208	1,644	5,821	1,159	5.26	3.976	9.8%
9	Grand Terrace	12,380	4,515	2,904	191	265	905	250	5.32	2.847	0.0%
10	Hesperia	85,876	27,874	22,557	893	1,166	1,958	1,300	6.47	3.281	7.1%
11	Highland	52,186	16,525	12,382	555	598	2,129	861	9.28	3.465	1.4%
12	Loma Linda	22,451	9,072	3,836	939	1,310	2,425	562	6.79	2.541	2.5%
13	Montclair	36,622	9,562	5,559	758	1,042	1,342	861	2.93	3.880	2.8%
14	Needles	5,759	2,892	1,533	110	254	367	628	23.96	2.614	1.5%
15	Ontario	172,701	46,959	27,530	3,649	4,057	9,512	2,211	3.66	3.793	1.0%
16	Rancho Cucamonga	172,331	54,412	35,139	3,059	1,942	12,892	1,380	3.02	3.197	1.1%
17	Redlands	71,375	26,527	17,137	900	2,436	5,135	919	4.83	2.749	0.5%
18	Rialto	99,064	26,637	18,918	586	1,830	3,500	1,803	5.32	3.896	-0.1%
19	San Bernardino	205,010	66,486	39,084	2,717	5,733	14,467	4,485	11.04	3.354	1.6%
20	Twentynine Palms	24,830	8,955	4,973	1,303	1,691	445	543	22.58	2.809	-9.5%
21	Upland	75,169	26,613	15,285	1,770	2,677	6,036	845	3.60	2.907	1.5%
22	Victorville	102,538	32,979	26,190	389	1,333	3,286	1,781	7.55	3.192	7.8%
23	Yucaipa	51,784	19,292	13,035	394	743	893	4,227	5.71	2.815	2.5%
24	Yucca Valley	21,044	9,463	7,563	140	675	378	707	12.62	2.507	2.5%
	Balance Of County	295,978	128,480	103,334	4,200	4,084	2,240	14,622	28.25	3.125	-4.2%
	Incorporated	1,732,035	548,429	373,313	24,049	35,797	85,663	29,607	7.84	3.342	2.8%
	County Total	2,028,013	676,909	476,647	28,249	39,881	87,903	44,229	11.71	3.309	1.7%
	Total
	County	Year 2000	Year 2007	% Change
	Riverside	1,545,387	2,031,625	31%
	San Bernardino	1,710,139	2,028,013	19%
	Total:	3,255,526	4,059,638	25%
	Inland Empire Region	2006-2007 % Change		2.5%

"Appraisal is only hard if you try to do it right, or if the market is going down, or both."

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139