“Exuberant Bubble” or
“Fundamentally Sound”
Where are Real Estate Prices Going?
Presented Jointly by:
The Metro NY Chapter
Appraisal Institute
Mark Pomykacz, MAI
President
Steven L. Newman Institute
Baruch College
Barry Hersh, AICP
Associate Director
With Guest Speakers:
Peter F. Korpacz, MAI
Robert A. Knakal
Frank Nothaft, Ph.D.
Friday, September 30, 2005
The Panelists

Peter F. Korpacz, MAI,
Director of the Global Strategic Real Estate
Research Group of PricewaterhouseCoopers
(PwC),

Robert A. Knakal
Founding Partner of Massey Knakal Realty
Services.

Frank E. Nothaft
Chief Economist for Freddie Mac
Introduction
Mark Pomykacz, MAI







President of the Metro NY Chapter of the Appraisal Institute
Managing Partner of Federal Appraisal & Consulting LLC
Real estate and business appraisal and advisory firm
Member of the National Board of Directors of the Appraisal
Institute
Teaches Income Capitalization, USPAP and Seminars
for the Appraisal Institute and New York University
State certified general real estate appraiser in six states
Published several articles on appraisal and property taxes
Specializes in the appraisal of complex issues, such as IRS, SEC
and other financial reporting, and in the appraisal of complex
properties and assets such as utilities, power plants and
telecommunications assets
Background
“Exuberant Bubble”
“Fundamentally Sound”
PRECEPTION vs REALITY


Just the facts, Ma’am
Talking about it,
can make it happen
"That greater tendency toward self-correction has made the
cyclical stability of the economy less dependent on the actions of
macroeconomic policymakers, whose responses often have come
too late or have been misguided,“ the Man, Tuesday, Sept 27, 2005
New York Times Articles
Articles with the Phrases "Real Estate" and "Bubble"
in the New York Times
25
20
"Real Estate" and "Bubble"
.
"Real Estate" and "Bubble" in Real Estate Section
Number of Articles
per Month
15
10
5
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Number of Articles
per Month
.
Wall Street Journal Articles
Articles with the Phrases "Real Estate" and "Bubble"
in the Wall Street Journal
20
18
16
14
12
10
8
6
4
2
0
Month
New York Times vs. Wall Street Journal
Articles with the Phrases "Real Estate" and "Bubble"
New York Times vs Wall Street Journal
25
20
.
New York Times
Wall Street Journal
Poly. (New York Times)
Poly. (Wall Street Journal)
Number of Articles
per Month
15
10
5
Ja
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-9
8
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9
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Number of Articles
per Month
.
New York Times and Wall Street Journal
Articles with the Phrases "Real Estate" and "Bubble"
in the New York Times and Wall Street Journal
40
35
30
25
20
15
10
5
0
Month
New York Times vs. Wall Street Journal
Articles with the Phrases "Real Estate" and "Bubble"
New York Times vs Wall Street Journal
9.0
The Annual High Month
8.0
New York Times
Wall Street Journal
Poly. (New York Times)
Poly. (Wall Street Journal)
6.0
5.0
4.0
3.0
2.0
1.0
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Number of Articles
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.
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Number of Articles
per Quarter
.
New York Times vs. Wall Street Journal
Articles with the Phrases "Real Estate" and "Bubble"
New York Times vs Wall Street Journal
50
45
40
New York Times
Wall Street Journal
Poly. (New York Times)
Poly. (Wall Street Journal)
35
30
25
20
15
10
5
0
Quarter
Appraisers in Action
Survey of Members
of the
Metropolitan Chapter
of the
Appraisal Institute
Housing Bubble Survey – Chart 1
How confident are you that prices in the NYC
residential real estate market are over valued?
Very confident prices are too low
1
Confident prices are too low
0
Unsure
17
35
Modestly confident prices are too high
13
Very confident prices are too high
0
5
10
15
20
25
30
35
40
Housing Bubble Survey – Chart 2
How much evidence have you seen of excessive market euphoria or that a bubble exists in the residential
real estate market?
No such evidence
10
Only moderate evidence
35
Strong and substantial evidence
23
0
5
10
15
20
25
30
35
40
Housing Bubble Survey – Chart 3
How much is the market for NYC residential property over-priced?
Under-priced by more than 20%
0
Under-priced by 5% to 20%
0
Priced about right, between -5% to +5%
17
Over-priced by 5% to 20%
35
Over-priced by more than 20%
16
0
5
10
15
20
25
30
35
40
Housing Bubble Survey – Chart 4
In the last 12 months, how much has the NYC
residential market prices appreciated in value?
The market is declining 0
Between 0 and 5% 0
Between 5 and 10%
5
Between 10 and 15%
15
Between 15 and 25%
32
Between 25 and 35%
12
More than 35%
1
0
5
10
15
20
25
30
35
Housing Bubble Survey – Chart 5
In the next 12 months, how much will the NYC residential market price appreciate in value?
Depreciate by more than 15%
0
Depreciate by 10 to 15%
0
Depreciate by 5 to 10%
2
6
Depreciate by 0 to 5%
No change in the market
3
Appreciate by 0 to 5%
16
Appreciate by 5 to 10%
26
13
Appreciate by 10 to 15%
Appreciate by 15% or more 0
0
5
10
15
20
25
30
Housing Bubble Survey – Chart 6
Is the NYC commercial market similarly over priced?
Under priced by more than 20%
0
Under priced by 5 to 20%
0
Priced about right from -5% to +5%
26
Over priced by 5 to 20%
31
Over priced by more than 20%
8
0
5
10
15
20
25
30
35
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NCREIF Property Index
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NCREIF vs. CPI – Chart 1
Quarterly Value and Cost Changes
NCREIF vs CPI
6.00%
CPI, All Urban Consumers
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
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NCREIF vs. CPI – Chart 2
Quarterly Value and Cost Changes
NCREIF vs CPI
250.00
200.00
Both Indices set at 100 in 1st Quarter 1998.
150.00
100.00
50.00
NCREIF Property Index
CPI, All Urban Consumers
0.00
Are we in a bubble?
“History cautions that extended periods
of low concern about credit risk have
invariably been followed by reversal”
Are we in a bubble?
Translation –
“What! Where yous been livin?
In a bubble!
And
Don’t touch my hair”
I got a bridge to sell