““Exuberant Bubble” or Exuberant Bubble” or “Fundamentally Sound”“Fundamentally Sound”

Where are Real Estate Prices Going?Where are Real Estate Prices Going?

The Metro NY ChapterThe Metro NY ChapterAppraisal Institute Appraisal Institute Mark Pomykacz, MAIMark Pomykacz, MAIPresidentPresident

With Guest Speakers:With Guest Speakers: Peter F. Korpacz, MAIPeter F. Korpacz, MAI

Robert A. Knakal Robert A. Knakal Frank Nothaft, Ph.D.Frank Nothaft, Ph.D.

Friday, September 30, 2005Friday, September 30, 2005

Steven L. Newman InstituteSteven L. Newman InstituteBaruch CollegeBaruch CollegeBarry Hersh, AICPBarry Hersh, AICPAssociate DirectorAssociate Director

Presented Jointly by:Presented Jointly by:

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

““Exuberant BubbleExuberant Bubble” ”

Background

““Fundamentally Sound” 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

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The Annual High Month

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Appraisers in Action

Survey of Members of the

Metropolitan Chapter of the

Appraisal Institute

How confident are you that prices in the NYC residential real estate market are over valued?

13

35

17

0

1

0 5 10 15 20 25 30 35 40

Very confident prices are too high

Modestly confident prices are too high

Unsure

Confident prices are too low

Very confident prices are too low

Housing Bubble Survey – Chart 1

How much evidence have you seen of excessive market euphoria or that a bubble exists in the residential real estate market?

23

35

10

0 5 10 15 20 25 30 35 40

Strong and substantial evidence

Only moderate evidence

No such evidence

Housing Bubble Survey – Chart 2

Housing Bubble Survey – Chart 3

How much is the market for NYC residential property over-priced?

16

35

17

0

0

0 5 10 15 20 25 30 35 40

Over-priced by more than 20%

Over-priced by 5% to 20%

Priced about right, between -5% to +5%

Under-priced by 5% to 20%

Under-priced by more than 20%

Housing Bubble Survey – Chart 4In the last 12 months, how much has the NYC

residential market prices appreciated in value?

1

12

32

15

5

0

0

0 5 10 15 20 25 30 35

More than 35%

Between 25 and 35%

Between 15 and 25%

Between 10 and 15%

Between 5 and 10%

Between 0 and 5%

The market is declining

Housing Bubble Survey – Chart 5

In the next 12 months, how much will the NYC residential market price appreciate in value?

0

13

26

16

3

6

2

0

0

0 5 10 15 20 25 30

Appreciate by 15% or more

Appreciate by 10 to 15%

Appreciate by 5 to 10%

Appreciate by 0 to 5%

No change in the market

Depreciate by 0 to 5%

Depreciate by 5 to 10%

Depreciate by 10 to 15%

Depreciate by more than 15%

Housing Bubble Survey – Chart 6 Is the NYC commercial market similarly over priced?

8

31

26

0

0

0 5 10 15 20 25 30 35

Over priced by more than 20%

Over priced by 5 to 20%

Priced about right from -5% to +5%

Under priced by 5 to 20%

Under priced by more than 20%

NCREIF vs. CPI – Chart 1Quarterly Value and Cost Changes

NCREIF vs CPI

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2nd Q

tr, 1

995

4th

Qtr,

1995

2nd Q

tr, 1

996

4th

Qtr,

1996

2nd Q

tr, 1

997

4th

Qtr,

1997

2nd Q

tr, 1

998

4th

Qtr,

1998

2nd Q

tr, 1

999

4th

Qtr,

1999

2nd Q

tr, 2

000

4th

Qtr,

2000

2nd Q

tr, 2

001

4th

Qtr,

2001

2nd Q

tr, 2

002

4th

Qtr,

2002

2nd Q

tr, 2

003

4th

Qtr,

2003

2nd Q

tr, 2

004

4th

Qtr,

2004

2nd Q

tr, 2

005

NCREIF Property Index CPI, All Urban Consumers

NCREIF vs. CPI – Chart 2Quarterly Value and Cost Changes

NCREIF vs CPI

0.00

50.00

100.00

150.00

200.00

250.00

NCREIF Property Index

CPI, All Urban Consumers

Both Indices set at 100 in 1st Quarter 1998.

Are we in a bubble?

“History cautions that extended periodsof 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