Long before there was a World Wide Web, a mainstay data source that tracked the economy for appraisers was the Appraisal Indicators, which first appeared in 1959 in The Appraiser newsletter. Today this feature, re-named "Economic & Market Indicators," appears in every issue of Valuation (pages 38-39)

The feature provides a capsule portrait of the general economy and real estate markets in the United States. Over the years many appraisers have turned to the Indicators for a snapshot of current market conditions as well as the historical perspective it offers on the economy, pointing out the disparities and similarities in markets over the decades. Because this issue of Valuation focuses on data sources, our final 75th anniversary year Roundtable feature takes a look at the value of our Economic Indicators.

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To get a better idea of how the Indicators feature has stood the test of time, Valuation staff asked several appraisers about their use of this data and which aspects have the most value for them, as well as to identify areas where they felt the Indicators could be expanded. We also asked them about other sources of data and how much they spend each year such items. Our panelists included Dianne Hays, MAI, SRA, Champaign, Ill.; Kelli Kline, MAI, Charlotte, N.C.; Michael MaRous, MAI, SRA, Park Ridge, Ill.; Maureen Mastroieni, MAI, Philadelphia, Pa.; Jack Poe, MAI, Dallas, Texas; and John Schwartz, MAI, SRA, Aurora, Colo. See the chart on the facing page to see how panelists rated specific aspects of the Economic Indicators data.

Providing a Market Snapshot

Several elements of the Indicators have remained constant over the years, providing a snapshot of the general economy at a given point in time. These include money market rates and key stock and bond yields, along with such items as the unemployment rate, consumer price index and industrial production index. Although numerous sources for each of these are available to appraisers, having a single "go-to" source continues to make the Indicators a popular feature of both Valuation and the Appraisal Institute Web site. Our panelists concur with that, although based on their input, some sections of the Indicators are more useful than others. "I definitely look at this information when the magazine arrives," says Mastroieni, "and occasionally refer back to it."

Schwartz finds the yield rates on government treasury bonds the most important section of the Indicators. He uses these rates, along with yield rates on junk bonds, tax-free bond issues and CMBS yields, which he finds posted on the New York Stock Exchange, in developing yield rates for discounted cash flow analyses. Adds Kline: "Market rates and bond yield rates are frequently a consideration in the income approach as we assess the risk associated with a particular real estate investment versus alternative investment options. Mortgage terms, CPI, unemployment and income trends all provide an overview of the strength and stability of the national economy. A comparison between national and local conditions allows the appraiser to predict market trends and investor behavior more accurately, thereby increasing the reliability of the reported conclusions." Summarizes Hays: "We all want support, support, support for conclusions."

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As an example of just how useful the Indicators can be to an appraiser, Kline points to a recent assignment involving a series of market studies designed to assist a community development corporation with the revitalization of an urban area of a mid-sized city. "Incorporating national and regional economic trends into the report provided a foundation for our analysis of local economic trends and the impact to local real estate. My client could clearly see why some recommendations for redevelopment took precedence over others and why timing of their proposed development impacted financial feasibility."

Because of time lags among the various sources that feed the Indicators, as well as the time it takes our staff to compile and publish this information, our panelists have devised other avenues to access current information. Kline and Mastroieni both tap the Internet after referencing the Indicators. "For current market trends, we want truly current information, not several months old," says Mastroieni. "Most of this information is readily available online or in our local newspapers. For instance, I keep a link to page 18 of the St. Louis Fed/US Financial Data, which provides all the money rates, current within a few days." (http://research.stlouisfed.org)

Valuable Hind Sight

Even more than a snapshot of today's economy, the Indicators provide historical trend tracking, which can be just as valuable to an appraiser. Explains Hays, "I use [the Indicators] for trending to see where the market has been and also to see where it is right now." Schwartz finds the historical aspect of the Indicators especially useful when doing "retrospective valuations for estates and count work on larger properties." Mastroieni backs that up, citing a current litigation assignment that involves property transactions going back to the mid-1990s. "The historic indicators are essential to evaluating both the transactions as well as the appraisals that were done at that time," she says.

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Kline sees importance in both perspectives. "Simply stating current indicators does not provide the context necessary to understand how markets are impacted by them. Market conditions are fluid. To appropriately assess the significance of each component, the analyst must understand the historical interaction and trends that led to present economic conditions," she explains.

Data Wish List

Since appraisers thrive on data and more data, our panel was asked about other data sources they use or subscribe to as well as what else they would like to see in our Indicators. Schwartz's wish list includes "land development yields, overhead and profit rates, and development time lines to achieve entitlements such as rezoning, platting and utilities."

Given the growing global marketplace, Mastroieni wonders if there's a single source for comparative data on a global scale. "Many of our members are becoming involved with foreign clients and overseas properties. We recently completed an assignment where we worked with appraisers in Europe, Asia and South America. It was difficult to assemble information about economic conditions in other countries. Fortunately, we found reliable partners overseas. I don't know if there is any one source for comparative data on a global scale, but it's something we should consider for the future," she says.

Several panelists requested information from the American Council on Life Insurance (ACLI) and from Real Estate Research Corp (RERC). Poe favors the RERC report since it has current and geographic area specific cap rates, discount rates, and other investor parameters quarterly. Other sources of data mentioned by our panel include LoopNet, CoStar and Site To Do Business as well as reports from Smith Travel Research, Urban Land Institute and the Institute of Real Estate Management. (See "The Big Dig for Data" starting on page 12 for a variety of data resources.)

One data source that practically every panelist mentioned was the Korpacz Real Estate Investor Survey, segments of which appear in Valuation and, as a members-only benefit, on the Appraisal Institute Web site. (For a related article on the origins of the Korpacz and RERC surveys, see page 19.)

Data Must-Haves

The cost of obtaining data is one of the costs of business if you're an appraiser, and based on our panel this could range from only several hundred dollars to as much as $20,000 or more per year.

We asked our panel what one data source they can't live without. For Mastroieni it's demographics. "Market studies are an area where appraisers truly excel, because we can provide impartial analysis and recommendations," she says. "However, to do a good job we need up-to-date economic and demographic information, often as detailed as census tracts and block groups. We have recently switched to Site To Do Business."

Hays offers several can't-live-without items. For local data, she turns to the MLS service as a good barometer of current activity in different real estate sectors. "For out of town and more regional data, Loopnet has been very helpful for seeing what is in the marketplace and what recent property sales there have been," she claims. "General investment data is most helpful from the Korpacz and the RERC reports. I think the RERC report in some ways is most helpful, as it provides data on different property tiers, important for many properties away from major metro areas."

Kline summed up this discussion by pointing out that "any of these data sources could be replicated and none are so comprehensive that they are irreplaceable. The only resource I cannot function effectively without is the Internet."

JAN SEEFELDT is executive editor of Valuation magazine and other Appraisal Institute publications. Reach her at 312-335-4440 or jseefeldt@appraisalinstitute.org.

WEIGH IN

Now it's your turn to tell us what you like about the Appraisal Institute's Economic & Market Indicators and what you'd like changed or added. Take a short survey at www.appraisalinstitute.org/aisurvey/.

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Roundtable Panel Ratings for Usefulness of Economic & Market Indicators

                                    extremely  use           never
                                    useful     occasionally  reference

Market Rates and Bond Yields        50%        33%           17%
Stock Dividend Yields               17%        33%           50%
Other Benchmarks (Industrial        33%        50%           17%
  Production, Unemployment, CPI,
  Money Aggregates)
Per Capita Income                   33%        17%           50%
Conventional Home Mortgage
Rates by Metro Area                            67%           33%
Conventional Home Mortgage Terms    33%        33%           33%
Korpacz National Market Indicators  67%        33%