Not everyone is in agreement about the condition or direction of our housing economy. There is evidence to support a variety of theories being bounced around on the home front these days.

Home builders, Realtors and mortgage bankers seem mostly bullish about our housing future, in spit of a very long positive trend in the market and recent higher interest rates. Others, including some economists, are taking more of a bearish approach. Depending upon our perspective, there exists evidence to support both contentions.

In politics, where many stated opinions come from so-called political analysts, the direction of the spin seems to depend upon the camp in which the analyst resides. The savvy voter usually attempts to see through the smoke and mirrors and come to an unbiased and realistic conclusion. While there may be less reason for housing analysts to pitch curve balls, there is ample evidence to suggest that one cannot believe everything he or she hears on the subject.

Just as in many other complicated and subjective areas, separating the wheat from the chaff can reduce the issues of the subject to a manageable level. Having some background in economics, marketing and property valuation, I will attempt to offer an objective and realistic account of the subject as I see it.

First, it is important that I convey to you that there are myths, misunderstandings and misconceptions, which contribute to confusion in analyzing housing values. I will not say that this information is not good to know when accessing the housing market, but I will suggest that it should not be given any material weight in the assessment. 

Points to assess:

• Home refinances do affect the mortgage professional’s pocketbook, but they have little to do with housing values or supply and demand. This is all to often thrown into the mix. For the purpose of this article, we will not consider this a material factor. However, it should be noted that refinances in 2004 are projected to be down to $445 billion from $1.06 trillion in 2003 – a 58% decrease – according to the Mortgage Bankers Association.

• Housing values are not the same across the country – or for that matter across town or even across the street. The use of broad-brush national statistics should be approached with care. Unless we are approaching housing values in the macro sense for some national statistical purpose, a micro view is best. A micro view addresses local geographic regions, markets and sub-markets, as well as cities and neighborhoods.

• New housing construction costs, which vary across the country in given markets, can cost twice as much in some areas than in others, yet this does not always equate to value. Miami is a good example. This Florida city has one of the lowest housing costs in the country, at 89% of the national average, according to Marshall and Swift Building Cost Service. Yet it has an acute shortage of housing, and values are skyrocketing.

There are a number of major indicators, which do have a material effect on housing values, in my opinion. They are employment rates, interest rates, inflation rates, supply, demand and location, location, location.

Having laid some groundwork for ascertaining housing values, perhaps some of our puzzle is beginning to take shape. There are further questions that we need to ask ourselves before we proceed to answer the question as to whether we are in for a housing boom or bubble.

The suggested questions include the following:

• What are employment rates going to be?

• What are interest rates going to be?

• How much inflation will we have?

• What geographic area are we talking about?

• Is the local supply and demand in balance?

• What segment of the housing market are we talking about?

There is no one-size-fits-all answer to the overall housing value question. A simpler and more-to-the-point question that we might ask ourselves is “Why do I want to know?”

To break this down even further, the answer will depend upon the situation or circumstance of each of us who have an interest. For example, does it really matter to a mortgage servicer with a portfolio of loans collateralized in Birmingham, Ala., that property values in San Francisco have increased at double-digit rates in recent years, while Birmingham has experienced flat or negative appreciation?

When we consider that our country is madder up of many Birminghams or San Franciscos, as well as many other areas in between, the overall average may mean little to most of us.

We have all heard that a recession is when our neighbor loses his job, and a depression is when we lose ours. You may be wondering why so much is being said about sub-markets and local areas, with little attention to the market in a macro sense.

This is where the rubber meets the road. It is my opinion that there is more market-value disparity among housing markets today than in the past. Why is this true? Here again, there is no one-size-fits-all answer. Some of the answer lies in the fact that people have lost fortunes in an overheated stock market in recent years and have moved their investments from that of stock to real estate. This has put tremendous pressure on the second-home and playground markets in the country, primarily areas on or near water, especially the ocean. The local economies of some areas have had positive and negative effects on local markets, which are not felt elsewhere.