Today, I had a conversation with Natalie Pausch, a local appraiser who specializes in Dr. Phillips and Windermere, and she happened to mention that many of her appraisals are now showing that homes in SW Orlando are priced below replacement cost using the cost approach which Natalie describes as the easiest to understand of the various approaches an appraiser takes to value a property.
She defines it as taking information on local building costs, labor rates, and other factors to determine how much it would cost to construct a similar property. She also says the cost approach often sets the upper limit on what a home would sell for, because rational buyers will not pay more for an existing property when they can build a new home for less.
Global Insight, an economic forecasting firm, also sights home prices are now below replacement costs and 3.8% undervalued nationwide and even more undervalued in the Southeast.
Natalie seems to think that it’s a signal that we’re at or near a bottom. I sure hope she’s right.