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Archive for December, 2006

Soapbox Brings Out The Holiday Hawk: Back On January 2, 2007 – Happy Holidays!

December 21, 2006 | 11:54 am |

We thank you all for reading Soapbox. its been a tumultuous year for the appraisal profession and promises to be ust as challenging in 2007.

…And lets bring out the Holiday Hawk while we are at it!

We will be back on Tuesday, January 2, 2007.

Happy Holidays!

Jonathan Miller


Matrix Brings Out The Holiday Hawk: Back On January 2, 2007 – Happy Holidays!

December 21, 2006 | 10:29 am | |

As some of you might have noticed, I have been largely absent from posting much of anything this week (as much as I tried). Apparently, there isn’t enough time in the day, let alone time to stand in line from midnight to 10am to get the new Wii game console (for my kids, of course [wink]).

…And lets bring out the Holiday Hawk while we are at it!

UPDATE: An added bonus: Carol of the Fippers from Flipper Nation.

Its been a really interesting year for real estate and 2007 already promises to be more complex.

Thanks for reading and I hope to see you bright and early on Tuesday, January 2, 2007.

Happy Holidays!

Jonathan Miller

T-shirt Market Contrarians: Stairway To Housing?

December 19, 2006 | 7:44 pm |

I have been bombarded with year end data and recaps on the housing market, so I thought I would address something even more important and critical to the real estate economy…

Housing market t-shirts.

In August of 2005, there was a new t-shirt on the scene that got a lot of attention for its housing bubble reference. I printed that image out and hung it in our office.

Well, in perhaps a sign (questionable) that we have reached bottom (haven’t decided if I am referencing the housing market or taste), there are some new choices entering the fray that provide a housing market message that is contrary to the original.

There is yet another t-shirt company trying to cash in on the housing market (?) that has emerged, wearing (sorry) a different message.

Makers of Led Zeppelin (“market is falling” pun intended) t-shirts have found a new niche.

[Fee Simplistic] Trans Fat Lending

December 19, 2006 | 8:13 am |

Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, he chews the fat with us about the easy credit syndrome which begs the question: “Do you want fries with that?.” …Jonathan Miller

One of the points that I have been making to my younger colleagues who have been toiling in the appraisal vineyard for the past several years is that the real estate market is local and cyclical. So when one of them announced that they were doing an appraisal on a property undergoing foreclosure I asked if it was their “maiden” foreclosure appraisal to which the answer was “yes”. This was something new as most of their professional experience which is less than a decade they have only observed and experienced an “up” market-the latest euphemism of which is “cap rate compression”. Old fogeys, myself included, used to call it “money chasing deals” but “cap rate compression” is infinitely more seductive if you want some romance with a market that has yet to tank notwithstanding the media’s constant blasting of the bursting “housing bubble”.

What has recently surfaced is the subprime mortgage delinquency rate which has been going up as borrowers are defaulting on the easy credit mortgages that have been a key lending phenomenon the past several years. A startling fact is that 75% of CDO’s or collateralized debt obligation bonds are comprised of subprime mortgage securities. The fact that this represents the lowest credit-rated tranche and thus poses the highest risk should come as no surprise to the bond buyers when defaults occur and losses loom. This has been a turnaround from the heady past several years when the subprime CDO market with its high yield rate enjoyed high buyer demand from domestic and foreign investors. But, as the old saying goes, “you get what you pay for” and thus the lower yielding but higher rated bond tranches are still buffered from this easy credit syndrome which is now practically non-operative in the housing lending market.

All of this leads me to the latest fad of banning “TRANS FATS” (no he is not a pool player from Minnesota). New York City recently banned trans fats in restaurants starting in 2007 to protect the public from clogging its arteries with high cholesterol, life threatening fat. Whether this is going to have an effect on the public health is questionable considering that you can travel to New Jersey or Keokuk, Iowa and enjoy all the chicken-fried steak with white gravy to your heart’s content. Easy credit and subprime lending may be likened to the trans fat bandwagon. The lending world has gorged itself on subprime credit and now it is beginning to pay the price. Currently, it is mainly dyspeptic but who knows if chest pains will develop as we digest the past gorging on satisfying but patently unhealthy goodies.

One final thought as we head off into the new year and maybe the beginning of a new cycle. The Feds have been so punctilious since 1989 with FIRREA and the appraisal process that maybe they should start looking at the vast trans fat syndrome of the lending side. The appraisal process could be likened more to a cardiogram and blood test but the credit and underwriting ah, that is where the true gluttonous culprit lies.

Happy Holidays and Happy New Year.

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Northern Virginia Is For Lovers (And Real Estate?): November 2006

December 18, 2006 | 8:24 am |

[This market recap on the Northern Virginia from MLS data is compiled by Butch Hicks, a former president of RAC (Relocation Appraisers and Consultants) (that I am a member of), a friend and an experienced appraiser in Northern Virginia. The results of his efforts are published on his web site as a series of charts, each with a brief summary. (As a kid growing up in the Washing DC area, I was barraged by “Virginia is for Lovers” tourism ads, and of course “DC is for US, by George”)] -Jonathan Miller

View the charts []

Here’s a sample of the charts available online.

  • The median price paid at the end of November, 2006 was $438,618, a decrease of 4.6% from the same time period 12 months earlier.

  • At the end of November, 2006, inventory was 7.4 months, an increase of 85% from one year earlier.


[The Hall Monitor] Municipal Overlap: Taxing Your Cake And Eating It Too

December 18, 2006 | 8:03 am |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Today Todd suggests residents in Westchester County, NY (but it also applies elsewhere) eat twice as much cake as they need to so the sugar rush masks they high taxes they pay. …Jonathan Miller

The Administrative divisions of New York [Wikipedia] consist of 62 counties, 62 cities, 932 towns and 553 villages. The County of Westchester, which has the highest property taxes in the United States, has between 43 and 48 municipalities, depending on how you count them. Scarsdale seems to be both a town and a village – as do Harrison and Mount Kisco. These three town/villages have boundaries which are co-terminus. This is not to be confused with Mamaroneck (Town) and Mamaroneck (Village), Ossining (Town) and Ossining (Village), Pelham (Town) and Pelham (Village), or Rye (City) and Rye (Town) all four of which, or is it eight of which, are indeed separate entities. (those of you not familiar with Westchester County can take solace in the fact that those of us who are familiar are just as confused by this paragraph as you are)

Trying to make sense of all of Westchester is impossible so let’s focus on one town which is in the southern part (within 30 minutes of Manhattan). The Town of Greenburgh measures more than 30 square miles, the largest town in lower Westchester, and has a population of around 86,000. It consists of six villages as well as an unincorporated area. The villages, each of which has its own school district, are Ardsley, Dobbs Ferry, Elmsford, Hastings-on-Hudson, Irvington and Tarrytown. The areas of town outside the villages have two additional school districts.

More than 50,000 residents of the town, those living outside the villages, are served by a Town Supervisor, with a police department, assessor, building department, town clerk, highway department, etc. to provide basic needs of residents. The six villages, whose total land area comprises just 40% of the town, each have their own village manager, police department, assessor, building department, village clerk, highway department, etc. to provide for their basic needs.

Does a town of 86,000 residents covering 30 square miles really need seven different supervisor/managers, police departments, building inspectors, highway departments, etc? Not to mention the eight school superintendents for the various districts (one of which has fewer than 1,000 students).

Don’t get me wrong. Greenburgh is not an egregious example by any means. It merely has the geographic size and large numbers of villages that make it easy to highlight the way services are provided. But the absence of any observable economy of scale, with regard to services, is evident in any number of other municipalities throughout Westchester.

The funny thing is this. Whenever anyone suggests merging a function of a village into that of a larger town, the residents of the village invariably rise up in protest, fearful that they will become the unwanted stepchild whose garbage won’t be collected or whose streets won’t be plowed.

We love to complain about the level of taxes we pay. But we have little interest in addressing the manner in which services are provided. We want to have our cake and eat it too, which is fine, as long as we’re willing to pay for two cakes.

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Crains New York Business Economic Spotlight Chart – December 2006

December 18, 2006 | 12:01 am | | Charts |

Since 2003, I have provided a chart that appears once a month in the Economic Spotlight section of Crain’s New York Business magazine. Here is this month’s chart appearing in the current issue of Crain’s New York Business.

Source: Crain’s New York Business

Go here for a complete archive of all my Crains’s New York Economic Spotlight charts. They are organized by year.


Windy City Update: Chicagoland MarketPulse November 2006

December 18, 2006 | 12:01 am |

[This monthly market report is provided by Chip Wagner and Robert Headrick of the Headrick-Wagner Appraisal Group in their November eNewsletter. I have had the pleasure of knowing them for most of my appraisal career. They are both very active in appraisal industry matters having held a large number of leadership positions. Their firm has been covering the Chicagoland market since 1970 and as a result, they both have a wealth of insight. Their focus is on relocation, litigation and lending appraisals as well as slayers of appraisals myths. Chip and Bob also author a series of market reports on the Chicagoland real estate market They tell me they are also working on a big revamp of their web site as well.] -Jonathan Miller


This is the first time in 2006 that the Months Supply of Inventory has decreased. Although this is a good sign, it is too early to draw any conclusions that the market is improving, as we are in the period between Thanksgiving and New Years when many less-motivated sellers remove their homes from the market. Hopefully, in the coming months we will be able to see a decline in the Absorption Rates, reflecting the market either beginning to eliminate some of this supply, or sellers who are in no immediate need to sell will remove their property from the market allowing demand to catch up with supply.

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[Haute Living Magazine] Buy The Numbers Column: December 2006

December 18, 2006 | 12:01 am | Articles |

Haute Living, a magazine that covers the luxury lifestyle, has gotten a lot of attention in New York over the past year. Publisher Seth Semilof began contacting me about a year ago, asking me to write a column. He wanted an analytical perspective of the the luxury real estate market.

[Although I am not part of the Jet Set, have any real estate dynasty or blue blood in my heritage, nor do I smoke fine cigars (allergic), play polo, have three homes in different states, nor do I grasp where the small fork is supposed to go in the place setting, I do enjoy dissecting values and explore relationships of amenities in the residential property market. In this issue, I began using a more Trump-esqe photo.]

I write a column on the luxury market appearing in the New York edition called Buy The Numbers.

Here’s my second Buy The Numbers column which is titled: Penthouse Living Provides A Clear View.

I’ll post the link to the digital version of the magazine shortly.


[Curbed] Three Cents Worth: The Onus Of The Bonus

December 15, 2006 | 10:42 pm | | Charts |

Its Friday, so I am fairly sure its the time of the week to provide my Three Cents Worth as a post for Curbed. This week I got to use the word “onus” in public for the first time, and as an added “bonus,” it rhymes with a wildy popular topic these days, well, er, “bonus”.

To view post: Three Cents Worth: The Onus of the Bonus

Previous posts can be found here.

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The Onus of The Wall Street Bonus

December 15, 2006 | 9:56 am | |

Over the past few weeks, discussion of the impact of the Wall Street bonus has increased as rapidly as the housing prices did in 2004. Its a big economic event in the New York region and provides a significant impact on the local economy.

Bonuses been get a lot of coverage with more to come:

Huge Profit at Goldman Brings Big Bonuses [NYT]
Brokerages report record profits [AP]
Unbelieva-bull spending spree [NYDN]
Downtown realtors ready for bonus time [Metro]
Jaw-Dropping Bonuses on Wall Street [US News]

However, I don’t think that bonuses are the only reason why 2007 looks more promising today than it did 6 months ago. While bonus income seems to have more impact on pricing than the number of sales, the consensus is that a wider market strata will be affected this time.

Last year, the bonus income had more of an impact on the upper 2% of the market, for properties priced above $5 million dollars. This year however, as the saying goes, its different. But no real reason has been given as to why things are different this year other than bonuses, it just feels different. For example, its my impression that there have been more bidding wars in the last month and a half than in the early part of the year.

Here are some thoughts on why the outlook for 2007 could be better than last year in New York real estate:

  • Bonus income is higher than last year and its no surprise. Each quarter, news coverage of the pace of bonus money tracking has remained on target. The news gradually built expectations over the year.
  • Bonus income has seen 4 successive years of gains (assuming this year is), which provides a cumulative effect. Bonus payouts don’t necessarily go into the housing market in the first year of payout. Activity today may originate from payouts made a few years ago.
  • Mortgage rates have been generally in decline or flat for the past 6 months. Mortgage applications are rising including refi activity which adds to the churn. The Fed is largely expected to cut the federal funds rate in mid-2007 because of a cooling economy. However, the NYC economy is expected to be fairly solid so the market benefits from weaker conditions in other parts of the country through tapping into lower mortgage rates.
  • International buyers have been coming to the market in increasing numbers, (but less than I would have thought by this point). Favorable exchange rates due to the weakening dollar makes NYC properties increasingly affordable to foreign buyers.
  • Lending (underwriting) standards continue to erode making it easier to get deals done.
  • Some developers are starting to get the message that its all about accurate pricing and that marketing alone doesn’t move units. We are hearing that some stalled projects are being re-priced and then see units started to move. Placing ego aside is a huge step int he right direction.
  • Overpriced listings from non-serious sellers started to expire and not be renewed last spring, reducing the clutter and frustration for buyers. Inventory levels in the region have remained level for more than 6 months, after seeing substantial gains for the prior 18 months. There is some evidence of inventory bottoming out nationally after several months of gains but the jury is still out.
  • Rental rates spiked this year as a result of people moving into rentals for safety and lower cost. They became disillusioned after seeing bidding wars and 20 to 25% rent hikes in the luxury sector.
  • The local economy is on solid footing and the city is projecting a surplus.
  • The recent national election brought significant change to the Congress, implying some sort of changes in the future.

To expound on the last thought, the real estate market is often defined by negative milestones, ironic for such an upbeat industry. One of those milestones could be the recent national election.

With the president’s approval rating at record lows for his tenure and the situation in Iraq deteriorating, I thought that a change in control of the Congress could be one of those milestones. The looming election had turned the focus away from the housing market. While the change in power may or may not impact housing, it was a change and seemed to precipated a change in perception.

The latest wrinkle is the sudden illness of Democatic Senator Tim Johnson, who, if unable to continue in office, would be replaced by someone appointed by the Governor, a Republican by presumeably, a Republican. This would move the Senate to 50/50 representation by both parties just after the newly majority that the Democrats earned last month. However, I suspect that this is a non-event for housing. The momentum has already been initiated by the election.

Sure, the bonus money is an important, and perhaps primary component of the recent surge in activity in Manhattan, but it can’t claim all the credit.

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[Commercial Grade] The Perfect Moment To Get

December 15, 2006 | 7:49 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John gets that perfect moment, and now his life is complete, well kind of.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Fridays, one of the smartest guys I know. …Jonathan Miller

A requirement in the Real Estate Valuation and Analysis class that I teach at NYU is to write a complete, self-contained appraisal as part of a group project. Three or four bright, motivated graduate students writing one appraisal of a small income property over a ten-week period from start to finish, with all three approaches to value. The purpose is to let the class apply the theory they learn in class to the real world. At the end of the semester, the groups present their reports to the class, explaining their methodology and conclusions. I stress the development of good market dataspeak to brokersverify the sales.

One of my students, an account officer in the real estate group of a major lending institution, came up to me in the beginning of class on the day of the presentations and said that I will never complain about the appraisal fee or ask for a two-week turnaround time againthat was so much work! Yes it is! And we usually do it alone, not in groups, and in 2 weeks!

Finally, an account officer got it!!…It was a perfect moment!

And it dawned on me that that’s the answer to the dilemma that we’re inthe appraisal lobbyists in Washington must get enacted into law a requirement that all bank lenders spend three months actually going into the field to do research and write an appraisal. Perhaps then, they will get it.

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