When compared to the rest of the U.S. housing market, Aspen Colorado is a really a niche luxury market with an overall median sales price of $1,407,500 in the second quarter of 2016. This was 27% higher than Manhattan in New York City – with a current condo reportedly under contract for around $250 million – whose market-wide median sales price was $1,108,500 in the same period.
Some noteworthy superlatives used in the article were:
If you use the article’s June year to date residential sales volume for the entire county, it is clear that 2015 was an outlier. However because most real estate brokers on commission tend to look at the market in the short run, there was an expectation that the sales trend from 2014 to 2015 would continue into 2016. Because of the uncertainty described in the article, Aspen buyers – who are by definition “luxury” buyers – are clearly pulling back (and in many U.S. luxury markets).
I author a market report that covers Aspen for Douglas Elliman’s market report series, which I began writing in 194. The year over year drop in Aspen 2Q16 sales was 52.5%. Here is the breakdown of sales at the high end:
Based on the behavior of the luxury market in high end enclaves like Manhattan, The Hamptons, Greenwich, Miami and Los Angeles that are also covered in our report series, the prevailing pattern for housing remains “soft at the top” and it looks like Aspen is no exception. The impact of the 2012 on Aspen sales didn’t seem as pronounced as this year if you believe that is a significant cause. However my theory is that the heavy luxury volume of the prior year (2015) may have poached demand from 2016, exacerbated by the 2016 election and other items of uncertainty like Brexit, the U.S. economy and the financial markets.
Co-op Boards Cannot Prevent Sales They Think Are Low Without Damaging Shareholder Values
I have spoken with buyers, sellers or real estate agents that were told by co-op board members their sale may not be approved by the board because the resulting “price per share” of the sale (purchase price/apartment shares) is less than a prior similar sale in the building. Here are some thoughts about co-op boards who try to “protect” shareholder values by preventing transactions.
Co-op boards wield a lot of power over a sale within their building. In a research study I coauthored that was published by NYU Furman Center for Real Estate and Urban Policy with Michael H. Schill and Ioan Voicu called The Condominium v. Cooperative Puzzle: An Empirical Analysis of Housing in New York City found that there was an inherent cost of a co-op board’s power over their shareholders, unlike the relationship between a condo association and their respective unit owners. It is important to note that market forces are far more powerful than a co-op boards intention to “protect” the market within their building. Much of this gateway mentality stems from the legacy of no public record for co-op sales prior to 2003 (made public record in 2006, but retroactive to 2003). When a co-op overextends it reach and stops a sale because the price is considered too low – often because it falls short of a recent similar apartment’s sales price – the co-op board is doing a disservice to their shareholders, despite best intentions. Why? The decline of a transaction where the listing was properly exposed to the market creates a public perception that the board is disconnected from the market. Brokers are less likely to bring buyers to listings within such a building in the future. Less market exposure for listings in the building means fewer potential buyers and ultimately a lower achievable sales price.
Housing markets do not always rise. This was made clear during the housing bubble and bust cycle a decade ago. The mindset of requiring a current sale to be higher than the last highest similar sale would prevent any sale from occurring when a market is flat or falling. This taints the building in the market and would make values fall much harder in a down cycle once the board capitulated. This would serve as a significant miscarriage of board power during such a cycle. I saw a lot of this circa 2009 after Lehman collapsed. A board would consistently nullify deals on a specific listing that was properly exposed to the market. By the time the third market vetted contract was signed at about the same price, the seller would give up and be possibly exposed to significant financial hardship. And since many co-ops are restrictive about a temporary rental scenario, the seller would be unable to rent the apartment after they moved out.
One of a few valuation remnants of the past includes a co-op board valuing a current contract sale on a price per share basis. This is a “shotgun” approach to determining a reasonable market value and is at best case, a broad brushstroke approach that is not suitable for an individual apartment valuation. Valuing by share allocation does not reflect the fair market value. When the sales price per share is consistent with a building average or trend, it is simply coincidence within a wide bandwidth of price probabilities. Such a price per share valuation philosophy would appear to violate the board’s fiduciary responsibility to protect its shareholders by penalizing them for a share allocation perhaps done decades or even a century ago. There is no science to the original allocation of co-op shares and the patterns are often fraught with inconsistencies. For example, the perception of value for a certain exposure in the building may be different today than it was in 1927. A buyer doesn’t look at a per share valuation in a building as market value for guidance – they never have. They look at competing properties in the market surrounding the property. Incidentally all of those co-ops with competing listings likely had different rationale for their respective allocations when they were built or converted.
Investor value can be mistaken for market value. In the case of the co-op board judging an adequate sales price based on the price per share within the building is known as investor value. It is the value to them, not the value to the market. This is why sellers can be so disconnected from the market when setting their asking price. A seller might think that a purple formica entertainment center in the living is worth another $50 thousand to a buyer when the buyer is thinking it is worth minus $2 thousand for the cost to remove it. Co-op boards are responsible to protect the interests of their shareholders but they can confuse that with market value.
A few definitions of Fair Market Value
IRS: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”
Investopedia: “Fair market value is the price that a given property or asset would fetch in the marketplace, subject to the following conditions:
1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
2. A reasonable time period is given for the transaction to be completed.
Given these conditions, an asset’s fair market value should represent an accurate valuation or assessment of its worth.”
Merriam-Webster: “a price at which buyers and sellers with a reasonable knowledge of pertinent facts and not acting under any compulsion are willing to do business”
Note the “two comma” reference taken from the HBO show Silicon Valley:
Miller also rejects the thesis that Manhattan’s two-comma real estate prices were being fueled solely by foreign money and are now jeopardized by global uncertainty and a stronger dollar versus emerging market currencies.
Even though housing market talking heads are known for dramatizing the long term economic impact of a big snow storm, it’s basically a “snow ball’s chance in hell” that it has a lasting effect.
Given that it is early March and it is 54 degrees outside in NYC as I write this, it’s hard to think about snowstorms. However Mother Nature has a way of messing with us so I’m optimistic that we’ll get socked with at least one more big storm this month.
81% of major snowstorms (over 15 inches dumped in Central Park) began on a Friday, Saturday or Sunday
there is no evidence that major snow storms disrupt the economy more than a few days.
In fact, the odds of repeating NYC’s snowstorm history is 0.2% or 500 to 1.
“The bottom line is, when you look at monthly or even weekly economic indicators, you rarely see a blip, even after the most severe blizzards.”
This is why I go crazy at the beginning of every calendar year listening to housing prognosticators fret about severe winter weather having a far reaching long term impact on the housing market and the economy.
Consider this scenario by a couple looking to purchase their first home:
Tuesday Husband: Hi honey, ready to go look for houses this weekend? Wife: Yes, I can’t wait! We’ve been saving up for a long time and we are finally at the point where we can buy!
A big snow storm hits on Friday night…
Saturday Husband: Ugh, this snowstorm is really bad. We’d better cancel our appointment with the real estate agent to view homes. Wife: Yes, that’s a good idea. This is so frustrating! Husband: I know! Now we have to wait another year! Wife: I just can’t believe it. Just when we were ready to buy, a snowstorm hits and now we have to wait another year!
Of course you can see how ridiculous this scenario is despite my John Grisham/Stephen King – like story telling skills. These buyers will simply wait until the following weekend.
There has been voluminous discussion in recent years about following and marketing to the high end of the demographic scale, especial the real estate market. It’s been the focus of much of the new housing development action of the past five years, especially in big U.S. coastal cities. The high end development market has been widely chronicled here and within my weekly Housing Notes newsletter.
For buyers in the super luxury housing market, owning multiple homes is less about a primary residence with a second home and more about owning “stops on the big circuit.”
And as the rich own a greater share of real estate, major cities like New York, Los Angeles and London are going through a kind of “resortification,” familiar to posh beach towns or ski resorts, as their populations become more seasonal.
For Manhattan, these birds are rare in February and squawking on all treetops (bad pun for super tall condo penthouses) at full capacity in June.
Fairfield County, CT is one of the more recent editions to our Elliman Report series. Greenwich, CT as a submarket has proven to be a market still strongly linked to the heady days before the collapse of Lehman Brothers in 2008 and the beginning of the financial crisis. There remain many owners of high end homes purchased a decade ago that remain value-anchored to those days of yore.
I took a look at the last 15 years of residential sales, measuring the amount of time that passed from a home’s prior renovation to sale. From the late 1990s to Lehman, there was a compression of time from renovation to eventual sale, reflective of the speculative conditions leading up to Lehman. Reno a home, then sell it. During those days, business cards passed out by doctors and lawyers at Greenwich cocktail parties were either “hedge fund manager” or “developer.” Not so much anymore.
Subsequent to Lehman, the late 1990s pattern that preceded the U.S. housing bubble returned by 2010 and has remained remarkably stable since.
I am one of those who were angry after seeing the QL commercials that aired before the Super Bowl and my disbelief continued after watching the Super Bowl ad. I lived the insanity and the QL commercial was completely tone deaf and gave me great concern about repeating mistakes in the past. In fact I was so concerned that I made the QL Super Bowl commercial the cornerstone of last week’s Housing Note: Rockets Engineered to Amaze Housing: What was Quicken Loans Thinking?
A week later my view on the ad hasn’t changed and in all due respect to Laurie and David, I think they missed the forest for the trees (there’s a digital v. paper pun somewhere). I’ll explain by going through their own points:
Borrowers can give lenders easier access to bank information – this is one of those wiz bang promises we always see with new technology (assuming this product is new technology). But I don’t think anyone is arguing to keep the process arduous.
Approvals might be less prone to human error. – Sure, that’s entirely possible although this argument is like saying if there was less air pollution we might all feel better. We would have to assume that borrower data entry is better and it matches up to official documents like tax returns and pay stubs – something that was not a lender concern in the last cycle.
Automation may ease tight credit. That’s another one of those wiz bang assumptions that any technology gain – automation is better – remove humans and the process gets easier (again, we don’t understand what the details are of this wiz bang new technology). EZ Pass scanning technology on the highway is far better for toll collecting but it took a few decades to perfect. The mortgage lending process is full of judgments that need to be made and common sense has been removed from the mortgage underwriting process so it can be completed with checkboxes. I contend that automation will NOT ease credit any time soon because automation means a series of lending rules and it will take years to iron out. It may even delay credit normalization as lenders are reluctant to fully trust it. Plus lending continues to remain tight because of bad decisions made in the past and a weak outlook for the future (30 year fixed is below the level just before the December Fed rate hike), not because the process needs to be more efficient. Mortgage origination volume has fallen nearly every year since 2006 so I can’t see lack of automation as holding back the normalization of credit.
Digital lending is here to stay.No one is really arguing against digital lending per se. The future across most industries is digital and that transition can be good and bad. The mortgage process is much more digitized than it was a decade ago so disagreeing with the Rocket Mortgage message doesn’t make someone anti-digital.
Make a complex process easier for qualified buyers. Of course! If that is what is actually being delivered. It’s a black box and the consumer is getting their information from a commercial that conveys dated message. If David gave a speech in a 1970s era polyester suit with bellbottoms, would his current information leave the audience with a current market impression?
The real reason for the pushback on this rocket thing is not because we are anti-digital, anti-efficiency, anti-credit easing, anti-automation or anti-polyester bellbottoms. The pushback comes from the messenger being the second largest mortgage lender in the U.S. who marketed their product seemingly devoid of any understanding of the housing bubble, which after all, was really a credit bubble.
And it becomes even more clear to me as an appraiser, looking at their complete reliance on appraisal management companies and how awfully unreliable that post-financial crisis industry really is at estimating collateral, that their judgment is flawed in the long run.
The same sort of promises and expectations were made during the run up of Countrywide Mortgage. We are nearly 9 years down the road from the 2007 implosion of American Home Mortgage and those 2 Bear Stearns mortgage hedge funds and yet economically, the world is still in the hangover stage.
I don’t really believe that QL’s Rocket Mortgage product will bring down the world’s economy as we saw with financial engineering in the last cycle. But it is a concern and unbelievable that this was the messaging they chose to go with. As Mark Twain said (paraphrased) “History doesn’t repeat itself but sometimes it rhymes.”
On the last day of 2015 I was invited to guest host for the 6am hour on Bloomberg TV’s Surveillance with Mike McKee, Vonnie Quinn & Erik Schatzker. I was paired with Michael Holland, Chairman at Holland & Co. I’ve never met him before but really enjoyed his insights on the stock market.
The first segment was largely stock market talk which was out of my bailiwick but in the second segment I got to articulate my views on the New York City super luxury market. Today’s Max Frankel New York Times editorial was brought up – “Make Them Pay For Views” – which I thought was a ridiculous premise – despite the legendary author.
And a second segment talking about professional services used for acquiring assets.
“It’s like the Who song,” said Jonathan Miller, president of the appraisal firm Miller Samuel. “You can see for miles and miles and miles. Until you look into your neighbor’s building.”
The changing skyline is a well worn and controversial discussion throughout much of Manhattan’s storied (pun intended) real estate history. It’s quite amazing to appreciate how much the skyline has changed over the past century, nearly always moving taller. In the current iteration of growth, the potential benefit seems to be the financing of affordable housing.
If you’re a subscriber to the Bloomberg Terminals, as roughly 350,000 people are (paying $1,600+ per terminal per month), then you may already know there are a half dozen charts on the Manhattan luxury housing market. To be clear, these indices don’t suggest that housing price trends should be presented as a stock ticker.
It’s a good thing too, since the thought of making real estate housing markets equate to stocks was inspired by, and then was crushed by, the housing boom-bubble-bust era 2003-2008.
Here’s why a stock ticker for real estate is a flawed (aka dumb) concept:
A stock market moves in the context of nanoseconds rather than weeks or months.
Contract data is not available market-wide and if it were, lags the market by several weeks.
Closed data used in a ticker would lag the market by months.
It implies instant liquidity for real estate holdings.
Not all property types see high volume so their trends are extrapolated (and thus diluted).
It teaches market participants that short term views on real estate holdings are the norm, the way a stock day trader views the market.
While a daily real estate index can be created with relative technical ease, it doesn’t mean it is a good idea. It infers a level of precision that doesn’t exist and an accuracy based on lagging data that is not understood by users.
Those who push the stock ticker idea either didn’t work through the last cycle in real estate, or they didn’t learn from the experience.
We update 3 charts on the Manhattan luxury sales market and 3 for the Manhattan luxury rental market. I have always defined “luxury” as the top 10% of transactions during a period.
Click on the gallery below to open each of the indices.
Are the Chinese flooding the U.S. market now or are they pulling back? Which is it? Or is it both?
In my recent trip to Shanghai, I spoke to and interviewed many, many real estate investors at The Real Deal Forum. I got the impression that investment has pulled back a bit in 2015 but expectations were high that investment would expand again, although not to the level of the past 5 years. Of course I was doing this in a biased environment – at in investor conference. I was consistently told that government efforts to prop up the stock market spooked much of the smart money out of the market since the actions were taken to calm everyday investors.
The New York Times piece seemed prompted by a P.R. pitch from the Chinese developer for their Dallas suburb project enticed with a suburban angle. It was a refreshing angle since Chinese real estate investment in the U.S. has been an urban narrative and specifically focused on the high end. The article illustrated just how massive the investment patterns have been. To date the narrative has been focused on super luxury condos in expensive metropolitan areas, while the suburbs got limited attention.
The WSJ article is more orientated towards the past few weeks while the NYT article is a longer term view. Both publications place emphasis on NAR’s Profile of International Home Buying Activity whose results emphasized the Chinese investment surge of the previous year. The survey results only reflect the market through last March, so it is 9 months behind the current market. The Chinese investment numbers are staggering, and they are probably understated. Since the NAR report is simply a survey of it’s members and NAR has limited exposure to New York City, especially Manhattan – a hotbed of Chinese real estate investment activity.
Incidentally, do the above 2 charts look similar? They both relied on the NAR report.
The NYT piece set the table on the entire multi-year phenomenon using a ton of cool charts while the WSJ attempted to illustrate the change in recent weeks Both outlets were forced to rely on a lot of anecdotal to make their case. Both articles are consistent with my views as each provided a different context.
The NYT piece provided the long term historical view and the WSJ was a short term snapshot.
If this market report slash appraisal thing doesn’t work out, I’ll go into graphic design with a focus on charts.
The New York Post asked me to whip up a chart for them. They change the fonts to make it theirs but hey, it’s fun. Oh yeah, the article was about living rent-free in NYC (but there’s a catch). Jim Grant of Grant’s Interest Rate Observer wrote a cover piece in his widely followed twice monthly newsletter subscription called “Too close to the sun” about the super luxury housing peak using my insights and a chart.
Ok, admittedly there is no real point to this post. I’m trying to convince myself to get back in the blogging groove, in addition to my weekly Housing Note.
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About Jonathan Miller
Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc. Learn More...
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“In the real estate world, Jonathan Miller is where street-smart meets book-smart.”–Jed Kolko, Chief Economist, Trulia
“Jonathan Miller, an appraiser dubbed 'the Wikipedia of Manhattan real estate.'”–Barrons
“Jonathan Miller...Manhattan’s most revered independent appraisers of residential property.”–Daily Telegraph (UK)
“Miller Samuel CEO Jonathan Miller holds the key to the luxury real estate market.”–Deirdre Bolton, Anchor, Fox Business
“Jonathan Miller of Miller Samuel is a NYC real estate "cultural icon."”–Katherine Clarke, New York Daily News
“Our man Jonathan Miller drops the truth bomb.”–Barry Ritholtz, The Big Picture Blog
“Miller is arguably the most influential voice in residential property valuation markets today.”–Altos Research
“The oracle of New York City real estate: Jonathan Miller.”–Amir Korangy, Publisher, The Real Deal
“His prescient 2012 declaration that “luxury real estate is the new global currency” was repeated as gospel...”–New York Post
“Renowned appraiser and [Matrix] real estate blogger, Miller is a statistical wizard. Can dodge bullets in slow-mo.”–Real Estate Tomato
“A Curbed reader goes all 'Jonathan Miller' on us.”–Curbed New York
“A web site 'worth visiting.'”–Realtor Online Magazine
“Why is Jonathan Miller’s Matrix required reading? …He grabs you right from the start.”–New York Times
“Jonathan Miller is well-known for taking the pulse of Manhattan real estate.”–PBS Nightly Business Report
“Jonathan Miller, the demigod of New York real estate stats.”–New York Observer
“Jonathan Miller...one of the nation’s most prominent appraisers.”–Money Magazine
“Miller’s more than 20 years of real estate experience comes out in this no-nonsense blog.”–Seeking Alpha
“Check out Superstar Appraiser Jonathan Miller’s blog Matrix for the latest in depth information on NYC housing.”–Urban Digs
“Jonathan Miller is 'a complete pro, a shining star in the real estate industry.'”–Donna Olshan, President, Olshan Realty Inc.
“Jonathan Miller is 'one of the most important people in real estate.'”–Elizabeth Ann Stribling-Kivlan, President, Stribling & Associates
“It’s tough to find the good guys..Fortunately we found one. His name is Jonathan Miller.”–Glenn Beck, CNN
“Jonathan...understands how to take numbers and explain them to people in a way that makes sense.”–Dottie Herman, President and CEO, Douglas Elliman
“Jonathan Miller is the most trusted (and quoted) man in New York real estate.”–New York Observer
“Jonathan Miller: the true God of real estate data.”–Fredrik Eklund, The Eklund Gomes Team / Bravo’s MDLNY
“Our sherpa in the land of broker euphemism for the current state of the housing market.”–New York Observer
“His market reports are to the Manhattan housing market what those brackets are to the NCAA Tournament.”–New York Observer
“Miller is the best real estate blogger out there.”–Bankrate
“Expert Appraiser Jonathan Miller: New York City’s Real Estate Data Wizard”–Epoch Times
“Market Analyst Jonathan Miller: Thank the Flying Spaghetti Monster he's on our side.”–Curbed Miami
“Should we have seen this coming?...I spoke to appraiser Jonathan Miller 3 years ago.”–Jane Wells, CNBC
“Then there is Miller’s authority in residential appraisals.”–Reuters
“Jonathan Miller delivers real estate news in language even a blogger can understand.”–Curbed DC
“Jonathan Miller: One of the top 25 most influential U.S. real estate bloggers.”–Inman News
“Jonathan is a legend, one of the most quoted appraisers and experts in the industry.”–Dottie Herman, President and CEO, Douglas Elliman
“Jonathan Miller, the appraiser who is the savviest observer of the local residential market.”–Crain’s New York Business
“Jonathan Miller is one of the icons of the real estate industry.”–Real Estate Board of New York
“Jonathan Miller: One of the best finance people on Twitter.”–Business Insider
“Somebody-explain-this-crazy-market-to-me guy Jonathan Miller.”–Curbed New York
“Jonathan Miller, the most popular guy on the block when talking about real estate in New York.”–Tom Keene, Bloomberg Radio
“Jonathan Miller, owner of New York City’s Miller Samuel and one of the nation’s most prominent appraisers”–Money Magazine
“New York real estate maven Jonathan Miller.”–Slate
“JM makes real estate stats talk in language that normal people understand.”–Teri Rogers, Brick Underground
“His quarterly reports on the New York City-area market is considered required reading among real estate professionals.”–Reuters
“Jonathan Miller’s blog Matrix. Completely Keanu Reeves-free real estate economics, not for beginners.”–Curbed San Francisco
“If New York real estate is a sport, one of its most prominent score keepers is Jonathan Miller.”–New York Daily News
“If market guru Jonathan Miller said it, it must be true.”–Stuart Elliott, Editor-In-Chief, The Real Deal
“When it comes to markets trends, nobody knows the multiple NYC real estate markets better than Jonathan Miller.”–John L. Heithaus, CSO, Buyside
“A combination of Godzilla, King Kong, and Hurricane Katrina all wrapped up in one as he wreaked havoc on the housing market.”–New York Sun
“Jonathan Miller: Best online real estate expert.”–Money Magazine
“Jonathan Miller, the go-to expert on all residential real estate figures.”–Crain’s New York Business
“Jonathan Miller: He's the guy with 'boots on the ground' when it comes to real estate.”–Bloomberg TV: Bloomberg Surveillance
“Jonathan Miller delivers the unflinching and un-fluffy truth about an industry he knows inside out.”–Teri Rogers, Brick Underground
“Matrix: One of the top five U.S. real estate blogs.”–Inman News
“In this ever changing NYC market, Jonathan’s reports give me an accurate snapshot at any given time.”–John Gomes, The Eklund Gomes Team / Douglas Elliman Real Estate
When compared to the rest of the U.S. housing market, Aspen Colorado is a really a niche luxury market with an overall median sales price of $1,407,500 in the second quarter of 2016. This was 27% higher than Manhattan in… Read More