In the spring of 2012 my floor level valuation methodology was illustrated in a great piece in New York Magazine by Jhoanna Robledo called “What Price Height and Light?. The graphic and accompanying descriptions provide incredible clarity to a fairly convoluted subject.
In the flurry of transitioning content to our new site over the past few months, I remember the actual moment when I deleted the original post for this topic by mistake and thought, “wow this is annoying but I can always go the Wayback Machine.” However, today someone asked me about the graphic and I couldn’t find my prior post on the Wayback Machine (but I found a bunch of cool stuff) so I am reposting this piece. I really LOVE the graphic that New York Magazine came up with.
Had a great conversation with Tom Keene, Scarlet Fu, Olivia Sterns and guest host Strategas Research Chief Investment Strategist Jason Trennert about the US housing market. We also dabbled a bit in Brooklyn and Manhattan rents and talked NCAA March Madness picks. Always fun to come in and join the Surveillance team.
Had a great conversation with Trish Regan on her Bloomberg TV show “Street Smart” about the Manhattan and Brooklyn rental markets and rent versus buy. This was in connection with the February Elliman rental report we published earlier that day.
It was windy and 18 degrees outside so I think I look a bit disheveled. But always fun to connect with everyone at Bloomberg whenever I visit (and maintain my Foursquare mayorship of the “green room”).
Yesterday I did a quick interview for CNBC at 30 Rock (right next to the new Tonight Show/Jimmy Fallon set which was all abuzz). We were talking about housing starts before they were released. While predicting this stuff is a fool’s errand, I think the bigger question was whether the recent weakening of housing metrics was a new trend or a pause caused by the harsh weather creating havoc across the US.
The NAHB homebuilder sentiment index (1 family) posted its largest one month drop in history – severe weather, cost of labor, materials and land with given as reasons but those really aren’t new issues other than the severe weather.
While weather played a role and probably amounts to more of a short term blip, I think the larger concern is the outlook over the next 6 months with reduced affordability (higher rates but still historically low) and the bottoming of existing home inventory in 2013 providing additional listing competition in some markets.
December housing starts
• 999k annualized and seasonally adjusted rate in December, declining 9.8% but exceeding forecasts. More weakness in multi-family starts than 1-family
• +18.3% 2013 over 2012
Why I thought January Housing Starts would fall (luckily I was right with the announcement of a record 16% drop)
• Same factors in place as last month: Weather, Labor and Material Costs and Land Costs.
• Record m-o-m drop in NAFB confidence – looking out over the coming months – suggests a larger impact by weather.
• Mortgage rates slipped from last month but still nearly a point higher than a year ago, expectation of flat or edging higher in 2014.
• Implementation of Dodd-Frank Qualified Mortgage (QM) may also drag viewing traffic.
• Permits already fell over last 2 months which suggests lower starts (contracts versus closed sales analogy).
Actual January housing starts release after my interview
• 880K annualized rate in January, dropping 16% from December 2013.
• January 2014 y-o-y dropped 2%.
• Permits fell for 3rd consecutive month, down 5.4% from prior month (seasonally adjusted).
STILL – the question REALLY is whether the recent construction slowdown is the beginning of a trend or a temporary set back that will clear over the next few months as the weather improves and the economy shows some improvement. Right now it feels more like the market is losing momentum and the weather is only making it worse.
It all began with Sandy Weill’s $88M sale of 15 Central Park West PH20 to a Russian Oligarch back in late 2011 that closed in early 2012. He was reportedly purchasing the unit for his 20-something daughter to crash when she wasn’t at her home in Monaco but it was more likely a divorce strategy. The home sold for $13k per square foot, 30% more than the recent $10k ppsf record previously set within the building (ie definition of an outlier).
Combine this outlier with the dearth of high end new development until recently and this 13k ppsf threshold became a new pricing tool for hopeful sellers and real estate brokers of large properties. The $100M resale penthouse listing at CitySpire was the new symbol of “outlier pricing” phenomenon. Other examples of aggressive pricing are cited in the Bloomberg story.
Despite the fact that this nearly $100M subset represents a tiny sliver - a handful of listings and sales – in the overall Manhattan market, consumer (buyers and sellers) have been subjected to a buzz saw of news reports about trophy properties giving the impression that properties like this comprise most of the housing market.
Yet none of the trophy apartment resales are selling at this new price point. Sellers have been testing the waters to see if someone across the globe will be willing to pay for something here, that in relative dollars to their home market is a good deal or they hope they will get lucky and these buyers will over pay.
Apparently these trophy sellers haven’t used the Internet.
Just got this feedback emailed from a real estate agent: In every neighborhood and property class “testing the waters” is an age-old technique that has enough utility to go on forever. As an agent, I prefer the price that results in a quick sell but I never turned down a client who insists on an absurd Ask. In most such cases, I have picked up a few customers and sold them something else they could afford before the “outlier” ran out of inquiries and the seller dropped its price or took it off the market. I like it when journalists report activity at the extremes of price and value because it helps me to identify the evolving dimensions of the market.
Had a great discussion with Mark Crumpton on his show “Bottom Line” about the slowing US housing market. You can see this in the quarterly results:
The median existing single-family home price increased in 73 percent of measured markets, with 119 out of 164 metropolitan statistical areas (MSAs) showing gains based on closings in the fourth quarter compared with the fourth quarter of 2012. Forty-two areas, 26 percent, had double-digit increases, two were unchanged and 43 recorded lower median prices.
The storyline of the last 2 years has been “Housing is Back!” yet prices were rising based on fed policy, not due to fundamentals like income, employment and access to credit. I have been labeled as a bit bearish on the “recovery” but I’m really not. I look at this slow down as a good thing for the long view on housing. We need to have sustainable housing growth (ie sales and prices) and 13.7% YoY price gains are in start contrast to economic fundamentals.
During our interview we were interrupted by the signing ceremony with President Obama for the new minimum wage act, so Bloomberg TV spliced the two parts together quite nicely. This is the second or third time one of my interviews has been interrupted by the President of the United States. Yes, I’m ok with that.
Here is an interview I recently did for Bloomberg Television’s In The Loop on the first phase of the long awaited and sorely needed Second Avenue subway line. I had also looked at this data about two years ago.
For the show I crunched closed sales data for the 4th Quarter of 2013 versus the same period in 2009 and provided a similar time frame for the rental market. I defined the impacted subway zone as the Upper East Side neighborhood between Third Avenue and First Avenue extending from 96th Street to 59th Street. Areas out side the zone were simply those to the east and west of it but within the neighborhood. I realize that simply taking the average price of all transactions in each of the zones are subject to skew. However given the large size of the zones, I think it is a reasonable way to extract some sort of impact.
Based on the results, the subway zone fell behind the areas outside the zone during the 4 year time span.
West of Zone
Sales Prices +14.7%
Rental Prices +7.7%
East of Zone
Sales Prices +12.2%
Rental Prices +9.1%
I’m not quite ready to use the word “haunted” in my housing language, but I had a nice chat with Brian Sullivan and Mandy Drury of CNBC TV’s ‘Street Signs’ – 30 Rock is always quick walk from my office to do the remote. Although my firm’s name was announced backwards on air (It’s really “Miller Samuel” I swear), I think my logic was forward (sorry).
Always fun (and refreshing) to talk housing with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg TV’s Surveillance. I always watch or listen to the show on their apps as part of my morning routine. Got to meet and hear great insights from Jim O’Neill, Bloomberg View columnist and former chairman of Goldman Sachs Asset Management as well.
Did I tell you I am still the mayor of the Bloomberg Cafeteria on Foursquare?
Subscribe to receive additional insights and research (coming soon).
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...
Subscription Service Coming Soon
You'll be able to choose from an array of robust housing metrics compiled using research developed during the preparation of our market report series. Expanded significantly from prior offerings, use this resource to build charts and custom data tables or leverage your own information for more powerful research and presentations.
In the meantime, here is the free aggregated data we currently provide.
“Jonathan Miller is well-known for taking the pulse of Manhattan Real Estate.”–PBS Nightly Business Report
“Check out Superstar Appraiser Jonathan Miller’s blog Matrix for the latest in depth information on NYC housing.”–Urban Digs
“Jonathan Miller...Manhattan’s most revered independent appraisers of residential property.”–Daily Telegraph (UK)
“Jonathan Miller delivers real estate news in language even a blogger can understand.”–Curbed DC
“The oracle of New York City real estate: Jonathan Miller.”–Amir Korangy, Publisher, The Real Deal
“His market reports are to the Manhattan housing market what those brackets are to the NCAA Tournament.”–New York Observer
“A web site 'worth visiting.'”–Realtor Online Magazine
“Somebody-explain-this-crazy-market-to-me guy Jonathan Miller.”–Curbed New York
“Jonathan Miller, an appraiser dubbed 'the Wikipedia of Manhattan real estate.'”–Barrons
“Should we have seen this coming?...I spoke to appraiser Jonathan Miller 3 years ago.”–CNBC
“Jonathan Miller is one of the icons of the real estate industry.”–Real Estate Board of New York
“Miller is arguably the most influential voice in residential property valuation markets today.”–Altos Research
“Jonathan Miller, the appraiser who is the savviest observer of the local residential market.”–Crain’s New York Business
“Jonathan is a legend, one of the most quoted appraisers and experts in the industry.”–Dottie Herman, President and CEO, Douglas Elliman
“Miller’s more than 20 years of real estate experience comes out in this no-nonsense blog.”–Seeking Alpha
“Our sherpa in the land of broker euphemism for the current state of the housing market.”–New York Observer
“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
“If New York real estate is a sport, one of its most prominent score keepers is Jonathan Miller.”–New York Daily News
“New York real estate maven Jonathan Miller.”–Slate
“Then there is Miller’s authority in residential appraisals.”–Reuters
“If market guru Jonathan Miller said it, it must be true.”–Stuart Elliott, Editor-In-Chief, The Real Deal
“Miller is the best real estate blogger out there.”–Bankrate
“When it comes to markets trends, nobody knows the multiple NYC real estate markets better than Jonathan Miller.”–John L. Heithaus, CSO, BuyerMLS
“JM makes real estate stats talk in language that normal people understand.”–Teri Rogers, Brick Underground
“Jonathan Miller...one of the nation’s most prominent appraisers.”–Money Magazine
“Jonathan Miller’s blog Matrix. Completely Keanu Reeves-free real estate economics, not for beginners.”–Curbed San Francisco
“Renowned appraiser and juiced up real estate blogger, Miller is a statistical wizard. Can dodge bullets in slow-mo as well.”–Real Estate Tomato
“His quarterly reports on the New York City-area market is considered required reading among real estate professionals.”–Reuters
“Jonathan Miller delivers the unflinching and un-fluffy truth about an industry he knows inside out.”–Teri Rogers, Brick Underground
“Why is Jonathan Miller’s Matrix required reading? …He grabs you right from the start.”–New York Times
“A Curbed reader goes all 'Jonathan Miller' on us.”–Curbed New York
“Our man Jonathan Miller drops the truth bomb.”–Barry Ritholtz, The Big Picture Blog
“Jonathan Miller, the most popular guy on the block when talking about real estate in New York.”–Tom Keene, Bloomberg Radio
“Market Analyst Jonathan Miller: Thank the Flying Spaghetti Monster he's on our side.”–Curbed Miami
“Jonathan Miller, the demigod of New York real estate stats.”–New York Observer
“In the real estate world, Jonathan Miller is where street-smart meets book-smart.”–Jed Kolko, Chief Economist, Trulia
“It’s tough to find the good guys..Fortunately we found one. His name is Jonathan Miller.”–Glenn Beck, CNN