Matrix Blog

Manhattan

The Relationship Between Commute Time and Housing Prices

October 28, 2016 | 3:48 pm | nytlogo | Infographics |

Back in the mid 1990s after my wife and I moved to Fairfield County, Connecticut from Manhattan, I noticed the decline in housing prices further from the first express stop in Stamford, CT.

I worked on an updated version of the concept for this weekend’s New York Times Real Estate section: What’s Your Commute Time Worth? They did an amazing job on the graphic.

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NYT Real Estate Calculator: NYC Rents Go Graphic

October 9, 2016 | 8:49 am | nytlogo | Infographics |

I’m liking the new goodies in the New York Times real estate section, especially this week, and not because the most recent market report on the Manhattan, Brooklyn and Queens rental market for Douglas Elliman was featured.  No, really.

See for yourself.

 

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[In The Media] Bloomberg TV: October 4, 2016

October 6, 2016 | 8:00 pm | delogo | TV, Videos |

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Had a nice chat with Scarlet Fu and Matt Miller on Bloomberg TV, to discuss our 3Q2016 report on the Manhattan residential sales market that I author for Douglas Elliman. We referred to Oshrat Carmiel’s Bloomberg News story on the Manhattan housing market that went viral on the Bloomberg Terminals as the number one read story world wide and the story chart made their “Chart of the Hour” on their home page.

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Miller Samuel at 30, A Short Story

October 4, 2016 | 11:14 pm | Milestones |

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It’s hard to believe that thirty years have passed since my family and I began our Miller Samuel appraiser journey. Here’s a little bit about the experience which reminds me of that old joke about marriage:

“We’ve been married for 30 years and it only seemed like five minutes…under water.” (boom)

It all began in 1986 when my parents, wife, sister, former brother-in-law and I got the idea to form an appraisal company after we had actually raised a substantial amount of money to launch a real estate brokerage firm. My wife and sister were already appraisers. A lawyer that I sold a condo to in 1985 (yes, I was a real estate agent in NYC for a brief stint) found a group of Japanese investors willing to back us. When it came down to it, we just couldn’t sign on the dotted line because we didn’t want to become real estate brokers. Our family’s collective real estate background was mixed, including brokerage, appraisal, management, development, rentals, sales, but most importantly, a lot of analytics and a fascination with technology. We seemed to be different from our competitors, creating our own software (there was no appraisal software), going with the Mac as a platform over PC and collecting any data we could re-use. I remember that we were the first New York appraisal firm to have two fax machines, with a hunt and search two line setup, allowing us to give out only one fax number (LOL). We cold called banks and hand delivered our appraisal reports to better connect with our clients (Who had heard of email?)

It’s a leap of faith to start a new business and in our first month, we received two bank appraisals for a total of $600. Even with the high cost of three couples living in Manhattan, those two appraisal orders felt like $1 billion – and they remain best feeling of validation I ever experienced in my professional career. Within a few months of our launch, our volume snowballed and a year later we nearly tripled in size to 17 employees and lots of personnel challenges.

The October 1987 stock market crash caused appraisal volume to implode. We laid off more than half of the firm shortly thereafter and stuck with an 8-employee line up for the ensuing decade. From this experience we learned a valuable lesson – we were far more profitable with a smaller nimble firm that focused on quality over volume. In addition we were able to do what we loved rather than be mired in personnel issues. Manhattan was our turf and we loved and walked every inch of it.

By 1989, appraisal licensing came on the scene after the S&L crisis. While I had already taken appraisal courses, continuing education became a mandatory requirement for the upcoming licensing law. On a whim, I remember flying on a Trump Air helicopter from Manhattan to Atlantic City for $75 to take an appraisal course for my license – who knew appraising was so exciting? As a self proclaimed cool geek, I felt very out of place standing on the heliport near the Javitz Convention Center waiting with the Atlantic City heavy hitters wearing white polyester blazers, gold chains and white patent leather loafers, ready for a weekend of gambling.

The subsequent years brought us through a recession where the New York region was hit far harder than the rest of the country and distressed real estate was the next wave. Remember the division of the FDIC known as The Resolution Trust Corporation (RTC)? By 1990, 50% of our practice involved co-op foreclosures, a byproduct of the high velocity rental to co-op conversions and a tremendous amount of investor activity that overheated the market – eventually the music stops in any housing boom. Renters were flipping their insider rights to outsiders for their retirement nest eggs.

Other appraisal firms arose in the early to mid-1990s that pushed out many of the “out of area” firms with token representation in Manhattan. Indirectly, these large new competitors ended up being helpful to us as they worked very closely with mortgage brokers and were hyper focused on high volume. We were focused on quality and low to moderate volume. From the beginning, we had worked hard to reduce our dependence on mortgage related work. Mortgage brokers, who were paid only when the loan closed, got to pick the appraisers. That conflict of interest was always mind boggling to me. The mortgage brokerage industry generally did not pay for appraisal reports until they reviewed the value to confirm whether it was adequate to make the deal work. By that point the appraiser had been officially converted from valuation professional to deal enabler. We weren’t very popular with mortgage brokers since we required payment before we would release the value.

By the late 1990s the Dot-com boom was in full force and the irrational exuberance we experienced in the 1980s returned, carrying all the way through the housing bubble. Our firm did not fair very well during the bubble from 2003-2008 because we weren’t morally flexible to work in this new world where risk was assumed to be managed away so reckless behavior was the standard – conflict of interest was the standard. We saw appraiser competitors’ volume explode to the point where they dwarfed us in size. Their commissioned staff were able to do as many as 40 appraisals per week, which included taking the order information, making the appointment for the inspection, getting information from the managing agent, searching for comps, calling agents to confirm condition and other comp information, writing up the report and fixing edits from the reviewer, following up with calls after the client received the report, etc. I should mention that Manhattan still doesn’t have a traditional MLS and sales were not public record until 2006, 20 years after we began. Our firm was based on salaried staff to control quality and maintain professionalism but maxed out at about 8 appraisals per appraiser per week. I never understood the math for the high volume process unless virtually all quality corners were cut. Our appraisal staff is still salaried with benefits today. Back then, those types of “crank it out” firms thrived at the expense of the dwindling pool of ethical appraisers. It was a frustrating period in our history because we could have tripled our volume overnight if we sold our souls. We just couldn’t.

By 2005 it became apparent that the end of the bubble was coming and I still needed an effective way to get the word out – that something was wrong with the mortgage process – not that anyone would listen since they were making too much money. U.S. banks began closing their in-house review appraisal groups as “cost centers,” and loan officers began to call and demand higher values or cut us off and mortgage brokers were dominating the market even more. So I started blogging about it. I figured I had nothing to lose by going public. And thankfully the feedback came quickly. My first blog post on Matrix (I had start writing on my appraisal blog Soapbox the previous month and later merged them) was in the summer of 2005 based on an APM Marketplace radio interview. Later, CNBC came to my office to talk about “real estate’s dirty little secret”…where I said on national television that “75% of bank appraisals weren’t worth the paper they were written on.”

I knew we would be out of business in three years (by 2008) if we didn’t change our business model. So we fired all our national bank clients (before they could fire us) as they went to the appraisal management company model that essentially removed all local market knowledge from inhouse. The onslaught of dumb questions from AMCs made the decision easier (i.e. sample AMC review question: “What does a doorman do in a co-op or condo building?”) We proceeded to focus on the underserved private and legal work – our ability to adequate serve these clients had been hampered from the mind numbing clerical tasks that appraisers were required to do. And it worked! Our new focus on clients that actually wanted to know what the value was and were willing to pay a fair fee for paid off.

When Lehman collapsed in September 2008 almost simultaneously with the bailout of the GSEs and AIG, mortgage appraisal work nearly came to a halt. Thankfully we had already inverted our business model away from retail bank appraisal work in the prior year, around the time that Bear Stearns had collapsed. Our new business model was very contrarian to the state of the market. The change to our business and new revenue streams were inspiring and liberating. Our firm has experienced record sales nearly every year since 2008 but only because we have stayed away from retail mortgage appraisal work. Aside from the very low fees, AMCs that issued appraisal orders for banks kept expanding clerical requests to justify getting half of the appraisal fee. Since the Lehman moment, most of my competitors have gone under and most of the principals either no longer have their licenses or have left the business. Unfortunately for mortgage lenders (even though they don’t realize it) is that most of the “best” appraisers in each housing market have either left the business or moved on to more lucrative market rate work.

The false appraisal shortage narrative being perpetuated by the AMC industry is disturbing since it is really about the shortage of people willing to work for up to half the market rate. There is no shortage of appraisers. Over thirty years of measuring housing markets and valuing property has taught my firm that appraisers, like housing markets, are subject to supply and demand. The current mortgage lending environment is stuck with a solution that ignores that basic fact, so good firms like us move on to greener pastures. As a result, Miller Samuel is not looking to return to generic retail mortgage appraisal work anytime soon. That is a shame because we have 30 years of market experience to share with those banks to help them make informed lending decisions on their collateral.

As the incoming president of RAC, a group comprised of the best residential appraisers in the U.S., I observed that many of our members moved out of the mortgage appraisal business as we did to land higher quality work. This mass exodus of the best appraisers in each market presents an incredible loss to the collective knowledgebase of the mortgage lending industry. Perhaps because of the federal backstop employed at the “Lehman” moment in 2008, the mortgage industry still thinks they have risk management under control. They don’t.

Hopefully at some point in the not too distant future, regulators, taxpayers, government employees and other assorted stakeholders will come to realize that it is for the greater financial good of the taxpayer/consumer to have a mortgage appraisal industry exist that is:

  • competent through education and mentoring
  • allowed to provide a neutral opinion of value without fear of retribution
  • adequately and fairly represented in the mortgage process

These elements do not currently exist. In order for the current disconnect between mortgage lending and collateral valuation to be fixed, it must be understood that:

  • a real estate appraisal is not a commodity, nor is the appraiser
  • real estate appraising is a professional service
  • real estate appraisers are the most essential element of understanding collateral values in order to make informed lending decisions
  • without adequate representation, appraisers will continue to be overrun with scope creep
  • appraisers are subject to the laws of supply and demand like any industry
  • cutting the pay of appraisers by half has an adverse impact on the reliability of the valuation result

It’s been quite a journey for our firm.

Miller Samuel is going to continue to do what it does best, provide neutral valuation opinions on collateral to enable our clients to make informed decisions.

And yes, these past thirty years have felt like holding our breath for five minutes underwater, but it was worth it.

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[Video] Providing the right context for Manhattan and Miami housing markets

April 2, 2016 | 11:48 am | yahoofinance2 | Favorites |

I really enjoyed my interview over at Yahoo! Finance this week discussing the release of the Elliman Report: Manhattan Sales 1Q 2016. Love their longer interview format.

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.

Additional insights on the report shared on the recent edition of Housing Notes. Sign up here.

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Tracking the Flock of (Ultrawealthy) Seagulls

March 6, 2016 | 10:02 am | nytlogo |

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.

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And no, I never liked that band.

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Bloomberg TV’s Surveillance on 12-31-2015

December 31, 2015 | 8:00 pm |

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.

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And a second segment talking about professional services used for acquiring assets.

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After the hour was up, I ran over to Bloomberg Radio’s Surveillance with Mike McKee (at 33 minute mark) [Listen to clip]

Gotta go. The Spartans are playing in the Cotton Bowl now.

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Billionaires’ Row: I Can See For Miles And Miles, Until You Can’t

December 21, 2015 | 2:12 pm | nytlogo | Favorites |

UPDATE: The following article made the front page of the NYT today, my 13th A1 appearance (but who’s counting?).

New York Times’ Matt Chabin writes a piece about the “Super Tall” phenomenon on Manhattan’s West 57th nicknamed “Billionaires’ Row” called Developers of Manhattan Spires Look Past 1,000-Foot Neighbors.

“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.

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Charts That Don’t Make Real Estate Trends Into A Stock Ticker

December 21, 2015 | 12:10 pm | bloomberg_news_logo | Charts |

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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.

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Brooklyn, Queens Set Records, NYC rents jump, Westchester, Putnam and Dutchess Get Busy

October 8, 2015 | 9:05 pm | delogo | Reports |

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We published a slew of research today for Douglas Elliman Real Estate:

Manhattan, Brooklyn & Queens Rentals

Manhattan Rentals – Median rental price increased year-over-year for the 18th consecutive month – Median rental price was third highest on record – Brisk employment growth and strong economic conditions kept upward pressure on rents – Mortgage lending conditions remained tight tipping would-be first-time buyers back into rental market – Strength at lower end of market remained as non-doorman rents rose faster than doorman rents – Luxury median rental price slipped, showing weakest conditions of all price segments – Inventory slipped and marketing time remained low, despite rise in vacancy rate

Brooklyn Rentals – Median rental price set a new record for third consecutive month – Median rental price exceeded the $3,000 threshold for first time – Landlord concessions remained at nominal level as inventory slipped – Rental price indicators moved higher across all size categories – Listing inventory as well as negotiability between landlords/tenants fell – Median Brooklyn rent was $288 less than Manhattan

Queens Rentals – Price indicators showed mixed results, suggesting general stability overall – Studios showed strong price growth as 1-bedrooms and 2-bedrooms were flat – New development market share comprised 30.2% of new rentals – Luxury market median price gain was modest, but exceeded the overall market – Median Queens rent was $362 less than Brooklyn and $650 less than Manhattan

Brooklyn Sales – Brooklyn median and average sales price set a new record – Brooklyn remains the only New York City borough with a median sales price above the pre-financial crisis high – Condo, co-op and 1-3 family properties set new median sales price record – Luxury housing prices followed overall market trend – Sales expanded as listing inventory declined, resulting in brisk market pace – Fastest marketing time in 8 years

Queens Sales – Queens median and average sales price set a new record – Condo median sales price set a record for second consecutive quarter – Co-op price indicators set new record – 1-3 Family price indicators set new record – Luxury price indicators set new record – Inventory declined as sales surged – Marketing time fell as negotiability expanded

Westchester County Sales (expanded) – Record number of sales for the quarter, based in historical back to 1981 – Fastest marketing time and least negotiability in the 5.5 years this metric has been measured – Listing inventory for all property types slipped from year ago levels – Absorption rate was fastest market pace in 15 years – Single family and condo median sales price indicated stability – Single family market share declined even though sales increased – Luxury price indicators slipped, out performed by overall market

Putnam/Dutchess County Sales (new)

Putnam County – Price trend indicators increased on a year over year basis – Listing inventory slipped as the number of sales surged – Based on absorption, the market pace was 17.2% faster than the year ago quarter – Marketing time and listing discount expanded despite faster market pace

Dutchess County – Price indicators suggested general stability – Single family prices edged higher as condo prices declined – The pace of the market slowed as sales declined and inventory expanded

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Manhattan Report 3Q15 Just Published

October 1, 2015 | 8:06 am | delogo | Reports |

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The Elliman Report: Manhattan Sales 3Q-2015 we author on behalf of Douglas Elliman Real Estate was published today. It’s part of our report series that has been expanding since 1994.

Here’s a brief summary but I’ll provide a more thorough explanation of the results in tomorrow’s Housing Notes (don’t just stare blankly at the screen, please sign up for my free weekly newsletter here.)

  • Median sales price was second highest on record, highest since 2008
  • PPSF set 26 year record of $1,497 per sqft
  • Year-over-year sales increased for first time in a year as pent-up demand from financial crisis has been fully absorbed
  • Listing inventory growth stalled in 2015 after bottoming at the end of 2013
  • 51% of all sales were cash purchases, up from 43% a year ago
  • 53.9% of all sales were “at or above” list price at time of contract, a seven year record
  • Luxury housing prices did not see the same growth as overall market
  • Days on market was lowest (fastest) in 15 years at an average of 73 days
  • Larger price gains seen in larger apartments such as 2, 3, 4 bedrooms than studios – 1 bedrooms
  • New development market share of closed sales continued to rise

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Manhattan Monthly Absorption Rate – August 2015

September 22, 2015 | 2:07 pm | Charts |

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Thoughts The co-op and condo market absorption rates for the $10 million+ market have slowed over the past year while the pace of the sub-$3 million remains extremely brisk. The $3 million to $10 million shows limited change and some stabilization.

Side by side Manhattan regional comparison:

August 2015 v August 2014
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I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. (I got tired of the red/gray look in 2014 so I changed it) The blue/red line shows the 10-year quarterly average for context. The pink/orange line represents the overall average absorption rate of the most recently completed month for that market area.

Definition Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the current annualized pace of sales activity in our market report series.


Manhattan Market Absorption Charts [Miller Samuel]

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