The Apple Peeled – Ask the Experts: Market Dynamics with Jonathan Miller

February 12, 2019 | 11:54 am | | Articles |

Over the years, I have bantered with the Espinal Adler Team (Marie Espinal and Jeff Adler) at Douglas Elliman Real Estate about the market which has been invaluable for on the ground intel. And we’ve become friends. When Jeff and Marie asked me to be formally interviewed for their blog “The Apple Peeled” I was happy to do so, especially because I could veer off the road into issues about the current mortgage and appraisal process. This “The Apple Peeled” blog post: Ask the Experts: Market Dynamics with Jonathan Miller was distilled from the 90-minute conversation (I could have gone on for 5 hours) I had with their team.

I hope you find that this apple was fully peeled:


Jonathan Miller’s Market Outlook

The number of units sold in Manhattan in 2018 was down by more than 14 percent compared to the previous year. The brokerage industry tends to be very linear in its perception of the market, so many believe when the market is rising, it will rise forever. And, in-turn, when the market falls, it will fall forever. That approach can lead to overreaction.

The 10-year Challenge (2009 vs. 2019)

Some analysts are even comparing the current cycle to the last downturn and the housing bubble in 2009, but Miller outlined quite a few differences between then and now.

In 2009, the average discount from listing was 10.2%. In 2018 the discount was 5.2%. In ’09, Miller said sellers were anchored to the “pre-Lehman, pre-financial crisis asking prices” and had to travel farther on price to meet a buyer. (Miller measures listing discount by the percent difference between the contract price and the price that the property was listed for sale at the time of contract – not when it was first listed). The most recent asking price is “really the moment the property entered the market,” he said.

Miller said there are more buyers today compared to 2009, but those buyers are “very jaded about what value is.” Meanwhile, sellers are anchored to another market completely, he said.

The change in tax laws in 2018 and a several-month stretch that saw mortgage rates rise before recently dropping close to previous levels had both buyers and sellers re-calibrating what value is. That process can take time.

“If a seller overprices a listing, it takes them up to 2 years to de-anchor from what their price was without thinking that they left money on the table,” Miller said. “The disconnect between buyers and sellers is measured by lower sales volume.”

Starter Segment vs. High-End Luxury

For the last two years, Miller has said that the NYC market is softer at the top and tighter as you move lower in price.

Overall inventory is up by about 17%, with a significant amount of supply coming from the studio and 1-bedroom market. Studio inventory is up 21% percent.

“The pace of the starter market is still the fastest of all segments,” Miller said. “It’s just not as detached as it was because now you have more supply.”

Interest Rates and Their Impact

Typically, rates rise when the economy is strong. The low rates we’re seeing today understate the strength of the current economy, according to Miller. “That’s the disconnect.” In the long run, interest rates do not impact price trends. Mortgage rates have trended lower for three decades, Miller said, but housing prices have fluctuated up and down during that same lengthy stretch.

Mortgage rates weren’t wildly different in ’09 compared to today. In a recent report, Miller stated that an adjustable rate mortgage rate averaged 4.38% in 2009 and was at 3.98% using the same metrics in 2018.

Miller said that real estate investors should stop trying to perfectly time the market (both with rate and supply vs. demand). Perfect timing is a concept that was born out of the housing bubble, he said, when investors viewed housing as a highly liquid stock, instead of in its proper context. “(Real estate) is more of a long-term asset.”

In-Depth Look at the State of Appraisals

“There was nothing learned from the bad behavior of a decade ago,” Miller said, reminding himself of a Mark Twain quote. “History doesn’t repeat itself, but sometimes it rhymes,” Jonathan Miller recited. Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., said federal regulators are acting irresponsibly in their effort to reduce and perhaps even eliminate the need for an appraisal as part of an overall effort to erase “friction points” that slow-down the mortgage application process.

Miller said the regulators were more concerned with collecting fees than they were with protecting the American consumer. He likened the subtle de-regulation to the housing bubble of a decade ago, pointing out that regulators were getting paid by the failing investment banks they were rating back then. Now, he said, regulators and both Fannie Mae and Freddie Mac are getting paid whenever loan volume passes through those agencies. (Fannie Mae and Freddie Mac are Government sponsored enterprises that purchase mortgages from banks and mortgage companies in an effort to create liquidity so that lenders have the capacity to lend to more homebuyers).

The Office of the Comptroller of the Currency (OCC), The Board of Governors for the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) proposed a rule to amend the agencies regulations requiring appraisals for certain real estate related transactions. The proposed rule would increase the threshold level at, or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000.

In response to our request for comment, spokespeople for the FDIC, the OCC, and The Federal Reserve said they do not comment on proposed rules during the rulemaking process.

Mortgage volume has trended lower despite rates falling steadily since the housing bubble, because lenders don’t want to take on risk, Miller said. “They’re in the fetal position. Banks are afraid of their own shadow.”

The tremendous amount of regulation implemented since Dodd Frank has led to mortgage lenders filling Fannie and Freddie’s portfolios with low-risk “pristine” mortgage bundles. But with rates so low, margins are so compressed, regulators need to stimulate volume to make money, according to Miller. “I think (Fannie and Freddie) are emboldened to take more risk.”

The push for fewer mandatory appraisals isn’t the only thing that has hurt the appraisal industry since the Dodd Frank Act was passed in 2010. The evolution of the mortgage industry’s use of the Appraisal Management Company (AMC) has led to a collapse in quality of appraisals ordered by banks, Miller said. He described the AMC as an institutional middle man that takes more than 50 cents on the dollar away from the professional appraisers who do the actual work.

“It’s like a Hollywood actor paying their agent 60% instead of 10%,” Miller said. “The mortgage industry is trying to widgetize the appraiser.”

The AMC is supposed to act as a communication barrier between the appraiser and the loan officer or mortgage broker, to thwart undue pressure to bring appraised values in at specific numbers. But according to Miller, the AMCs are under the same types of pressure that an individual appraiser might face. Some AMCs receive hundreds of thousands of dollars every month by way of appraisal orders placed by big banks. At least at the sales level, the banks apply pressure to the AMC to not “kill deals,” said Miller, who has testified in several class action lawsuits against AMCs.

In many instances, Miller and his firm were hired to do sample reviews of appraisals that came through AMCs. Often, the AMC would utilize appraisers in the market that would always “hit the number,” Miller said. A lot of those appraisers were ignoring valid comps, sometimes from directly across the street that were virtually the same as the subject property. “The AMC encouraged it because they were getting the work,” he said.

Appraisers are pushing back and there are already signs that AMCs were beginning to crumble, Miller said. Quality appraisers are turning away bank work when they know the order is coming in through an AMC because they’re not happy working for less than they deserve and because they’ve been reduced to “form-fillers,” Miller said.


The Apple Peeled Blog, February 12, 2019

Espinal Adler Team at Douglas Elliman Real Estate

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The (New) Tallest Chart In The History Of Manhattan Real Estate

February 9, 2019 | 4:17 pm |

With all the hubbub about the new Manhattan residential price record of $238 million and potential ramifications, I wanted to create a chart to give readers a sense of how disconnected this sale is from the prior records, and from housing prices for mere mortals in already one of the highest priced housing markets in the U.S.

I have done this before, first in 2012 when the famed $88 million penthouse sale at 15 Central Park West launched the global “super luxury” “aspirational pricing” phenomenon and the subsequent 2014 Michael Dell penthouse sale at One57 of $100.5 million.

But this time, given that this new sale would require a chart that was more than double the height of the 2014 chart, I could not find an affordable graphics app that could capture my Excel chart but create an image (png, jpg, etc.) with small enough resolution to be legible, yet still be small enough in size to be accepted by WordPress.

My solution? Make a screencast video.

To watch this, first, pack a lunch. Then, click here or on the snapshots below of the top and bottom segments of the tall chart to play the video.

Then relax and watch me start scrolling. It provides some useful context and is pretty cool despite the poor audio quality:


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January 2019 YOY% Change in Manhattan Co-op/Condo Listing Inventory

February 7, 2019 | 1:53 pm | Charts |

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Here’s What A Manhattan Commute With “Vertical Travel” Looks Like For Ken Griffin

January 26, 2019 | 9:48 am |

As coined in a Bloomberg article about hedge funder Ken Griffin’s $238 million condo purchase in Manhattan, a “vertical travel” is something many New Yorkers do every day – I’ve just never heard it described that way (following bold is my emphasis).

Citadel has signed a lease to anchor a skyscraper at 425 Park Avenue, eight-tenths of a mile from Griffin’s new apartment, not including vertical travel.

When Ken Griffin travels from his new penthouse to his office, I imagine his commute, that includes “vertical travel,” looks like this (bold is my emphasis):


Bloomberg TV 1-17-19: The Northeast to South Florida Housing Market Connection Explored

January 21, 2019 | 1:03 pm | |

Just before I stepped on the set, I got to look at the Bloomberg file photo taken at my office about 15 years ago (I think I’ve aged gracefully) but I was also called out for it.

Was the last time you were on Bloomberg Markets 1995? That headshot…— Hiten Samtani (@hitsamty) January 17, 2019

Here’s the interview along with a cameo by Sam Zell, lol!



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Nightly Business Report/CNBC: January 3, 2019, Manhattan Housing Trends

January 5, 2019 | 9:25 pm | | TV, Videos |

After I finished the Yahoo Finance interview last Thursday, I ran over to 30Rock and taped a segment for Nightly Business Report/CNBC on our Elliman Manhattan report release. Robert Frank, the wealth editor for CNBC, interviewed me remotely. These are pretty fun to do, especially because to get there, I have to walk next to Christmas Tree, Rockefeller Ice Rink and finally “The Tonight Show Starring Jimmy Fallon” set.





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Yahoo Finance TV: January 3, 2019, Manhattan & National Housing Trends

January 5, 2019 | 8:53 pm | | TV, Videos |

I had another a fun interview on Adam Shapiro and Julie Hyman on fledgling Yahoo Finance TV. Verizon is going gonzo to get it going with even more original programming. One observation – each time I’ve been invited to talk about the housing market, the stock market plummets at least 600 points. Correlation or Causation?


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Bloomberg Markets TV: December 18, 2018, Amazon HQ2

December 18, 2018 | 3:08 pm | | TV, Videos |

As always, I had a wonderful conversion with Vonnie Quinn, anchor of Bloomberg TV’s Markets today. It was a long interview where we discussed national and NYC metric trends. The following portion covered the Amazon HQ2 story in Long Island City, NY.

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Elliman Magazine Winter 2019 – Market Update

December 14, 2018 | 3:18 pm | | Charts |

The Winter 2019 Issue of Elliman Magazine was just released. I provided a two-page spread showing various market tidbits on random U.S. markets where Douglas Elliman has a footprint. The magazine is well done and a good aspirational read.



[click to expand]

Here’s the full online version of the magazine:

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Manhattan Residential Vacancy Rate Isn’t Seasonal?

December 13, 2018 | 1:01 am | Charts |

Since housing market trends are all about seasonality, I thought it was interesting that the Manhattan residential vacancy rate seems devoid of such patterns.

What am I missing here?

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Yahoo Finance TV 12-4-2018 – Toll Brothers & Banking Conditions in Real Estate

December 5, 2018 | 11:15 am | | TV, Videos |


I was invited by Julie Hyman at Yahoo Finance TV for a discussion on the weakening luxury housing market and some other topics of interest. I’ve known her for years, after a long run at Bloomberg TV, and am excited about her new opportunity at Yahoo.

When I arrived at the studio, the stock market was being battered (down by over 400 points at the time of this broadcast) by the conflicting interpretations of the recent US/China tariff talks and the results Toll Brothers analyst call. It was exciting to be there during the perfect storm. The conversation shifted from what I was invited to cover, to the developing news story.

Yahoo is ramping up live coverage in early 2019 via 100% internet. Judging by their super cool/huge studio and throngs of people working there, Verizon seems very serious about their investment.

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Remember liar loans of a decade ago? Those same people want to do away with appraisers.

November 30, 2018 | 10:12 am | Investigative |

My friend and appraisal colleague Ryan Lundquist and I authored a petition on change.org to point out the growing wreckless behavior that is enveloping the mortgage process.

There’s a proposal from the FDIC, Federal Reserve, and Treasury Department not to require appraisals for some mortgages under $400,000.

As we say in the petition, this change can impact several groups in particular: consumers, the taxpayers, the housing market and appraisers.

One group not explicitly mentioned in the petition but impacted down the road are real estate agents and brokers. Currently, 12% of mortgages that flow through the GSE (Fannie Mae and Freddie Mac account for 78% of residential mortgages right now) will have their appraisals waived. Those are “PiW” loans or have a “Property Inspection Waiver.” My good friend and appraiser colleague Phil Crawford says on his radio show “Voice of Appraisal” says the acronym stands for “Pissing In Wind” which is more accurate. If the buyer realizes they overpaid for the property, the agents are now the professionals with the bullseye on their back. Liability insurers are already talking about a new target when things go south.

Years ago and again this morning, I heard a real estate agent say – what do we need you (appraisers) for? “The seller and the buyer determined the market value by agreeing on the price.” The problem with this logic is the buyer may not be fully informed (i.e., from an out of market area) and will also mortgage fraud supercharged. Ever heard of straw buyers? Agents must remember that they perceived as biased even with the best intentions and the best ethics because they are paid only if the deal closes. When something goes wrong, they are completely exposed.

The direction that was taken by regulators relies heavily on AVMs (Think Zillow’s Zestimate which is not within 4.3% of the actual value 50% of the time) and “hybrid appraisers” (which removes the appraiser from the actual inspection of properties) to develop a value opinion. The inspection of the property, when done, will rely on non-licensed individuals to fill out a checklist and give an appraiser at a desk the information without any standardization, direct contact or assurance the inspector knows what they are doing. I’ve heard of fees as low as $8 to do the inspection and $78 for the appraiser. As far as I can tell, a full appraisal (inspection and analysis) cost can represent as little as a hundredth of a percent of a purchase transaction.

This petition is for everyone to sign, not just appraisers. Please sign and help bring attention to a pattern we just lived through in the financial crisis. It’s happening again.

Please make your voice known, read about and hopefully sign the petition below:

PETITION: Remember liar loans of a decade ago? Those same people want to do away with appraisers.

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