November 15, 2019

Housing Weakness Is More Rental Than Sentimental

Despite having a reputation as being a difficult person to work with, Apple co-founder Steve Jobs’ marketing legacy is incredible. Being a devoted Mac nut, having built both our appraisal companies using Macs, he made a lasting impression on me. The craft of story-telling he employs is unmatched as far as I’m concerned.


But I digress…

Manhattan, Brooklyn & Queens Rental Markets Show Cooling Price Trends Except for Luxury

I’ve been the author of the expanding Elliman Report series for Douglas Elliman Real Estate for a quarter of a century (yikes!). What has made this affiliation work so well over the years is that Elliman has respected my independence, a deal killer for me otherwise. With their entrepreneurial business culture, they want their clients to understand actual market conditions to enable them to navigate better. I consider myself fortunate to be affiliated with a firm that has never had an issue with me conveying honesty in my market messaging.

One of our research pieces is the monthly rental report that covers Manhattan, Brooklyn and Northwest Queens in New York City. Although few realize this, 2/3 of the NYC housing stock is rental.

Elliman Report: 10-2019 Manhattan, Brooklyn & Queens Rentals

With the massive surplus of news this week, coverage of the rental market reached 18th place yesterday on the ±350,000 Bloomberg Terminal subscribers.

And of course, a chart!


______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“Rental price trends pressed higher across all apartment sizes.”

  • The vacancy rate has increased year over year for three straight months
  • Median net effective median rent year over year growth appeared to have peaked in July
  • The seventh consecutive month with year over year declines in concession market share
  • New development median rent continued to rise faster than the existing median rent
  • Share of new leases at or above $10,000 expanded for the fourth straight month
  • The luxury entry threshold hasn’t seen a year over year decline in 2019
  • The median rental price moved higher year over year at all price strata


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“Rising demand resulted in the largest year over year drop in concessions for 2019.”

  • Net effective median rent increased annually for eleven consecutive months
  • Most significant year over year decline in concession market share for 2019
  • The average size of a rental apartment rose across all bedroom categories


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

“Net effective median rent rose annually for the first time in four months.”

  • The market share of landlord concessions fell year over year for the third straight month
  • Net effective median rent rose year over year for the first time in four months
  • The most significant decline of concession market share in six months


SoftBank Unicorns Got No Apparent Due Diligence

One of the tragedies for investors and current and former employees of WeWork has been the stunning lack of due diligence by SoftBank. I mean, $300 million for a dog-walking app maker and no one blinks?

The sting of WeWork’s collapse is spilling over into other SoftBank unicorns like Compass, the traditional real estate brokerage firm that markets itself as a tech firm, presumably to get a higher valuation. In response to the bad WeWork headlines of late, Compass has sweetened the pot for its agents, probably because of the perception that anything associated with SoftBank is now tainted – that all unicorns received the same lack of due diligence that WeWork did.

The theme of these unicorns seems to be to go big to dominate their vertical, and then presumably after they kill off or buy most of the competition, they can charge higher commissions. They are disrupting through capital, not any apparent innovation. The problem with this strategy, ethically, is that the consumer will end up paying more in the end. With the toxic nature of unicorns these days, that vision is getting blurry. Uber continues to lose billions and was just fined $649 million. Peloton too.

Large signing bonuses create short term loyalty, say, just enough until an IPO when the founders can cash out and leave everyone else with a disruptor that has a lot of capital but hasn’t provided new ideas beyond the traditional brokerage model. I just heard from a broker friend who told me of a top producing team that signed with Compass to get a very large signing bonus to take some of the stress off of maintaining their top performance.

Cooling Rental Markets May Be Holding Back Inflation

Because national rents of primary residences, including the rental equivalent of a home, account for 40% of core inflation calculations, the direction of the rental market has a significant influence on core inflation.

The declines in New York and Boston weighed on the national measure for rent of primary residence, which rose 0.1% on a monthly basis, the least since April 2011.


Click on the chart to read more about this trend.


NAR Attempts To Solve Inventory Shortage By Fighting Whisper-Listings

The fight between Bright MLS and Compass over whisper/Pocket listings fight has been in the news. The grand strategy by Compass looks like they are trying to become the center of the listing universe to capture both sides of the commission in an organized way. This practice cuts off inventory access to the broader public unless they go through Compass and place pressure on housing market affordability already plagued by chronically low levels of supply.

This week NAR approved its “Clear Cooperation Policy” meant to standardize how long a broker can hold the listing until they share it with their members on the MLS. The associations have until the spring to adopt it.

If members don’t adhere to the new policy, they can always leave the MLS, I suppose. Look to see how hard Compass fights this policy nationwide. I believe this disrupts their key strategy of destroying the MLS system to become the center of the listing ecosystem.

Recession Probability Is Losing Steam

I typically speak a few times a week to the real estate brokerage industry and have found the word “Recession” undoubtedly comes up. Often referenced as the “R” word, it stokes fear in the hearts of many a real estate broker. We are in late innings of the proverbial baseball analogy cycle, and yet I think the reason for the elevated concern about such a probability is based on what people associate with a recession. The last one involved a global thermonuclear meltdown of global credit, and those conditions are associated with how a recession might feel today. Yes, we are still in an over-corrected hangover phase of the financial crisis, but fear of the “R” word has become the “boogieman” of the real estate economy. And who can blame the real estate industry’s concerns? We have seen a significant mortgage rate decline over the past year, and that usually occurs when the economy is weak rather than like now when unemployment has remained crazy-low, below 4%.


One of the reasons that rates are falling is because the Fed is trying to offset the economic damage created by the ongoing trade war and its uncertainty. This confluence of events has impacted real estate in the high-cost markets I analyze in my research by slowing sales despite falling mortgage rates. Here’s a variation of a checklist I’ve shared before.

-Uncertainty
-Sales slow
-Inventory rises
-Sales continue to slow
-Price discovery for 1-2 years
-Market stabilizes

The following is a diagram of the trade war that is driving economic uncertainty and explains why lower mortgage rates aren’t as much impact as one would expect. Click the tweet to expand the infographic:


The best description using a baseball analogy I’ve heard (can’t recall the source – likely on Twitter or heard in a podcast). Here’s how the conversation goes:

Prognosticator:
“We are in the third inning…”
Listener:
“Wait; what? How can that be? We are much further in the cycle than that!”
Prognosticator:
“We are in the third inning of the second game of the double-header.”
Listener:
“Oh, I get it.”

Getting Graphic


Len Kiefer‘s Chart Handiwork



Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

NAR Real Property Valuation Committee Issues Position On Bifurcation

The Real Estate Valuation Committee within NAR, which includes a slew of some of the best practicing appraiser minds in the industry, came out with a position on bifurcation. The release speaks to NAR’s support of independent valuation by state-credentialed appraisers, which is great. And it states that the appraiser must be able to interact directly with a third-party property data collector (inspector), which is also great.

Presumably, the inspector could be a Realtor since NAR is a trade group for Realtors, not for appraisers. Thankfully NAR recognizes that the detachment of appraisers from the process may damage their members’ livelihood as well as hurt home buyers and sellers. It’s great to have NAR in the mix, and they have long supported the importance of our role.

As much as I appreciate the symbolism of this policy position and the hard work by this committee, it is not clear to me how it makes much of a difference in the ultimate use of bifurcation assignments by mortgage lenders. Presumably, if views change with the future of the pilot programs at the GSEs, the use of bifurcation appraisals won’t be stopped. Still, I see their efforts as very important.

But I don’t want our industry to think: “There, we’ve addressed and resolved the threat to appraisers and more importantly, the public trust.”


Home Value Stories Podcast: If the Appraised Value Is Lower Than You Anticipated If the Appraised Value Is Lower Than You Anticipated

My friend Jamie Owen of the Cleveland Appraisal Blog has a new podcast that you can add to your feed. It gets into the nuts and bolts of our profession yet keeps it interesting and has high-quality production values. Here is the latest episode:

OFT (One Final Thought)


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll upgrade their Mac;
  • You’ll rent;
  • And I’ll grab that fish.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


November 8, 2019

People Are Staying In Their Homes Long While I Am Staying On Vacation Longer

My wife and I are in San Francisco this week enjoying a little R&R (despite doing some work on occasion) so my readers get some time off too. However, there are some great reads in the links at the bottom of the page!

I remember when 7 years was the default assumption of the length of stay in a home. Now it is 13: People Are Staying in Their Homes Longer—a Big Reason for Slower Sales: Homeowners nationwide are staying put an average of five years longer than they did in 2010, a new analysis shows [WSJ].

Click on the photo below if you can handle vertigo.

But I digress…

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Out looking for that perfect comp while on vacation.

OFT (One Final Thought)

Not suitable for office use (strong language).


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll stay longer;
  • You’ll stay longer;
  • And I’ll go on vacation.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


November 1, 2019

Housing Sweet Feelings But Still Unsure About KitKats

After seeing the following map, I’m thinking about moving back to Maryland where I grew up. Perhaps I should consider Montana and Kentucky for an improved quality of life as evidenced by state candy selections. Both my office in NYC and my home in Connecticut had a trick or treat candy bowl loaded with Reese’s, KitKats and M&Ms. Not a Milk Dud, Swedish Fish or Tootsie Roll Pop in sight! Oh, the humanity of it all.


But I digress…

Two Bed or Not To Bed – Manhattan Two-Beds Are Weakening

There was an epic New York Times cover story today on the two-bedroom market based on the historical data I’ve accumulated over the past 30 years It’s a Buyers’ Market for Two-Bedrooms.

With so much attention placed on the development of 3-bedrooms and 1-bedrooms, the once-dominant 2-bedroom seemed to fall out of favor or was simply overlooked. Now as price trends soften, they are looking more compelling these days.


Here is a chart I whipped up that shows the YOY% change in 2-bedroom median sales price since the financial crisis. It’s clearly a weakening market subset.

Here is a raw presentation of Manhattan co-ops/condos in the 3Q19 as compared to a year and 5 years ago (2-beds highlighted in yellow).

The $100 Million U.S. Residential Sales Market Is Still A Thing, Just Not As Big As Advertised

Back in 2014, I started to notice a pickup in press releases for $100+ million listings in the U.S. and so I began to collect closed residential sales at or above the $50 million threshold. On one hand, it is amazing how many sales there have been, but perhaps what is not so amazing, is how few there have been in the context of expectations that existed in 2014.

I think it is important to note that many of the spec listings that were placed on the market over the past 5 years, were like worth nowhere near their sky-high asking price. It was an ego-driven phenomenon on steroids where there was no shame in wildly overpricing a home.

The most recent victim of reality was the “Billionaire” spec home in Los Angeles that was priced at $250 million. The Wall Street Journal broke the story a week ago with an epic picture of the home in Once Asking $250 Million, America’s Onetime Priciest Home Sells For Less. The Real Deal LA followed up with a great dive into the story: “Billionaire” mansion sale is the latest fail in “ego pricing:” brokers.

The home originally asked $250 million and was eventually sold more than two years later for $94 million, a 62.4% discount. It is not clear whether the $94 million was the price of the house itself since the listing touts about $30 million worth of antique motorcycles and cars. So, in theory, the house could have sold for $64 million, which even at that price, is still one heck of a lot of money.

But there are $100 million sales out there.

The Wall Street Journal has an epic analysis of $100 million U.S. home sales: The Super Rich Are Buying $100 Million Homes. For Some, One Isn’t Enough, based on the sales I have collected (note to self – I need a non-real estate hobby).


Using my list of sales at/or above $50 million, I whipped up a few charts that illustrate the phenomenon. I have dubbed the 2014 era “Peak Luxury.” My takeaway from this WSJ story is that while this $100 million market is not what it was, it is here to stay.

Lower Housing Affordability Shows Freddie Mac Becoming More Pro-active With Borrowers

I thought this infographic from Freddie Mac was quite compelling and a bit damning to the future of U.S. single-family housing.

Manhattan Condo Contracts Showed Earlier Weakness Than Closing Data Suggested

The Wall Street Journal did a fascinating analysis confirming what we already understood, using contract dates on Manhattan’s new development condos. Because of the obvious multi-year lag between contract signing date and eventual closing date when the building was completed, the market decline began earlier than seen in the hard closing data. However, the earlier declines were felt by market participants including myself, it just wasn’t apparent in the closed sales data. This is why I refer to 2014 as “Peak New Development” and “Peak Luxury.” And it is why the interpretive commentary in our Elliman market report series is just as important as the raw data itself. Here is a set of cool charts that were presented in the WSJ piece.

Scott Galloway’s Mixed Take on Softbank’s Real Estate Unicorns

Compass, OYO & Opendoor. No real doom and gloom here, at least in the context of WeWork.


Upcoming Speaking Events

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Real Estate Appraising Is Not Rocket Science

But sometimes, with all the regulatory and agency battles, it is treated as if it is. I’m not taking away from the skills that are required to be competent, but I tire of the constant drama being played out that has hijacked the profession from the professionals who are actually doing the work.

Shout out to my good friend and padre Tom who keeps me grounded – otherwise, I will think I’m Neil Armstrong every time my comps are good.

The Only Good Pilot Is A Dead Pilot?

Like my father always told me about having a business partner (see title above).

But I digress.

I have yet another independent confirmation that all GSE pilot programs are now dead under the new FHFA director. Fortunately for appraisers, his biggest concern is risk management and this action seems to confirm this. The GSE pilot programs designed to “improve” efficiencies, such as bifurcation (a spurious solution that is more costly, less timely and less accurate), are dead. Not everyone in the chain of command may be aware yet.

OFT (One Final Thought)

Every so often, I need to recalibrate my swearing. Going forward: “Fahrvergnugen”

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll like Swedish Fish;
  • You’ll tire of KitKats;
  • And I’ll finally get some fresh Milk Duds.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


October 25, 2019

The Goal Is More Sweet Affordable Rental Housing

But I digress…

Market Report Gauntlet: Long Island Continues to Boom, While Hamptons Struggles

I’ve been the author of the expanding Elliman Report Series for Douglas Elliman Real Estate since 1994 and it is fascinating to see how different each market is, despite close proximity.

And as always, with me its all about the charts. Aside from knowing the report contents were widely read!

Our Hamptons Report content was within the 2nd Most Emailed Article in past 24 hours on Bloomberg Terminal (350K subscribers).

And a Hamptons chart two-fer!

Here are some key points about the Hamptons, North Fork, and Long Island for Q3-2019


HAMPTONS HIGHLIGHTS

Elliman Report: Q3-2019 Hamptons Sales

“Sellers’ willingness to negotiate expanded.”

  • The number of sales declined year over year for the seventh straight quarter
  • Listing inventory continued to rise, reaching a thirteen-year high
  • Median sales price rose year over year for the first time in seven quarters
  • The lowest third-quarter number of sales in eight years
  • The number of condo sales rose year over year for the third time in four quarters
  • Both single-family price trend indicators rose year over year together for the first time in three quarters
  • The fewest number of sales at or above $5 million in six and a half years
  • There have been nine straight quarters of annual increases in luxury listing inventory
  • Most substantial luxury listing discount in more than four years


NORTH FORK HIGHLIGHTS

Elliman Report: Q3-2019 North Fork Sales

“North Fork saw the second-largest share of East End sales in more than eleven years.”

  • Listing inventory increased year over year for the fourth straight quarter
  • Median sales price declined for the first time in ten quarters
  • By sales quintile, median sales price declined year over year across all segments
  • North Fork sales represented the largest share of East End sales in more than eleven years
  • Both condo price trend indicators rose year over year for the second straight quarter
  • Single-family median sales price declined year over year for the second time in seven quarters
  • The number of sales over $2 million fell sharply from the record set in the year-ago quarter
  • Luxury listing inventory rose year over year for four straight quarters
  • Luxury median sales price fell annually for the third time in four quarters


LONG ISLAND HIGHLIGHTS

Elliman Report: Q3-2019 Long Island Sales

“Price trend indicators reached new records.”

  • Median sales price set new record high after twenty-sixth straight quarters without an annual decline
  • Listing inventory rose sharply year over year for the third straight quarter
  • Number of sales rose annually for the third time in the last four quarters
  • The second-highest number of single-family sales in at least twelve years of tracking this metric
  • Shortest condo average days on market recorded since at least 2007 when the metric was first recorded
  • Luxury listing inventory rose annually for the seventh consecutive quarter, above the decade quarterly average
  • Both luxury price trend indicators fell from the same period last year
  • New luxury listing inventory grew at the same rate as total inventory

Making A Mountain Out of a Beach: Aspen Rises While Los Angeles Slides

We observed some improved conditions in Aspen/Snowmass Village sales and price trends while Los Angeles activity is drifting lower.


ASPEN/SNOWMASS VILLAGE SALES HIGHLIGHTS

Elliman Report: Q3-2019 Aspen Sales

ASPEN

“More sales with fewer listings as the pace of market accelerated.”

  • The fourth straight quarter with the number of sales rising above the prior-year quarter
  • Listing inventory declined year over year for the second straight quarter
  • Average price per square foot rose year over year after four quarters of declines
  • Condo sales surged year over year in the fourth quarter without a decline
  • Single-family listing inventory declined in two of the last three quarters
  • Luxury entry-threshold declined annually for the fourth straight quarter
  • Luxury listing inventory expanded year over year for the fourth consecutive quarter

SNOWMASS VILLAGE

“Sales stabilized as listing inventory slipped.”

  • Tied for the highest number of third-quarter sales in fourteen years
  • Listing inventory declined annually for the third consecutive quarter
  • Median sales price rose year over year for the fifth time in six quarters
  • Luxury average price per square foot surged annually despite a drop in average sales size
  • Luxury listing inventory fell year over year for the second time in three quarters


GREATER LOS ANGELES INCLUDING WESTSIDE AND DOWNTOWN SALES HIGHLIGHTS

Elliman Report: Q3-2019 Los Angeles Sales

“While reaching a new overall price record, sales continued to slip.”

  • Median sales price set a new record, exceeding the last record set in the prior-year quarter
  • Listing inventory rose year over year for the sixth straight quarter
  • All price trend indicators rose year over year for the second straight quarter
  • The number of sales has declined annually for the sixth consecutive quarter
  • Luxury single-family listing inventory has fallen year over year for three of the past four quarters
  • Luxury condo median sales price expanded annually for the fifth consecutive quarter

LA SUBMARKETS

MALIBU/MALIBU BEACH

Elliman Report: Q3-2019 Malibu/Malibu Beach Sales

  • Malibu single-family sales and listing inventory have declined year over year for three straight quarters
  • Malibu Beach condo median sales price rose year over year for five straight quarters

VENICE/MAR VISTA

Elliman Report: Q3-2019 Los Angeles Sales

  • Venice condo price trend indicators declined as sales surged year over year
  • Mar Vista single-family listing inventory fell sharply for two straight quarters, restraining sales

Big Residential REIT Gets Thrashed by New Rent Laws

New rent laws are becoming a thing to combat rising unaffordability, i.e. New York, California, and Oregon have all passed significant rent laws to give more power to the tenant. This was apparent the drop in the EQR’s stock price after releasing its third-quarter press release. Here is a summary of the concerns on Seeking Alpha.

  • Equity Residential (NYSE:EQR) drops 2.6% after management describes the “chilling effect” of rent control on development during its earnings conference call.
  • In New York, rent renewal increases are down 50 basis points as the result of a new rent law, they said.
  • Says 70% of the REIT’s California portfolio is subject to new rent caps.
  • Sees rent control leading to lower apartment supply in cities.
  • EQR plans to acquire more apartments in Denver market, with the aim to boost Denver to account for 5% of net operating income from 1.5% now.

‘My First Apartment” Podcast by Localize.city: Jonathan Miller, CEO at Miller Samuel

I had a fun discussion about something I hadn’t given much thought to in a long time with Aaron Ghitelman of Localize: my first apartment.


Will The New York State Rent Law Create More Affordable Housing Investment?

If it does, it will take a while.

More from Bob Knakal’s presentation: “Life After Rent Regulation” Parts 3 & 4 (click image to play)

Finally, a ±$1M Parking Space Sale Actually Occurs

This has been a thing in NYC but none of the spaces that were hyped either ever sold at all or never sold for close to $1M.

  • 2012 The $1 million parking space – New York Post
  • 2014 Buy Condo, Then Add Parking Spot for $1 Million – New York Times
  • 2015 Manhattan Is Getting More $1 Million Parking Spots – Curbed
  • 2015 The Race to the $1 Million Parking Spot – Wall Street Journal

In 2019, we actually saw a parking space close for $969,000 in Hong Kong.

A single, 134.5 square foot parking spot at a 73-storey office tower in the glitzy financial district has sold for $969,000, according to local media reports. That works out to just over $7,200 per square foot. By comparison, the average apartment in upscale Manhattan goes for four times less, at around $1,770, according to real estate analytics firm NeighborhoodX.

The value of Manhattan parking spaces is relational to the property they are associated with. They are not stand-alone assets. In other words, a parking space located in a building with $20 million condos sells for more than a space located in a building comprised of $300,000 apartments, all locational amenities being equal.

Getting Graphic


Len Kiefer‘s Chart Handiwork

I love the context this gives.


Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Beware The Appraiserspeak Gobblygook

A friend of mine got a copy of the appraisal that was done on a relative’s condo in a state my firm doesn’t appraise in. He just wanted to get a reality check on what was said by the appraiser. My friend said the conversation went like this:

“He also pointed to “bracketed sales” in that banks wouldn’t accept a unit at the highest end of the market, like ours, as they needed a closed sale at a higher level already.”

By definition, this appraiser is telling my friend that a condo can never be appraised higher than others in a building unless there is another closed similar sale that is higher priced. Presumably, that means that the other higher sale can’t be appraised higher unless there is another sale that is higher, and so on.

I’m not saying the appraiser didn’t know the market. But I do know that we can get caught up in what a lender requires so much that we can become detached from the valuation process itself.

Our profession has an intense duality: we can be brilliant at valuing a property but be very weak at conveying what we do to the those we interact with. It’s why I believe it would be amazing (but not possible) to require every appraiser to testify at least once in court. The person saying random BS like in this example would be skewered alive.

Jonathan Miller and Phil Crawford in Washington DC!

Phil, Lori Noble and I met in Washington to attend meetings such as ASB, IAC, AEI and a gathering of the Network (State Coalitions) that was extremely insightful in our efforts to return sanity to mortgage lending and create awareness within our industry about the opportunities with the consumer.


OFT (One Final Thought)

In some ways, all of us are burning up inside to make those changes we often don’t seem to get around to.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more into cotton candy tacos;
  • You’ll be more interested in buying a Hamptons home;
  • And I’ll think about my first apartment a little more.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


October 18, 2019

Whats Modern Today May Not Be Housing Modernization

I’m attending the D.C. conference held by The Appraisal Foundation and have to keep Housing Notes very short this week. There are lots of great reads in the links below. But I will double down next week so rest up!

The future is here. I can see it clearly.

But I digress…

Market Report Gauntlet: Q3-2019, Greenwich Sales, Q3-2019 Fairfield County, Downtown Boston Sales

I’ve been the author of Douglas Elliman‘s expanding Elliman Report series for 25 years and we have a lot of new market areas to be launched in 2020.

We published the Greenwich results for the third quarter and after a tough slog, with the aid of the sharp drop in mortgage rates, Greenwich shows stable market conditions and declining inventory. This was captured in a recent Bloomberg story that at one point on Thursday became the number one read story on the 350K Bloomberg Terminals worldwide. So there is that.

And a chart, which loyal Housing Notes readers know how much I love charts.

.

Here are some key points for Greenwich and the other markets:

______________________________________
GREENWICH SALES HIGHLIGHTS

Elliman Report: Greenwich Sales Q3-2019

“Listing inventory for single-family properties declined across the market.”

  • Single-family sales and median sales price showed stability
  • Single-family listing inventory slipped year over year after five quarters of gains
  • Condo price trend indicators surged annually, consistent with a jump in sales size
  • Luxury price trend indicators still jumped despite a significant decline in average sales size
  • Luxury listing inventory fell year over year for the second straight quarter

________________________________________________
FAIRFIELD COUNTY SALES HIGHLIGHTS

Elliman Report: Fairfield County Sales Q3-2019

“Sales saw modest year over year gains as listing inventory slipped.”

  • All price trend indicators drifted lower year over year for the fourth straight quarter
  • After five straight quarters of annual declines, sales increased over the last two quarters
  • Listing inventory declined annually for the two most recent quarters
  • Luxury listing inventory fell year over year for the second straight quarter after five increases
  • Luxury marketing time and negotiability expanded as older supply began to clear the market

______________________________________________________
DOWNTOWN BOSTON SALES HIGHLIGHTS

Elliman Report: Downtown Boston Sales Q3-2019

Overview
“The pace of the market was brisk as supply remained limited.”

CONDO
– Average price per square foot rose year over year to the second-highest level in nineteen years
– Median sales price rose year over year for the seventh time in eight quarters
– Despite the rapid market pace, listing inventory expanded annually for the sixth straight quarter

TOWNHOUSE
– Median sales price and number of sales rose year over year for the fourth straight quarter
– Listing inventory expanded annually for the second time in the past three quarters
– The pace of the market accelerated in three of the past four quarters

Market Report Gauntlet: Q3-2019 South Florida

More on the results next week, along with the new market areas. In the meantime, you can view the reports here.

Upcoming Speaking Events

I’ve got a bunch coming this fall, but here’s one.


Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Talking Appraising in DC

I’m attending the TAF/IAC meeting in DC this week. Phil Crawford and I were honored to speak in front of the Network, a.k.a. an association of state appraiser coalitions who drive the grassroots efforts at the legislative level and actually get important work accomplished for boots-on-the-ground appraisers nationwide.

The Future of Bifurcation Per FHFA

Mark Calabria, Director of FHFA who regulates the GSEs, said at the American Enterprise Institute this week that their sole focus is to privatize the GSEs so they can leave receivership, 11 years after being bailed out.

Bifurcation and a slew of other initiatives for “modernization” are just pilot programs at this point and not the top priority of their FHFA regulator.

US Appraisals Goes AMP A Day Late And A Dollar Short

Here’s the corporate gobblygook of the US Appraisals press release.

Who believes or even reads this crap?

“Bifurcated appraisals are a part of the future of this industry,” said Rick Garrie, Chief Valuations Officer of United States Appraisals. “There is so much potential to improve both the speed and the accuracy of appraisals with this new approach. We are committed to being at the forefront of Appraisal Modernization.”

Remember that the majority meaning of the word “modernization” is pivoting to AVMs and away from appraisers performing traditional appraisals.

OFT (One Final Thought)

I write my Housing Notes on a Mac and have been insanely devoted to the insanely great product since 1986, using them to create and run our company.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more modern;
  • You’ll take the bus;
  • And I’ll look at charts.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


October 11, 2019

Dinosaurs Go Glamping As Suburban Homeowners Heave Sigh of Relief

For those of you who can’t see housing trends change, here’s the slow-mo…


But I digress…

Bloomberg TV 10-7-19: Manhattan Pivots

I had a nice chat with Vonnie Quinn of Bloomberg Television on Monday concerning the state of the Manhattan housing market, following a highly read Bloomberg article on the terminal covering our Elliman Report results for Q3-2019 as well as a followup on Bloomberg Radio here and here.


New Reports: Elliman Reports Q3-2019 Westchester Sales, Putnam & Dutchess Sales

I’ve been the author of an expanding series of market reports for Douglas Elliman Real Estate for 25 years and it has made me feel younger somehow. We have just completed week 2 of the quarterly market report gauntlet and these are the results.

Before we get started, coverage of the Douglas Elliman Q3-2019 Westchester Sales report was the third most read by the 350K subscribers on the Bloomberg Terminal yesterday within about an hour of publication.


And a chart!!!


There are some good links for the market report coverage below.

Here are some of the key points:

______________________________________________________
WESTCHESTER SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Westchester Sales

“Sales fell year over year for the first time in five quarters as price trends rose.”

– For the first time in seven quarters, all three price trend indicators rose year over year
– County-wide sales declined annually for the first time in five quarters
– Most of the year over year sales gains occurred from $700K to $900K
– Total and new single-family contracts increased year over year
– All luxury price trend indicators increased annually after falling for three quarters
– Luxury listing inventory declined annually for the second time in three quarters

______________________________________________________
PUTNAM SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Putnam & Dutchess Sales

“Median sales price rose year over year for ten straight quarters.”

– Median sales price set a new record after rising annually for ten straight quarters
– The number of sales increased for the second time in three quarters
– Listing inventory rose annually for the third consecutive quarter

______________________________________________________
DUTCHESS SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Putnam & Dutchess Sales

“Heavy sales volume continued to exceed the rise of listing inventory.”

– The number of sales surged year over year, rising for the third straight quarter
– Listing inventory increased annually for the fifth consecutive quarter
– The market pace moved much faster year over year in the two most recent quarters


New Reports: Elliman Reports Q3-2019 Brooklyn Sales, Queens Sales, Riverdale Sales (Bronx)

There are some good links for the Elliman report coverage below.

Here are some of the key points:

______________________________________________________
BROOKLYN SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Brooklyn Sales

“As price trends flirted with records, sales continued to slide.”

– Median sales price slipped year over year for the second time in three quarters
– The number of sales fell annually for the seventh straight quarter
– Listing inventory continued to trend higher, rising year over year for the sixth consecutive quarter
– Median sales price for new developments edged higher year over year while resales declined
– Average and median sales price for co-ops set new records after rising annually for three quarters

______________________________________________________
QUEENS SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Queens Sales

“Despite expanded inventory, price trend indicators set new records.”

– Median sales price and average sales price reached new records
– Sales have fallen year over year for eight straight quarters
– Listing inventory has expanded year over year for ten consecutive quarters
– Co-op median sales price reached a new record for the seventh time in the past nine quarters
– The number of condo sales fell year over year for the sixth straight quarter
– First increase in year over year new development sales in six quarters

______________________________________________________
RIVERDALE SALES MARKET HIGHLIGHTS
[includes Fieldston, Hudson Hill, North Riverdale and Spuyten Duyvil]

Elliman Report: Q3-2019 Riverdale Sales

“Listing inventory and price trend indicators fell for the first time in more than a year.”

– Median sales price declined annually for the first time in six quarters
– Listing inventory fell year over year for the first time in five quarters
– Number of sales fell annually for the fourth time in five quarters


New Reports: Elliman Report 9-2019 Manhattan Brooklyn & Queens Rentals

The rental markets, especially within Manhattan, seemed to invert this quarter as more price growth was seen at the top. I have joked for months that these renters were “glamping out” instead of “camping” out and finally, my word choice was used in a headline and a story that was the 10th most-read story of the day on the Bloomberg Terminals.

And of course, a multi-colored Bloomberg chart that went with the article.


______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

“Rising rents and falling concessions still define the rental market.”

– Median net effective median rent rose year over year throughout 2019
– Concession market share declined year over year for the eighth time in nine months
– The vacancy rate has increased year over year for three straight months
– Rents generally rose more quickly at the higher price strata
– Doorman median rent rose faster than non-doorman median rent respectively from the year-ago level
– New development median rent rose more quickly than the existing median rent
– The luxury entry threshold hasn’t seen a year over year decline in 2019


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

“Rental price trends continued to rise, and landlord concessions continued to slide.”

– Net effective median rent rose year over year for the tenth straight month
– Concession market share has continued to decline annually throughout 2019
– Median rent by bedroom rose annually for each size category


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

[Northwest Region]
“Despite the decline in market share of landlord concessions, overall price trend indicators drifted lower.”

– All price trend indicators and new leases fell year over year
– Net effective median rent has stabilized after falling year over year in the prior two months
– The market share of landlord concessions fell year over year for the sixth time in seven months


Prices in Free Fall? Huge Spike in Foreclosures? Beware Real Estate Filter Bubbles.

Free Fall?
After the slew of market reports that were released over the past few weeks (in addition to ours), there were some pretty outrageous headlines that had little to do with the market and everything to do with SEO. The use of the phrase ‘prices in free fall‘ made it to the headlines of a handful of stories but then carried across the real estate community, including buyers.

Fred Peters, one of the Manhattan patriarchs of the real estate community who happens to be an excellent writer, took issue with the term ‘free fall’ and penned an article for Forbes: Why New York City’s Real Estate Market Isn’t In ‘Free Fall’. Fred and I don’t always agree on market conditions, but I never question his authority on the subject.

We all look through different optics. Within most media outlets, the journalist doesn’t control the way the headlines are written. The editor usually does, and an important part of their job is to generate clicks, readership, etc.

The definition of the phrase ‘free fall‘ in this situation means ‘a rapid and continuing drop or decline’ yet such a choice paints the market as a “black hole” or an “abyss” or that we are “standing at the edge of a precipice” or, well, you get the idea.

Related to this, it is important that we develop more respect for the quality of sources and how the information actually gets to you. If you only read one source, then you’ll eventually rest comfortably in a filter bubble.

Huge Spike?
Here’s another attempt to get SEO in a headline. Property Shark is a great resource for data but can be weak on the editorial side. There is a glaring example of this in their latest blog post: Manhattan Foreclosures Increase 118% Y-o-Y – Q3 2019 Report

Other references to the headline within the piece included “Manhattan cases up a staggering 118% year-over-year” and “Manhattan Foreclosures See Huge Spike: Up 118%.”

Then look at the following chart and read the fine print in the same article “Foreclosures in Manhattan increased drastically year-over-year when it comes to percentages. However, the absolute numbers aren’t nearly as spectacular. Percentage-wise, the borough saw a 118% surge, from 22 cases from Q3 2018 to 48 cases this quarter. 25 out of the 48 foreclosures were mortgage foreclosures.”

In other words, the headlines were referring to a YOY rise from 22 to 48 in a city with more than 800,000 housing units.

There is a terrific TED talk from 2011 that essentially predicted what would happen. I urge you to watch this presentation. After you see it, you won’t ever look at Internet searches in the same way.


Housing Splits Inflation Difference Between Education and Apparel

Another compelling Len Kiefer visualization.


Dinosaurs Have A Longer Marketing Time Than Spec Homes

I remember when the housing bubble was nearing the end a decade ago, and we started to see fancy sports cars being thrown in with a sale, and I wrote about that quite a bit here and in my Matrix blog.

This time its Dinosaur skeletons.


Compass Has Been Reassuring Its Agents They’re Not WeWork

A Compass broker, concerned about last week’s Housing Note post on WeWork and Compass (NYU’s Scott Galloway Takedown of Softbank’s Unicorns), and how they share the same key financing source (along with $350M for a dog-walking app maker), sent me a note from the Compass CFO, presumably to all their agents. The note was clearly intended to allay agent concerns by separating Compass from WeWork. The agent gave the letter to me in a Word document, not formatted or signed. It was shared with me to prove Compass was not in the same boat as WeWork (I never said they were), so I’m going to assume this is a valid document that hasn’t been altered.

Here’s a partial excerpt of my reply given to the agent who contacted me:

When I wrote the piece, the issue for me WAS the shared funding source because, after WeWork, it suggests how little due diligence Softbank must have done yet Compass marketed the Softbank investment as a vote of confidence. And it’s not just WeWork. I still can’t get over how Softbank invested $350M in a dog-walking app maker.

It’s not personal either and I get nothing out of this other than trying to get answers to things that don’t make sense. I’ve been following Compass since it was Urban Compass as well as Softbank’s investment history, trying to understand what makes Compass a disrupter. I can’t process the use of the word disruption in the traditional sense, and perhaps that’s my fault. The only disruption myself or anyone I know outside of the company (or former employees) has observed is that there is plenty of capital to buy agents or brokerage firms. They’ve achieved a well-polished marketing image, and I’m assuming it is well-run, but if there’s no apparent secret sauce beyond spending capital, then it can’t be valued as a tech company. The references check approvals above $1,000 require the CFO signature? That seems like someone grasping at straws to find talking points and also doesn’t give me confidence that a CFO has to micromanage a multi-million dollar company that way.

Give any smart person hundreds of millions of dollars, and they can be a disruptor too…

….How does this shift in investor and media sentiment impact the brokers Compass has hired? It probably doesn’t, at least for now, assuming the status quo.


Here is the Compass CFO letter the Compass agent shared with me to make a case for the greatness of the company:

Compass Family,

Over the past few weeks we have seen comparisons being drawn between Compass and WeWork simply because we share a single investor. To be clear, our businesses are quite different — in terms of our business model, capital structure, customers, culture and investments. I hope the 8 facts below help make this contrast crystal clear and answer the questions that some people outside of Compass have raised.

• Compass has no debt: Compass has raised zero dollars of debt while WeWork has over $5B of debt obligations that they have to pay back. Every dollar we have raised is in equity. With debt, companies have to pay back lenders with company money. With equity, companies don’t pay investors, but rather, the investors aim to realize their returns in the public market.

• Compass’ valuation is in line with peers & leaves room for future equity growth: Compass’ last round (Series G) valued the company at $6.4bn, which implies a revenue multiple in line with those of other publicly-traded real estate tech companies at 2-3x 2019E revenue, a fraction of WeWork’s multiple reported by the financial press (20x).

• Compass has a diverse and sophisticated investor base who collectively set the valuation for each round: Every one of our fundraising rounds has included multiple well-respected investors who have endorsed the valuation. Some of our investors include Wellington, IVP, QIA, Softbank, Fidelity, Dragoneer and others. WeWork’s recent rounds were exclusively with one investor.

• Compass’ expansion strategy is focused on depth vs. breadth: We have executed a consistent strategy throughout 2019 to drive deeper into our top 20 markets in the U.S. with a focus on profitable growth versus opening hundreds of locations across 29 countries as WeWork did. We intend to be a global company but our near term focus is one of the reasons we feel great about our path to profitability.

• Compass has a growing % of its employees focused on tech: We have over 425 members of our tech team who make up 19% of our total employee base (not 5%, as some outlets have erroneously reported), creating proprietary technology in partnership with our agents that they use to run their business and that differentiates us in the market.

• Compass’ acquisition strategy has been focused on assets that strengthen the core business: Every business Compass has acquired has either efficiently grown our agent base or accelerated our technology roadmap (e.g., Contactually), which is very different than investing capital to acquire companies that are not relevant to the core business.

• Compass has a culture of frugality: Our leadership team books coach tickets and does not fly on private jets and, as you know all too well, I review all company expenses above $1,000. This culture is critical to ensure we responsibly invest our money into building a better future for agents and their clients.

• Compass’ industry and business model are completely different: It may seem obvious, but it’s worth stating that it is hard to draw any parallels between our businesses given that we have different customers (agents, not enterprises), are in different industries (residential real estate vs. commercial leasing), and have very different business models (an end-to-end tech platform on which to operate vs. an office space solution).

Lastly, you may have heard some concerns about tech IPOs underperforming in recent months, so I’m adding a simple chart at the end of this email put together by a major investment bank to provide additional perspective. It shows the last private market valuation compared to the current public market valuation for tech companies that have gone public since 2018. What you see, with few exceptions, is significant value created for the employees and investors (median increase of 68% in 2019 increasing to 85% when you include 2018). While the headlines might indicate these companies are performing poorly, the numbers show a sizable increase from their last private valuation to current trading levels.

I hope this helps provide you all some clarity and talking points for your clients and colleagues. I am amazed by the Compass team and incredibly proud of what we have all accomplished so far this year. I’ve spent 17 years in tech investing, working both at Carlyle and Goldman Sachs, and I couldn’t be more excited about the future at Compass. Thank you for your continued hard work and your commitment to our mission. We are grateful to you and your dedication to our customers. Stay focused and let’s make the flywheel spin!

All the best,
Kristen


Like I said earlier, their Softbank association issue probably doesn’t impact agents but rather it speaks to the fading unicorn narrative that has always seemed too good to be true. Let’s see how it plays out in a down market.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

North Dakota Was Told Getting A Waiver Was A Snap

This post is a continuation of “The Banking Industry Is Driving The Waiver Movement” story in Appraiserville, within last week’s Housing Note.

I will continue to reference the document in the link below during the following discussion:

APPRAISAL SUBCOMMITTEE OPEN SESSION SPECIAL MEETING MINUTES JULY 9, 2019

When North Dakota re-applied for a state-wide waiver, the appraisal industry was nearly unanimous in outrage at the audacity of the state to apply for one in the first place because its entire premise was false. Some of the facts brought up by the appraisal industry in opposition that were ignored were:

  • There were more appraisers in the state than there were a decade ago
  • There are plenty of appraisers in the cities
  • Rural appraisers have always been hard to find because the economics make nominally feasible to cover those markets
  • The economics of AMC-gouging of appraiser fees had forced more appraisers to specialize
  • The difficulty and limited amount of data in rural areas places even more pressure on the economics

The appraisal industry, known for its infighting to its own detriment, actually got together on this matter and various organizations, coalitions, and individuals wrote in to make the argument against such a waiver. And it was obvious to nearly all of us that the decision was pre-determined.

FDIC was one of the most anti-appraiser pro-waiver agencies on the ASC and was “hell-bent” on issuing a waiver. Both the FDIC and OCC even sent senior staff to North Dakota (and other rural states) to promote this push for waivers.

I pointed out last week that the waivers were being pushed by the banking members of ASC or worse, leading those in the banking industry down the waiver path. This bias was illustrated by the comments made by Marilyn Foss of the North Dakota Bankers Association (NDBA) who said that the North Dakota Appraisal Board has known about the rural appraiser challenge but hasn’t come up with a solution and NDBA wanted a solution. (The solution is economics but that’s not a topic the banking industry is willing to look into.) She basically said that FDIC encouraged them to apply for the waiver in 2017 because it will be a piece of cake per FIL-19-2017.

She stated that in May 2017, the FDIC published FIL-19-2017, which inspired the State to act on the issues of scarcity and delay.

So North Dakota applied.

And there is this (emphasis mine):

R. Clayburgh, the President of the NDBA, said that not all in-State appraisers are available to all lenders as some appraisers limit their work to specific lenders or appraisal types. He said legislative leadership brought lenders and appraisers together to address education requirements and that there is a potential for State educational institutions to set up a program to assist those who want to enter the appraisal profession. He added that lending has slowed due to the difficulty in finding comparables which delay lenders from receiving completed appraisal reports.

In other words, the view of the NDBA is that in periods when there are no comps, they need a waiver to make loans. Step back and think about that.

There were concerns raised by the banking industry on slow turn times, yet Corey Kost of the North Dakota Appraisal Board indicated that “turnaround times in North Dakota have improved over the past few years.”

The commissioner of the North Dakota DFI was basically told to apply for the waiver, and this would be an easy process. I don’t think they realized the outrage they would create in making that waiver request. North Dakota got their waiver thanks to the banking regulators but were quite beat up in the process, which may discourage other states from applying.

Bold emphasis mine on the following.

L. Kruse of the North Dakota Department of Financial Institutions (DFI) stated DFI’s mission and the reasons for the Request. She emphasized that a scarcity of appraisers in the State was leading to a delay in turnaround times on appraisal reports which was affecting the closing of loans. She said population is not the only indicator of scarcity and that in North Dakota there is scarcity by reason of geography. She said the high cost of appraisals is paid by the customer which causes harm. DFI does not feel the waiver would cause safety and soundness issues. She commented on the Interagency Advisory on the Availability of Appraisers issued in May of 2017 and stated that in a meeting with Federal agency representatives, she was told that waivers could be used to address scarcity. She said the request was submitted and provided evidence in good faith to provide relief to consumers.

After all, the premise behind the waiver is that banking regulators in their zeal to control the mortgage process, have sought to destroy independent valuation for no other purpose than that. Control. The justification for waivers has nothing to do with appraiser shortages (because there “appraisal shortages” was a false narrative cooked up by the AMC industry a few years ago during the refinance boom yet the reality was in the decline in appraisers willing to work for less than 50 cents on the dollar).

It’s 2019 people, and this ND waiver is preposterous.

  • Will result in only uninformed people performing USPAP compliant appraisals without training or experience
  • Imagine their personal liability?
  • Consumers and lenders won’t be able to file complaints
  • Non-licensed appraisers will be challenged to locate the hard to find data in rural areas that experienced appraisers can find, so… they will simply use whatever they can, which will decimate the quality of reports submitted.
  • Worst of all, this WAIVER WILL REDUCE THE INCENTIVE FOR NEW APPRAISERS TO ENTER THE FIELD!

When a regulatory action like the North Dakota waiver occurs, and it is completely illogical on all accounts, there are deeper underlying issues at play coming from above that have NOTHING to do with protecting the public trust.

OFT (One Final Thought)

Sometimes, you need to spin that turntable enough to cook dinner.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more into fossils;
  • You’ll be more into glamping;
  • And I’ll never waiver (or issue one).

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


October 4, 2019

Housing’s Total Eclipse On the Dark Side of the Moon

Sometimes we can’t seem to look right at it…


But I digress…

Elliman Report: Q3-2019 Manhattan Sales, Q3-2019 Northern Manhattan Sales

Douglas Elliman published our Q3-2019 research on the Manhattan housing market this week and boy, was there a lot to talk about. I’ve been the author of a growing series of Elliman market reports since 1994.

Elliman Report: Manhattan Sales Q3-2019
Elliman Report: Northern Manhattan Sales Q3-2019

Bloomberg
The most important aspect of the coverage is obvious if you’ve been reading these Housing Notes for any length of time…charts! The Bloomberg story on the Manhattan market was the third most-read article on the 350,000 Bloomberg Terminals worldwide, beating “Ray Dalio” and “slowing economy” topics.

Here’s a brief clip on the Manhattan report from Bloomberg Radio.

New York Times
There was a significant article in the New York Times that chronicled this market pivot using our research.

When interviewed, I was inspired to create two charts on the financing aspect of the market. The first chart shows how dependent the share of sales at $5 million or above was dependent on the sharp drop in rates as investors who tend to pay all cash were hard to see.


In the following chart, the sales above $2 million fell the most in Q3 as the Mansion Tax poached sales into the Q2 (before the July 1 commencement of the tax) to save a few percent on a substantial purchase price.


CNBC

CNBC posted a notable Manhattan perspective story on our research as well, bringing on my friend and colleague Steven James, President/CEO NYC of Douglas Elliman for an interview on NBC Squawk Box who laid out the report results in this interview.


There were other good reads as well including essential coverage by NBC News, Brick Underground and The Real Deal.

Here are some of Manhattan’s key market trends and charts:
______________________________________________________
MANHATTAN SALES MARKET HIGHLIGHTS
(CO-OPS + CONDOS)

“The recent Mansion Tax deadline poached sales from this quarter, back into the prior quarter.”

  • The number of sales fell sharply due to second-quarter Mansion Tax deadline
  • Heavy reliance on purchase mortgages across all price strata
  • Listing inventory expanded annually for eight straight quarter
  • First annual decline in co-op median sales price in thirteen quarters
  • Condo median sales price declined year over year for the seventh time in eight quarters
  • Largest annual percentage increase in luxury listing inventory in five years
  • Luxury median sales price declined year over year for the eighth time in nine quarters
  • Average size of a luxury new development sale fell year over year by nearly 900 square feet
  • The number of new development sales fell year over year for the seventh time in eight quarters


______________________________________________________
NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS

“Price trend indicators fell sharply across the market.”

Co-ops & Condos
– Fewest third quarter sales to occur in a decade
– Sixth straight quarter with a year over year gain in listing inventory
– Largest year over year decline in median sales price in more than a decade
– Surge in sales below $500,000 as mortgage rates fell sharply

Townhouses
– Smallest average sales size in nearly five years of tracking
– Sixth straight quarter without a year over year decline in listing inventory
– First annual rise in sales over seven quarters

Bob Knakal – Life After Rent Regulation

My colleague Bob Knakal, Chairman of New York Investment Sales at Jones Lang Lasalle, has a storied real estate career and has always been a go-to source for commercial market insights including a wealth of statistics. He has published two of four videos on the state of the Manhattan commercial real estate market after the introduction of the devastating new rent law out of Albany last June.

Click on the below images to get to the Vimeo page:

NYU’s Scott Galloway Takedown of Softbank’s Unicorns

Scott Galloway has no fear and calls out overvalued companies without hesitation. Here’s a great interview of him in New York Magazine:

At What Point Does Malfeasance Become Fraud?’: NYU Biz-School Professor Scott Galloway on WeWork

Here are additional videos on Softbank unicorns.

More on WeWork


Exploring Compass


Chinese U.S. Housing Investment Wanes

China Global Television Network provided a good summary on the state of U.S. investment by the Chinese in the following article ‘Chinese cool on buying US properties‘ and the accompanying video where I get a few cameos:


Bloomberg: The Problem With NYC Property Taxes

This is a good illustration of the imbalance of the property tax system in the city. It is an incredible quagmire of complications. This becomes even more problematic with the recent introduction of the updated Mansion Tax and rent law that is expected to reduce property transactions substantially in the future.

Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork

Upcoming Recent Speaking Event

I spoke on the rooftop of the Nine52 new development in the Midtown West neighborhood (a.k.a. Hell’s Kitchen which I suggested rebranding to “Heck’s” Kitchen but it didn’t resonate with the attendees for some reason). The first office of Miller Samuel was located a few blocks away in 1987 and it was not a great place to live – now it is. The transformation has been incredible.

It was a beautiful morning as Ace Watanasparp, EVP of Citizens Bank (and ex-UCONN Huskies hoops player), Howard Lorber, Chairman of Douglas Elliman/CEO of Vector Group spoke frankly about market realities and how to navigate them.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Re-Jiggering Fannie Mae & Freddie Mac

My colleagues in the appraisal industry and I have been confused/alarmed by the actions of the former GSEs Fannie & Freddie over the past several years in their efforts to raise mortgage volume. Banks continue to remain in the fetal position on risk post-financial crisis and low mortgage rates and inverted yield curves aren’t helping. As a result, the GSEs, who remain in receivership, are doing all they can to remove pain points for banks to lend more and as a result, exposing the mortgage process (and, of course, the taxpayer) to unnecessary risk.

As an appraiser, I’m clearly biased to this effort based on my first-hand experience because it has become clear that appraisers are a target of US Treasury’s efforts toward “modernization” which I view as code for “automation.” Think of replacing a large swath of boots on the ground mortgage appraisers with AVMs (automated valuation models) or the equivalent of “Zestimates” but the taxpayer is on the hook if the housing market goes bad. Fannie is already waiving appraisals on 12% of mortgages they take on. No matter what claims are being made today, the reliability of AVMs is beyond unacceptable. For reference, 50% of Zestimates are within 5% of true value and 50% are not within 5%. Junk.

The US Treasury is attempting to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership. Mark A. Calabria, Director of FHFA, who regulates Fannie & Freddie has been asked what keeps him awake at night to which he has replied “risk management.”

I have heard through channels that FHFA has told the GSEs to kill all the projects that involve “appraisal bifurcation” – the highly controversial process where an unlicensed, untrained inspector completes a non-standardized observation of a property and then a licensed appraiser completes a desktop appraisal. However, I haven’t been able to confirm this in writing as a source so please share if you have.

Appraisers know bifurcation would be a disaster for valuation reliability (i.e. quality) and be more expensive and slower. This is why the appraisal industry is so concerned about the GSEs’ intent to expand the use of bifurcation in the mortgage process. I’m sure there are times when such use is reasonable but not with wholesale adoption. The actual reason for the promotion of bifurcation is to remove a pain-point for lenders in the mortgage process. The idea of lowering costs or reducing turnaround is not something consumers have ever clamored for so such an effort is bizarre, otherwise.

Indy Politics recently interviewed Michael Calabria of the FHFA, the regulator who oversees both agencies.




The Banking Industry Is Driving The Waiver Movement

On its own, the recent decision to provide a temporary appraisal waiver for the entire state of North Dakota is mind-boggling for a number of reasons and seemed pre-determined:

  • The state has been challenged by the lack of appraisers in rural areas since time began and there are plenty of appraisers in metro areas.
  • The inference is that all states with a lot of rural areas should have to have qualified experts come up with valuations.
  • There is no verifiable appraisal shortgage in the state. In most cases the problem is with AMCs and their business model, unable to pay a fair wage to appraisers covering rural areas.

Look at the ASC members and their North Dakota waiver vote on July 9, 2019

YES:
FRB – Art Lindo (Chair)
CFPB – Philip Neary
FDIC – Marianne Hatheway
NCUA – Tim Segerson
OCC – Richard Taft

NO:
FHFA – Robert Witt
HUD – Bobbi Borland

Only FHFA and HUD voted against the North Dakota Waiver. Those specific agencies deal with appraisers first-hand and understand their role in the risk management process. The remainder are bank regulators or in the case of CFPD, represent consumer interests (and the agency has been gutted over the past several years to reduce its pro-consumer efforts).

In other words, banks are driving the waiver train. They want to remove a pain point from the mortgage process to grow more origination volume. The Federal government has already proved it will be willing to back up the banks if the economy collapses so why not keep pushing for removing of all pain points?

Appraisal Fee Transparency Act of 2019

Bill H.R.3619 has left the House and is now ready for consideration in the Senate.

There are a number of key issues presented in this bill. Three of them jumped out at me:

SEC. 3. TRAINEE APPRAISERS.
“(12) TRAINEE APPRAISER.—The term ‘trainee appraiser’ means an individual who meets the minimum criteria established by the Appraiser Qualification Board for a trainee appraiser license and is credentialed by a State appraiser certifying and licensing agency.”.

This definition is critical to help undo the logjam that appraisers face brining more people into the appraisal profession.

SEC. 5. REQUIREMENT TO DISCLOSE APPRAISAL FEES.
– Section 4(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2603(c)) is amended by striking “may” and inserting “shall”.

This enables appraisers to show the amount of their fee in relation to the AMC portion so the consumer is made aware, of why the cost might seem unusually high. Appraiser routinely recieve only 30% to 50% of what the consumer pays as “appraisal fee” – and why REVAA lobbies so hard to prevent this.

SEC. 6. INCLUSION OF DESIGNEE OF SECRETARY OF VETERANS AFFAIRS ON APPRAISAL SUBCOMMITTEE.
– The first sentence of section 1011 of the Federal Financial Institutions Examination Council Act of 1978 (12 U.S.C. 3310) is amended by inserting “the Department of Veterans Affairs,” after “Protection,”.

This helps address the pro-banking bias on the ASC board as I discussed earlier in Appraiserville.

OFT (One Final Thought)

This GIF by my friend Nathan Pyle reflects the many times I’ve tried to eat a pizza slice on the sidewalk in between appraisals:

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be eclipsed;
  • You’ll be more in sync with the market;
  • And I’ll eat my pizza slice in peace.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


September 27, 2019

The Hunt For Red October Housing

Why do people do things like this? Because they can.

I especially like the red color. It looks like a vat of red ink – and that’s been a big talking point this week.


But I digress…

Talking Manhattan Podcast: The Market’s Underlying Issues, and How to Value Outdoor space

I was just interviewed by Noah Rosenblatt and John Walkup of Urban Digs for their “Talking Manhattan” Podcast. I’ve known Noah for well over a decade and always enjoy geeking out on the market with him. He’s a data nerd with a real estate agent and day trader background. I’m proclaiming that John Walkup has the best real estate-related last name in the business and is clearly able to “elevate” any real estate conversation.

They weren’t kidding on Wednesday when they said they were going to get this podcast out right away, placing the interview online Thursday. I was speaking to a group of real estate agents on the roof deck of a new building Thursday morning, and four of them told me they had already listened to the podcast and one confirmed that he heard it in the shower and noted that was high praise. Love it.

One of the topics we focused on covered the adjustment for outdoor space in valuation. Throughout my career – when I get a lot of similar inquiries on a particular valuation topic, I turn it into a blog post – here is a collection of value-related posts in one place. One of the most read “value” resources in the collection covers outdoor space in a blog post I wrote in 2010. Admittedly I’m a bit relieved my written methodology still holds up nine years later!

Their interview with me is below. I hope you enjoy it and subscribe to their podcast as I do.


Where The HNWI Congregate (Hint: Not At My House)

Every year, Wealth-X published research on trends of the world’s wealthiest individuals. To save you a click, globally there was a modest increase in the number of HNWI (high net worth individuals with at least $30M in net worth) individuals while their holdings saw a modest decline.

Counting Cranes

Constructon cranes have become a key metric for measuring development types (and gentrification) trends in cities. Project management company, RLB, was the first to quantify.


NYC: New York City has seen a minor reduction of cranes from the January 2019 Crane Index, but year-on-year, has experienced a 35% increase. As the New York City construction industry remains in robust health, crane counts will continue to be steady, particularly when developments for the JP Morgan Chase HQ and the redevelopment of the Hyatt at Grand Central Station commence.


Housing Density Defined: Hong Kong’s Walled City of Kowloon

Demolished in 1993, this former walled settlement in Hong Kong had 50,000 residents. Here’s a photo from 1989. Be sure to click to expand.


[click to expand]

Vote For My Parent’s Studio Co-op!

Shameless plug warning – My parents are retired and living in Florida – recently they decided to sell their pied-a-terre on Manhattan’s Upper West Side. Marketed by superstar Douglas Elliman broker and friend Jessica Cohen at the right price, it is up for a vote in Curb’s What $380,000 buys in NYC right now contest.

Their listing is now sitting in first place! Let’s extend the lead!!!

Their studio is on the Upper West Side so do my parents a favor and vote “Upper West Side” at the bottom of the Curbed post or just click on the graphic below and vote! You’ll feel better all day for doing that.


The WeWork Unicorn Gets Outed For Its Actual Business Model

My goodness, has the “disrupter” monniker been the most overused business descriptor in history?

Take the WeWork example as laid out in yesterday’s New York Times, an early investment of Softbank. My friend Dan Alpert wrote a great piece on the sudden down turn in the fortunes of WeWork for Business Insider WeWork could cause a disaster for New York City’s real-estate market.

Uber, another Softbank investment, is also in trouble, losing $5B last quarter and dropping 30% in value from its initial IPO price.


Why do I bring this topic up in these Housing Notes? Look at all the brands in the background above. One of them is a national real estate startup.

Compass, a traditional real estate brokerage marketing itself as a tech firm to realize higher multiples, has enjoyed significant investment by Softbank. This startup been a disrupter, in the context of having access to unprecedented amounts of capital for recruiting agents, without bringing notable innovations to the industry or a bottom line sustainable reality. This conclusion has been drawn from people who have been recruited by them, Moxiworks and others. Great brokerage companies like Stribling and Pac Union who were recently acquired, must have received offers from Compass they couldn’t refuse.

After covering this topic a while back, a Compass agent emailed me back and said to the effect, “Don’t worry about us Jonathan, we’ll be just fine.” Of course. Compass has attracted some great brokers and agents who will always be in demand for their services regardless of what happens to the company. I am not being critical of their agents whatsoever and count a number of them as friends. My issue is at the corporate level which suggests images of an emperor who wears no clothes and only those outside the industry are falling for it.

Remember this:


After the disasterous WeWork IPO attempt, what would happen if other startups attempt an IPO in the near future without a sustainable business model in a low margin business?

The lesson being played out with WeWork is that companies that market themselves as disrupters must have a tangible business model to sustain operations or the claims are just words. When the real math is subjugated by fantastical stories of changing the world, we get WeWork.

New Yorker: Bedbugs

It’s a problem that never seems to go away.

Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

RAC’s 2019 Conference In Dallas Crushed It

Last week a group of some of the best residential appraisers in the country met in Dallas for RAC’s two day annual conference. I’d call the experience “hi-density learning” with an equal amount of fun and laughter. I’m still smiling a week later.

The emphasis of the organization has been modified in recent years from exclusively relocation to complex residential which includes relocation. Although we still get tremendous support from WERC and many relocation third parties, litigation support has been a growing area of interest from our membership as of late.

NSFW Expert Witness Testimony

I’m always pushing for good appraisers to get into expert witness testimony and litigation support work as the mortgage side of our industry is slowly being replaced by wildly inaccurate AVM technology. When you read this short transcript at your own peril, make sure you imagine the NSFW discussion being spoken in monotone:

OFT (One Final Thought)

Where to park your car? Do the math and be prudent.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll know where to park their car;
  • You’ll tell fewer fantastical stories;
  • And I’ll start swearing on the witness stand.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


September 20, 2019

Mortgage Rates Dropped So Much I Needed To Take A Break

Attending the RAC Appraiser Conference in Dallas at the moment. Housing Notes will be back next week!

The Fed drops rates again. This only makes housing more affordable in the short term. Ugh.


September 13, 2019

French Fry Situational Awareness In Your Home

Forget the ketchup. You don’t need it. As an appraiser and a housing analyst, I’ve long believed that it is better to focus on the key metrics.

About that Ketchup: “A tablespoon-size serving has four grams of sugar, which is more sugar than a typical chocolate chip cookie. And how many kids actually limit their serving size to one tablespoon?”

C’mon, people, focus on those French fries (including all you housing nerds)…


But I digress…

Elliman Report Released: August 2019 – Manhattan, Brooklyn & Queens Rentals

This week Douglas Elliman real estate published our research and analysis of the rental market in their Elliman Report: 8-2019 Manhattan, Brooklyn & Queens Rentals, part of the expanding Elliman Report series I’ve been authoring since 1994.

First, we need to start off with a very cool Bloomberg chart used in their report coverage.


Elliman Report: 8-2019 Manhattan, Brooklyn & Queens Rentals

______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“All three price trend indicators rose above the year-ago result for the third straight month as concessions continued to slip.”

– Rental price growth moved higher across all bedroom sizes and market segments
– The market share of concessions declined annually for the seventh time in eight months
– Year over year median rent growth was flat above $10,000 and declined above $15,000
– The luxury entry threshold hasn’t seen a year over year decline in 2019
– New development median rent was essentially flat as existing median rents rose sharply


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“Price trends continued to set new records despite each month in 2019 saw a year over year drop in concession market share.”

– New development concession market share remained double that of existing rentals
– Studio median sales price reached a new record
– Net effective median rent rose year over year for the ninth straight month


______________________________________________________
NW QUEENS RENTAL MARKET HIGHLIGHTS

“Price trends continued to weaken despite the sliding market share of landlord concessions.”

– The market share of landlord concessions fell year over year for the fifth time in six months
– Net effective median rent fell annually this month for the third time in 2019
– Median rental price has fell year over year for studios and 1-bedrooms while rising for larger apartments


New York Times Coverage of Unsold Manhattan Luxury Units

I saw this article a few minutes before I was locking down this week’s Housing Notes. It contained comprehensive research on the state of Manhattan new development luxury units was just published by the New York Times: One in Four of New York’s New Luxury Apartments Is Unsold

Their chart includes our stats on Billionaires’ Row below:


Manhattan Months of Supply

I view the “months of supply” metric as the “pace” of the market, in other words, how fast the market is moving by price strata as illustrated by the intersection of supply and demand. I used to call it “absorption” but that was being confused with the same term used for the sales pace of new development.

Et Tu, Penthouse?

There was a good Mansion Global article on penthouses: For a Safer Bet in a Tough Luxury Market, Consider the Penthouse. I know it is in bad taste to self-quote but it is my key rationale on the topic of penthouses (and who says I have good taste?).

“What makes a true penthouse is that it’s unique,” said Jonathan Miller, chief executive of real estate appraisal firm Miller Samuel. “Apartments that are unique tend to be less volatile.”

“It’s the principle of scarcity, to use appraisal speak,” he said. “It doesn’t prevent [a penthouse] from seeing declines or challenges; they’re not immune to negative market trends.”

“We’re talking about probabilities rather than guarantees, having a unique asset—in a favorable way—reduces risk,” Mr. Miller said.


The following chart essentially illustrates the proliferation of penthouses in the super-luxury new development market.


Hedgefunder Ken Griffin Needs a New Hobby

Another day, another super expensive single-unit residence. This one was recorded for $99 million. The Shiny Sheet scoops it: EXCLUSIVE: Ken Griffin squares off massive Palm Beach estate with $99M house buy, sources say.


Here’s a table of all the sales I know of in Palm Beach Florida above $50M. The blue highlighted sales are from 2017 to 2019.

What A Large Swath of Detroit Looks Like Today

When a city’s population collapses, and the abandoned buildings are torn down, this is what you get.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Testifying Always Means Eating Your Lunch Alone

Appraisers Blogs, an important reference for all appraisers, turned my comments on testifying as an appraiser in last week’s Housing Notes into a blog post. It inspired me to share a photo.

During my recent all-day testimony at a trial as an expert, the judge reminded us as we broke for lunch that I could not talk to counsel about the case. So I left for lunch with my client and his lawyers and sat away from them at the restaurant – because we all took the judge’s order very seriously. I asked someone to snap a photo to prove my dining-alone experience in the same restaurant – my smile reflected the fact I had the entire bread basket to myself:


With the continued erosion of the appraiser’s independence in the mortgage process, I encourage all appraisers to work very hard to develop outside consulting work NOW. With the incoming acceptance of evaluations in mortgage-related work championed by the Appraisal Institute, your competition will be tv-repairman and dog-groomers (no offense to those professions). This applies to commercial too, not just residential valuation – which will likely see significant fee compression in the future if that’s even possible.

OFT (One Final Thought)

I love NYU Professor Galloway’s “placing a toe on a (Toyota) Camry” analogy! When an owner extracts $700M from a company that is supposedly disrupting commercial leasing and has never made a profit and has a lot if self-dealing in place, eventually the problems gets articulated in public. A $50-$60 IPO was downgraded to $20B and the final amount is speculated to be even less than that or be killed off.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll rent;
  • You’ll eat more condiment-free fries;
  • And I’ll break bread alone more often.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


September 6, 2019

Keep Your Housing Chill When Under Pressure

If you find yourself fretting about the future of the housing market with a potential looming recession or the confusion of a jubilant stock market alongside a terrified bond market as illustrated by rates that continue to fall, I wouldn’t recommend remaining oblivious to the world around you — case in point, this gentleman at the bar during a robbery.


And of course, #WhyILoveNYC no matter what the housing market is doing (listen for the bone-crunching street sounds).


But I digress…

Movin’ Out Of New York At Twice The Rate Of Last Year

Since the introduction of the Tax Cut and Jobs Act of 2017, there has been an acceleration of outbound migration according to a Bloomberg article: More People Are Leaving NYC Daily Than Any Other U.S. City.

New York leads all U.S. metro areas as the largest net loser with 277 people moving every day — more than double the exodus of 132 just one year ago. Los Angeles and Chicago were next with triple digit daily losses of 201 and 161 residents, respectively.


In addition to the new federal tax law, the New York State legislature has passed and attempted to pass anti-investment/anti-landlord legislation that reflects a stunning lack of understanding of market forces. The anti-real estate zeitgeist is already reflected in this exodus from New York. I don’t believe the Albany political majority understands the long-term direct consequences of what they have created – the massive tax revenues real estate generates enables extensive social programs they are so focused on.

Why Uncertainty In Real Estate Still Remains, Well, Uncertain

Hint: Trade War With China & Brexit


Wait, Renting Isn’t Throwing Your Money Away?

The classic ‘Rent v. Buy’ argument is thrown upside down in this Bloomberg video “No, Renting Isn’t Throwing Your Money Away.“. The problem with these types of arguments is that it applies the same logic to everyone regardless of their personal situation. The very idea that the ‘homeownership versus renting’ market share is 3:1 in the suburbs but 1:3 in the cities speaks directly to affordability and lifestyle. In current conditions, we are in a housing affordability crisis and a student loan crisis while wage growth has been tepid and mortgage rates flirt with records. I get that the longstanding mantra of “renting is throwing your money away” was never questioned until the financial crisis, but I still find narratives like this too generic (but entertaining).


VOX: Why So Many Suburbs Look The Same


Not So Spurious Housing Correlations: Refrigerator Size v. Household Size

h/t @PlanMaestro @voxmediainc

The Rush To Buy Before July 1 NYS Mansion Tax Deadline Revealed Scorched Earth In July

Last June I warned against the giddiness of the Q219 surge in sales activity, that the excess demand was actualy poached from Q319. Because changes in tax policy change consumer demand patterns, the Q2 uptick was not evidence of a return to better market conditions. Although though I do think the heavy lifting of the decline in activity has already occurred and the continuing drop in mortgage rates may have helped mitigate some of the sales drop and price damage that was expected.

As it turned out I was right as illustrated in these compelling visuals.


Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork

Some of My Upcoming Speaking Events

9/12/19 – The Metro New Jersey Chapter of the Appraisal Institute


[click to open application]

9/17/19NYcorp: New York Council of Relocation Professionals

Speaking to NYC Metro Housing Trends.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Sitting In The Witness Chair

I’ve sat in the witness chair as a real estate expert many times over the years. It’s nerve-wracking, but it is also fun and fascinating. My partner in our commercial firm says there is something wrong with me because I enjoy it so much.

Consider that something you wrote in an appraisal report six months ago is being discussed now and what you wrote back then is not subject to edits. You have to live with what you wrote. I think the quality of appraisals in the U.S. would improve substantially if all appraisers had to sit in that chair early in their career and have to answer to all the B.S. they piled into their report.

When you sit in that chair and are sworn in to testify, there is no going back. You are answerable to no one but the truth.

Sadly many of my peers run away from the opportunity of testimony. Or perhaps that fear makes it more lucrative for those that are willing to testify. It can be a worthy alternative to generic bank appraisals and provides absolute clarity on how non-appraisers, especially adversaries, can interpret (twist) your results and how you conveyed them to the report reader. My favorite clients have long been lawyers because of how they think. It is a strategy exercise like playing chess.

Some thoughts:

  • Always get paid for your report before you deliver the result and hopefully at engagement. Always get paid in advance for your court appearance with the understanding that any overage in time will be paid for immediately after the appearance. Don’t block out a bunch of availability dates unless you have been paid so you livlihood is impacted by a false promise or change in their needs.

  • One of the most important things I’ve learned is to simply answer the question. No embellishment. Remember that opposing counsel will ask you incomplete questions, fish when they don’t know what they are looking for and try to trip you up anyway they can if you are a threat to their client. They’re doing their job so you want to prepare and do yours.

  • You are auditioning for more work. One of the greatest complements I can get is when I am hired by opposing counsel for a new matter.

  • Remember that you are the expert and you are not guilty of anything. This sounds trite but that is what runs through the minds of those new to this. Your job is to express your opinion and to do it in a way that is credible and conveys it clearly.

  • If you don’t know the answer, then say “I don’t know” – its ok if you don’t know the answer.

With Fannie and Freddie working hard to automate and the whole world jazzed about evaluations and oblivious to the long term decline in reliability that the now terrified bond market expects, expand your consulting footprint. Legal support services are a great way to start.

OFT (One Final Thought)

What laser focus looks like.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll hear it through the grapevine;
  • You’ll move to NYC;
  • And I can’t get the sound of crunching chicken bones out of my head.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


August 30, 2019

Housing Is Treading Lightly Around Our Wheelhouse Because We’re Flatly Tired Of Spinning In Circles This Summer

The month of August is in its final moments, and I already know I am going to miss it. I like the steady pace of this time of year (as long as the air conditioning is working) without the periodic panic from clients who forgot to order an appraisal. Our firm has remained busy. Many of our staff have been able to enjoy a little time off. Some exciting opportunities and changes have appeared for both me personally and my firm too – but more on that later. After all this, I’m “tired” of tire analogies

But I digress…

The ‘Back to the City’ Trend Has Reversed

There’s a good read on the evidence of a reversal in the decade trend of moving to the city from the suburbs in the Brookings blog: Big city growth stalls further, as the suburbs make a comeback. Here’s a fascinating chart.

Why Falling Mortgage Rates Are Not A Long Term Housing Benefit

There was a great article and interview on falling rates and housing last week I missed while on vacation. I was in it so how could I have missed it? (That’s clear proof I was checked out.)


According to Freddie Mac, the 30-year fixed mortgage rate is down a full percentage (100 basis points) from last year. This drop has lit a fire under refinance activity as consumer look to save money with lower homeownership costs. In fact, with the sharp rise in housing costs in the northeastern U.S. due to the Tax Cut and Jobs Act of 2017, the significant drop in mortgage rates has likely helped moderate the damage to the market.

Remember that low-interest rates are not a gift. In the long run, low rates raise asset prices. When rates fall, more people come into the market which is essentially the reason why the Fed raises and lowers rates to manage the economy, current politics aside.

Here’s the part that concerns me. After years of low rates, the housing market appears highly dependent on them yet the drop in rates has resulted in a more muted boost in sales. Affordability continues to be challenged with lackluster wage growth in comparison.


The longer the housing market remains addicted to low mortgage rates, the more vulnerable it becomes to an eventual change in direction (higher). While I’m not of the belief there will be a surge in mortgage rates anytime in the near term, the market is clearly more vulnerable to such a condition but low rates are firmly built into current pricing. This is one of the reasons that housing remains most vulnerable in high-cost areas impacted by the new federal tax law and it will take years for asset prices to adjust to higher homeownership costs. In NYC metro, we are in the thick of that adjustment period.


Parking Your Plane In The Garage

Over in Big Bubble Miami, you can see how easy it is to park your plane at your house. Why? Because you can. Recently I referenced houses with RV parking. Same idea. Handling turbulence but with wings.

Location, Location, Drug-Treatment Center?

Our appraisal firm does a lot of expert witness litigation and I continue to be fascinated by the arbitrary rules of thumb presented by experts. There are many home-spun assumptions formed without reliance on empirical evidence. Translation: they pull it out of their @$$.


Case in point. There was a great New York Times “Ask Real Estate” column last week: Should I Buy a Home Next to a Drug-Treatment Center?

I like the way the writer parses out the logic and that appraiser guy Jonathan Miller lays it out there pretty clearly too.

Investors Are Making A Tight Starter Market Much Worse

The Urban Institute has a write up on why the surge of investors in the entry market could be an issue. The piece is remarkably non-committal but does raise the right questions. The reference a seminal New York Times piece on the topic I’ve shared before. My short answers are in “()”:

1) Are investors taking homeownership opportunities away from individuals and families?
(yes)
2) Are investors creating and maintaining quality affordable rental units?
(possibly)
3) Are investors increasing home prices?
(absolutely)

A Great Take On The Homeownership Rate

Jed Kolko, a super-smart economist of whom I had the pleasure of working with when he was at Trulia, penned a great piece in 2014 on the homeownership rate that is worth revisiting: Why the Homeownership Rate Is Misleading.

Shouldn’t we be panicking that the American dream of homeownership is drifting out of reach?

Nope. At this stage of the housing recovery, the falling homeownership rate turns out to be misleading. In fact, for young adults, who were hit especially hard in the recession and housing crisis, the decline in their homeownership rate might paradoxically be a sign of improvement. The rate can mislead in the other direction, too: During the worst of the housing crisis, the falling homeownership rate clearly understated the damage done.

The current rate is nearly the same as the median rate since 1965.

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Appraiserville is back next week.

OFT (One Final Thought)

Because we are chilling over the long weekend, I thought you’d find this insight helpful in your morning coffee ritual.


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be homeowners;
  • You’ll park your plane;
  • And I’ll (continue to) live in the suburbs.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
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Joined October 2007