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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


August 23, 2019

Of Inverted Yield Curves, Negative Interest Rates and Skeeball

Cheryl & I are staying at our usual hotel in Rehoboth Beach, DE right now, where I grew up (some say that is in an inaccurate statement) from 1967- 1982 and then as adults, took our kids there when they were younger and now some of them are even visiting there on their own. It is a not so sleepy resort town, the “Hamptons” of Washington, DC. that grew up too and in a good way. I can assure you that right now we are not thinking of anything but Skeeball, Nic-o-bolis, Kohr Brothers orange sherbet, and vanilla soft serve custard, Grotto Pizza slices on the boardwalk, bookstores, power napping, ocean-swimming and tonight we are crashing a wedding rehearsal dinner.

Next week is another week of recovery and then the following week all hell breaks loose.

But I digress…

In the meantime, there are some great reads below, especially the extra-curricular kind.

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


August 16, 2019

Digging In Can Be The Best Housing Defense

I’m taking a little time off in the great U.S. tourist mecca of Detroit this week, visiting family but I still have a few things to share.

This is intriguing.


But I digress…

Elliman Report released: 7-2019 Manhattan, Brooklyn & Queens Rentals

Douglas Elliman Real Estate published our research on the July rental market. This is part of an expanding Elliman Report series I’ve been authoring since 1994.

Because life is obviously a chart, here are two charts that chronicle the results of the Elliman Report: 7-2019 Manhattan, Brooklyn & Queens Rentals.

Bloomberg:


Wall Street Journal:


Credit Rating Agencies Enabled The Financial Crisis…Without Getting Credit For It

In the aftermath of the housing/credit bubble, I have always marveled how the rating agencies got off scot-free, rating tainted mortgage pools as triple-A. The gist of agency complicity is that they are paid by the investment banks for their rating services. If the ratings make the investment bank unhappy, the agency gets no future business. I always related this relationship to the housing bubble because appraisers were selected by mortgage brokers on behalf of the banks but the mortgage brokers were only paid if the loan closed. H/T to Barry Ritholtz on this big Wall Street Journal piece.

Sharp Drop In Mortgage Rates Having Muted Impact On Housing Sales

From my friend Dan Alpert, a good Twitter follow:


Appraiserville

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

Still on summer hiatus – but there are a lot of good reads in the links below!

OFT (One Final Thought)

Bubble bursting analogies on steroids.


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 find another use for their cars;
  • You’ll get more credit;
  • And I’ll rent.

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 9, 2019

Rocky Raccoon Houses A Strong Desire For Stuff

Sometimes people want what they want, no matter what the risk is. There is a lot of that same sentiment coming from regulators and policy administrators in the federal government these days. More on that in future editions of these Housing Notes, but until then, we’ll fight for our jackets.

On an unrelated note, here’s a shoutout to my excellent summer semester Columbia grad students in the GSAPP program who took their final exam yesterday. I really enjoyed the class interaction and wish them well in their careers. When turning in their completed exam, one of the students commented that they specifically enjoyed my discussion on pie versus cake

Oh, the satisfaction of teaching can not be put into words!

But I digress…

Rate Talk: Business versus Consumer Sentiment Is Like Apples versus Oranges

As I’ve mentioned before in these housing notes, the bond market seems terrified of current U.S. economic policies while the stock market seems euphoric (even though the stock market is not the economy.

Sam Khater, Freddie Mac’s chief economist, and aficionado of the only band that matters says, “There is a tug of war in the financial markets between weaker business sentiment and consumer sentiment. Business sentiment is declining on negative trade and manufacturing headlines, but consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.”

I loved this observation about sentiment (and The Clash, obviously).


Chart-Nirvana Market Update In Elliman Magazine

As regular readers of my Housing Notes have noticed, I create a full-page spread for Douglas Elliman Real Estate’s quarterly magazine using the results of my U.S. market research. I’m no Len Keifer but still, the visuals are pretty cool.

A Potential Spike In Refi’s, Illustrated

Here’s a good look at the refinance situation via The Basis Point, always a good read. The one point not made here is that falling rates raise prices which is not good for housing in the long term when matched against tepid wage growth. The drop in rates is a short term win for consumers, not a long term win.

Vox: Where Manhattan’s Street Grids Came From

It wasn’t by accident.

Spurious Housing Correlations: Grocery Stores

Here’s one from ATTOM.

  1. Take a ton of housing data and geotag it for its proximity to a grocery store like Whole Foods (a.k.a. Whole Paycheck) or Trader Joes.
  2. Then measure the value of a neighborhood against those farther away or before and after the store was built.
  3. Base the analysis on zip codes even thought zip codes don’t represent neighborhoods or like housing stock.
  4. And you get…voila…junkstats.

There are so many other factors to be considered that this type of analysis is way too simplistic to be credible. An example of spurious correlations in my housing market of Manhattan would be to compare the average or median sales price of an apartment with or without a fireplace. Homes with fireplaces tend to be “pre-war” (built prior to WWII) or penthouses which sell for a premium above the remainder of the housing stock. My own fireplace amenity analysis was not some sort of boolean logic exercise found in the ATTOM analysis.

Bloomberg Terminals: Miller Samuel Luxury Housing Index

We power 6 different price indices for Manhattan luxury housing on the Bloomberg Terminals. This luxury median sales price chart shows how the market has slid from recent highs and how much prices have surged after the financial crisis.


Downtown Alliance: Q2-2019 Lower Manhattan Market Overview

For many years I’ve been crunching residential housing data for the Downtown Alliance for use in their quarterly reports. Here are the residential pages of their latest report:



Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.) As I said last week, I’m taking a bit of a summer hiatus from appraisal policy discussions, but there is always time for this:

Appraising Unique Properties Like Attached RV Garages

I’ve been at this appraisal thing for 33 years and I’ve never seen or heard of this amenity or the targeted demo it appeals to. My friend and appraiser colleague Ryan Lundquist is the undisputed leader of wacky amenity observations.

OFT (One Final Thought)

Aside from his dirty hands, this would be a typical experience in my kitchen. The skills demonstrated here are strangely satisfying and are required viewing.

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 replay the Beatle’s ‘White Album” for that ‘Rocky Raccoon’ song;
  • You’ll learn to love my charts;
  • And I’ll go to the grocery store.

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


August 2, 2019

Buckle Up: Rates Are Falling and Housing Market Is Confused

As a kid, I gave little thought of seatbelts. They were decorative metal things that singed your legs in the summer. Little did I appreciate the deathtraps we were riding in circa the early 1970’s – you know, the Ford Country Squire with blue vinyl seats with fake wood panel stickers and those cool sideways back seats surrounded by metal?

How little we think of safety when we’re sitting in a cool seat.


!!!!Here’s a shoutout to my Columbia GSAPP students who learned yesterday that while pie charts are generally bad, pie is absolutely good.

But I digress…

The Myth of Missing Skyscrapers Between Downtown and Midtown

In addition to some serious “Caisson” talk, Jason Barr, Professor of Economics at Rutgers, wrote a bedrock takedown of the bedrock myth of Manhattan skyscraper building locations – it is worth a full read.

The Bedrock Myth and the Rise of Midtown Manhattan (Part I) – Building the Skyline Blog

I get claustrophobic just thinking about what sandhogs do:

Workers inside the cube (“sandhogs”) would dig up the soil and pass it up through shoots to the surface. The box would slowly sink. Once it hit the quicksand, compressed air was pumped in to keep the soil out. Eventually, the box would reach the bedrock. It was then filled with cement, and piers were built atop it up to the basement level to hold up the structure.


[from Building the Skyline Blog]

Why Is That Neighborhood So Expensive?

Check out the moving bus action above from the article! LOL.

I enjoyed this short piece from a rare source for me: House Beautiful. My friend Constantine Vahouli and founder of NeighborhoodX contributed insight.

While the article is not a deep dive, it is remarkably clear.

Why We Move

Love this from Flowing Data: Why People Move using the Current Population Survey.

I was surprised how small the category “retired” was and conversely, how high “wanted new or better home.”

I’ve Always Wanted A Graffiti-Covered Home

I haven’t seen the film yet but my friend and appraiser colleague Maureen from Chicago is always worried I don’t get out enough so she keeps sending me good things to check out. The documentary “Jay Myself” is one of those.

A while back I appraised a nearly identical building occupied by one of the founders of Blue Man Group and a few others as well. This represented a time when you could buy a modest building for very little in the context of today.


Sellers: Price Your Home Correctly The First Time!

This article by Grant Long, Data Scientist at Streeteasy was one of the best things I read this week:

Price Cuts on NYC Homes Don’t Usually Work. Here’s Why

The article provides empirical evidence and sound logic why MOST PRICE CUTS OFFERED BY SELLERS ARE MERELY CHASING THE MARKET and make little difference to buyers. Price it correctly from the get-go or make a drastic cut as soon as you realize you are wrong.

Long Island’s Nitty Gritty Details by Town

Newsday published an article on the Long Island housing market and shared an epic data table that we provided using our analytics in addition to the Elliman Report: Long Island Sales Q2-2019 we released last week. The table doesn’t appear on mobile devices and won’t be included in the Sunday print edition.

I orangified the table provided in the online article to sort by town name and presented it below – click on graphic to open entire table:


[click on table to open it in full]

Charting Economic Policy Uncertainty

The word “uncertainty” has dominated housing market conversations in the Northeast and because of ongoing policy changes like the day to day China tariff situation, wondering what happens with Brexit and unemployment at 50-year lows but we see the Fed dropping rates.

The bond market has been uncomfortable with U.S. economic policy since last October as evidenced by the sharp drop in mortgage rates…

…yet the stock market has been trending higher…

…and global uncertainty on policy is rising…

…as is China…

…and the US…

Why should we care? While housing market doesn’t care what you think it has always been very clear that it doesn’t like uncertainty. This is why the sharp drop in mortgage rates have had less than the typical impact on the housing market.

Getting Graphic

Our favorite charts of the week

From Greg Daco, Chief U.S. Economist of Oxford Analytics, who I’ve had the pleasure of sharing a green room with and serve on the NYC mayor’s economic advisory panel with. He cuts through the clutter.

All three charts here are worth a look…wage growth is peaking.


We need wage growth to boost the housing market. Low unemployment is never enough.

Appraiserville

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

Appraiser Discovers New State of the Art Home Security Feature in Texas

Forget Simplisafe. This time tested security feature was shared by my good friend and appraiser Ron Box in Dallas who was given this by a local colleague. It was observed in a new home during an appraisal inspection. Ron is always on the lookout for new home amenities.

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 buckleup;
  • You’ll buy an old station wagon;
  • And I’ll be more uncertain.

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


July 26, 2019

Fancy Chocolate Can’t Compete With Good Home Central Air

While I personally think chocolate is overrated, Paris is not but I am very glad I am not there at the moment.


I want to extend a quick shoutout to my Columbia real estate grad students, who yesterday learned that development doesn’t always provide the luxury of time to complete their thoughtful analysis (or quizzes).

But I digress…

Q2 Elliman Report Quarterly Gauntlet, Week 4: Long Island, Hamptons & North Fork

Its the final week of Douglas Elliman‘s market report quarterly gauntlet. I have been the author of the expanding series of reports since 1994.

The Elliman Reports:

Elliman Report: Q2-2019 Long Island Sales
Elliman Report: Q2-2019 Hamptons Sales
Elliman Report: Q2-2019 North Fork Sales

Here are some of the key trends identified in each report and some of our favorite charts in each market:

________________________________________________
LONG ISLAND SALES

“Despite the sharp rise of listing inventory, prices pressed higher.”

  • The number of sales edged higher annually for the second time in three quarters
  • The median sales price has not declined year over year for twenty-five straight quarters
  • Largest year over year increase in listing inventory in twelve and a half years
  • The first year over year rise in condo listing inventory in nineteen quarters
  • Number of single-family sales rose year over year for the fourth time in five quarters
  • Most luxury listing inventory in nine years as marketing time expanded


HAMPTONS SALES

“Sales above the $10 million threshold were in line with the quarterly average for the decade.”

  • Six straight quarters of year over year sales declines but the rate fell sharply
  • Listing inventory increased significantly on an annual basis over the last three quarters
  • Median sales price decreased year over year for the fifth time in six quarters
  • Least number of second-quarter sales in eight years
  • Luxury listing inventory expanded year over year for the eighth straight quarter
  • The number of $5 million or higher sales equaled the decade quarterly average
  • Luxury price trend indicators showed mixed results as marketing time fell

Bloomberg covered the report and the market in an article and on video.


On the Bloomberg Hamptons article, it was the 12th most-read story on the 350,000± Terminals worldwide (No screenshot this week). Plus its the only real estate article I’ve ever appeared in where the title used the term “Dither” so yet another bucket list item was checked off.

And let’s not forget about their chart


CNBC covered our research in this article and the following video. Good stuff.

And some of our charts to ponder

________________________________________________
NORTH FORK SALES

“Highest market share of sales below $1 million in two years.”

  • The number of sales surged year over year at the highest rate in four and a half years
  • Listing inventory rose annually for the third straight quarter but remained well below the decade average
  • Median sales price has not declined annually in nine quarters
  • Second highest total of sales over $2 million in two and a half years
  • Luxury median sales price declined year over year for the second time in three quarters
  • Luxury listing inventory rose annually for three consecutive quarters

Q2 Elliman Report Quarterly Gauntlet, Week 4: Aspen/Snowmass Village, Los Angeles, Malibu/Malibu Beach, Venice/Mar Vista Q2 2019

The Elliman Reports:

Elliman Report: Q2-2019 Aspen/Snowmass Village Sales
Elliman Report: Q2-2019 Greater Los Angeles Sales
Elliman Report: Q2-2019 Venice/Mar Vista Sales
Elliman Report: Q2-2019 Malibu/Malibu Beach Sales

_____________________________________________________________________________
ASPEN SALES HIGHLIGHTS

Trends “In an emerging trend, the number of sales moved higher from year-ago levels.”

  • The number of sales surged year over year, up for the third straight quarter
  • Listing inventory declined year over year after rising for four straight quarters
  • Average price per square foot drifted lower year over year for the fourth straight quarter
  • The number of sales above $10 million jumped year over year by twenty-nine percent
  • Luxury average price per square foot declined year over year for the fourth straight quarter
  • Luxury listing inventory expanded year over year for the fourth consecutive quarter

_____________________________________________________________________________
SNOWMASS VILLAGE SALES HIGHLIGHTS

Trends “Listing inventory declined across property types.”

  • The second highest number of sales in fourteen years
  • Listing inventory declined for the second straight quarter
  • The average sales size declined which skewed price trend indicators lower
  • Luxury average price per square foot fell for the second time in three quarters
  • Luxury listing inventory rose for the thirteenth time in the last fourteen quarters

_____________________________________________________________________________
GREATER LOS ANGELES INCLUDING WESTSIDE AND DOWNTOWN SALES HIGHLIGHTS

“The market was characterized by fewer sales and more listing inventory.”

  • Market wide median sales price rose year over year to the third highest level on record
  • Listing inventory expanded annually for the fifth straight quarter
  • All price trend indicators rose year over year as marketing time edged higher
  • Luxury median sales price expanded year over year as inventory grew at a slower pace than the overall market

LA SUBMARKETS

MALIBU/MALIBU BEACH
– Malibu single-family sales and listing inventory continued to remain below year-ago levels
– Malibu Beach condo price trend indicators continued to surge as the number of sales declined

VENICE/MAR VISTA
– Venice single-family price trend indicators and sales moved higher year over year
– Mar Vista condo sales and price trend indicators rose year over year

New York to South Florida Explored

There was an interesting developing story that I’ve been chronicling since the beginning of 2018 with the introduction of the Tax Cut and Jobs Act of 2017 also known as the “SALT” tax.

The federal Tax Cuts and Jobs Act signed into law in late 2017 brought with it sweeping changes that limited deductions on state and local taxes — with taxpayers particularly hard hit in New York, New Jersey and Connecticut, which are among the states with the highest income and property taxes.

According to US Census Bureau data, Florida had the highest number of migrants from other states, with New York contributing the most — 63,722 people during the 12 months ended in July 2018.


[Source: Wikipedia]

#UNHAPPYNEWYORKERS

To help New Yorkers to make the decision to move to Florida to enjoy lower taxes, this is one way a developer is executing their marketing plan. It’s a site worth exploring.


More Bubbletalk

Over at Visual Capitalist, there was a massive infographic on housing bubble risk by country:


[click to expand]

And here is another take from Bloomberg:



Just Because We Obviously Need All These Amenities

My basement is loaded with musty boxes of old cups and plates, furniture, photo albums, and the kids hand me down clothes that the younger siblings decided they wouldn’t be caught wearing. Plus we have two boilers, an oil tank, a sealed tunnel entrance used in the Civil War as part of the Underground Railroad as well as exposed wooden beams from the late 1700s.

The alternative reality is provided by prolific Hamptons developer Joe Farrell in a very soft East End market: “It features a full bowling alley, a rock climbing wall, a halfpipe, a performing arts theater, a spa and a convertible basketball/squash court.”


NAR Releases Their International Real Estate Member Survey

Formally called the Profile of International Transactions in U.S. Residential Real Estate 2019, U.S. residential real estate has no intensive public data on activity because of fair lending rules and concerns about things like redlining. This is a membership survey and surveys can be very inaccurate. Still, it is all we have in this space.

The following are two of the summary pages from the report. I always find this report interesting, especially because international demand has been so important to U.S. residential and commercial real estate since the financial crisis. In fact I’ve used it to create a proxy for international activity in Manhattan.

This Week in Aspirational Pricing: The Palm Beach $300 (Million)

The dam burst open in July – there were $300 Million in July closings of residential homes in the tiny housing market of Palm Beach is incredible. Here’s a photo gallery tour of all the sales from Shiny Sheet:


[click on image to see photo gallery]

TD Ameritrade: Jonathan Miller’s Housing Sector Breakdown

In Times Square, a relatively new financial market streaming service was launched a few blocks from my office. I joined Nicole Petallides on her show “The Watch List” which was the same set where I’ve appeared on CNBC Squawkbox within the NASDAQ studio. Apparently, Nicole was the first anchor ever on Fox Business News.


[click on image to play video]

NYC Housing Market Listicles

This Realtor.com article was based on our data analysis to flesh out the highest and lowers YOY change of all neighborhoods. The reason for nearly every extreme change in price within each neighborhood was the entrance or exit in new development closings.

Getting Graphic

Freddiemac’s Len Kiefer is the best real estate visualization expert on the planet.


Appraiserville

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

A bit overloaded with projects right now so Appraiserville took the week off. Will be back next week.

OFT (One Final Thought)

Why the Tour de France is so brutal: Think about all the exercise you’ve done during the month of July. While you were doing that, these people were riding up and down mountains for typically 5-7 hours nearly every day. Every year I have this race streaming either live or on replay every day for most of the month (with the sound off so I could get some work done.) The countryside scenes are spectacular and so is the race drama once you understand concepts like the peloton, breakaways and the term “suffering.” The sport gets limited love in the U.S., but hey, that’s their loss.

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 melt;
  • You’ll like chocolate even more;
  • And I’ll go to Paris for the Tour de France so I get one of those chocolate Eiffel Towers for my wife – yes, I’m still not a huge chocolate fan.

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

Real Estate Blockchain

Appraisal Related Reads

Extra Curricular Reads


July 19, 2019

Knitting and Ironing A New Housing Sweater

Of course, we all know about Extreme Ironing. Now we have…wait for it…Heavy Metal Knitting. Some people desperately need a hobby but I’ll stick to housing market analysis. And don’t get me started about birds.


A quick shoutout to my Columbia University grad students who learned yesterday:

“The housing market doesn’t care what you think.”

But I digress…

Elliman Reports Released: Q2-2019 Greenwich, Fairfield County, Downtown Boston

As my faithful Housing Notes readers know, I’ve been authoring an expanding series of Elliman Reports for Douglas Elliman Real Estate since 1994.

Week 3 of our quarterly gauntlet was completed with the publication of reports in the Northeast and South Florida. Let’s start with the northeast.

Elliman Report: Q2-2019 Greenwich Sales
Elliman Report Q2-2019 Fairfield County
Elliman Report: Q2-2019 Downtown Boston

First, the coverage of the Greenwich market findings was the 9th most-read story of the day worldwide on the Bloomberg Terminals which has ±350,000 subscribers. That makes sense because Greenwich, Connecticut has long been known as the home of many in the securities industry.


And they presented a chart on Greenwich and who doesn’t love charts!

Here are the highlights and charts of each market:

________________________________________________
GREENWICH, CT SALES HIGHLIGHTS

Elliman Report: Q2-2019 Greenwich Sales

“Excess listing inventory at the high is beginning to clear as sellers reconnect with market conditions.”

  • Single-family median sales price rose annually for the sixth time in eight quarters
  • Single-family listing inventory fell annually for the fourth straight quarter as casual sellers withdrew from the market
  • Condo sales declined annually for the first time in three quarters
  • Condo listing inventory fell the most in more than two years
  • Luxury median sales price rose annually for the first time in five quarters

________________________________________________
FAIRFIELD COUNTY, CT SALES HIGHLIGHTS

Elliman Report Q2-2019 Fairfield County

“Sales edged higher year over year after five straight quarters of declines.”

  • All price trend indicators slipped along with the average size of a sale
  • The pace of the market moved faster, nearly twice as fast as the decade average
  • Listing inventory edged lower year over year for the first time in three quarters
  • Luxury listing inventory declined for the first time in six months

______________________________________________________
DOWNTOWN BOSTON SALES HIGHLIGHTS

Elliman Report: Q2-2019 Downtown Boston

CONDO
“All price trend indicators moved higher with average price per square foot setting a record high.”

  • Median sales price rose year over year for the sixth time in the past seven quarters
  • Average price per square footage showed larger annual gains for bigger units
  • The market pace remained blistering despite five straight quarters of yearly inventory increases

TOWNHOUSE
“Rising price trends reached record levels as a blistering sales pace remained.”

  • More than half of all townhouse sales sold within thirty days on the market
  • All three price trend indicators increased year over year with the median rising for the third straight quarter
  • Sales declined, and inventory expanded annually for the first time in three quarters

Elliman Reports Released: Q2-2019 South Florida

Elliman Reports: Q2-2019 South Florida

For charts on each of the South Florida markets we cover, you can go to our chart gallery.

____________________________________________________________________________
MIAMI BEACH/BARRIER ISLANDS HIGHLIGHTS

  • Overall listing inventory was essentially unchanged as the number of sales slipped
  • Condo listing inventory declined year over year for the first time in the 22
    consecutive months it was tracked
  • Single-family median sales price increased year over year for the sixth consecutive quarter
  • Luxury condo price trend indicators, as well as average sales size, declined annually
  • A sharp decline in average single-family sales size pulled luxury median and average sales price below year-ago levels

____________________________________________________________________________
MIAMI COASTAL MAINLAND HIGHLIGHTS

  • Lowest market share of condo and single-family cash buyers in more than five years as mortgage financing continues to grow
  • Condo and single-family median sales price has not seen a year over year decline in at least 22 straight quarters
  • Condo price trend indicators and the number of sales increase over year-ago levels
  • All condo sales categories by size increased above year-ago levels
  • Single-family sales increased annually for the third time in the last four quarters
  • All luxury condo price trend indicators moved higher while listing inventory slipped from year-ago levels
  • All luxury single-family price trend indicators fell short of year-ago levels as average sales size dropped

____________________________________________________________________________
FORT LAUDERDALE HIGHLIGHTS

  • Condo sales and price trend indicators fell short of year-ago levels
  • Single-family sales increased but showed mixed price trends from the same period last year
  • Single-family median sales price declined annually for the thirteenth time in the last twelve quarters
  • Luxury inventory for both condos and single families increased year over year for the last two quarters

____________________________________________________________________________
BOCA RATON / HIGHLAND BEACH HIGHLIGHTS

  • Single-family and condo sales increased and listing inventory decreased respectively from the year-ago period
  • Condo median sales price hasn’t declined year over year in twelve consecutive quarters
  • Single-family listing inventory declined annually in two of the last three quarters
  • Luxury condo inventory increased as luxury single-family inventory declined respectively from the year-ago quarter

____________________________________________________________________________
DELRAY BEACH HIGHLIGHTS

  • Single-family price trend indicators and number of sales rose year over year
  • Condo median sales price hasn’t declined annually in fourteen consecutive quarters
  • Luxury single-family price trend indicators moved higher as listing inventory fell sharply
  • Luxury condo price trend indicators showed mixed results as listing inventory edged higher

____________________________________________________________________________
WELLINGTON HIGHLIGHTS

  • All condo price trend indicators increased year over year as the number of sales surged
  • Cond listing inventory fell annually for the first time in five quarters
  • All single-family price trend indicators and the number of sales moved higher
  • Single-family listing inventory fell year over year for the second straight quarter
  • Luxury condo and single-family listing inventory fell sharply from year-ago levels

____________________________________________________________________________
PALM BEACH HIGHLIGHTS

  • Although they missed Q2, there have been four single-family sales to close in the first days of July for over $200 million
  • Condo and single-family pending sales surged from year-ago levels as cash sales accounted for nearly 8 of 10 sales
  • Condo median sales price rose annually for the third time in four quarters
  • Second-quarter single-family sales tied for the lowest total in nine years
  • The modest gain in luxury and single-family price per square foot was not reflective of sharp downward skew in sales size that impacted the other indicators
  • Luxury price threshold fell year over year for the fourth straight quarter as the high-end market pulled back

JUPITER / PALM BEACH GARDENS HIGHLIGHTS

JUPITER
– Single-family sales rose year over year for the second time in three quarters
– Condo sales rose year over year for the fourth consecutive quarter

PALM BEACH GARDENS
– Single-family sales rose as all price indicators continued to move higher
– Condo median price rose annually for the 27th time in 28 quarters

Way Down: NAR’s International Real Estate Survey 2019

NAR released their annual membership survey covering international real estate. Because of Fair Housing laws and “redlining” concerns, hard data that connects country of origin with purchase transactions is essentially non-existent in the U.S., unlike much of the world.

Bottom line: Purchases by international buyers are down 31% and total dollar volume is down 36%.

Based on our resources, we think international buyers in Manhattan are down by half.

ATTOM: U.S. Median Sales Price Hits Record While Second Y-Axis is Lost

Housingwire ran a story using ATTOM’s data that the U.S. median home price hit a new record of $266,000, rising 6.4% year over year. This is consistent with the NAR existing median sales price of $277,000, up 4.8% year over year.

While this is terribly fascinating, why has the second Y-Axis in the ATTOM chart gone rogue?

Appraiserville

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

Back in the Day: FDIC Bragged About Negative Amortization (Neg-am) Loans

Regulators today are often removing barriers to responsible behavior with the hope of expanding lending activity since falling mortgage rates aren’t the answer. Banks are pushing back and it is instructive to see the way FDIC thought back in 2006. FDIC and the U.S. Treasury have turned out to be very anti-appraiser and are championing ways to automate as a way to replace us. Think about wildly inaccurate Zestimate-like AVMs on first mortgages. Economist, real estate agent and good follow John Wake shares this:

NCUA BOD Quadruples Threshold For Non-Residential Loans

Dave Towne essentially asks us to mark this moment in time after receiving an email alert from the Appraisal Institute on the cavalier risk position taken by NCUA. Not require appraisals on the vast majority of commercial loans being – what could go wrong?

“The NCUA Board of Directors today (July 18, 2019) quadrupled – from $250,000 to $1 million – the appraisal threshold for nonresidential real estate loans. (NCUA is the National Credit Union Administration.)

The appraisal threshold is the loan amount below which appraisals are not required.

Increasing the threshold would drastically increase the number of nonresidential real estate loans that would not require an appraisal.”

That last sentence is somewhat convoluted. (I didn’t write it!)
More simply stated: The decision will REDUCE the number of appraisals needed for Commercial property loans ….. which originate with Credit Unions.

Secondarily, the other major loan guarantee agencies threshold is half as much….$500,000. So the NCUA Board decision has the potential of significantly impacting all aspects of Commercial appraisals. It presents a possible upheaval in the industry/profession.

This decision also means that any person a CU designates can do a commercial property EVALUATION when the loan amount will be below $1M. It begs the question: who will value the actual property which will be the collateral for the loan?

Since most loans are written for a percentage of the collateral value, it means a significant amount of commercial property value will not be actually appraised by a Commercial appraiser.

Like so many things in life, the NCUA Board decision was predicated primarily on greed. They hope to generate more business for Credit Unions whereby those local organizations can say to community business people … “We’ll give you a boat load of money and you won’t have to pay for a proper appraisal which will be the evidence basis for the pile of moolah.”

This is a lot like the liar loans that infiltrated residential lending not that long ago.

It’s also akin to the ‘savings and loan crisis’ many of us went through in the late 1970’s – early 80’s.

It’s too bad people cannot learn from past history. “Oh, but it’s different now!” Yah, right…..same pile of barnyard stuff, but just wearing a different pair of boots.

OFT (One Final Thought)

This video was made three years ago and I don’t know how I missed it – its amazing. It’s not what you think it is…but it may be NSFW to some.

HOW TO LOSE WEIGHT IN 4 EASY STEPS from Benjamin Berman on Vimeo.

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 do more knitting;
  • You’ll do more ironing;
  • And I’ll do more vacuuming.

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

Real Estate Blockchain

Appraisal Related Reads

Extra Curricular Reads


July 12, 2019

Bicycles and Rock Lobsters Can Change Your Housing Outlook

I’m nearly a third of the way into my Tour de France watch-a-thon, a 7-hour per day, 23-day guilty pleasure every July. I just let the NBC feed run on my iPhone with the sound off and periodically glance at it to check up on changes. Forget staring at fishtanks for soothing relaxation. The amazing countryside scenery makes it well worth the time.


So with that frame of mind, here is my biking analogy of the week. It only takes two to bring everything down. Watch this in its entirety on a big screen if possible.


But I digress…

A Shout Out To My Columbia Grad Students

It’s that time of year again to teach Market Analysis in the Master of Science in Real Estate Development (MSRED) Program at Columbia University. It’s a strong program if I do say so myself. If the quality of student participation in yesterday’s first class was any indication, this semester is going to be engaging and fun for all of us. Plus the terrific faculty and alumni support make this position a dream for me.

Remember, a down residential housing trend goes like this:

EXTERNAL EVENT> (i.e. new tax law) >
SALES DECLINE > (buyers pause until fully understand)
LISTING INVENTORY RISES > (sellers remain in denial)
1-2 YEARS PASS > (sellers don’t sell unless they get their price)
PRICES ERODE > (sellers capitulate to the market)
SALES RISE…

Since the real estate brokerage community is transaction-based, I’ve never understood why the industry never spoke about a downturn directly. With greater transparency over the past decade, the smarter, more successful brokerage firms embrace market changes as an opportunity to educate sellers on the market reality that “the housing market doesn’t care what you think.”


Market Report Gauntlet: Elliman Report Q2-2019 Westchester, Putnam & Dutchess Sales

We just completed “week 2” of our four-week quarterly market report gauntlet for Douglas Elliman, part of the expanding Elliman market report series I’ve been authoring for the past 25 years.

Let’s start with Westchester County, New York, an affluent suburban market to the North of New York City.

• Elliman Report: Q2-2019 Westchester Sales
• Elliman Report: Q2-2019 Putnam/Dutchess Sales

Wall Street loves Westchester housing news because many in the securities industry live there. The Bloomberg coverage of our Westchester research was the third most read story on the 350,000± Bloomberg Terminal subscribers worldwide.

Even more fun – a chart, obviously.


Here’s an outline of the northern counties and some charts

______________________________________________________
WESTCHESTER SALES MARKET HIGHLIGHTS

“Countywide sales continued to expand as price trend indicators showed mixed results.”

– Countywide sales have increased at a rising annual rate for the fourth straight quarter
– The largest annual sales growth occurred in the $800,000 to $1,000,000 range
– Co-op and condo sales gained market share over single and 2-4 family sales
– Single family sales surged and outpaced the rise in listing inventory
– Single family listing inventory expanded annually over the past five quarters
– Luxury single family price trend indicators fell short of year-ago levels
– Luxury single family listing inventory declined annually for the third time in four quarters

And who wouldn’t like being superimposed on a chart?



_____________________________________________________
PUTNAM SALES MARKET HIGHLIGHTS

“The second fastest paced quarter in fifteen years.”

– Median sales price increased year over year for the ninth straight quarter
– The number of sales rose annually for the third time in four quarters
– Listing inventory fell year over year for the second time in three quarters


______________________________________________________
DUTCHESS SALES MARKET HIGHLIGHTS

“The surge in sales overpowered the growth of listing inventory.”

– Median sales price declined year over year for the first time in nine quarters
– The number of sales rose year over year for the second time in three quarters
– The pace in the market moved sharply faster than the same period last year


Market Report Gauntlet: Elliman Report June-2019 Manhattan, Brooklyn & Queens Rentals

Despite an uptick in the Manhattan sales market, the Manhattan rental market continued to show strengthening trends. Incidentally, the new rental law passed in Albany has not played a role in the open market rental market yet that would show up in the trends.

But I digress.

The city rental market continues to see rising rents and falling market share of concessions. Rents are rising.

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

Because I’m partial to charts, here’s the Bloomberg story featuring our research that ranked 16th most read yesterday worldwide:

Here are some of the key observations and charts for each borough.

______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“Landlord concession market share continued to decline but remain a significant part of the rental housing market calculus.”

– Landlord concession market share declined year over year for the fifth time in six months
– The net effective median rent has risen annually each month since the beginning of the year
– Rent growth skewed to smaller apartments as market share gains skewed to larger apartments
– New development median rent increased at three times the rate as existing median rent
– Median annual rent gains were most pronounced in the 61% to 90% price strata
– The lowest year over year price growth was seen in the luxury and super luxury markets



______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“The market continued to pivot away from concessions as rental prices continued to rise.”

– Concession market share declined annually for the sixth straight consecutive month
– All three face rent trend indicators have been rising annually since July 2018
– Net effective median rent rose year over year for the seventh consecutive month


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

[Northwest Region]
“Rental prices pressed higher as landlord concession market share declined.”

– The annual change in concession market share fell sharply for four consecutive months
– Net effective median rent rose annually for the seventh time in eight months
– New development concessions have experienced a more pronounced decline than concessions for existing rentals


Market Report Gauntlet: Elliman Report Q2-2019 Brooklyn, Queens & Riverdale (Bronx) Sales

Here are some key observations on these three NYC sales markets.

______________________________________________________
BROOKLYN SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2019 Brooklyn Sales

“Although median sales price reached a new record, sales slipped annually for the sixth straight quarter.”

– Median sales price set a new record this quarter for the seventh time in three years
– The number of sales declined year over year for the sixth straight quarter
– Listing inventory expanded annually for the fourth consecutive quarter
– Sales from $1-2 million and $4 -10 million were the only price strata to see an increase
– Luxury listing inventory increased year over year for the fifth consecutive quarter
– New development sales surged as price trends showed mixed results

______________________________________________________
QUEENS SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2019 Queens Sales
“Price trend indicators flirted with records as sales continued to slip.”

– Median sales price rose annually to the second highest on record and thirteenth quarter without a decline
– The seventh consecutive quarter with a year over year decline in sales
– Listing inventory increased annually for a ninth straight quarter
– Co-op median sales price reached its second-highest mark after setting records in six of the seven previous quarters
– All 1-3 family price trend indicators rose year over year for the thirteenth straight quarter


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

Elliman Report: Q2-2019 Riverdale Sales
“Price trends pressed higher as sales fell short of year-ago levels.”

– Median sales price rose year over year for the fifth straight quarter
– Number of sales fell annually for the fourth time in five quarters
– Listing inventory moved higher year over year for the fourth consecutive quarter

Albany Legislators Need To Consider Economics For Future Tax Revenue

Since last fall, the Albany legislature has turned New York’s real estate environment upside down. Best intentions I’m sure, but no evidence of understanding of how a real estate economy works, which is needed to generate the revenue needed to fund an expanding budget. Worst of all we’ve seen this movie before (1960s, 1970s and 1980s).

Failed Amazon Deal in Long Island CityThe outcry against it was based on a false common lack of understanding that the city was going to outlay billions to a rich company, when in fact the tax break was coming out of the additional revenue Amazon would provide.

Proposed/Failed “Pied-a-terre tax” – I was reading The Real Deal online this morning and a video with me speaking popped up! It was from March and I had forgotten about the interview – my short term memory is pretty weak. The overturned proposal would have decimated real estate development and investment.


The updated mansion tax and transfer tax – placed a wet blanket on an already struggling new development market. Because the high-end market was so weak, sellers and developers will be forced to cover the cost. The real damage to the market is the global image NYC is creating as a hostile place for investment.

The new rent law – the changes will ultimately decimate the multifamily sales market and effectively end all building improvements. We are already hearing about layoffs of construction workers by landlords who upgraded apartments as they became vacant. State legislators removed all financial incentives to renovate a multifamily property in New York State, likely crushing the multifamily sales market going forward. We are hearing that landlords are stopping renovations – look for the quality of affordable housing stock to deteriorate over the coming years. A repeat of the In Rem housing crisis of the NYC metro area of the 1970s and 1980s is here.

Econ Insight Episode 41 — Real Estate Boom or Bust?

My friend Alex Heil, Chief Economist, Planning & Regional Development of The Port Authority of New York and New Jersey asked me to do another podcast but this time it was culled from my multi-agency presentation at the Port Authority – they step you through my presentation and inserted some of my audio. My first podcast for PANYNJ was back in September 2015 right after the market peaked: Housing and the Metro New York Economy

If you’re not signed up to “Econ Insight” by the Port Authority, it is a good idea to subscribe to their newsletters and podcasts for great monthly snapshots and other insights on the NYC metro area regional economy.


[click anywhere on the image to play podcast]

Here is the first page of June PANYNJ Monthly Economic Indicators newsletter which provides some of the information from my presentation. Great info on these pages every month.


Realogy Sues Compass, Realogy Gets Sued By Investors

There was a big Wall Street Journal story this week: Compass Engaged in Illegal Activity, Realogy Lawsuit Alleges

Here’s the formal complaint

This is a good read for all of you non-lawyers out there. Realogy names names and is incredibly direct against the practices of Compass. It really is a good read.

Of course, if you’re a Realogy fan, no good deed goes unpunished. Realogy was just hit with a class action lawsuit.

From the Real Deal today: On heels of Compass legal battle and dwindling stock, Realogy hit with securities fraud suit

Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

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

Taking a break this week

Even though there was a lot of important things to discuss here like the one year North Dakota waiver, I simply ran out of time this week if you haven’t noticed the early content in these Housing Notes.

OFT (One Final Thought)

Speaking as wanna be lobster fisherman, I’ve always loved this song. Who knew that this band would get so popular? Always loved their playful vibe. I was a sophomore in college when this came out and wore out the album. So different than the hairband stuff that dominated the airwaves back then.

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 rock lobster;
  • And I’ll talk a lot.

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


July 5, 2019

The Emperor’s New Clothes In Housing Tech

Be careful who you listen to when it comes to the future of the housing market. It’s not the size of the company/organization or capital raise that matters as real estate undergoes disruption (or pseudo disruption), it’s the depth of their understanding of the consumer and anticipating what the consumer doesn’t yet know what they want. Does the emperor actually wear clothes in all the real estate tech stories you’ve been reading about?

Steve Jobs

“Some people say, “Give the customers what they want.” But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!'” People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

And then there’s the following video – I remember seeing this in real time. I burst out laughing at the time, marveling at how misguided titans of industry can be.


But I digress…

Market Report Gauntlet: Q2-2019 Elliman Report: Manhattan & Northern Manhattan Sales

My readers of Housing Notes know that I’ve been writing an expanding series of market reports for Douglas Elliman since 1994 and it’s a full-on obsession as are charts and data. So here we go.

MANHATTAN SALES MARKET HIGHLIGHTS

Elliman Report Q2-2019 Manhattan Sales

Co-ops & Condos

“First annual rise in sales in seven quarters with buyers motivated to avoid exposure to new tax law.”

– Sales increased year over year for the first time after six quarters of declines
– The most significant rate of annual sales growth occurred from $2 million to $5 million
– Listing inventory rose annually for the seventh consecutive quarter
– Overall price trend indicators moved higher as median sales price set a new record
– Listing inventory for re-sales expanded year over year for the seventh consecutive quarter
– Highest co-op listing inventory total in six years and it exceeded the ten-year quarterly average
– After six straight quarters of annual declines, condo sales rose the most in three years
– The number of luxury sales at or above $10 million rose sharply from year-ago levels
– The first year over year increase in the number of new development sales in nearly two years

Our report results featured on the Bloomberg Terminals home page in “Chart of the Hour”

NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS

Elliman Report Q2-2019 Northern Manhattan Sales

“Apartment sales increased while townhouse sales declined.”

Co-ops & Condos

  • Median sales price rose year over year for the third time in four quarters
  • Listing inventory expanded annually for the fifth straight quarter
  • The pace of the market, as measured by months of supply, was faster than the markets to the south
  • Studio and 2-bedroom sales gained the most market share from the prior year

Townhouses

  • Listing inventory remained unchanged as sales declined
  • Price trend indicators showed mixed results
  • Shorter marketing time with more negotiability

On The Floor of The NYSE, Not Talking About Stocks

After the publication of the Elliman Report for Q2-2019 Manhattan Sales, I was asked to join Cheddar anchors Kristen Scholer and Tim Stenovec on the floor of the exchange. They were terrific to speak with and I appreciated the invite. I was last there in 2007, interviewed by Erin Burnett when she was at CNBC. Back then I got to sit near the president of the Russian natural gas conglomerate Gazprom and his dozen very large bodyguards. This time was a bit different, thankfully.

Update: I forgot to mention the following little moment in this post when I shared my Erin Burnett/CNBC story today – the security guard at NYSE asked me “when was the last time you visited the NYSE?” and I said, “about 10-12 years ago.” He looked it up to confirm and deadpanned, “I’ll bet you remember that I was the guy that took your picture in 2007, right?!?! He and his colleague and I all had a good hard chuckle over that. Moments like this are what I love so much about my job.


Purplebricks Huffed And Puffed But No Match For Big Bad Wolf

Discount real estate broker “Purplebrickshas withdrawn from the U.S. after losses nearly doubled this year and their stock price fell 75%. They entered the U.S. housing market in 2017.

The Purplebricks web site claims they save their customers an average of 40%. If that claim is actually true and they failed in the U.S. market, then there is clearly something else to this firm’s U.S. collapse.

This story reminds me of Foxtons YHD back in 2007. Technology firms proliferate in boom markets and many become challenged in their first down market.

Here is what I had to say back then (shout out to @johnwake for reminding me!):

From my Matrix Blog in 2007 as the housing market was beginning to stall – Foxtons: Cutting Commissions = Watching MTV

National Housing Stats Still Look Good

From Black Knight (worst corporate name ever) via Basis Point

Pipelines & Weathervanes: New Development Deliveries Define Market Outlooks

Mansion Global does a good job showing the future incoming new development supply for Manhattan (using our data) and Miami.

The Manor: This Week in Aspirational Pricing

Let’s recap:

$85 million – cash purchase in 2011 – was in good condition but was upgraded for $20M subsequent to sale towards more a contemporary style.

$200 million – Original list price
$160 million – Last list price (20% price cut)

$119.75 million – Sales Price (price cut: 40% from original, 25.2% from last list)

With $105 million invested (cash purchase + renos), the seller made 1.76% per year on the sale. For the excessive risk, this seems like a terrible financial strategy all around.

Cheddar: How Property Taxes Are Calculated On Billionaire’s Row

Since Cheddar came up earlier here, I thought I’d share this clip:


Getting Graphic


Our favorite charts of the week of our own making

Notice our chart redesign? We finally packed up our Crayolas…

Appraiserville

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

Location Update: ASC Special Meeting – North Dakota Temporary Waiver Request Thursday, June 13, 2019

UPDATE I just learned of this meeting update after sending out my Housing Notes:

The ASC will hold a Special Meeting on Tuesday, July 9th at 10:00 a.m. to consider the Temporary Waiver Request submitted by North Dakota. The Meeting will be held at 1100 New York Ave NW, Suite 200 East, Room: 2 A/B (Partnership for Public Service). If you plan to attend this Meeting, please send a request to Meetings@asc.gov.

If any of you can attend this meeting, please do! It is critical that the appraisal industry shows its strength in numbers – this proposal by North Dakota is a travesty for its damage to the public trust, the attack against the consumer, and fraudulent premise.

AVMs Are Not Understood By A Large Swath of Non-Appraisers

Here is a NAR deck on AVMs (automated valuation models).

Here are some recent survey results that show more than half of the respondents indicated, it is either NEVER appropriate or NOT SURE if it is appropriate for a non-appraiser to perform a valuation on a home.

So the jury is still out for a third of respondents but a third are absolutely sure it is inappropriate. One can infer that appraisers have an opportunity to convey what AVMs really are to the public.

OFT (One Final Thought)

All three videos are fake, but which one scares the heck out of you?

via GIPHY

via GIPHY

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 bowl with robots;
  • You’ll learn to love pipelines;
  • And I’ll chat on the trading floor without bodyguards.

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


June 28, 2019

The Basis Point Analogy of Swings in the Housing Market

I was out the office this week from Tuesday through Thursday and gearing up for the “Q2-2019 Market Report Gauntlet” that begins early next week, so some of my tweets did the heavy lifting.

NAR’s non-seasonally adjusted existing home sales rose year over year for the first time after eight months of annual declines. The ±75 basis point drop since this time last year had a lot to do with the growing momentum in the swing towards more demand. As more basis drops onto the market rope, participants jump into the market from their safe platforms as enthusiasm grows. The lack of inventory weighs down the participants with more price risk until everyone gets soaked. Hopefully, no one gets hurt but our valuation model ended unexpectedly so we aren’t sure how this plays out.

Illustrated…

But I digress…

New York State Rent Law Will Be Challenged as a ‘Taking’

Because of the new rent law’s perceived overstep by multi-family building owners, we expect to see a lot of litigation in the future. I can’t emphasize how catastrophic this will be to the New York City housing stock as the law is written. This was a good-faith effort to preserve affordable housing but it will likely create several outcomes detrimental to the original intent. I’ve written on this before but have had more time to process the ramifications:

  • Jump in cap rates which would crush multi-family building values because all incentives for rental price upside by making capital improvements have been eliminated, sending NYC back to the “In Rem” housing crisis of the 70s and 80s, where the landlords, especially small building owners, walked away from their buildings. Constrained by caps on rent increases as expenses rose faster removed all incentives for ownership and maintenance. This is a repeat scenario
  • Sales of multi-family buildings will essentially stop as the incentive for ownership has been removed
  • Construction of new rental buildings will fall sharply given the loss of incentives and the harsh anti-landlord political zeitgeist
  • With the removal of ownership incentive, the number of rent-regulated apartments will decline as rental to co-op conversions jump. Perhaps not as frenzied as the 1980s boom but there should be more of this. Current public commentary on this issue is being made by developers who have no experience in this new world
  • Rental conversion to co-op will expand despite the 51% from 15% new requirement for insider votes. The reason? Back in the 1980s I recall that a large portion of conversions during that boom era saw greater than 51% conversions despite the 15% threshold because Fannie Mae financing required it
  • Rental housing stock will decline as conversion activity rises. However, the unintended consequence of the conversion activity will bring more affordable “for sale” housing stock to the market, something sorely lacking before the law change. The 51% ensures that insider discounts will be closer to 50% than nominal discounts from the outsider price. Also, the insider pricing of those fortunate 51 percenters will enjoy instant equity to fuel additional housing sales
  • The city is highly dependent on real estate transfers so the drop in multi-family sales volume could reduce real estate tax revenue to a city that is expanding spending at a record break pace to resolve issues like transportation infrastructure. Spending will need to be cut back or borrowing will need to increase.
  • The City of New York’s reputation worldwide has already taken it on the chin by creating an anti-development, anti-investment reputation from the failed Amazon deal, proposed but withdrawn “pied-a-terre” tax, the new transfer and mansion tax and now the new rent law, all within the last 9 months. That’s tough to undo and is brand damaging to the City.

The first sign of an industry push back will be a lawsuit to be filed in mid-July where it takes the form of government property “taking”.

It’s unclear whether Cuomo will be named as a defendant, but the case will argue that his new rent law violates owners’ constitutional right against the “unlawful taking of property,” sources said.


It’s Not Like Nothing Is Selling

This Bloomberg story illustrated how important context is when measuring value, even when the comparison is a little out of context. A new development on the Upper West Side configured as a rental building with smaller units in the configuration, is in close proximity to Billionaires Row. The marketing narrative is to show how much less expensive this new condo project is than ‘Billionaires Row’ pricing even though it is in close proximity. However, it doesn’t have the same expansive views or the height than most of the Billionaires Row units have. But it does introduce additional smaller condo units to the market and that is a refreshing change from the steadfast overemphasis on super luxury units far into this market cycle.

Are People Still Flipping?

Yes, they are but in places you wouldn’t expect. When I read this U.K. WSJ article on condo flipping activity: British Contract Flippers Stymied by Faltering London Market, I was taken aback at the volume scale of property flippers in the Brexit UK. I wanted to say “Doh!” to the title but was amazed at the scale of the flipping activity.

But my tweet paid homage to the structure that was being converted. Think “Pigs on the Wing.” The lyrics kinda provide a visual for the end of a flipping era.

Getting Graphic


Len Kiefer‘s Chart Handiwork

Not the word “exemption” in 2019 i.e. $10k cap on SALT.

Appraiserville

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

THE COMMENT PERIOD ON NORTH DAKOTA’S REQUEST FOR A 5-YEAR WAIVER IS EXPIRING SOON!!

All appraisers need to provide their opine on this request. It is obvious why its a disaster and you need to share why right NOW to show our industry is concerned!!! At last count, there were only 24 comments!!!

Click here.

Incomplete Data Provides Incomplete Assumptions

In meetings with the National Association of Realtors and The Appraisal Foundation this week, there was a lot of time spent listening to AVM owners espousing their importance and more sober observations of the pitfalls. One of the presenters seemed to be bragging that 90% of the time, a good Automated Valuation Model (AVM) can be within plus/minus 10% of the actual value. Remember that Zillow’s Zestimate is within 5% of the actual value only 50% of the time. Both numbers are very dreadful and very random inconsistency across the marketplace.

But still, there is a place for their use in conjunction with appraisers, just not to the intensity being touted now, especially as their data gets polluted going forward by the impact of waivers.

Here’s a simple scenario on how data pollution works and in large scale has the potential to cause bubbles in the future – a sales transaction is given a waiver by a GSE and the sale happened to sell for 5% above current market conditions. That sale closes and is used by AVMs AND BY APPRAISERS as a valid comp. Multiply that by tens of thousands of transactions and we are creating unnecessary market volatility.

There was an excellent guest speaker from Columbia University, Josh Panknin who made the following observations about “big data” and the current wiz-bang “overhype” that seems to be threatening the future of appraisers.

  • Computers can’t fill in the blanks
  • Computers can’t do qualitative (my interpretation- i.e. views and condition despite UAD).
  • Incomplete data give us incomplete answers (so throwing more data at big data does not resolve that problem).

He also used a “turkey sandwich” metaphor for AVMs.

The quality of this sandwich of bread, cheese, turkey, and mayo get better by improving the quality and components, not by moving around the items.

In other words, we don’t improve quality by simply swapping out technologies.

Sidebar: AVMs Have Trouble Considering Natural Light

Josh Panknin also provided a paired sales discussion about differences in natural light.


Maureen Undoes The Misrepresentation of Appraisals At The House Panel

Chicago appraiser and friend (even though she calls me “fancy pants”) writes a stellar explanation of what an appraiser actual does – and what one of the panel experts got completely wrong because he didn’t understand our role in the mortgage process:


Greetings Congresswoman Waters, Chairman Clay, Ranking Member Duffy, Ranking Member Gooden, and the Members of the Housing Subcommittee:

My name is Maureen Sweeney, and I am a real estate appraiser. I grew up in a real estate family and lived through the savings and loan crisis of the 1980’s, which had a profound impact on my life. I witnessed first-hand illegal and unethical behavior in the real estate and mortgage industry towards homeowners. Through that experience, my greatest concern was, “who is protecting the public?”. In 1989, Congress enacted Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). With this decision by Congress, I decided I wanted to be an appraiser. The appraisal profession was and still is the profession in the mortgage industry that promotes and maintains the public trust in housing finance. We are the first profession in the mortgage industry that was licensed, and we are the only profession that is regulated by Congress.

Because of FIRREA, all appraisers who develop opinions of value for federally related transactions must follow the Uniform Standards of Professional Appraisal Practices (USPAP). What was originally intended as assignment conditions for federally related transactions is now partially or fully embedded in all states’ appraisal laws.

USPAP states in the Ethics Rule, “An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that the homogeneity of such characteristics is necessary to maximize value.” (Lines 200 – 202, USPAP 2018-2019 Edition © The Appraisal Foundation). The Fair Housing Act of 1968 prohibits discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, or sex. All states have laws that prevent discrimination. If an appraisal professional basis their assignment results on race, they can lose their license and may go to jail.

Appraisers develop the Valuation Process in each of their assignments. Each step in the Valuation Process builds on the previous step, so at the end of the report, there is a logical conclusion so those who rely in the report can understand how the assignment results came to be. This 8-step process includes:
1) Identifying the Problem; this includes determining who is the client, who are those who can rely on the assignment results, why is the report needed and how will it be used, what is the effective date of the assignment, what are the characteristics of the property such as the address or legal description, and what are the assignment conditions.
2) Determine the Scope of Work: this is the type and extent of research and analysis in an assignment.
3) Data Collection and Property Description: this is the step where appraisers collect data on the market, data on the subject property, and all data on comparable sales and listings that will be used in the report.
4) Data Analysis: this step includes determining the Highest and Best Use of the property as well as analyzing the market of the subject property. In this step supply and demand are analyzed, inventory levels and marketing times are determined. The data is verified. When appraising for federally related transactions, the closed sales data must be verified through two independent sources, such as the local multiple listing service, the recorder of deeds, or local newspapers.
5) Site Value Opinion: In this step, the appraiser determines the cost of the land where the property is located.
6) The Applications of the Approaches to Value:
a. Cost Approach: this step derives value by estimating the current cost to construct a reproduction or replacement of the existing structure, including entrepreneurial incentives, deducting depreciation from the total cost, and adding the estimated land value. How much does it cost to build the same or similar property? The Cost Approach addresses this question.
b. Sales Comparison Approach: this is the process of deriving a value indication for the subject property by comparing market information for similar properties with the property that is being appraised. The sales comparison approach is based on the [principle] of substitution, which states that a buyer will not pay more for one property when several similar properties are available; the property with the lowest price will attract the greatest demand. What’s my house worth when compared to my neighbors? The Sales Comparison Approach addresses this question. c. Income Capitalization Approach: this step converts income to value. How much money can I make from this property? The Income Capitalization Approach address this question.
7) Reconciliation of Value Indications and Final Opinion of Value: in this step the appraiser analyzes the information reported previously in the valuation process and selects a final opinion of value, which may be a value range or a specific number. If the market is oversupplied and prices are declining, the final opinion of value may be on the lower end of the value range. If the market is undersupplied and prices are rising, the final opinion of value may be on the high end of the value range.
8) Report of Defined Value: this is the last phase of the valuation process. The defined value is stated as of the effective date that was identified in Step 1.

All appraisals have a signed certification. The certification states that the appraiser has personally conducted the appraisal in an unbiased, objective manner in accordance with USPAP. The certification states what the appraiser did or did not do. A signed certification is important because it clearly states the role of the appraiser, thereby clarifying that the appraisal was done by an individual who is impartial, objective, and unbiased. The certification must be signed by the appraiser. Once signed, the appraiser is legally bound to the appraisal.

On June 20, 2019 at the U.S. House of Representatives Committee on Financial Services, Subcommittee on Housing, Community Development, and Insurance at their meeting: “What’s Your Home Worth? A Review of the Appraisal Industry.” Mr Andre M. Perry was one of the five witnesses to testify. Mr. Perry is not a licensed appraiser, yet Mr. Perry concluded that “owner-occupied homes in black neighborhoods are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses.” As an appraiser who deals with data, I was very interested in his claim, as well as the basis for his conclusions.

In Mr. Perry’s written testimony, page 2, Figure 1, titled “Neighborhood median home value by black population share”, Mr. Perry data sources were property listings from Zillow and the value estimates provided to the Census Bureau. Mr. Perry did not provide values determined by licensed appraisers or any apparent recognized valuation method or technique. Zillow was sued in Illinois in 2017 (Vipul P. Patel., et al., v. Zillow, Inc and Zillow Group, Inc., Case No. 17 C 4008) and appealed in 2018 (United States Court of Appeals for the Seventh Circuit No. 18-2130). Zillow explicitly points out that Zestimate does not constitute an appraisal and is what it sounds like, an estimate. An estimate is not an appraisal, nor does it resemble any method or technique recognized by Congress or regulators. An appraisal is, “(noun) the act or process of developing an opinion of value; an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.” (Lines 59 – 60, USPAP 2018-2019 Edition © The Appraisal Foundation).

In his written testimony to your committee, Mr Perry notes on page 2, Figure 1 that the 2016 median list price was provided by Zillow. List price is what a seller is offering their property for sale. List price is not sale price. Sale price is a fact; list price is a suggestion. Rarely do properties in a balanced or declining market sell for above their list price. List price to sale price ratios were not profiled or discussed in Mr. Perry’s study, nor was any final sale price data referenced or profiled. In Figure 1 of his written testimony, Mr. Perry used “Census Bureau” for Median Value, rather than sale price data or appraiser’s conclusions. The Census Bureau is not a valuation agency and obtains their data via a survey. Per the U. S. Census Bureau, the market value is, “the respondent’s estimate of how much the property (house and lot) would sell for if it were for sale.” (https://www.census.gov/quickfacts/fact/note/US/HSG495217 ). An estimate is not an appraisal. [Homeowners] may or may not know the true value of their properties, because they are not valuation professionals, and they have a personal interest in their property. With only Zillow’s list price data and the Census Bureau’s homeowner estimates of their property’s worth, the study lacks any reliable value indicators. None of this data supports discontinuing the use of individual appraisers in preference for using Automated Valuation Models, as Mr. Perry suggested in his opening statement and throughout the hearing.

Is there a problem with poor and underserved communities in the United States? Yes. Is it the appraisal profession’s fault? No. The systematic practice of redlining (licensed broker issue), loan rejection (lending issue), and property taxes (assessor and county taxing agency issue) have nothing to do with the appraising of real property for federally related transactions. Entire neighborhoods fell victim to predatory lending, subprime mortgages, and mortgage fraud, with most of the mortgage loans generated with loan amounts below the de minimis of $250,000, which made them qualify for appraiser-alternative products, including AVMs. There were a whole lot of non-appraisal related issues presented in Mr. Perry’s data. It’s sad that the label of racism got pinned on the only profession in the mortgage process who is charged with protecting the public trust.

It’s like blaming the canary for the bad air in the coal mine or blaming the mirror for your bad hair day. Appraisers reflect the market; we do not create it. We observe, we verify through credible sources and analyze our data, and we report our findings in a manner that is meaningful and not misleading.

It comes down to data and how the data is collected and analyzed. In his opening statement, final statements, and throughout the hearing, Mr. Perry championed the use of AVMs. None of the data presented by Mr. Perry in his written testimony to this committee supports the discontinued use of individual appraisers over AVMs. This presents a question: since Mr. Perry relied on data from AVMs and Zillow, is race baked into these systems and their data? Algorithms and machine learning are built on historical data, which is primarily human driven. Machines may and have been shown to amplify bias in data. If racism has been perpetuated for decades in real estate, then it’s baked into the system and the data, therefore what kind of data will we get from the machines? Some hope that Big Data will save us from the mistakes made by humans. The humans who provide valuation services are licensed by their individual states and regulated by Congress. The licensed humans can lose their licenses, get heavily fined, or go to jail for unethical or incompetent appraisal practices. Who’s regulating Big Data when Big Data makes mistakes?

Today we know that 85% to 90 % of all mortgage transactions backed by the federal government and U.S. taxpayers are currently not subject to the protections Congress enacted through Title XI. Big Data companies that provide AVMs are not regulated. Their valuation process and sources of information are not verified, regulated, or publicly available. How does relying on an unregulated private industry running aggregation models protect the public trust? I don’t believe it does.

The appraiser is central to the checks and balances in the home lending system. The appraiser is hired by the lender to ensure that there is value in the property being used as collateral by the lender to provide funds to the borrower. The licensed broker/Realtor negotiates the price of the property, but they are not qualified or licensed to determine the value. Providing valuation services is the appraisal professional’s job. The appraisal professional provides checks and balances in the housing system, as the appraiser is entirely unrelated to the transaction and is not paid based on the amount of the valuation nor contingent on the closing of any loan.

Public trust is key in promoting the stability in the housing market. The continued reliance of unregulated aggregators and bifurcated products continues to erode the public trust at the expense of discarding the profession specifically intended to promote the public trust. How does this protect the public? The appraisal profession is at risk with this policy change. More important: the public is at risk with this policy change and the continued lack of reliance of the appraisal profession.

David Bunton from The Appraisal Foundation said it best to this committee: “The last thirty years were witness to federal agencies doing their best to circumvent using these trained professionals. Likewise, the government sponsored enterprises are taking on riskier practices that leave appraisal protections on the sidelines. Through exemptions, appraisal waivers, promoting evaluations in lieu of appraisals, and encouraging lenders to use unlicensed individuals, the federal financial institutions regulatory agencies estimate that a mere 10 to 15 percent of all mortgage transactions backed by the federal government and U.S. taxpayers are currently subject to the protections Congress enacted through Title XI. ”

I ask again: How does relying on an unregulated private industry running aggregation models protect the public trust? It doesn’t. The reliance on Big Data, the acceptance of hybrid and bifurcated appraisal reports, the potential rising of the de minimis from $250,000 to $400,000, and the lack of hiring the profession that is charged by Congress to promote and maintain the public trust in the housing industry, is a bad direction for our industry and our country. Please do all in your power to protect the citizens of the United States and prevent the next housing crisis.

Thank you for your time, your service, and your continued interest in protecting the public trust.
Maureen Sweeney

OFT (One Final Thought)

This photo shows how serious and good library humor can be (I’ve got all the 1960s Batman TV shows on my iPhone). Just ask my wife about libraries and humor. Our first date was at the university library and she thought I was kidding – but I had a paper due on Monday.


Brilliant Idea #1

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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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