May 17, 2019

Squirreling Away Our Housing Data

This happens every…single…day.

But I digress…

Hamptons Sellers Are Starting To Get The Message

Michael Kolomatsky of the Calculator column in the New York Times real estate section crafted a cool infographic for this weekend using data from the Douglas Elliman‘s Hamptons Sales report that I author. The gist of it is that sellers are slowly pricing closer to market causing days on market and the listing discount to compress somewhat. This faster moving pattern is in sharp contrast to sliding price trends, declining sales, and rising inventory. The narrative in this market clearly reflects a slowdown, but with a vibrant regional economy, the buyers are here, but unwilling to pay at price levels of a few years ago.

And there’s more to the high-end Hamptons story – here are a few others from this week:

In the High-Flying Hamptons, Real Estate Is in a Rut [New York Times

Chinese-Inspired Hamptons Home Resurfaces for $20 Million Less [Wall Street Journal]

From the beginning of Kathy Clarke’s WSJ story:

Amid a slow market, a Hamptons home with lots of China-inspired features is returning to market for $7.9 million—less than a third of the $28 million it briefly sought six years ago.


To the end of this WSJ story (sorry for inserting one of my quotes):

“This is a classic aspirational pricing story,” said appraiser Jonathan Miller. “Certainly we’re seeing some softness in pricing, but no where near what that price cut represents. It shows you how wildly overpriced many properties were during that period of peak luxury.”


Inside Edition TV: The Fifth Avenue Retail Apocolypse?

Real estate brokerage firm Cushman & Wakefield wrote a research piece on the prime Fifth Avenue retail corridor from 49th Street to 60th Street that was covered in a widely read Wall Street Journal article called Fifth Avenue Losing Luster as Vacancies Climb, Rents Fall. The following chart was in the WSJ article. Luxury real estate here peaked at about the same time.


Inside Edition reached out and asked me to take a stroll with reporter Les Trent on Fifth Avenue to talk about the state of luxury retail. Les was great to speak with and like a true pro, he had access to sidewalk chalk (see video). I think I am in a lot of tourist pictures as they were snapping my picture as we strolled up and down Fifth Avenue.

If you’ll notice in the video and article, all the vacancies were related to the fashion/clothing industries. The 1 out of 4 storefront vacancies – essentially 1 empty storefront on every block – is not reflective of NYC retail employment patterns, but simply the pullback of clothing/fashion industries from high-end retail locations as they place more resources toward their online presence.


[click to play]


Lower Priced Ground Floor Apartments Come At A Cost

The always must-read “Ask Real Estate” New York Times column by Ronda Kaysen had a great Q&A about a ground floor apartment.


The 123 comments so far on the column say it all, especially this one:

What’s more important to the both of you? Your safety or ventilation? Get a security gate and he should pay for it or a new boyfriend who cares more about you.

In my experience confirmed using empirical evidence, ground floor Manhattan apartments usually go for 10% to 15% less than the identical apartment a few floors higher. Why?

UBS Bubble Index: New York and Boston Slightly Overpriced, Hong Kong Wildly Overpriced

I know this info is a tad dated, coming from an October 8, 2018 post on Visual Capitalist, but the UBS Global Real Estate Bubble Index still relevant and fascinating:


Wolf Bites: Rent Regulation and the Value of Townhouses

I’ve known and followed the writings of Manhattan real estate broker Wolf Jakubowski for years. There is a big movement in Albany towards additional rent regulations and this will have an impact on the Manhattan townhouse market. Here is his view from his “Wolf Bites” newsletter.


U.S. Economic Stats Seem Strong, But Why Doesn’t It Feel That Way?

My friend, author, appraiser-colleague and author-appraiser-colleague-friend Maureen Sweeney shared this thread:

Open and be sure to read this entire thread. Anecdotal takeaway: U.S. Companies, despite strong earnings and lots of cash, are unusally nervous.


Getting Graphic

Len Kiefer‘s Chart Handiwork and here.

Upcoming Speaking Events

Appraiserville

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

Maureen Sweeney Wrote A Book!

My friend and Chicagoland appraiser Maureen Sweeney, SRA, AI-RRS, IFA, CDEI wrote an essential book on valuation, outside of the single family realm. The Valuation of Condominiums, Cooperatives, and PUDs is available at the Appraisal Institute web site.

I purchased the PDF version so I can refer to it on my iPhone while inspecting a co-op or condo which comprises 98% of my residential market (Manhattan). Just kidding. Yes, I purchased it but I won’t refer to it during the interior inspection. I’ll read it while I’m walking to and from my inspections.

New York RICS Conference – Session on Big Data

My friend and Head of Valuation for Natixis CIB, Cate Agnew, CRE, FRICS, CCIM, MAI, spoke on a panel of U.S. valuation leaders on the topic of big data at the recent RICS conference in New York. It was a fascinating discussion about “Big Data” with a mixture of “gee whiz” and “wait a second.”

It became quite apparent that big data aggregators there were arguing that even if they don’t have access to private data essential for valuing income property reliably, they would simply get more data and would be able to achieve an accurate result. I find this line of thinking completely misleading and self-serving. More raw data is not always better. Remember that aggregators like Zillow, Costar and others have no economic incentive to be accurate. They solve any problem with simply providing more data. Think about what is happening now in the real estate space. The aggregators are enjoying higher valuations while the actual providers of the raw data are losing value. Wait until blockchain becomes a force. All the aggregators will become irrelevant.

Appraisers are also providers of raw data and aggregators like CoreLogic or AMCs like Servicelink will be irrelevant down the road when blockchain gains critical mass. Otherwise, the service providers will eventually go bankrupt and these aggregators won’t have a data source. The current big data model, by definition, is not sustainable.

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 begin on the ground floor;
  • You’ll go to the Hamptons;
  • And I’ll text in the right lane.

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


May 10, 2019

iBuyers Are Here, But We Still House Antisocial Feelings

I’ve been taking the commuter train from Connecticut into Manhattan since 1990 and much of my daily ride was full of open newspapers before handheld devices became ubiquitous. The morning read of the car tended to be NYT/WSJ/FT and the evening was the NYPost/NYDailyNews as well as a thorough handwashing to remove the black ink:


But I digress…

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

Real estate giant Douglas Elliman released our research today for the April rental market covering Manhattan, Brooklyn and Northwest Queens. This market report is part of the expanding Elliman Report series I have been authoring since 1994.

Elliman Report: Manhattan, Brooklyn & Queens Rentals 4-2019

MANHATTAN
“Rental price trends in the entry tier pressed higher, overpowering the high-end market.”

  • The net effective median rent rose year over year for the fourth consecutive month
  • Landlord concession market share fell sharply, the third year over year decline in four months
  • The vacancy rate edged higher year over year for the first time in eleven months
  • Market share of leases above $10 thousand per month moved higher
  • All luxury price trend indicators moved higher than year-ago levels

Bloomberg included two charts (a twofer!) so that needs a shout out. Click on either for the Bloomberg coverage.


Here are some of our Manhattan charts.

BROOKLYN
“The decline in market share of rentals with concessions continued to accelerate.”

  • The year over year change in the market share of concessions continued to decline
  • New leases rose year over year for the fourth time in five months
  • Net effective median rent increased annually for the fifth straight month

These are some of our Brooklyn charts.

NW QUEENS
“Landlord concession market share fell sharply from the year-ago record.”

  • Market share of landlord concessions fell year over year for the second time in eight months
  • Net effective median rent expanded year over year for the fifth time in six months
  • Studio and 1-bedroom rental leasing grew as 2-bedroom rental leasing fell

These are some of our Queens charts.

My Views on the Value of Views

There is an epic New York Times real estate cover story out today that will be available in print this weekend that covers my takes on the impact of views on value and the philosophy behind it. These insights were developed during our appraisal firm Miller Samuel‘s 33 years of existence and tens of thousands of appraisals completed by our team. Both the photos and the write-up were terrific and I’m super proud to be a key part of this story. Click on the image to read the story and see more photos.


“Flip” is the New 4-Letter Word

Many young investors haven’t seen a declining market and took excessive risks. With the proliferation of flipping shows (mostly shot in Canada BTW) who can blame them? It was not so long ago that we were all talking about how young people had never seen a rising housing market.

The changes in some markets are quite pronounced making flipping inherently a bad idea.

Some Analog Thoughts About The iBuyer Industry

Ben Casselman pens a great piece in the New York Times: Real Estate’s Latest Bid: Zillow Wants to Buy Your House. If you click on the tweet first (not the link to the article) you get a great thread that breaks it all down.


Aspirational Pricing Illustrated

There was an article in the Wall Street Journal: Miami Condo King Brought Back to Earth by Luxury Home Price Correction on setting listing prices in Miami from the perspective of one of the most prolific developers there, George Perez of Related. Here is the history of the penthouse he owns at the development he built known as 1 Collins in Miami:

2016 purchased $4.23M (assuming as the developer, he got a deal)
2016 listed for $20M
2019 dropped the price to $10.95 million

Bloomberg Masters in Business Podcast: Ivy Zelman Discusses Real Estate

This was a twofer – two of my good friends talking about the real estate market and I get a shoutout! Ok, ok, that’s not why I’m sharing this. This was a really enjoyable listen on the topic that drives you to read Housing Notes – you’ll get a sense of how Ivy has been so darn accurate during her career and what she sees now.


[click to open podcast]

Visualizing Monthly Mortgage Payments

Another great “Howmuch.net” visual on mortgage payments. The idea that the average payment in Santa Cruz, CA is $2,940 and in Coffeyville, Kansas is $205 – is mindblowing.


[click to read their post]

Getting Graphic

Our favorite charts of the week

One of the hopes of housing market observers is for continued growth in wages after falling behind housing price gains. Wages are clearly rising but the rate of growth is leveling, which is especially disappointing after the large stimulus insertion into the economy by the tax cut in 2018.


[Wall Street Journal]

NY Fed: The probability of U.S. Recession as predicted by Treasury Spread was 27.5% in April.

Len Kiefer‘s Chart Handiwork

Appraiserville

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

Protect Appraisal Report Integrity By Delivering Locked PDFs

Obviously, it is easy to unlock a pdf report, but we lock every report as an effort to maintain report integrity. This should be a regulatory requirement. Periodically we have seen reports we delivered electronically that ended up being modified to the client’s needs.

This almost happened a week ago.

My firm received this request from Servicelink on a BoA request. In accordance with the new AMC law in New York State, we are including the invoice with our reports. This was the first report to this particular BOA group since the new law was activated so it is reasonable to assume that the BOA clerk handling the appraisal didn’t know what to do about the invoice and Servicelink was passing along the request. The law itself says the invoice must be delivered with the report which infers but doesn’t specifically state that the invoice should be within the report pdf. I would imagine there will be a lot of attempts by lenders to get rid of invoices out of habit but after a while, once appraisers start seeing invoices missing from the applicant copy when an applicant calls the appraiser, the appraiser needs to complain to the CFPB. I remain skeptical that lenders will be able to sustain a systemic fraud or ignorance to the spirit of the NY AMC law by hiding the invoices from the applicant and risk doing future business in one of the largest mortgage markets in the U.S.

Our client, Bank of America, has accepted both appraisal reports. Unfortunately, they are having issues uploading the documents into their system due to them being locked and password protected. Are you able to modify the permissions to allow printing and unlock the document? Please let me know as soon as possible so we can deliver to the client.

Red flag: How could they have accepted the report but never uploaded it?

I personally tested the pdf they sent back to us as well as our original copy. They both printed as usual so we told them they must have a software issue on their end. We have never had to deliver unlocked reports to this client and as practice. It is ALWAYS inappropriate for an AMC to request an unlocked report. There is only a nefarious reason behind it, even if the requestor themselves have no idea.

Causation, not correlation: The first time we get a request to unlock = first time we attached an invoice.

Here is how we respond to these things:

Thank you so much for the business. We greatly appreciate it!

Miller Samuel does not unlock pdf’s or remove passwords. So we just can’t help in this situation. This is done to protect the integrity of our report as a matter of policy with every client.

Thanks again and we look forward to working with you in the future!


Here’s what Servicelink told us after we said “no.”

We were just looking for a partnership here to try and meet the needs of what is a very important client to ServiceLink.

Until the new New York State AMC Law is fully adopted by the AMC industry, expect to get these requests. Part of the issue is software updates or internal procedural changes and part of it – like this example – is nefarious.

Solidifi Wants Insight Into Your Vacation Time

If AMCs weren’t invasive enough already on appraisers personal lives with overly-frequent status calls and other well-documented and demeaning requests, how about vacation time? In addition to the 37-page boilerplate order request the appraiser is required to read, appraisers now have to fill out another form.

The fact that Solidifi and their competitors are in business to fee out to the lowest bidder makes this request silly because appraisers don’t have that kind of relationship with AMCs. It goes like this. They send out an appraisal request to 10+ appraisers and one of them is on vacation and therefore doesn’t respond. Who cares? In my view, a business that treats its vendors like cattle, can’t call it a professional relationship. In fact, there IS NO RELATIONSHIP. The appraiser as the local market expert is really only a widget to them. AMCs can’t expect to have it both ways. If appraisers weren’t bombarded with paperwork and dogged by phone calls from a 19-year-old chewing gum already then this would not be an issue.

XOME Seems Concerned New York Borrowers Will Find Out How Little The Appraiser Gets?

An appraiser/reader sends me this text from an XOME appraisal request:

“Good Morning, The state of NY requires the appraiser to include their invoice in the report. AMC fee does not need disclosed. Please include an invoice in your report when uploading. Thank you”

This is technically accurate. Here is an excerpt from the NYS AMC Law:

38 (e) Knowingly fail to separately state the fees paid to an appraiser
39 for appraisal services and the fees charged by the appraisal management
40 company for services associated with the management of the appraisal
41 process to the client, borrower and any other payer.

Why would XOME go out of its way to tell their appraisers not to disclose the AMC portion of the fee the applicant paid? This is not a regulatory requirement that I am aware of. My firm includes our invoice at the top of the pdf and the pdf is locked (we don’t work with the XOME platform).

OFT (One Final Thought)

I hate Facebook. This pretty much sums it up.


Brilliant Idea #1

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

  • They’ll be more analog;
  • You’ll be more aspirational;
  • And I’ll be more antisocial.

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


May 3, 2019

Plastic Covers Don’t Hide The Housing Market

I saw this picture on Twitter (NSFW) this week and it brought back many memories. No, not from visiting my relatives’ homes in my youth, but from my six-month stint as a real estate agent in Chicagoland before I became an appraiser in New York City. I was driving to see a listing on the weekly broker tour day, listening to Dire Straits’ “Money for Nothing” on the FM radio, thinking how glad I was to be out of the hospital administration world, just having quit my job. I walked into the home to see all the yellow furniture covered in plastic. The picture also reminded me of a college friend’s home with blue plastic-covered furniture in the “shrine” called the “living room” that was carefully carpet-raked to expose any invasions by their children.


I suppose this photo is a deep metaphor for real estate transparency in some way but I leave that to you. I’m a bit under the weather today and am not at my creative best.

But I digress…

The Manhattan Market Dollars Skewed to Top of the Market

There is a cool graphic from the New York Times Calculator column by Michael Kolomatsky in this Sunday’s print edition of the Real Estate section that illustrates Manhattan’s dependence on high-end real estate. Using the data from a chart I began right after 9/11 and we continue to update, he illustrates this point:

Almost half the money spent by New York City home buyers in the first quarter of 2019 went toward the most expensive properties. That wasn’t always the case.


Billionaires Row Continues to be Challenged

It’s been no secret that super luxury Manhattan sales have been the hardest hit segment of the market since 2014. The slowdown is related to the oversupply of new development created from the vast amounts of capital looking for a home since the financial crisis. Perhaps the most famous representation of the super-luxury market has been “Billionaires Row” centered on 57th Street in the heart of Manhattan’s central business district in Midtown Manhattan. The introduction of supertalls to the skyline has provided never before expansive views to the buyers.

I was asked by the New York Post to provide a snapshot of this submarket. Since contract data is not public record and is easily manipulated, I estimated the state of the key buildings as best I could, using ACRIS for closed sales, Streeteasy contract tags, and feedback from market experts in and around the brokerage community. The result was really no surprise to anyone in the real estate business but because it was concentrated in one place, the story went viral.

Now its time for me to confess. I read the online NY Post article just as I leaving for the airport to speak at an event in Florida. After I arrived at the gate, there was a newsstand with a fresh copy of the NY Post so I bought it to read it on the plane. But I bought it because of the cover story and never gave a thought to the “Billionaires Row” story. After I read the Anthony Weiner story I spotted the ‘Billionaires Row’ Story and saw that it included a table not in the online version. Took a picture of the table and included it above.

NPR Interviews Author of Moneyland

Last year I was interviewed for (and might be included!) in the new book “Moneyland” by author Oliver Bullough. My copy is coming next Tuesday but the topic of kleptocracy fascinates me and I have learned over the past five years that it is far more widespread than people realize.

Oliver was recently interviewed by Terry Gross on NPR.

Journalist Oliver Bullough runs kleptocracy tours in London, in which he points out mansions bought by corrupt foreign leaders and oligarchs. Moneyland describes their secretive transnational world.


Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

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

Analogy: AMCs Are Like Starbucks

There was a great podcast last month from Planet Money and the story sounded familiar.

AMCs are adding more and more services that are NOT appraisals. Automated valuation models, loads of hybrid products and yet, the cost of this service is higher than a traditional appraisal. The NPR show on Starbucks seemed like the perfect analogy.

The cost of coffee beans is going down. So why is a cup of coffee becoming more expensive? We break down what it costs to serve you a cup of coffee in the morning.

BREAKING The New York State AMC Law Is Now In Effect

I wrote this blog post on Saturday, so in case you missed it…

Back on April 19th, I wrote about the New York AMC law in my Housing Notes newsletter. After years of AMCs chipping away at the public trust, the New York AMC law was designed to protect the consumer.

The bill summary was:

Relates to the registration of real estate appraisal management companies or an individual or business entity that provides appraisal management services to creditors or to secondary mortgage market participants including affiliates by the department of state.

Yesterday Appraisersblogs ran it as a standalone post and I got a lot of feedback. To be clear, the bill was signed into law by Governor Andrew Cuomo at the end of last year and became effective 120 days later which is today.


Here is the NYS “AMC Law” as a PDF or in plain text on the landing page of the law.


The NY State Coalition of Appraisers (NYCAP), led by my friend and appraiser Becky Jones who along with other unnamed heroes worked hard to help make this possible, wants you to know that this law was not a last-second, fly by night effort as being characterized by The Real Estate Valuation Advocacy Association (REVAA) – the trade group that represents the bulk of the AMC industry in the U.S. – inferring this law was flimsy and easily overturnable.

No, it isn’t. Its been a long road and achieved unanimous consensus during the process.

When the draft of the bill was approved by the NYS Board of Real Estate Appraisal, Carol DiSanto who is the Vice Chair, walked it across the street to The New York State Association of REALTORS (NYSAR). In effect, REALTORS of New York State were made fully aware as the “draft” became part of NYSAR record at their next business meeting. Becky Jones sat on the Legislative steering committee at NYSAR and informed them about the bill. They had no objections to the bill before submission to the state legislature.

A similar proposal was introduced by the New York Department of State in 2015. Senate Bill S9080 was introduced two years ago during the 2017-2018 legislative session, signed into law on December 27, 2018 and became effective today. The voting was unanimous in favor by the rules committee of both houses and the body of both houses.

Here are the vote tallies (the same in both the NYS Senate and Assembly):

And here was the timeline:

A couple of AMCs we work with for some private banking groups sent emails to us yesterday:

Some thoughts

  • If you’re not an appraiser, then you want to read this. It is a 2011 take that still holds up on the AMC industry from American Banker’s Bankthink column (I’ve written a column there before on another subject): Appraisal Management Companies Create More Problems Than They Solve

  • When the realization sunk in that this was a new law, not a proposed bill, attendees began to text me from the joint committee meeting of The Appraisal Foundation. I got the play by play when the news was shared. It sent shockwaves through the AMC-types because, in my view, it effectively destroyed their ability to hide how much they are gouging the consumer and how little the appraiser gets from the actual “appraisal fee” (typically less than half). Seriously, the value-add provided by AMCs to the appraisal process in the delivery of actual appraisals might be 5%, but no chance in hell it is 75%. This is why we need consumer protection in the mortgage business.

  • I’ve been told by several colleagues that they’ve heard one of the main AMC concerns is whether New York interpreted the original law correctly to arrive at this form of law regarding AMCs. From my perspective, it’s like not buying a house because one of the gutters is missing a few screws to hold it in place. The criticism seems like a weird attempt at fogging since this law is protective of USPAP and the public trust, something that has been forgotten in the attempt to “modernize” the appraisal industry. But I’m no lawyer so I’ll look for clarification on their logic. But consider this:

  • REVAA’s biggest concern about the law was specifically the disclosure to the consumer as to what part of the fee goes to the appraiser. Not only does the appraiser get to state the fee, but the AMC fee must also be disclosed. This was upsetting to REVAA director Mark Shiffman presumably because the consumer would finally see that most appraisers get half or less than half of the appraisal fee the consumer thinks they are paying for the appraiser. REVAA has fought hard to hide this from the consumer, pushing back on prior attempts to disclose the breakdown, and finally, New York State has effectively brought to light this predatory practice. Transparency is good for the consumer and for the appraiser. Should a consumer be aware that the check they wrote at the time of mortgage application specifically for an “Appraisal Fee” be used to pay the appraiser less than half of it with the remainder to a wildly inefficient third-party institutional middleman they know nothing about?

  • The NYC AMC law will likely damage the evaluation platform that the Appraisal Institute has been advocating so intensely in state legislatures without disclosure to their own members yet diminishes the meaning of an appraisal certification to the consumer. It is interesting to see that AI National hasn’t taken a position on this new groundbreaking law, like yesterday. They’ve been progressive in their quick denouncement of other important issues, like appraisal waivers, so the lack of denouncement against AMCs is curious.

  • This new law only applies to appraisals ordered through AMCs (which control an estimated 80% of U.S. mortgage appraisal volume) for properties in New York State. (note: this why the law is described as “AN ACT to amend the executive law, in relation to registration of real estate appraisal management companies by the department of state”) New York is one of the few “voluntary” licensing states. There is no mandatory licensing so agents and brokers can perform appraisals and BPOs all day long. This was a key point that REVAA was trying to convey to NYSAR (I hold the CRE designation and all CREs in New York are automatically members of NYSAR) a few weeks ago when REVAA was on a mission to stop the law going into effect. REVAA reached out to NYSAR to claim how bad the law was for their agents and brokers but NYSAR wasn’t buying it because they could still perform BPOs and evaluations for local banks – just not for AMCs. Becky Jones shared a story about this situation from one of the CE classes she teaches: I had an agent work the whole thing in her head out loud during the class and at the end…the agent deduced on her own that she will contact local banks for the BPO work and she was especially thrilled because she realized that she will probably get the listing and therefore an opportunity to make more income. She was so thrilled she “high-fived me during class.”

  • A concern shared with me by a friend and appraiser colleague in Virginia was that most of the large AMC platforms, such as CoreLogic, Appraisal Port and Xome, use a portal that strips the report and the appraiser’s invoice is one of the forms that does not get uploaded (because they don’t want the consumer (i.e. mortgage applicant) to see how much the actual cost goes to the person providing a value opinion of their home. If AMCs continue this practice in New York State and are caught, they will lose their ability to do business in the state. They can risk it, but the stakes are high. There is always a concern that oversight of this will be lost in the shuffle so it is imperative that appraisers keep the pressure on.

  • Another appraiser colleague and friend I know in Illinois said: “So if you are curious what is happening in Illinois, here’s how we must report our fees. When discussing this issue 10 years ago, we were of the opinion that the invoice could get lost, but pages in the appraisal report don’t get lost. That’s why it must be in the body of the report.” Here’s the Illinois AMC law.

And finally…

It is ironic that the New York Governor, who was the creator of HVCC when he was NYS Attorney General and was a board member of a former Ohio-based AMC owned by a friend that eventually collapsed, leaving many appraisers unpaid for their work, was the signer of this law. Despite the irony, his concern for the consumer is incredibly appreciated by the appraisal community who have been beaten up by the AMC industry since 2009 under the false narrative that they are embedded in the process to protect the system. In reality, AMCs gave the mortgage system an empty promise that left the consumer and the taxpayer exposed to excessive costs, bureaucracy and a systematic deletion of quality. Even worse, they stole the economic livelihood of the actual market valuation experts and replaced them with form-fillers.

It is nice to see a state pay more than lip service to consumers within the mortgage business.

OFT (One Final Thought)

Great piece on what happens when a factory closes down and was the dominant source of employment. Click on image for the story.


[NYT Magazine]

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 stop being a kleptocrat;
  • You’ll be a billionaire;
  • And I’ll get super tall.

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


April 26, 2019

The Housing Bunny Shows Us He’s Ready To Rumble

The moral of the story, don’t judge a bunny by its cute, cuddly exterior. Inside there may be a stronger person that is ready to fight.

But I digress…

Elliman Reports Released: Q1-2019 Hamptons, North Fork and Long Island

This was the final week of our four week quarterly report gauntlet. Phew. More markets are being added next quarter to our expanding Elliman Report series I’ve been authoring since 1994.

Of utmost importance was a Bloomberg chart (2 versions) on the spike in listing inventory…


Here are some key observations of these markets:

THE HAMPTONS

Elliman Report: Hamptons Sales 1Q 2019

“The sub-million dollar market had its second highest sales share in five years.”

  • Second highest market share of sales below $1 million in five years
  • The number of sales has declined annually for the fifth straight quarter as the market resets
  • Lowest first quarter number of sales in seven years
  • Listings inventory rose sharply for the last two quarters
  • Tied for the lowest number of sales at or above $10 million in six years
  • Luxury listing inventory expanded sharply for six straight quarters


NORTH FORK

Elliman Report: North Fork Sales 1Q 2019

“Stable pricing with easing sales growth.”

  • Median sales price has not shown a year over year decline in eight straight quarters
  • Listing inventory edged higher year over year for two straight quarters
  • The number of sales declined year over year for the third time in four quarters
  • The market share of sales under and over $1 million was unchanged
  • Tied for the second lowest number of sales above $2 million in six years

LONG ISLAND

Elliman Report: Long Island Sales 1Q 2019

“Sales slowed as prices continued to rise.”

  • There has not been a year over year decline in median sales price for twenty-four consecutive quarters
  • The number of sales slipped year over year for the second time in three quarters
  • Listing inventory expanded annually for the first time in four quarters
  • Shortest first quarter marketing time for single-families in at least twelve years
  • The number of condo sales has declined year over year for five consecutive quarters
  • Luxury listing inventory rose year over year for five straight quarters

Elliman Reports Released: Aspen/Snowmass Village, Los Angeles, Venice/Mar Vista, Malibu/Malibu Beach

ASPEN

Elliman Report: Aspen + Snowmass Village Sales 1Q 2019

“Market-wide sales continued to see annual gains for the second straight quarter.”

  • The number of sales expanded year over year for the second straight quarter
  • Average sales sized increased annually for the second time in three quarters
  • Listing inventory annually edged higher for four straight quarters
  • Luxury average price per square foot declined and listing inventory expanded annually for three straight quarters
  • The entry-threshold drifted lower year over year for three consecutive quarters

SNOWMASS VILLAGE

Elliman Report: Aspen + Snowmass Village Sales 1Q 2019

“Larger sales size skewed price trends higher as sales slowed.”

  • The average sales size surged, skewing all price trend indicators sharply higher
  • The number of sales declined faster than listing inventory, slowing the market pace
  • The number of sales declined annually for the first time in eleven quarters
  • Luxury average price per square foot rose year over year for the second straight quarter
  • The average size of a luxury sale jumped from the year-ago level

LOS ANGELES

Elliman Report: Los Angeles Sales 1Q 2019

“Overall market share of pocked/whisper listings declined as listing inventory expanded.”

  • Number of sales declined year over year for the fourth straight quarter, consistent with the decade quarterly average
  • Price trend indicators showed mixed results, with median sales price falling from the year-ago record
  • Listing inventory expanded year over year for the fourth consecutive quarter
  • Market share of pocket/whisper listings fell across most price categories
  • Sales market share of larger single-family sales declined
  • Luxury price trend indicators for condo and single-family sales generally moved higher

MALIBU/MALIBU BEACH

Elliman Report: Malibu + Malibu Beach Sales 1Q 2019

  • Malibu single-family and condo sales year over year remained well below year-ago levels as sales size shifted to smaller homes
  • Malibu Beach single-family and condo inventory fell as average sales size skewed lower

VENICE/MAR VISTA

Elliman Report: Venice + Mar Vista Sales 1Q 2019

  • Venice single family and condo price trend indicators ranged from flat to rising year over year as sales remained well below year-ago levels
  • Mar Vista single-family and condo price trend indicators rose sharply as inventory expanded sharply but remained inadequate for the demand

Elliman Reports on Greenwich and Fairfield County, Connecticut Featured on CNBC

Diana Olick at CNBC reached out to me this week to talk about the Q1-2019 Elliman Report on the Greenwich, CT housing market and the impact of the federal tax law on high-end suburban markets in NYC metro. We spoke on Greenwich Avenue in Greenwich at 8:30 am and had to keep doing segments over because of the random roars of delivery and garbage trucks. The irony was not lost on me – a busy downtown with not a lot of empty parking spaces so early in the morning – combined with a slow housing market. Anecdotal but this is what we are seeing at the macro level – a robust regional economy with soft housing conditions.

We were set up in front of a Vineyard Vines store while I was wearing a bright Ted Baker tie (Hey, I can be a social media style influencer too). The irony in this product placement “ties” this story altogether (in my own mind). I received more feedback about my tie than I did on my content. Oh well. And for the record, Diana made very clear to me that she commented on my tie first.


Here’s the segment that also includes my friend Jennifer Leahy of Douglas Elliman, their number one agent in Connecticut who just sold the massively oversized home of 50 Cent.

New tax laws take a toll on home sales in Connecticut from CNBC.


Streeteasy’s Out East Site Has Brokerage Community Where They Want Them

The brokerage community is complaining that the new Streeteasy site for the Hamptons and North Fork – Outeast – is preventing them from serving the consumers.

Let me start from the beginning.

It has been almost six years since Zillow acquired Streeteasy, the defacto MLS system for Manhattan. Streeteasy, as conceived, was an elixir that the brokerage community (and me) became addicted to. There had been no listing search engine that understood vertical housing markets since most platforms are “flat file” like in functionality. Zillow today and others remain like that. Condo unit 3A is viewed on its own merits and not with condo unit 47A in the same building at the same time. I had incorrectly assumed that Zillow would use Streeteasy to power the vertical housing markets they cover, but instead, they opted to use the acquisition to buy into the NYC market and have spent the time removing the bells and whistles that made Streeteasy so cool since there has been no real competition. Sure REBNY tried with their RLS system, but they don’t have the money to compete in the same league as Zillow and Zillow has won the consumer with hundreds of millions in marketing. Now that they won the consumer, they rolled out their Premier Agent program at $333 per month per listing because they enjoy the monopoly that MLS systems around the country have long been accused of. Except that this is not a consortium of companies, it is simply a single tech platform.

I understand the New York Department of State is wrestling with this situation right now and the MLS world is watching for their final decision. I wouldn’t hold your breath.

Now we are seeing the same thing playing out in the eastern end of Long Island over the past two weeks – the brokerage community in the Hamptons seems to be besieged by tech issues now that they are forced to use the Streeteasy site Outeast now that they turned off editing of the Realnet site they acquired. The site is being forced on the community and it is not ready for daily use. Monopolies arent motivated in the same way as when competition exists.

Here are some of the incoming broker responses who are using a system that is not ready for prime time:

Their averaging stat misrepresents seasonal rents:

customers can not figure out what the rental prices are I always have to ask them first what period they are interested in and I think since averages are so high it keeps full season rentals from calling.

It’s been 2 weeks it is a crisis mode now for our business!
It took me two weeks to enter a rental condo , all my rentals Are average year round prices-shows up and most are only summer – you cannot average a Hamptons summer by the year .

Listing entry process is flawed

Who is your supervisor, you have no phone support you have a system that clearly doesn’t work and I have listings that can’t be entered. Where IS the old sale that was entered for the same address. I thought I could just use that. What is going on over there? How can you release a system that doesn’t work. Where is the open house info? Where is the day sheet. How do you operate a system that doesn’t work.

YOU GAVE ME A BICYCLE WITH NO TIRES AND ASKED ME TO PEDAL


There is more. I’ll expand on this topic this weekend over on my Matrix Blog.

In Canada, Losing A Purchase Deposit Can Be Gangsta

A one-time potential purchaser of a luxury home in Vancouver was not entitled to their $220,000 deposit back:

But property investor Shao Feng Yun wanted nothing to do with the mansion after finding out that notorious triad boss Raymond Huang Hong Chao was shot dead outside the front gate in 2007, in an unsolved gangland hit.

I’d be curious whether the property subsequently sold and there was any stigma attached to the sale.


Vertigo-Inducing Photos of Second Tallest NYC Building By Height

YIMBY has a photo spread of 111 West 57th Street that is worth visiting. The technical challenges of this kind of construction have to be unreal but the views must be spectacular as visits to other supertalls have shown me.

My goal in life is to visit a top floor unit during a Hurricane without taking Dramamine. Here are a few of the photos taken by Michael Young for YIMBY. The third one was the most vertigo-inducing. Clicking on each takes you to the source article.


HowMuch.net: Salary Needed to Buy A House In The Largest U.S. Metros

Chart eye candy.


[Click to expand]

Tip: Remove All Your Toilets to Save Money on Property Taxes

Over the last few weeks, I have been particularly sensitive to the notion that consumers modify their behavior, especially the wealthy when it comes to avoiding paying taxes. The idea that they have so much money that they don’t modify their behavior is lazy armchair economics.

Here is an amazing example of tax avoidance in Chicago if the charges are true.

One of the mayoral candidates in Chicago is accused of removing all the toilets in one of his extra homes to save $330,000 in property taxes.

The appraisal noted that “there were no functioning bathrooms in the house since all the toilets were removed,” adding that there were appliances in the “cooks’ kitchen” in the basement. It also noted that one stairway banister was braced and another one “sloped noticeably to the right side.”


No photos to be found online taken of the house or the lack of toilets…

Getting Graphic


Len Kiefer‘s Chart Handiwork
[click to expand]

His forecasting model for EHS is mindblowing. The change in forward-looking views has been incredibly volatile.

Appraiserville

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

Look for more discussion about the seminal NYS AMC Law this weekend over on my Matrix Blog.

Your Reports Can Turn Up Anywhere
  • Toilet Removals Noted In Chicago Mansion By Appraiser In Tax Appeal. This was discussed in these Housing Notes higher up on the page but note how there is opposing evidence of a bathroom in the house after all. If true, this is an example of an appraiser as a “deal enabler” rather than a trusted neutral observer. I’ll bet they never thought this would be an issue discussed in the Chicago Tribune. Ugh.

  • The appraiser I wrote about in Appraiserville back on September 7, 2018 is in the spotlight again and the optics are not flattering. Fascinating read.

OFT (One Final Thought)

I actually bought one of these last summer. It didn’t work (burn off carbs, that is).

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 cut pizza with a bicycle;
  • You’ll get vertigo;
  • And I’ll get a new tie.

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


April 19, 2019

An Unredacted Hack: Housing Spam Edition

Yesterday, my business email was hacked and it was more disruptive than I could have imagined. I received hundreds of emails from recipients who I know as well as texts and phone calls. And it isn’t over. I am still getting calls, texts and emails from recipients. As this propagates, I’ll bet thousands of people were spammed by my account in the 5 minutes it was active. More on that below.

The following message confused all of my contacts and has spread to other recipients I don’t even know. The following screenshot is what was sent – it looks like an attempt to harvest even more emails.

About five minutes after I was hit, a tech friend of mine called me after receiving the email to let me know and told me to change my password immediately. I did so and while talking with our tech people, I could see 5 emails a minute leave my outbox, each with about 80 names up until the moment my password changed and we added additional authentication and virus protection software.

Here is the most disturbing part – one of my contacts named “Valerie” replied to me with “Jonathan, is this real?” and my email account – the hacker – responded on its own, “Yes, Valerie, it is.” OMG. Here is a snapshot after I redacted her info:

Nearly 20-years ago I was playing a fresh copy of DOOM (possibly DOOM3?)

at home, marveling that I was playing online with others all across the world and not focused on the game itself. I had a slow dial-up connection and my total lack of eye-hand coordination made me no match for anyone. I never forgot this particular moment: At one point I was shot and was laying down watching others run around me. As I was about to come back to life, a player stood over to me and pumped a dozen rounds into me. Chills went down my spine much like yesterday when my account responded to Valerie on its own as I watched.

Afterthoughts on being hacked:

  • Hundreds of people have called, emailed and texted me to let me know what happened and I can cheerfully conclude that most people in this world are nice and good – we too willingly focus our lives on the bad outliers.
  • I never apologized to anyone that called me – it didn’t feel like something I did wrong and everyone will or has been hacked at some point in their lives. But I thanked everyone for letting me know.
  • Never, ever, ever reply to an email you think is spam or click on something from a person you know when you don’t understand what it is or why you received it. Call or text them.
  • Any social media or email account you control should be guarded with two-way authentication. Nifty passwords don’t cut it.

But I digress…

Elliman Reports Released: Q1-2019 Downtown Boston, Fairfield County CT and Greenwich CT

Douglas Elliman Real Estate, the second largest independent residential real estate brokerage in the United States by sales volume, published our research on these markets this week and the news on the housing conditions in the region was decidedly mixed. I’ve been the author if this expanding report series since 1994.

Here’s the breakdown by report:

Elliman Report: Downtown Boston Sales 1Q 2019

The report is broken down by condo and townhouse sales. This is our second quarter with a report release but while townhouse market conditions were robust, I noticed the year over year condo results was sharply negative. This result was caused by an unusual spike in closings in the prior year quarter, and the lion’s share was in a handful of buildings at the top of the market with mostly legacy contracts. We call these legacy contracts because the meeting of the minds between buyer and seller (developer) occurred years before the building was finished and closings occurred. While I won’t cherry-pick the data that goes into a report, I ran the numbers without sales in 3 buildings and got these results, side by side will full results that include the legacy sales:

The actual report results were unedited but overstate the decline in sales and prices form records set last year. Here are the modified results. I have done this in Manhattan before i.e. with and without the $238 million condo sale in Q1-2019, a decade ago with and without the mass closings at The Plaza and 15 Central Park West condos and before that with the $43 million penthouse sale at then-named AOL Time Warner.

“Price and sales trends showed stability after considering the year-ago surge legacy contract closings.*

*A year-ago, record prices and heavy sales volume were caused by a significant surge in high-end new development legacy closings, i.e., contracts signed 2-4 years earlier that distorted current trends. Q1-2018 closings were the highest first quarter number of sales in 13 years; Average and median sales price were skewed to records; average price per square foot was second highest on record. By the removal of three buildings with either a high volume of legacy contract closings or record pricing: 50 Liberty (49), Pierce Boston (58) and 10 Farnsworth (6) resulted in a more representative trend in comparison to the first quarter of 2019 that did not see the same surge in legacy closings. The published report does include legacy closings.

Each time I have done this in other markets, there may be some brokers out there who see reports like mine as damaging the market, especially new underwriting for more developments. That’s actually a false old-school assumption and a residual of the gatekeeper mentality. In the underwriting process, legacy contracts are outed in appraisals by requiring their contract dates – this is the standard operating procedure. The same goes for individual appraisals on mortgages.

Transparency is always the best way to approach market report or there is zero credibility in future research.

Here are a few charts with the legacy data from our chart gallery:


Elliman Report: Fairfield County Sales 1Q 2019

“The market continues to indicate a shift in the overall sales mix to smaller properties.”

  • The average sales size has declined year over year for seven straight quarters
  • Number of sales decreased year over year for the fifth consecutive quarter
  • Listing inventory expanded year over year for the second straight quarter


Elliman Report: Greenwich Sales 1Q 2019

First of all, some Bloomberg charts!!! Click on either of them for the article.

“Condo sales continued to surge as single-family sales reflected a pronounced decrease.”

  • Single-family sales fell to the lowest first-quarter total in eight years
  • Single-family average sales size fell for the third consecutive quarter, pulling down price trends
  • Condo sales surged in three of the past four quarters
  • The sharp drop in the luxury threshold reflected the shift away from the high-end of the market
  • Luxury listing inventory reflected large gains in supply for three straight quarters

Market Report Gauntlet: Q1-2019 South Florida

We released a slew of market reports and the news wasn’t as robust as the prior quarter. We are in a choppy period of the new tax law. Miami Beach and Boca appeared to be the standouts.

Elliman Report: Miami Beach + Barrier Islands Sales 1Q 2019

Elliman Report: Miami Coastal Mainland Sales 1Q 2019

Elliman Report: Fort Lauderdale Sales 1Q 2019

Elliman Report: Boca Raton 1Q 2019

Elliman Report: Royal Palm/Boca Raton 1Q 2019

Elliman Report: Wellington Sales 1Q 2019

Elliman Report: Delray Beach Sales 1Q 2019

Elliman Report: Palm Beach Sales 1Q 2019

Elliman Report: Jupiter + Palm Beach Gardens Sales 1Q 2019

…from one of the Douglas Elliman releases I contributed to:

An overall assessment of the South Florida markets shows price trends edged higher but sales slipped and inventory edged a little higher this quarter.

Overall price trend indicators in Miami Beach moved higher than year-ago levels as the number of sales slipped. Marketing time jumped as older inventory was sold off and listing inventory slipped. In Miami Coastal Mainland, median sales price rose year over year for the eighteenth consecutive quarter, and sales declined annually for the first time in three quarters.

In Fort Lauderdale, condo price trend indicators slid year over year with a decline in average sales size. Luxury condo pending sales signed in the quarter surged over the same period last year. Single-family luxury median and average sales price moved higher as marketing time stabilized.

In Boca Raton, condo and single-family price trend indicators rose year over year as sales slipped for the first time in three quarters. Luxury condo price trends surged year over year partially due to the jump in average sales size.

Single-family sales in Delray Beach slipped for the first time in six quarters as listing inventory expanded for four quarters. Condo price trend indicators haven’t declined in thirteen straight quarters.

In Wellington, condo median sales price increased annually for the tenth straight quarter. Single-family price trend indicators all rose year over year for the fourth consecutive quarter.

In Palm Beach, condo sales rose annually for the fifth consecutive quarter to the second highest market share recorded. Single-family price trends showed mixed results as sales fell to their lowest first-quarter total in seven years.

Single-family median sales price moved higher for the second straight month. Condo sales rose year over year for the third consecutive quarter in Jupiter. In Palm Beach Gardens, single-family sales slipped for the third time in four quarters as all price indicators rose. Condo median price slipped year over year for the first time in 27 quarters.

New Federal Tax Law Slowed The Housing Market

The New York Fed published a study on the housing slowdown and how the 2017 federal tax cut played role in it. Here was part of my take. Spoiler alert: Mortgage rates fell and the market still slowed.

Here’s a good explainer by Marketplace.

And now for the counterpoint by White House Council of Economic Advisers Chairman Kevin Hassett who used “Zestimates” to do his research. If you know how the Zestimates work (they track prices and are only within 5% of actual value 50% of the time) and how housing markets work (sales fall 1-2 years ahead of prices), then this observation is stunningly uninformed. Good grief.

Ivy Zelman Talks About the U.S. Spring Housing Market

My friend and legendary Wall Street housing analyst Ivy Zelman of Zelman & Associates discussed the outlook of homebuilders in the U.S. single-family market. The chart shows the expanding use of concessions. Click on the image to watch the video.

Appraiserville

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

The New York State AMC Law Goes Into Effect

The NY State Coalition of Appraisers wants you to to know that there is a new AMC law coming into effect at the end of the month and REVAA doesn’t like it.

Last December New York State Governor Andrew Cuomo signed Senate Bill S9080 into law, effective at the end of this month.

REVAA‘s biggest concern is that it requires all valuations to be performed by appraisers AND invoices must be attached to the report so the consumer knows what the appraiser was paid.

This is groundbreaking for our industry. Let’s hope that the word spreads and the consumer is finally protected!

There are lots of goodies here – just a couple of samples:

  1. Act without just cause to withhold or threaten to withhold timely payment for an appraisal report or for other valuation services rendered with such appraisal report or services provided in accordance with the contract between parties;

(c) Requiring an appraiser to prepare an appraisal report or valuation service under a time frame that such appraiser believes, in their professional judgment, does not afford such appraiser the ability to meet all the relevant legal and professional obligations including USPAP requirements. Notwithstanding the foregoing provisions of this paragraph, all appraisal reports should be completed within a reasonable timeframe and appraisers may not unnecessarily delay completing appraisal assignments;

(d) Prohibiting or inhibiting communication between the appraiser and the lender, a real estate licensee, or any other person from whom such appraiser, in their professional judgment is relevant;

(e) Requiring the appraiser to do anything that does not comply with USPAP…

AMCs Need To Turn To Consumers To Survive

After reaching the point where there was no more room to gouge appraisers to drive profits higher, more and more AMCs are in trouble or have become “former” AMCs. Last year when appraisers fought back with logic to counter the false “appraisal shortage” narrative, it worked. Appraisers have already given up 50% to 70% of the mortgage applicant’s appraisal fee and there is no more left for appraisers to give up. There never was an appraisal shortage, there was merely a shortage of appraisers willing to work for 50 cents on the dollar. Our industry hit our limit.

The opportunity that consumers provide is the future of appraising.

I’m involved in Phil Crawford’s “Get My True Value” effort which is an organic marketing machine for appraisers who don’t know how or don’t have time to market to consumers. It’s exciting to see it take off.

And you can see this consumer angle taking off in other efforts which are repurposing the AMC concept to something else – I just got this email and know nothing about them – they are going after lender work, not consumers, but notice their anti-AMC pitch.

We are in the wild west right now and the AMC legacy is no longer relevant to those who want to make a living and love being an appraiser.

OFT (One Final Thought)

Sometimes getting more eyeballs on a property doesn’t help sell it, or does it? We’ll find out in May when this property goes to auction.

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 hacked;
  • You’ll be a two way authenticator;
  • And I’ll opt not to apologize.

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


April 12, 2019

Housing Junkstats Are Today’s Surf and Turf

I’ve always marveled at how many “eye candy” style national maps are pumped out to show us how housing market performance varies across the country. The sheer volume is amazing and we tend to gobble it up. I love the transparency, but I also love pizza AND seafood equally…so where should I live? A key observation of this map suggests that “…seafood is popular along the coast!” LOL.

And why does consumption of BBQ collapse north of the 36th/37th parallel?…


I just don’t know…

But I digress…

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

I’ve been authoring the expanding Elliman Report series since 1994 for Douglas Elliman Real Estate. This rental report is the one monthly series we prepare, everything else is quarterly or annual. In the past 6 months, the relationship between rentals is more linked as softening sales are driving rental demand higher. The market remains addicted to concessions so it will probably be a slow grind to their demise just like their incorporation into the market on the way up.

Elliman Report: March – 2019 Manhattan, Brooklyn and Queens Rentals

And a chart!!!


______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

Overview
“Rental price trends continued to press higher as concessions stabilized and vacancy slipped”

– Net effective median rent rose for the third consecutive month
– Studio and 1-bedroom median rents expanded as larger-sized apartment median rents declined
– The vacancy rate fell year over year for the eleventh straight month
– New leases surged after falling annually for four consecutive months
– Landlord concession market share edged up nominally year over year after falling for two consecutive months




______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

Overview
“Rental price trends continued to rise as new leasing activity surged.”

– Net effective median rent rose year over year for the fourth straight month
– Almost three-fourths of new development rentals had a concession while one-third of existing rentals had a concession
– New leases surged year over year at the highest rate in fifteen months across all market sizes




______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

Overview
[Northwest Region]
“New leasing activity jumped across all apartment sizes as landlords pushed for higher rents at lease renewal.”

– Market share of landlord concessions fell year over year for the first time in seven months
– Net effective median rent expanded year over year for the fourth time in five months
– The average size of a rental apartment increased largely from the size gains of 2-bedrooms and 3-bedrooms
– Median rent for existing apartments increased as new development rental prices slipped



Market Report Gauntlet: Q1-2019 Brooklyn, Queens, Riverdale, Westchester, Putnam and Dutchess Sales

A report gauntlet wouldn’t be a gauntlet without a lot of market research on the NYC metro regional sales market coming at out once. Here are the talking points for the region. The full reports can be found in the “Recently Published Elliman Market Reports” links at the bottom of the page.

______________________________________________________
BROOKLYN SALES MARKET HIGHLIGHTS

Overview
“The market pace remains fast, but sales and price trends have started to slip.”

– The number of sales declined year over year for the fifth consecutive quarter
– Listing inventory rose annually for the fourth straight quarter
– Price trends set record highs last fall, which appears to represent a market peak
– Sales priced between $3 million and $4 million were the only price strata with an increase
– Condo sales represented the lowest market share of total sales in more than twelve years


______________________________________________________
QUEENS SALES MARKET HIGHLIGHTS
Overview
“This was the first quarter without a record average sales price in two years.”

– The number of sales declined year over year for the fifth consecutive quarter
– Listing inventory rose year over year for the eighth consecutive quarter
– The first quarter without a record average sales price in two years
– The largest decline in sales was seen in the condo market
– While the pace of the market was brisk, it was the slowest pace in nearly four years


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

Overview
“Rising price trends continued despite additional inventory coming to the market.”

– Sales declined for the fourth consecutive quarter at a rising rate
– Listing inventory expanded year over year for the third straight quarter
– All overall price trend indicators increased annually for the third consecutive quarter


______________________________________________________
WESTCHESTER SALES MARKET HIGHLIGHTS

Overview
“Single-family sales rose year over year after six consecutive quarters of declines.”

– The number of countywide sales has expanded year over year for three consecutive quarters
– Listing inventory has edged higher year over year for three straight quarters
– Median sales price expanded for the first time in three quarters
– Contracts signed in the first quarter increased from year-ago levels
– All four property types showed more sales than in the prior year quarter
– Luxury single family price trends continue to weaken as luxury inventory expanded


______________________________________________________
PUTNAM SALES MARKET HIGHLIGHTS

Overview
“Median sales price increased year over year for the eighth straight quarter.”

– Listing inventory rose for the second time in three quarters
– Sales and the market pace slowed year over year for the first time in three quarters
– Shorter marketing time on average but with more negotiability


______________________________________________________
DUTCHESS SALES MARKET HIGHLIGHTS

Overview
“Like Putnam, Dutchess median sales price rose annually for the eighth consecutive quarter.”

– Listing inventory increased annually in the three most recent quarters
– The months of supply has been expanding over the past year
– There was a surge in new contracts signed year over year


Shhh, Whisper Listings Are a Thing

This listing type, also known as “pocket” listings, became enormously popular when the luxury U.S. housing market was booming and high-end property owners didn’t need to shotgun blast all the intimate details of their home through large photo galleries. For example, the high-end LA market I cover for Douglas Elliman has more than 20% of the listings above $5 million as pocket listings (outside the MLS). We extracted this metric by matching public record closings with closings in the multiple listing systems. One of the challenges of tracking this phenomenon in the Manhattan market is we don’t have a very accurate market-wide listing system. But most importantly, this article has a chart.


At first glance, this concept seems to short change the seller who will have less exposure to the market by keeping the listing private.

A secret listing probably isn’t the best strategy for most New York homeowners, who would benefit from casting a wide net to attract offers, according to Jason Haber, an agent at Warburg Realty.

However, in the upper price echelons, it still tends to be more by word of mouth anyway.

On a quick side note, Teri Rogers, founder & CEO of Brick Underground, dubbed me “The Data Whisperer” so there’s that. She will be celebrating her 10th year of operation next month. Time flies. Shhh.

Canadian Housing Market Has Been Cooling For A While, Eh?

According to Teranet – National Bank House Price Index, a widely followed housing market composite index, clearly illustrates the weakening national trend. I like to keep tabs on the Canadian housing market, sort of as a hobby (and not because my mother was born in Montreal). The press release included this observation:

Moreover, in 20 years of history, this is the first time that the Composite HPI drops in a month of March outside a recession.


Over the past few years, it looks like Canada has been catching up with the rest of the housing world. This is an important development since the Canadian national economy is highly dependent on the housing market.


Several years ago I was approached to author a recurring national housing market report for Canada by a large financial institution but they ultimately decided not to go ahead with the project. Bummer.

Digging Yourself A Hole

No, I’m not speaking to housing affordability, but rather the opposite in this New York Times piece: That Noise? The Rich Neighbors Digging a Basement Pool in Their $100 Million Brownstone “The extremely loud and incredibly expensive renovations that have shattered a formerly quiet residential block in Manhattan.”

The article is a great read and I found these pictures to be amazing – notice how the house is really just a facade with a deep hole behind it? They must really like to swim. Welcome to Manhattan real estate.


[Source: Benjamin Norman for The New York Times]


[Source: Benjamin Norman for The New York Times]

This Week in (Deeply, Awfully, Twisted) Aspirational Pricing

The former home of the Las Vegas mass murderer who killed 58 people and injured 851 on October 1, 2017, was recently sold to a real estate agent for $305,000 and the funds will go to the victims.

Even in Reno’s largely unaffordable housing market, O’Neill’s bid on Thursday fell far below the home’s most recently appraised value of $367,000. But as a Washoe County appraiser cautioned in paperwork, that estimate was based on “the extraordinary assumption that the value of the property will not be affected by any negative stigma due to the infamous actions of the owner.”

Since the home sold for $305,000, the stigma represented a 17% discount for a mass murderer’s home in an extremely tight housing market. That seems like a very low discount given the scale of the tragedy. In the case of the mass school shooting of 26 children and staff in Newtown, CT, the nearby home of the shooter was leveled and the land left as open space.

In the Las Vegas scenario, the victims received compensation (along with his other holdings) while the stigma on the Newtown property was deemed it worthless (in the context of real estate, not emotion). I’d have to say that even though there would be fewer funds for the victims, I am not a fan of someone trying to flip the house of a serial killer. I’m just guessing here because I don’t cover either market but it sure looks like the discount the broker achieved on sale, was wildly low or it was indicative of the shift in stigma value depending on the tightness of supply. Ugh. Of course, the market will determine that issue down the road when they try to sell.


[Source: Las Vegas Review-Journal]

Appraiserville

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

Valuing Stigma in the Era of Mass Shootings

Take a look at my attempted stigma analysis of the Las Vegas mass shooter’s home above in “This Week in (Deeply, Awfully, Twisted) Aspirational Pricing”

OFT (One Final Thought)

You don’t have to be a basketball fan to watch this. I teared up.


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 eat more seafood;
  • You’ll consume BBQ above the 37th parallel;
  • And I’ll write another market report.

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


April 5, 2019

London Calling Reminds Me Of The Expanded Mansion Tax

When I was a sophomore in college, The Clash blew up and they were the only band that mattered. Most of my friends were hooked on REO Speedwagon, Styx, Boston, Journey, and Foreigner. While I was tapping my foot at parties, I never bought any of that crap. I was definitely a music snob. Talking Heads, Pink Floyd, Roxy Music, and The Clash were a first priority and I took pleasure in annoying my roommates when it was my turn to use the turntable.

A while ago I came across the Joe Strummer/The Clash lyrics to ‘London Calling’ and read them again, something we used to do when we all bought records. Because there is always a housing angle to everything in my life, it seemed appropriate to bring this up now because of the shift from the NYC “pied-a-terre” tax to the expansion of the mansion tax. While the “ice age was coming” with the former tax proposal, the last line on Joe Strummer’s lyric sheet says it all: “After all this won’t you give me a smile.”

But I digress…

The Mansion, State & NYC Transfer Tax Increase, Illustrated

With the word soup of tax talk swirling about without oyster crackers, I thought I’d attempt to bring some sanity to the analysis, so market participants have some useful context.

The key item for this discussion is that these taxes occur at time of sale, unlike the pied-a-terre tax that is annual and would compress luxury housing prices by as much as 30% and essentially stall the new development market. This is not that type of tax.

The impact to the tax over the long run will come directly out of the seller or developer’s pockets so there will be an impact to the market but it is not expected to be catastrophic to real estate. This is being introduced along with congestion pricing which really go together. The latter encourages the use of public transit (at this point most mansion tax funds will go to the MTA) while public transit is breaking down for lack of funding.

I dropped a sales price into our model to generate the before and after tax scenario and as indicated by the following table, the impact is clearly progressive.

Elliman Report Released: Q1-2019 Manhattan Sales & Q1-2019 Northern Manhattan Sales

The quarterly market report gauntlet begins…

As Housing Notes readers have known, I’ve been authoring an expanding series of market reports for real estate firm Douglas Elliman. The first market and report I ever wrote covered the Manhattan market.

This quarter’s report had quite a bit trend data that showed how the market was weak. This came with the backdrop of the new Mansion tax increase that replaced the Pied-a-terre Tax horror show.

It’s always awesome when a market report story comes with a chart and Bloomberg never fails to disappoint.


[click to open article]


[Click on the graphic to open the report]

Our Northen Manhattan submarket report was also released.

Here are the talking points for both reports:

MANHATTAN SALES MARKET HIGHLIGHTS
Co-ops & Condos
– The record $238 million sale skewed average and average price per square foot upward 5.8% and 4.7% respectively
– Median sales price slipped nominally year over year for the fifth consecutive quarter
– Median resale price rose to new record, increasing for eighth consecutive quarter
– Number of first quarter sales reached its lowest level in a decade and was 16.4% below the two decade average of all quarters
– Number of sales slipped year over year and inventory rose respectively for the sixth consecutive quarter
– Largest inventory growth was seen in the studio and 1-bedroom markets
– Lowest market share of new development closings in four and a half years
– Sales above $5 million fell more than 11 percent but sales above $20 million was second highest level in at least nine years
– Only price segment below $5 million to see sales growth was from $1 million to $2 million

NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS
Co-ops & Condos
– All price trend indicators edged lower as sales declined annually for fifth time in the past six quarters
– Only price segment to see gain in sales share was from $1 million to $2 million
– Northern Manhattan sales share of all Manhattan sales was highest in more than two years
– Listing inventory rose year over year for the fourth straight quarter

Townhouses
– All price trend indicators rose year over year, consistent with gain in average sale square footage
– Listing inventory rose year over year for the fourth straight quarter
– The average size of a townhouse was the largest in three years

Bloomberg TV 4-2-19: Manhattan Housing Conditions

This week’s Bloomberg Trifecta…

After the publication of our Q1-2019 Manhattan Sales Report for Douglas Elliman, there was a coverage by Bloomberg (and others): Bloomberg reporter Sydney Maki, anchor Vonnie Quinn on Bloomberg TV and a subsequent drive-time Bloomberg Radio interview with Denise Pellegrini.

(For a more detailed analysis with charts, commentary and reports, subscribe to my weekly Housing Notes, published on Fridays.)


Walking Your Dog: Stock Market v. The Economy

Josh Brown, the prolific writer behind The Reformed Broker created a terrific video : How I explain the stock market vs the economy.

He closes his post with:

Understanding the economy is a helpful exercise. Placing market bets as a result of this understanding is a carnival game on the midway.


Now watch the video and think of it in the context of the housing market. Crazy to rely on the stock market for housing insights, right? Right.

Double Taxation: Hitting ‘Em When They’re Down

My friend Barry and others have shared this quote with me – since it references our research so I thought I’d share.

I’m going to whine again about the lack of the SALT deduction and its negative impact on the economy after seeing the stats yesterday on Manhattan residential real estate. According to Miller Samuel Inc. and broker Douglas Elliman, transactions in Q1 fell to 2,121, the least in 10 years and down 5.2% y/o/y. Remember back what Q1 2009 was like. It’s also the 6th straight quarter that purchases have fell so there is a supply issue here as well and a general slowing anyway. So at least in NYC, those lower mortgage rates did nothing to help as buyers for higher priced homes in high tax states reevaluate. Multiply this reaction to other high tax states and you have a real economic impact on your hands.

Double taxation is never well received.


Peter Boockvar – The Boock Report

This Week in Aspirational Pricing

50 Cent sold his place! It only took twelve years! Kathy Clark at WSJ broke the story: 50 Cent Sells Massive Connecticut Compound for 84% Less. In a market that averages just over $300k, the 2001 purchase from Mike Tyson for $4.1 million remains the record. The $2.9M sale by listing agent Jennifer Leahy at Douglas Elliman showed the market how it’s done. Unique properties can take years to sell. My favorite description of the place:

At approximately 50,000 square feet, the 52-room compound is much larger than other homes in the town of Farmington. The original listing pictures show a basketball court with the logo for Mr. Jackson’s G-Unit hip hop group, and a night club decorated with murals depicting Mr. Jackson’s large back tattoo and of him wearing a bedazzled cross medallion and pointing a gun.


Question: With the new AP Style Rules that just came out, should “50 Cent” be spelled “Fifty Cent?”

Elliman Magazine: Chart Candy for Five Markets

Each quarter, I am asked by Douglas Elliman to provide 5 charts on whatever markets I cover for them for their Elliman Magazine. I have no criteria for it – just that its interesting. In fact, it reminds of my old ‘Three Cents Worth’ column for various iterations of Curbed for more than a decade – here are a slew of charts I created for my old column.

OMG. This confirms that half of my adult life has been spent using Excel while on the commuter train.


[click to expand]

Getting Graphic


Our favorite charts of the week of our own making

Appraiserville

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

Hybrids Are Super Dumb But Appraisers Have A Choice

The hybrid appraisal topic cropped up this week across the appraiser blogosphere and really it comes down to these points:

  1. Hybrids are a diluted form of appraisals that are something less than a full report and some clients want that.
  2. The mortgage and regulatory world seem to want them under the guise of efficiency and cost benefits which do not exist.
  3. The world doesn’t know what it wants from appraisers within the mortgage appraisal world but they seem to value our services little more than what they are willing to pay an untrained, non-standardized inspector.
  4. Ironically as an industry, we’ve been unsuccessful conveying our value to our users, especially because the damage that follows this type of crap takes years to appear.
  5. It’s a free country and service providers can offer whatever they want to you. It follows then that it is a free country and you don’t have to accept this work if you don’t want it. Some appraisers do seem to like working at home all day but that rationalization will damage the full fee business.
  6. It is a fact that hybrid quality is less than in the appraisal where the appraiser inspected. Risk models for the bond market don’t consider this yet and when they do, mortgage rates will rise.
  7. Complaining as an industry is important but when we do, we need to make it about the damage to the public trust, the taxpayer and the consumer. That’s really who matters in this discussion.

My battle cry a few years ago “There is no shortage of appraisers. There is only a shortage of appraisers will to work for 50 cents on the dollar.”

The same thing applies here.

OFT (One, No Two Final Thoughts)

“Many of the classic skyscrapers that define New York City’s skyline have their design roots in a monumental 1916 zoning law, which established “setback” requirements for buildings above a certain height. In the heart of the Financial District, the Equitable Building, a historic skyscraper that predates the law, remains a symbol of the excesses of the pre-zoning era. (video by Raymond Schillinger) (Source: Bloomberg)”



Brilliant Idea #1

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

  • They’ll be more paleo;
  • You’ll be more visual;
  • And I’ll murder my next appraisal report with excellence.

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


March 29, 2019

Pied-A-Terre Tax Catastrophe Might Be Downgraded to Just Bad

Sometimes we don’t stop and figure out why we are going in circles…


But I digress…

Albany Pauses And Loses Its Appetite To Crush The Manhattan Luxury Condo Market

It looks like the outrage over the pied-a-terre tax proposal caused Albany to back off but it is not clear what form it will take other than being a transfer tax:

New York Leaders Retreat From Annual Tax on High-Priced Second Homes [WSJ]

State lawmakers were reviewing a transfer tax starting on property sales of $3 million or even less, with the rate increasing for sales of $5 million, according to a person briefed on those discussions. Mr. Heastie confirmed only that the tax would apply to properties over $5 million and would be phased in.

City Comptroller Scott Stringer, who had supported the pied-à-terre tax, said an analysis by his staff showed it could raise $650 million a year, while the real-estate industry said it would raise far less—about $372 million annually. A Wall Street Journal analysis of 17 years of sales data estimated that revenue at $471 million a year.

My estimate of $455,000,000 in new tax revenue for the original version assuming no change in consumer behavior was consistent with the Wall Street Journal’s conclusion, both far short of the $650,000,000 NYS Comptroller’s estimate.

At this point, it looks like proposed tax will be converted to some sort of transfer tax rather than annual property tax. This will still impact high-end sales and prices – and new development might handle it as an additional concession if buyers push back – but it doesn’t look to be as Draconian as the original bill seemed to show.

I haven’t seen such a severe tax proposal in my career and with the backlash over Amazon and the $238M condo sale, the political zeitgeist seemed determined to make it happen. Thankfully, with all the voices in the real estate industry raised, Albany listened…so far. This outrage wasn’t about saving taxes for the wealthy, but actually reducing overall tax revenues so that the shortfall would cost all New Yorkers and destroy the new development industry.

Wall Street Bonuses Are Down But Who Cares

After years of hyperbole over their impact to the Manhattan housing market, post-financial crisis their impact (rising or falling) has been nominal. Bonus comp is now about 40% of total comp down from more than half pre-financial crisis due to the regulatory overlay from Dodd-Frank. And they really aren’t bonuses.

But here’s my annual triple super deluxe bonus chart series:

Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork


Appraiserville

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

I took a break this week on appraisal issues (ok, ok, I have several things to write about but didn’t have time to research the topics) as I prepare for a 30+ city market report release gauntlet in April. But there are a lot of good appraisals related reads at the bottom of the newsletter!

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 be more transfer-tax related;
  • You’ll be worthy of a Wall Street bonus;
  • And I’ll use logic.

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


March 22, 2019

Bowling for Housing Tax Revenue At Your Pied-a-Terre

I’m making a few stops in the midwest this week so I found it difficult to sit down and write these Housing Notes this week. I presented a single topic that is a potential bombshell to the New York City real estate market – in a bad way, not just for the wealthy, but for the typical citizen and their public transportation. Even if you don’t live or work in New York City, this is an important example of proposing a new tax and not considering human behavior. And the patently false thinking that the wealthier you are, the less you care about taxes. In the case of this NYC pied-a-terre tax proposal, the net taxes generated from this proposal may end up being far less than the current revenue streams currently enjoyed.

Understanding tax policy is like understanding how the bowling pins are reset (something I do once every several years…bowling, not resetting pins). It’s a lot more complicated under the hood.


But I digress…

The Proposed NYC “Pied-A-Terre Tax” Looks Catastrophic to NYC Real Estate

An earlier version of this post appeared in my weekly Housing Notes, March 15, 2019 edition. I’ve since added more information and insights as the situation unfolds.

This proposed “pied-a-terre” tax law has a name that infers it concerns “pied-a-terres” when in fact that property type is but one part of the property types that are impacted. I’m sorry about the length of this piece but please read on.

The New York political zeitgeist was recently and suddenly tilted against luxury development in New York City. If this latest turn of events plays out as written, we’ll be able to look back at this era as a milestone where the supertanker began to turn in the wrong direction for the new development industry.

The White Paper That Started It All

The Fiscal Policy Institute proposed the tax in 2014, and it has been floating around Albany ever since. At the opposite end of the spectrum, the fiscally conservative Citizens Budget Commission described the tax as appealing but problematic:

Gov. Andrew Cuomo’s office suggested last week that such a levy might reap $9 billion for the moribund Metropolitan Transportation Authority over the next decade and Assembly Speaker Carl Heastie reiterated his chamber’s support proposal at a Crain’s breakfast forum days later. Mayor Bill de Blasio gave it his blessing as well.

In the original 2014 proposal by the Fiscal Policy Institute, the first item in the proposal is off to a bad start as they describe what happened in the market:

These owners bid up the price of NYC residential real estate, and since they don’t spend much time in these units, contribute little to the local economy compared to full-time residents.

Wrong. A large swath of high-end condo market activity of the past five years are non-primary residences which include pied-a-terres but most are investor purchases that are subsequently rented after the unit closes when construction was completed. The majority of new development units purchased as non-primary were rented out which is why the high-end rental market was crushed by all the new development condo sales by investors. Renters in these units do spend and help drive the local economy. Manhattan is about 75% rental by unit and New York City is about 2/3 rental by unit. It is therefore clear that renters drive a large swath of the NYC economy. Why would renters of high-end apartments be any different than all renters? They eat, sleep, work, and consume. FPI’s apparent belief that most of the high-end development sold ended up as empty pied-a-terres while wealthy buyers bid up the prices is incorrect. This position seems to be derived from one of only two references cited in the FPI white paper, a fun New York Magazine cover story by Andrew Rice. That article came out in 2014 right as the housing market was peaking. The strengthening dollar was cooling demand via international currency plays and the sight of cranes rising everywhere told buyers that an oversupply was here (that still exists today with over 6 years of excess new development product. I was one of the resources for Andrew Rice’s piece and here I explain what happened leading up to the 2014 condition which I later dubbed “Peak Luxury” and “Peak New Development”.

Much of this speculation is being driven by two factors: sparse supply, due to the absorption of the inventory left over from the last boom, and fast-rising prices. Manhattan saw a 30 percent price increase over the past year, on average, which market analyst Jonathan Miller attributes primarily to sales closing in ultraluxury buildings. The highest end of the market has seen stunning inflation.

In other words, the 30 percent price rise wasn’t a “bid up” by wealthy buyers; it was a massive shift in the type of housing stock that was being created and sold. New building materials and engineering enabled 100 story buildings instead of 50 story buildings. Landowners factored this into land prices since many buildings above the 50th floor had expansive open views and (not enough) buyers were willing to pay for it. Prices rose significantly in lower-priced segments (below $5 million) because supply was static and no match for a rising population and the city’s record job growth.

Developers are in the business of developing, and land prices remained high after the housing bubble burst a decade ago because of the large amount of money that was flooding into development. Central banks worldwide pressed rates to zero, creating an army of global investors chasing higher returns. To keep developing despite all this new capital, developers had to build what land prices required, high-end real estate. Developers would create affordable housing if it realized a higher return on the risk they take on. While it has always been difficult and expensive to build in New York City, the post-financial crisis was especially challenging with heavy competition for labor, materials, and land, exacerbated by free-flowing global capital in a low-interest-rate world.

Now the buyers of this real estate, who committed to New York City, are being punished by this new tax, the result of which will damage the city’s global brand that took 25 years to evolve. Why? Because a white paper with only two reference citations, one of which was a magazine article on a small niche of super-tall buildings, was the basis. I am also concerned that the paper did not address the change in consumer behavior when such taxes would be implemented. Why would they push to implement a new tax when it raises the probability that existing tax revenues will fall? To get specific here’s what happened after this article was written. The building known as One57 on the cover of the cited New York Magazine story – 5 years later and after 8 years on the market is 25% unsold and resale activity (the same unit purchased from the sponsor and then sold again) shows as much as a 30% drop in prices since this article was written.

This drop is why I think that the implementation of this new tax as written will be catastrophic to the market, potentially causing it to seize up. As a result, the city would see a significant drop in transfer tax and other associated revenues before considering the new tax. Hit a declining market with more than 6 years of excess supply with a new high tax out of the blue and watch what happens.

The Political Timeline

The shift in New York State and New York City government sentiment against real estate development began with the following recent events:

The proposed law is in each New York State Albany chamber right now and although they have different introduction dates of January 9, 2019 (Senate) and February 4, 2019 (Assembly) they look the same.

The New York State Assembly version: Assembly Bill A4540 or in this format.

The New York State Senate version: Senate Bill S44 or in this format.

The bills are short on details and are currently in committee, wide open for interpretation. As written, the bill is both sweeping and ominous to the real estate industry in New York City, and I expect it will result in less overall tax revenue to the city than currently enjoyed. I’ll get into that further on.

How this proposed S44/A4540 tax seems to work

I am not a tax advisor, and anything I say here should not be relied on, and you should seek appropriate counsel. Seriously. I am merely interpreting what I think are the critical issues established this proposed tax.

  • This tax directed is specifically at New York City because it is designated for cities in the state with populations of more than 1 million. As evidenced by the 2010 census data in Wikipedia, there is a significant population difference between New York City and Buffalo.

You probably think of the market value of your co-op or condo as the price you could sell it for on the open market. However, State law requires us to value residential cooperative and condominium buildings as if they were rental apartment buildings. This means that we look at the income and expense statements of rental buildings that have similar characteristics to determine your condo or co-op buildings market value.

  • It taxes residential properties valued at $5 million and above in NYC, most of which are in Manhattan.
    • And it is a marginal rate tax – only the amount above each threshold is taxed.


    • And it is a property tax which means it will be paid annually, not just upon sale like the Mansion tax. Here is how consumer behavior is impacted by the $1 million threshold of the New York State “Mansion” tax. I did this a while ago, and the pattern still exists. As an annual property tax, the dollar thresholds will be more firm.

  • The tax is not really about pied-a-terres. It is a tax on non-primary residences as written.

Therefore it should apply to investor units and LLCs.

I don’t think it is unreasonable to assume that the language of the bill infers that LLCs could be interpreted as “non-primary residences” even if they are used for primary residences since New York State defines LLCs: An LLC is an unincorporated business organization made up of one or more persons. That definition does not sound like a primary residence to me.

Although the working title of the proposed tax is “pied-a-terre” there is no mention of this particular use in the Senate or Assembly tax bills. They specifically refer to “non-primary residences” so that would include other uses like investor units and possibly LLCs (possibly even those used as primary residences). It’s all still up in the air at this point.

From the New York Times article of March 11, 2019: Lawmakers Support ‘Pied-à-Terre’ Tax on Multimillion-Dollar Second Homes

In 2017, New York City had 75,000 pieds-à-terre, up from 55,000 such units since 2014, according to the New York City Housing and Vacancy Survey. The share of vacant apartments that are classified as pieds-à-terre has held steady during that time at about 30 percent.

From the New York Times article of October 26, 2014: Pied-à-Neighborhood

“If you said you are going to impose a special surcharge on apartments that are worth more than $20 million, that would be perfectly legal,” said Peter L. Faber, a partner at McDermott Will & Emery. “But the problem comes when you start imposing a special tax on nonresidents. That is unconstitutional under the interstate commerce clause.”
The current revenue estimation appears overstated by nearly a third

The bill’s sponsor, New York State Senator Brad Hoylman said:

There are only 5,400 units in New York above $5 million that are owned by non-residents.

For the year 2018 my ACRIS search yielded 952 residential single units sales (1-3 family, co-ops, condos) above the $5 million threshold (1,188 in 2016 and 1,173 in 2017).


I will assume that the Senator included all the apparent nuances within the 5,400 count for the entire NYC housing stock (pied-a-terres, investor units, LLC-owned primary and non-primary residences).

I projected this mix of sales as proportional to the 5,400 units impacted by the new law to break out the tax revenue calculations, understanding the 2018 sales included both primary and non-primary residential uses.


[click to expand]

From the New York Times article of March 11, 2019: Lawmakers Support ‘Pied-à-Terre’ Tax on Multimillion-Dollar Second Homes

It was not immediately clear how much money the tax would raise; the office of the city comptroller, Scott M. Stringer, estimated that a pied-à-terre tax would bring in a minimum of $650 million annually if enacted today. And based on the expected revenue stream, Mr. Cuomo estimated that the state could then raise $9 billion in bonds, backed by the expected taxes paid by pied-à-terre owners.

Based on my calculations, the tax-impacted housing stock would yield tax revenue of roughly $455,000,000 which is about 30% below the $650,000,000 estimate assuming this new tax would not impact any current consumer behavior of the wealthy who would be affected by the tax… which is a GIANT assumption that is patently not true.

Impact to Housing Prices

Using the median sales price of each price traunche set up in the bill, and assuming a 5% discount rate and the median tax for each traunche and a 10 year holding period, the adverse impact to value rises in each higher traunche.

I’ve added 20-year and 30-year holding period versions using the same variables. I started out using the 10-year as a placeholder for the brokerage industry’s default assumption of 7 years for homeownership but then added 3 more years to account for the current market slide. The 20 and 30-year holding periods assumptions might be more realistic given the long term view of investors after the decline in prices of the past several years and the phenomenon of capital preservation in this latest development frenzy since 2012. If that’s the case, properties valued at $25 million or higher might lose 30% of their value overnight…not factoring in a market pause or even collapse in sales until the terms are ironed out. That period of uncertainty starts now through July 1, 2020.


[click to expand]

More New Yorkers Will Leave The City

From the New York Times article of March 11, 2019: Lawmakers Support ‘Pied-à-Terre’ Tax on Multimillion-Dollar Second Homes

Moses Gates, a vice president at the Regional Plan Association, disputed the notion that New Yorkers would leave the city. The association believes that most wealthy pied-à-terre owners would pay the tax. If they chose to sell, then the property has the chance of being purchased by a full-time city resident, who would then be subject to income and sales tax.

It is already happening. His assumption does not take into consideration the new federal tax law enacted on January 1, 2018, that was especially punishing the wealthy real estate property owners that were already considering moving their domicile to a low tax state like Florida. The wealthy who already were on the fence before the new law are now beginning to make their moves. You can see this happening in Florida right now. New Yorkers are the new foreign buyer there. This proposed pied-a-terre tax piles on to the fresh new federal taxes just served to wealthy property owners in NYC metro last year, and sales were already slowing.

Taxing Wealthy Property Owners Around the World

The trend of raising tax revenue on real estate of the wealthy is gaining momentum worldwide. New York City had the distinction of being one of the few major global cities that have not implemented taxes that are openly hostile to foreign buyers or investors. Here is what some countries are doing to tax these buyers and it is slowing sales.

From the New York Times article of February 9, 2019:

Large cities around the world have been grappling with how to make wealthy absentee property owners pay for the privilege of owning secondary residences, a recent report from the Real Estate Institute of British Columbia shows. Sydney, Paris, and London have all recently added or increased taxes on the purchase of secondary homes.

In Hong Kong, nonpermanent residents pay a 15 percent fee on the value of the home, and foreigners pay an additional 15 percent fee. Singapore has restrictions on the purchase of residential property by foreigners and a 15 percent tax. In Denmark, foreigners are required to obtain permission from the government to purchase secondary homes.

In Vancouver, where the greatest concentration of vacant properties is downtown, owners of empty residential properties are charged a 1 percent tax based on the assessed value.
Why Senate Bill S44/Assembly Bill A4540 Will Not Achieve Its Intended Goal As Found Money for MTA Improvements
  • This bill may obliterate future transfer tax revenue from real estate activity and could result in lower net receipts from the real estate sector in the aftermath. The 2014 whitepaper doesn’t consider this but instead presents the tax in a vacuum as if market forces don’t respond.
  • New York City is one of the last “international cities” that is not hostile to foreign buyers and real estate investors
  • The new tax is targeted to condo development since there are few co-op and townhouse non-primary units over $5M
  • The new tax will crush new development activity because land prices will take years, maybe even more than a decade to reset to levels that will support new affordable housing because landowners take long-term buy and hold positions
  • This tax could destroy any progress made with inclusionary zoning to create more affordable housing
  • This tax will not create more affordable housing
  • The idea of the building of “bank safety deposit boxes in the sky” and saying pied-a-terre owners don’t spend money in the city is misleading. Most of the taxed units have occupants that do just that. Many non-primary residences are occupied with renters and those occupants spend money on a daily basis. The actual pied-a-terre segment is a subset of non-primary residences
  • Aspects of this bill might be illegal such as the disconnect in valuation methods to calculate property taxes versus this new tax – state law requires co-op/condos to be valued as income properties and this new law wants the sales comparison approach
  • Luxury real estate buyers do not ignore new taxes as is commonly pontificated. That never happens and I’m not sure where that form of conventional wisdom came from. As such there will be substantial damage to high-end property values going forward, perhaps as much as 30% if not more than that. With the news of this new tax, we expose the market to a panic selloff as existing owners look to take their lumps and get out as new sales pause.
  • The damage to the housing market above the $5 million threshold will not be contained and will likely melt into the layers below it as market stigma expands.
  • The suburban markets, as key competitors to NYC in the immediate area, may actually benefit within their respective high-end markets as NYCs brand damage and new tax may incentivize city buyers to look closer at alternatives in NYC suburban metro as well low-cost areas such as Florida.
Pausing the Market While Politicking

At a bare minimum, the guaranteed uncertainty of the bill’s final form from April 1, 2019 when it is enacted and July 1, 2020 when it is implemented, will help “pause” sales starting now. Sales at the top of the market will slow further than they already have. This uncertainty will have a significant impact on market participants as they wait for Albany to sort this out and will play a significant roll in impacting transfer tax revenue as the market cools further.

There is a strong political appetite for this to be part of the budget. I can only imagine the heavy volume of lobbying and litigation activity to occur between now and July 1, 2020. There is a need/hunger for more revenue by the governor and the mayor for the MTA – which will include a lot of lobbying and litigation since everyone wants a piece of this. Unfortunately, the Real Estate Board of New York does not have clout in Albany political circles but they appear to be working hard to reduce the damage this bill will cause to new development (with a by-product of reducing the loss of existing tax revenues). Whatever happens to this bill, it will probably damage the credibility of the bill’s author, the Fiscal Policy Institute who will learn that market forces do matter and policy should never be considered in a vacuum.

On a positive note, present circumstances included, the impact of this tax bill is so over the top and disconnected from market forces that I would expect the lawsuits and negotiation to be significant and improve the odds this bill will be converted into something less catastrophic. The Senator who is sponsoring this has seemed to suggest this in interviews.

History Fades and so do Lessons Learned

Remember the 1970s version of New York City? The success the city is enjoying now was the result of 25 years of proactive management of city spending and branding efforts. Besides record tourism, real estate activity has been revitalized and that has brought billions of dollars to the city coffers. The introduction of this new tax law ignores human behavior and assumes the tax revenues will rise as if market forces don’t exist. The wealthy will not shrug off these heavy new costs. They will simply go elsewhere. New real estate taxes, especially significant ones, change consumer behavior almost immediately.

If the objective is to punish the high-end housing market and the development community, then this bill will do that. If the objective is to generate new tax revenue for MTA, it won’t. In fact, I believe it will cannibalize existing related tax revenue streams after all the mayhem it causes to the new development industry.

Let’s hope economically informed voices are able to make themselves heard during this process.

I’ll be providing additional insights on this important and developing issue in my weekly Housing Notes. You can sign up for free right here.

Appraiserville

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

On hiatus somewhere in the midwest this week while simultaneously writing appraisal reports.

OFT (One Final Thought)

After the stress of reading the proposed tax law, consider watching this to calm down.


Brilliant Idea #1

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

  • They’ll like wasabi;
  • You’ll be more marginally taxed;
  • And I’ll continue to follow this new tax proposal.

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


March 15, 2019

Housing Changes That Are Hard To Dance To

This has been an incredible, if not a surreal week for those housing market professionals in New York City. It’s as if old ideas are being covered with new clothes. What would Judy Garland think?

Original

New Interpretation


And many other versions.

But I digress…

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

I’ve been the author of the expanding Elliman Report series since 1994 for Douglas Elliman Real Estate. This week’s release known as the Elliman Report: Manhattan, Brooklyn & Queens Rentals 2-2019 is the only monthly version of our series.

As it turns out, the slow down in sales is helping the rental market as more would-be buyers are “camping out” in rentals until they are comfortable with sales conditions.

Bloomberg news covered the report with a chart, which always makes life worth living:


Here are some key points I made about each of the three boroughs and have included a few of our related charts:

MANHATTAN

“Landlords were better able to retain tenants as the sales market slowdown continued to drive rents higher.”

– Landlord concession market share falls year over year for the second straight month after rising for forty-three.
– Net effective median rent rose for the second consecutive month
– Number of new leases fell year over year for the fourth straight month
– Non-doorman median rent outperformed doorman median rent for the second time in seven months
– New development median rent rose annually for the fourth straight month and outpaced existing median rent gains
– Market share of leases above $10 thousand was second highest in nearly six and a half years

BROOKLYN

“Rising use of the rental market by would-be buyers to ‘camp-out’ until they are comfortable with purchase market conditions.”

– Net effective median rent rose year over year for the third straight month
– Concessions market share declined year over year for the second consecutive month after thirty-five months of increases
– Upward price pressure remained strong in the starter market

NW QUEENS

“The market optimism that developed before the Amazon HQ2 decision to withdraw mid-month was largely offset in the second half of the month.”

– Net effective median rent fell year over year for the first time in four months
– Market share of concessions rose year over year at a diminishing rate for the past six months
– New leases fell year over year for the first time in seven months

The Proposed NYC “Pied-A-Terre Tax” Could Be Catastrophic to NYC Real Estate

The New York political zeitgeist was recently reset towards anti-luxury development. The shift began with the following recent events:

Timeline

Here’s the Senate bill S44 or this format. It is short on details and is both wide-sweeping and ominous to the real estate industry.

How this proposed S44 tax seems work

But I am not a tax advisor and this is not a law yet. Please seek appropriate counsel first. I am simply interpreting what I think is the points made in Senate Bill S44.

  • The tax has NOTHING to do with pied-a-terres. It is a tax on non-primary residences as written. Therefore it should apply to investor units as well.
  • It is a property tax – will be paid annually, not just upon sale
  • It is a marginal rate tax – only the amount above each threshold is taxed
  • It taxes residential properties valued at $5 million and above in NYC, most of which are in Manhattan

VERY CONCERNING I am very curious whether LLCs could be interpreted as “non primary residences” even if they are used for primary residences since New York State defines LLCs as: An LLC is an unincorporated business organization made up of one or more persons.

Why Senate Bill S44 is So Bad For NYC
  • New York City is one of the last “international cities” that is not hostile to foreign buyers and real estate investors
  • It is targeted to condo development since there are few co-op and townhouse non-primary units over $5M
  • It will crush new, new development activity because land prices will take years, maybe more than a decade to reset to levels that will support new affordable housing because landowners take long-term buy and hold positions.
  • This could destroy any progress made with inclusionary zoning to create more affordable housing
  • This will obliterate future transfer tax revenue from real estate activity and could very well result in lower net receipts from the real estate sector than if this tax were not enacted. The 2014 whitepaper doesn’t provide this but rather presents it in a vacuum as if market forces don’t respond.
  • Substantial damage to high-end property values. Existing owners could panic sell. Luxury real estate buyers do not simply absorb new taxes as is commonly thought. They modify their purchase behavior and go elsewhere.

This new law, which seems likely to be passed in the current environment and embedded into the budget, will become effective on July 1, 2020. I can only imagine the lobbying and litigation activity between now and then. There is a need/hunger for more revenue by the governor and the mayor for the MTA.

Hudson Yards: Yea or Nay?

Since the 1970s as Penn Central was going bankrupt, ideas to create something useful with the railyards began and the Hudson Yards concept formally in the early 2000s. Hudson Yards has been an expensive endeavor and it officially opened this week to much fanfare and media coverage against the backdrop of the Amazon HQ2 disconnect. The project is spectacular and it comes online at a time where high-end development is being challenged within the political realm.

Here are two differing views from two people I know in the media that always have thoughtful things to say, wade into the debate about the development. They are short clips and each are worth a listen.

Yay: Greg David, Columnist for Crain’s New York Business”

WNYC Money Talking Podcast – listen to segment.

Nay: Justin Davidson, New York Magazine architecture critic:

Bloomberg TV 3-11-19: The Malling of Hudson Yards

For the record, this is the first time I recall using the word “cognizant” on national television. A personal lexicon triumph.

There has been a lot of fanfare about the new Related Companies ‘Hudson Yards‘ mixed-use development being created over the West Side Yard in Manhattan and is connected to ‘The Highline.‘ The centerpiece or “hook” is a $2 billion mall in the middle of the complex. While ‘malls’ are generally a non-starter in Manhattan, there is a successful precedent. The same developer built Time Warner Center at Columbus Circle (southwest corner of Central Park) nearly twenty years ago and it was considered a significant success. I used to live two blocks to the west of Time Warner Center and it was a pretty rough area at the time but that submarket has been significantly upgraded.

Related has pushed out a media blitz on the mall opening this week. It is important to note that NYC gave Hudson Yards more tax breaks than were proposed for Amazon in Long Island City. However, as Barry Ritholtz writes in his excellent comparison between the two deals (LIC v. Hudson Yards) offered by the city. Related seemed to do this deal right and Amazon came across as greedy in the end.

The $3.4 billion dollars committed to parks, subways, etc. in the Hudson Yard project is exactly what the government is supposed to do. You can create incentives for companies to relocate in a way that directly benefits every taxpayer in the region. The incoming company could have burnished their reputation as a good corporate citizen, instead of being perceived as rapacious and greedy.

Here is a rendering of the completed Hudson Yards. I think it looks spectacular. And don’t forget ‘The Vessel.


[Source: DeZeen]

Teachable moment for condo development naming strategies that include a company: Don’t do it.

The Time Warner precedent-setting mall scenario included a condo offering plan circa 2000 named “AOL Time Warner Center” and then the project was renamed “Time Warner Center” after they sold off AOL (Someone named Jonathan Miller took over AOL strangely enough). Deutsche Bank is replacing Warner Media as the anchor tenant in 2021 so the project will be renamed for the new tenant. However, Deutsche Bank has been having its share of financial problems and is considering a merger with Commerzbank. Uh-oh.

Perhaps that’s why Related went with ‘Hudson Yards.’ 😉

Getting Graphic


Favorite charts of the week of our own making

Len Kiefer Chart Magic

I continue to be mesmerized by Len Kiefer‘s chart making skills. Len has no peer.

Appraiserville

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

But We Have AVMs, So Why Get An Appraisal?

But it’s new construction, why get an appraisal? This is the current zeigeist of the regulatory agencies that oversee the mortgage process. How quickly we forget.

California’s Bureau of Real Estate Appraisers Warns Consumers About Restricted Appraisal Reports

The Appraisal Insitute-pushed SB-70 law I talked about a while back has been in effect since January 1, 2019 and expires December 31, 2019. I just checked back in since it went into effect and was shocked to see this warning on the California’s Bureau of Real Estate Appraisers web site say this:

The real estate appraisal process concludes with the appraiser’s opinion of value. Development of an appraisal includes the gathering of facts and evidence, using recognized methods and techniques of analysis, and applying reasoning and judgement. An Appraisal Report is a summary communication of this process and includes the data, relevant evidence, and an explanation of the reasoning and judgement used to support a credible value opinion.

As a stand-alone document an Appraisal Report can be read and understood by users and be the subject of an Appraisal Review by other appraisers. The Appraisal Reviewer’s role is often an essential part of the business process to establish a level of confidence in an appraisal, given the wide variety of skills, knowledge and experience existing among appraisers.

A new law recently enacted in California makes changes to the reporting requirements for licensed appraisers. During 2019 Licensed Appraisers can for the first time provide broadly circulated brief reports for users other than the client; reports that do not summarize the data, evidence, or reasoning used to develop the value opinion. Similar brief reports labeled for users other than a client could previously only be prepared by un-licensed appraisers.

These reports are known as Restricted Appraisal Reports and do not contain sufficient information to be read and understood as a stand-alone document. Restricted Appraisal Reports may not contain enough information for independent verification of facts, analysis or conclusions without access to important additional information.

If you, as a consumer, are considering a significant financial decision that relies upon the services of a licensed real estate appraiser in 2019, be aware that this change may affect you. The Bureau recommends that you do not rely on a Restricted Appraisal Report. Instead, ask for an Appraisal Report; a report that contains written support for the credibility of the value opinion.

In other words, the state regulator seems concerned about this law and how it exposes the most vulnerable to potential abuse – what SB70 enables. And because the safety of the consumer and the public trust was challenged it looks like they needed to issue a warning. If you want evidence on the level of damage the Appraisal Institue has caused to our industry reputation to the consumer so far, there is no need to look further. If you assume that 20%-25% of appraisals done in California are for private non-FRT (that’s another topic for discussion) such as divorces, partnerships, private loans, small carries, family notes, and other non-mortgage work, certified appraisers can do restricted appraisals without intended users and not show their work.

Here’s how it works. The entire idea of a restricted report is to be able to present something directly to your client who probably knows the property better than the person valuing it. In SB70 the report writer is required to include the following disclaimer in each restricted appraisal report, and I’m assuming the legislators could see how reckless this law is:

There may be assumptions that the appraiser has not verified that may significantly impact the appraised value of the subject of the report.


What credible, someone who can sleep at night, licensed appraiser would place their name on a report with this disclaimer? Yet the Appraisal Institute sees SB70 as an incremental win.

Draft 4 of USPAP effectively takes care of the intended user loophole on April 1 if licensed appraisers choose to do a restricted appraisal report by requiring them to include specific names rather than a class of users so if you are a certified appraiser doing these in California in 2019, I’d think twice about doing these restricted appraisal reports.

With SB70, accountability or need for a license becomes obsolete for a large swath of appraisals being completed in California. I believe this is part of the broader AI goal to remove licensing, get rid of TAF/USPAP and restore days of yore to their designation relevance. SB70 is essentially an attempt to make appraisal certifications and some bare minimum standard of qualifications obsolete for non-FRT work. AI leadership in favor of this are still reading their own press releases from the late 1970s about how important a designation is and think the consumer understands quality differences outside of the consumer’s busy personal lives. No disrespect to appraisers with hard-earned MAI and SRA designations, but in reality the organization has failed to keep the branding relevant.

The Appraisal Institute has essentially taken the position that this law makes its members competitive with a tv-repairman (no offense meant to tv-repairmen who are long obsolete) looking to make a few bucks writing restricted reports on the side. What this does in the real world is damage the meaning of “Certified Appraiser” by placing them on a level playing field with anyone writing restricted reports, i.e. pool cleaners, pet groomers, barbers, tv-repairman, nurses, or anyone who wants to do these reports on the side.

NOTE: The reason for any type of licensing is to paint a bullseye on your back – as a professional you are held to a higher standard and jump through more hoops to maintain that professional stats of which you are compensated. This is why appraisers are paid more than TV-repairman moonlighting as appraisers. Certified appraisers need to carry e&o insurance because of the likelihood of being sued and that is another reason why the market pays higher fees for professionals “you get what you pay for.” If you want some electrical work done in your house and get your unlicensed buddy to do it cheaply and illegally, you may not be aware of the potential risks such as fire and sellability later. In the case, of SB70, AI efforts are focused on taking down the difference between appraisal professionals and tv-repairmen so appraisers can get more business by being more competitive with tv-repairmen. In the quest for more appraisal volume at any cost, the cost is a lower consumer value placed on certified appraisals. This mentality has plagued our industry and was the subject of a blog post I wrote on August 9, 2005. Some of the links are broken after 14 years, but the point was made.

Speaking of bullseyes, Realtors hate the exposure this law gives them on these deals when something blows up – they will see such an appraiser as nothing but a crook. How is that for branding our industry to consumers?

The California Chapters of the Appraisal Institute are now pushing SB131 (likely without informing their members as I’m told they didn’t do with SB70) to extend SB70 for another two years.

OFT (One Final Thought)

UPDATE I forgot to to insert this video in these Housing Notes on Friday. It is a follow up of the congressional take down of the new head of the CFPB director who doesn;t understand what an APR is. Good grief.

Brilliant Idea #1

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

  • They’ll be more paleo;
  • You’ll be more visual;
  • And I’ll murder my next appraisal report with excellence.

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

Pied-a-terre Tax Info

Appraisal Related Reads

Extra Curricular Reads


March 8, 2019

Jurassic Housing And Other Visualizations

With all the housing analytics out there, sometimes I get the urge to live in a cave (no, not a man-cave) like back in dinosaur times.


But I digress…

Downtown Brooklyn Partnership’s Five-Year Review

Like my ongoing relationship with the Downtown Alliance in Manhattan, I have started to work with the Downtown Brooklyn Partnership on their presentation of market conditions. Partnerships like this are established to promote/market the positive aspects of their particular submarket. DBP just released their five-year review and it is full of granular bits and pieces about the market, and separately, some quick facts. But first some background (from the report):

In the years following the 2004 adoption of the Downtown Brooklyn Development Plan and an area-wide rezoning of the Special Downtown Brooklyn District more than 14,000 new housing units were delivered in Downtown Brooklyn, nearly two-thirds of which were delivered during the past five years. The district’s growth has accompanied a boom in Brooklyn and NYC’s economy, with record employment and population in the borough and city.


One of the market characteristics of the last five years has been the proliferation of rentals over condos, unlike Manhattan. This and other context is captured in the following chart.


[click to open report]

Finally, Connecticut Gets Good Housing News With Nary A “Nutmeg” Reference

This is another great read by Justin Fox at Bloomberg. My only complaint as a “Nutmegger” is that the MTA train image used in the article is more likely of the type of trains that go to Westchester County, New York. But my home state gets some long overdue economic love.

Going by third-quarter state gross domestic product data that were just released, Connecticut’s economy is on track to grow more than 2 percent in 2018! That’s … not much. But it’s better growth than the state has seen in more than a decade…U.S. real GDP grew 19.1 percent over that same period. The only other states that experienced GDP declines were Louisiana (0.2 percent), Mississippi (2.1 percent) and Wyoming (5.5 percent).


GDP is trending higher…


Housing price growth is in check…


Demographics are shifting…


New York City Is Considering What Other Global Cities Already Have

Bloomberg’s New York Considers Taxing Non-Resident Owners of Luxury Apartments

One of the unique positions of New York City to global real estate investors has been the absence of a tax on foreign investors or vacant luxury units. This has been implemented in other cities such as Vancouver and the results to the local housing markets have been somewhat harsh. I bring this up because I believe such a tax will restrain sales transactions which generate significant tax revenue for the city. Combined with Fincen actions and the Tax Cuts and Jobs Act of 2017 that helped crush demand for high end real estate in high tax, high cost cities, NYC is gambling that this new tax to make up for decades of transit system neglect won’t make new development conditions worse.

And for those who think the SALT cap is going away…The SALT Cap Isn’t Going Anywhere, Right and Left Agree.

Knight Frank’s Wealth Report With A Shot of Single Malt Whiskey

Each year the Knight Frank Wealth Report is published, I pour through their wealth visualizations and wonder why I didn’t do more homework in the seventh grade. Apparently, single malt whiskey is the number one non-real estate investment this year, yet I prefer craft beer. Knight Frank is the international affiliate of Douglas Elliman Real Estate, the company for whom I have authored the expanding market report series since 1994.

Here is a Wall Street Journal story on the report results: Can the World’s Wealthiest Absorb the High-End Home Glut?

And here are a couple of favorite visualizations in the Knight Frank Wealth Report.



Another Way To Visualize Climate Change’s Impact on Housing

This art installation is fascinating.

Documentation of Installation by Pekka Niittyvirta & Timo Aho



Getting Graphic

Our favorite charts of the week


This is an oldy but a goodie. I haven’t drawn text bubbles in a while but was talking to someone about this sort of thing and showed this as a sample – I did this 5.5 years ago…


More Len Kiefer Visualizations


Appraiserville

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

Murder And Death As A Valuation Specialty

There was a fascinating read in Rolling Stone about appraiser Randall Bell and his appraisal specialty.


He doesn’t believe that bulldozing the property removes the stigma. I’d love to know what he thinks about how stigma might change with market conditions. In my own market, tight conditions seem to have negated the impact of tragedies like murder or suicide, or perhaps New Yorkers are simply more jaded. But Bell seems to have seen it all.


A Conversation with Jim Park, ASC Executive Director

Appraiser eLearning hosted an interview with Jim Park, ASC Executive Director. Jim is one of the best friends of the appraisal industry out there because he has an appraisal background and therefore understands what is going on through the same eyes as us.

Here’s the ASC credential chart that shows the national trends:


One personal question for Jim: What’s with the sword hanging over your head in the video? Is this an analogy? Ha. But seriously, good stuff and thanks for sharing your insights with the industry.


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 be more paleo;
  • You’ll be more visual;
  • And I’ll murder my next appraisal report with excellence.

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


March 1, 2019

Building That Perfect Housing Mousetrap

We had a nice snowstorm here in Connecticut last night and the ground is covered. It was a bit surreal after spending the previous 24-hours traveling to and from Boca Raton, Florida to give a presentation. Going from 22-degree weather to 82-degree weather after a 3-hour plane ride and back was a bit disorienting. When I woke up this morning I thought, what should I do on a snow day? Luckily my friend and appraiser colleague in Chicago gave me inspiration because I did this kind of stuff as a kid (and would now if I had time):

My Sister, My Business Partner Gets Her New York Times Due

The New York Times weekend real estate section has a cover story The Boss? You’re Looking at Her: 7 Women in the Building Business and my sister Dina was one of them. I’m very proud of her. She, myself and my wife are the principals of our firm Miller Samuel we co-founded with our parents in 1986. Dina is not a public person like I seem to be but has often said her brother (me) “never met a microphone he didn’t like” which I wear as a badge of honor. Congrats to my sister for her well-deserved recognition.

One of The World’s Most Important Charts (Per Business Insider)

Business Insider reproduced a chart of mine in their own format that represents the change in the Manhattan housing market right now. It’s pretty cool if I do say so myself. With their ability to make SEO-friendly headlines, this one especially sings: Paul Krugman, Rick Rieder, and 47 of the brightest minds on Wall Street reveal the world’s most important charts [paywall]:


[click to expand]

Millennial Debt and The Economic Slowdown

Two good follows on Twitter shared some interesting charts this week:

Ben Casselman, an econ/data reporter for the New York Times had this to say about the following chart and his article:

“The economy grew at a 2.6% rate in the fourth quarter — better than economists expected, but a marked slowdown from earlier in the year. And the start of 2019 is looking even worse.”


[click to expand]

Alex Tanzi of Bloomberg news wrote a terrific article with charts partly about the next generation for housing, the millennials. While mortgages are the largest part of consumer debt, millennial mortgages are not keeping up with the prior generation. They are late to the housing party.


[click to expand]

The Superdumb Superbowl Housing Indicator

While I’m a big fan of ‘The Indicator’ podcast from Planet Money/NPR, this was an icky topic with a strong hook. Glenn Kelman of Redfin fame shared a theory, and you can see how embarrassed he is in his voice, as he attemtped to link the fate of the spring housing market to the NFL Superbowl, almost as if he had a concussion.

The discussion about the market was fine. The gimmick was super dumb. I guess the old PR saying goes, “right or wrong, just spell my name right.”

Hell’s Angels Headquarters For Sale, Crime Will Return

In the mid-1980s when I was just starting out as an appraiser, I remember inspecting a walk-up 1-bedroom apartment across the street from the biker gang’s New York digs. I asked the broker about it and heard the same narrative for years: The existence of the gang on the street made the block safer (especially in the 1980s before gentrification consumed the gritty neighborhood). The only rules were:

  • not to engage them in conversation
  • do not make eye contact with them
  • do not take any pictures of them
  • and never, never, park in front of their building

Appraiserville

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

There is a lot of change brewing in our industry. Look for a lot more from Appraiserville in the coming weeks. Time was short this week but the following could not wait:

Support Barry Cleverdon

I do not know the appraiser Barry Cleverdon personally, there has been an outpouring from colleagues I know and respect to provide financial support to his family. As Ryan Lundquist shares on the Go Fund Me page he set up for Barry’s medical expenses:

Barry Cleverdon has over 35 years of appraisal experience in California and he’s been teaching appraisal classes since 1991. On February 5th while on his way to the REAA appraiser meeting in Sacramento he got into an accident with a large truck. After the incident he actually walked to a Walmart, called a cab, and was driven home. But he fell in his front yard and was then rushed to the hospital where he had surgery to relieve pressure on his brain. He has been in a coma since then. He is moving his limbs but not opening his eyes. He is in ICU.

Let’s show our industry support for one of our own by donating to this worthy effort and help his family. I did.

OFT (One Final Thought)

David Gilmour, my favorite member of the band Pink Floyd, plays Shine On You Crazy Diamond (Parts I–V) (In Concert) and it is a beautiful song. I broke out all my Pink Floyd music this week after an extended absence.


Brilliant Idea #1

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

  • They’ll be more like my sister;
  • You’ll make an important chart;
  • And I’ll play in the snow.

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