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April 22, 2016

Purple Reign of Luxury Housing is Fading Like Blue Jeans

As I write this Housing Note this morning, sitting down and wearing a pair of comfortable blue jeans and a black “Pixies” t-shirt, I am relieved. My busy week involved a lot of walking (6.5 miles yesterday according to my Moves app) to meetings, appraisals, presentations all while wearing a suit and carrying my laptop.

Of course there is a time and a place to wear blue jeans. Think of this as being aware of the world around you. That is a big part of the challenge in understanding the housing market. Always look at it in the right context. If I was a foreign diplomat, I’d probably wear blue jeans even less [1] than I do now: How Russian Blue Jeans Created a Diplomatic Incident in Mongolia [1]

Image Credit: Flickr/ Russian Foreign Ministry [1]

Image Credit: Flickr/ Russian Foreign Ministry

Last night I was invited to speak to an audience of real estate brokers by the best bank client we’ve ever had. I didn’t wear blue jeans. The event was held in a beautiful space at the Park Hyatt, at the base of One57 [2], the symbol of the super tall building phenomenon in NYC. Coincidentally our firm had inspected a full floor apartment on an upper floor of this 90 story super tall for a refinance earlier in the day. It was an evening with great questions and wonderful people. And best of all, I got to talk so much that I almost lost my voice.


Only A Few Banks Still Get The Importance of Understanding The Value of Their Collateral

This is not an infomercial. Our firm has been providing appraisals for First Republic [7] since 1999, a San Francisco based bank, when they opened in New York. We were their first appraiser in NYC. Their top executives, including senior credit personnel, diligently meet with their appraiser panels a few times a year and listen to each of us talk about our respective markets. In the post-financial crisis world, it is particularly refreshing to have the appraisal process taken so seriously. Nearly all big banks work hard to dumb down the appraisal process from a professional service to a commodity (Think AMC [8]). First Republic’s contrarian, thoughtful and sophisticated approach to culture permeates their entire organization.

Hmmm, I wonder if this is why they continue to perform [9] so well?

firstrepublicprice [9]

Speaking of keeping things in check…

Dampers: How does a super tall withstand a typhoon?

We’ve seen an explosion of super tall construction worldwide over the past 5 years. On one of my favorite podcasts, 99% invisible, the story of the once tallest building in the world known as Tapei 101 [10] is fascinating. It’s all about ego. But it’s also about “dampers,” those counterweights that work hard to keep the building from toppling in high winds or at the very least, keeping occupants from mopping up hurl and lung butter [11].

Building such a tall structure is never simple, but doing so in a place like Taipei means accounting for earthquakes and typhoons. The developers would have to engineer the building to withstand extreme environmental conditions, and at the same time, convince tenants and visitors it was safe and comfortable to inhabit.

damper [10]

Speaking of keeping things from toppling…

I can only imagine what the in-house appraisal looked like

Imagine buying a commercial building from a city for $28 million, paying $16.15 million to remove a deed restriction, and then immediately selling the property for a profit of $72 million [12]. The outside appraisers mentioned in the article who I know, provided insights on how “off” the in-house appraisal was. Well that’s what just happened in New York City and makes for a compelling read. It also makes the important point of how business and government should be doing everything they can to protect the appraisal process, which has been decimated through “financial reform” (sarcasm).

It’s as if the city appraised the PyschoBarn on the roof of The Met in NYC [13] which is not what it appears to be.

PsychoBarnfront [13]PsychoBarnback [13]

Speaking of wiping out the appraisal industry’s collective knowledge…

It hurts more when we lose things taken for granted

While I’m not a frequent listener of (The Artist Formerly Known As) Prince [14] in recent years, I have most of his music and loved his work during the 1980s. He died too young (was only two years older than I am) so it is particularly unsettling. Somehow Prince Street in Manhattan and the subway stop there speak to the locals who love Prince. I’m not exactly sure who first shared these on Twitter and Instagram so forgive me for leaving out an attribution.

princesubway2 [15]princesubway [16]

As my friend Gabriel [17] told me, first Bowie, then Prince – these things happens in threes so who’s next?

In other music related disorientation…

And while we’re looking back in time, here’s some pretty cool footage of large U.S. cities in the 1970s (h/t Gothamist [20]).

Speaking of change…

Luxury Housing Markets Are Not All The Same

Wall Street has long been a powerful economic engine for New York City, but times are changing. The industry was off to a weak start in 2016 [21] and there has been an exodus of pension money from hedge funds [22]. As a result, the Hamptons are seeing sales return from record levels to levels more consistent with long term trends [23].
bbcharthamtponssales [23]

Yahoo! Finance [24] interviewed me on the state of the luxury markets that I researched and Douglas Elliman published, covering the luxury market results for for Hamptons [25], Aspen [26], Greenwich [27] and Los Angeles [28]. Alexis Christoforous is always so easy to speak with and Lawrence Lewitinn is the glue that makes the whole thing happen. Here’s how I see high end housing as a general observation (obviously each market can vary tremendously):

“After a burst of activity over the last four or five years, I think we’re going to see a high-end market that’s really going to move sideways,” he said. “Certain markets are going to see a slowdown, others aren’t. The thing to think about is the high-end market is it’s very choppy. Not all markets are the same.”



Here are 7 market reports that I authored and Elliman published this week. It’s the last week of an 18 market, 4 week gauntlet [29] that covers the markets Douglas Elliman [30] covers.

1q16reportsweek4 [25]

Elliman Report: Hamptons Sales 1Q 2016 [31] After a record setting close of 2015, the performance of the Hamptons housing market was more modest in the first quarter of 2016. Price trend indicators were mixed as the decline in sales outpaced the slight drop in supply. Median sales price slipped 2.8% to $895,000 from the year ago quarter, the third highest first quarter result since 2005. Average sales price increased 7.4% to $1,891,758 over the same period, the highest first quarter result in eight years. Price indicators for the luxury market, representing the top 10% of all sales, outperformed the overall market. Luxury median sales price was flat at $5,500,000 from the year ago quarter…
1q16greenwichcondo

Elliman Report: North Fork Sales 1Q 2016 [32] North Fork price trend indicators rose as sales stabilized. Median sales price continued to rise sharply from prior year levels pulling in additional supply. Listing inventory edged 2.6% higher to 507 from the prior year quarter. There were 134 sales in the quarter, unchanged from the same period last year. As a result of stable sales and more inventory, the pace of the market slowed nominally. The absorption period, the number of months to sell all inventory at the current rate of sales, edged up to 11.4 months from 11.1 months in the prior year quarter…
1q16northfork [32]

Elliman Report: Long Island Sales 1Q 2016 [33] Long Island home sales continued on a tear, with the highest first quarter volume in thirteen years. Housing prices have risen for three consecutive years as inventory slipped. There were 5,478 sales, up 28.4% over the prior year quarter. Pending sales showed a similar pattern, rising 22.2% to 6,707 over the same period. Listing inventory declined 6.9% to 13,741 homes from the same period last year. As a result of rising sales and falling inventory the pace of the market moved faster. The absorption rate, the number of months to sell all inventory at the current rate of sales, fell 27.9% to 7.5 months, the fastest paced first quarter in at least 16 years…
1q16northfork [33]

Elliman Report: Fairfield County Sales 1Q 2016 [34] Like most of the suburban markets in the New York City metro area, sales in Fairfield County were at or near record levels. The number of sales increased 8.7% to 1,961 from the year ago quarter to the highest first quarter level in a decade. Sales were up across both major housing types. Listing inventory edged 1.3% higher to 5,903 over the same period. With sales rising faster than inventory, the pace of the market was faster. The absorption rate, the number of months to sell all inventory at the current rate of sales, fell 12.3% to 9 months from the year ago quarter…
1q16fairfield [34]

Elliman Report: Greenwich Sales 1Q 2016 [35]
• Single family price trend indicators continued to slide
• Single family sales moved higher as inventory surged
• Condo price trend indicators moved lower
• Condo sales increased faster than inventory
1q16greenwichsf [35]
1q16greenwichcondo [35]

Elliman Report: Aspen Sales 1Q 2016 [36] Despite faster marketing times, the high-end took a breather as the average size of a sale dropped sharply across the market, skewing some of the price trend metrics. The average size of Aspen condo and single family sales was 1,886 square feet, down 37.4% from 3,015 in the prior year quarter. A shift in size this large last occurred in the second quarter of 2015 and is the fourth time in four years such a shift has occurred…Average price per square foot was $1,454, up 5.6% from the prior year quarter to the second highest level in the thirteen years of this data series…
1q16aspen [36]

Elliman Report: Los Angeles 1Q 2016 [37] The Westside and Downtown Los Angeles housing market continued to experience record prices. Average sales price, average price per square foot and median sales price were at their highest levels since at least 2004 when this data series began. Median sales price exceeded the $1 million threshold for the first time, rising 17.6% to a record $1,035,000 from the prior year quarter. Average sales price increased 14% to a record $1,581,607 over the same period…
1q16la [37]

Speaking of visualizing different markets…

More charts

Here are some charts covering a few of the markets I wrote about this week. I don’t want to overwhelm my dear readers so I’ll share more over the coming weeks.

Hamptons
1Q16H-supplydemand

1Q16H-NOSasp

1Q16H-MEDasp

1Q16H-DOMdisc

1Q16H-$10M [38]

North Fork
1Q16NF-DOMdisc [39]

1Q16NF-MEDasp [40]

1Q16NF-NOSasp [41]

1Q16NF-supplydemand [42]

Fairfield County, CT
1Q16FF-ASPnos [43]

1Q16FF-DOMdisc [44]

1Q16FF-medAVG [45]

1Q16FF-MedianSFcondo [46]

1Q16FF-SupplyDemand [47]

Greenwich, CT
1Q16GRN-avgMED [48]

1Q16GRN-reno [49]

Aspen, CO
1Q16Aspen-10M [50]

1Q16ASPEN-AVGmed [51]

1Q16Aspen-changesqftPPSF [52]

1Q16ASPEN-DOMdisc [53]

1Q16ASPEN-luxNONlux [54]

1Q16Aspen-NOSavg [55]

1Q16ASPEN-SFcondo [56]

1Q16ASPEN-supplydemand [57]

1Q16ASPENSV-median [58]

Snowmass Village, CO
1Q16SV-10M [59]

1Q16SV-AVGmed [60]

1Q16SV-DOMdisc [61]

1Q16SV-NOSasp [62]

1Q16SV-SFcondo [63]

1Q16SV-supplydemand [64]

Speaking of my voice…

Well, my voice is nearly gone so I need to wrap this up.

Remember, if you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here [65]. And be sure to share with a friend or colleague. They’ll party like its 1999, you’ll feel like a damper and I’ll be sure not to be taken for granted.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc. [66]
Real Estate Appraisers & Consultants


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