Whole Lotta Housing?

The next time you have the opportunity to give a speech, consider the potential uses of a microphone. Since Led Zeppelin is trending on Twitter right now for unknown reasons…


and I want Housing Notes to be in tune with our current cultural zeitgeist, I shared a clip again that I’ve watched a bunch and I can’t stop. Microphones are clearly underutilized. Please remember this clip the next time you give a speech using a mic and don’t short yourself.


But I digress…

The Hamptons And Other Luxury Market Destinations Are Having A Hard Time Keeping Up With Demand

I’ve been the author of the expanding Douglas Elliman market report series since 1994 and this week Douglas Elliman published our research on The Hamptons, North Fork, Long Island, Los Angeles, Venice Beach, Mar Vista, Malibu and Malibu Beach.

One of the pivots in the housing market post-COVID lockdown has been the inversion of market strength. Instead of housing markets reflecting a “soft at the top” characteristic, it has inverted with the lower end seeing less strength than higher-priced segments (not weakness, just less strength than higher price tranches). In the Hamptons and North Fork, overall listing inventory is way down as covered in The Real Deal Buyers hunt Hamptons, North Fork homes — often in vain. Sellers are owning the Hamptons market right now as reported in Mansion Global Hamptons Sellers Bask in a Luxury Buying Spree.

For the most part, in a relative sense, upper-end markets we cover across the U.S., those below the very top seem to be showing a disproportionate amount of activity. This is discussed in this Bloomberg story on the Hamptons, comparing it to other markets we cover such as Palm Beach and Greenwich: Frenzied Demand Is Luring Hamptons Sellers in Boom-Time Market And its not just sales as CNBC reported: A house just rented in the Hamptons for $2 million for the summer. Forbes also reported on the boom that our research shows: Hamptons Home Sales Hit Records

Here’s an illustration for the Hamptons showing the middle tranche of $1 million to $5 million (I affectionally call with tongue in cheek, the “Hamptons Middle”) shows a massive YOY surge. Granted the markets above and below are booming with sales activity too.

“It’s a generational change,” says Michaela Keszler, a broker at Douglas Elliman. “They’ve had their houses for a long time, and they want to downsize or move somewhere else.”

In Newsday Looking for a home in the Hamptons? Get ready to shell out $1.3 million.

There was a “massive surge” in sales activity in the $1 million to $5 million range, where the number of sales jumped by almost 83% compared with a year earlier…

In fact as a result, overall average sales was skewed negative because of the significant YOY shift in what is selling. Here’s a screenshot of my always colorful internal worksheet.

Hamptons listing inventory saw sharp gains after the federal SALT tax went into effect in January 2018 but the growth dissipated before the pandemic as late 2019 and early 2020 started to look better for sellers. However the past year has burned off a tremendous amount of inventory with record sales volume:

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HAMPTONS HIGHLIGHTS

“The market pace remained brisk, with heavy sales volume and limited inventory.”

  • Listing inventory fell at its fastest rate in more than thirteen years of tracking
  • Sales surged year over year for the third straight quarter to the largest first-quarter total in six years
  • Median sales price rose sharply year over year for the fifth consecutive quarter
  • While sales surged market-wide, activity on the $1 million to $5 million range nearly doubled, skewing average sales price lower
  • Listing inventory for the luxury market rose in sharp contrast to the remainder of the market, which declined

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NORTH FORK HIGHLIGHTS

“Robust market conditions remained with high sales activity, prices and limited supply.”

  • The number of sales jumped annually for the third straight quarter
  • Listing inventory fell to the lowest level in fifteen years of tracking
  • More than a third of all closings occurred above the last asking price
  • The number of sales above the $2 million threshold more than tripled


LONG ISLAND HIGHLIGHTS

“A record-laden quarterly result with rising prices, strong demand, and limited supply.”

  • Average and median sales price rose sharply to new records, collectively for the third straight quarter
  • The number of sales surged year over year at the highest rate in eleven years
  • Listing inventory fell sharply to the lowest level in nearly eighteen years of tracking
  • Single family median sales price set a new record for the fourth consecutive quarter
  • Condo month of supply showed the second fastest-paced market in twelve years
  • Luxury listing inventory fell by its steepest annual rate in eleven years to its second-lowest level on record

Knight Frank NY Focus Report: New York Prices To Stabilize in 2021

Knight Frank, a global real estate firm and is affiliated with Douglas Elliman produces a slew of global housing market reports. I’ was connected with them and other global firms like Savills before Elliman developed their relationship. Knight Frank has been covering various U.S. housing markets since they became affiliated with Douglas Elliman, incorporating our research and analysis into their presentations. They produce some beautiful reports. The latest is a subset of U.S. reports that key off of their seminal annual Wealth Report. Here’s a snippet Incidentally, “UHNWI” means “Ultra High Net Worth Individuals.”


New York Focus 2021 [Knight Frank]

An Epic NYT Piece On The Current State of Real Estate: Optimistic But Still Unsettling

Please read this New York Times piece: U.S. Home Sales Are Surging. When Does the Music Stop?

It really resonated with me (probably because I can’t play an instrument).

U.S. Real Estate Analogy Using A Big Apple

This video went viral and made the rounds with all my appraiser colleagues across the U.S. The shortage of U.S. listing inventory is causing a lot of irrational behavior but mortgage lending is still historically tight. Watch it.


Where Did People Actually Move Since The Pandemic Began?

This pandemic/housing discussion that began mid-March of 2020 has been visualized in an excellent way by The Upshot at the New York Times: How the Pandemic Did, and Didn’t, Change Where Americans Move

There was tremendous growth in lower-density outward regions, especially the Hudson Valley, upstate Connecticut, and the eastern end of Long Island.

In short, as disruptive as the pandemic has been in nearly every aspect of life, it doesn’t appear to have altered the underlying forces shaping which places are thriving or struggling.


and this…

All together, this evidence shows neither a broad pandemic urban exodus, nor a California-specific exodus, nor a remote-work boon for declining communities hoping the past year might usher in their revival.


There are lots of visualizations in the piece – this one captured NYC metro and its quite informative:


For Users Of The Zestimate, Please Realize It Is Only Reasonably Accurate 50% Of The Time

I’ve long been annoyed about the consumer infatuation with the Zestimate which was the marketing genius of the founders of Zillow. It was incredibly sticky to the consumer – after all, who doesn’t want to know what their relatives’ homes are worth? Full disclosure: I was on the Trulia industry advisory board from prior to their website launch until being acquired by Zillow.


The problem is, the results are still crap because in the phrase “median accuracy rate” the “median” part gets glossed over. I’ve written about this hundreds of times and I continue to be amazed at how most consumers don’t understand this. A median accuracy rate of 1.9% literally means that 50% of the time the Zestimate is within 1.9% of the price and 50% of the time it is not. It could be 99% off the right price half the time! Perhaps this is the actual reason why Zillow is not using their Zestimate in their iBuyer business – when it’s their money, they don’t trust it.

When I read this CNN piece about accuracy and sent a suggestion to the author to provide additional clarity and she did but its really not enough.

When you look at how these firms pitch their accuracy within the piece and then remember what “median” means, it gives you quite a different take.

One of the worst kept secrets of the past several years is how much the listing price impacts the Zestimate. It’s almost as if the accuracy is so bad, they need the listing price for a reality check. In my mind, this is actually proof positive that Zillow knows Zestimate is terrible because it is overly reliant on the original listing price of the property. In a random test, I selected an area in Bethesda Maryland where I grew up and looked at the Zestimate trend for the first ten listings I saw. In every case, those listings caused the Zestimate to surge to meet the asking price. Incredible!

Lifting Homes To Lift Prices

I’m showing this CNBC clip that shows how homes are raised to protect against rising water levels because I was taken aback by how cheap it was to do it. Small homes can be lifted for $10,000! With the furniture remaining inside!!!


ShowingTime: 2020 Property Showings Remained Above Trend From May Through December

One of the standard features on many MLS systems these days is a ShowingTime button. They have a free analytics section related to statewide showings to show the impact of COVID. It’s fascinating to watch.


Agent 1 Coaching Video: Talking Appraisals And Market Conditions

Here’s a fun discussion I had about everything with some real estate agents about appraisers with my friend Laura Scott. Click on image to listen.


Getting Graphic


My favorite charts of the week made by others

Appraiserville

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

TODAY IS THE LAST DAY To Submit Comments On The First Exposure Draft of a Proposed Change to the Real Property Appraiser Qualification Criteria

Here is the AQB exposure draft up for review. The comment link is on the second page at the “Survey Monkey” link.


This change is being pushed by large institutions that have the ear of The Appraisal Foundation because they either pay for it through being on IAC, sponsorships or they sit on AQB and don’t recuse themselves for their conflict of interest. Most of my colleagues take this view from a friend and colleague of mine (raw forwarded – many times – notes):


My understanding is that AQB is proposing striking the following…..which –if I comprehend the occasionally uncomprehendable, this removes the necessity of any direct hands-on training/field experience and allows individuals to be licensed/certified without such field experience… or possibly be under an instructor who will be remotely responsible for the actions of the infield trainee and likely numerous others.

Interpretation— the largest stakeholders–AVM’s– instructional providers– etc. will be the ones promoting this and providing training for multiple new appraisers.. And as one state regulatory agency insider commented we don’t have enough money or attorneys to go up against these entities or their appraisers.

Result—-Not good for the public, citizens, or the industry. This would seem self-serving for those that would benefit from lower standards, from creating a huge supply of appraisers and/or from providing training. Lower standards and minimally trained individuals is not what is needed nor is it good for anyone.

Having been involved/responsible for training 1-5 appraisers per year by my firm over the last 40+ years… I strongly believe in field- direct supervision by an experienced appraiser is a necessity. Further classroom hours/ coursesare most effective/useful after field training. You will not learn it without doing it in real life. One individual overseeing numerous others will not suffice for direct training.

The following change is being made deleting the experience is valuable statement……

(Will Be Deleted in Bold my emphasis) There is an underlying assumption that experience is valuable because clients and instructors tend to demand competency. Because experience in a classroom setting calls this assumption into question, credentialing authorities should carefully assess the quality and adequacy of appraisals made under such circumstances. They should also give consideration to restricting the percentage of this type ofexperience.Therefore, while practicum course appraisals are eligible to qualify for experience credit, the credentialing authority should audit a significant sample of appraisals made in such instances for quality and conformance with USPAP.

I can’t help but wonder which interest would put this forward. I am having difficulty with the argument that this is housekeeping bringing this in line with other statements. Perhaps it’s the other statementsthat should be reconsidered.

How many experts would you hire that didn’t have experience overseen by an involved at risk professional? Doctor? Radiologist, Dentist, Accountant?


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Note from Jonathan: “The line numbers in the above “bold” section were removed to provide more clarity within the smorgasbord of informal stream of consciousness text. The original numbered text of the proposed deletion within the first exposure draft, as originally found the source document, is presented below. Click on the image to take you to the original text.”


While I agree with this there does need to be some sort of nuanced middle ground or appraisers will be fully replaced over time. Why else are Fannie and Freddie now applying AVMs to well more than half of all mortgages being issued? It is literally happening right now.

I think the key problem here is that most banks won’t accept trainees so the “mentor” mentality means the appraisers are largely useless for two years and places the financial burden on mentors – plus economically AMCs have removed a chunk of profits from appraisers making that two year period untenable for many mentors.

No other profession makes an arbitrary requirement like two years of mentorship. I have some young trainees with 6-9 months experience, that are better appraisers than some long-time veterans.

The Fall RAC Conference 2021 Is On!!! September 16-17

RAC will be holding this live, in-person event, in Plano, Texas.

“Mastering Disasters – conquering housing market disruptors”

More information to follow soon!

Incidentally, we were inspired by RAC member Frank Gregoire’s desktop for the marketing photo!

Your Zestimate is 50% Off + That Viral Housing Videa

If you skipped over it, look for these appraisal-related topics above in Housing Notes!

OFT (One Final Thought)

Why? Because He Can.


Brilliant Idea #1

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Brilliant Idea #2

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

See you next week.

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

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