Handling the Truth: Looking For A Few Good Houses With The New Tax Law
This is how the housing market story should be told (there is no sound).
A smart kid and his dad having a little chat on Christmas Eve. pic.twitter.com/UmTSrwgOt7— Classic Dad Moves (@ClassicDadMoves) December 20, 2017
Tax Bill Signed Into Law Today: Marks End of Federal Government’s Favored Nation Status of Homeownership
The president signed the tax bill into law today – it has been a primary driver of national news for most of the fall. It reverses nearly a full century of the favored status of the asset class by removing deductions that are long baked into housing values and buying decisions. The whole home buying process will be rethought going forward.
Generally speaking, the impact will be much more severe on the east and west coasts than it will in the middle of the country because housing prices are much higher. I covered the pros and cons of the tax bill in my 12/14/17 white paper last week: House & Senate Tax Bills: Issues Related to Housing.
President Trump pushed for law’s title to be the “Cut Cut Cut Act” as a branding mechanism but the name didn’t stick. Because the tax bill was not publicly vetted and on adoption, few congressional members had actually read it, the implications are not yet fully understood so I expect more issues relating to housing will be discovered in the coming months.
If there is one thing the housing market doesn’t like, it is uncertainty. As it relates to housing, this new law is an “uncertainty casserole” and homebuyers and sellers will take a while, probably 1-2 years to adapt to the new world order and sales will be tempered until there is equilibrium. Prices in high-cost housing markets will clearly slip, although I don’t anticipate a severity.
Here’s my interview on Bloomberg Radio concerning the new tax law’s impact on high-cost housing markets like NYC. I joined Pimm Fox on Bloomberg Radio this morning on Bloomberg Markets AM. It was prompted by Oshrat Carmiel’s article: Tax Overhaul May Mean Lower Prices for Manhattan Homebuyers.
Renters Are Less Mobile (So Will Homeowners)
One of the implications of the new tax law is the restriction on mobility for homeowners in high-cost markets who have to decide whether to give up their existing MID and bear more expenses on their home purchase. I suspect this will be more pronounced over the next 1-2 years as buyers and sellers get in sync with the ramifications of the new tax law.
This has already been the story in the rental market nationwide.
This Week in Aspirational Pricing
Here’s a fun article from the new Quartz site called “Quartzy” that proclaims THERE’S NEVER BEEN A BETTER TIME TO BUY A $50 MILLION NYC DREAM PAD.
And this week’s standouts:
Greenwich, CT 12,386 SqFt Mansion Dropped 61% from $25,000,000 2013 ask to a $9,650,000 sales price.
New York, NY 11,906 SqFt Condo Dropped 24% from $120,000,000 2013 ask to the $91,125,497 sales price. Oh, and the buyer still has to combine and renovate the 3 units into one unit.
Introduction of High-End Condos in the Suburbs
As a reader of Housing Notes, you know that I refer to 2014 as “Peak Luxury” and I was largely referring to U.S. urban markets. However, in 2014, we began to see luxury condo development in suburban markets as the urban markets heated up. The luxury product seemed targeted at high-end housing empty-nesters who were downsizing or urban trade-up buyers who were priced out. While these luxury condos were significantly more expensive than existing condo housing stock, urban buyers were already conditioned to multi-family living and existing luxury single-family homeowners didn’t have to worry about mowing the lawn or painting the house.
There’s a good read in Newsday today on this phenomenon occurring in Long Island: Super deluxe condominiums are on the rise on Long Island. This includes all of Nassau and Suffolk counties (ie includes Hamptons/North Fork out east).
The following chart clearly shows the 2015 spike, but the contract groundswell began in 2014 and closed in 2015. The 2017 sales volume, while off the pace of 2015, is substantially above prior peak levels.
My dear Appraiserville readers. If you can do one important thing for your appraisal profession, this is your opportunity and it doesn’t cost you anything but a few minutes of your time (and at AMC appraiser rates, it’s virtually free). Please provide feedback immediately to “two banking institutions have requested that the Appraisal Subcommittee temporarily waive the requirement for use of state licensed or certified appraisers” based on the fake claim of an appraisal shortage. I wrote about Tristar Bank in Appraiserville a few weeks ago. It is worth re-visiting since I translate the Tristar request into my interpretation of what they are really saying.
It is recommended to send your responses ASAP to firstname.lastname@example.org rather than to Jim Park directly although either way is fine.
The Appraisal Foundation will be responding to this issue. Here is an email I just received on this issue:
Dear Council Members:
We wanted you to be aware that two banking institutions have requested that the Appraisal Subcommittee temporarily waive the requirement for use of state licensed or certified appraisers as authorized under Title XI. For background information and copies of the letters, please visit: https://www.asc.gov/Temporary-Waiver-Requests/TWAP.aspx
The ASC is encouraging input from the appraiser community as they consider these requests. As the first request came from a bank in the metropolitan Nashville area, an area with a large number of appraisers, an approval would certainly create a ripple effect across the country. Please submit your comments to:
1401 H Street, Suite 760
Washington, DC 20005
The Appraisal Foundation intends to provide comment and will provide you with a copy of our letter. Thank you for your attention to this critical matter.
David S. Bunton
The Appraisal Foundation
direct phone 202.624.3040
Please take a few minutes and respond to this critical issue.
Appraisers Pushing Back Against AMC Bad Behavior!
The Virginia Coalition of Appraisers (VaCAP) shares a Solidifi (an AMC) email blast to its appraiser panel and the subsequent response by the appraiser (not from Virginia). The following AMC letter is tone deaf and Grinch-Like, showing how Solidifi feels about their valuation professionals (bold emphasis mine).
SOLIDIFI AMC LETTER TO THEIR APPRAISERS
Just a few reminders about the holidays and order deliveries around this time of year:
1. If you have an order due on Christmas eve, Christmas or the day after, please make plans to meet the due date or turn reports in early. Turning reports in late due to a holiday is NOT ACCEPTABLE. Every effort should be made to set the right delivery expectations.
2. IF there are revisions on your file, please try your best to be available to address revisions on a rush if possible. Obviously, I don’t expect you to take time away from your families, but I still do expect an ETA from you, as we are paying you for a product and expect the product to be delivered in a timely fashion.
3. UPDATE. UPDATE. UPDATE. Please make sure orders are notated properly, especially if there is borrower delay. I have been reaching out to borrowers on files who have confirmed they have been able to meet sooner than the appraiser has in the system. Please note, I can and will check with borrowers, so please ensure notes are kept.
4. Lastly, please double check lender requirements on orders, and please note that ALL COMP PHOTOS ARE TO BE ORIGINAL ON ALMOST EVERY ORDER. If there is a comparable that cannot have a photo taken for whatever reason, take the best photo possible (i.e. road closed sign, construction) and include an MLS photo with commentary outlining why the photo could not be taken.
I should not have to call the same people on the exact same revisions that keep coming back. I have seen far too many people get dinged on original photos, so if this continues, the workload with drop until these problems are fixed. Volume is down across the country, so there should be no reason why original photos cannot be taken in a timely manner. If there are any problems, please let me know!
If you read this entire thing, please acknowledge and tell me your favorite Christmas movie. Thanks!”
That grade school closing sentence is especially insulting to any professional that works for them. It clearly demonstrates that Solodifi bombards their appraisers with such a high volume of CYA emails for policy statements and status checks that the appraisers can’t possibly keep up. So to test how many appraisers read their email, they inserted a silly question into it. Here is how the appraiser responded to this email.
APPRAISER RESPONSE TO DEMEANING SOLIDIFI LETTER
The following e-mail is being sent to all of the lenders who use you as an AMC. You have crossed a line and the continued deterioration of the respect to appraisers has got to come to a stop. It is no longer acceptable.
To whom it may concern:
Appraisal management companies most likely sell their services to lenders with the idea that appraisers actually like to work with them and that appraisers are “partners”. The truth is a vast majority of appraisers would love to never have to work for an AMC again. AMCs do not treat appraisers like professionals and the actions of AMCs have only gotten worse over time. The AMC model is based on lies and deceit and constant unneeded added requirements of the appraisers.
AMCs harass appraisers with constant update e-mails, phone calls, engagement letters that are 20 pages in length and requirements to use smart phone aps that track the progress of the appraiser. Mass e-mails to 10, 30 or 50 appraisers looking for the cheapest and fastest appraiser became more common in 2017 with one company (Appraisal Nation) sending mass e-mails to over 200 appraisers at a time multiple times.
The AMC model is selling their services based on providing you a good product with local appraisers that they are their “partners”. Appraisers have gotten used to the disrespect and they work for AMCs out of need as they slowly try to find direct lenders and sources of revenue other than the corrupt AMC model that shows no respect to the appraisal profession.
While disrespect has long been a part of the AMC model the AMC you use, Solidifi, has taken the disrespect to another level by sending the following e-mail to appraisers this holiday season. As you can see there is no respect and it appears it is acceptable to be completely condescending to the point of communicating to professional appraisers like they are in the sixth grade.
If this offends you as much as it did the appraisers who received this e-mail you might want to consider getting away from the AMC model and going with a portal such as Appraisalport, Mercury Network or AppraisalScope as appraisers would much rather work in the portal environment rather than for the AMC model that has continued to disrespect the professional appraiser.
Over the past year, appraisers are beginning to stand up publicly and challenge those who have been speaking on our behalf without our permission. It’s an exciting period of change for us. Let’s keep it going! This Monty Python “Black Knight” skit provides the perfect analogy:
And if you’re an Appraiser but NOT a Monty Python fan (seems impossible), then this should serve as a useful analogy too.
A Brilliant Idea
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 mobile;
- You’ll be more aspirational;
- And I’ll name my favorite Christmas song (White Christmas – Bing Crosby version).
See you next week (in limited but not Santa Clause fashion),
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- Chinese buyer shells out $91M at 432 Park [The Real Deal]
- Home prices since 1870 [VOX, CEPR’s Policy Portal]
- U.S. tax cuts won't make housing more affordable: analysts [Reuters]
- Renters Are Staying Put [NYT]
- Taxpayers will have to wait to find out how they did under new legislation [Washington Post]
- How the Tax Bill Will Affect Eight American Families [Bloomberg]
- GOP Tax Overhaul Makes Homeownership Less Appealing [WSJ]
- I'm seeing the term 'Pullman kitchen' in listings. What does that mean? [Brick Underground]
- Britain's House Prices Could Come to a Standstill in 2018 [Bloomberg]
- America's homebuilders haven't felt this good since 1999 [Yahoo Finance]
- Is the rent “too damn high”? Or are incomes too low? [Brookings]
- Miami residents fear 'climate gentrification' as investors seek higher ground [PRI]
- Mall Owners Take Different Tack [Bloomberg]
- A Home Buyer’s Nightmare: Moving to a Flood Zone Without Knowing It [WSJ]
- Fannie Mae Issues $10 Million ‘Challenge’ to Help Address America’s Affordable Housing Crisis | [Fannie Mae]
- How Millennials Are Changing the Real Estate Market [Robb Report]
- Home prices will drop as a result of tax reform, says report [Curbed]
- These Cities Have Already Reached 'Peak Millennial' as Young People Begin to Leave [Time]
- Boston hits ‘peak millennial’ as younger generation exits city [Curbed]
- Tax Break Could Help Small Shops Survive Manhattan’s Rising Rents [NYT]
- What’s in the Tax Bill, and How It Will Affect You [NYT]
- The Ghost of Renters Past: A Portrait of Renters in the U.S. since 1930 – Apartment List Rentonomics [Apartmentlist]
- Mortgage lenders fear ‘train wreck’ logjam due to IRS issue [National Mortgage News]
- Slash and earn [TRD]
- Home Sales Remained Sluggish in October [WSJ]
- Property-tax inequality by council district [Crains]
- Deduction Rollback Hurts High-Tax States, But Exodus Isn’t Assured [WSJ]
- LI tops list of housing markets most affected by tax bill [Newsday]
- For many, the rent is still too damn high [CNN Money]
- Older, wealthier Americans are the new renters [CNBC]
- Government Shifts Gears on Fannie Mae, Freddie Mac [WSJ]
- ‘Gucci Penthouse’ in Manhattan Returns to Market—Now Available as Two Separate Units [Mansion Global]
- Wall Street Wises Up to the Folly of Forecasting [Bloomberg]
- Riding a Time Capsule to Apartment 8G [NYT]
- With Billions at Stake in Tax Debate, Lobbyists Played Hardball [NYT]
- The Winners and Losers in the Tax Bill [NYT]
- Tax Reform With $750k Cap on Mortgage Interest Deduction Would Leave 1 in 7 U.S. Homes Eligible – [Zillow]
My New Content, Research and Mentions
- Radio: Tax Bill Will Create A Buyer’s Market In NYC: Miller [Bloomberg Radio]
- Once Asking $25 Million, Greenwich, Connecticut’s Linden Court Sells for $9.65M [Mansion Global]
- Strong demand on LI for $1M-plus condos [Newsday]
- Hidden costs and property value bonuses of NYC loft apartments
- There's never been a better time to buy a $50 million Manhattan dream pad [Quartz]
- Sold: November home sales show Greenwich uptick [CT Post]
- Expect More High-end New Developments and More Landlord Concessions [Globest]
Appraisal Related Reads
- How Do I Know If My Home is Priced Accurately? [Birmingham Appraisal Blog]
- Temporary Waivers; Authority and Procedure [Appraisal Subcommittee]
Extra Curricular Reads
- Podcast: 13: Let it Beep [Welcome to Macintosh]
- The 50 Best Podcasts of 2017 [The Atlantic]
- Deliverance From 27,000 Feet [NYT]
- The Smallest KFC in the World Served Tiny Pieces of Fried Chicken and Biscuits [Untapped Cities]
- How Cuts in Basic Subway Upkeep Can Make Your Commute Miserable [NYT]
- Top 10 Weirdest College Mascots
- Why Garbage Science Gets Published – Issue 55: Trust – [Nautilus]