Spocking Fives for Housing To Live Long and Prosper
Scrolling The Most Expensive U.S. Residential Sale In History
I plotted out all Manhattan residential closed sales since 2008 through January 2019 to provide some context to how much of an outlier the recent $238 million luxury condo  sale was. I’ve had a heck of a time converting my excel chart into a format to display on my web site so I resorted to making my first screencast video. I did it on the fly but it really helps illustrate how out of context the recent $238 million sale actually was.
My solution? Make a screencast video.
Then relax and watch me start scrolling. It provides some useful context and is pretty cool despite the poor audio quality:
This Week in Aspirational Pricing: $50 Million Will Get You The Most Expensive Miami Sale in History
If one record wasn’t enough, the highest price paid for a residential sale in Miami-Dade County  just clocked in at $50 million (same Douglas Elliman brokers as the $238 million condo sale in Manhattan).
Just as I get too jaded, another record makes me marvel at how far all this is from mere mortals like me. Here’s what the house looks like from the Miami Herald story:
Memories Can’t Wait: Hamptons Permits Are Down
As the Talking Heads , one of my favorite bands, once sang…
There was a good story in 27east  about how the Hamptons era of heavy building has come to an end. Supplemental metrics were extracted from our Hamptons research in the Q4-2018 Elliman Report: Hamptons Sales .
This leveling off of permits reminds me of the period leading up to the financial crisis.
Developers on the South Fork have been busy building in recent years. As a result, the number of homes on the high end swelled, and space available for large construction projects has become limited.
Here’s a chart on building permit trends and revenue growth from the piece. Many towns and villages rely heavily on the revenue that development generates.
How The Mortgage Brokerage Industry Sees The Financial Crisis Legacy
Former CEO of Countrywide, Angelo Mozilo was interviewed  by Rob Chrisman at The National Association of Mortgage Brokers’ (NAMB) annual convention in Las Vegas.
For me, the Mozilo interview at the conference was somewhere between fantasyland and a farce. Chrisman lobbed up softball questions about Mozilo’s background and the rise of Countrywide. Nowhere was it mentioned that the mortgage company was seen by many as the “epicenter” of the 2008 mortgage crisis, issuing millions in “liar loans” homeowners couldn’t afford.
The most telling (and chilling) part of the interview was this. Mozilo said of his former company:
“I loved the changes you make in people’s lives. I approved 80 percent of the loans my underwriters rejected”
No wonder we are still in the “hangover” phase of the financial crisis. How incredibly irresponsible. In fact, Mozilo was given a standing ovation at this event.
My favorite chart of the week. I whipped this up before a presentation yesterday. The inventory coming off the market above $3 million represents the clearing of “dead wood” or overpriced inventory that the seller has finally realized is unsaleable at that price. The surge in supply below $3 million represents the slowdown in that market (it’s still moving faster than luxury) is allowing supply to rise sharply. At first this was explainable by rising mortgage rates which are more impactful to the starter market, but rates are at their lowest levels in 9 months. Uncertainty rules all price levels right now.
(For earlier appraisal industry commentary, visit my old clunky REIC  site.)
The Letters Came Pouring In Just In Time
As the comment period on the regulatory rule change that would raise the de minimus from $250,000 to $400,000 to require a certified appraisal of the collateral for a mortgage, there was an inflow of position letters on the insanity of this rule change. It is important that appraisers read them and understand what is at stake here.
‘The Network’ Letter – Peter Gallo and the 30 State Appraiser Coalitions put their money where their mouth was and hired the best law firm to cover key appraisal industry issues of the day: CONSTANTINE CANNON LLP. This letter has been disseminated across the industry and can be used not only against this rule change but as an “evergreen” summary to ensure the accuracy of the appraisal industry’s narrative. That last point is key as the appraisal industry has shifted to a grassroots effort after being bludgeoned by REVAA (the AMC trade group), the mortgage and banking industries.
Incidentally, the ABA (American Banker’s Association) liked the rule change  and submitted their letter at the end of the day of due date.
Interestingly their letter claimed that “The evaluation would provide an estimate of the market value of the property, but would not be required to be prepared by a state licensed or certified appraiser, and would be less detailed and costly than an appraisal.”
Does this evaluation mantra sound like what AI National has been saying for a few years now? Strange.
‘NAR’ Letter – The National Association of Realtors was very direct about the misleading narrative the regulatory agencies are using to support the rule change that blames costs and turn time – which is completely fabricated by institutions that hate appraisers – i.e. ABA who likes the rule change and AVM owners (often AMCs) who are pushing for their product to be the status quo even though their lack of accuracy is embarrassing. Here is what their powerful letter – based on actual data – showed:
Assuming the median home price of $250,000 would have a median appraisal cost of $450, the appraisal would be 0.18 percent of the total transaction cost – hardly approaching a “burdensome cost.”
When asked about ease of obtaining an appraisal, 67 percent of REALTORS® felt it was “easy” or “very easy” to get an appraisal and only one percent noted it being “difficult” or “very difficult.”
Given the fact that consensus has a 70% chance of a recession coming in 2020, why would Treasury, FDIC, OCC and the Fed use bogus claims as evidence to remove oversight from our industry designed to protect the consumer and taxpayer? We’ve heard this song before.
“Appraisal Organizations” Letter – American Society of Appraisers, Appraisal Institute, American Society of Farm Managers and Rural Appraisers, MBREA|The Association for Valuation Professionals, American Guild of Appraisers, OPEIU, AFL-CIO and RICS signed off on opposing the threshold change. There is an amazing paragraph that actually (and accurately) uses the word “wild” in their criticism of the rule change.
As stated in Table 2 of the proposal, should the threshold be raised to $400,000, 72 percent of regulated transactions would be exempt from Title XI appraisal requirements. That means over 7 in 10 Americans would be deprived of an objective, impartial, and independent opinion of value regarding the single largest purchase many of them will ever make. To say this proposal runs counter to consumer protection principles is a wild understatement. The proposal, if adopted, will irreparably harm consumers who frequently have little to no real estate knowledge, and therefore rely on a system of checks and balances to ensure they are not entering a purchase well above the value of the collateral.
Letter Summary – My thoughts on why these letters were necessary were because:
- The regulators never expressed concern about damaging quality and reliability of valuations
- The regulators have lamely referenced trying to help out rural banks who traditional have had a harder time finding appraisers versus suburban and urban located banks – and rationalized it was better to help a small number of rural banks and expose all the other banks with more risk for no actual reason
- The regulators are earnestly trying to pump up loan volume because low rates haven’t push loan volume higher for a decade and they enjoy fees from the banks
Let’s hope that Congress will call on the head of these agencies to testify very soon.
Why I Don’t Call Out The Appraisal Institute As Much As I Used To?
No, it’s not because they have proclaimed 2019 as the Year of the Residential Appraiser . Coincidentally, this is also the Chinese “Year of the Rat .”
No, not any of that.
Simply put, it is because nothing has changed in their culture and their priorities to its membership over the past year and therefore they are no longer relevant nor are they considered an industry leader anymore having enjoyed and earned that status in years past.
Why waste time and energy on something the industry has already decided?
The work of the 30 state coalitions who filled the void because of AI National’s lack of national leadership demonstrates how marginal AI National has become as a trade group. For an example of their institutional dishonesty, they launched a residential committee nearly two years ago and nothing has been presented or shared to the public. A few of the members appointed are people I know personally who are good people that remain in love with the soul of an organization that died years ago and who very much want to salvage it. When that residential committee was formed and I professed to be skeptical as to the intent (to placate AI residential members who had some loyalty remaining so they would continue paying dues) and as time passed, AI National effectively shut it down by inaction. This what happens when an organization’s leadership isn’t accountable to its members and lives in a bubble.
After all, this isn’t rocket science when you apply critical thinking to the problem.
So to those who challenged me directly on my cynicism 2 years ago, its time to apologize. A nice private email would suffice.
Oops, I believe I just called AI National out again. Sorry about that.
OFT (One Final Thought)
I hate Brutalist architecture so I thought I’d ask you to watch this.
Brilliant Idea #1
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- They’ll be more inclined to pay record prices;
- You’ll be more cynical;
- And I’ll keep scrolling through my charts.
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.
Reads, Listens and Visuals I Enjoyed
- How Amazon’s Booming NYC Neighborhood Got Tax Perks Meant for the Poor [Bloomberg] 
- Does My Apartment Have to Be So Hot in the Winter? [The New York Times] 
- The Perfect Rent-Controlled Apartment [The New York Times] 
- The depressing reason rich people are now the fastest-growing segment of renters [Marketwatch] 
- This mansion just broke the record for most expensive house ever sold in Miami-Dade [Miami Herald] 
- New Zealand Vowed 100,000 New Homes to Ease Crunch. So Far It Has Built 47. [The New York Times] 
- Real-estate websites want to buy straight from homeowners. But is it really a good deal? [Orlando Sentinel] 
- City seeks designers for housing on oddly sized lots [Curbed NY] 
- Biggest Vancouver home price fall since 2013 is tip of iceberg [BNN Bloomberg] 
- Does Upzoning Boost the Housing Supply and Lower Prices? Maybe Not. [Citylab] 
- Are the Suburbs Losing Status? – Blog [Joint Center for Housing Studies of Harvard University] 
- Why Housing Is a Leading Economic Indicator [The Street] 
- Angelo Mozilo, ex-CEO of failed Countrywide Financial, praised at mortgage conference [The OC Register] 
- A Funny Thing Happened on the Way to the Longest U.S. Expansion [AEW] 
- Real estate faces a 'new world order' and it's less friendly than the old one [Politico] 
- Non-bank lenders thrive in the shadows [Financial Times] 
- A new use for the spare room [Curbed] 
- Glassy midcentury by Richard Neutra seeks $4.1M in Rancho Palos Verdes [Curbed LA] 
- Forget the $238 Million Penthouse Sale. The Manhattan Luxury Market Is Reeling. [The Wall Street Journal] 
- Bad Lessons You've Learned From Watching HGTV [Huffpost] 
My New Content, Research and Mentions
- Weak loonie, competition from U.S. home buyers work against Canadian snowbirds [The Globe and Mail] 
- The Numbers Don’t Lie [The Independent] 
- Diese neuen Trends zeichnen sich bei Luxusimmobilien im Jahr 2019 ab [Anlegen in Immobilien] 
- Mansion sales rise in Florida as wealthy buyers are drawn to its low taxes and sunshine [Fox News] 
- Fla. sees more out-of-state buyers from high-tax states [Florida Realtors] 
- Allen Gross' $420M Bet on the Parker New York [Commercial Observer] 
- Luxury House Flipping Is on the Rise, but Still Lower Than Before the Recession [Realtor] 
- Out-of-State Buyers Flock to Miami [The Wall Street Journal] 
- Lack Of Building In Recent Years Brings Back Memories Of Housing Crisis [27east.com] 
- Éste es un buen momento para comprar una casa en los Hamptons [Gestión] 
- Luxury House Flipping is on the Rise, But Still Lower than Before the Recession [Mansion Global] 
- NYC's residential bosses [The Real Deal] 
- Manhattan Condo, Co-op Sales Down Again [The Jewish Voice] 
Recently Published Elliman Market Reports
Appraisal Related Reads
- Appraisal Institute to Enhance Focus on Residential Appraisers in 2019 [Appraisal Institute] 
- MCS Valuations (AMC) Closing Shop [Dave Towne/Appraisers Blogs] 
- USPAP is Unconstitutional & We Don't Have to Follow It, Say 2 Appraisers [Jonathan Miller/Appraisers Blogs] 
- How Big-Box Stores Bilk Local Governments [Slate] 
- What Is A Bifurcated Appraisal And Why Should I Care? [Birmingham Appraisal Blog] 
- ABA Supports Proposed Residential Real Estate Appraisal Threshold Increase [ABA Banking Journal] 
- Illinois Appraiser Newsletter: Hybrid Assignments [IDFPR] 
- What’s A Comp And Why Should You Care? [Yolo Solano Appraisal Blog] 
- February News from LAREAC [Louisiana Real Estate Appraisers Coalition] 
- Zillow spends $1M trying to improve its ‘Zestimates’ [Florida Realtors] 
- How do we value a house with a HUGE non-permitted addition? [Sacramento Appraisal Blog] 
- What's Happening With the New Forms? [Dave Towne/Appraisers Blogs] 
- What’s it worth?Depends who’s asking [The Real Deal] 
- The Future of Residential Lender Appraisers [Ann O'Rourke/Appraisers Blogs] 
- Do appraisers require smoke detectors? [Sacramento Appraisal Blog] 
Extra Curricular Reads
- Signal Originals: Pixies [Signalco1] 
- How to deliver an authentic apology [TED] 
- Think swearing isn’t big or clever? Think again [The Conversation] 
- Wielding Rocks and Knives, Arizonans Attack Self-Driving Cars [The New York Times] 
- Opinion | The Moral Indecency of the Away Message [The New York Times] 
- The Porta-Potty King of New York City Faces a Threat to His Throne [New York Magazine] 
- ‘This One Here Is Gonna Kick My Butt’—Farm Belt Bankruptcies Are Soaring [The Wall Street Journal] 
- How Do You Tell A Story With Data Visualization? [Forbes] 
- Podcast: Apple 1984 [Household Name] 
- Facebook: Where Friendships Go to Never Quite Die [The Atlantic] 
- Even God Couldn't Beat Dollar-Cost Averaging [Of Dollars And Data] 
- Random House Copy Chief: Stand Tall, Wordsmiths! (But Choose Your Battles) [NPR.org] 
- Meet the Creator of the Egg That Broke Instagram [The New York Times] 
- America’s new antitrust agenda [The Financial Times] 
- The Joy of the Junk Drawer [The New York Times] 
- How the Seattle Times is empowering reporters to drive subscriber growth [Digiday] 
- Expecting a Big Tax Refund? Don’t Be So Sure [The Wall Street Journal]