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January 29, 2016

My Name Is Jonas: Winter Storm & Song Reference To New Development Challenges

Last weekend the East Coast was hit with Winter Storm Jonas [1], a Snowzilla [2] that now seems like a long time ago – after having 40 degree weather ever since. Strangely, the lyrics to the Weezer song “Jonas” reference new construction [3]. Like the new development luxury market, it is currently more fun to sing and live in the past.

My car also kept tabs on the storm.

Even my car is warning me. #jonas #snowzilla [4]

A photo posted by Jonathan Miller (@jonathanmiller) on

There are a record 190 miles of scaffolding being used in New York City [5], enough to wrap Manhattan 6 times. While it was helpful to many pedestrians walking during the snow storm, providing a reprieve, there are growing concerns about their overuse.

Snowed Over: Beware of Zombies And Housing Experts

One of my favorite columns at the New York Times is “Sketch Guy” that features (you guessed it) charts that are written on a napkins. Incredibly simple and easy to follow. The article touches on forecasting by pundits this time of year.

Every year, right around this time, all the big brokerage firms, economists and banks come out with projections of what’s supposed to happen next in the financial world. This year is no exception.

carl-sketchClowns-Forecasters [6]

I take more of the Beavis & Butthead approach: Butthead said “I’ve seen the future Beavis and it is good.” I don’t forecast in my research because I don’t believe in it and if I give a general view of the near future, it is chock full of disclaimers and predicated on the idea that nothing will jump out at us that we didn’t see. Of course that is the big problem with forecasting. I provide as much insight and info as I can and let the reader make the decision. Zillow forecasts price trends in all their listings which is really more of a fill the web page with raw data and charts and stuff approach. Users won’t stop relying on listings in Zillow simply because their forecasts are wrong. It’s just filler.

And speaking of Zombies (wait, did I speak about Zombies?) Alexei Barrionuevo writes a piece for Curbed Film Industry, Zombies Boost Atlanta Area Housing Market [7] that explores the aggressive use of incentives to attract movie and television production that has helped the housing market. Despite all the focus on the FDIC “sand states” (CA, NV, AZ & FL) after the housing bubble burst a decade ago and with the surge in foreclosures and “zombie” homes, Atlanta was actually one of the worst. The geography of metro areas like Atlanta and Phoenix have nurtured significant sprawl enabled by cheap land.

“When there are 200 zombies standing outside your house, and one of them is having a cigarette and the other is eating a granola bar, it does sort of take the scary factor away,”

I wonder if staging [8] will help those zombies decide.

There was a great piece on Marketplace this week called Home prices surge, not for the reason people think [9] by Mark Garrison that talks about what’s under the hood. Tight credit is one of those reasons which I’ve discussed many many times before.

I was recently listening to an interview with Stan Humphries, chief economist at Zillow on Bloomberg Radio’s Taking Stock with Pimm Fox and Kathleen Hays [10] who basically said that credit really isn’t very tight despite those who are saying it is. This was based on their research and not “anecdotal” references. Interestingly I was on the same show a few weeks ago and I said just the opposite (speaking of Zombies and Housing Experts!). My position is that credit remains very tight and was distorting the housing market. Challenge: Ask any real estate agent in the U.S. or any home buyer getting a mortgage. I admire Stan’s work but he probably needs to look into this issue further. Why has mortgage origination trended lower since 2006 despite falling mortgage rates over the same period?

Tomorrow I’m joining Barry Ritholtz on his Masters in Business [11] show and we talk about this issue among a myriad of other things over a two hour window (if you can handle it).

Barry Ritholtz pens the best read of the week in his Bloomberg View column Confusion About the Financial Crisis Won’t Die [12]. He writes a takedown of those who are re-writing history on the cause of the financial crisis. It wasn’t the collapse of the housing bubble or the fall of Lehman. Those were merely symptoms and milestones along the way. Barry critiques a recent New York Times Op-ed: Subprime Reasoning on Housing [13] which I didn’t include in this week’s must reads because I didn’t make sense to me when I read it. I found it incredibly misplaced, as if the authors were out of the country for the decade without internet access preceding it.

And for the best analogy of the week that was found in this piece…

Another analytical error can be found in the sentence: “According to Gary Gorton, an economist at Yale, roughly 6 percent of banking assets were tied to subprime mortgages in 2007.” This is analogous to an oncologist telling a patient that a malignant tumor is less than 6 percent of body mass.

Read and re-read this piece, please.

Housing Affordability Worth Weight in Salt

I’m not even sure what that means but I needed a road salt reference. There were a few good reads on the housing affordability crisis. This is something I seem to talk about on nearly everyone of these weekly Housing Notes.

More On Super Tall Pushback And Slushy Weakness

According to New York Yimby (yes in my backyard), a pro development site that I have found to be well vetted and reliable, if not essential. A key development trend is occurring as Manhattan and Brooklyn are over saturated.

Comparing the year-over-year numbers by borough shows a clear trend towards more development in peripheral neighborhoods that have remained less affected by skyrocketing land prices, while the hottest areas in Manhattan and Brooklyn have cooled off significantly, as developers have realized that some neighborhoods may be experiencing inflated land prices.

New units entering the pipeline have fallen 25%.

yimbycontruct [17]

A well regarded and successful builder has opted to upgrade the existing Park Lane Hotel on Central Park South rather than tear it down and build a super tall [18], super luxury condo tower because the market velocity isn’t there.

This week there was an outcry about a super tall being constructed in the residential neighborhood of Sutton Place, a neighborhood without any so far. It is interesting to see what nearby neighborhood residents are concerned with.

The problem with the project is more of a concern about how on earth will these prices be supported in a market that has clearly downshifted? Luxury development is a new world now [21] and the sky is not the limit (no pun intended).

Of course we still have outlier sales which tend to confuse everyone. This one is a $110 million signed contract [22] in the Hamptons.

Past Performance Is Not A Guarantee of Future Returns, Reliability or Weather

A couple of hedge funders that profited handsomely on the collapse of the housing market are having some difficulties. We’ve talked about Jeff Greene’s inability to sell his incredible spec home Palazzo di Amore [23] and the price cut from $195 million to $149 million. He won big on his housing bubble bet but misread the super luxury spec home market.

Another Hedge Funder, John Paulson [24], is trying to save his own firm after winning big by betting against the housing bubble.

Now let’s settle back to earth.

Ken Harney, a well regarded columnist, wrote about a research paper that speaks to MLS data quality [25] published in the Appraisal Journal from the Appraisal Institute [26]. Consistent with AI’s long time series of missteps as the largest U.S. appraisal trade group, they have chosen to keep it behind the paywall.

with the prices that agents actually reported to their local MLS and found that in nearly 1 of every 11 cases (8.75 percent) there were discrepancies. Overstatements of final price exceeded understatements by nearly 3 to 1. In one case, the price reported to the MLS was 21.4 percent above the actual closing price.

The concern is that research done by appraisers or market studies, often rely on MLS data. There are about 800 MLS systems and the statistical sample was only 400 home sales. However it does place a small crack in the marketing sledgehammer that Realtor.com has been using against Zillow for inaccuracies in their data. Both search portals have their own issues so any future marketing battles will probably enhance the quality of both of their services.

Speaking of data…

A Lot Of Market Research Was Shoveled This Week

I currently author 84 market research reports for Douglas Elliman Real Estate [27] and the month of January has the most with the inclusion of annual reports for 2015 in addition to the usually quarterly reports. The theme around the country with a few exceptions (like the Hamptons, Beverly Hills and Aspen) was that overall price trends are weakest at the top and sales trends are heaviest in suburban markets as consumers go farther to seek greater affordability outside cities.

Here are the links:

Elliman Report: Hamptons Sales 4Q 2015 [28] Price trends for the Hamptons, especially within the luxury market, were above year ago levels. Average sales price jumped 15.6% to $2,383,499 from the year ago quarter, setting a new record as super luxury sales returned to the market. Without the skew caused by more higher end sales, overall prices still moved higher. Median sales price increased 2.3% to $997,000 from the year ago quarter, the highest level reached since the financial crisis began and the third highest on record…
4q15hamptonsmatrix

Elliman Report: North Fork Sales 4Q 2015 [29] Housing prices moved higher across the North Fork market. Median sales price jumped 14.2% to $522,500 from the year ago quarter. This was the seventh consecutive quarter with year over year increases in median sales price. This metric also at its highest level in more than seven years. When breaking out median sales price trends by quintiles, all segments rose sharply, with the largest gains seen in the highest and lowest segments…
4q15NFmatrix

Elliman Report: Hamptons/North Fork Decade 2006-2015 [30] This is a data recap of the past decade on Eastern Long Island.
2006-2015HNFmatrix

Elliman Report: Long Island Sales 4Q 2015 [31] Long Island housing sales continued to rise sharply as listing inventory was unable to keep pace. There were 6,526 sales in the final quarter of 2015, up 13.2% from the year ago quarter, setting the highest fourth quarter total in 11 years. Pending sales, comprised of signed contracts that have not yet closed, jumped 20.6% to 5,831 over the same period…
4q15LImatrix

Elliman Report: Long Island Decade 2006-2015 [32] This is a data recap of the past decade on Eastern Long Island.
2006-2015LIdecade

Elliman Report: Fairfield County Sales 4Q 2015 [33] Sales of homes across Fairfield County rose to their highest fourth quarter total in a decade as listing inventory continued to slide. There were 2,527 sales in the fourth quarter, up 11.7% from the same period last year. Listing inventory moved in the opposite direction, falling 11.1% to 5,714 from the prior year quarter. As a result of rising demand and falling supply, the pace of the market accelerated. The absorption rate, the number of months to sell all inventory at the current rate of sales, fell 20.2% to 6.8 months over the same period…
4q15FFmatrix

Elliman Report: Greenwich Sales 4Q 2015 [34]This is a data recap of the 4th Quarter 2015 Greenwich market.
4q15greenichSFmatrix

Elliman Report: Aspen Sales 4Q 2015 [35] Housing prices in Aspen moved higher as sales slipped and inventory expanded. Median sales price jumped 18.1% to $2,687,500 from the prior year quarter. Average sales price followed a similar pattern, rising 16.5% to $4,221,824 over the same period. A portion of the price growth was the change in average square footage of a sale, rising 6.8% to 3,124 from the year ago quarter…
4q15aspenmatrix

Elliman Report: Los Angeles 4Q 2015 [36] The final quarter of the 2015 Westside and Downtown housing market in Los Angeles was characterized by rising prices and modest sales growth. Median sales price increased 8.5% to $960,000 from the year ago quarter, the highest level recorded in our 12 years of research. The year over year growth of this metric has remained consistent, rising for 14 consecutive quarters…
4q15LAmatrix

If you need something more solid and long-lasting than a snowball (particularly on Friday afternoons), sign up for my Housing Note here [37]. And be sure to share with a friend or colleague. They’ll feel cool, you’ll feel warm and my name still won’t be Jonas.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc. [38]
Real Estate Appraisers & Consultants

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