Housing Momentum Rolls Until It Doesn’t
Sometimes life is all about lemons and the way we roll, especially if want to know what stops us from moving forward.
Today as I was walking home after my run I saw a large lemon rolling down the hill. It kept rolling for about a quarter mile. And now you can see it, too. pic.twitter.com/dQoHi4RrXS— Mike Sakasegawa (@sakeriver) July 11, 2018
Shout out to my Columbia grad students. After an intensive “pie is better than cake” discussion in class, we’re on to explore whether limes are better than lemons. And no, this won’t be on a quiz.
But I digress…
Market Report Gauntlet Q2-2018 Week 3: Greenwich, CT
Our housing market research for 2 Connecticut markets were published this week by real estate firm Douglas Elliman, the 3rd largest real estate brokerage in the U.S. This is part of an expanding Elliman Report series I have authored since 1994.
Nearly two years ago, Barry Sternicht of Starwood pronounced Greenwich, CT the worst housing market in the U.S. (relating to incorrectly pricing his own house).
This prompted many in the real estate brokerage community to hire a public relations consultant to pitch how beautiful Greenwich parks were and how terrific their school system was. Here is some advice that might save you some money – housing prices rise and fall even if your parks are really green. The issue for Greenwich was more about high-end market conditions no seeing the boom that the city did. To the point where billionaire Wall Streeter Ken Griffin and buyer of super high-end real estate across the U.S. just used it as a cliche this week (see first headline below) even though, as our research shows, it is two-year-old news and a copied quote from Sternlicht in 2016 and I don’t believe he even owns a home in Greenwich, CT:
But I digress…
The Greenwich housing market showed fairly solid housing market metrics this quarter with rising sales and prices. In contrast to 2016, the luxury market saw declining inventory for the seventh consecutive quarter on a year over year basis. The market never saw the boom that New York City did and as a result, wealthy titans of industry became disconnected from local market conditions.
Apparently Wall Street loves reading about Greenwich, CT including when the news is good. The Bloomberg story referencing our research was the 6th most-read story of the day on the 350K± Bloomberg Terminals.
And a chart!
Here’s a thought. Start thinking about more cross-border competition between adjacent affluent Westchester County, NY and Fairfield County, CT. There is a big difference between property tax/SALT exposure. I realize that wealthy people don’t exclusively buy homes for their tax exposure but it will force sellers to be more cognizant of their home values before and after the new federal tax law.
The Elliman Report for Fairfield County Q2-2018 was also public this week (for out-of-towners, this is the county Greenwich sits within).
Here are a few charts from our chart gallery.
Market Report Gauntlet Q2-2018 Week 3: South Florida
Douglas Elliman published our South Florida research this week through eight reports covering even more markets. Interestingly, all markets generally experienced uplifting report results, much like Greenwich, CT did to the north. This is a low tax region of the U.S. that is beginning to anticipate benefits from the new federal tax law that may draw buyers from higher tax regions like New York state.
The links to the reports are presented at the bottom of this newsletter.
Here are a few of the regional charts in our chart gallery that stand out.
Measuring Impact of FINCEN Anti-Money Laundering Efforts
There was a bombshell Miami Herald story this week: How dirty is Miami real estate? Secret home deals dried up when feds started watching on the impact of the U.S. Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Treasury to stop money laundering efforts that use real estate as the vehicle.
The original temporary rule came out in January 2016 about a year after the luxury new development began to tank around the U.S. from a stronger U.S. dollar and significant overbuilding. My initial criticism towards their action was the difficulty it would be to relate effectiveness versus market deterioration.
Basically, the rule looks at “all cash” purchases via LLC’s. Users of this method are placed in a database somewhere within the federal government. Here is the most recent Geographic Targeting Order that shows the thresholds at which the rule applied: Real Estate GTO Order – 8.22.17 Final for execution – Generic
However their strategy has changed and the limits aren’t being published, making it harder to game the process. For example, the threshold for scrutiny in Miami-Dade County is $300,000 now but this is not published in the usual places.
The driver of the Miami Herald story was the publication of a research paper from the New York Fed and the University of Miami that attempted to measure the impact to the market.
Here is the chart on Miami-Dade:
Thoughts on the results:
The lower dotted line represents cash buyers through LLCs.
- By the second policy announcement in July 2016 (2nd vertical line), sales collapse.
- Before the second policy announcement, the purchase volume seems artificially flat when compared to the overall market above.
- The flat line after the second vertical line is unusually flat.
Treasury seems to be using this change in the line as evidence that their rule against cash buyers with LLC’s seems to be working. There are some holes in their logic:
If I were a billionaire and buying a $5M home for my son, I would absolutely use an LLC to protect their privacy and reduce the risk of letting others know where he now lives. FinCEN logic suggests that only criminals buy homes for cash and now that practice has collapsed. And then using my example of privacy as a driver for this financial vehicle, the low flat line after the second vertical line is the remaining uses of this technique and represented very little of the pre-notice buyer pool.
No. A billionaire is surrounded by high-quality financial advisors and lawyers and would likely advise me not to buy with this popular method anymore and they would devise a workaround. In other words, the drop off of LLC cash buyers after the second notice is – I believe – significantly overstated. I’m not sure the Feds appreciate how hard the wealthy strive for privacy in real estate transactions.
One other thought now that the cash threshold for the county has been dropped to $300,000 in May, the Miami Beach market is seeing significant improvement. There are more condo sales, an apparent skew to larger sales and rising price trends market-wide.
‘Buy Land, They’re Not Making It Anymore’ Isn’t Quite True
This is a famous real estate saying sourced from Mark Twain and Will Rogers…
Buy land, they’re not making it anymore.
This formed the premise of a fun Wall Street Journal piece powered by NeighborhoodX (I’m an advisor) about the creation of new land for housing and how this process creates value. The article talks about how Battery Park City was created by sand dredged and moved from Staten Island (and it was also more famously taken from the excavation for the World Trade Center and other construction projects).
Incidentally, it is important to understand the basic concept that property appreciation runs with the land. The improvements (i.e. the house) depreciate.
Most Big U.S. City Street Grids Orient Toward True North
There is a fascinating exploration of the orientation of streets in large U.S. cities. The opening quote is hilarious:
We say the cows laid out Boston. Well, there are worse surveyors. –Ralph Waldo Emerson, 1860
The pattern is fairly consistent.
To take it a step further for Manhattan, the Commissioner’s plan of 1811 enabled a “grid plan” from 14th Street northward to Washington Heights. While criticized by some as “boring,” many say this was key to the exponential economic growth of the city.
And “grid plan” used by cities varied in design.
BONUS – Here’s a handy walker’s timing rule for the blocks of NYC I learned while appraising roughly 8,000 condos, co-ops, and townhouses during my (still ongoing) 32+ year career.
- North/South: 1-minute per block (10-block walk takes 10 minutes).
- East/West: 2.5 minutes per block
Going All Arts & Crafts On The Hamptons
Website 27east.com that chronicles the Hamptons housing market, went all “arts & crafts” on me and colorized some inventory data I gave them.
In Manhattan, Less Is More
There was a fun infographic in the NYT Real Estate Section showing that Manhattanites get 126 square feet for $200,000 (roughly the U.S. median home price) while Clevelandites (aka Clevelanders) get 3,769 square feet for the same price. First of all, Manhattanites are seldom in their apartments because there is so much to do and see. And secondly, you can buy strawberries on nearly every other block at 3 am. Who wouldn’t be willing to pay Manhattan prices for that?
I took a hiatus this week from Appraiserville as I pumped out a heavy dose of market research, so I’ll leave you with this deep thought. Back on the saddle next week.
i relate to my computer password in that we are both not strong enough— Kevin Nguyen (@knguyen) July 18, 2018
Brilliant Idea #1
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Brilliant Idea #2
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See you next week.
Reads, Listens and Visuals I Enjoyed
- Housing Inventory Woes Are Far From Over, New Data Shows [Forbes]
- Land Goes from ‘Dirt Cheap’ to ‘Pay Dirt’ [Wall Street Journal]
- Luxury Lairs Where Superheroes Feel at Home [Wall Street Journal]
- Give the Curb Your Enthusiasm [Slate]
- How Many Square Feet Does $200,000 Buy You? [New York Times]
- City adds record number of affordable apartments [Crains New York]
- U.S. housing starts hit nine-month low; permits drop [Reuters]
- He wanted real gold in his $85 million palace; he got gold-colored paint instead, he claims. [Sun Sentinel]
- Court of Appeals declares FHFA structure unconstitutional [Housing Wire]
- The Ultimate Primer on Inclusionary Zoning [City Lab]
- Implications for Co-ops, Condos, and HOAs – The Tax Act of 2017 [Cooperator]
- GGP Signs Five-Dollar Store on Fifth Avenue—Some Brokers Say, WTF [Commercial Observer]
- Don’t Let Mortgage Rates Throw You Off Course [Realtor Magazine]
- LA’s top agents react to Yolanda unmasking, and what it means for Compass [The Real Deal NY]
- E-Commerce Entrepreneur to Pay a Record for New York Penthouse [Wall Street Journal]
My New Content, Research and Mentions
- Sales down, prices up in Westchester housing market [Westfair Online]
- El Boom en el sur de Florida son los Condominios de lujo – [Miami Diario]
- Housing Bust Wasn’t About the House [Bloomberg View]
- South Florida condo sales surge in Q2: Elliman reports [The Real Deal Miami]
- Inventory gains propel Miami, South Florida Q2 home sales [Miami Agent Mag]
- How dirty is Miami real estate? Secret home deals dried up when feds started watching [Miami Herald]
- Prices Up, Sales Up For Boca, Delray Real Estate [Boca News Now]
- Luxury Condos Boom in South Florida [Mansion Global]
- Douglas Elliman Recently Released Its Findings for 2Q 2018 – Queens Is Up, Brooklyn Is Down: Mixed Results for Co-op/Condo Sales So Far in 2018 [Cooperator]
- West Harlem/Manhattanville, where Columbia University’s arrival has accelerated the pace of change [Brick Underground]
- Sales reports: Palm Beach condo action more robust in second-quarter [Palm Beach Daily News]
- citybizlist : Citybizlist : Douglas Elliman Releases Q2 2018 South Florida Market Reports [City Biz List]
- Greenwich Home Sellers Are Finally Getting Realistic. Median Price: $1.85 Million [Bloomberg]
- High-End Living in Miami With Fashion and Fast Cars [Wall Street Journal]
- Diese 39-Millionen-Villa hat eine Turnhalle [Lessentiel]
- Housing Inventory Is Steady, Data Says [27 East]
- Brooklyn sales market eases off the gas pedal [Brick Underground]
- City’s rental market continues to fall, NY is the worst state to retire in, & more [Brick Underground]
- Almost Daily Grant’s Commentary [Grants Pub]
- Finding Repose in New York City’s Hidden Spaces [New York Times]
- VIDEO: Bloomberg Markets Interview: July 10, 2018, Manhattan Housing Market [Miller Samuel]
- Queens high-end real estate market is gaining on Brooklyn [Brooklyn Daily Eagle]
- Nobody wants to buy this fashion designer’s legendary party pad [NY Post]
- Manhattan first-time buyers feel pain from rise in mortgage interest rates [Brick Underground]
- Retirees Go Back to School to Live Out Golden Years on Campus [Bloomberg]
- How to win a bidding war in LI’s housing market [Newsday]
- Want to live in a converted factory? Your chance to rent or buy one is better than ever [Brick Underground]
- Manhattan Townhouse Sets a New Record [Mansion Global]
- Brooklyn Prices Slip as Queens Luxury Market Hits New Record [Mansion Global]
- Brooklyn, NW Queens concessions see another slight drop in June [The Real Deal NY]
- Westchester Home Sales Plunge After Trump’s Tax Overhaul [Bloomberg]
- NYC rental market’s ‘slow grind’ keeps prices down [Curbed NY]
Recently Published Elliman Market Reports
- Elliman Report: Palm Beach Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Wellington Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Jupiter + Palm Beach Gardens Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Delray Beach Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Boca Raton Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Fort Laudedale Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Miami Coastal Mainland Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Miami Beach + Barrier Islands Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Greenwich Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Fairfield County Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Queens Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Putnam & Dutchess Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Westchester Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Riverdale Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Northwest Queens Sales 2Q 2018 [Miller Samuel]
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 6-2018 [Miller Samuel]
- Elliman Report: Brooklyn Sales 2Q 2018 [Miller Samuel]
- 2Q – 2018 Northern Manhattan Sales Market Report | Douglas Elliman
- 2Q – 2018 Manhattan Sales Market Report | Douglas Elliman
- Elliman Report: May-2018 Manhattan, Brooklyn and Queens Rentals [Elliman]
- Elliman Report: April-2018 Manhattan, Brooklyn and Queens Rentals [Elliman]
Appraisal Related Reads
- Trust Me I’m an Appraiser – George Dell, SRA, MAI, ASA, CRE [George Dell]
- Our Judgements Are Based On What We Observe [Cleveland Appraisal Blog]
- 5 Appraisal Blog Posts Every Real Estate Agent Should Read [Birmingham Appraisal Blog]
- The Appraisal Process Grows More Complicated [Globe Street]
- Appraisal finds Spire is too big for Ashtabula [Star Beacon]
Extra Curricular Reads
- Opinion | How Pink Floyd’s ‘The Wall’ Saved and Ruined My Life [New York Times]
- Parents Behaving Badly: A Youth Sports Crisis Caught on Video [New York Times]
- The Insane Saga of the Fake Saudi Prince Who Scammed Miami’s Rich and Famous [Vice]
- Comparing City Street Orientations – [Geoff Boeing]
- The mysterious giant arrows used by airplanes [CNN]
- People Don’t Buy Products, They Buy Better Versions of Themselves. [Zandercutt]