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July 3, 2020

The Housing Shut Down (Bi)cycle Goes In Circles

Since there is no Tour de France this year…


But I digress…

State Mandate That Shut Down Manhattan Market Caused Largest Annual Sales Drop in 30-Years of Record Keeping

I’ve been the author of the expanding Elliman Report series for 25 years. This week, Douglas Elliman real estate published our research on the second quarter sales market and the results were beyond bad. The firm also published our June new signed contracts and new listings research that was also beyond bad. But that is what happens when a market is turned off from an external source. The New York state mandate to combat COVID-19 prevented the real estate market from in-person showings, which essentially paused the housing market. While the shutdown was necessary, we hope for everyone’s sake our second wave isn’t like what we are currently seeing in Florida, Texas, and California. The reports represented an asterisk in market data timeline because of the shutdown.

The number of sales fell by the largest annual rate in more than three decades [3] of our data series (have I really been doing this for so long? Good grief). Median sales price fell by more than a decade but the

Consumers weren’t buying homes without a physical interior inspection. Virtual showings were used to supplement the sales effort but not a replacement. In fact, the vast majority, an estimated 90% of closings in the second quarter had a pre-COVID connection [4] including a previous interior inspection.

[3]

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MANHATTAN SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2020 Manhattan Sales [5]

Co-ops & Condos
“As “shelter-in-place” rules took effect in the final weeks of March, real estate brokers were not permitted to perform in-house showings and uncertainty loomed over the market. As a result, Manhattan was effectively shut down throughout the second quarter until the final week. The unprecedented shutdown skewed the results.”

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NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2020 Northern Manhattan Sales [6]

“As “shelter-in-place” rules took effect in the final weeks of March, real estate brokers were not permitted to perform in-house showings and uncertainty loomed over the market. As a result, Manhattan was effectively shut down throughout the second quarter until the final week. The unprecedented shutdown skewed the results.”

Co-ops & Condos
– The number of sales fell year over year by the largest amount in more than a decade
– The market share of borough sales edged up from year-ago levels

Townhouses
– A sharp drop in sales to the lowest level recorded in at least five years
– Listing inventory posted a large decline from year-ago levels

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New York New Signed Contracts Report

Elliman Report: June 2020 New York New Signed Contracts [7]

Manhattan & Brooklyn
“While the June new signed contracts saw a slight increase from May and remained sharply below year-ago levels, New York State didn’t allow brokers to physically show the interior of properties until the last week of June.”

Long Island (excluding Hamptons/North Fork)
“With Long Island brokers allowed to do in-person showings in the second week of June, new signed contracts and new listings surged from May.”

Hamptons
“New signed contracts and new listings for single-family properties surged at nearly all price points year over year. Consumers who found themselves under New York City ‘shelter-in-place’ rules in the early spring pressed to find summer rentals and make purchases at a much higher rate than last year.”

North Fork
“With Long Island and North Fork brokers allowed to do in-person showings in the second week of June, new signed contracts and new listings surged from May.”

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Florida New Signed Contracts Report

Elliman Report: June 2020 Florida New Signed Contracts [8]

“With the market opened in June, there was a surge in new signed contracts far exceeding year-ago levels, with excess demand coming from the Northeast. New inventory level gains have not kept pace with the growth in new contracts.”

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California New Signed Contracts Report

Elliman Report: June 2020 California New Signed Contracts [9]

Los Angeles and Orange Counties
“May and June new signed contracts continued to bounce upward from the April bottom as the housing market opened up. New signed contracts and new listing levels remained short of year-ago levels, but the market has nearly clawed back from the shutdown.”

San Diego County
“New listing inventory remains well short of year-ago levels, struggling to keep pace with sharp rebound in overall new signed contracts, which have surpassed the numbers realized last year.”

Don’t Confuse The Short Term Sales Surge With A New Housing Boom

The Manhattan market just re-opened for business on June 22nd, allowing real estate brokers to do in-person showings. Consumers, as a rule, aren’t buying homes without physical interior inspections. Yes, on the margin there may be a few examples, but those are outliers.

It is important to note that the housing market was basically closed from mid-March to the last week of June. The market is just awakening [10] and may feel like a boom, but it’s really a release of pent-up demand from the spring market that never was.

This is not limited to Manhattan. Any housing market, when artificially closed during the traditionally busiest times of the month, will see a surge when it re-opens. Once the excess demand is satiated over the next month or two, then we get to see the underlying market.

The Work/Home Tether Just Got A Lot Longer

One of the biggest changes in the housing market we may see is more weakness in rents within U.S. urban markets. New technology like Zoom has become ubiquitous, aided by the global pandemic. However after (hopefully) we get beyond this crisis someday with a vaccine and many more people start wearing masks to reduce the spread, the technology will still remain in place. Workers won’t need to be in the office every day as this crisis made it apparent they won’t need to be in the office every day. That will allow for longer commutes and will take off some of the rental price pressure. Of course, this doesn’t make offices obsolete but rather this disruption will force a complete rethinking of office space.

This Bloomberg [11] piece shows us that this disruption is already happening in San Francisco.

[11]

FEMA Flood Maps Wildly Underestimate Risk of Flooding

I’ve always wondered why the federal government encourages the building of a property in high flood risk areas by charging rates so low that the private sector can’t compete. And this risk is not just on the coastline. Based on the analysis by Flood Factor [12], FEMA also underestimates the risk of flooding by a significant margin, shifting the risk to the federal government.

Here are some great visualizations [13] in the New York Times.

Search for your home’s flood risk [14], here.

[14]

The Spec Home Mega Mansion Phenomenon Is Probably Over

And it probably was never a thing. Since 2014 there has been a wave of super-luxury mansion listings across the U.S. and most never actually sold. I’ve always contended that this market was never as wide and deep as originally thought. The flood of capital looking for higher returns in a low-interest rate world after the global financial crisis combined unprecedented price hubris I dubbed “aspirational pricing” created a crowdsource mentality. There were simply so many of these houses built that it reinforced the validity of the trend. Every once in awhile there are sales in the high 8-digits or 9-digits and we will always see them dotting the landscape periodically, but these sales represent not as much of a market as it they are one-off anomalies.

One of the most visible of these developers was profiled in The Wall Street Journal [15], most known for his “The One” which is a $500 million off-market LA listing. If I lived this guy’s life I’d have 8 ulcers and would cave under the years of stress. After all, he hasn’t sold anything since 2017 and has 6 unsold megamansion spec developments with $700 million in mortgages outstanding.

I live in a 200-year-old historic home in Connecticut, but I have to admit, I really love this open modern look.

[15]

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC [16] site.)

RAC Cancelled Its Fall Conference Due To The COVID-19 Shutdown

One of my favorite conferences of the year is the Fall RAC conference, usually held in Dallas. In my opinion, it is a group of the best residential appraisers in the country and I will really miss getting together with my colleagues and industry clients.

[17]

The Appraisal Institute Ignores Its Membership For Third Time In Sham Election Maneuver

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July 4th UPDATE
When the Board of Directors convenes in August they need to:
– Discuss the current sham petition process and should either remove it from the bylaws altogether or modify it by raising the petition process requirement from 6 votes to a supermajority (2/3) of the Board of Directors. A simple 50% vote requirement to invoke the petition process would under-represent and undermine the efforts of the 11-person nominating committee who work hard to vet the candidates.
– Discuss the transparency of the petition process: Why do the board votes on the petition process get to be concealed? Given the self-dealing that has occurred three times due to the lack of transparency, the votes made for the petition process need to be 100% transparent to convey credibility to the membership that is absolutely required.
– Discuss the potential damage to the candidate’s reputation: The process of leaving a publicly announced and thoroughly vetted nominee to twist in the wind while this petitioning process is invoked is completely unethical and unprofessional. Why would a professional organization allow something like this to happen to its own members when it can damage and humiliate a candidate who is the best the organization has to offer? It is unconscionable to me that the organization has allowed the petition process to exist without significant protections to the determinations of the nominating committee and without ANY protections to the selected candidate? How will the organization be able to attract standout candidates in the future instead of self-serving political hacks who don’t care about the membership?
_________________________________

One of the most unethical actions against AI membership is about to take place (for a third time), and the uproar is just beginning. I’ve had many appraisers reach out to me over the past week, conveying how upset they were. I’m not even affiliated with the Appraisal Institute, and I’m furious because it brings down the entire industry in the eyes of others.

Back in 2016, I unleashed a flurry of commentary criticizing the Appraisal Institute executives who had a plan to take all chapter funds [18] for no justifiable reason. The membership reacted by calling leadership to task, which is a challenging, scary thing when they are threatened by leadership [19] and might lose their designations, which could impact their livelihood.

Now we are facing something much darker and maybe the final downfall of the Appraisal Industry as an organization.

Here is what someone said about this election sham:

“Why not next year instead of this year, why are you doing this when you know that in the middle of a pandemic and that it will tear the Institute apart from the top?”

A well-regarded and nationally-known appraiser and Appraisal Institute member, Craig Steinley [20], won the backing of the national nominating committee, and his name was submitted publicly because confirmation is essentially a rubber stamp. Craig was thought to be the best choice this year by the national nominating committee. The confirmation is supposed to take place in the first week of August (more details later on).

Here is a rough overview of how the nominating process works:

Here is how the sham ‘petition process’ bylaw works:

The key to the petition process is to disregard the nominating committee recommendation. This was inspired by at least four former presidents more than a decade ago: there are only 6 national board member votes needed to override the nominating committee recommendation. With those 6 votes, Amorin, the current CEO, can control the future presidents and officers indefinitely. Doesn’t that seem to be against the interest of the membership? The Board of Directors needs to close this unethical loophole if there is any hope of the Appraisal Institute rising again to claw back the greatness it once possessed.

By the way, the current Appraisal Institute national Board of Directors [21] is comprised of 27 members, with 23 men but only 4 women. Twenty of the board members are the chair and vice-chairs of the ten AI regions. Only 6 board members are needed to vote in favor of the petition to insert a new Amorin lackey to enable lavish expense accounts and travel as I’ve previously written about, funded by hard-working appraiser members who have invested a considerable amount of time and money for their Appraisal Institute designations.

First Time Petition Process – Created and Implemented
Now there is uncertainty on Craig’s nomination because the petition process that was created back more than a decade ago when a female from Wyoming was publicly nominated like Craig and was replaced by a board choice through the petition maneuver, ignoring the nominating committee results.

Leslie Sellers was on the board then and was quite upset that he did not get the nomination but was able to vote for himself using this maneuver. Industry feedback suggests that AI Presidents [22] from 2007 to 2010 seem to have been behind the petition process, inserting it in the bylaws to get Sellers into the ladder to ascend to the presidency two years later. I’d invite any of these former presidents, to refute this with credible, verifiable evidence to counter my own experiences and what many members have told me over the years.

Then 2010 president Leslie Sellers was the reason I disassociated with the Appraisal Institute in 2010 after he withdrew AI from the Appraisal Foundation for no stated reason that made sense. My tipping point was that he had posted a video saying to the effect that he was thrilled about the future opportunities that awaited the organization. Well, a subsequent 30% drop in membership, over the next decade, a steeper decline than licensed/certified appraisers in the national registry, and a collapse in credibility in Washington seems to refute that.

Second Time Petition Process – Was Implemented

Jim Amorin became the first two-time President [22] in the Appraisal Institute’s history using the petition process election maneuver to bypass the nominating committee’s decision. There were other very worthy candidates who were not considered at all. He went on to somehow obtain his current CEO position without a real effort by the organization to look outside when the former CEO essentially left in the middle of the night – I knew one highly qualified CEO applicant that wasn’t seriously interviewed – when the Appraisal Institute was bleeding relevance and needed to bring in new blood.

Third Time Petition Process – Being Implemented

Craig Steinley earned the backing of the national nominating committee and his name was submitted publicly because confirmation is essentially a rubber stamp. Craig was thought to be the best choice this year by the national nominating committee.

AI CEO Jim Amorin ($450K/year) disagreed and used the petition process to make Michael Tankersley the Second Vice President and doesn’t have to give a reason. Mark Linne stepped away from being considered. In other words, the membership nomination process that is supposed to be separate from the executives running the organization is wildly compromised. I am not critical of Michael Tankersley as an appraiser because I know nothing other than his credentials, but I am certainly disappointed that someone with outstanding professional credentials would be willing to circumvent the membership-driven process for personal advancement.

The following text is the email that was sent by National to members about the election. Notice how they do not explain that the petition process occurred and how the TWO candidates came about? Shameful.

Greetings:

On August 6-7, 2020, the national Board of Directors will elect the 2021 Vice President of the Appraisal Institute from two nominees, Craig Steinley and Michael Tankersley. You submitted a communication to the National Nominating Committee regarding one or both of those nominees. The purpose of this email is to ask whether you would like us to provide a copy of your communication to the Board of Directors for consideration. The nominees, even though they serve on the Board, will not receive a copy of the communication if you choose to release it to the Board. Please respond to aielection@appraisalinstitute.org letting us know of your wishes by July 13, 2020.

We look forward to hearing from you.

Jeffrey E. Liskar, Esquire
General Counsel
Appraisal Institute


To recap this election petition process sham:

The national membership submits candidates to their regional heads for the three-year path to the presidency of the Appraisal Institute. The national nominating committee, which is supposed to be separate from the operations executives for ethics concerns, vets the nominations and selects the one they feel is best qualified and then announces the choice to the public. The petition process created and inserted by former AI presidents over a decade ago subverts the word of the membership by only requiring 6 board votes and can include board members who can vote for themself, to what can only be viewed as self-dealing, violating the separation between operations and annual appraisal executives as well as shaming nominated executives – the best and brightest the membership has to offer – for their own self-dealing.

This is the problem with the current AI leadership and something I have been writing about since 2016: The national leadership is not thinking about their members, and they need to be, or the organization will die faster than it already is. I hope this is a wake-up call to current board members [21] to do something about this internal corruption.

I want nothing less than for the Appraisal Institute to return to its former glory or get out of the way to stop damaging the livelihoods of its members and the industry’s reputation.

How to do something about this
If you want to do something about that, please reach out to the regional heads who are also board members [21] to voice your dissatisfaction and be heard. Either let your voice be heard about this sham election or agree to let this mark the end of what was the gold standard in property valuation organizations before the pivot circa 2007.

Since I am not a member I don’t have access to the ten regional chair contact info to voice your complaints but you can see them on the Board of Directors landing page [21]. There truly are a lot of good people on this board and they need to hear your voice and stop this corruption of the election process.

Incidentally, here is the letter that went out to the Board of Directors. Note that 492 signed the letter, 392 AI people, 6 of the 10 NNC members, and Mark Linné (3rd Candidate).

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[39]

OFT (One Final Thought)

If you want to have a feel-good wonderful weekend, please read this entire thread. Please. Wow.


Brilliant Idea #1

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 [41]. And be sure to share with a friend or colleague if you enjoy them because:

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 [42]
President/CEO
Miller Samuel Inc. [43]
Real Estate Appraisers & Consultants
Matrix Blog [44] @jonathanmiller [45]

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