This past Monday I realized that I’ve been writing Housing Notes every single week for two years from at least a half-dozen states, two countries and two contents. As they say, time flies when you’re having fun. As I get older, I am considering making myself miserable, so time moves more slowly. But for now, I’ll remain happy. Here is the announcement and the first one.
This experiment has been a very satisfying one. It helps to have about 5,000 subscribers and growing fast – not counting all the mass forwards and social shares. I got the same feeling when I started blogging on Matrix on August 1, 2005, and blogged heavily for about a decade. Technically my first post was on July 18, 2005, on a now defunct blog I merged into Matrix called “Soapbox.” But now, instead of writing a lot of small posts, I prefer this format with one large blog post each week. It’s been a labor of love and I hope you’ll stick with me as I keep doing this for reasons that are hard to explain.
Manhattan Rents Across All Sizes Are Falling
The Elliman Report for the February Manhattan, Brooklyn and Northwest Queens rental market I author was published yesterday. But before I get into the details, it was pretty cool to find out that their article covering the report was the #1 emailed on the Bloomberg Terminals worldwide yesterday. Wall Streeters were more interested in rents than a Bill Gross article and three stories on oil falling below $50. They love their real estate stories.
But let’s get to the market report – here is a great Bloomberg chart that shows that the lower end of the market is weakening like the top has been for a few years.
Here’s the report and the key findings.
Manhattan – After reaching a record high of 30.9% in January, the market share of rentals with landlord concessions slipped to 26.4%, the second highest on record. The market share of landlord concessions was 19.1% in the same month last year, a record at that time. Landlord’s use of concessions has been effective in protecting the face rent by keeping the vacancy rate in check. The vacancy rate was 2.44%, up slightly from 2.31% in the same period last year…
Brooklyn – Median effective rental price on a year over year basis continued to slip as supply expanded. Median face rent less concessions declined 1.1% from the year ago period for the seventh time in eight months to $2,715. Listing inventory expanded 17.2% to 2,354 over the same period. The market share of rentals with a landlord concession declined from the prior month record to 15.7%, the second highest on record. Market share was 12.9% in the same month a year ago, a new record at that time. The number of new leases slipped 6.3% to 948 indicating that the use of concessions was keeping renewal signings relatively high…
NW Queens – There was a sharp decline in new leases for northwest Queens, an area comprised of the neighborhoods of Long Island City, Astoria, Sunnyside and Woodside, down 25.9% to 223 from the same month a year ago. Listing inventory expanded 19.6% to 556 on a year over year basis. This was the 18th consecutive such increase, consistent with the 33.6% market share of new development listings. Median rental price declined 5.2% to $2,800 and average rental price fell 3.6% to $2,909 respectively over the same period.
Manhattan Monthly Sales Absorption
You can see on the following monthly chart series that the speed of the market continues to be much faster in the entry market. If you want to see how the east, west and downtown regions are faring (date is too thin to do this credibly for Northern Manhattan aka Uptown) you can click here.
The First House Ever Printed
In theory, we will now be able to email houses to each other, sort of.
StreetEasy’s Zillowization Continues: Premier Agent Product Outrages Brokers
Streeteasy, the de facto MLS system for the NYC metro area, offered a new premier agent product to monetize the site.
The Real Deal Magazine has been on top of the story. Here’s an explanation of the product and the controversy.
This goes back to what I spoke about last week. There is a growing disrespect for experts. With the Streeteasy model, which incorporated a Zillow feature that has been around for a while, an inexperienced agent can buy ads and then Streeteasy directs the consumer to that person instead of the listing agent. The brokerage community is outraged. I’m not a broker and not versed in brokerage laws or nuance but this seems very unethical to me. The REBNY (the Manhattan and surrounding market’s industry’s trade group agrees and has approached New York regulators to look into this.
Mapping the U.S. PPSF in 3D
The average price per square foot for a U.S. home was calculated at $132 in a Zillow study last fall that was turned into an interactive 3D visualization. Check out the spikes. Manhattan Average PPSF for new development in 4Q2016 was $2,811.
Click on the graphic to play.
Trumponomics and Housing
Whatever your political persuasion, here is a good conversation about an economic policy moderated by my friend and favorite Bloomberg Radio and TV personality, Kathleen Hayes. And my other friend Dan Alpert of Westwood Capital is also on the panel.
Upcoming Speaking Events
April 6, 2017 – The Miami Herald New Yorkers’ Guide to Miami: What second homeowners, investors need to know. Moderated by Jonathan Miller, President, CEO, Miller Samuel real estate consultancy, the panelists include Howard Lorber, Chairman, Douglas Elliman / Michael Stern, Chairman JDS development / Neisen Kasdin, Miami Managing Principal, Akerman at Sotheby’s, 1334 York Avenue, New York City. Tickets are available for purchase.
Appraiserville
This week I explore lender’s overzealousness and the scope of AI fundraising you didn’t know about.
Banks Make Appraisal Regulations Onerous By Over-Interpreting Them
I wrote about this over at my Matrix Blog just to get it off my chest this week but here is the post in its full glory:
Some people are their own worst enemy. And that old saying also applies to financial institutions.
With all the talk about revisiting, gutting or eliminating Dodd-Frank, a significant part of the problem with mortgage appraisal related lending actually exists within the bank risk management themselves. Their over-interpretation of what the regulations require gives outsiders the impression that appraiser related regulations or standards are more onerous than they actually are.
Fannie Mae Allows Trainee Inspections Without Their Supervisory Appraiser
One of the biggest issues today is the lack of mentoring by experienced appraisers because it is not financially feasible under current lending practice. Both banks and AMCs – who act as a bank’s agent – generally do not allow trainees to inspect a property without a licensed or certified appraiser alongside. So in an era where AMCs control as much as 90% of mortgage appraisal work, the lenders are requiring AMCs to require something the GSEs (the party buy their mortgage paper) do not require. This risk aversion is residual from housing bubble collapse. Mortgage lenders today, subjected to low rates and a very narrow rate spread, remain irrationally averse to risk.
However, their underwriting risk management is effectively destroying the future quality of appraisals that will be done on their collateral because the new wave of appraisers is essentially only book-smart without real world context (mentoring). Experienced appraisers can not afford to invest the time to inspect the property with the trainee (in addition to their own inspections) for the multi-year experience period before the appraiser is certified after already taking a 30% to 50% overnight pay cut from AMCs.
From the Fannie Mae Seller’s Guide Update – 2017-01 page 2.
Reporting “Material Failures” to State Boards
In reference to appraisal oversight, let’s consider how banks determine whether an appraiser is reported to their state licensing board.
Dodd-Frank says the following in 12 CFR 226.42(g)(1). Whereby a lender has to report an appraiser for…[bold, my emphasis]
(g) Mandatory reporting—(1) Reporting required. Any covered person that reasonably believes an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or ethical or professional requirements for appraisers under applicable state or federal statutes or regulations shall refer the matter to the appropriate state agency if the failure to comply is material. For purposes of this paragraph (g)(1), a failure to comply is material if it is likely to significantly affect the value assigned to the consumer’s principal dwelling.
When the CFPB was asked what they meant by a “material failure” – the following table shows the difference between material and non-material. So how much is a material failure? A value off by 2%, 10% or 30%?
And by the way, the third option for reporting a material failure seems absurd although I suppose it has to be said – Who is dumb enough to admit that they accepted the assignment because they knew they would “make the deal” happen. The obvious lack of a definitive paper trail in such a situation makes this very hard to prove.
I’ve always had a problem with setting rigid rules in considering the concept of appraisal oversight. With valuation expertise, how does a state agency apply hard rules to value opinions, comp selection and adjustments, etc.? There needs to be a great deal of latitude for regulators and an “I’ll know it when I see it” approach should be allowed.
Separating gross negligence from negligence
Here is the rule.
“Performing an appraisal in a grossly negligent manner, in violation of a rule under USPAP.”
While subjective, it represents a very severe extreme to which an appraisal would be reported to a state board. The rule goes on to say…
“Accepting an appraisal assignment on the condition that the appraiser will report a value equal to or greater than the purchase price for the consumer’s principal dwelling, is in violation of a rule under USPAP.”
But big national mortgage companies today like Wells Fargo and others are reporting appraisals to state boards where the value is not supported. ie weak comps, unreasonable adjustments, etc. Reports with those issues may, in fact, be negligent but do not fall under the definition of gross negligence. Let’s not wreck an appraisers career because they missed some better comps. Once these reports are referred to the state, the state must investigate. It opens up the appraiser to more risk of unintended consequences. Think of a scenario where a cop pulls over a driver for a missing taillight and learns that the driver doesn’t have his wallet with him.
Gross negligence requires a much higher test than applying it to an appraiser who is just being stupid.
It is defined as:
Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. It is conduct that is extreme when compared with ordinary Negligence, which is a mere failure to exercise reasonable care.
Public Record Shows AI National spent over $100,000 on DC Lobbying in 2016
For those of you not aware of this, AI National has a political action committee known as AI PAC. Based on information in public record, AI PAC spent $101,250 on lobbying and took in $30,000 for a net expenditure of $71,250. While these expenses are nominal when compared to the big trade groups in Washington, it is a significant amount for a small trade group like AI, and I assume is surprising news to its membership. Here is what their 2016 income and expenses looked like. I’ll be posting all the public record documents over on my repository of all things AI Nation known as Real Estate Industrial Complex
Unfortunately AI National, through Bill Garber’s testimony last fall, grossly mischaracterized the impact of regulations on appraisers. He essentially claimed that current regulations are the source of most problems in the appraisal industry yet this is patently false. Terms like “uneven” and “complicated” are false. In fact, everything within the following paragraph of his testimony is false and clearly scripted to convince Congress that AI National should become the standard-bearer of appraisal standards. All the statements made aren’t backed by any facts, just presented in a dire tone. It is beginning to look like their collapse as an organization is sooner than later. They needed to throw a Hail Mary pass to place themselves in the center of the appraisal universe and receive the money that ASC receives now. The misleading messaging to Congress will create more complications and expenses for the mortgage process, appraisers and users of appraisal services. Here is their 2016 lobby costs in public record:
Updates from the Real Estate Industrial Complex
I’ll be re-blogging the lobbying post with the source documents this weekend. Ran out of time to include here in my Housing Notes.
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. They’ll get a Fudgie the Whale, you’ll stop cow tipping or my name isn’t Phil Campbell.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- This 3D Map Shows America’s Most Expensive Housing Markets [Metrocosm]
- Why Fierce Rivalry Is Brewing in Brooklyn Real Estate [The Bridge]
- REBNY asks state to probe StreetEasy’s Premier Agent feature [The Real Deal NY]
- Ryan Serhant, top brokers denounce StreetEasy agent program [The Real Deal NY]
- WATCH: The Real Deal discusses why brokers are up in arms over StreetEasy’s newest feature [The Real Deal NY]
- How Big Is Your House? That Depends [WSJ]
- Subway-less NYC: How neighborhoods thrive—or not—without direct subway connections [Brick Underground]
- The Bronx Is Building [NY Times]
- Wilbur Ross looks to sell Billionaires’ Row PH at loss [The Real Deal NY]
- The McMansion Hell Big List of Books, Websites, and Films about Architecture [McMansion Hell]
- City Observatory – Houston (Street), we have a problem. [City Observatory]
- VIDEO: This House Was 3D-Printed In Under 24 Hours At A Cost Of Just $10,000 [Zero Hedge]
- Has Boyle Heights Figured Out How To Stop Gentrification? [Citylab]
- The Home Is Great. Now We Need a Drummer [WSJ]
- The First 100 Days: Economic Policy – Moderated by Kathleen Hays [The Graduate Center, CUNY]
My New Content, Research and Mentions
- March 13, 2015 Clash of the Titans [Friday the 13th Edition] – [Housing Notes]
- March 6, 2015 – The Data-Whisperer’s ‘Housing Notes’ Intro [Housing Notes]
- 2-2017: Manhattan Monthly Absorption Rate by Type [Miller Samuel]
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 2-2017 [Miller Samuel]
- First-time buyers are looking for the urban in suburban [The Real Deal NY]
- Miami Condo Market Cools, but a Big Project Gets Financing [WSJ]
- Rents Decline for Every Apartment Size in Manhattan [Live Trading News]
- Manhattan Apartment Rents Falling In Every Category [Bisnow]
- Getting to yes in the ‘land of no’ [The Real Deal NY]
- Trump Park Avenue penthouse sells for $15.9M — almost $2M more than a bigger unit sold a year ago [National Post]
- Flurry of New Condos Set to Transform Los Angeles Skyline [Mansion Global]
- Ask and ye shall receive: Developers step up concessions in tepid market [The Real Deal NY]
- Landlord Sweeteners Continue to Prop Up Manhattan’s Rental Market [Mansion Global]
- Manhattan Rents Decline for Every Apartment Size, Even Studios [Newsmax]
- Report shows that rent prices in Manhattan are finally dropping [Timeout New York]
- Prewar Is So Last Year [NY Times]
- Manhattan Rents Fall for Every Apartment Size, Even Studios [Bloomberg]
- Elliman Report: February – 2017 Manhattan, Brooklyn and Queens Rentals Market Report [Douglas Elliman]
- Trump Penthouse Snags $2 Million Premium Over Unit a Floor Below [Bloomberg]
- Panel Moderator: New Yorkers’ guide to Miami: What second-home owners, investors need to know [MiamiHerald]
- Matrix Blog: Banks Make Regulations Onerous By Over-Interpreting Them [Miller Samuel]
Appraisal Related Reads
- My first Matrix Post: “Appraising the appraisers” on National Public Radio [Matrix 8/1/2005]
- The ugly truth about appraisal fees [Sacramento Appraisal Blog]
- Changes Coming for Appraisers [Real Estate Appraiser News]
- Final Rule on Appraisal Management Companies [NAR]
- CoreLogic President and CEO Anand Nallathambi passes away [Housingwire]
- The Effect of Legalizing Retail Marijuana on Housing Values [AEA]
Extra Curricular Reads
- “Lost” Bullitt Mustang surfaces in Mexico [Hemmings Daily]
- Everything you ever wanted to know about Fudgie the Whale [NY Post]
- The Debunker: Do Yokels Tip Cows? [Woot]
- Google’s Algorithm Is Lying to You About Onions and Blaming Me for It [Gizmodo]
- Why McDonald’s Filet-o-Fish sandwiches are so popular in March [Businessinsider]
- Video: John Waters’ RISD Graduation Speech: Real Wealth is Never Having to Spend Time with A-Holes [Open Culture]
- Here’s why McDonald’s Filet-O-Fish sales skyrocket in March [Businessinsider]