Housing Weakness Is More Rental Than Sentimental
Despite having a reputation as being a difficult person to work with, Apple co-founder Steve Jobs’ marketing legacy is incredible. Being a devoted Mac nut, having built both our appraisal companies using Macs, he made a lasting impression on me. The craft of story-telling he employs is unmatched as far as I’m concerned.
You can go to school and spend years trying to learn about great marketing.— Vala Afshar (@ValaAfshar) November 13, 2019 
Or you can spend a few minutes watching Steve Jobs – all marketers should carefully listen: pic.twitter.com/I2kMipVg3n 
But I digress…
Manhattan, Brooklyn & Queens Rental Markets Show Cooling Price Trends Except for Luxury
I’ve been the author of the expanding Elliman Report series  for Douglas Elliman Real Estate  for a quarter of a century (yikes!). What has made this affiliation work so well over the years is that Elliman has respected my independence, a deal killer for me otherwise. With their entrepreneurial business culture, they want their clients to understand actual market conditions to enable them to navigate better. I consider myself fortunate to be affiliated with a firm that has never had an issue with me conveying honesty in my market messaging.
One of our research pieces is the monthly rental report that covers Manhattan, Brooklyn and Northwest Queens  in New York City. Although few realize this, 2/3 of the NYC housing stock is rental.
Elliman Report: 10-2019 Manhattan, Brooklyn & Queens Rentals 
With the massive surplus of news this week, coverage of the rental market reached 18th place yesterday on the ±350,000 Bloomberg Terminal subscribers.
And of course, a chart!
MANHATTAN RENTAL MARKET HIGHLIGHTS
“Rental price trends pressed higher across all apartment sizes.”
- The vacancy rate has increased year over year for three straight months
- Median net effective median rent year over year growth appeared to have peaked in July
- The seventh consecutive month with year over year declines in concession market share
- New development median rent continued to rise faster than the existing median rent
- Share of new leases at or above $10,000 expanded for the fourth straight month
- The luxury entry threshold hasn’t seen a year over year decline in 2019
- The median rental price moved higher year over year at all price strata
BROOKLYN RENTAL MARKET HIGHLIGHTS
“Rising demand resulted in the largest year over year drop in concessions for 2019.”
- Net effective median rent increased annually for eleven consecutive months
- Most significant year over year decline in concession market share for 2019
- The average size of a rental apartment rose across all bedroom categories
QUEENS RENTAL MARKET HIGHLIGHTS
“Net effective median rent rose annually for the first time in four months.”
- The market share of landlord concessions fell year over year for the third straight month
- Net effective median rent rose year over year for the first time in four months
- The most significant decline of concession market share in six months
SoftBank Unicorns Got No Apparent Due Diligence
One of the tragedies for investors and current and former employees of WeWork has been the stunning lack of due diligence by SoftBank. I mean, $300 million for a dog-walking app maker  and no one blinks?
The sting of WeWork’s collapse is spilling over into other SoftBank unicorns like Compass, the traditional real estate brokerage firm that markets itself as a tech firm, presumably to get a higher valuation. In response to the bad WeWork headlines of late, Compass has sweetened the pot for its agents , probably because of the perception that anything associated with SoftBank is now tainted – that all unicorns received the same lack of due diligence that WeWork did.
The theme of these unicorns seems to be to go big to dominate their vertical, and then presumably after they kill off or buy most of the competition, they can charge higher commissions. They are disrupting through capital, not any apparent innovation. The problem with this strategy, ethically, is that the consumer will end up paying more in the end. With the toxic nature of unicorns these days, that vision is getting blurry. Uber continues to lose billions  and was just fined $649 million . Peloton  too.
Large signing bonuses create short term loyalty, say, just enough until an IPO when the founders can cash out and leave everyone else with a disruptor that has a lot of capital but hasn’t provided new ideas beyond the traditional brokerage model. I just heard from a broker friend who told me of a top producing team that signed with Compass to get a very large signing bonus to take some of the stress off of maintaining their top performance.
Cooling Rental Markets May Be Holding Back Inflation
Because national rents of primary residences, including the rental equivalent of a home, account for 40% of core inflation calculations, the direction of the rental market has a significant influence on core inflation .
The declines in New York and Boston weighed on the national measure for rent of primary residence, which rose 0.1% on a monthly basis, the least since April 2011.
Click on the chart to read more about this trend.
NAR Attempts To Solve Inventory Shortage By Fighting Whisper-Listings
The fight between Bright MLS and Compass  over whisper/Pocket listings fight has been in the news. The grand strategy by Compass looks like they are trying to become the center of the listing universe to capture both sides of the commission in an organized way. This practice cuts off inventory access to the broader public unless they go through Compass and place pressure on housing market affordability already plagued by chronically low levels of supply.
This week NAR approved its “Clear Cooperation Policy ” meant to standardize how long a broker can hold the listing  until they share it with their members on the MLS. The associations have until the spring to adopt it.
If members don’t adhere to the new policy, they can always leave the MLS, I suppose. Look to see how hard Compass fights this policy nationwide. I believe this disrupts their key strategy of destroying the MLS system to become the center of the listing ecosystem.
Recession Probability Is Losing Steam
I typically speak a few times a week to the real estate brokerage industry and have found the word “Recession” undoubtedly comes up. Often referenced as the “R” word, it stokes fear in the hearts of many a real estate broker. We are in late innings of the proverbial baseball analogy cycle, and yet I think the reason for the elevated concern about such a probability is based on what people associate with a recession. The last one involved a global thermonuclear meltdown of global credit, and those conditions are associated with how a recession might feel today. Yes, we are still in an over-corrected hangover phase of the financial crisis, but fear of the “R” word has become the “boogieman” of the real estate economy. And who can blame the real estate industry’s concerns? We have seen a significant mortgage rate decline over the past year, and that usually occurs when the economy is weak rather than like now when unemployment has remained crazy-low, below 4%.
One of the reasons that rates are falling is because the Fed is trying to offset the economic damage created by the ongoing trade war and its uncertainty. This confluence of events has impacted real estate in the high-cost markets I analyze in my research by slowing sales despite falling mortgage rates. Here’s a variation of a checklist I’ve shared before.
-Inventory rises -Sales continue to slow -Price discovery for 1-2 years -Market stabilizes
The following is a diagram of the trade war that is driving economic uncertainty and explains why lower mortgage rates aren’t as much impact as one would expect. Click the tweet to expand the infographic:
November 14, 2019 
The best description using a baseball analogy I’ve heard (can’t recall the source – likely on Twitter or heard in a podcast). Here’s how the conversation goes:
“We are in the third inning…”
“Wait; what? How can that be? We are much further in the cycle than that!”
“We are in the third inning of the second game of the double-header.”
“Oh, I get it.”
Len Kiefer ‘s Chart Handiwork
yeah, folks carrying debt into later years has really increased pic.twitter.com/GH52GjmGre — 📈 𝙻𝚎𝚗 𝙺𝚒𝚎𝚏𝚎𝚛 📊 (@lenkiefer) November 14, 2019 
oh, oops. Should be renters, own with a mortgage and own free and clear pic.twitter.com/ADkl1OGxse — 📈 𝙻𝚎𝚗 𝙺𝚒𝚎𝚏𝚎𝚛 📊 (@lenkiefer) November 14, 2019 
(For earlier appraisal industry commentary, visit my old clunky REIC  site.)
NAR Real Property Valuation Committee Issues Position On Bifurcation
The Real Estate Valuation Committee within NAR, which includes a slew of some of the best practicing appraiser minds in the industry, came out with a position on bifurcation. The release speaks to NAR’s support of independent valuation by state-credentialed appraisers, which is great. And it states that the appraiser must be able to interact directly with a third-party property data collector (inspector), which is also great.
Presumably, the inspector could be a Realtor since NAR is a trade group for Realtors, not for appraisers. Thankfully NAR recognizes that the detachment of appraisers from the process may damage their members’ livelihood as well as hurt home buyers and sellers. It’s great to have NAR in the mix, and they have long supported the importance of our role .
As much as I appreciate the symbolism of this policy position and the hard work by this committee, it is not clear to me how it makes much of a difference in the ultimate use of bifurcation assignments by mortgage lenders. Presumably, if views change with the future of the pilot programs  at the GSEs, the use of bifurcation appraisals won’t be stopped. Still, I see their efforts as very important.
But I don’t want our industry to think: “There, we’ve addressed and resolved the threat to appraisers and more importantly, the public trust.”
Home Value Stories Podcast: If the Appraised Value Is Lower Than You Anticipated If the Appraised Value Is Lower Than You Anticipated
My friend Jamie Owen of the Cleveland Appraisal Blog  has a new podcast that you can add to your feed . It gets into the nuts and bolts of our profession yet keeps it interesting and has high-quality production values. Here is the latest episode:
OFT (One Final Thought)
The egg is the trade war, gum is national debt, coke is the Fed, and fish are the bears.— Michael Batnick (@michaelbatnick) November 14, 2019 
Brilliant Idea #1
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Brilliant Idea #2
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Reads, Listens and Visuals I Enjoyed
- SoftBank Delays WeWork Investor Payout [The Real Deal] 
- Construction Continues on 'Little Island,' Thomas Heatherwick's Pier 55 Park in Chelsea [New York YIMBY] 
- Online Home Buying by Generation [NY Times] 
- Oprah has now spent $86M on her Montecito real estate empire [The Real Deal] 
- Why boomers, not millennials, are fueling the urban apartment surge [Curbed] 
- Inside a Chinese Developer’s Nearly $3 Billion Bet on the Storied Waldorf Astoria [Wall Street Journal] 
- Powell Pow Wow: Lenders Give the Fed Chief a Piece of Their Minds [Commercial Observer] 
- Zillow, Opendoor Pay Close to Market Value for Homes, Study Says [Wall Street Journal] 
- Television Host Regis Philbin Lists Greenwich Home for a Big Loss [Wall Street Journal] 
- A real estate association is cracking down on ‘off-market’ properties. Here’s what that means for buyers. [Washington Post] 
- Fed’s climate conference cites housing impact [HousingWire] 
- Officials Move To Raze Mohamed Hadid's Bel Air Spec Mansion [Inman] 
- Softbank is getting exactly what it deserves, and it's thanks to something way bigger than WeWork [Business Insider] 
- NYC's housing supply can't keep up with its job growth: report [Brooklyn Eagle] 
- State backtracks on law that would unmask secret NYC condo buyers [Curbed NY] 
My New Content, Research and Mentions
- NYC, London and Vancouver Losing Luster With Luxury Homebuyers [Bloomberg] 
- 租金达顶峰 曼哈顿房租飙涨开始冷却 [The China Press] 
- Douglas Elliman Releases October 2019 Rental Market Report for Manhattan, Brooklyn and Queens [Citybizlist] 
- New York's Apartment Rents Are Starting To Cool Off [Biznow] 
- A $2.5B litmus test for the Century City luxury market [The Real Deal] 
- Manhattan Rents Edged Up in October [The Real Deal] 
- Manhattan Luxury Rental Prices Growing Faster Than the Rest of the Market [Mansion Global] 
- Manhattan’s Rent Surge Is Cooling as Tenants Push Back on Hikes [Bloomberg] 
- Falling Rents in New York, Boston Hold Back U.S. Core Inflation 
- Echo Park, Los Angeles: Density, With a Sprinkling of Nature [NY Times] 
- Whither The East End Market? [The Independent] 
- How to Sell a House in Southern California: Make a Movie [MSN] 
- How to Sell a House in Southern Calfornia: Make a Movie [NY Times] 
- How Smart Is Your Home? [NY Times] 
Recently Published Elliman Market Reports
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 10-2019 [Miller Samuel] 
- Elliman Report: Los Angeles Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Malibu + Malibu Beach Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Venice + Mar Vista Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Aspen + Snowmass Village Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: North Fork Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Hamptons Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Long Island Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: Manalapan, Hypoluxo Island & Ocean Ridge Sales 3Q 2019 [Miller Samuel] 
- Elliman Report: St. Petersburg Sales 3Q 2019 [Miller Samuel] 
Appraisal Related Reads
- 7 Ways Not To Choose Comps • [Tom Horn/Birmingham Appraisal Blog] 
- Street names & hot stats with an asterisk [Ryan Lundquist/Sacramento Appraisal Blog] 
- How Appraisal Adjustments Work [Cleveland Appraisal Blog] 
Extra Curricular Reads
- The Great Cranberry Scare Of 1959 — The Indicator from Planet Money — Overcast [NPR] 
- I am railing: Sir Rod Stewart reveals his epic model railway city [BBC] 
- How the Dumb Design of a WWII Plane Led to the Macintosh [Wired] 
- Surveys Are Mostly Bullshit [The Irrelevant Investor] 
- Black Sheep of Wall Street: Henry Blodget — Without Fail — Overcast [Gimlet Media] 
- Robert Norris, Marlboro Man Who Didn’t Smoke, Dies at 90 [NY Times] 
- The Replacements’ ‘Stink’ show: A true story from Minnesota music history [The Current] 
- Instagram Will Test Hiding 'Likes' in the US Starting Next Week [Wired]