Housing A Reversal In Direction
I hope all my dear Housing Notes readers had a wonderful Thanksgiving experience with family and friends. I definitely did and as a result, this week’s effort here was hampered by being groggy, despite understanding the myth of turkey tryptophan consumption.
But I gave it my all. Ok, back to the topic of housing, sort of.
It’s a lot tougher and slower to go backward, hence the saying “housing prices are sticky on the downside.”
But I digress…
Getting Paid To Eat Alone Isn’t All That Bad
I’ve shared this photo here before, but in the aftermath of excessive consumption of a Thanksgiving meal yesterday, I thought I’d share it again.
Just before the pandemic, I was engaged as an expert witness in a long-running litigation that required me to spend nearly seven full days on the witness stand. It was exhausting and stressful but I actually enjoyed it. My firm does a lot of this type of work. The attorneys I worked with were incredibly good at their jobs and really fun to be around. One of them reached out to me this summer to let me know that the judge’s decision was nearly in complete agreement with my results. Having that information was nearly as satisfying as the story behind this photo.
The judge would always warn both sides that they were not permitted to discuss the case with the experts during the recess for lunch. Our side took this point very seriously. So everyday we would walk from the courthouse to Little Italy in Manhattan and dine at an old Italian restaurant. I would sit on one end of the dining room and eat a big meal all by myself (paid for by counsel) and the three attorneys and the client would dine separately. It felt a little comical to do this but it was quite a heated case and the other side would also often eat in the same restaurant.
Appraising is always an adventure!
TV Thing 1: NY 1 – The Rising Cost of Housing, But Hope Remains For Millennials
I recently did an interview with NY1 on Millennials being priced out of the housing markets.
The two say it’s discouraging to see that you can buy a large home in another state that is the same price of a very small space here in the city but moving out of New York is not on the table for the couple.
TV Thing 2: FOX 5 – Homeowners have a lot more equity than they did last year
Many homeowners have a lot more equity than they did last year, a byproduct of a housing boom largely driven by record-low rates. Always fun to speak with Dana Arschin of NYC TV Station Fox 5 who breaks it down for us.
Will Shag Carpet Ever Make A Comeback?
Good grief. Let’s hope not.
From Twitter account CrappyCheapoArchitecture:
And while we’re at it, I do like this high-tech 1960s? stove.
The Frigidaire Flair pic.twitter.com/c5Utsjww4L— Flashbak.com (@aflashbak) November 19, 2021
Inflation Has Been Driven By The Pandemic Surge In Goods Purchases
I’ve long hitched my inflation-supply-chain wagon to my friend Barry Ritholtz’s views on the topic, and this recent version has been one of my favorites because of its clarity: Structural or Transitory?
the dominant price impetus the past three decades has been technology-induced Deflation. The more recent drivers of Inflation all look like pandemic/re-opening/supply chain driven, and therefore not structural.
What is occurring at the bottom of the wage scale is a massive unwind of decades of wages that were deflationary in nature. I expect these increases will be sticky, but the annualized gains will moderate. Hence, the best way to think of bottom half wages as part of a great reset.
And my favorite point made…
you purchased a physical good instead of using a service — and did so in quantities far outside of what is normally purchased. This is the opposite of the pre-pandemic trend. That the supply chain buckled under the load is not a surprise.
Spurious Housing Correlations: Per Capita Cheese Consumption versus Number of People Who Died By Becoming Tangled In Their Bedsheets.
My favorite charts of the week made by others
Len Kiefer‘s Chart Handiwork
(For earlier appraisal industry commentary, visit my old clunky REIC site.)
The value of the URL www.AppraisalNY.com is in free fall
So I got this email, offering this domain for $499.
On Mon, Oct 25, 2021, 8:03 PM Tony Thomas email@example.com wrote: Hello,
The web domain: www.AppraisalNY.com is now available for sale on Dan.com marketplace for a price of $499.
AppraisalNY.com has strong keywords that are relevant to your Appraisal Services in ‘New York’ and his surroundings. Use the domain massive advantage over your competitors in ‘New York’ and re-direct it to your main site to capture more visitors from the domain and targeted customer.
Get the domain to the appropriate authority in your company as competitors may be considered. Go to: www.AppraisalNY.com for immediate acquisition.
This domain can also be purchased through GoDaddy or any registrar of your choice.
Do let me know if you have any questions or concerns.
And the price continued to drop in subsequent emails:
Oct 29, 2021: $399
Nov 4, 2021: $299
Nov 10, 2021: $250
Nov 16, 2021: $200
Nov 22, 2021: $150
Eventually, they may find a bidder, but I’m not very sophisticated with SEO and will continue to focus on my company’s branding at millersamuel.com rather than this type of effort.
If you have thoughts or suggestions on this topic, please share.
TAF: Free Trips for Texas Appraiser Licensing & Certification Board Workers
From the organization that gave us the bat-shit crazy letter…we now have this development in Texas.
Appraisal Institute’s president Rodman Schley is addressing unconscious bias
When an organization is predominantly “white and male,” that’s unconscious bias at work. Rodman Schley of AI is been unusually outspoken on this topic during his presidency in 2021, and it is something AI needs to continue to address next year and beyond if it wants to continue to its leadership position in the industry.
Rodman lays out a clear position on the topic in his op-ed for Inman: ‘Bias has no place in appraisal’: Appraisal Institute president
In an appraisal profession that is 96.5% white per BLS, he has made the case that AI can be a leader in the effort. AI has been anything but that in recent years but I am hopeful this is a turnaround for the organization.
Representation is a leading force for equity and inclusion in every profession, and we recognize that recruiting for greater diversity will make us stronger and more representative of the communities in which we work and contribute to overall greater cultural awareness.
Bagott on TAF’s USPAP: “The continual change is the point, not the substance behind the changes. It’s the publisher’s business model.”
The power grab by Chairman Dean Dawson on the West Virginia Real Estate Board wasn’t initiated by him. Still, he has perpetuated the problem in West Virginia since it began in 2009. The lack of new appraiser licenses has been appalling and a key component of the grift.
AUDITOR: WEST VIRGINIA BOARD HAS VIOLATED STATE LAW SINCE 2009
(November 24, 2021) – The law is not a creature of the few or the many. That was made clear in a recent report issued by West Virginia’s Legislative Auditor on scofflaw activity by the West Virginia Board of Real Estate Appraisers.
During the spring of 2021, Legislative Auditor John Sylvia directed the West Virginia Legislative Performance Evaluation and Research Division, more commonly known as “PERD,” to investigate the occupational licensing board for possible noncompliance with West Virginia Code §30-38-17, which requires a state-prescribed public hearing or public comment period be held in order to adopt new editions of the copyrighted “Uniform Standards of Professional Appraisal Practice.”
A legal opinion sought by Sylvia determined that a state notice-and-comment process is required prior to the adoption of each amended version of the privately held code of conduct. It also found that public hearings on the standards were once held and that the board has not complied with West Virginia state law since 2009.
The fluid standards were first published in 1987. But the Washington, D.C.-based publisher that owns and sells them to licensees at monopoly pricing has a financial interest in continually changing the standards, able to sell each new version to about 80,000 captive licensees nationwide, along with a suite of related products and services. The publisher has changed the standards 23 times over three decades. The revenue has led to a system of spoils and patronage at the federal level. It has also led to public corruption at many state agencies.
The publisher’s federal patron is known by the tortuous name the Appraisal Subcommittee of the Federal Financial Institutions and Examination Council. The federal agency’s executive director is a former employee of the publisher.
In response to the West Virginia Legislative Auditor’s report, Patricia Rouse Pope, executive director of the West Virginia Board of Real Estate Appraisers, seemed to let herself off the hook for violating the statute: “…if [the board] were to fully adhere to West Virginia Code §30-38-17, the change may not be made in time to keep up with the current amended version of [the standards].”
“This is exactly the point,” contends author-appraiser Jeremy Bagott. “The continual change is the point, not the substance behind the changes. It’s the publisher’s business model.”
Records show Ms. Pope, while helping to muzzle residents of the Mountain State, who were denied their statutory right to participate in a state adoption process, received three all-expense-paid trips from the publisher from April to September 2019 with cash reimbursements and vouchers for free airfare, meals, lodging, course materials and other things of value totaling an estimated $6,554.
State workers in California and Texas were also found to have received tens of thousands of dollars in all-expense-paid trips funded with diverted grant money owed directly to the states from 2010 to 2019.
An earlier investigation by Bagott found that in 2008, realizing the West Virginia board had fallen behind and wasn’t lawfully enforcing the 2006 and 2008 editions of the private standards, the board repealed the 2005 edition in an emergency rulemaking and introduced, in its place, wording in an executive branch rule that subverts two statutes. This is no small thing, as the wording violates Article IV, Sec. 36, of the state’s constitution. The two statutes being violated are the West Virginia Real Estate Appraiser Licensing and Certification Act and the Administrative Procedures Act.
Bagott also found the board was in open violation of rule W. Va. Code R. § 153-6-7.
General Counsel Donald “Deak” Kersey at the West Virginia Secretary of State’s Office confirmed his agency had no record that the board had filed a copy of the “2020-2021 Uniform Standards of Professional Appraisal Practice” – or any past version of the standards – with the Secretary of State’s Office. Similarly, he could find no evidence that any past version had been uploaded to an eRules application as required by W. Va. Code R. § 153-6-7.
In 2017, it was discovered the board had hired unauthorized individuals as de facto board members. Board members were believed to have effectively delegated their duties to doppelgängers.
Wrote state Delegate Gary G. Howell, chair of the Joint Committee on Government Operations: “The West Virginia Real Estate Appraiser Licensing & Certification Board [has] violated the law by hiring persons specifically barred from being employed by the board, because it created a conflict of interest. It was suggested this violated the state constitution, as the governor is tasked with appointing board members with the approval of the Senate.”
Jeremy Bagott, a licensed appraiser and former newspaperman, sends up a warning flare in his 2019 book “Dispatches from the Cosmic Cobra Breeding Farm.” He takes the reader deep inside a tiny Washington, D.C., foundation that has managed to have its copyrighted code of conduct enshrined in federal and state law. All 50 states, even the U.S. territories of Guam and the Northern Mariana Islands, now enforce it. The nonprofit, known as the Appraisal Foundation, has parlayed the arrangement into a lucrative publishing cartel. In his journey, the author uncovers a troubling trend deep in the plumbing of government.
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Dave Towne Takes Down The GSE “Made As Instructed” Research Paper
If we’ve learned anything as appraisers is that many institutions in Washington, D.C. fund white papers to support their positions and give the appearance of credibility at first glance. Dave Towne, who continues to look out for the interests of appraisers on the ground, applies critical thinking to the GSE-funded white paper “Racial and Ethnic Valuation Gaps in Home Purchase Appraisals.”
And be sure to review the “Spurious Correlations” post above for proper context.
This is not an easy essay to write. It is my critical analysis of an academic study put out by a GSE, which I have read.
In September 2021, FreddieMac’s Modeling, Econometrics, Data Science & Analytics; Single Family Risk Management; and Economic & Housing Research groups released a white paper (Economic & Housing Research Note) named “Racial and Ethnic Valuation Gaps in Home Purchase Appraisals.”
The paper uses the term ‘appraisal gap.’ The paper’s definition of the ‘gap’ is: the percentage difference between minority and White groups in the share of properties or applicants receiving “appraisal value lower than contract price.”
The people who produced this paper concentrated on two primary aspects relating to ‘race’ and value opinions in appraisals of new home purchases, oriented toward Black vs White racial differences. It spanned years 1993 through 2020, and used the 2010 census for the racial profiling done.
After this paper was released to the media and stakeholder groups, some reporting about it used the term ‘groundbreaking’ to describe it. I don’t share that opinion. Breaking is mostly about breaking the morale of appraisers, who for the majority of reports, do their work appropriately per the USPAP mandates and GSE (and other agency) guidelines and lender assignment overlays we deal with, based on how appraisers understand those criteria.
The first consideration in the paper was appraised value vs the Contract Price. The groups utilized a third party study done in 2017 by Calem, Lambie-Hanson, and Nakamura to basically imply that appraisers are deficient in their work if the appraised value is LESS than the Contract Price in minority Census Tracts. More about ‘tracts’ below.
Yet in a footnote to the paper, the groups say “We acknowledge that the sale price is not always equal to market value, and we expect that in all areas some appraisals will report values lower than the contract price. However, research data indicate that a high percentage of appraisals are at or above the purchase price.”
So let’s see here….some appraisals have values lower than the contract price, while a ‘high percentage’ are at or above that metric. It also implies that some appraisals are AT the contract price. But the paper goes on at great length about appraisals in minority tracts which report an opinion less than the contract price. Seems to me that the contradictory statement in their own paper refutes their conclusion that appraisers are wrongly reporting values in predominately minority occupied areas.
There, of course, was no discussion of any type of report reviews or calls with the appraiser to analyze the comparables used against the subject properties in order to properly evaluate the report conclusions.
The second consideration used for their analytics is Census Tracts vs the population racial component of area residents – and only 4 races were considered – in those Tracts. The US Census office keeps detailed records about the racial components across communities.
It should be noted that the Census Tract number has been inserted onto the GSE report forms since 1986, when GSE’s took over appraisal report form production. The tract number relates to the subject’s street address.
The tract number is used for compliance review tracking by the lender and regulatory agencies who can cross check purchases in communities based on locations in a Census Tract.
This tract number is not something that most appraisers pay any attention to. I have asked many on a particular forum I frequent. Their responses were as I stated. Appraisers don’t check Census maps to determine where tract boundaries are relative to where the subject and comps are located. And appraisers certainly don’t consciously evaluate the racial mix of residents in tracts to determine which homes they might or might not use for comps in a particular assignment. (If they do, then they need to be removed from this profession.)
This paper also says that a Census Tract (which is a count of people) is the same as what we call a Neighborhood in reports. Really? The Dictionary of Real Estate Appraisal, 4th Edition, defines Neighborhood as “A group of complimentary land uses; a congruous grouping of inhabitants, buildings, or business enterprises.” (In my Webster’s Dictionary, ‘congruous’ means “Harmoniously related or combined; Appropriate, consistent.”)
USPAP, Federal Laws, and the GSE guidelines prohibit the use of ‘race’ by appraisers in determining which properties will be in a report.
Yet this FrMac research paper over many pages of written explanations, exhibits, dummy variables, models and high level math statistics concentrates on racial components in Census Tracts to try to make the case that appraisers are deficient in how appraisals are done…..particularly toward Black people.
The folks who have said this paper is ‘groundbreaking’ probably have not thoroughly digested it, read the footnotes, and may not even have a true understanding of the current appraisal process. But it’s been thrown up on the ‘you’re the bad guys wall’ hoping it will stick along with the already debunked Dr. Perry Brookings Institution diatribe.
At the end, this paper actually admits that the group really doesn’t have a complete understand of the ‘gap’ that they so critically discuss. It says the “….potential appraisal gap is worthy of considerable research.” And “….our analysis has not yet determined the full root cause of the gap…..”
And it’s conclusion makes this statement: “We are testing whether alternatives to traditional appraisals offer a more objective analysis of property value.”
I wonder how many of the “alternatives” will allow as much ‘racial profiling’ as this paper does?
OFT (One Final Thought)
Who said that cool music couldn’t be found on the Lawrence Welk show?
But no one was cooler than Carl Perkins.
Brilliant Idea #1
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Brilliant Idea #2
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See you next week.
Reads, Listens and Visuals I Enjoyed
- Starwood to Buy 2,300 U.S. Rental Houses in Suburban Push [Bloomberg]
- New Home Sales: Record 109 thousand homes have not been started [Calculated Risk]
- Mallika Winsor, Shake Shack's Real Estate Strategist, On Expanding [Commercial Observer]
- Structural or Transitory? – The Big Picture [Ritholtz]
- In Wake of Zillow iBuying Fiasco, Here Come the Lawsuits [The Real Deal]
- Home Prices Are Surging. The Manufactured-Housing Industry Sees an Opening. [Wall Street Journal]
- New York City Residents Largely Returning [The Real Deal]
- The Pandemic’s Impact on NYC Migration Patterns [Comptroller NYC]
- U.S. Home Sales on Track for Biggest Year in 15 Years [Wall Street Journal]
- Where is the U.S. Housing Shortage? [Counselors of Real Estate]
- How Douglas Elliman Will Offer Stock-Based Compensation [The Real Deal]
- Oregon slapped with lawsuit over 'love letters' ban in hot real estate market [Yahoo News]
- Is iBuying Here to Stay? [NY Times]
- What If Elon Musk Wants to Build a Rocket on the Roof of the Dakota? [NY Times]
My New Content, Research and Mentions
- Refinancing your mortgage [Fox5 New York]
- Millennials on buying a house: Ok, Boomer [NY1]
- Luxury Manhattan sales surge as rental market wanes [Crain's New York]
- Global prime residential price forecast: Miami on top in 2022 [Knight Frank]
Recently Published Elliman Market Reports
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 10-2021 [Miller Samuel]
- Elliman Report: Normandy Isles/Normandy Shores New Signed Contracts 10-2021 [Miller Samuel]
- Elliman Report: California New Signed Contracts 10-2021 [Miller Samuel]
- Elliman Report: Colorado New Signed Contracts 10-2021 [Miller Samuel]
- Elliman Report: Florida New Signed Contracts 10-2021 [Miller Samuel]
- Elliman Report: New York New Signed Contracts 10-2021 [Miller Samuel]
- Elliman Report: Malibu + Malibu Beach Sales 3Q 2021 [Miller Samuel]
- Elliman Report: Los Angeles Sales 3Q 2021 [Miller Samuel]
- Elliman Report: Long Island Sales 3Q 2021 [Miller Samuel]
- Elliman Report: Hamptons Sales 3Q 2021 [Miller Samuel]
Appraisal Related Reads
- 'Bias has no place in appraisal': Appraisal Institute pres [Inman]
- Appraisal startup Aloft closes $20M Series A led by Fifth Wall [The Real Deal Chicago]
- N.Y. prosecutors set sights on new Trump target: Widely different valuations on the same properties [Washington Post]
- Should You Trust An Algorithm For Your Home's Value? [Tom Horn/Birmingham Appraisal Blog]
- Why Diversifying The Home Appraiser Pool Is An Industry Priority [Bankrate]
- West Virginia Audtor's Findings [WV Legislature]
- Daughter of South Dakota Gov. Kristi Noem to turn in appraiser license amid continuing nepotism scrutiny [WaPo]
- November 19, 1944 | WNYC | New York Public Radio, Podcasts, Live Streaming Radio, News [WNYC]
- S.D. Governor's Daughter Quits in 'Disappointment and Anger' as Officials Look at How She Got Her Job [People]
- RAC conference 2021… See you in 2022! [RAC]
Extra Curricular Reads
- Venmo privacy settings to change now [Washington Post]
- Meet the Man Baking Free Pies for Laid-Off Journalists [Grub Street]
- SP 500 Twitter Sentiment Index [Developer]
- Housing Inventory Estimate: Owner Occupied Housing Units in the United States | FRED [St. Louis Fed]
- Why Do So Many Young Americans Hate Sports? [Inside Hook]
- Ceramic Mosaics Mend Cracked Sidewalks, Potholes, and Buildings in Vibrant Interventions by Ememem [This Is Colossal]