Matrix Blog

Housing Notes

April 26, 2019

The Housing Bunny Shows Us He’s Ready To Rumble

The moral of the story, don’t judge a bunny by its cute, cuddly exterior. Inside there may be a stronger person that is ready to fight.

But I digress…

Elliman Reports Released: Q1-2019 Hamptons, North Fork and Long Island

This was the final week of our four week quarterly report gauntlet. Phew. More markets are being added next quarter to our expanding Elliman Report series I’ve been authoring since 1994.

Of utmost importance was a Bloomberg chart (2 versions) on the spike in listing inventory…


Here are some key observations of these markets:

THE HAMPTONS

Elliman Report: Hamptons Sales 1Q 2019

“The sub-million dollar market had its second highest sales share in five years.”

  • Second highest market share of sales below $1 million in five years
  • The number of sales has declined annually for the fifth straight quarter as the market resets
  • Lowest first quarter number of sales in seven years
  • Listings inventory rose sharply for the last two quarters
  • Tied for the lowest number of sales at or above $10 million in six years
  • Luxury listing inventory expanded sharply for six straight quarters


NORTH FORK

Elliman Report: North Fork Sales 1Q 2019

“Stable pricing with easing sales growth.”

  • Median sales price has not shown a year over year decline in eight straight quarters
  • Listing inventory edged higher year over year for two straight quarters
  • The number of sales declined year over year for the third time in four quarters
  • The market share of sales under and over $1 million was unchanged
  • Tied for the second lowest number of sales above $2 million in six years

LONG ISLAND

Elliman Report: Long Island Sales 1Q 2019

“Sales slowed as prices continued to rise.”

  • There has not been a year over year decline in median sales price for twenty-four consecutive quarters
  • The number of sales slipped year over year for the second time in three quarters
  • Listing inventory expanded annually for the first time in four quarters
  • Shortest first quarter marketing time for single-families in at least twelve years
  • The number of condo sales has declined year over year for five consecutive quarters
  • Luxury listing inventory rose year over year for five straight quarters

Elliman Reports Released: Aspen/Snowmass Village, Los Angeles, Venice/Mar Vista, Malibu/Malibu Beach

ASPEN

Elliman Report: Aspen + Snowmass Village Sales 1Q 2019

“Market-wide sales continued to see annual gains for the second straight quarter.”

  • The number of sales expanded year over year for the second straight quarter
  • Average sales sized increased annually for the second time in three quarters
  • Listing inventory annually edged higher for four straight quarters
  • Luxury average price per square foot declined and listing inventory expanded annually for three straight quarters
  • The entry-threshold drifted lower year over year for three consecutive quarters

SNOWMASS VILLAGE

Elliman Report: Aspen + Snowmass Village Sales 1Q 2019

“Larger sales size skewed price trends higher as sales slowed.”

  • The average sales size surged, skewing all price trend indicators sharply higher
  • The number of sales declined faster than listing inventory, slowing the market pace
  • The number of sales declined annually for the first time in eleven quarters
  • Luxury average price per square foot rose year over year for the second straight quarter
  • The average size of a luxury sale jumped from the year-ago level

LOS ANGELES

Elliman Report: Los Angeles Sales 1Q 2019

“Overall market share of pocked/whisper listings declined as listing inventory expanded.”

  • Number of sales declined year over year for the fourth straight quarter, consistent with the decade quarterly average
  • Price trend indicators showed mixed results, with median sales price falling from the year-ago record
  • Listing inventory expanded year over year for the fourth consecutive quarter
  • Market share of pocket/whisper listings fell across most price categories
  • Sales market share of larger single-family sales declined
  • Luxury price trend indicators for condo and single-family sales generally moved higher

MALIBU/MALIBU BEACH

Elliman Report: Malibu + Malibu Beach Sales 1Q 2019

  • Malibu single-family and condo sales year over year remained well below year-ago levels as sales size shifted to smaller homes
  • Malibu Beach single-family and condo inventory fell as average sales size skewed lower

VENICE/MAR VISTA

Elliman Report: Venice + Mar Vista Sales 1Q 2019

  • Venice single family and condo price trend indicators ranged from flat to rising year over year as sales remained well below year-ago levels
  • Mar Vista single-family and condo price trend indicators rose sharply as inventory expanded sharply but remained inadequate for the demand

Elliman Reports on Greenwich and Fairfield County, Connecticut Featured on CNBC

Diana Olick at CNBC reached out to me this week to talk about the Q1-2019 Elliman Report on the Greenwich, CT housing market and the impact of the federal tax law on high-end suburban markets in NYC metro. We spoke on Greenwich Avenue in Greenwich at 8:30 am and had to keep doing segments over because of the random roars of delivery and garbage trucks. The irony was not lost on me – a busy downtown with not a lot of empty parking spaces so early in the morning – combined with a slow housing market. Anecdotal but this is what we are seeing at the macro level – a robust regional economy with soft housing conditions.

We were set up in front of a Vineyard Vines store while I was wearing a bright Ted Baker tie (Hey, I can be a social media style influencer too). The irony in this product placement “ties” this story altogether (in my own mind). I received more feedback about my tie than I did on my content. Oh well. And for the record, Diana made very clear to me that she commented on my tie first.


Here’s the segment that also includes my friend Jennifer Leahy of Douglas Elliman, their number one agent in Connecticut who just sold the massively oversized home of 50 Cent.

New tax laws take a toll on home sales in Connecticut from CNBC.


Streeteasy’s Out East Site Has Brokerage Community Where They Want Them

The brokerage community is complaining that the new Streeteasy site for the Hamptons and North Fork – Outeast – is preventing them from serving the consumers.

Let me start from the beginning.

It has been almost six years since Zillow acquired Streeteasy, the defacto MLS system for Manhattan. Streeteasy, as conceived, was an elixir that the brokerage community (and me) became addicted to. There had been no listing search engine that understood vertical housing markets since most platforms are “flat file” like in functionality. Zillow today and others remain like that. Condo unit 3A is viewed on its own merits and not with condo unit 47A in the same building at the same time. I had incorrectly assumed that Zillow would use Streeteasy to power the vertical housing markets they cover, but instead, they opted to use the acquisition to buy into the NYC market and have spent the time removing the bells and whistles that made Streeteasy so cool since there has been no real competition. Sure REBNY tried with their RLS system, but they don’t have the money to compete in the same league as Zillow and Zillow has won the consumer with hundreds of millions in marketing. Now that they won the consumer, they rolled out their Premier Agent program at $333 per month per listing because they enjoy the monopoly that MLS systems around the country have long been accused of. Except that this is not a consortium of companies, it is simply a single tech platform.

I understand the New York Department of State is wrestling with this situation right now and the MLS world is watching for their final decision. I wouldn’t hold your breath.

Now we are seeing the same thing playing out in the eastern end of Long Island over the past two weeks – the brokerage community in the Hamptons seems to be besieged by tech issues now that they are forced to use the Streeteasy site Outeast now that they turned off editing of the Realnet site they acquired. The site is being forced on the community and it is not ready for daily use. Monopolies arent motivated in the same way as when competition exists.

Here are some of the incoming broker responses who are using a system that is not ready for prime time:

Their averaging stat misrepresents seasonal rents:

customers can not figure out what the rental prices are I always have to ask them first what period they are interested in and I think since averages are so high it keeps full season rentals from calling.

It’s been 2 weeks it is a crisis mode now for our business!
It took me two weeks to enter a rental condo , all my rentals Are average year round prices-shows up and most are only summer – you cannot average a Hamptons summer by the year .

Listing entry process is flawed

Who is your supervisor, you have no phone support you have a system that clearly doesn’t work and I have listings that can’t be entered. Where IS the old sale that was entered for the same address. I thought I could just use that. What is going on over there? How can you release a system that doesn’t work. Where is the open house info? Where is the day sheet. How do you operate a system that doesn’t work.

YOU GAVE ME A BICYCLE WITH NO TIRES AND ASKED ME TO PEDAL


There is more. I’ll expand on this topic this weekend over on my Matrix Blog.

In Canada, Losing A Purchase Deposit Can Be Gangsta

A one-time potential purchaser of a luxury home in Vancouver was not entitled to their $220,000 deposit back:

But property investor Shao Feng Yun wanted nothing to do with the mansion after finding out that notorious triad boss Raymond Huang Hong Chao was shot dead outside the front gate in 2007, in an unsolved gangland hit.

I’d be curious whether the property subsequently sold and there was any stigma attached to the sale.


Vertigo-Inducing Photos of Second Tallest NYC Building By Height

YIMBY has a photo spread of 111 West 57th Street that is worth visiting. The technical challenges of this kind of construction have to be unreal but the views must be spectacular as visits to other supertalls have shown me.

My goal in life is to visit a top floor unit during a Hurricane without taking Dramamine. Here are a few of the photos taken by Michael Young for YIMBY. The third one was the most vertigo-inducing. Clicking on each takes you to the source article.


HowMuch.net: Salary Needed to Buy A House In The Largest U.S. Metros

Chart eye candy.


[Click to expand]

Tip: Remove All Your Toilets to Save Money on Property Taxes

Over the last few weeks, I have been particularly sensitive to the notion that consumers modify their behavior, especially the wealthy when it comes to avoiding paying taxes. The idea that they have so much money that they don’t modify their behavior is lazy armchair economics.

Here is an amazing example of tax avoidance in Chicago if the charges are true.

One of the mayoral candidates in Chicago is accused of removing all the toilets in one of his extra homes to save $330,000 in property taxes.

The appraisal noted that “there were no functioning bathrooms in the house since all the toilets were removed,” adding that there were appliances in the “cooks’ kitchen” in the basement. It also noted that one stairway banister was braced and another one “sloped noticeably to the right side.”


No photos to be found online taken of the house or the lack of toilets…

Getting Graphic


Len Kiefer‘s Chart Handiwork
[click to expand]

His forecasting model for EHS is mindblowing. The change in forward-looking views has been incredibly volatile.

Appraiserville

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

Look for more discussion about the seminal NYS AMC Law this weekend over on my Matrix Blog.

Your Reports Can Turn Up Anywhere
  • Toilet Removals Noted In Chicago Mansion By Appraiser In Tax Appeal. This was discussed in these Housing Notes higher up on the page but note how there is opposing evidence of a bathroom in the house after all. If true, this is an example of an appraiser as a “deal enabler” rather than a trusted neutral observer. I’ll bet they never thought this would be an issue discussed in the Chicago Tribune. Ugh.

  • The appraiser I wrote about in Appraiserville back on September 7, 2018 is in the spotlight again and the optics are not flattering. Fascinating read.

OFT (One Final Thought)

I actually bought one of these last summer. It didn’t work (burn off carbs, that is).

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

  • They’ll cut pizza with a bicycle;
  • You’ll get vertigo;
  • And I’ll get a new tie.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


April 19, 2019

An Unredacted Hack: Housing Spam Edition

Yesterday, my business email was hacked and it was more disruptive than I could have imagined. I received hundreds of emails from recipients who I know as well as texts and phone calls. And it isn’t over. I am still getting calls, texts and emails from recipients. As this propagates, I’ll bet thousands of people were spammed by my account in the 5 minutes it was active. More on that below.

The following message confused all of my contacts and has spread to other recipients I don’t even know. The following screenshot is what was sent – it looks like an attempt to harvest even more emails.

About five minutes after I was hit, a tech friend of mine called me after receiving the email to let me know and told me to change my password immediately. I did so and while talking with our tech people, I could see 5 emails a minute leave my outbox, each with about 80 names up until the moment my password changed and we added additional authentication and virus protection software.

Here is the most disturbing part – one of my contacts named “Valerie” replied to me with “Jonathan, is this real?” and my email account – the hacker – responded on its own, “Yes, Valerie, it is.” OMG. Here is a snapshot after I redacted her info:

Nearly 20-years ago I was playing a fresh copy of DOOM (possibly DOOM3?)

at home, marveling that I was playing online with others all across the world and not focused on the game itself. I had a slow dial-up connection and my total lack of eye-hand coordination made me no match for anyone. I never forgot this particular moment: At one point I was shot and was laying down watching others run around me. As I was about to come back to life, a player stood over to me and pumped a dozen rounds into me. Chills went down my spine much like yesterday when my account responded to Valerie on its own as I watched.

Afterthoughts on being hacked:

  • Hundreds of people have called, emailed and texted me to let me know what happened and I can cheerfully conclude that most people in this world are nice and good – we too willingly focus our lives on the bad outliers.
  • I never apologized to anyone that called me – it didn’t feel like something I did wrong and everyone will or has been hacked at some point in their lives. But I thanked everyone for letting me know.
  • Never, ever, ever reply to an email you think is spam or click on something from a person you know when you don’t understand what it is or why you received it. Call or text them.
  • Any social media or email account you control should be guarded with two-way authentication. Nifty passwords don’t cut it.

But I digress…

Elliman Reports Released: Q1-2019 Downtown Boston, Fairfield County CT and Greenwich CT

Douglas Elliman Real Estate, the second largest independent residential real estate brokerage in the United States by sales volume, published our research on these markets this week and the news on the housing conditions in the region was decidedly mixed. I’ve been the author if this expanding report series since 1994.

Here’s the breakdown by report:

Elliman Report: Downtown Boston Sales 1Q 2019

The report is broken down by condo and townhouse sales. This is our second quarter with a report release but while townhouse market conditions were robust, I noticed the year over year condo results was sharply negative. This result was caused by an unusual spike in closings in the prior year quarter, and the lion’s share was in a handful of buildings at the top of the market with mostly legacy contracts. We call these legacy contracts because the meeting of the minds between buyer and seller (developer) occurred years before the building was finished and closings occurred. While I won’t cherry-pick the data that goes into a report, I ran the numbers without sales in 3 buildings and got these results, side by side will full results that include the legacy sales:

The actual report results were unedited but overstate the decline in sales and prices form records set last year. Here are the modified results. I have done this in Manhattan before i.e. with and without the $238 million condo sale in Q1-2019, a decade ago with and without the mass closings at The Plaza and 15 Central Park West condos and before that with the $43 million penthouse sale at then-named AOL Time Warner.

“Price and sales trends showed stability after considering the year-ago surge legacy contract closings.*

*A year-ago, record prices and heavy sales volume were caused by a significant surge in high-end new development legacy closings, i.e., contracts signed 2-4 years earlier that distorted current trends. Q1-2018 closings were the highest first quarter number of sales in 13 years; Average and median sales price were skewed to records; average price per square foot was second highest on record. By the removal of three buildings with either a high volume of legacy contract closings or record pricing: 50 Liberty (49), Pierce Boston (58) and 10 Farnsworth (6) resulted in a more representative trend in comparison to the first quarter of 2019 that did not see the same surge in legacy closings. The published report does include legacy closings.

Each time I have done this in other markets, there may be some brokers out there who see reports like mine as damaging the market, especially new underwriting for more developments. That’s actually a false old-school assumption and a residual of the gatekeeper mentality. In the underwriting process, legacy contracts are outed in appraisals by requiring their contract dates – this is the standard operating procedure. The same goes for individual appraisals on mortgages.

Transparency is always the best way to approach market report or there is zero credibility in future research.

Here are a few charts with the legacy data from our chart gallery:


Elliman Report: Fairfield County Sales 1Q 2019

“The market continues to indicate a shift in the overall sales mix to smaller properties.”

  • The average sales size has declined year over year for seven straight quarters
  • Number of sales decreased year over year for the fifth consecutive quarter
  • Listing inventory expanded year over year for the second straight quarter


Elliman Report: Greenwich Sales 1Q 2019

First of all, some Bloomberg charts!!! Click on either of them for the article.

“Condo sales continued to surge as single-family sales reflected a pronounced decrease.”

  • Single-family sales fell to the lowest first-quarter total in eight years
  • Single-family average sales size fell for the third consecutive quarter, pulling down price trends
  • Condo sales surged in three of the past four quarters
  • The sharp drop in the luxury threshold reflected the shift away from the high-end of the market
  • Luxury listing inventory reflected large gains in supply for three straight quarters

Market Report Gauntlet: Q1-2019 South Florida

We released a slew of market reports and the news wasn’t as robust as the prior quarter. We are in a choppy period of the new tax law. Miami Beach and Boca appeared to be the standouts.

Elliman Report: Miami Beach + Barrier Islands Sales 1Q 2019

Elliman Report: Miami Coastal Mainland Sales 1Q 2019

Elliman Report: Fort Lauderdale Sales 1Q 2019

Elliman Report: Boca Raton 1Q 2019

Elliman Report: Royal Palm/Boca Raton 1Q 2019

Elliman Report: Wellington Sales 1Q 2019

Elliman Report: Delray Beach Sales 1Q 2019

Elliman Report: Palm Beach Sales 1Q 2019

Elliman Report: Jupiter + Palm Beach Gardens Sales 1Q 2019

…from one of the Douglas Elliman releases I contributed to:

An overall assessment of the South Florida markets shows price trends edged higher but sales slipped and inventory edged a little higher this quarter.

Overall price trend indicators in Miami Beach moved higher than year-ago levels as the number of sales slipped. Marketing time jumped as older inventory was sold off and listing inventory slipped. In Miami Coastal Mainland, median sales price rose year over year for the eighteenth consecutive quarter, and sales declined annually for the first time in three quarters.

In Fort Lauderdale, condo price trend indicators slid year over year with a decline in average sales size. Luxury condo pending sales signed in the quarter surged over the same period last year. Single-family luxury median and average sales price moved higher as marketing time stabilized.

In Boca Raton, condo and single-family price trend indicators rose year over year as sales slipped for the first time in three quarters. Luxury condo price trends surged year over year partially due to the jump in average sales size.

Single-family sales in Delray Beach slipped for the first time in six quarters as listing inventory expanded for four quarters. Condo price trend indicators haven’t declined in thirteen straight quarters.

In Wellington, condo median sales price increased annually for the tenth straight quarter. Single-family price trend indicators all rose year over year for the fourth consecutive quarter.

In Palm Beach, condo sales rose annually for the fifth consecutive quarter to the second highest market share recorded. Single-family price trends showed mixed results as sales fell to their lowest first-quarter total in seven years.

Single-family median sales price moved higher for the second straight month. Condo sales rose year over year for the third consecutive quarter in Jupiter. In Palm Beach Gardens, single-family sales slipped for the third time in four quarters as all price indicators rose. Condo median price slipped year over year for the first time in 27 quarters.

New Federal Tax Law Slowed The Housing Market

The New York Fed published a study on the housing slowdown and how the 2017 federal tax cut played role in it. Here was part of my take. Spoiler alert: Mortgage rates fell and the market still slowed.

Here’s a good explainer by Marketplace.

And now for the counterpoint by White House Council of Economic Advisers Chairman Kevin Hassett who used “Zestimates” to do his research. If you know how the Zestimates work (they track prices and are only within 5% of actual value 50% of the time) and how housing markets work (sales fall 1-2 years ahead of prices), then this observation is stunningly uninformed. Good grief.

Ivy Zelman Talks About the U.S. Spring Housing Market

My friend and legendary Wall Street housing analyst Ivy Zelman of Zelman & Associates discussed the outlook of homebuilders in the U.S. single-family market. The chart shows the expanding use of concessions. Click on the image to watch the video.

Appraiserville

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

The New York State AMC Law Goes Into Effect

The NY State Coalition of Appraisers wants you to to know that there is a new AMC law coming into effect at the end of the month and REVAA doesn’t like it.

Last December New York State Governor Andrew Cuomo signed Senate Bill S9080 into law, effective at the end of this month.

REVAA‘s biggest concern is that it requires all valuations to be performed by appraisers AND invoices must be attached to the report so the consumer knows what the appraiser was paid.

This is groundbreaking for our industry. Let’s hope that the word spreads and the consumer is finally protected!

There are lots of goodies here – just a couple of samples:

  1. Act without just cause to withhold or threaten to withhold timely payment for an appraisal report or for other valuation services rendered with such appraisal report or services provided in accordance with the contract between parties;

(c) Requiring an appraiser to prepare an appraisal report or valuation service under a time frame that such appraiser believes, in their professional judgment, does not afford such appraiser the ability to meet all the relevant legal and professional obligations including USPAP requirements. Notwithstanding the foregoing provisions of this paragraph, all appraisal reports should be completed within a reasonable timeframe and appraisers may not unnecessarily delay completing appraisal assignments;

(d) Prohibiting or inhibiting communication between the appraiser and the lender, a real estate licensee, or any other person from whom such appraiser, in their professional judgment is relevant;

(e) Requiring the appraiser to do anything that does not comply with USPAP…

AMCs Need To Turn To Consumers To Survive

After reaching the point where there was no more room to gouge appraisers to drive profits higher, more and more AMCs are in trouble or have become “former” AMCs. Last year when appraisers fought back with logic to counter the false “appraisal shortage” narrative, it worked. Appraisers have already given up 50% to 70% of the mortgage applicant’s appraisal fee and there is no more left for appraisers to give up. There never was an appraisal shortage, there was merely a shortage of appraisers willing to work for 50 cents on the dollar. Our industry hit our limit.

The opportunity that consumers provide is the future of appraising.

I’m involved in Phil Crawford’s “Get My True Value” effort which is an organic marketing machine for appraisers who don’t know how or don’t have time to market to consumers. It’s exciting to see it take off.

And you can see this consumer angle taking off in other efforts which are repurposing the AMC concept to something else – I just got this email and know nothing about them – they are going after lender work, not consumers, but notice their anti-AMC pitch.

We are in the wild west right now and the AMC legacy is no longer relevant to those who want to make a living and love being an appraiser.

OFT (One Final Thought)

Sometimes getting more eyeballs on a property doesn’t help sell it, or does it? We’ll find out in May when this property goes to auction.

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

  • They’ll be hacked;
  • You’ll be a two way authenticator;
  • And I’ll opt not to apologize.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


March 29, 2019

Pied-A-Terre Tax Catastrophe Might Be Downgraded to Just Bad

Sometimes we don’t stop and figure out why we are going in circles…


But I digress…

Albany Pauses And Loses Its Appetite To Crush The Manhattan Luxury Condo Market

It looks like the outrage over the pied-a-terre tax proposal caused Albany to back off but it is not clear what form it will take other than being a transfer tax:

New York Leaders Retreat From Annual Tax on High-Priced Second Homes [WSJ]

State lawmakers were reviewing a transfer tax starting on property sales of $3 million or even less, with the rate increasing for sales of $5 million, according to a person briefed on those discussions. Mr. Heastie confirmed only that the tax would apply to properties over $5 million and would be phased in.

City Comptroller Scott Stringer, who had supported the pied-à-terre tax, said an analysis by his staff showed it could raise $650 million a year, while the real-estate industry said it would raise far less—about $372 million annually. A Wall Street Journal analysis of 17 years of sales data estimated that revenue at $471 million a year.

My estimate of $455,000,000 in new tax revenue for the original version assuming no change in consumer behavior was consistent with the Wall Street Journal’s conclusion, both far short of the $650,000,000 NYS Comptroller’s estimate.

At this point, it looks like proposed tax will be converted to some sort of transfer tax rather than annual property tax. This will still impact high-end sales and prices – and new development might handle it as an additional concession if buyers push back – but it doesn’t look to be as Draconian as the original bill seemed to show.

I haven’t seen such a severe tax proposal in my career and with the backlash over Amazon and the $238M condo sale, the political zeitgeist seemed determined to make it happen. Thankfully, with all the voices in the real estate industry raised, Albany listened…so far. This outrage wasn’t about saving taxes for the wealthy, but actually reducing overall tax revenues so that the shortfall would cost all New Yorkers and destroy the new development industry.

Wall Street Bonuses Are Down But Who Cares

After years of hyperbole over their impact to the Manhattan housing market, post-financial crisis their impact (rising or falling) has been nominal. Bonus comp is now about 40% of total comp down from more than half pre-financial crisis due to the regulatory overlay from Dodd-Frank. And they really aren’t bonuses.

But here’s my annual triple super deluxe bonus chart series:

Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork


Appraiserville

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

I took a break this week on appraisal issues (ok, ok, I have several things to write about but didn’t have time to research the topics) as I prepare for a 30+ city market report release gauntlet in April. But there are a lot of good appraisals related reads at the bottom of the newsletter!

OFT (One Final Thought)


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

  • They’ll be more transfer-tax related;
  • You’ll be worthy of a Wall Street bonus;
  • And I’ll use logic.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


March 8, 2019

Jurassic Housing And Other Visualizations

With all the housing analytics out there, sometimes I get the urge to live in a cave (no, not a man-cave) like back in dinosaur times.


But I digress…

Downtown Brooklyn Partnership’s Five-Year Review

Like my ongoing relationship with the Downtown Alliance in Manhattan, I have started to work with the Downtown Brooklyn Partnership on their presentation of market conditions. Partnerships like this are established to promote/market the positive aspects of their particular submarket. DBP just released their five-year review and it is full of granular bits and pieces about the market, and separately, some quick facts. But first some background (from the report):

In the years following the 2004 adoption of the Downtown Brooklyn Development Plan and an area-wide rezoning of the Special Downtown Brooklyn District more than 14,000 new housing units were delivered in Downtown Brooklyn, nearly two-thirds of which were delivered during the past five years. The district’s growth has accompanied a boom in Brooklyn and NYC’s economy, with record employment and population in the borough and city.


One of the market characteristics of the last five years has been the proliferation of rentals over condos, unlike Manhattan. This and other context is captured in the following chart.


[click to open report]

Finally, Connecticut Gets Good Housing News With Nary A “Nutmeg” Reference

This is another great read by Justin Fox at Bloomberg. My only complaint as a “Nutmegger” is that the MTA train image used in the article is more likely of the type of trains that go to Westchester County, New York. But my home state gets some long overdue economic love.

Going by third-quarter state gross domestic product data that were just released, Connecticut’s economy is on track to grow more than 2 percent in 2018! That’s … not much. But it’s better growth than the state has seen in more than a decade…U.S. real GDP grew 19.1 percent over that same period. The only other states that experienced GDP declines were Louisiana (0.2 percent), Mississippi (2.1 percent) and Wyoming (5.5 percent).


GDP is trending higher…


Housing price growth is in check…


Demographics are shifting…


New York City Is Considering What Other Global Cities Already Have

Bloomberg’s New York Considers Taxing Non-Resident Owners of Luxury Apartments

One of the unique positions of New York City to global real estate investors has been the absence of a tax on foreign investors or vacant luxury units. This has been implemented in other cities such as Vancouver and the results to the local housing markets have been somewhat harsh. I bring this up because I believe such a tax will restrain sales transactions which generate significant tax revenue for the city. Combined with Fincen actions and the Tax Cuts and Jobs Act of 2017 that helped crush demand for high end real estate in high tax, high cost cities, NYC is gambling that this new tax to make up for decades of transit system neglect won’t make new development conditions worse.

And for those who think the SALT cap is going away…The SALT Cap Isn’t Going Anywhere, Right and Left Agree.

Knight Frank’s Wealth Report With A Shot of Single Malt Whiskey

Each year the Knight Frank Wealth Report is published, I pour through their wealth visualizations and wonder why I didn’t do more homework in the seventh grade. Apparently, single malt whiskey is the number one non-real estate investment this year, yet I prefer craft beer. Knight Frank is the international affiliate of Douglas Elliman Real Estate, the company for whom I have authored the expanding market report series since 1994.

Here is a Wall Street Journal story on the report results: Can the World’s Wealthiest Absorb the High-End Home Glut?

And here are a couple of favorite visualizations in the Knight Frank Wealth Report.



Another Way To Visualize Climate Change’s Impact on Housing

This art installation is fascinating.

Documentation of Installation by Pekka Niittyvirta & Timo Aho



Getting Graphic

Our favorite charts of the week


This is an oldy but a goodie. I haven’t drawn text bubbles in a while but was talking to someone about this sort of thing and showed this as a sample – I did this 5.5 years ago…


More Len Kiefer Visualizations


Appraiserville

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

Murder And Death As A Valuation Specialty

There was a fascinating read in Rolling Stone about appraiser Randall Bell and his appraisal specialty.


He doesn’t believe that bulldozing the property removes the stigma. I’d love to know what he thinks about how stigma might change with market conditions. In my own market, tight conditions seem to have negated the impact of tragedies like murder or suicide, or perhaps New Yorkers are simply more jaded. But Bell seems to have seen it all.


A Conversation with Jim Park, ASC Executive Director

Appraiser eLearning hosted an interview with Jim Park, ASC Executive Director. Jim is one of the best friends of the appraisal industry out there because he has an appraisal background and therefore understands what is going on through the same eyes as us.

Here’s the ASC credential chart that shows the national trends:


One personal question for Jim: What’s with the sword hanging over your head in the video? Is this an analogy? Ha. But seriously, good stuff and thanks for sharing your insights with the industry.


OFT (One Final Thought)


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

  • They’ll be more paleo;
  • You’ll be more visual;
  • And I’ll murder my next appraisal report with excellence.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


February 22, 2019

Waffling On The Housing Market

Cheryl & I just spent three days in Nashville visiting good friends and gaining some new friends. I was kind of checked out when it came to real estate this week, but not waffles. There were Waffle Houses seemingly everywhere Nashville, but I’ve never been to one. Although I had some excellent waffles during my stay (Thx Susan!), I’m still curious about the source of FEMA’s Waffle House Index inspiration (and my own waffle maker continues to impress.)

Manhattan’s Housing Decade As A Moving Window

As part of the expanding Elliman series of market reports, we produce a ten-year moving window on Manhattan with a slew of neighborhood breakouts. I’m going to be doing more of this in 2019 but this 57-pager should keep you busy for now.

The cover (click on the image to access entire report)


Page 4 (click the image to access entire report)


What is Zillow Up To?

Zillow had been running out of upside, having fully saturated the search revenue vertical. Raising revenue on the backs of real estate agents has its limits so they have been expanding their footprint into other businesses like mortgage and ibuyers. This hammered their stock price in 2018. They brought co-founder Rich Barton (I met him at a party on the day before Zillow launched – little did I know…) back into the CEO position to take over CEO Spencer Raskoff’s reign of incredible growth as they prepare to ramp up their efforts into new ventures.

The Basis Point has a good piece on how this will all work: Zillow just told us what the future of buying a home looks like. And it’s all about scale.

With the significant inaccuracy of their Zestimate product (50% of their Zestimates are NOT within 4.5% of the correct value and they aren’t using Zestimates for their iBuyer model?) and with regulators pushing appraisers out of the way without a replacement, with housing slowing and a non-housing recession probability gaining momentum, all bets are off for the future the housing market.

Nobody Lives Here

From cartography web site mapsbynik, a visual that is the opposite of what we would expect – where people don’t live. When I was 15, I rode my bicycle across the U.S. with what was then called Bikecentennial ’76 and the route was planned on roads with 10 cars or less per hour. I can personally attest that there is a heck of a lot of desolate areas in America.


Wrapping up NYC’s Self-Loathing About Amazon HQ2

At the end of the HQ2 debacle, the market will return to as it was before. Michael Hertzenberg of Spectrum News NY1 captures the sentiment so well. Click on image for video story.


The future of Long Island City still looks pretty bright…as long as there is community involvement.

Getting Graphic

Some of our favorite chart creations this week…

Upcoming Speaking Events

Appraiserville

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

Smedley Dingledorf Saves The Day But Hurts The Consumer As Told By Bart Simpson

One of my lifetime best friends is Bart Simpson, who is an actual person. We grew up together from elementary school through high school but went our separate geographic ways to college. My other best friend during that era of my life was Harry Benson, who was also the key character in Michael Creighton‘s early best seller, “The Terminal Man” but that’s another story. Bart taught me how to ski and how to make plexiglass cookbook holders (hey it was the 70s). We spent our weekends riding bicycles everywhere, especially into D.C. on weekends to meticulously go through each of the Smithsonian museums – you could say we were sponges of random information. There must have been something borderline addictive in the Bethesda, Maryland water because we also both turned out to be real estate appraisers. He would tell me how he would leave messages to schedule appraisal inspections as “Mr. Simpson” because his full name caused many homeowners to think it was a crank call and not call him back.

Last week I posted an interview: The Apple Peeled – Ask the Experts: Market Dynamics with Jonathan Miller and Bart had something to say about it. He gave the most coherent spot-on description of the AMC situation most appraisers find themselves dealing with daily. However, these AMCs hire many of the lobbyists that have helped forge regulatory rule changes like the recent proposal that raises the de minimus to $400,000 without any concern for the consumer (or the taxpayer). Here is his perfect depiction of AMC interactions with appraisers:


I am so fed up with the AMC’s that spend plenty of time giving me the opportunity to bid on a job (Please provide your fee and turn time) when they have not even taken the time to see that I am not licensed in that state. They just send an email to everyone within a large radius and wait for us to research it and provide a fee. Last week, I had one ask for a fee and turn time. The crazy part was that they did not have an address or legal, just: “3o acre property by the river Per lender-Tax Ma 4, Parcel 6” If you research this property and find out details please provide them to us so that we can provide the details to the customer when quoting this assignment. Please confirm you can assist with this assignment and then provide your fee and turn time.

So they wanted me to find a 30 acre parcel, assume that it was the one they needed appraised, research it and provide a fee, so they could respond to someone else that was clueless. I was not licensed in that state, so I did not waste my time.

The idea for AMC’s was logical – that they would be able to distribute the work without bias. Jonathan gets this appraisal, Bart gets the next one, and Whit gets the third. It is now standard practice to see: We collected $600 for an appraisal at Deep Creek Lake Bart charges $575, Whit will do it for $350, Bill can you do it for $300? Bill eventually will say yes just to get some work, but along comes Smedley Dingledorf, who just got his license and has never been to Deep Creek Lake. He is happy to visit and learn about it at the buyer’s expense, and takes the job for $275. No quality or expertise, but they got a piece of paper saying the house is worth what they need it to be.


The Appraisal Petition Against The Higher De Minimus Just Cracked 7,000

I strongly believe that our industry is our own worst enemy.

The notion that this appraisal petition started by Ryan Lundquist (whose essential blog just turned ten) and I hasn’t reached at least 75,000 signatures by now says a lot about why we’ve been taken advantage by our trade groups, appraisal management companies, lenders and regulators. Most of us aren’t paying attention. We just sit and wait for someone else to do it or for the fax machine to ring. Let’s turn this industry attitude around in 2019. We’ve come along way since 2016 and have been making progress but there is much to do and our attitude still, frankly, sucks as a complacent industry.

OFT (One Final Thought)

My nephew brings the boom!


Ok, one more thought.

With the passing of Peter Tork, there’s this.

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

  • They’ll dunk it;
  • You’ll learn to sign the petition;
  • And I’ll waffle.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


February 15, 2019

Amazon To NYC Housing Market: “Drop Dead!”

A recent headline in the Commercial Observer said it best with a possibly NSFW awesome graphic. The Amazon pull out was all the news rage since Thursday afternoon. I’ll discuss this further down in these Housing Notes and provided a list of links down at the bottom for the Amazon HQ2 situation.

In the meantime, this is what my work week felt like. I was trying to move fast and things kept slowing me down that I didn’t expect:

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omg

A post shared by DAFNE FIXED (@dafnefixed) on

Elliman Report Released: January 2019 – Manhattan, Brooklyn & Queens Rentals

As the same time there was all the hoopla on the Amazon decision to walk away from their deal with NYC, Douglas Elliman published our research on the rental market of the Long Island vicinity as well as Manhattan and Brooklyn. This is part of our expanding Elliman Report series I’ve been authoring since 1994.

Elliman Report: 1-2019 Manhattan, Brooklyn & Queens Rentals

First of all, Bloomberg News coverage of the Manhattan rental market gave me a “twofer” in the chart department. And you all know how much I love charts.

But there’s more chartage..

…from Dow Jones:

The Wall Street Journal…

…and Mansion Global…

…and The Real Deal bedazzled the existing chart in our report…

And some of our charts:

NYC Rental Market Talking Points by Region

Manhattan Rentals

“The market share of landlord concessions declined year over year, after forty-three consecutive months of increases.”

– The use of concessions may be peaking as more potential homebuyers move into the rental market, helping push rents up
– Median rent growth accelerated in larger apartments as a shift to higher quality stock continued
– The year over year market share of landlord concessions falls after forty-three consecutive months of increases
– Vacancy rate fell year over year for the eighth consecutive month
– Non-doorman median rent outperformed doorman median rent for the first time in six months
– The entry threshold increased in line with luxury price trend indicators

Brooklyn Rentals

“The market share of landlord concessions declined year over year, after thirty-five consecutive months of increases.”

– The use of concessions may be peaking as more potential homebuyers move into the rental market, helping push rents up
– Market share of concessions declined year over year after nearly three years of increases
– Market share of 1-bedroom rentals was the only segment to see a rise
– Median rent growth was most robust in smaller apartments

NW Queens Rentals

“With rising new development market share, increasing rental price trends continue to be influenced by the shift to higher quality new housing stock.”

– Face rents pressed higher as new development influx skewed prices upward
– Market share of concessions increased year over year for the fifth consecutive month
– Number of new leases increased year over year for a seventh consecutive month

Amazon Gone

On Thursday I was climbing up a ladder in an old Brownstone to access to roof area (hey, I’m an appraiser too) when my iPhone blew up. I got about 20 press calls in the subsequent two hours concerning the impact to the LIC and NYC residential market (see “Amazon HQ2” links at the bottom of these Housing Notes. Here are two call-ins I did (with my high school graduation-like photo) on Bloomberg (lol) – file photo was taken around 2003:

Yesterday:

This morning:


I’d pontificate more but the Bloomberg interviews above and the coverage of the real estate angle are included in the “My New Content, Research and Mentions” links below.

My friend Barry Ritholtz gets specific on where he thinks the blame lies for the Amazon decision in this thread…


How Big Is NYC Tech Versus Wall Street?

There was a terrific article in the New York Times related to the Amazon HQ2 deal collapse but it was more of an analysis of how the NYC economy is configured: Even Without Amazon, Tech Could Keep Gaining Ground in New York Seems like mandatory reading for anyone in NYC real estate.

I remember when Wall Street accounted for 23% of the pay, now it is down to 19%. Other sectors have stepped up to fill the void. Here are a few charts from the New York Times piece that give context to the tech and securities role in the NYC economy. Click on the graphics to read the article.


The Housing Bubble/Bust of a Decade Ago May Keep The Market From Repeating It

Bloomberg shared an interesting home sale process video that focused on the phenomenon of rising price AND rising inventory at the same time – not what we are seeing in this cycle.

New in the Real Estate Lexicon: Mosh Pit

The first time I’ve ever been able to use “mosh pit” in a real estate context but it somehow works in this Realtor.com interview:

After Amazon plucked it from national obscurity, it became “overhyped,” says New York City-based real estate appraiser Jonathan Miller. “There have been lots of stories about people buying three apartments sight unseen like there’s some sort of frenzy. … It’s not some sort of frenzy where people are in a mosh pit diving over each other to get the next apartment.”


Small Town Boom: The Indicator from Planet Money

The Indicator is a daily listen for me because its full of economic topics that relate to housing. This one discusses the topic of rural economies and how some rural towns are getting out of the classic failure spiral.

Bloomberg: Why America’s New Apartment Buildings All Look the Same

This was my favorite read of this week: Why America’s New Apartment Buildings All Look the Same I interviewed the author Justin Fox years ago on my old “The Housing Helix Podcast” and have always been a fan of his writing.

I’m not exaggerating when I say that each time I have visited a different U.S. city in the past five years, I always ask myself, “Is it just me or do all these rentals buildings look like all the rental buildings I’ve seen in other cities?” Examples include Boston, Washington, D.C., Dallas, Detroit, Chicago, San Francisco, Los Angeles, Philadelphia, Cleveland, Baltimore, Harrisburg, Wilmington, Annapolis, San Antonio, and Columbus to name a few. It’s crazy. And good grief, I am traveling way more than I thought.

When you look at these images in the Bloomberg story below, I’ll bet most of my Housing Notes readers have seen buildings like this EVERYWHERE.

China: 65 Million Empty Apartments

You think we have a lot of vertical (vacant) rental or condo housing units in the U.S. Take a look at the situation in China from this Nikkea Asian Review article: China’s housing glut casts pall over the economy – A building binge leaves cities with 65 million empty apartments

A few years ago my wife and I were in China and took a 5.5-hour high-speed rail trip from Beijing to Shanghai. During the trip, on both sides of the train, this was essentially the view (I took with my iPhone) Mile after mile of concrete midrise towers.

Upcoming Speaking Events

Appraiserville

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

I’m light this week on appraisal issues due to the time devoted to the Amazon HQ2 pull out and its impact on the market over the past 24 hours. So I’ve provided a podcast and interview I gave with top real estate agents in their local markets who care about valuation and want to see our world accurately. These might provide some thoughts on how appraisers can explain the state of their profession and market to those outside the appraisal industry. I think many of us are good at writing about it but not necessarily articulating it. Elements of this will also apply to consumer interaction which is where future opportunities are. Here you go…

Sweat The Details Podcast: DUMBWAITERS, MARKET ANCHORS, CREDIBLE MARKET REPORTS

My longtime online friend Jim Duncan who is a Realtor and a Broker/Partner in Charlottesville, Virginia of Nest Realty. I’ve only met him once at an Inman Conference about 15 years ago but devotedly follow his online presence, especially his monthly note. He invited me to be interviewed with his colleagues on his new “Sweat The Details” podcast. It’s a 30-minute interview and I think they sped up my voice by 1.5 times to squeeze it into their 30-minute format. Hey, I have a lot to say! LOL.


The Apple Peeled – Ask the Experts: Market Dynamics with Jonathan Miller

Over the years, I have bantered with the Espinal Adler Team (Marie Espinal and Jeff Adler) at Douglas Elliman Real Estate about the market which has been invaluable for on the ground intel. And we’ve become friends. When Jeff and Marie asked me to be formally interviewed for their blog “The Apple Peeled” I was happy to do so, especially because I could veer off the road into issues about the current mortgage and appraisal process. This “The Apple Peeled” blog post: Ask the Experts: Market Dynamics with Jonathan Miller was distilled from the 90-minute conversation (I could have gone on for 5 hours) I had with their team.

I hope you find that this apple was fully peeled:


Jonathan Miller’s Market Outlook

The number of units sold in Manhattan in 2018 was down by more than 14 percent compared to the previous year. The brokerage industry tends to be very linear in its perception of the market, so many believe when the market is rising, it will rise forever. And, in-turn, when the market falls, it will fall forever. That approach can lead to overreaction.

The 10-year Challenge (2009 vs. 2019)

Some analysts are even comparing the current cycle to the last downturn and the housing bubble in 2009, but Miller outlined quite a few differences between then and now.

In 2009, the average discount from listing was 10.2%. In 2018 the discount was 5.2%. In ’09, Miller said sellers were anchored to the “pre-Lehman, pre-financial crisis asking prices” and had to travel farther on price to meet a buyer. (Miller measures listing discount by the percent difference between the contract price and the price that the property was listed for sale at the time of contract – not when it was first listed). The most recent asking price is “really the moment the property entered the market,” he said.

Miller said there are more buyers today compared to 2009, but those buyers are “very jaded about what value is.” Meanwhile, sellers are anchored to another market completely, he said.

The change in tax laws in 2018 and a several-month stretch that saw mortgage rates rise before recently dropping close to previous levels had both buyers and sellers re-calibrating what value is. That process can take time.

“If a seller overprices a listing, it takes them up to 2 years to de-anchor from what their price was without thinking that they left money on the table,” Miller said. “The disconnect between buyers and sellers is measured by lower sales volume.”

Starter Segment vs. High-End Luxury

For the last two years, Miller has said that the NYC market is softer at the top and tighter as you move lower in price.

Overall inventory is up by about 17%, with a significant amount of supply coming from the studio and 1-bedroom market. Studio inventory is up 21% percent.

“The pace of the starter market is still the fastest of all segments,” Miller said. “It’s just not as detached as it was because now you have more supply.”

Interest Rates and Their Impact

Typically, rates rise when the economy is strong. The low rates we’re seeing today understate the strength of the current economy, according to Miller. “That’s the disconnect.” In the long run, interest rates do not impact price trends. Mortgage rates have trended lower for three decades, Miller said, but housing prices have fluctuated up and down during that same lengthy stretch.

Mortgage rates weren’t wildly different in ’09 compared to today. In a recent report, Miller stated that an adjustable rate mortgage rate averaged 4.38% in 2009 and was at 3.98% using the same metrics in 2018.

Miller said that real estate investors should stop trying to perfectly time the market (both with rate and supply vs. demand). Perfect timing is a concept that was born out of the housing bubble, he said, when investors viewed housing as a highly liquid stock, instead of in its proper context. “(Real estate) is more of a long-term asset.”

In-Depth Look at the State of Appraisals

“There was nothing learned from the bad behavior of a decade ago,” Miller said, reminding himself of a Mark Twain quote. “History doesn’t repeat itself, but sometimes it rhymes,” Jonathan Miller recited. Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., said federal regulators are acting irresponsibly in their effort to reduce and perhaps even eliminate the need for an appraisal as part of an overall effort to erase “friction points” that slow-down the mortgage application process.

Miller said the regulators were more concerned with collecting fees than they were with protecting the American consumer. He likened the subtle de-regulation to the housing bubble of a decade ago, pointing out that regulators were getting paid by the failing investment banks they were rating back then. Now, he said, regulators and both Fannie Mae and Freddie Mac are getting paid whenever loan volume passes through those agencies. (Fannie Mae and Freddie Mac are Government sponsored enterprises that purchase mortgages from banks and mortgage companies in an effort to create liquidity so that lenders have the capacity to lend to more homebuyers).

The Office of the Comptroller of the Currency (OCC), The Board of Governors for the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) proposed a rule to amend the agencies regulations requiring appraisals for certain real estate related transactions. The proposed rule would increase the threshold level at, or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000.

In response to our request for comment, spokespeople for the FDIC, the OCC, and The Federal Reserve said they do not comment on proposed rules during the rulemaking process.

Mortgage volume has trended lower despite rates falling steadily since the housing bubble, because lenders don’t want to take on risk, Miller said. “They’re in the fetal position. Banks are afraid of their own shadow.”

The tremendous amount of regulation implemented since Dodd Frank has led to mortgage lenders filling Fannie and Freddie’s portfolios with low-risk “pristine” mortgage bundles. But with rates so low, margins are so compressed, regulators need to stimulate volume to make money, according to Miller. “I think (Fannie and Freddie) are emboldened to take more risk.”

The push for fewer mandatory appraisals isn’t the only thing that has hurt the appraisal industry since the Dodd Frank Act was passed in 2010. The evolution of the mortgage industry’s use of the Appraisal Management Company (AMC) has led to a collapse in quality of appraisals ordered by banks, Miller said. He described the AMC as an institutional middle man that takes more than 50 cents on the dollar away from the professional appraisers who do the actual work.

“It’s like a Hollywood actor paying their agent 60% instead of 10%,” Miller said. “The mortgage industry is trying to widgetize the appraiser.”

The AMC is supposed to act as a communication barrier between the appraiser and the loan officer or mortgage broker, to thwart undue pressure to bring appraised values in at specific numbers. But according to Miller, the AMCs are under the same types of pressure that an individual appraiser might face. Some AMCs receive hundreds of thousands of dollars every month by way of appraisal orders placed by big banks. At least at the sales level, the banks apply pressure to the AMC to not “kill deals,” said Miller, who has testified in several class action lawsuits against AMCs.

In many instances, Miller and his firm were hired to do sample reviews of appraisals that came through AMCs. Often, the AMC would utilize appraisers in the market that would always “hit the number,” Miller said. A lot of those appraisers were ignoring valid comps, sometimes from directly across the street that were virtually the same as the subject property. “The AMC encouraged it because they were getting the work,” he said.

Appraisers are pushing back and there are already signs that AMCs were beginning to crumble, Miller said. Quality appraisers are turning away bank work when they know the order is coming in through an AMC because they’re not happy working for less than they deserve and because they’ve been reduced to “form-fillers,” Miller said.


The Apple Peeled Blog, February 12, 2019

Espinal Adler Team at Douglas Elliman Real Estate

OFT (One Final Thought)

Well, this week’s OFT is more like (FFT) with 5 thoughts concerning volatility. The housing market is shifting gears and the economy may be doing the same. This infographic from the must-read Visual Capitalist site is fascinating:

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

  • They’ll be more volatile;
  • You’ll be taking inventory;
  • And I’ll get up early and talk on TV.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Amazon HQ2-NYC Related Reads

Appraisal Related Reads

Extra Curricular Reads


The Apple Peeled – Ask the Experts: Market Dynamics with Jonathan Miller

February 12, 2019 | 11:54 am | | Articles |

Over the years, I have bantered with the Espinal Adler Team (Marie Espinal and Jeff Adler) at Douglas Elliman Real Estate about the market which has been invaluable for on the ground intel. And we’ve become friends. When Jeff and Marie asked me to be formally interviewed for their blog “The Apple Peeled” I was happy to do so, especially because I could veer off the road into issues about the current mortgage and appraisal process. This “The Apple Peeled” blog post: Ask the Experts: Market Dynamics with Jonathan Miller was distilled from the 90-minute conversation (I could have gone on for 5 hours) I had with their team.

I hope you find that this apple was fully peeled:


Jonathan Miller’s Market Outlook

The number of units sold in Manhattan in 2018 was down by more than 14 percent compared to the previous year. The brokerage industry tends to be very linear in its perception of the market, so many believe when the market is rising, it will rise forever. And, in-turn, when the market falls, it will fall forever. That approach can lead to overreaction.

The 10-year Challenge (2009 vs. 2019)

Some analysts are even comparing the current cycle to the last downturn and the housing bubble in 2009, but Miller outlined quite a few differences between then and now.

In 2009, the average discount from listing was 10.2%. In 2018 the discount was 5.2%. In ’09, Miller said sellers were anchored to the “pre-Lehman, pre-financial crisis asking prices” and had to travel farther on price to meet a buyer. (Miller measures listing discount by the percent difference between the contract price and the price that the property was listed for sale at the time of contract – not when it was first listed). The most recent asking price is “really the moment the property entered the market,” he said.

Miller said there are more buyers today compared to 2009, but those buyers are “very jaded about what value is.” Meanwhile, sellers are anchored to another market completely, he said.

The change in tax laws in 2018 and a several-month stretch that saw mortgage rates rise before recently dropping close to previous levels had both buyers and sellers re-calibrating what value is. That process can take time.

“If a seller overprices a listing, it takes them up to 2 years to de-anchor from what their price was without thinking that they left money on the table,” Miller said. “The disconnect between buyers and sellers is measured by lower sales volume.”

Starter Segment vs. High-End Luxury

For the last two years, Miller has said that the NYC market is softer at the top and tighter as you move lower in price.

Overall inventory is up by about 17%, with a significant amount of supply coming from the studio and 1-bedroom market. Studio inventory is up 21% percent.

“The pace of the starter market is still the fastest of all segments,” Miller said. “It’s just not as detached as it was because now you have more supply.”

Interest Rates and Their Impact

Typically, rates rise when the economy is strong. The low rates we’re seeing today understate the strength of the current economy, according to Miller. “That’s the disconnect.” In the long run, interest rates do not impact price trends. Mortgage rates have trended lower for three decades, Miller said, but housing prices have fluctuated up and down during that same lengthy stretch.

Mortgage rates weren’t wildly different in ’09 compared to today. In a recent report, Miller stated that an adjustable rate mortgage rate averaged 4.38% in 2009 and was at 3.98% using the same metrics in 2018.

Miller said that real estate investors should stop trying to perfectly time the market (both with rate and supply vs. demand). Perfect timing is a concept that was born out of the housing bubble, he said, when investors viewed housing as a highly liquid stock, instead of in its proper context. “(Real estate) is more of a long-term asset.”

In-Depth Look at the State of Appraisals

“There was nothing learned from the bad behavior of a decade ago,” Miller said, reminding himself of a Mark Twain quote. “History doesn’t repeat itself, but sometimes it rhymes,” Jonathan Miller recited. Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., said federal regulators are acting irresponsibly in their effort to reduce and perhaps even eliminate the need for an appraisal as part of an overall effort to erase “friction points” that slow-down the mortgage application process.

Miller said the regulators were more concerned with collecting fees than they were with protecting the American consumer. He likened the subtle de-regulation to the housing bubble of a decade ago, pointing out that regulators were getting paid by the failing investment banks they were rating back then. Now, he said, regulators and both Fannie Mae and Freddie Mac are getting paid whenever loan volume passes through those agencies. (Fannie Mae and Freddie Mac are Government sponsored enterprises that purchase mortgages from banks and mortgage companies in an effort to create liquidity so that lenders have the capacity to lend to more homebuyers).

The Office of the Comptroller of the Currency (OCC), The Board of Governors for the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) proposed a rule to amend the agencies regulations requiring appraisals for certain real estate related transactions. The proposed rule would increase the threshold level at, or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000.

In response to our request for comment, spokespeople for the FDIC, the OCC, and The Federal Reserve said they do not comment on proposed rules during the rulemaking process.

Mortgage volume has trended lower despite rates falling steadily since the housing bubble, because lenders don’t want to take on risk, Miller said. “They’re in the fetal position. Banks are afraid of their own shadow.”

The tremendous amount of regulation implemented since Dodd Frank has led to mortgage lenders filling Fannie and Freddie’s portfolios with low-risk “pristine” mortgage bundles. But with rates so low, margins are so compressed, regulators need to stimulate volume to make money, according to Miller. “I think (Fannie and Freddie) are emboldened to take more risk.”

The push for fewer mandatory appraisals isn’t the only thing that has hurt the appraisal industry since the Dodd Frank Act was passed in 2010. The evolution of the mortgage industry’s use of the Appraisal Management Company (AMC) has led to a collapse in quality of appraisals ordered by banks, Miller said. He described the AMC as an institutional middle man that takes more than 50 cents on the dollar away from the professional appraisers who do the actual work.

“It’s like a Hollywood actor paying their agent 60% instead of 10%,” Miller said. “The mortgage industry is trying to widgetize the appraiser.”

The AMC is supposed to act as a communication barrier between the appraiser and the loan officer or mortgage broker, to thwart undue pressure to bring appraised values in at specific numbers. But according to Miller, the AMCs are under the same types of pressure that an individual appraiser might face. Some AMCs receive hundreds of thousands of dollars every month by way of appraisal orders placed by big banks. At least at the sales level, the banks apply pressure to the AMC to not “kill deals,” said Miller, who has testified in several class action lawsuits against AMCs.

In many instances, Miller and his firm were hired to do sample reviews of appraisals that came through AMCs. Often, the AMC would utilize appraisers in the market that would always “hit the number,” Miller said. A lot of those appraisers were ignoring valid comps, sometimes from directly across the street that were virtually the same as the subject property. “The AMC encouraged it because they were getting the work,” he said.

Appraisers are pushing back and there are already signs that AMCs were beginning to crumble, Miller said. Quality appraisers are turning away bank work when they know the order is coming in through an AMC because they’re not happy working for less than they deserve and because they’ve been reduced to “form-fillers,” Miller said.


The Apple Peeled Blog, February 12, 2019

Espinal Adler Team at Douglas Elliman Real Estate

Tags: , , ,


February 8, 2019

Spocking Fives for Housing To Live Long and Prosper

And you thought the weakening Canadian housing market was of great concern? (For the record, my politics are Star Trek over Star Wars any day):

Scrolling The Most Expensive U.S. Residential Sale In History

I plotted out all Manhattan residential closed sales since 2008 through January 2019 to provide some context to how much of an outlier the recent $238 million luxury condo sale was. I’ve had a heck of a time converting my excel chart into a format to display on my web site so I resorted to making my first screencast video. I did it on the fly but it really helps illustrate how out of context the recent $238 million sale actually was.

My solution? Make a screencast video.

To watch this, first, pack a lunch. Then, click here or on the snapshots below of the top and bottom segments of the tall chart to play the video.

Then relax and watch me start scrolling. It provides some useful context and is pretty cool despite the poor audio quality:


/////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////



This Week in Aspirational Pricing: $50 Million Will Get You The Most Expensive Miami Sale in History

If one record wasn’t enough, the highest price paid for a residential sale in Miami-Dade County just clocked in at $50 million (same Douglas Elliman brokers as the $238 million condo sale in Manhattan).

Just as I get too jaded, another record makes me marvel at how far all this is from mere mortals like me. Here’s what the house looks like from the Miami Herald story:

Memories Can’t Wait: Hamptons Permits Are Down

As the Talking Heads, one of my favorite bands, once sang…

There was a good story in 27east about how the Hamptons era of heavy building has come to an end. Supplemental metrics were extracted from our Hamptons research in the Q4-2018 Elliman Report: Hamptons Sales.

This leveling off of permits reminds me of the period leading up to the financial crisis.

Developers on the South Fork have been busy building in recent years. As a result, the number of homes on the high end swelled, and space available for large construction projects has become limited.

Here’s a chart on building permit trends and revenue growth from the piece. Many towns and villages rely heavily on the revenue that development generates.

How The Mortgage Brokerage Industry Sees The Financial Crisis Legacy

Former CEO of Countrywide, Angelo Mozilo was interviewed by Rob Chrisman at The National Association of Mortgage Brokers’ (NAMB) annual convention in Las Vegas.

For me, the Mozilo interview at the conference was somewhere between fantasyland and a farce. Chrisman lobbed up softball questions about Mozilo’s background and the rise of Countrywide. Nowhere was it mentioned that the mortgage company was seen by many as the “epicenter” of the 2008 mortgage crisis, issuing millions in “liar loans” homeowners couldn’t afford.

The most telling (and chilling) part of the interview was this. Mozilo said of his former company:

“I loved the changes you make in people’s lives. I approved 80 percent of the loans my underwriters rejected”

No wonder we are still in the “hangover” phase of the financial crisis. How incredibly irresponsible. In fact, Mozilo was given a standing ovation at this event.

Getting Graphic

My favorite chart of the week. I whipped this up before a presentation yesterday. The inventory coming off the market above $3 million represents the clearing of “dead wood” or overpriced inventory that the seller has finally realized is unsaleable at that price. The surge in supply below $3 million represents the slowdown in that market (it’s still moving faster than luxury) is allowing supply to rise sharply. At first this was explainable by rising mortgage rates which are more impactful to the starter market, but rates are at their lowest levels in 9 months. Uncertainty rules all price levels right now.

Appraiserville

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

The Letters Came Pouring In Just In Time

As the comment period on the regulatory rule change that would raise the de minimus from $250,000 to $400,000 to require a certified appraisal of the collateral for a mortgage, there was an inflow of position letters on the insanity of this rule change. It is important that appraisers read them and understand what is at stake here.

‘The Network’ Letter – Peter Gallo and the 30 State Appraiser Coalitions put their money where their mouth was and hired the best law firm to cover key appraisal industry issues of the day: CONSTANTINE CANNON LLP. This letter has been disseminated across the industry and can be used not only against this rule change but as an “evergreen” summary to ensure the accuracy of the appraisal industry’s narrative. That last point is key as the appraisal industry has shifted to a grassroots effort after being bludgeoned by REVAA (the AMC trade group), the mortgage and banking industries.

Comment of Thirty State Appraiser Organizations, Constantine Cannon LLP

Incidentally, the ABA (American Banker’s Association) liked the rule change and submitted their letter at the end of the day of due date.

Interestingly their letter claimed that “The evaluation would provide an estimate of the market value of the property, but would not be required to be prepared by a state licensed or certified appraiser, and would be less detailed and costly than an appraisal.”

Does this evaluation mantra sound like what AI National has been saying for a few years now? Strange.

‘NAR’ Letter – The National Association of Realtors was very direct about the misleading narrative the regulatory agencies are using to support the rule change that blames costs and turn time – which is completely fabricated by institutions that hate appraisers – i.e. ABA who likes the rule change and AVM owners (often AMCs) who are pushing for their product to be the status quo even though their lack of accuracy is embarrassing. Here is what their powerful letter – based on actual data – showed:

Assuming the median home price of $250,000 would have a median appraisal cost of $450, the appraisal would be 0.18 percent of the total transaction cost – hardly approaching a “burdensome cost.”

and

When asked about ease of obtaining an appraisal, 67 percent of REALTORS® felt it was “easy” or “very easy” to get an appraisal and only one percent noted it being “difficult” or “very difficult.”

Given the fact that consensus has a 70% chance of a recession coming in 2020, why would Treasury, FDIC, OCC and the Fed use bogus claims as evidence to remove oversight from our industry designed to protect the consumer and taxpayer? We’ve heard this song before.

2019.02.04 NAR letter to OCC FDIC Fed Res re Residential Appraisal Threshold

“Appraisal Organizations” Letter – American Society of Appraisers, Appraisal Institute, American Society of Farm Managers and Rural Appraisers, MBREA|The Association for Valuation Professionals, American Guild of Appraisers, OPEIU, AFL-CIO and RICS signed off on opposing the threshold change. There is an amazing paragraph that actually (and accurately) uses the word “wild” in their criticism of the rule change.

As stated in Table 2 of the proposal, should the threshold be raised to $400,000, 72 percent of regulated transactions would be exempt from Title XI appraisal requirements. That means over 7 in 10 Americans would be deprived of an objective, impartial, and independent opinion of value regarding the single largest purchase many of them will ever make. To say this proposal runs counter to consumer protection principles is a wild understatement. The proposal, if adopted, will irreparably harm consumers who frequently have little to no real estate knowledge, and therefore rely on a system of checks and balances to ensure they are not entering a purchase well above the value of the collateral.

Appraisal Org Comments Opposing Threshold Increase

Letter Summary – My thoughts on why these letters were necessary were because:

  • The regulators never expressed concern about damaging quality and reliability of valuations
  • The regulators have lamely referenced trying to help out rural banks who traditional have had a harder time finding appraisers versus suburban and urban located banks – and rationalized it was better to help a small number of rural banks and expose all the other banks with more risk for no actual reason
  • The regulators are earnestly trying to pump up loan volume because low rates haven’t push loan volume higher for a decade and they enjoy fees from the banks

Let’s hope that Congress will call on the head of these agencies to testify very soon.

Why I Don’t Call Out The Appraisal Institute As Much As I Used To?

No, it’s not because they have proclaimed 2019 as the Year of the Residential Appraiser. Coincidentally, this is also the Chinese “Year of the Rat.”

No, not any of that.

Simply put, it is because nothing has changed in their culture and their priorities to its membership over the past year and therefore they are no longer relevant nor are they considered an industry leader anymore having enjoyed and earned that status in years past.

Why waste time and energy on something the industry has already decided?

The work of the 30 state coalitions who filled the void because of AI National’s lack of national leadership demonstrates how marginal AI National has become as a trade group. For an example of their institutional dishonesty, they launched a residential committee nearly two years ago and nothing has been presented or shared to the public. A few of the members appointed are people I know personally who are good people that remain in love with the soul of an organization that died years ago and who very much want to salvage it. When that residential committee was formed and I professed to be skeptical as to the intent (to placate AI residential members who had some loyalty remaining so they would continue paying dues) and as time passed, AI National effectively shut it down by inaction. This what happens when an organization’s leadership isn’t accountable to its members and lives in a bubble.

After all, this isn’t rocket science when you apply critical thinking to the problem.

So to those who challenged me directly on my cynicism 2 years ago, its time to apologize. A nice private email would suffice.

Oops, I believe I just called AI National out again. Sorry about that.

OFT (One Final Thought)

I hate Brutalist architecture so I thought I’d ask you to watch this.


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

  • They’ll be more inclined to pay record prices;
  • You’ll be more cynical;
  • And I’ll keep scrolling through my charts.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


February 1, 2019

Cockroaches and Housing Seem To Survive Anything

With this recent Polar Vortex event and how they are becoming more regular and that we should name them like hurricanes…I thought about the “name a star” promotion many year’s ago that would enable a person (not officially) to name a star after a loved one. Now we’ve come full circle in the naming rights department with a new affordable service: You can name a cockroach after your ex in time for Valentine’s Day, and it costs only $2!

From stars: To cockroaches:

What a time we’re living in!

But I digress…and I’m somewhat brief today (too much to talk about in Appraiserville!)

Manhattan Townhouse Annual Numbers

From our research for Douglas Elliman (formal report with a lot of drill-down information will be online soon) which is a ten-year moving window of annual sales activity:

General observations

“Sales and price trends outperformed the apartment market over the decade.”

  • Market share of townhouses was 2.2% of all residential sales, consistent with the decade average
  • Price trend indicators showed mixed results as sales size expanded
  • Inventory fell expanded from year-ago levels while sales declined
  • The number of Downtown sales rose sharply, the only region to see an annual gain
  • Since the financial crisis, the median price of a townhouse is up more than fifty percent
  • Townhouse median sales price rose twice as fast as the co-op/condo market from 2009
  • Every region saw a shift towards larger sized sales
  • Northern Manhattan prices more than doubled since 2009


Manhattan Apartment (Co-op+Condo) Annual Numbers

From our research for Douglas Elliman (formal report with a lot of drill-down information including neighborhoods will be online soon) which is a ten-year moving window of annual sales activity:

“The decade demonstrated a noticeable shift to more large-sized sales and their higher price levels.”

  • While the overall sales volume rose nearly 40% since 2009, the sale of 4+ bedrooms jumped more than 90%
  • The overall median sales price has remained remarkably stable for the past four years
  • Price trend indicators all declined year over year as the legacy contract pipeline ran out of product in early 2018
  • Annual sales saw the largest year over year decline since the financial crisis
  • The annual number of sales declined for the fourth time in the last five years
  • The largest sales surge occurred in 2010 when sales quickly rebounded from the “bottom” reached in 2009


This Week in Aspirational Pricing: $239,958,219.15

The buzz of last week’s mega-million sale of $238 million still floats through the air of the real estate market but with a clear understanding that the sale represents a simpler time – when homes were worth whatever the seller wanted. In the New York Times real estate section, the precise number filed in public record was $239,958,219.15.

The hard math provided in the subtitle was brutally straightforward: “What’s the difference between a $200 million penthouse and a $100 million penthouse? About $100 million.” The context was provided in a world where little is offered. Even with the context, however, mere mortals will continue to process how hard it is to relate to housing for us mere mortals. It reminded me of my visit in 1970 to Dover Air Force Base in Delaware as a ten-year-old. I still remember that a C5-A transport plane could carry 100 VW Beetles or 58 GM Cadillacs. Perfectly valid comparisons but I couldn’t imagine all those cars in our driveway.




Getting Graphic: New Home Sales By Price

h/t Steven Miller

Love this visualization! Click to expand.


Appraiserville

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

Appraisers Sue New Jersey Appraisal Board Saying They Don’t Have To Follow USPAP

Gerald McNamara and Colleen Kudrick were admonished by the board in a five-count takedown. There is a lot of nuances here but the sanctions seemed to be based on the fact that one of the appraisers wasn’t licensed at the time and could not explain how she valued the property. The other who was certified said he did not assist in the preparation but did inspect the property. The client made a complaint and the board investigated.

Seemingly doubling down on damaging their reputations, they filed a lawsuit against the appraisal board and seem to be saying that USPAP is unconstitutional because The Appraisal Foundation is a private organization. This has ramifications for many reasons including:

  1. The evidence presented against the two individuals is quite detailed, and if accurate, shows that the appraisers were negligent enough for a financial services firm to complain.
  2. It questions appraisal laws on a technicality that USPAP is overseen by a private organization.

The following documents are available in public record and are worth reading:

McNamara v Grewel et als Docket Report 20190118

Doc 1 McNamara v Grewel et als Complaint 20190107

Doc 2 McNamara v Grewel et als Plaintiff Verifications 20190107

Doc 3 McNamara v Grewel et als Summons 20190107

Doc 4 McNamara v Grewel et als Amended Exhibits to Complaint 20190107

Doc 5 McNamara v Grewel et als Notice Rule 5_1_a 20190107

Regulators Misrepresent Appraisers’ Role In Mortgage Process

Peter Gallo shared the North Carolina Real Estate Appraisers Association [NCREAA] comment to the proposed threshold change proposed by federal regulators. You can and SHOULD provide your own comments as well. You can do that here. The regulators describe the rule change like this:

The OCC, Board, and FDIC (collectively, the agencies) are inviting comment on a proposed rule to amend the agencies’ regulations requiring appraisals for certain real estate-related transactions. The proposed rule would increase the threshold level at or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000. Consistent with the requirement for other transactions that fall below applicable thresholds, regulated institutions would be required to obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices. The proposed rule would make conforming changes to add transactions secured by residential property in rural areas that have been exempted from the agencies’ appraisal requirement pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act to the list of exempt transactions. The proposed rule would require evaluations for these exempt transactions. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the proposed rule would amend the agencies’ appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.


Unfortunately, they use the phrase “safe and sound banking practices” but in the weeds, all they care about is eliminating appraisers all together to save the consumer a few hundred dollars. Its lip service since the discussion only concerns the cost and timing of appraisals. Get ready taxpayers. With the rising probability of a recession by 2020, it is a great time to reduce neutral oversight by appraisers and shift to relying on automation. I’m already being told that underwriting systems are already being tweaked to reduce loan kickbacks.

NCREAA Threshold Letter

Only 275 Comments So Far? Please Submit Your Comments to the Threshold Rule!

From the Central Texas AI Chapter:

The Federal bank regulatory agencies have proposed to increase the residential appraisal threshold level from $250,000 to $400,000, exempting nearly three-quarters of residential real estate-related financial transactions from appraisal requirements.

In 2017, the exact same proposal was evaluated and answered as part of the federally mandated EGRPRA (regulatory relief) process – a process that encompassed four different notice and comment periods and six public hearings. From that process, the same agencies decided it “would not be appropriate” to increase the threshold from $250,000 based on safety and soundness and consumer protection considerations.

Now, in an apparent attempt to pacify rural community banks, the agencies will increase the threshold unless they hear convincing comments and evidence from stakeholders, including consumers and appraisers. Standing unified in opposition to the proposal, a coalition of nationally recognized professional appraisal organizations will be submitting comments on the proposal. These organizations encourage all appraisers to do the same by the February 5th comment deadline.


To comment, click here.

The Digital Transformation of the Appraisal Industry

By Jeff Bradford, Bradford Technologies

Jeff’s PR team reached out to see what appraisers think of bifurcation of appraisals.

Hello Jonathan,

On behalf of Bradford Technologies, I’m speaking to appraisers to gauge the response and thoughts towards Hybrid appraisals. It appears that going forward a ‘team’ approach to developing and delivering appraisals will continue to grow.

Our CEO, Mr. Bradford, has written an article addressing the anticipated approach. I’d love to hear your thoughts.

If you’d like to take a closer look at ClickFORMS we’d love to guide you through a 15 day evaluation. http://www.bradfordsoftware.com/

Kind Regards,

Darlene Conners 800/622- 8272 ext. 209 Corporate

Here is Jeff’s essay. Admittedly I view hybrids as more expensive and less reliable for lending purposes and frankly are incredibly idiotic. However, many software vendors are caught in the middle trying to figure out the zeitgeist so they can survive. Here is what Jeff wrote:

For over 30 years, I have been serving appraisers and during that time I have seen many changes in the appraisal industry. Mostly these changes have been due to advancements in technology, but not all were due to technology innovations. Some were due to changes in compliance and regulations, such as the Home Valuation Code of Conduct (HVCC) and Dodd-Frank, or due to the changes in requirements to become a Certified appraiser. There were changes caused by advancements in technology, such as dot matrix printers to laser, film cameras to digital, fax to email (if you do not remember these changes, you are very young). Remember when everyone would FedEx the report; then PDF became acceptable, and today we live in a connected world where information is just a click away. All of these changes had an impact on the appraisal profession, but producing an appraisal report is still a legacy business. We all do it the old fashioned way–manually collecting data, pictures, working the sales grid and then writing the report. It’s definitely easier and faster than it was 30 years ago, but we still follow the same steps.

Change is Coming

Well, as you might have guessed, more changes are coming and it’s technological for sure, but it’s not driven by an invention, such as when the digital camera was invented. Today it is demographics that is driving the change. The millennials are forcing businesses to change. It is estimated that at their peak, there will be 75 million of them. They are expected to be a larger force than the baby boomers. The millennials have never seen a fax or dot matrix printer. They only know mobile. They live in a digital world connected by their mobile phones, and they expect everyone they deal with to be digital as well. That includes the mortgage industry.

This group has given rise to the FinTech industry–startups that are out to disrupt the financial industry. Their aim is to make it easy to get a loan, make payments and do anything financial using their smart phone, and they don’t understand why an appraisal takes seven days. They certainly don’t understand why last year there were areas of the country where it took four to six weeks to get an appraisal.

This pressure has caused the GSEs to take notice and to begin to take action. As many of you know, the GSEs are on a three-year mission to remake appraisals into a much more efficient process. Last August, Fannie Mae CEO Timothy Mayopoulous stated, “Appraisers should be at their desks,” not in the field with a measuring tape or making phone calls to track down homeowners. This has led to pilot programs to test the validity of using third party inspectors paired with appraisers at their desks to study if appraisals can be produced quicker without a loss in quality. Many are saying the pilot programs are working well. Additionally, based on the changes the GSEs made to the 1003 (loan application form), the new 1004 will be pared down considerably, with fewer data points, creating a new slimmed down UAD dataset based on the new MISMO 3.3. (The current UAD is based on MISMO 2.6.) If the move toward bifurcation of the appraisal succeeds, this could open up some great opportunities for appraisers and the industry in general. Let me explain. Eight years ago, we introduced a product to the market that used a third party inspector. Our reasoning was that teams can do more than individuals. That product was not widely accepted. Why? It was less than successful because the inspector and the appraiser were not teammates. They were just individuals doing a job without regard to each other’s issues or concerns. We had missed the concept of teammates and the need for close collaboration between the two. It did not help that trainees and licensed appraisers were essentially banned from working together on the appraisal for fear that the appraisal would be rejected by a lender.

Fast forward to today. If lenders accept third party inspections, they will also have to accept appraisals completed by teams managed by appraisers. This change will open the door for appraisers to create their own teams consisting of assistants and trainees that produce the appraisal, opening the door for trainees to once again be part of the appraisal process.

The key to high performing teams is tight collaboration. It’s the elimination of the distance and time factors between the stakeholders and team members. If the appraisal process is going to become more efficient and accepted by millennials, there needs to be better collaboration between all stakeholders in the valuation (lenders, AMCs, appraisers, inspectors, assistants, reviewers, and anyone else involved with the valuation). In the past, we collaborated by phone, then email, and today we can collaborate instantly by taking advantage of the digital workspaces that are being developed in the cloud. For example, Google already has 1.4 billion users collaborating using apps on G-Suite. There is Slack, Microsoft Teams, Dropbox, Box and Apple iWork just to name a few others. There is now even a new term to describe people who work primarily in the cloud—Cloud Worker. They log in, do their work and log out. They work from anywhere, anytime on any device. Companies that want to remain relevant are moving to the cloud. They are becoming digital businesses with an emphasis on allowing their employees to collaborate seamlessly and on delivering their services as quickly as possible with full transparency of the process (think Amazon).

From Legacy to Digital

An example of a company that made the transition from legacy to digital is Domino’s Pizza. In 2008, its stock was at $3 and they were hurting. Today it’s at $277 and they are thriving. They did two things: 1) made improvements to the quality of their product, and 2) realized they were also in the pizza delivery business. They started thinking of themselves as an e-commerce company that happens to sell pizzas. This revelation led to a commitment to innovate the pizza delivery experience. Today, they have a Chief Officer of Delivery Technology who makes sure you can order a Domino’s pizza from the web, by email, by texting, or by asking Alexa to order you a pizza. They are a digital business catering to the anytime, anywhere, on-any-device millennial crowd. Domino’s is currently experimenting with delivery by drones and self-driving cars. Little Caesars pizza has followed suit with their own Pizza Portal and mobile app for ordering, scheduling and pre-paying for a pizza. The point is that moving from a legacy business to a digital business is not only good for business, it may be the only way to stay relevant in the age of millennials (think Sears).

As I write this article, JPMorgan Chase just announced that they are building a “FinTech campus” in Silicon Valley where it expects to have 1,000 employees focused on building its digital banking business. Chase understands what is at stake.

Appraising is a legacy business and if it’s to remain relevant and not marginalized by appraisal waivers, it must transform itself into a digital business. The GSEs are going to make some structural changes to the process. They will probably simplify the form, remove some fields and reduce the amount of data that needs to be collected. This change will make it quicker to create a report, but it does not transform appraising. It does not transform a legacy business into a digital business. Appraisers are the ones who need to make this transition. Appraising is at an inflection point. Just like Domino’s, it needs to improve quality (no more silly mistakes, unsupported comps and arbitrary adjustments) and it needs to realize that it’s in the appraisal delivery business. The industry needs to start collaborating to improve efficiency, quality, transparency and delivery speed. The one size (1004) fits all approach is no longer an option. This is primarily why you see so many different alternative valuation products springing up.

What does it mean to be a digital business? It means that you are doing most, if not all your work in the cloud, in a digital workspace. It means that you are connected to cloud resources (data, imagery) simply by plugging them into your workspace. It means that you are working as a team, collaborating via your digital workspace. All the time and distance factors that would normally slow your appraisal process down no longer exist because all files automatically sync with every team member.

Collaboration is the key and it starts at home. Appraisers should start thinking about how to incorporate team concepts into their workflows and processes and by thinking of everyone as a teammate–not a partner or an assistant–a teammate. If you have one teammate assisting you, think of using Dropbox as your digital workspace for sharing files. It’s good for storage and backup as well. If you want to expand, consider online form processing and the use of a mobile inspection app linked into your digital workspace. At this point, you are starting to empower teammates to work from anywhere, anytime on any device. At Bradford Technologies we’ve developed a Team Appraising platform to provide that digital workspace for you. It’s a little ahead of its time (like many things we do), but when bifurcation of appraising is accepted by the lenders, appraisers will want to control and manage their own teams to defend their business and outperform the competition. Like Domino’s, appraisers need to realize they do more than just produce a product, they are also in the appraisal delivery business. AMCs, likewise must realize they do more than manage an appraisal order; they are also in the appraisal delivery business. For the industry to fully transform to a digital business, appraisers need to extend the concept of a team beyond their office to include AMCs. Both need to work more cooperatively, as teammates to produce and deliver a product for their mutual client, the lender. If both do this in a collaborative fashion, working in a digital workspace with all the time and distance factors removed, the appraisal industry will be transformed and secure its position as a valuable, highly relevant component of the financial community.

About Bradford Technologies

For over 31 years, Bradford Technologies has been providing appraisers innovative software solutions such as ClickFORMS, the most intuitive appraisal report processor and Redstone, the leader in valuation support analytics. Today, the company is focused on its new cutting-edge solution for residential appraisers – Team Appraising. Utilizing “team” concepts and providing connected mobile, desktop and online solutions for inspection, report processing and communications, residential appraisers can create an efficient digital business that excels in the all-digital world of tomorrow.

About the Author

Jeff Bradford is the founder and CEO of Bradford Technologies. Mr. Bradford has been recognized as a Valuation Visionary by the Collateral Risk Network and a Tech All Star by Mortgage Bankers of Association for his continual innovations in the appraisal field and support for residential appraisers.


Voice of Appraisal E216 Will Bifurcation lead to Market Blindness?!?!

Yes it definitely will.


A Day In The Life

h/t Lori Noble

OFT (One Final Thought)

Since I’ve been obsessed about housing price records as of late, here’s a great read on the surfing wave height record. Things that go viral aren’t always what they appear to be.

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

  • They’ll be less cockroach obsessed;
  • You’ll be more wave obsessed;
  • And I’ll be more price record obsessed

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 President/CEO Miller Samuel Inc. Real Estate Appraisers & Consultants Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

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January 25, 2019

Commuting By Vertical Travel When Your Home Is Nearby

Sometimes a good moat might sell castles in suburbia. h/t McMansionHell When a new development concept goes awry…

But I digress…

Market Report Gauntlet Week 4 Q4 2018: Hamptons, North Fork and Long Island

Douglas Elliman just released our research for the Hamptons, North Fork, and Long Island markets (I’ll have the links up shortly) covering the fourth quarter. The Hamptons and North Fork showed an acceleration of weakness and long Island showed more (but unexpected) strength.

Here are some key points for each market and some charts:

LONG ISLAND

Coverage from Newsday: Report: Long Island home sales rise as inventory falls

“A shortage of listings “is what’s driving prices up, because there’s still limited inventory,” said Ann Conroy, president of the Long Island division of Douglas Elliman. “That’s what’s keeping the prices where they are and pushing the prices up.”

Thoughts

  • Listing inventory fell to a more than fifteen year low after three straight quarters of year over year declines
  • Number of sales rose year over year in two of the past three quarters
  • Median sales price has not seen a year over year decline in 23 consecutive quarters
  • Median sales price slid year over year for all quarters of 2018
  • Luxury sales price slipped below the $1 million threshold for the first time in two years



HAMPTONS

Coverage from Bloomberg: Hamptons Listings Surge 82% in a Year, Pushing Home Prices Lower

“Would-be Hamptons buyers have been dragging their feet, betting their money is better off in the stock market, or reluctant to commit to discretionary purchases after a federal tax overhaul that capped write-offs for mortgage interest and property levies. With so much inventory, sellers will have to drop their prices to attract interest, said Cia Comnas, who oversees sales in the Hamptons for brokerage Brown Harris Stevens.”

Thoughts

  • Median sales price stabilized as average sales price moved higher
  • Number of sales declined year over year for the fourth consecutive quarter
  • The ratio of sales above and below the $1 million threshold remained essentially unchanged
  • Listing inventory rose sharply after twelve quarters of declines
  • Luxury sales at or over $5 million reached its highest market share in three years
  • Luxury listing inventory continued to rise as sales declined



…and a cool chart from Bloomberg:

NORTH FORK

“Record prices with fewer sales and more inventory.”

Thoughts

  • Median sales price set a new record for the third time in the past four quarters
  • The number of sales declined sharply year over year for the third consecutive quarter
  • Listing inventory remained relatively stable, with nominal changes over the past three quarters
  • Luxury price trend indicators rose sharply as listing inventory fell by half
  • The market share of sales under $1 million was only price strata to rise



Market Report Gauntlet Week 4 Q4 2018: Aspen, Snowmass Village, Los Angeles, Venice, Mar Vista, Malibu & Malibu Beach

Douglas Elliman released our research for the Aspen, Snowmass Village, Los Angeles, Venice, Mar Vista, Malibu & Malibu Beac markets (I’ll get the links up shortly, I’m running behind) covering the fourth quarter. The Aspen and Snowmass Village markets showed an emphasis on smaller properties. Los Angeles and the submakets we cover remained brisk but sales are slowing. Malibu sales were impaired by the tragic wildfires late last year.

ASPEN

“The number of market-wide sales rose year over year for the first time in 2018.”

Thoughts

  • Listing inventory edged higher year over year for the third straight quarter
  • The number of single-family sales for the quarter matched the ten-year quarterly average
  • Luxury average price per square foot slipped, consistent with the decline in average sales size
  • The starting threshold for the luxury market fell to the second-lowest level in two years



SNOWMASS VILLAGE

“Rising sales has been on a multi-year streak as sales mix emphasized smaller properties.”

  • Number of sales again surged year over year, the tenth straight quarter of gains
  • Price trend indicators showed mixed results as average sales size declined sharply
  • Listing inventory edged higher for the fourth consecutive quarter
  • Luxury price per square foot jumped while the other indicators were skewed lower by a shift to smaller sized sales



LOS ANGELES

“Overall price trends moved higher as sales slipped and inventory expanded.”

  • In light of November’s wildfires, it was natural for sales activity to slow
  • Number of sales declined year over year for the third consecutive quarter
  • All price trend indicators rose year over year for the second straight quarter after declining in the spring
  • After three consecutive quarters, of annual inventory gains, the market pace was the slowest in three years
  • Total sales for 2018 edged above the total for 2017
  • Despite the decline in luxury average sales size for single-families, all price trend indicators moved higher
  • Luxury condo median sales price rose annually for the second consecutive quarter



This Week in Aspirational Pricing: $238 Million Buys You A Home

All heck broke loose yesterday when the Wall Street Journal broke the story that billionaire hedge funder Ken Griffin paid $238,000,000 for a 23,000 square foot multi-story penthouse at the top of 220 Central Park South. There was a bunch of interest in the story about the highest sale in U.S. history and it made for a lot of fun additional reading, a fantasy alternative to the stress of current headlines.


[Source: Not sure who to credit – found on web]

Some of the reads you should check out include:

The story that broke the news:

Billionaire Ken Griffin Buys America’s Most Expensive Home for $238 Million [Wall Street Journal]

…Reporter Kathy Clarke also broke the Michael Dell prior Manhattan record $100+ million sale a few years ago.

America’s Most Expensive Home Sold to Billionaire Ken Griffin [Bloomberg]

…the source of the epic “vertical travel” reference.

At $238 Million, It’s the Highest-Price Home in the Country [New York Times]

…That article by Stefanos Chen covers the idea that this sale has nothing to do with the current market. This was a sale representative of what I call “peak” luxury circa 2014 into 2015.

To give context to how disconnected from mere mortals this sales price was, Azi Paybarah who writes the New York Times newsletter New York Today made the context simple. He took all my data on the highest priced Manhattan residential sales for each year since 1982 and adjusted them for inflation:


[Source: New York Times]

The visual context is quite jarring.

Here is my updated multicolored version (not cpi-adjusted) that my Housing Note readers have seen before. I had to move my company logo to the left to accommodate the line:

Most Expensive U.S. Home Sale Ever: Billionaire Ken Griffin Closes On $238 Million New York Penthouse [Forbes]

…This is a story that speaks to the price context of this sale.

An apartment on Central Park just sold for $238 million. That’s the highest price ever paid for a home in the US [CNN]

…This story mentions my hobby of tracking these big sales that began in late 2013 when I saw so many listings over $100 million appear (and few ever sold).

The $238 Million Penthouse, and the Hedge Fund Billionaire Who May Rarely Live There [New York Times]

…This was today’s New York Times cover on Ken Griffin.

New in the Real Estate Lexicon: Vertical Commute

As mentioned above in the Bloomberg article, a “vertical travel” is something New Yorkers do every day – I’ve just never heard it described that way (bold is my emphasis).

Citadel has signed a lease to anchor a skyscraper at 425 Park Avenue, eight-tenths of a mile from Griffin’s new apartment, not including vertical travel.


When Ken Griffin travels from his new penthouse to his office, I imagine his commute, that includes “vertical travel,” looks like this:

The Value of Land Across The U.S.

The value of land, or “dirt” as New York City real estate developers call it, varies wildly accross the U.S. A research paper explores this. Price moved higher faster than the suburbs which is why I think so many super luxury towers were built in Urban markets – that’s the only way to make the acquisition feasible (because landowners saw their value potential that way.



…but I have questions:

First: From a valuation perspective, homes depreciate and land appreciates so this is somewhat confusing:

“Generally, land tends to appreciate faster than structures because when housing demand changes, you can build more structures but you can’t build more land,” Larson said.

Second: How is New York County (Manhattan) not in the top ten? Manhattan doesn’t appear in the data yet Brooklyn does. Housing prices in Manhattan are higher than Brooklyn if locations are similar. This omission seems to jump out and I can’t find a disclaimer or reference to it in the piece.

The Only Housing Collapse Is The Collapse of Context

This Bloomberg piece seemed a little confusing to me BofA Says Don’t Believe the Hype on a Housing Collapse

And quotes Michelle Meyer’s research note:

“Don’t believe the narratives of a housing collapse,” economist Michelle Meyer wrote in a note to clients on Tuesday. Meyer said the challenges facing the sector “should only be a slight drag on growth” and that “the recent decline in mortgage rates is well timed, ahead of the spring selling season.”

On the national market, existing and new home sales are falling year over year and prices are rising. Inventory is rising but still remains inadequate in many areas. Are pundits suggesting this declining condition will lead to a collapse? Is anyone saying this? Does anyone suggest we are seeing another housing meltdown?

No. What we are seeing is a housing slowdown brought on without the help of fast and loose credit policies (yet) distorting supply and demand. Slowing sales may eventually lead to declining prices. This is supply and demand and affordability in action.

This is a smart housing economist simply being adept at hyping her research notes. Let’s not get crazy here.

Sharp Decline In Sales Baffles, Sort Of.

Existing home sales fell 6.4% seasonally adjusted which is unusually large.

Real estate brokers are trying to figure out why sales of existing homes plunged in December.

If you notice on the NAR data release, the number of sales fell 11.7% YOY WITHOUT SEASONAL ADJUSTMENTS. In other words, the number of sales was almost 12% lower than the same period last year in their raw form. We are seeing this in nearly all of our regional research coverage. I contend the uncertainty of regulatory policy (tariffs) and the new federal tax law, as well as higher mortgage rates earlier in the year (and possibly late year financial market volatility) caused many buyers to pause on their decisions.


Appraiserville

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

Mining Appraisal Data

Here’s an FHFA/AEI research paper that mined data from more than 16 million appraisals. There seems to be a lot of mining going on these days to fuel research and more profits. The appraiser’s role is being phased out at the same time. I presented the Washington Post piece earlier in these Housing Notes.

OFT (One Final Thought)

Hat tip to the padre.

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

  • They’ll be love vertical commuting;
  • You’ll be more contextual;
  • And I’ll collapse.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


January 18, 2019

Fast Food Visualizations On Housing

Sometimes art just jumps out of the picture and drenches you with a message:


But I digress…

Market Report Gauntlet Q4-2018 Downtown Boston

Although I was born in Boston and had traces of an accent until we moved to Delaware when I was 6 years old, and definitely annoyed my mother for adopting the New York Yankees as my favorite baseball team, I’ve always wanted to cover the Boston market in our Elliman Report series. Last year Douglas Elliman acquired a local firm and yesterday published our research on the Downtown Boston market.

Curbed Boston went gonzo with report coverage here, here and here.

The data within the reports cover the condo and townhouse markets in the neighborhoods of Back Bay, Beacon Hil, Charlestown, Fenway, Midtown, North End, South Boston, South End, Seaport, West End & Waterfront. Its basically a luxury market moving at a blistering pace but there was a noticeable drop in condo sales in Q4-2108.

Elliman Report: Downtown Boston Sales 4Q 2018

Here are a few basic observations:

DOWNTOWN BOSTON HIGHLIGHTS

CONDO
– “Price trends and sales for the entire year finished above prior-year levels.”

– Sales for the quarter fell year over year as median sales price edged higher
– The highest fourth-quarter inventory total in five years
– Negotiability tightened from year-ago levels as marketing time expanded

TOWNHOUSE
– “More sales and less inventory kept the pace of the market moving quickly in the final quarter of 2018.”

– Median sales price rose year over year after three straight quarters of declines
– Year to date median sales price was unchanged year over year as annual sales slid
– Listing inventory declined year over year for the first time six quarters

And some charts!






Market Report Gauntlet Q4-2018 Greenwich, Fairfield County

For Greenwich, CT, the news was weakness but I wonder if the crazy volitility in the financial markets were the root cause of the luxury sales slowdown countywide. Since I measure luxury as the top 10%, if those units stopped trading, the top 10% is at a lower echelon rather than an actual decline in property values.


Elliman Report: Greenwich Sales 4Q 2018

Elliman Report: Fairfield County Sales 4Q 2018

FAIRFIELD COUNTY HIGHLIGHTS

“Shift towards smaller sized properties as countywide sales slipped.”

– Median sales price declined for the second time in three quarters
– Number of sales declined year over year for fourth straight quarter
– Listing inventory rose after ten straight year over year quarterly declines
– Luxury price trend indicators skewed lower by a sharp decline in average sales size
– Luxury listing inventory rose year over year for the fourth straight quarter
– Entry threshold to the luxury market fell to its lowest level in four years


GREENWICH SALES HIGHLIGHTS

Overview “Condo sales surged as single-family sales showed modest slip.”

  • Single-family average sales size fell sharply, pulling down price trend indicators
  • Single-family sales slipped as listing inventory saw a modest gain
  • Condo sales surged as listing inventory edged higher
  • Sharp drop in luxury threshold reflected the shift away from the top of the market
  • Luxury listing inventory expanded with a slight tightening of negotiability

And some charts!





Market Report Gauntlet Q4-2018 South Florida

The report links will be available shortly. In addition to the research for the Elliman Reports covering South Florida, I compiled 5-year sales patterns for condo/single-family properties that sold over $1M. Their high-end is seeing sales growth:


Bloomberg TV 1-17-19: The Northeast to South Florida Housing Market Connection Explored

Just before I stepped on the set, I got to look at the file photo Bloomberg took about 15 years ago (I think I’ve aged gracefully) but I was also called out for it.


Here’s the interview along with a cameo by Sam Zell, lol!


The Big Mac index shows how strong the US Dollar is

If you are wondering why foreign investors in U.S. residential real estate are not what they used to be, look no further than the Big Mac you were about to devour. Does anyone at The Economist or really, anywhere, see the irony of the initials for “Big Mac Index” are “BMI” or am I over thinking this?


This Week in Aspirational Pricing

The quip “I’m like a farmer, outstanding in my field” crossed my mind when interviewed for this epic profile piece on prolific New York developer Gary Barnett and his Extell firm.

His success opened the door for other high-end towers across the city, permanently altering the Manhattan skyline. “The frenzy around One57 gave everyone the idea that this was a market that was ripe to be harvested,” said real-estate appraiser Jonathan Miller.

Barnett is currently building the tallest condominium in the world, over 1,500 feet high. This WSJ piece “The Man Behind Billionaires’ Row Battles to Sell the World’s Tallest Condo” supposed to be on the front page of WSJ today but it was bumped off to the real estate section. When I read this piece and their announcement of a new CEO, it made me wonder if investors were getting worried about the timing of this super luxury project in the middle of a market reset. Their nearby project One57 still has a lot of units left to sell and this new project is priced higher (however it is 50% taller with more views) and has twice the number of units. Will this project be the marker for the end of this era through “Billionaire’s Row?”

Aside from those concerns, I’ve always found this form of innovation fascinating and the constant change to the skyline exciting. Just peruse some old Dover-type books to see what I mean.


Foreclosures Are So Not A Part of The Housing Conversation Now

Here’s a press release from Attom (who acquired Realtytrac): U.S. Foreclosure Activity Drops to 13-Year Low in 2018


New in the Real Estate Lexicon: Down

The housing market conversation is using the word “down” quite a bit more than in the prior several years: California Existing Homes in December: Sales Down 12% YoY, Inventory Up 31% [Calculated Risk]

High Student Loan Debt and Low Homeownership Rates

The Federal Reserve released a research piece that includes discussion of the student loan debt crisis in a chapter called: Can Student Loan Debt Explain Low Homeownership Rates for Young Adults?

From 2005 to 2014, homeownership among 24-32 year-olds fell 8.8%.

The part of the “school debt to housing” connection that doesn’t get discussed is just how much the credit side of student loans mirrors what happened during the housing bubble. Schools can keep raising tuition because it is not seen by the students – everything can be covered by the easily-issued debt. Why do you think tuition costs have outpaced inflation?

College marketing commonly touts how more than half of their students graduate in 6 years! (in a 4-year program). My wife and I attended orientation for one of my sons. In the presentation, honor roll students were brought on stage and both the school and students touted how many students were getting a major AND 3-4 minors. None of that makes much economic sense. By now the disconnect between the cost of a college education and the benefit to their careers is being talked about. Fast and loose credit has enabled reckless spending by universities. There are no checks and balances – simply raise the fees and the students will pay for it…for years.

Here was the authors’ previous piece on the topic: A Trillion Dollar Question: What Predicts Student Loan Delinquency Risk?

All told, our finding that student loan balances are only a poor predictor of future student loan delinquencies challenges aspects of the popular narrative that frequently link borrowers with high student loan burdens (and often advanced degrees) to student loan debt repayment difficulties.


[Ritholz: MIB Podcast] Len Kiefer, Freddie Mac Deputy Chief Economist

My friend Barry Ritholtz interviews my zen-god for mortgage-related visualizations, Len Kiefer for his Masters in Business Radioshow/Podcast. Len is an amazing follow on twitter.

Upcoming Speaking Events

These aren’t upcoming but I had a great time speaking on the 84th floor of 1 World Trade Center this week with this view:

Appraiserville

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

CoesterVMS is experiencing severe financial problems

If you haven’t been paid, I suspect it is a long shot for appraisers to recover anything from them. The irony here is that many AMCs attempt to verify an appraiser’s financial wherewithal when signing them up yet I suspect the shoe is more often on the other foot, especially when considering the scale of a controversial company like CoesterVMS.

Dave Towne wrote a piece on what to do if you’re still owed money by CoesterVMS.

Here’s an email I received as a certified appraiser in Connecticut. I’ve never done any work for them but it is nice to see that they are being proactive.

OFT (One Final Thought)

Only because this is weird.

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

  • They’ll migrate to Florida;
  • You’ll borrow to add 4 more college minors to you existing major;
  • And I’ll revisit my childhood Boston accent.

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
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


December 21, 2018

The Housing Market As A Donut Hole, Holiday Mall Edition

About six years ago I tried to convince others that the Manhattan housing market was a “donut” – vibrant in the starter market and relatively strong on top, but soft in the middle. A few people suggested that a barbell analogy was more accurate, but hey, I like donuts. But now with rising mortgage rates, we are seeing early signs of a sales slowdown in the starter market. But donut hole sales continue to hold their own. Even HUD mentioned a “donut hole” analogy

Whatever this all means, I suspect with all the holiday decorations it will be tough to focus on any form of intensive donut analysis.


But I digress…

Getting Malled On Video

I hate going to our local mall, especially around the holidays. I’ve written about this before, but malls were an important part of my childhood. When we lived in Delaware in the late 1960s, the big brand new Blue Hen mall in Dover, an hour away, was the only place to buy most of our clothes and basic staples. That mall has now gone under and is being re-used as something else. Later when we moved to the Maryland suburbs of D.C. the big new Montgomery Mall was the regular place to go. In fact, when I was home for the holiday break during my college freshman year, I walked through the mall looking for work and landed a 3-week busboy gig at a Greek restaurant.

Later on in my life, I used to go to the Stamford Town Center mall all the time to run errands. Then big box stores entered our local market, Amazon gained critical mass and now I visit it only a few times a year, mainly to the Apple Store. I always find the mall visit depressing so I avoid it all costs.

Nationally malls are failing much faster than being created. A report by Credit Suisse estimated that 20% to 25% of malls would shutter over the next five years, largely because of store closures. Currently, there are about 1,100 malls nationwide.

However, there are some that yearn for the old days. I’m not one of them but I can see how impactful growing up with them can be to some.

The first video was made in 2007 and covers the folks who created DeadMalls.com. Periodically, I check into the DeadMall YouTube feed for a quick update. It is mindboggling how much space goes unused. The second is a 2009 documentary on the shift in retail patterns away from malls. It is super depressing.



Combined Apartments Can Be The Single Best Thing

For my entire 32-year appraisal career, our firm has been valuing combined apartments. I came up with the saying “1+1=2.5” to reflect the value premium enjoyed by purchasing two adjacent apartments, whether or not they were combined. The premium varies widely based on the size and configurations of the apartments. This premium doesn’t apply to all combos but since there is a Manhattan premium for larger contiguous space. I’ve found that once the total size approaches 7,000 square feet, there is no premium, and in fact, the impact on a price per square foot basis often falls.

This weekend’s New York Times Real Estate Section cover story “Hey Neighbor, Can I Buy Your Apartment?

In my own experience, these are the issues and observations with combos:

  • As I said earlier, there is generally a premium enjoyed by acquiring the neighbor’s apartment, even before they ae combined.
  • Usually, the larger apartment owner is acquiring the smaller apartment (say a 3-bedroom owner’s purchase of a studio) and therefore it is likely they will need to significantly overpay for the studio. But the premium enjoyed afterward can make that a no-brainer.
  • Co-ops tend to leave the building Certificate of Occupancy alone with the idea that if the market softens or the owner falls on bad times, they can easily sell off the smaller apartment.
  • We often perform three valuation opinions to lenders: “as is” appraisal of each apartment and a “subject to combination and renovation” of both apartments” value. In the early 90s we ran across a few fraud scenarios where one bank held the mortgage of each of the individual apartments and a second bank held the combined mortgage for both apartments. I never understood how that could have happened in a co-op.
  • Often in a combo scenario, additional common hallway area is purchased from the co-op to make the layout better.
  • I believe the goal of the combined layout is to provide something that doesn’t “feel” like a combination of two or more apartments. That’s hard to do.


The following two posts were shared earlier this week on my Matrix Blog.

Bloomberg Markets TV: December 18, 2018, Amazon HQ2

As always, I had a wonderful conversion with Vonnie Quinn, anchor of Bloomberg TV’s Markets this week. It was a lengthy interview where we discussed national and NYC metric trends. The following portion covered the Amazon HQ2 story in Long Island City, NY.


Elliman Magazine Winter 2019 – Market Update

The Winter 2019 Issue of Elliman Magazine was just released. I provided a two-page spread showing various market tidbits on random U.S. markets where Douglas Elliman has a footprint. The magazine is well done and a good aspirational read.



[click to expand]

Here’s the full online version of the magazine:


Getting Graphic

Favorite charts of the week. Time to look at the aggregate of the 5 boroughs:


Appraiserville

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

An Extraordinary Year For Appraisers

Some thoughts about what we learned from 2018 to apply to 2019:

  • We have always been our own worst enemy as evidenced by the behavior of AI National who kept thinking up initiatives for its members without asking for membership feedback – remember this when their “taking” initiative is attempted in 2019.
  • Through Appraiserfest and a vibrant appraisal coalition network, we are learning to fend for ourselves and find we all actually like each other.
  • State level political action was the battleground as AI National’s Scott DeBiasio continued to work hard for AI National to further devalue our profession with evaluations.
  • Regulators and the GSEs pushed hard to normalize appraisal waivers or push wildly inaccurate and inefficient appraisal replacements like AVMs and hybrid reports, viewing us as about the same as obsolete television repairmen. Their irrational logic that ignores quality damage completely, making me wonder if this is being done at the behest of the Corelogic and other data monopolies who have a big lobbying presence.

Remember that appraisers are here as the last line of defense to the consumer and to the taxpayer, yet we have a limited voice. Our progress for more transparency in 2017 & 2018 showed us we could have more of a voice. In 2019, we will continue to more effectively press the quality concerns that are being driven into the ground by most existing insitutions after moral hazard was established in all the 2008 bailouts.

Dave Towne on De Minimus

Appraisers…..

Yesterday, I sent out a message about a Fee/TT quote conversation I had with an AMC clerk.

I’ve received a number of responses from appraisers across this fruited plain who said often they will receive Fee/TT quote requests for the SAME property from MULTIPLE AMC’s. That corroborates stories I hear from appraisers I talk with at conferences.

The entire AMC situation is a giant time-wasting game that really doesn’t benefit the borrower at all, and least of all, appraisers. Lenders are the coaches in this game.

Another message I got today caused the tiny little light bulb in my gray matter to explode in brilliance. The last paragraph is key to the raising de minimus shenanigans being promoted lately, backed by….you guessed it…..lenders:

“What you may not see is that there are Lenders that also agree with your statements. However because of all the noise, miscommunication and regulatory interference everyone is starting to just give up and/or default to a legacy AMC model and then micromanage the process. Those same lenders will be the ones that jump on the De Minimis increase and eventually be insolvent at the next market crash.

The De Minimis level was raised to solve a regulator burden created by Regulation, they can’t roll it back so they just make the filter larger.

Prudent Lenders will still get appraisals, the real question is what kind of appraisal? One that complies with USPAP or one that Doesn’t, and who is going to prepare it. Evaluations still require a level of competency under that Regulatory requirement.

Keep in mind USPAP is a road map to a repurchase lawsuit, a non USPAP appraisal isn’t. Lenders are tired of paying legal expenses for USPAP experts to line up in a courtroom and argue if a report and the appraisers workfile complies or not.”

In other words, USPAP is an impediment to the financial bottom line for lenders. To avoid spending thousands to millions of dollars going after licensed appraisers over allegedly faulty appraisals, they are attempting to get the de minimus raised so that EVALUATIONS used to value properties won’t face the same investigative and legal issues.

~ EVALUATIONS do not have the same regulatory burden as appraiser’s USPAP compliant appraisals.
~ People who perform EVALUATIONS are not licensed by the states.
~ “Competency” is mentioned in the Agency regulations, but who monitors that?
~ EVALUATIONS may not cost as much as a regular appraisal.
~ People who do EVALUATIONS may not have the high level of property analysis training as appraisers have.
~ When faulty EVALUATIONS are produced, it will be up to the borrower to bring charges against the lender – which probably will happen less frequently than lenders going after appraisers. So the lender will save money on legal defense.

The other issue here, that just dawned on me, is what do lenders call property valuation costs when a borrower applies for a mortgage loan? All lenders have a line item on loan requests for “appraisal cost.” Appraisal is a legal term that has a specific meaning. By regulation, the ‘appraisal cost’ must be identified to the borrower up front, after the time of application.

But if the lender is NOT actually going to use an APPRAISAL for property valuation (due to prospective value below the maximum de minimus amount), the fee should not be termed ‘appraisal cost.’

Secondly, due to differing production costs, will the fee charged the borrower be equally the same for both types of valuation reports, even though the EVALUATION probably costs less than an appraisal?? Is the lender pocketing the difference? (Pocketing any portion of the borrower paid fee for ‘appraisal’ didn’t use to be allowed; I’m not sure how that currently applies since D-F was signed into law.)

USPAP was mandated by Congress to preserve public trust in the real property valuation process. EVALUATIONS subvert that obligation. (Yes, USPAP also applies to personal property.)

OFT (One Final Thought)

It’s all about the angle you work:


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

  • They’ll be sweeter;
  • You’ll be more donut-like;
  • And I’ll go on a diet.

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.

HAPPY HOLIDAYS!!!! & See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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