Matrix Blog

Housing Notes

March 27, 2020

Essential Businesses Keep The Housing Market Trucking

I had one of these bad boys growing up and they were indestructible.


But I digress…

Warning! This week is heavy into the real estate appraisal world – but you’re probably cooped up inside so even if you are not an appraiser, it still might be interesting to explore.

Randall Bell’s Bell Disaster Index Shows We Will Survive

Randall Bell is the guy you call for property valuation analysis when there is a catastrophic event in the U.S. He provides a fascinating perspective for the current situation in his Bell Disaster Index.

From My Matrix Blog: The Future of Real Estate (And Life) Is Happily Looking Remote

With many Americans living under self-quarantine, the future of housing and office space will experience radical change. Here are some random thoughts about life after coronavirusappoccalypse:


The Man-Bun will make a big comeback due to the inability to get a haircut

There will be so much toilet paper to appear on store shelves that it will take years to use it up and toilet paper production-related employment will be bleak

Consumers will not regret hoarding toilet paper but will refuse to admit it in public

With everyone frustrated about being housebound, they will plot and plan to buy or rent a larger home as soon as this crisis is over

Buy a new refrigerator after burning out the refrigeration unit with thousands of sustained door-opens

A surge in the stock prices of Jenny Craig and WW

Gyms will see a new revival (see ‘Jenny Craig’)

People will discover they actually like to walk every day to clear their mind

Many people will begin to use Zoom.us every day and discover they like to see their friends and relatives faces when chatting – even in HD

Universities will incorrectly believe that students will want to learn remotely when really all they want to do it party in the dorms

Employees will decide they hate the time wasted on the commute even more because it is not completely necessary

Americans will love sleeping in until 8:30 am permanently changing the 9-5 standard to 10-6

Podcast usage will become a bigger thing than it ever was (see ‘walk every day’)

People will rush to cut their cable service after enduring endless hours, watching mindless cable shows, for reasons they can’t explain, but did realize being permanently pissed off was exhausting and unnecessary

The difference between weekends and weekdays will suddenly be thrust back into our daily lives and we’ll hate it despite the dated conventional wisdom that we should keep our personal and business lives separate (see ‘walk every day’)

The divorce rate will skyrocket as couples actually discover their real partner in close quarters

Parents will completely shed their ‘put their kids on the couch to watch tv’ shame as they consider how many episodes of Gilligan’s Island they have watched

Commercial real estate will never be the same again as millions of employees worked remotely and companies realized it wasn’t that big a deal


UPDATES

There will be a new generation classification known as Baby Boom II beginning nine months from now – ok, boomer? (see ‘divorce’)

Uncomfortable chairs will no longer be tolerated as Herman Miller Aeron Chairs will be the only office chairs made worldwide


I’ve seen the future, and it is good. -Beavis & Butthead

Other insights welcomed.

Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

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

Appraisers in Quarantine

This meme is making the rounds. Truth!

Effective today, more VA appraisal orders will be exteriors

It’s a good sign to see institutions shift their orientation to exteriors considering the largess of the mortgage world.

Here is the announcement and scope of work:

GSE Regulator FHFA Announced Their Position On Exterior Inspections

After a massive agency effort to address the issue of appraisers performing in harm’s way, the FHFA issued temporary rules to address it during a rapidly ramped of crisis. Individuals like Danny Wiley, Scott Reuter, Lyle Radke and others made it all happen within the massive bureaucracy of the mortgage market whose underpinning is essential to the economic condition of the country. I know I complain a lot but their actions warrant a large thank you from the appraisal industry.

March 23, 2020: FHFA Directs Enterprises to Grant Flexibilities for Appraisal and Employment Verifications

Real estate appraisers are an essential business and here to protect the public trust

I hope all my readers (and everyone else) are staying safe and healthy during this crisis – now let’s get to business.


With New York State on lockdown, real estate brokers/agents can’t sell real estate right now because they are not considered an essential business (yet they are in nearby Connecticut!) This declaration determines whether you can or cannot remain in business during a crisis like this.

Are real estate appraisers considered an essential business in New York? Yes. They are in New York State and they are stated as such in the federal Gramm-Leach-Bliley Act of 1999. But the fact that real estate appraisers are an “essential business” is not consistent in the federal language, especially now when many states are, or will be going on lockdown.

My good friend and appraiser/regulator Pete Fontana and I wrote a letter nicknamed: Fontana/Miller Essential Letter of March 24, 2020. This letter combines the scattered references to address this issue in very specific terms using key language in the public record that illustrates the fact that appraisers are an “essential business” now and going forward.

This letter is the first to address this important issue. It was just sent to Congress, state officials, trade groups, agencies, and other groups related to our industry today and went viral industrywide. The feedback from these groups has been immediate and overwhelmingly encouraging and positive.

Please share the Fontana/Miller Essential Letter of March 24, 2020 with your colleagues in the industry, trade groups, state governments, on forums, and with anyone or in any place you think is relevant to our industry.

Real estate appraisers are an essential business in our country, always have been.

UPDATE – Pete Fontana sent our letter to the Governor of Montana who subsequently made sure that “appraisers as essential business language” were inserted in yesterday’s Stay at Home Directive See Pete’s highlight in the document.

In the following days, a number of trade groups wrote similar letters which is very encouraging.

NAR sent a joint trade association essential business letter on behalf of four institutions

Their letter is from the American Land Title Association, Mortgage Banker Association, National Association of Realtors and National Association of Home Builders.

They urged the implementation of stay-at-home orders to combat the coronavirus, and among other things, stating that appraisers are an essential business.

The Appraisal Institute, American Society of Appraisers and others sent a letter on appraisers as essential services

The American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, Appraisal Institute, Massachusetts Board of Real Estate Appraisers and the National Association of Realtors sent a joint letter on the Designation of Real Estate Appraisals as Essential Services.

We urge remaining jurisdictions to classify real estate appraisal services as essential…
Peter Christensen rolled out a free webinar and materials for appraisers to manage risk in a COVID-29 world

Peter has always been the voice of risk management in our appraisal world through conference presentations and his website Valuation Legal. He is allowing me to share his in Appraiserville.

Take a look at his slides and presentation. His content is all very helpful to our community.

Appraiser Frank Gregoire Has More Monitors Than You Do


Ryan Lundquist shows us how to communicate the market in this crisis

Delivery: Factual, neutral, non-apologetic, empathy without bias.


XOME Issues Vendor Authorization Letter In Case Appraisers Get Arrested

Insiders tell me they are publishing a Dick Tracy Decoder Ring next week. Good grief. This suggests they are so desperate for appraisers to place themselves in harm’s way that a printer and a logo is all you need they need for protection. Do they have a legal department?


OFT (One Final Thought)

The cover of the NYT today followed by the business section cover showing all 50 states. First here is the mockup for the anticipated announcement – this is how I design each market report I create!

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 essential;
  • You’ll be more essential;
  • And I’ll rest easy knowing U.S. real estate appraisers are considered essential businesses.

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 14, 2020

Housing Is Like Dogs Jumping From Trees

It’s a surreal housing market out there but someone always figures out how to get that ball.


But I digress…

Manhattan, Brooklyn and Northwest Queens Rents Rose Sharply

I’ve been the author of the expanding Douglas Elliman market report series for twenty-five years and the Manhattan, Brooklyn & Northwest Queens rental report is the only monthly report we produce. The bulk of our report series is released on a quarterly basis.

Elliman Report: 1-2020 Manhattan, Brooklyn and Queens Rentals

Mansion Global produced a clear summary table that shows that 96% of the market is seeing sharp gains in the median rental price. Robust rental conditions are being created by a weak sales market.


A Douglas Elliman infographic for the report:


Important note:

It is too soon to see the impact from last week’s New York Department of State guidance on the Statewide Security and Tenant Protection Act of 2019 and a subsequent temporary restraining order issued after real estate industry trade groups and firms filed a lawsuit to stop its execution.

______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“New leases continued to fall as landlords continued to be more successful at the time of lease renewal.”

  • The market share of landlord concessions slipped for the twelfth time in thirteen months
  • The number of new leases fell year over year for the sixth straight month
  • The net effective median rent rose annually for the thirteenth consecutive month
  • New development median rental price rose year over year for the ninth straight month
  • Median rent for new development increased more year over year than existing rents in ten of the last twelve months
  • Luxury median rent hasn’t seen a year over year decline since last March

______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“The market share of landlord concessions fell year over year for the thirteenth straight months.”

  • The net effective median rent rose annually for the fourteenth straight month
  • Thirteen consecutive declines in the market share of landlord concessions
  • The fifth time in six months the number of new leases declined as landlords were better able to retain tenants at renewal

______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

[Northwest Region]
“Six straight months of year over year declines in new lease signings.”

  • The market share of new development reached its lowest level since the summer of 2018
  • Net effective median rent increased annually for the third time in four months
  • Concession market remained above the fifty percent market share threshold for the third straight month


We Just Added Another $100M+ U.S. Sale to the List

With the proliferation of $100 million+ home sales, I’m starting to feel like a red carpet paparazzi. Jeff Bezos of Amazon just purchased an LA home for $165 million home, not including a nearby $90 million plot of land.

This home sale isn’t remotely connected to the local housing market in any way despite this broker quote:

“The Geffen sale will really help the high-end,” Hyland said.

If we are talking about this super-luxury market, perhaps but it has nothing to do with the “normal” high-end market.

The first known $100 million+ sale occurred in 2011 and by 2014, the market segment was formed. The 2019 market was the high water mark with contributors from LA, New York, and Palm Beach.

Manhattan’s Upper East Side Condo Market Performance Is Quite Bifurcated

I was speaking to a crowded room of real estate professionals on the Upper East Side – here’s a snippet.

Mortgage delinquencies correlate with unemployment and therefore remain low

MBA released its latest National Delinquency Survey – for the fourth quarter of 2019 – earlier this week. Mortgage delinquencies track closely to the U.S. unemployment rate, and with unemployment at historic lows, it’s no surprise to see so many households paying their mortgage on time.

The Mallpocolypse Is Real

When I was in DC this week, I listened to a presenter from the Atlanta Fed talk about retail real estate risks and malls were front and center. A few years ago this topic was seen as sensationalist as was the phrase “retail apocalypse,” but no longer. The scale of the problem is apparent in the following table, where the vast majority of mall properties are rated “B” or lower.


Here are several good reads on the topic. h/t @ritholtz

Never Mind the Internet. Here’s What’s Killing Malls. [NYT]

In short, the broad forces hitting retail are more a lesson in economics than in the power of disruptive technology. It’s a lesson all retailers will have to learn someday — even the mighty Amazon.


Retail Apocalypse Hits High End Malls, Leading to Landlord Deal [Bloomberg]

The fallout from the retail apocalypse is putting pressure even on high-end malls.

As bankruptcies and store closures pile up among brick-and-mortar retailers, investors are increasingly concerned about mall operators. For the most part, those worries have centered on the landlords who operate dying malls.


How chain stores are rightsizing New York City retail [Retail Dive]

An analysis of stores in New York City last year revealed that the number of national chain stores operating in the retail destination had dropped a notable amount. That the entire retail industry is in flux is not a secret, but the drop in one of the countries top retail destinations sparks a larger question: Is the decline of national retail brands in New York City a regional problem, or endemic of a larger retail shift?

Getting Graphic


Our favorite charts of the week

Len Kiefer‘s Chart Handiwork




Appraiserville

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

GAO to Study The Dilution of Intent of Title XI

In December, The Appraisal Foundation requested the House Financial Services Committee take a look at the dilution of the intent of Title XI. This week the Financial Services Committee directed the Government Accounting Office (GAO) to provide a study on the dilution of the 1989 intent of Title XI.

From the House Financial Services Committee:

“The Appraisal Subcommittee (ASC), the entity created and charged under Title XI to monitor the appraisal related actions of the Federal financial institutions regulatory agencies (Agencies), estimated in its 2018 report to Congress that ‘at least 90 percent of residential mortgage loan originations are not subject to the Title XI appraisal regulations,’” the lawmakers wrote. “Over the past few decades, however, the federal agencies charged with implementing Title XI of FIRREA have taken steps to limit the number of transactions for which an appraisal is required….We request that you conduct a review of the impact of these changes, including the potential risks that they pose to homeowners and the safety and soundness of our financial system.”

As a reminder, the original de minimus in Title XI was $15,000. It is now $400,000. That is a $2,567% increase over 30 years (1989-2020). Using the FHFA Home Price Index, home prices have grown 182% from 1991-2019, a similar period.

In other words, the de minimus has risen 14 times higher than housing prices. I’d say Congress’ original intent has not been followed.

Phil Crawford Interviews The Cosmic Cobra Guy

The author of “Dispatches From The Cosmic Cobra Breeding Farm” lays out his case against The Appraisal Foundation on Phil Crawford’s Voice of Appraisal. It is quite compelling reasoning and a good read. I got a lot out of it.

However, I am troubled by the author’s bias in rationale. Where he falls short is trying to explain why he doesn’t hold AI, IRWA, and ASFMRA to the same standard as TAF. The logic Jeremy uses is that he can quit those trade groups and he can’t quit the foundation and still be an appraiser. That’s quite a disingenuous argument.

In the real world, if I didn’t have an MAI as a partner in our commercial practice (I’m a CRE), we wouldn’t get commercial work from most, if not all financial institutions no matter what the regulations are. That’s a fact. The MAI designation is embedded in many state laws and CMBS regulations. That’s a fact. I’ve written about how AI scared designation holders who might speak out against them because their designation is a building block of the designation holder’s livelihood. That’s a fact. Although for my latter point, admittedly I’m getting a better feeling about AI with some of their new leadership and board members. Fingers crossed.


We All Use A Periodic Table of Data Elements

Earlier this week I represented RAC (Relocation Appraisers & Consultants) at the Appraisal Subcommittee (ASC) Roundtable held at the OCC. The ASC is the financial link between congress and The Appraisal Foundation. Over 50 agency representatives that connect to the mortgage process were there to discuss data.

Lee Kennedy of AVMetrics, a firm that tests AVMs moderated a panel on the topic of data. Lee’s presentation included a terrific slide that was shared with the attendees.


Setting The Standard For Telling The Story Of The Market

As the mortgage industry pushes to wigdetize appraisers, the cream of the crop are straying from mortgage work and not looking back. Many of us (appraisers) possess an invaluable level of knowledge that agents and consumers are hungry for but are unable, unwilling or afraid to share it.

My friend and appraiser colleague Ryan Lundquist in Sacramento shows all of us how to give a presentation (that he was generous enough to share). Please watch and take notes.

OFT (One Final Thought)

I’m begging you to watch the whole clip. You just never know when it will be your last conversation with someone.


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 jump out of trees;
  • You’ll use an answering machine;
  • And I’ll look at the intent of Title XI.

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

Real Estate Blockchain

Appraisal Related Reads

Extra Curricular Reads


January 17, 2020

Some Housing Styles Really Stand Out In Any Location

I’ve often wondered what kind of school graduates students of architecture like this? Locating it near train tracks becomes a positive amenity.

But I digress…

Greenwich and Fairfield County Connecticut Continue To Show Choppy Improvement

I’ve been writing the expanding Douglas Elliman market report series for 25 years and nothing is more fun than fueling reader interest at a large scale.

The Greenwich market report I wrote for Douglas Elliman which they published yesterday, was included in a Bloomberg News story. And despite the heavy news volume, the piece was the #2 most-read article at one point in the day by 350K± Bloomberg Terminal subscribers worldwide.


…and if that wasn’t cool enough, the story included a twofer! (2 charts).



________________________________________________
GREENWICH SALES HIGHLIGHTS

Elliman Report: Q4-2019 Greenwich Sales

“Negotiability expanded to the highest level in two years as more sellers became in sync with market conditions.”

  • Single-family median sales price jumped year over year as listing inventory declined
  • Single-family listing discount showed the most negotiability in two years
  • Condo price trend indicators and the number of sales declined from year-ago levels
  • Luxury listing inventory fell year over year for the third consecutive quarter
  • Luxury price trend indicators and the average sales size decreased at a similar rate




________________________________________________
FAIRFIELD COUNTY SALES HIGHLIGHTS

Elliman Report: Q4-2019 Fairfield County Sales

“Sales expanded and listing inventory compressed annually for the third straight quarter.”

  • Median sales price rose year over year after four straight quarterly declines
  • The number of sales increased annually for the third consecutive quarter
  • Listing inventory declined year over year for three straight quarters
  • Luxury median sales price declined year over year for the eighth straight quarter
  • Luxury listing inventory declined annually for three straight quarters at an expanding rate




Downtown Boston Keeps Moving Quickly Even After Cherry-Picking

Let me explain. The price growth of this affluent submarket are influenced by the proliferation of new development activity that continues to be absorbed. And it is clearly being influenced by the rapid absorption of high-end projects like One Dalton.

Someone suggested to me the market was rising because of this one new development so I ran the numbers without its 40+ Q4 closings and the marketwide numbers still showed robust conditions:


______________________________________________________
DOWNTOWN BOSTON SALES HIGHLIGHTS

Elliman Report: Q4-2019 Downtown Boston Sales

“Numerous price trend indicators set new records as the market pace remained brisk.”

CONDO
– The overall price trend indicators reached new records with significant year over year increases
– Despite the annual surge in sales this quarter, year to date sales fell short of last year
– Listing inventory fell year over year for the first time in seven quarters

TOWNHOUSE
– Price trend indicators increased year over year as median price rose for the fifth straight quarter
– Listing inventory remained unchanged after rising annually for the prior two quarters
– The decline in sales was due to the chronic shortage of listing inventory




SALT: Inventory is dropping in Florida

Douglas Elliman just published 13 market research pieces I wrote on the Florida markets they service. The newest addition was the South Tampa/Greater Downton Tampa report which rolled out this quarter.

The one commonality across most of these Florida markets this quarter was the growing pattern of declining inventory. Even the Miami Beach market, which still has excessive luxury condo supply, is seeing inventory fall.

Since there the volume of research is too large to not monopolize these housing notes, you can go to these resources:

Florida Elliman Reports

Chart Gallery (includes Florida markets)

[Podcast] The World of Real Estate with Frances Katzen – Jonathan Miller

I had a great chat with my friend and Douglas Elliman power broker Frances Katzen.


NY1 Delves Into The Cause of the Manhattan Supertall Skyscraper Boom


[click to see article and play clip]

Enjoyed speaking with Michael Herzenberg of NY1 on the Super Tall story in Manhattan. This is a great summary of the phenomenon.

Bloomberg Markets 1-6-20: Manhattan High-End Hurt By New Tax Laws


I joined Vonnie Quinn on Bloomberg Markets to talk about the results of my recent research for Douglas Elliman’s Elliman Report: Manhattan Sales Report Q4-2019. Always enjoy the conversation.

Upcoming Speaking Events


Appraiserville

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

The Better Mortgage Business Philosophy Doesn’t Include The Appraiser

A good friend and appraiser colleague of mine in the midwest sent me this appraisal order request from Better Mortgage in New York [redacted]:


My friend and I and most of my peers marvel at order requests like this. They are paying half the market rate to the actual person analyzing the asset to be used as collateral for the mortgage, but most importantly that seems to enable them to provide free lunches and snacks to their employees who process the loans. See the review in Glassdoor.


Companies like this can often find a few appraisers willing to work for this fee because those individuals’ services aren’t in demand (they aren’t competent to earn the market rate), or they’ve fallen on hard times. Its not a sustainable fee structure (half the market rate) to preserve valuation quality. And new millennial-targeting companies like this seem to be focused on anything but the value of the collateral. The millennials ordering Buffalo Wild Wings on Uber Eats or a mortgage don’t understand what’s behind that click. But they should because they will inherit the reckless mortgage process today as Baby Boomers did after the housing bubble crash. Those clicks aren’t cheap.

This disconnect is a pervasive problem that our industry has been unable to effectively change the message because we don’t have lots of venture capital or large legacy financial institutions backing us as the AMC industry does.

Do you want to take a first step? Think about that order. Stare at it. You should be insulted if that’s all you think you’re worth. If you’re not insulted, then you need to move on and get a job that pays at least minimum wage.

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 make a chart;
  • You’ll talk to a McMansion architect and ask “why?”;
  • And I’ll crack more eggs than Robert Moses.

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

Real Estate Blockchain

Appraisal Related Reads

Extra Curricular Reads


December 20, 2019

Placing A Roomba In The Middle Of A Rich Creamy Housing Market

Because we all love rich, creamy pudding, I used it for a luxury market analogy this week. Oh, and Happy Holidays to all – see you next week!

Wait for it…


But I digress…

Cash Is No Longer King For Luxury Buyers

The plunge in cash buyers above $5 million (top 8% of the Manhattan market) might be attributable to the wealthy taking advantage of the plunge in mortgage rates over the past year. However, I believe it is much more indicative of the exodus of investors from the market after the passage of the new rent law in New York state that punishes aspiring landlords.

The exodus of investors has a significant impact on the current absorption as well as the future of new development activity since at least 25% of new condominium sales were made by investors and there is nearly a decade of stock to sell-off. Investors typically become landlords on the day they close.

Creating “Combos” May Be One Way Around New York’s New Rent Law

There is a good Wall Street Journal article using empirical data to show the change to apartment renovations since the frenzy of new New York State housing-related laws first half of 2019.

While it is a small data set, combining units are catching on, taking advantage of the market premium for larger contiguous space.


In Manhattan Townhouse Sales, Width Matters

The widest house I’ve ever appraised was a 50-footer on the Upper East Side in the park block between Madison and Fifth Avenues once owned by the son of the IBM founder Thomas Watson and had remained a gutted shell since the late 1980s before the previous sale in 2006.

The second widest sales I am aware of was the 48-footer created by the Milbank family in 1920 by combining two houses at 14-16 East 67th Street. My firm and I have appraised that house a number of times over the years, before and after its complete gut renovation.

Clearly a wider house enables more square footage but there is another reason why width is a valuable amenity on its own. Because townhouses are normally built right up to the lot line, townhouse width can’t be expanded unless the adjacent property is acquired. In a high-density market like Manhattan, width is a key valuation metric.

The Milbank family also created a 55-footer in Greenwich Village years ago and it is now on the market with a new price cut to $50,000,000.

What’s so interesting about this house is that the exterior is maintained (I believe it is landmarked) as original yet the interior is modern.


[Click image to see NYT slideshow]

Since the financial crisis, there have been at least 10 sales at or above $25,000,000 downtown. The metrics for downtown townhouses contain the largest average width of any region in Manhattan. According to our Elliman townhouse report in 2018, the average width was 24.9′ while Manhattan averages 21 feet.

Here’s a hypothetical about townhouse width: two homes equal in square footage are side by side in identical condition. One is 50′ wide and one is 35′ wide. The 50-footer enjoys a significant premium in the market.

In A Weakening Market, More Manhattan Co-op Boards Are Killing Sales That Are ‘Too Low’

I’ll be writing about this phenomenon a lot in 2020 but I’ve been told that a growing number of boards are killing sales they deem too “low” even though the sale was vetted by the market – properly exposed, fully qualified buyer, etc.

A leading real estate broker, Donna Olshan, that I’ve known for most of my career, shared a letter written to a board that described the efforts to sell the apartment to offset certain board members who felt the price was too low. I’ve redacted everything that would reveal the parties but you get the point. The letter conveyed the reality of selling co-op apartments in today’s market.

Here’s my message to all co-op boards who do this – THE MARKET DOESNT CARE WHAT YOU THINK. By killing sales you think are too low, you are violating your fiduciary responsibility to the shareholders by acting this way. Co-ops that do this are damaging shareholder equity as brokers steer would-be buyers away from boards that are violating their fiduciary responsibilities.

The letter:


October 28, 2019

Board of Directors
[redacted]
c/o [redacted]
New York, N.Y. 10128
Re: Apartment [redacted]

Dear Board of Directors,

I am writing to provide context for the sales price of $[redacted] million of apartment #[redacted] located at [redacted].

Before being listed for sale, the apartment was professionally staged and refreshed at great expense to [redacted]. Additionally, a professional photographer was hired to insure the portfolio of listing photos were just right. (Please See attached photos):
https:[redacted]

On May 22, 2018, the unit was listed in the multiple listing service run by the Real Estate Board of New York (REBNY-RLS) and disseminated electronically to its approximately 12,000+ residential members. The original listing price was [redacted]. The apartment was shown numerous times however the owners received no offers and by the end of December 2018, the unit was withdrawn from the market so the listing did not appear as stale.

On March 13, 2019, it was relisted at a reduced price of [redacted] million in the hopes that listing earlier in the Spring at a lower level would draw buyers. It did not.

On May 6, 2019, the price was lowered to [redacted].

By August 2019, a contract was signed at [redacted] million.
This was the ONLY offer that the seller received during the entire marketing period.

The current market has been on a consistent downward swing since Congress changed the tax law at the end of December 2017 when the deduction for state and local taxes (including real estate) was capped at $10,000. The mortgage interest deduction was also reduced to a maximum of $750,000. Since 2018, the pool of buyers has shrunk and there has been an increase in inventory. Unit [redacted] was caught in a downward cycle and by any metric available, the market continues to head south. Below is a 3rd quarter report written by the appraiser Jonathan Miller for Douglas Elliman. Jonathan is considered the dean of appraising in the industry and is frequently cited in mass media and is consulted by various institutions:

https://www.elliman.com/pdf/cd301cd94c6c2fee6e9317e7fc8e5ca0b2d9c658

I have been a professional in the real estate business since 1980 and my career spans many markets, properties and clients. I am very experienced in the market and conditions and can confidently state that the price achieved is fair market value and the unit has been thoroughly market-tested.

Very truly yours,
Donna Olshan
President



Getting Graphic


Len Kiefer‘s Chart Handiwork


Appraiserville

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

Happy Holidays From Appraiserville

May your holiday gifts include the perfect comps…

OFT (One Final Thought)

I once read that the Washington Square Park Arch was made of wood. Apparently not.

UPDATE A loyal Housing Notes reader tells me today:

Hey jonathan:
You confused washington square arch with the victory arch.
See link below.

You almost had a perfect year!

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 clean their carpet;
  • You’ll be more into pudding;
  • And I’ll write a letter about the market.

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 13, 2019

In The Housing Maze, The Shortest Distance Between Two Points Wins

When I think of the complexity of the real estate industry, sometimes breaking conventional rules can get you there faster.


But I digress…

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

High-end rental market strengthened by weakening high-end sales market

I’ve been the author of the expanding Elliman Report series for Douglas Elliman Real Estate since 1994. To they released our research for the rental market in three boroughs of New York City.

First of all, there is nothing better than a good chart provided by Bloomberg from their coverage of our research:

And a video, making it a two-fer!


Here are some borough specific key trends and charts:

______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“Median rental price rose to its second-highest level recorded.”

  • Net effective median rent hasn’t seen a year over year decline in 2019
  • Median rent reached its highest level in more than a decade
  • New leases fell as landlords were more successful retaining tenants at renewal
  • Landlord concession market share fell annually for the eighth straight month
  • Non-doorman median rent surged at highest rate in more than seven years of tracking
  • Highest median rent for 1-bedrooms reached in nearly twelve years of recording
  • Median rental price moved higher at all price strata presented and by all bedroom sizes
  • Share of new leases at or above $10,000 reached its highest level in more than eight years of tracking
  • Super luxury rent representing the top 5% of the market, showed the highest annual gain


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“High-end of the market saw the largest price growth.”

  • Year over year median rental price trends rose more in higher-end markets
  • Net effective median rent rose year over year for twelve consecutive months
  • New leases fell as landlords were more successful retaining tenants at renewal
  • Land concession market share fell year over year during every month of 2019


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

[Northwest Region]
“The largest areas of price growth occurred at the high-end.”

  • Landlord concession market share was significantly lower for larger apartments
  • Net effective median rent hasn’t declined year over year in three months
  • Concession market share for new development was nearly double that of existing rentals
  • New leases fell as landlords were more successful retaining tenants at renewal


This Week in Aspirational Pricing: The Beverly Hillbillies’ Place


I spent a lot of time in my youth watching that show after school – what are the odds that Lachlan Murdoch of News Corp., the buyer and Ruppert’s son, has ever seen an episode?

The Wall Street Journal got the scoop on another 9-digit US sale: $150 million for the mansion used as background in the Beverly Hillbillies 1960s TV show. Asking $350 million since 2017, the estate was able to let it go for a 57% discount. The price cut shows how far off the asking price was in 2017, not some sort of firesale discount.

According to my records, it is the second-highest residential home sale in U.S. history. I began tracking this market as a hobby since 2014.

This Week in Aspirational Pricing: 3rd $100+ Million Manhattan Sale

The closings at 220 Central Park South are starting to accelerate with 7 sales to close above/above $50 million.

The year 2019 is starting to approach sales levels seen in 2014. Please remember, this is a rarify market niche and the Manhattan luxury market remains unusually weak.

Bloomberg Podcast: Manhattan Luxury Market Is Challenged


[click on image to play]

NPR Planet Money’s The Indicator “New York City’s Luxury Condo Hangover”

As a matter of fact, I’ve long declared that our economy and the housing market remains in the hangover phase of the financial crisis. Credit hasn’t normalized and falling mortgage rates haven’t had the expected impact on the housing market.

Hint #1: Low mortgage rates make housing prices higher
Hint #2: Global investors chasing higher returns over-invested in luxury condo development

NPR interviewed Grant Long, a sharp data scientist I know at Streeteasy.

New in the Real Estate Lexicon: Peak Uncertainty

I officially dub this housing era “Peak Uncertainty” for the large numbers of variables that consumer face in high cost, high tax markets like New York:

  • 2019 NYS Mansion tax
  • 2018 Federal SALT deduction cap
  • 2019 Rent Law
  • Retreat of foreign buyer and investors
  • Affordability challenge

The Real Deal Magazine shows a great reason why recent closing in a building often doesn’t represent the current market. The new building 220 Central Park South has 2 sales above the $100 million threshold and the units actually went to contract several years ago.


Curbed: Will The Role Of Realtors Change Even More

There was an especially great read in Curbed: The 2010s changed how you shop for homes. Will the 2020s change the way you buy them?

There has been an incredible volume of venture capital entering the real estate space with the singular mission of simplifying the home buying process.

Wagging The Dog With Questonable Due Diligence

I’ve been giving national real estate brokerage Compass a lot of grief in recent months after the meltdown of WeWork – which exposed Softbank’s lack of due diligence when they were awarded significant funding. The specific reason I bring this topic up here was that Compass pushed their Softbank fundraising quite hard as a confirmation of their business model. After one of the Compass reported raises, I remember reading an article shortly after about Softbank’s $300 million dog-walking app-maker called Wag. Two years later Softbank appears to have given up on their investment.

$300 million for a dog-walking app maker? Really?

There was a lot made about Softbank’s unicorns as being disrupters by capital but it sure looks like many of them have no clear path to revenue. Expect more problems in the unicorn space to come. Disrupters by capital might be turning out to be unsustainable as a concept and have already experienced their moment in the sun.

Appraiserville

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

Pizza Deliverance

My friend and leading Chicago appraiser has stepped up his game to pizza and is now my hero: Chip Wagner has won $100 of pizza every month for 5 years.


OFT (One Final Thought)

This is unreal. The Ramones could never have imagined this. Check out the other songs in that link.

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 sedated;
  • You’ll be more like the Beverly Hillbillies;
  • And I’ll pay more for a rental.

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 6, 2019

How Smooth Is the Housing Market? Popcorn Ceiling Smooth.

I’m out of town at the moment with a scrambled schedule running at 50% capacity in this issue. I suspect some of my Housing Note readers will be thankful. But I’m never short of time when it comes to the topic of popcorn ceilings.

Back 33 years ago when Miller Samuel was launched, we used “wheel on a stick” measuring devices to calculate square footage of co-ops and condos. Since the measuring stick (no telescoping handles back then) stuck out of my appraisal bag (we don’t use cars to do property inspections in Manhattan), many assumed I was headed out to play squash?

There were no lasers or infrared devices available yet to measure apartments and co-ops have no square footages available in public record. Yet this latest and greatest “wheel on a stick” gadget was a significant improvement from the “tape measure.” I remember fondly hearing from the owner of a large appraisal firm in my market during the 1980s telling me confidently “the tape doesn’t lie.” But in the same breath, he asked me how often I had to return to an apartment to remeasure at the client’s request. And my answer was “like, never” so apparently his “tape measure” lied a lot.

But there was a potential problem for this new fangled measuring device. There were many apartments that still had thick shag carpeting as a decorating legacy of the 1970s. That modern “wheel on a stick” we used to roll across the floor could be off by as much 1-inch per foot.

To counter this inaccuracy “I hear” this wheel on a stick “may” have been rolled on the ceiling to measure these “shaggy” apartments with popcorn ceilings and that wheel “may” have left a few tire tracks in its wake. That’s what I heard, anyway.

So there’s this.


But I digress…

Bloomberg TV 12-3-19: Super Luxury Oversupply

I got to speak with Lisa Abramowicz on her Bloomberg TV show “Money Undercover” yesterday. She is a great follow on Twitter. Best of all, I sat in a comfy chair.

Lisa mentioned the topic of “inventory loans” that developers are relying heavily on to limp to the next upcycle with lots of unsold inventory. Hedge funds have dived headfirst into this space, even developers who are in good financial state are lending money on unsold condo inventory. These loans are another way that financial engineering prevents the market from healing in the long run. This loan product reminds me of the actions of the Fed and FDIC a decade ago whose policy changes allowed banks to avoid “mark to market” so they wouldn’t be insolvent on their balance sheet. The goal is to sit and pretend everything is alright until enough time passes when everything becomes okay again.

While the interview was occurring, a real estate agent I know was walking down the street and saw me being interviewed via television sitting in a bank window. He emailed me a picture of it with a chuckle. The agent said he couldn’t hear what I had to say but hoped the news was good. Well, it is good news for South Florida property sellers.

Deutsche: Homebuyers Are A Lot Older Today Than In The 1980s and Other Observations…

Some unbelievable analytics from Deutsche Bank…

The median age of US homebuyers in 1981 was 31. Today it is 47, see chart below and here. The rise since the financial crisis is particularly noteworthy. This is driven by an aging population, affordability, higher student debt levels, and tighter mortgage lending standards for young people and individuals with lower credit scores. All these forces have also contributed to lower levels of residential mobility.


The chart below shows that roughly 10% of the population, or 30 million people, move to a new home every year, down from 20% a few decades ago. In other words, the US population is less and less mobile. This development started in the 1980s, and the financial crisis has not had any particular impact on the slope of the trend…


There is an elevated level of uncertainty in markets, but it has come down from a few months ago…

Appraiserville

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

Shag Carpeting > Wheel On A Stick

For those of you that missed the introduction to these Housing Notes up above.

Appraisal Industry Big Data Can’t Validate Their Reason For Being

To those who say, “just throw more data at it to get it right,” certified appraiser Paul Chandler eloquently tells us in so many words that big data never will.

I encourage you to read his terrific article: A Perspective on AVMs

Following the presentation, I asked the following question: “Given that you are contending big data and artificial intelligence are much better today and you use FSD as a test to validate models, has your research shown that FSDs are improving over the years?”
The presenter’s initial response was, “good question,” followed by five minutes explaining how cool big data is and the importance of speed of execution. Of course, I had a follow up question, “I take from your response you have no evidence that FSDs are getting better, is that correct?” His response was, “yes, you are correct.”

OFT (One Final Thought)

This is insane. Note the comment about SF’s infamous Millennium Tower in the tweet comments…

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 super oversupplied;
  • You’ll be more earthquake-proof;
  • And smooth over those damn ceilings.

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


November 29, 2019

That First One Was The “Greatest House Of All Time” (G.H.O.A.T.)

One of my sons and his wife have an accepted offer on their first house. It is the greatest house of all time in their eyes. I remember looking back at our first rental apartment, our first rental house and our first home purchase and how exciting it was. Today, I can’t imagine living in our first after having traded up over the years, but the memories are still warm. Do you remember that sense of irrational exuberance? It is an awesome feeling. Just perservere to get one as illustrated here:


But I digress…

Build A Home As Solid As Sears

Check out the Sears Archives:

From the 1908 catalog


[click to expand]

Interest Rates Are Near 670 Year Lows

When looking over back the last 670 years as I’m sure many of us do, it is clear that current interest rates are unusually low. That doesn’t make home purchases more affordable by the way. It ensures housing gets more expensive in the future. Think about the dutch and the tulip bubble in the 1400s and 1500s while you’re at it.


Housing Prices Have Risen More Than Turkey Prices In Past Three Years

Because its the day after Thanksgiving, I wanted to understand how poultry price trends relate to housing costs, because, well, just because.


[Source: MBA]

Fed Beige Book for New York Shows Little To No Economic Growth In Region

Periodically, I mention to my Housing Note readers how helpful I find the Federal Reserve’s Beige Book (“Summary of Commentary on Current Economic Conditions.”) It’s a qualitative description of the economy, both nationally and within the footprint of its twelve member banks. I’ve been used as a resource for it for more than a decade and also refer to it regularly.

Formerly called the “Red Book” when it was an internal document, it became known as the “Beige Book” when it was made public in 1970 because of its…wait for it…tan cover.

National housing snippet:

Home sales were mostly flat to up, and residential construction experienced more widespread growth compared to the prior report. Construction and leasing activity of nonresidential real estate continued to increase at a modest pace.

New York Real Estate and Construction snippet:

Housing markets across the District have been mixed but, on balance, weaker in the latest reporting period. Prices of New York City condos and co-ops have continued to trend lower and are now running moderately below comparable 2018 levels, with steeper declines at the high end of the market and in Manhattan. A local real estate expert noted a precipitous drop in the share of cash purchases at the higher end of the market, which is seen as a signal that investors have largely left the market. The inventory of existing homes has continued to climb to a fairly high level in Manhattan but less so in the outer boroughs. Housing markets in the suburban areas around New York have been more stable, with prices still rising moderately in most areas and inventories generally stable. Similarly, in upstate New York, the sales market has remained strong, with inventories steady at very low levels, prices still rising, and bidding wars still fairly commonplace in the more sought-after areas.

The residential rental market has strengthened further. While Manhattan rents have leveled off, rents across much of the city and metro area have continued to rise at a moderate pace—and at a somewhat faster pace at the high end of the market, reflecting a shift in demand away from owning. Rental vacancy rates have edged up but remain quite low across New York City.

Commercial real estate markets across the District have generally weakened in the latest reporting period. Office rents have been mostly flat, while availability rates have climbed modestly in most areas, with leasing activity steady to slower. Industrial markets have been mixed: rents have continued to trend up, though the pace has slowed, and availability rates have been flat to up slightly. The market for retail space has weakened further, even as the holiday shopping season draws near, with rents flat and vacancy rates at multi-year highs.

New multi-family construction starts have held steady across the District, while the volume of ongoing multi-family construction has remained fairly brisk. New office and industrial construction has continued to weaken modestly.


OK, Boomer There’s Not Enough Gen Xers But Plenty of Millennials

There was an epic Wall Street Journal article of the coming down cycle of housing demand as Boomers die off and there aren’t enough Gen Xers to buy them. It looks like big homes in the suburbs built before 1970 are going to be a hard sell for a generation. My home was built in 1825 (gulp).


Source: WSJ, click to expand]


Source: WSJ, click to expand]


Recommendation: My sons constantly say “Ok, Boomer” when I pontificate too much (which is always too much) so the best retort I found is “Ok, Millennial” which locks up their brains.

Getting Graphic


Our favorite charts of the week of our own making

I share this chart often because it amazes me. The Greenwich, CT housing market showed us that the housing bubble pre-2008 was also a home renovation bubble!

Appraiserville

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

Consider getting out of the bank appraiser rat race, and focus on clients who respect your services

Since I co-founded Miller Samuel in 1986, our mission was to work for clients who needed our services, not clients who were forced to use us through mortgage regulations. Over the years appraisers became our own worst enemies and didn’t work together to protect a profession designed to protect the public trust. Because we and our trade groups have been asleep and adversarial, we became marginalized, often disrespected and wholly blamed for anything that went wrong in a deal, even if it had nothing to do with us. Yet appraisers are the last stop in the mortgage process to protect the consumer and the taxpayer.

Our firm works for only those institutions that treat us professionally, pay us a market wage and enable us to complete assignments in the time needed to perform a credible analysis. You can only demand that by providing the best or one of the best appraisals in your market (reliability, not fast and cheap).

In 2005, near the peak of the housing bubble, we rejiggered our business from 75% bank/25% lawyer-consumer -> 25% bank/75% lawyer-consumer because it became apparent that most retail banks thought of us as “deal enablers” rather than independent arbiters of value to provide a neutral benchmark for informed lending decisions. After all, they could offload the risk to unsuspecting secondary market investors.

One thing to consider. If you are resolved to work with AMCs for the rest of your career, consider that most of them will be gone within a few years. Their time has passed and banks are on to what they really are.

So to those of you who are thankful to have enjoyed a lengthy career or those who want to have one, there are plenty of clients out there that are not banks or AMCs. One of the ways to build a thriving appraisal practice if you are a talented appraiser is to market and brand your services. As an industry we are woefully inadequate and have been trained to “wait for the the fax to ring.” LOL. I’m involved in one of efforts that addresses this smart business focus: FindMyAppraiser.com

If I’ve learned anything about the appraisal profession since 1986 is that residential mortgage appraisers are seen as “pain-points” by most lending institutions, appraisal management companies, as well as most banking regulators. Why waste your years of hard-earned expertise working for clients that don’t appreciate it or want to pay for it? Spend your productive time focusing on appraisal assignments that rely on your professional expertise. Consumers are being ill-served in the current regulatory environment. Why not work for them directly and have someone help you market to them?

I’ve spent my appraisal career looking for clients outside of the banking industry and FindMyAppraiser.com aligns with that mission. Disclaimer: I am part of Find My Appraiser because its mission aligns with mine.

Check out FindMyAppraiser.com

OFT TFT (One TWO Final Thought(s))

Innovation…


Leadership…


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 shop at Target;
  • You’ll be the greatest of all time;
  • And I’ll watch more goat videos.

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


November 22, 2019

Our Tall Housing Future Is Still Defined By Its Past

The following conversation is amazingly quaint.

Ironically, Bill Gates’ Microsoft figured out the internet too late to dominate it as they did for their Office Suite (that included Word & Excel). It’s hard to imagine Letterman and a large swath of America was so incredibly wrong either. As email was entering mainstream real estate practice in the late 1990s, a top real estate agent I know, who is still around, made the case to their tech people in her firm: “Why do I need email when I can just pick up the phone?”


But I digress…

How Do You Know Your Future Neighbor is A Nightmare?

My wife and I were home-shopping in 2004 when the market was tight, and we placed a bid on a house that was a stretch for us, so we didn’t offer full ask. We were outbid and lost the house. We found out later that the sellers were moving because of a nightmare neighbor. We consider ourselves very fortunate.

One of my sons and his wife are under contract for their first home right now and I think back to our experience, and worry a little bit. Most people are good, and the odds are against such a situation like the following


Can Residential Buildings Be Too Tall For Consumers? Apparently, The Answer Could Be Yes

James Tarmy of Bloomberg moderates an interesting conversation with developer Arthur Zeckendorf and starchitect Robert A.M. Stern. Having spoken with James for a number of his articles, I have always found his take on eclectic real estate topics a great read.


[click on image to play video]

Too Much SALT Wasn’t Good For the Market, But Adjustment Is Well Underway

Nearly two years ago, I was criticized by a Westchester real estate brokerage firm that competes with Douglas Elliman after stating in our Elliman Report: Westchester Sales that the drastic change in federal deductions from SALT would adversely impact the housing market. The Westchester sentiment then was that because of the AMT (alternative minimum tax), the SALT tax would have a nominal impact on the assumption that most homeowners there don’t take deductions for SALT and property taxes. Yet Westchester sales fell year over year for six straight quarters, and that firm modified its messaging. Pushing that silliness aside, The Real Deal presents a solid take on the state of the market since SALT..

Scott Elwell, Elliman’s regional vice president of sales for Westchester and New England, said that “we’re seeing a lot of older inventory pass through now.”

“At all price points, including the higher end, sellers are coming to better terms of what a house is worth, and buyers are getting a better grasp on what they are willing to spend,” he said.

Brokers said buyers started stepping up shortly after they found out what the damage was from their 2018 tax bills.

“When buyers met with their accountants, it was almost like a faucet went on,” said Deborah Doern, regional vice president for Houlihan Lawrence in Westchester.

Because of the trade war and the resulting flight to safety by investors, the Federal Reserve has been aggressively lowering rates and as a result, mortgage rates have fallen sharply over the past year, mitigating some of the damage of SALT. One important consideration of SALT that gets missed. I believe that many in the market see SALT as a “forever” weight on the market when, in reality, once prices slide to equilibrium, it won’t be a market obsession anymore because it will already be baked into the price structure of the market.

Every drop in pricing brings the market closer to that equilibrium.

Taller Building Trends Are Rapidly Bringing More Shadows

And no, I’m not speaking about shadow listing inventory. Rentcafe shared a study on the significant shift towards taller buildings. Here’s a 30 city building type breakout for the past decade with the interactive version below:

The Chicago Condo Deconversion Trend Is Growing

While I lived in Chicago for three years following college and kept loose tabs on the market, I had no idea that condo deconversion back to rental was such a thing. In fact, the condo to rental phenomenon is such a big deal that the City Council just passed a “Condo Deconversion Ordinance” to slow the frequency of these occurrences:

the number of “yes” votes needed from condo unit owners to sell the building to an investor, from 75 percent to 85 percent.

Based on the principle of “highest and best use” it makes sense to convert a condo to a rental just like it makes sense to convert a rental to a condo, I just thought that 100% of the unit owners need to vote for it as we have in NYC.

China Trade War and Capital Restrictions Driving LA Condo Sales Downward

With roughly 50% of buyers in LA’s downtown condo market coming from China, the two-year-old trade war and capital restrictions are crushing sales in the submarket.

The Soft Luxury Sales Market Is Driving Luxury Rents Higher

Using our research from the Elliman Report released for the New York City rental market, there have been a number of articles that delve into the topic. The slowing luxury sales market has motivated would-be buyers to rent out luxury property temporarily, and at the same time, would-be sellers are listing properties for rent to stem the bleeding.

Elliman Report: 10-2019 Manhattan, Brooklyn & Queens Rentals

  • Manhattan’s Rental ‘Glampers’ Send Luxury Lease Prices Soaring [Bloomberg]
  • The luxury rental market is booming. Here’s what a $100,000-a-month penthouse looks like [CNBC]
  • Luxury Leases That Reach Six Figures [Wall Street Journal]

Incidentally, the number of new Manhattan leases at or above $10,000 per month has jumped 21.1% over the past three years. Before that growth began, this market segment was languishing from oversupply.

Here’s CNBC taking you into a $100K per month Manhattan rental:

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.)

All I Do As An Appraiser
Reflecting: NAR Real Property Valuation Committee Issues Position On Bifurcation

I reread last week’s post in Appraiserville: “NAR Real Property Valuation Committee Issues Position On Bifurcation” and felt I left the reader hanging with this incomplete thought: But I don’t want our industry to think: “There, we’ve addressed and resolved the threat to appraisers and more importantly, the public trust.”

After marinating in this topic, I believe the more accurate way to think of this new NAR policy position is this:

One of the largest residential real estate trade groups (NAR) developed an appraisal policy on a controversial appraisal topic: bifurcations. Appraisers have been battling the implementation of bifurcation for several years, largely on the misrepresentation of future providers of such services such as AMCs and future users of this service, such as banks. Bifurcations may have some very limited uses, but I object to portraying it as an industry-wide replacement for full appraisals. Bifurcations are much less accurate, more expensive, and slower to complete. But other than that, they’re awesome.

Regulators like FHFA reach out to groups like NAR to get feedback on controversial proposals for policies like this. Now one of the largest residential real estate trade groups with about 400 lawyers will be pushing this policy through all their channels, and that is a good thing for the appraisal industry. Groupthink has been steered to the appraiser’s way of seeing the world, the last protector left in the mortgage process to protect the public trust.

The VA Provides A Sane View on Hybrids With AAPP

The Veterans Administration has provided a position on controversial hybrid appraisals (aka bifurcations):

which states “[t]he Secretary shall permit an appraiser on a list developed and maintained under subsection (a)(3) to make an appraisal for the purposes of this chapter based solely on information gathered by a person with whom the appraiser has entered into an agreement for such services.”

In other words, the appraiser has to form an agreement with the inspector since the inspection is critical to the reliability of the appraisal. In my view, this policy is the equivalent of a “no, we don’t want hybrids.” Impressive.

This appears to resolve an important aspect of the bifurcation insanity, where it has been presented that the actual appraiser has to rely on the inspector but can’t interact with them or have any understanding of their competency. This depiction was making appraisal industry E&O carriers salivate with excitement over the fresh income sources for an entirely new category of litigation.

The VA seems to have addressed this gaping hole in logic with AAPP. More on this topic here.

How to Become a Luxury Real Estate Appraiser (Being Wildly Dependent on a Designation)

Back in the late 1970s, when comedian Steve Martin was at his standup peak, he appeared on Saturday Night Live in a routine whose theme was “How to have A Million Dollars And Never Pay Taxes.”

Steve got right to the heart of the matter:

“First, get a million dollars…”

Appraisalbuzz provided a press release type piece on luxury real estate appraising, and I did a double-take wondering whether this was a parody. McKissock, a well respected online education company, now offers a designation for luxury real estate appraising, which I find quite silly. Here are the steps they shared to get into this niche so appraisers can make more money and work fewer hours per this piece:

1) Become a certified residential or certified general appraiser (licensed appraisers are a tiny segment already)
2) Make sure you’re well-suited to specialize in luxury appraisal (don’t wear the same shirt you used to change the oil in your car)
3) Familiarize yourself with the luxury home market(develop local market knowledge which takes years)
4) Earn a professional designation (get the CLHA designation today!)
5) Get started as a luxury real estate appraiser (find wealthy attorneys to give you business)

In other words, this new designation conveys the appraiser’s luxury expertise to the world. But it can’t!

In reality, many appraisers don’t understand that the organization creating the designation has to spend a lot of money market the designation’s brand, or the consumer will place no value in it. And appraisal organizations have never demonstrated adeptness at doing so, largely because it is too freaking expensive. Early on, appraisal designations did mean something, but with the advent of appraiser licensing/certification and the proliferation of new designations as largely revenue opportunities, their effectiveness for generating new business is severely limited, except perhaps within the old guard of the profession itself.

OFT (One Final Thought)

Totally.


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 stick the landing;
  • You’ll venture onto the internet;
  • And I’ll market a new appraisal designation.

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


November 15, 2019

Housing Weakness Is More Rental Than Sentimental

Despite having a reputation as being a difficult person to work with, Apple co-founder Steve Jobs’ marketing legacy is incredible. Being a devoted Mac nut, having built both our appraisal companies using Macs, he made a lasting impression on me. The craft of story-telling he employs is unmatched as far as I’m concerned.


But I digress…

Manhattan, Brooklyn & Queens Rental Markets Show Cooling Price Trends Except for Luxury

I’ve been the author of the expanding Elliman Report series for Douglas Elliman Real Estate for a quarter of a century (yikes!). What has made this affiliation work so well over the years is that Elliman has respected my independence, a deal killer for me otherwise. With their entrepreneurial business culture, they want their clients to understand actual market conditions to enable them to navigate better. I consider myself fortunate to be affiliated with a firm that has never had an issue with me conveying honesty in my market messaging.

One of our research pieces is the monthly rental report that covers Manhattan, Brooklyn and Northwest Queens in New York City. Although few realize this, 2/3 of the NYC housing stock is rental.

Elliman Report: 10-2019 Manhattan, Brooklyn & Queens Rentals

With the massive surplus of news this week, coverage of the rental market reached 18th place yesterday on the ±350,000 Bloomberg Terminal subscribers.

And of course, a chart!


______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“Rental price trends pressed higher across all apartment sizes.”

  • The vacancy rate has increased year over year for three straight months
  • Median net effective median rent year over year growth appeared to have peaked in July
  • The seventh consecutive month with year over year declines in concession market share
  • New development median rent continued to rise faster than the existing median rent
  • Share of new leases at or above $10,000 expanded for the fourth straight month
  • The luxury entry threshold hasn’t seen a year over year decline in 2019
  • The median rental price moved higher year over year at all price strata


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“Rising demand resulted in the largest year over year drop in concessions for 2019.”

  • Net effective median rent increased annually for eleven consecutive months
  • Most significant year over year decline in concession market share for 2019
  • The average size of a rental apartment rose across all bedroom categories


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

“Net effective median rent rose annually for the first time in four months.”

  • The market share of landlord concessions fell year over year for the third straight month
  • Net effective median rent rose year over year for the first time in four months
  • The most significant decline of concession market share in six months


SoftBank Unicorns Got No Apparent Due Diligence

One of the tragedies for investors and current and former employees of WeWork has been the stunning lack of due diligence by SoftBank. I mean, $300 million for a dog-walking app maker and no one blinks?

The sting of WeWork’s collapse is spilling over into other SoftBank unicorns like Compass, the traditional real estate brokerage firm that markets itself as a tech firm, presumably to get a higher valuation. In response to the bad WeWork headlines of late, Compass has sweetened the pot for its agents, probably because of the perception that anything associated with SoftBank is now tainted – that all unicorns received the same lack of due diligence that WeWork did.

The theme of these unicorns seems to be to go big to dominate their vertical, and then presumably after they kill off or buy most of the competition, they can charge higher commissions. They are disrupting through capital, not any apparent innovation. The problem with this strategy, ethically, is that the consumer will end up paying more in the end. With the toxic nature of unicorns these days, that vision is getting blurry. Uber continues to lose billions and was just fined $649 million. Peloton too.

Large signing bonuses create short term loyalty, say, just enough until an IPO when the founders can cash out and leave everyone else with a disruptor that has a lot of capital but hasn’t provided new ideas beyond the traditional brokerage model. I just heard from a broker friend who told me of a top producing team that signed with Compass to get a very large signing bonus to take some of the stress off of maintaining their top performance.

Cooling Rental Markets May Be Holding Back Inflation

Because national rents of primary residences, including the rental equivalent of a home, account for 40% of core inflation calculations, the direction of the rental market has a significant influence on core inflation.

The declines in New York and Boston weighed on the national measure for rent of primary residence, which rose 0.1% on a monthly basis, the least since April 2011.


Click on the chart to read more about this trend.


NAR Attempts To Solve Inventory Shortage By Fighting Whisper-Listings

The fight between Bright MLS and Compass over whisper/Pocket listings fight has been in the news. The grand strategy by Compass looks like they are trying to become the center of the listing universe to capture both sides of the commission in an organized way. This practice cuts off inventory access to the broader public unless they go through Compass and place pressure on housing market affordability already plagued by chronically low levels of supply.

This week NAR approved its “Clear Cooperation Policy” meant to standardize how long a broker can hold the listing until they share it with their members on the MLS. The associations have until the spring to adopt it.

If members don’t adhere to the new policy, they can always leave the MLS, I suppose. Look to see how hard Compass fights this policy nationwide. I believe this disrupts their key strategy of destroying the MLS system to become the center of the listing ecosystem.

Recession Probability Is Losing Steam

I typically speak a few times a week to the real estate brokerage industry and have found the word “Recession” undoubtedly comes up. Often referenced as the “R” word, it stokes fear in the hearts of many a real estate broker. We are in late innings of the proverbial baseball analogy cycle, and yet I think the reason for the elevated concern about such a probability is based on what people associate with a recession. The last one involved a global thermonuclear meltdown of global credit, and those conditions are associated with how a recession might feel today. Yes, we are still in an over-corrected hangover phase of the financial crisis, but fear of the “R” word has become the “boogieman” of the real estate economy. And who can blame the real estate industry’s concerns? We have seen a significant mortgage rate decline over the past year, and that usually occurs when the economy is weak rather than like now when unemployment has remained crazy-low, below 4%.


One of the reasons that rates are falling is because the Fed is trying to offset the economic damage created by the ongoing trade war and its uncertainty. This confluence of events has impacted real estate in the high-cost markets I analyze in my research by slowing sales despite falling mortgage rates. Here’s a variation of a checklist I’ve shared before.

-Uncertainty
-Sales slow
-Inventory rises
-Sales continue to slow
-Price discovery for 1-2 years
-Market stabilizes

The following is a diagram of the trade war that is driving economic uncertainty and explains why lower mortgage rates aren’t as much impact as one would expect. Click the tweet to expand the infographic:


The best description using a baseball analogy I’ve heard (can’t recall the source – likely on Twitter or heard in a podcast). Here’s how the conversation goes:

Prognosticator:
“We are in the third inning…”
Listener:
“Wait; what? How can that be? We are much further in the cycle than that!”
Prognosticator:
“We are in the third inning of the second game of the double-header.”
Listener:
“Oh, I get it.”

Getting Graphic


Len Kiefer‘s Chart Handiwork



Appraiserville

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

NAR Real Property Valuation Committee Issues Position On Bifurcation

The Real Estate Valuation Committee within NAR, which includes a slew of some of the best practicing appraiser minds in the industry, came out with a position on bifurcation. The release speaks to NAR’s support of independent valuation by state-credentialed appraisers, which is great. And it states that the appraiser must be able to interact directly with a third-party property data collector (inspector), which is also great.

Presumably, the inspector could be a Realtor since NAR is a trade group for Realtors, not for appraisers. Thankfully NAR recognizes that the detachment of appraisers from the process may damage their members’ livelihood as well as hurt home buyers and sellers. It’s great to have NAR in the mix, and they have long supported the importance of our role.

As much as I appreciate the symbolism of this policy position and the hard work by this committee, it is not clear to me how it makes much of a difference in the ultimate use of bifurcation assignments by mortgage lenders. Presumably, if views change with the future of the pilot programs at the GSEs, the use of bifurcation appraisals won’t be stopped. Still, I see their efforts as very important.

But I don’t want our industry to think: “There, we’ve addressed and resolved the threat to appraisers and more importantly, the public trust.”


Home Value Stories Podcast: If the Appraised Value Is Lower Than You Anticipated If the Appraised Value Is Lower Than You Anticipated

My friend Jamie Owen of the Cleveland Appraisal Blog has a new podcast that you can add to your feed. It gets into the nuts and bolts of our profession yet keeps it interesting and has high-quality production values. Here is the latest episode:

OFT (One Final Thought)


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 upgrade their Mac;
  • You’ll rent;
  • And I’ll grab that fish.

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


October 25, 2019

The Goal Is More Sweet Affordable Rental Housing

But I digress…

Market Report Gauntlet: Long Island Continues to Boom, While Hamptons Struggles

I’ve been the author of the expanding Elliman Report Series for Douglas Elliman Real Estate since 1994 and it is fascinating to see how different each market is, despite close proximity.

And as always, with me its all about the charts. Aside from knowing the report contents were widely read!

Our Hamptons Report content was within the 2nd Most Emailed Article in past 24 hours on Bloomberg Terminal (350K subscribers).

And a Hamptons chart two-fer!

Here are some key points about the Hamptons, North Fork, and Long Island for Q3-2019


HAMPTONS HIGHLIGHTS

Elliman Report: Q3-2019 Hamptons Sales

“Sellers’ willingness to negotiate expanded.”

  • The number of sales declined year over year for the seventh straight quarter
  • Listing inventory continued to rise, reaching a thirteen-year high
  • Median sales price rose year over year for the first time in seven quarters
  • The lowest third-quarter number of sales in eight years
  • The number of condo sales rose year over year for the third time in four quarters
  • Both single-family price trend indicators rose year over year together for the first time in three quarters
  • The fewest number of sales at or above $5 million in six and a half years
  • There have been nine straight quarters of annual increases in luxury listing inventory
  • Most substantial luxury listing discount in more than four years


NORTH FORK HIGHLIGHTS

Elliman Report: Q3-2019 North Fork Sales

“North Fork saw the second-largest share of East End sales in more than eleven years.”

  • Listing inventory increased year over year for the fourth straight quarter
  • Median sales price declined for the first time in ten quarters
  • By sales quintile, median sales price declined year over year across all segments
  • North Fork sales represented the largest share of East End sales in more than eleven years
  • Both condo price trend indicators rose year over year for the second straight quarter
  • Single-family median sales price declined year over year for the second time in seven quarters
  • The number of sales over $2 million fell sharply from the record set in the year-ago quarter
  • Luxury listing inventory rose year over year for four straight quarters
  • Luxury median sales price fell annually for the third time in four quarters


LONG ISLAND HIGHLIGHTS

Elliman Report: Q3-2019 Long Island Sales

“Price trend indicators reached new records.”

  • Median sales price set new record high after twenty-sixth straight quarters without an annual decline
  • Listing inventory rose sharply year over year for the third straight quarter
  • Number of sales rose annually for the third time in the last four quarters
  • The second-highest number of single-family sales in at least twelve years of tracking this metric
  • Shortest condo average days on market recorded since at least 2007 when the metric was first recorded
  • Luxury listing inventory rose annually for the seventh consecutive quarter, above the decade quarterly average
  • Both luxury price trend indicators fell from the same period last year
  • New luxury listing inventory grew at the same rate as total inventory

Making A Mountain Out of a Beach: Aspen Rises While Los Angeles Slides

We observed some improved conditions in Aspen/Snowmass Village sales and price trends while Los Angeles activity is drifting lower.


ASPEN/SNOWMASS VILLAGE SALES HIGHLIGHTS

Elliman Report: Q3-2019 Aspen Sales

ASPEN

“More sales with fewer listings as the pace of market accelerated.”

  • The fourth straight quarter with the number of sales rising above the prior-year quarter
  • Listing inventory declined year over year for the second straight quarter
  • Average price per square foot rose year over year after four quarters of declines
  • Condo sales surged year over year in the fourth quarter without a decline
  • Single-family listing inventory declined in two of the last three quarters
  • Luxury entry-threshold declined annually for the fourth straight quarter
  • Luxury listing inventory expanded year over year for the fourth consecutive quarter

SNOWMASS VILLAGE

“Sales stabilized as listing inventory slipped.”

  • Tied for the highest number of third-quarter sales in fourteen years
  • Listing inventory declined annually for the third consecutive quarter
  • Median sales price rose year over year for the fifth time in six quarters
  • Luxury average price per square foot surged annually despite a drop in average sales size
  • Luxury listing inventory fell year over year for the second time in three quarters


GREATER LOS ANGELES INCLUDING WESTSIDE AND DOWNTOWN SALES HIGHLIGHTS

Elliman Report: Q3-2019 Los Angeles Sales

“While reaching a new overall price record, sales continued to slip.”

  • Median sales price set a new record, exceeding the last record set in the prior-year quarter
  • Listing inventory rose year over year for the sixth straight quarter
  • All price trend indicators rose year over year for the second straight quarter
  • The number of sales has declined annually for the sixth consecutive quarter
  • Luxury single-family listing inventory has fallen year over year for three of the past four quarters
  • Luxury condo median sales price expanded annually for the fifth consecutive quarter

LA SUBMARKETS

MALIBU/MALIBU BEACH

Elliman Report: Q3-2019 Malibu/Malibu Beach Sales

  • Malibu single-family sales and listing inventory have declined year over year for three straight quarters
  • Malibu Beach condo median sales price rose year over year for five straight quarters

VENICE/MAR VISTA

Elliman Report: Q3-2019 Los Angeles Sales

  • Venice condo price trend indicators declined as sales surged year over year
  • Mar Vista single-family listing inventory fell sharply for two straight quarters, restraining sales

Big Residential REIT Gets Thrashed by New Rent Laws

New rent laws are becoming a thing to combat rising unaffordability, i.e. New York, California, and Oregon have all passed significant rent laws to give more power to the tenant. This was apparent the drop in the EQR’s stock price after releasing its third-quarter press release. Here is a summary of the concerns on Seeking Alpha.

  • Equity Residential (NYSE:EQR) drops 2.6% after management describes the “chilling effect” of rent control on development during its earnings conference call.
  • In New York, rent renewal increases are down 50 basis points as the result of a new rent law, they said.
  • Says 70% of the REIT’s California portfolio is subject to new rent caps.
  • Sees rent control leading to lower apartment supply in cities.
  • EQR plans to acquire more apartments in Denver market, with the aim to boost Denver to account for 5% of net operating income from 1.5% now.

‘My First Apartment” Podcast by Localize.city: Jonathan Miller, CEO at Miller Samuel

I had a fun discussion about something I hadn’t given much thought to in a long time with Aaron Ghitelman of Localize: my first apartment.


Will The New York State Rent Law Create More Affordable Housing Investment?

If it does, it will take a while.

More from Bob Knakal’s presentation: “Life After Rent Regulation” Parts 3 & 4 (click image to play)

Finally, a ±$1M Parking Space Sale Actually Occurs

This has been a thing in NYC but none of the spaces that were hyped either ever sold at all or never sold for close to $1M.

  • 2012 The $1 million parking space – New York Post
  • 2014 Buy Condo, Then Add Parking Spot for $1 Million – New York Times
  • 2015 Manhattan Is Getting More $1 Million Parking Spots – Curbed
  • 2015 The Race to the $1 Million Parking Spot – Wall Street Journal

In 2019, we actually saw a parking space close for $969,000 in Hong Kong.

A single, 134.5 square foot parking spot at a 73-storey office tower in the glitzy financial district has sold for $969,000, according to local media reports. That works out to just over $7,200 per square foot. By comparison, the average apartment in upscale Manhattan goes for four times less, at around $1,770, according to real estate analytics firm NeighborhoodX.

The value of Manhattan parking spaces is relational to the property they are associated with. They are not stand-alone assets. In other words, a parking space located in a building with $20 million condos sells for more than a space located in a building comprised of $300,000 apartments, all locational amenities being equal.

Getting Graphic


Len Kiefer‘s Chart Handiwork

I love the context this gives.


Appraiserville

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

Beware The Appraiserspeak Gobblygook

A friend of mine got a copy of the appraisal that was done on a relative’s condo in a state my firm doesn’t appraise in. He just wanted to get a reality check on what was said by the appraiser. My friend said the conversation went like this:

“He also pointed to “bracketed sales” in that banks wouldn’t accept a unit at the highest end of the market, like ours, as they needed a closed sale at a higher level already.”

By definition, this appraiser is telling my friend that a condo can never be appraised higher than others in a building unless there is another closed similar sale that is higher priced. Presumably, that means that the other higher sale can’t be appraised higher unless there is another sale that is higher, and so on.

I’m not saying the appraiser didn’t know the market. But I do know that we can get caught up in what a lender requires so much that we can become detached from the valuation process itself.

Our profession has an intense duality: we can be brilliant at valuing a property but be very weak at conveying what we do to the those we interact with. It’s why I believe it would be amazing (but not possible) to require every appraiser to testify at least once in court. The person saying random BS like in this example would be skewered alive.

Jonathan Miller and Phil Crawford in Washington DC!

Phil, Lori Noble and I met in Washington to attend meetings such as ASB, IAC, AEI and a gathering of the Network (State Coalitions) that was extremely insightful in our efforts to return sanity to mortgage lending and create awareness within our industry about the opportunities with the consumer.


OFT (One Final Thought)

In some ways, all of us are burning up inside to make those changes we often don’t seem to get around to.


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 into cotton candy tacos;
  • You’ll be more interested in buying a Hamptons home;
  • And I’ll think about my first apartment a little more.

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


October 11, 2019

Dinosaurs Go Glamping As Suburban Homeowners Heave Sigh of Relief

For those of you who can’t see housing trends change, here’s the slow-mo…


But I digress…

Bloomberg TV 10-7-19: Manhattan Pivots

I had a nice chat with Vonnie Quinn of Bloomberg Television on Monday concerning the state of the Manhattan housing market, following a highly read Bloomberg article on the terminal covering our Elliman Report results for Q3-2019 as well as a followup on Bloomberg Radio here and here.


New Reports: Elliman Reports Q3-2019 Westchester Sales, Putnam & Dutchess Sales

I’ve been the author of an expanding series of market reports for Douglas Elliman Real Estate for 25 years and it has made me feel younger somehow. We have just completed week 2 of the quarterly market report gauntlet and these are the results.

Before we get started, coverage of the Douglas Elliman Q3-2019 Westchester Sales report was the third most read by the 350K subscribers on the Bloomberg Terminal yesterday within about an hour of publication.


And a chart!!!


There are some good links for the market report coverage below.

Here are some of the key points:

______________________________________________________
WESTCHESTER SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Westchester Sales

“Sales fell year over year for the first time in five quarters as price trends rose.”

– For the first time in seven quarters, all three price trend indicators rose year over year
– County-wide sales declined annually for the first time in five quarters
– Most of the year over year sales gains occurred from $700K to $900K
– Total and new single-family contracts increased year over year
– All luxury price trend indicators increased annually after falling for three quarters
– Luxury listing inventory declined annually for the second time in three quarters

______________________________________________________
PUTNAM SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Putnam & Dutchess Sales

“Median sales price rose year over year for ten straight quarters.”

– Median sales price set a new record after rising annually for ten straight quarters
– The number of sales increased for the second time in three quarters
– Listing inventory rose annually for the third consecutive quarter

______________________________________________________
DUTCHESS SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Putnam & Dutchess Sales

“Heavy sales volume continued to exceed the rise of listing inventory.”

– The number of sales surged year over year, rising for the third straight quarter
– Listing inventory increased annually for the fifth consecutive quarter
– The market pace moved much faster year over year in the two most recent quarters


New Reports: Elliman Reports Q3-2019 Brooklyn Sales, Queens Sales, Riverdale Sales (Bronx)

There are some good links for the Elliman report coverage below.

Here are some of the key points:

______________________________________________________
BROOKLYN SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Brooklyn Sales

“As price trends flirted with records, sales continued to slide.”

– Median sales price slipped year over year for the second time in three quarters
– The number of sales fell annually for the seventh straight quarter
– Listing inventory continued to trend higher, rising year over year for the sixth consecutive quarter
– Median sales price for new developments edged higher year over year while resales declined
– Average and median sales price for co-ops set new records after rising annually for three quarters

______________________________________________________
QUEENS SALES MARKET HIGHLIGHTS

Elliman Report: Q3-2019 Queens Sales

“Despite expanded inventory, price trend indicators set new records.”

– Median sales price and average sales price reached new records
– Sales have fallen year over year for eight straight quarters
– Listing inventory has expanded year over year for ten consecutive quarters
– Co-op median sales price reached a new record for the seventh time in the past nine quarters
– The number of condo sales fell year over year for the sixth straight quarter
– First increase in year over year new development sales in six quarters

______________________________________________________
RIVERDALE SALES MARKET HIGHLIGHTS
[includes Fieldston, Hudson Hill, North Riverdale and Spuyten Duyvil]

Elliman Report: Q3-2019 Riverdale Sales

“Listing inventory and price trend indicators fell for the first time in more than a year.”

– Median sales price declined annually for the first time in six quarters
– Listing inventory fell year over year for the first time in five quarters
– Number of sales fell annually for the fourth time in five quarters


New Reports: Elliman Report 9-2019 Manhattan Brooklyn & Queens Rentals

The rental markets, especially within Manhattan, seemed to invert this quarter as more price growth was seen at the top. I have joked for months that these renters were “glamping out” instead of “camping” out and finally, my word choice was used in a headline and a story that was the 10th most-read story of the day on the Bloomberg Terminals.

And of course, a multi-colored Bloomberg chart that went with the article.


______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

“Rising rents and falling concessions still define the rental market.”

– Median net effective median rent rose year over year throughout 2019
– Concession market share declined year over year for the eighth time in nine months
– The vacancy rate has increased year over year for three straight months
– Rents generally rose more quickly at the higher price strata
– Doorman median rent rose faster than non-doorman median rent respectively from the year-ago level
– New development median rent rose more quickly than the existing median rent
– The luxury entry threshold hasn’t seen a year over year decline in 2019


______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

“Rental price trends continued to rise, and landlord concessions continued to slide.”

– Net effective median rent rose year over year for the tenth straight month
– Concession market share has continued to decline annually throughout 2019
– Median rent by bedroom rose annually for each size category


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

Elliman Report: 9-2019 Manhattan, Brooklyn & Queens Rentals

[Northwest Region]
“Despite the decline in market share of landlord concessions, overall price trend indicators drifted lower.”

– All price trend indicators and new leases fell year over year
– Net effective median rent has stabilized after falling year over year in the prior two months
– The market share of landlord concessions fell year over year for the sixth time in seven months


Prices in Free Fall? Huge Spike in Foreclosures? Beware Real Estate Filter Bubbles.

Free Fall?
After the slew of market reports that were released over the past few weeks (in addition to ours), there were some pretty outrageous headlines that had little to do with the market and everything to do with SEO. The use of the phrase ‘prices in free fall‘ made it to the headlines of a handful of stories but then carried across the real estate community, including buyers.

Fred Peters, one of the Manhattan patriarchs of the real estate community who happens to be an excellent writer, took issue with the term ‘free fall’ and penned an article for Forbes: Why New York City’s Real Estate Market Isn’t In ‘Free Fall’. Fred and I don’t always agree on market conditions, but I never question his authority on the subject.

We all look through different optics. Within most media outlets, the journalist doesn’t control the way the headlines are written. The editor usually does, and an important part of their job is to generate clicks, readership, etc.

The definition of the phrase ‘free fall‘ in this situation means ‘a rapid and continuing drop or decline’ yet such a choice paints the market as a “black hole” or an “abyss” or that we are “standing at the edge of a precipice” or, well, you get the idea.

Related to this, it is important that we develop more respect for the quality of sources and how the information actually gets to you. If you only read one source, then you’ll eventually rest comfortably in a filter bubble.

Huge Spike?
Here’s another attempt to get SEO in a headline. Property Shark is a great resource for data but can be weak on the editorial side. There is a glaring example of this in their latest blog post: Manhattan Foreclosures Increase 118% Y-o-Y – Q3 2019 Report

Other references to the headline within the piece included “Manhattan cases up a staggering 118% year-over-year” and “Manhattan Foreclosures See Huge Spike: Up 118%.”

Then look at the following chart and read the fine print in the same article “Foreclosures in Manhattan increased drastically year-over-year when it comes to percentages. However, the absolute numbers aren’t nearly as spectacular. Percentage-wise, the borough saw a 118% surge, from 22 cases from Q3 2018 to 48 cases this quarter. 25 out of the 48 foreclosures were mortgage foreclosures.”

In other words, the headlines were referring to a YOY rise from 22 to 48 in a city with more than 800,000 housing units.

There is a terrific TED talk from 2011 that essentially predicted what would happen. I urge you to watch this presentation. After you see it, you won’t ever look at Internet searches in the same way.


Housing Splits Inflation Difference Between Education and Apparel

Another compelling Len Kiefer visualization.


Dinosaurs Have A Longer Marketing Time Than Spec Homes

I remember when the housing bubble was nearing the end a decade ago, and we started to see fancy sports cars being thrown in with a sale, and I wrote about that quite a bit here and in my Matrix blog.

This time its Dinosaur skeletons.


Compass Has Been Reassuring Its Agents They’re Not WeWork

A Compass broker, concerned about last week’s Housing Note post on WeWork and Compass (NYU’s Scott Galloway Takedown of Softbank’s Unicorns), and how they share the same key financing source (along with $350M for a dog-walking app maker), sent me a note from the Compass CFO, presumably to all their agents. The note was clearly intended to allay agent concerns by separating Compass from WeWork. The agent gave the letter to me in a Word document, not formatted or signed. It was shared with me to prove Compass was not in the same boat as WeWork (I never said they were), so I’m going to assume this is a valid document that hasn’t been altered.

Here’s a partial excerpt of my reply given to the agent who contacted me:

When I wrote the piece, the issue for me WAS the shared funding source because, after WeWork, it suggests how little due diligence Softbank must have done yet Compass marketed the Softbank investment as a vote of confidence. And it’s not just WeWork. I still can’t get over how Softbank invested $350M in a dog-walking app maker.

It’s not personal either and I get nothing out of this other than trying to get answers to things that don’t make sense. I’ve been following Compass since it was Urban Compass as well as Softbank’s investment history, trying to understand what makes Compass a disrupter. I can’t process the use of the word disruption in the traditional sense, and perhaps that’s my fault. The only disruption myself or anyone I know outside of the company (or former employees) has observed is that there is plenty of capital to buy agents or brokerage firms. They’ve achieved a well-polished marketing image, and I’m assuming it is well-run, but if there’s no apparent secret sauce beyond spending capital, then it can’t be valued as a tech company. The references check approvals above $1,000 require the CFO signature? That seems like someone grasping at straws to find talking points and also doesn’t give me confidence that a CFO has to micromanage a multi-million dollar company that way.

Give any smart person hundreds of millions of dollars, and they can be a disruptor too…

….How does this shift in investor and media sentiment impact the brokers Compass has hired? It probably doesn’t, at least for now, assuming the status quo.


Here is the Compass CFO letter the Compass agent shared with me to make a case for the greatness of the company:

Compass Family,

Over the past few weeks we have seen comparisons being drawn between Compass and WeWork simply because we share a single investor. To be clear, our businesses are quite different — in terms of our business model, capital structure, customers, culture and investments. I hope the 8 facts below help make this contrast crystal clear and answer the questions that some people outside of Compass have raised.

• Compass has no debt: Compass has raised zero dollars of debt while WeWork has over $5B of debt obligations that they have to pay back. Every dollar we have raised is in equity. With debt, companies have to pay back lenders with company money. With equity, companies don’t pay investors, but rather, the investors aim to realize their returns in the public market.

• Compass’ valuation is in line with peers & leaves room for future equity growth: Compass’ last round (Series G) valued the company at $6.4bn, which implies a revenue multiple in line with those of other publicly-traded real estate tech companies at 2-3x 2019E revenue, a fraction of WeWork’s multiple reported by the financial press (20x).

• Compass has a diverse and sophisticated investor base who collectively set the valuation for each round: Every one of our fundraising rounds has included multiple well-respected investors who have endorsed the valuation. Some of our investors include Wellington, IVP, QIA, Softbank, Fidelity, Dragoneer and others. WeWork’s recent rounds were exclusively with one investor.

• Compass’ expansion strategy is focused on depth vs. breadth: We have executed a consistent strategy throughout 2019 to drive deeper into our top 20 markets in the U.S. with a focus on profitable growth versus opening hundreds of locations across 29 countries as WeWork did. We intend to be a global company but our near term focus is one of the reasons we feel great about our path to profitability.

• Compass has a growing % of its employees focused on tech: We have over 425 members of our tech team who make up 19% of our total employee base (not 5%, as some outlets have erroneously reported), creating proprietary technology in partnership with our agents that they use to run their business and that differentiates us in the market.

• Compass’ acquisition strategy has been focused on assets that strengthen the core business: Every business Compass has acquired has either efficiently grown our agent base or accelerated our technology roadmap (e.g., Contactually), which is very different than investing capital to acquire companies that are not relevant to the core business.

• Compass has a culture of frugality: Our leadership team books coach tickets and does not fly on private jets and, as you know all too well, I review all company expenses above $1,000. This culture is critical to ensure we responsibly invest our money into building a better future for agents and their clients.

• Compass’ industry and business model are completely different: It may seem obvious, but it’s worth stating that it is hard to draw any parallels between our businesses given that we have different customers (agents, not enterprises), are in different industries (residential real estate vs. commercial leasing), and have very different business models (an end-to-end tech platform on which to operate vs. an office space solution).

Lastly, you may have heard some concerns about tech IPOs underperforming in recent months, so I’m adding a simple chart at the end of this email put together by a major investment bank to provide additional perspective. It shows the last private market valuation compared to the current public market valuation for tech companies that have gone public since 2018. What you see, with few exceptions, is significant value created for the employees and investors (median increase of 68% in 2019 increasing to 85% when you include 2018). While the headlines might indicate these companies are performing poorly, the numbers show a sizable increase from their last private valuation to current trading levels.

I hope this helps provide you all some clarity and talking points for your clients and colleagues. I am amazed by the Compass team and incredibly proud of what we have all accomplished so far this year. I’ve spent 17 years in tech investing, working both at Carlyle and Goldman Sachs, and I couldn’t be more excited about the future at Compass. Thank you for your continued hard work and your commitment to our mission. We are grateful to you and your dedication to our customers. Stay focused and let’s make the flywheel spin!

All the best,
Kristen


Like I said earlier, their Softbank association issue probably doesn’t impact agents but rather it speaks to the fading unicorn narrative that has always seemed too good to be true. Let’s see how it plays out in a down market.

Appraiserville

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

North Dakota Was Told Getting A Waiver Was A Snap

This post is a continuation of “The Banking Industry Is Driving The Waiver Movement” story in Appraiserville, within last week’s Housing Note.

I will continue to reference the document in the link below during the following discussion:

APPRAISAL SUBCOMMITTEE OPEN SESSION SPECIAL MEETING MINUTES JULY 9, 2019

When North Dakota re-applied for a state-wide waiver, the appraisal industry was nearly unanimous in outrage at the audacity of the state to apply for one in the first place because its entire premise was false. Some of the facts brought up by the appraisal industry in opposition that were ignored were:

  • There were more appraisers in the state than there were a decade ago
  • There are plenty of appraisers in the cities
  • Rural appraisers have always been hard to find because the economics make nominally feasible to cover those markets
  • The economics of AMC-gouging of appraiser fees had forced more appraisers to specialize
  • The difficulty and limited amount of data in rural areas places even more pressure on the economics

The appraisal industry, known for its infighting to its own detriment, actually got together on this matter and various organizations, coalitions, and individuals wrote in to make the argument against such a waiver. And it was obvious to nearly all of us that the decision was pre-determined.

FDIC was one of the most anti-appraiser pro-waiver agencies on the ASC and was “hell-bent” on issuing a waiver. Both the FDIC and OCC even sent senior staff to North Dakota (and other rural states) to promote this push for waivers.

I pointed out last week that the waivers were being pushed by the banking members of ASC or worse, leading those in the banking industry down the waiver path. This bias was illustrated by the comments made by Marilyn Foss of the North Dakota Bankers Association (NDBA) who said that the North Dakota Appraisal Board has known about the rural appraiser challenge but hasn’t come up with a solution and NDBA wanted a solution. (The solution is economics but that’s not a topic the banking industry is willing to look into.) She basically said that FDIC encouraged them to apply for the waiver in 2017 because it will be a piece of cake per FIL-19-2017.

She stated that in May 2017, the FDIC published FIL-19-2017, which inspired the State to act on the issues of scarcity and delay.

So North Dakota applied.

And there is this (emphasis mine):

R. Clayburgh, the President of the NDBA, said that not all in-State appraisers are available to all lenders as some appraisers limit their work to specific lenders or appraisal types. He said legislative leadership brought lenders and appraisers together to address education requirements and that there is a potential for State educational institutions to set up a program to assist those who want to enter the appraisal profession. He added that lending has slowed due to the difficulty in finding comparables which delay lenders from receiving completed appraisal reports.

In other words, the view of the NDBA is that in periods when there are no comps, they need a waiver to make loans. Step back and think about that.

There were concerns raised by the banking industry on slow turn times, yet Corey Kost of the North Dakota Appraisal Board indicated that “turnaround times in North Dakota have improved over the past few years.”

The commissioner of the North Dakota DFI was basically told to apply for the waiver, and this would be an easy process. I don’t think they realized the outrage they would create in making that waiver request. North Dakota got their waiver thanks to the banking regulators but were quite beat up in the process, which may discourage other states from applying.

Bold emphasis mine on the following.

L. Kruse of the North Dakota Department of Financial Institutions (DFI) stated DFI’s mission and the reasons for the Request. She emphasized that a scarcity of appraisers in the State was leading to a delay in turnaround times on appraisal reports which was affecting the closing of loans. She said population is not the only indicator of scarcity and that in North Dakota there is scarcity by reason of geography. She said the high cost of appraisals is paid by the customer which causes harm. DFI does not feel the waiver would cause safety and soundness issues. She commented on the Interagency Advisory on the Availability of Appraisers issued in May of 2017 and stated that in a meeting with Federal agency representatives, she was told that waivers could be used to address scarcity. She said the request was submitted and provided evidence in good faith to provide relief to consumers.

After all, the premise behind the waiver is that banking regulators in their zeal to control the mortgage process, have sought to destroy independent valuation for no other purpose than that. Control. The justification for waivers has nothing to do with appraiser shortages (because there “appraisal shortages” was a false narrative cooked up by the AMC industry a few years ago during the refinance boom yet the reality was in the decline in appraisers willing to work for less than 50 cents on the dollar).

It’s 2019 people, and this ND waiver is preposterous.

  • Will result in only uninformed people performing USPAP compliant appraisals without training or experience
  • Imagine their personal liability?
  • Consumers and lenders won’t be able to file complaints
  • Non-licensed appraisers will be challenged to locate the hard to find data in rural areas that experienced appraisers can find, so… they will simply use whatever they can, which will decimate the quality of reports submitted.
  • Worst of all, this WAIVER WILL REDUCE THE INCENTIVE FOR NEW APPRAISERS TO ENTER THE FIELD!

When a regulatory action like the North Dakota waiver occurs, and it is completely illogical on all accounts, there are deeper underlying issues at play coming from above that have NOTHING to do with protecting the public trust.

OFT (One Final Thought)

Sometimes, you need to spin that turntable enough to cook dinner.


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 into fossils;
  • You’ll be more into glamping;
  • And I’ll never waiver (or issue one).

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

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October 4, 2019

Housing’s Total Eclipse On the Dark Side of the Moon

Sometimes we can’t seem to look right at it…


But I digress…

Elliman Report: Q3-2019 Manhattan Sales, Q3-2019 Northern Manhattan Sales

Douglas Elliman published our Q3-2019 research on the Manhattan housing market this week and boy, was there a lot to talk about. I’ve been the author of a growing series of Elliman market reports since 1994.

Elliman Report: Manhattan Sales Q3-2019
Elliman Report: Northern Manhattan Sales Q3-2019

Bloomberg
The most important aspect of the coverage is obvious if you’ve been reading these Housing Notes for any length of time…charts! The Bloomberg story on the Manhattan market was the third most-read article on the 350,000 Bloomberg Terminals worldwide, beating “Ray Dalio” and “slowing economy” topics.

Here’s a brief clip on the Manhattan report from Bloomberg Radio.

New York Times
There was a significant article in the New York Times that chronicled this market pivot using our research.

When interviewed, I was inspired to create two charts on the financing aspect of the market. The first chart shows how dependent the share of sales at $5 million or above was dependent on the sharp drop in rates as investors who tend to pay all cash were hard to see.


In the following chart, the sales above $2 million fell the most in Q3 as the Mansion Tax poached sales into the Q2 (before the July 1 commencement of the tax) to save a few percent on a substantial purchase price.


CNBC

CNBC posted a notable Manhattan perspective story on our research as well, bringing on my friend and colleague Steven James, President/CEO NYC of Douglas Elliman for an interview on NBC Squawk Box who laid out the report results in this interview.


There were other good reads as well including essential coverage by NBC News, Brick Underground and The Real Deal.

Here are some of Manhattan’s key market trends and charts:
______________________________________________________
MANHATTAN SALES MARKET HIGHLIGHTS
(CO-OPS + CONDOS)

“The recent Mansion Tax deadline poached sales from this quarter, back into the prior quarter.”

  • The number of sales fell sharply due to second-quarter Mansion Tax deadline
  • Heavy reliance on purchase mortgages across all price strata
  • Listing inventory expanded annually for eight straight quarter
  • First annual decline in co-op median sales price in thirteen quarters
  • Condo median sales price declined year over year for the seventh time in eight quarters
  • Largest annual percentage increase in luxury listing inventory in five years
  • Luxury median sales price declined year over year for the eighth time in nine quarters
  • Average size of a luxury new development sale fell year over year by nearly 900 square feet
  • The number of new development sales fell year over year for the seventh time in eight quarters


______________________________________________________
NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS

“Price trend indicators fell sharply across the market.”

Co-ops & Condos
– Fewest third quarter sales to occur in a decade
– Sixth straight quarter with a year over year gain in listing inventory
– Largest year over year decline in median sales price in more than a decade
– Surge in sales below $500,000 as mortgage rates fell sharply

Townhouses
– Smallest average sales size in nearly five years of tracking
– Sixth straight quarter without a year over year decline in listing inventory
– First annual rise in sales over seven quarters

Bob Knakal – Life After Rent Regulation

My colleague Bob Knakal, Chairman of New York Investment Sales at Jones Lang Lasalle, has a storied real estate career and has always been a go-to source for commercial market insights including a wealth of statistics. He has published two of four videos on the state of the Manhattan commercial real estate market after the introduction of the devastating new rent law out of Albany last June.

Click on the below images to get to the Vimeo page:

NYU’s Scott Galloway Takedown of Softbank’s Unicorns

Scott Galloway has no fear and calls out overvalued companies without hesitation. Here’s a great interview of him in New York Magazine:

At What Point Does Malfeasance Become Fraud?’: NYU Biz-School Professor Scott Galloway on WeWork

Here are additional videos on Softbank unicorns.

More on WeWork


Exploring Compass


Chinese U.S. Housing Investment Wanes

China Global Television Network provided a good summary on the state of U.S. investment by the Chinese in the following article ‘Chinese cool on buying US properties‘ and the accompanying video where I get a few cameos:


Bloomberg: The Problem With NYC Property Taxes

This is a good illustration of the imbalance of the property tax system in the city. It is an incredible quagmire of complications. This becomes even more problematic with the recent introduction of the updated Mansion Tax and rent law that is expected to reduce property transactions substantially in the future.

Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork

Upcoming Recent Speaking Event

I spoke on the rooftop of the Nine52 new development in the Midtown West neighborhood (a.k.a. Hell’s Kitchen which I suggested rebranding to “Heck’s” Kitchen but it didn’t resonate with the attendees for some reason). The first office of Miller Samuel was located a few blocks away in 1987 and it was not a great place to live – now it is. The transformation has been incredible.

It was a beautiful morning as Ace Watanasparp, EVP of Citizens Bank (and ex-UCONN Huskies hoops player), Howard Lorber, Chairman of Douglas Elliman/CEO of Vector Group spoke frankly about market realities and how to navigate them.

Appraiserville

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

Re-Jiggering Fannie Mae & Freddie Mac

My colleagues in the appraisal industry and I have been confused/alarmed by the actions of the former GSEs Fannie & Freddie over the past several years in their efforts to raise mortgage volume. Banks continue to remain in the fetal position on risk post-financial crisis and low mortgage rates and inverted yield curves aren’t helping. As a result, the GSEs, who remain in receivership, are doing all they can to remove pain points for banks to lend more and as a result, exposing the mortgage process (and, of course, the taxpayer) to unnecessary risk.

As an appraiser, I’m clearly biased to this effort based on my first-hand experience because it has become clear that appraisers are a target of US Treasury’s efforts toward “modernization” which I view as code for “automation.” Think of replacing a large swath of boots on the ground mortgage appraisers with AVMs (automated valuation models) or the equivalent of “Zestimates” but the taxpayer is on the hook if the housing market goes bad. Fannie is already waiving appraisals on 12% of mortgages they take on. No matter what claims are being made today, the reliability of AVMs is beyond unacceptable. For reference, 50% of Zestimates are within 5% of true value and 50% are not within 5%. Junk.

The US Treasury is attempting to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership. Mark A. Calabria, Director of FHFA, who regulates Fannie & Freddie has been asked what keeps him awake at night to which he has replied “risk management.”

I have heard through channels that FHFA has told the GSEs to kill all the projects that involve “appraisal bifurcation” – the highly controversial process where an unlicensed, untrained inspector completes a non-standardized observation of a property and then a licensed appraiser completes a desktop appraisal. However, I haven’t been able to confirm this in writing as a source so please share if you have.

Appraisers know bifurcation would be a disaster for valuation reliability (i.e. quality) and be more expensive and slower. This is why the appraisal industry is so concerned about the GSEs’ intent to expand the use of bifurcation in the mortgage process. I’m sure there are times when such use is reasonable but not with wholesale adoption. The actual reason for the promotion of bifurcation is to remove a pain-point for lenders in the mortgage process. The idea of lowering costs or reducing turnaround is not something consumers have ever clamored for so such an effort is bizarre, otherwise.

Indy Politics recently interviewed Michael Calabria of the FHFA, the regulator who oversees both agencies.




The Banking Industry Is Driving The Waiver Movement

On its own, the recent decision to provide a temporary appraisal waiver for the entire state of North Dakota is mind-boggling for a number of reasons and seemed pre-determined:

  • The state has been challenged by the lack of appraisers in rural areas since time began and there are plenty of appraisers in metro areas.
  • The inference is that all states with a lot of rural areas should have to have qualified experts come up with valuations.
  • There is no verifiable appraisal shortgage in the state. In most cases the problem is with AMCs and their business model, unable to pay a fair wage to appraisers covering rural areas.

Look at the ASC members and their North Dakota waiver vote on July 9, 2019

YES:
FRB – Art Lindo (Chair)
CFPB – Philip Neary
FDIC – Marianne Hatheway
NCUA – Tim Segerson
OCC – Richard Taft

NO:
FHFA – Robert Witt
HUD – Bobbi Borland

Only FHFA and HUD voted against the North Dakota Waiver. Those specific agencies deal with appraisers first-hand and understand their role in the risk management process. The remainder are bank regulators or in the case of CFPD, represent consumer interests (and the agency has been gutted over the past several years to reduce its pro-consumer efforts).

In other words, banks are driving the waiver train. They want to remove a pain point from the mortgage process to grow more origination volume. The Federal government has already proved it will be willing to back up the banks if the economy collapses so why not keep pushing for removing of all pain points?

Appraisal Fee Transparency Act of 2019

Bill H.R.3619 has left the House and is now ready for consideration in the Senate.

There are a number of key issues presented in this bill. Three of them jumped out at me:

SEC. 3. TRAINEE APPRAISERS.
“(12) TRAINEE APPRAISER.—The term ‘trainee appraiser’ means an individual who meets the minimum criteria established by the Appraiser Qualification Board for a trainee appraiser license and is credentialed by a State appraiser certifying and licensing agency.”.

This definition is critical to help undo the logjam that appraisers face brining more people into the appraisal profession.

SEC. 5. REQUIREMENT TO DISCLOSE APPRAISAL FEES.
– Section 4(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2603(c)) is amended by striking “may” and inserting “shall”.

This enables appraisers to show the amount of their fee in relation to the AMC portion so the consumer is made aware, of why the cost might seem unusually high. Appraiser routinely recieve only 30% to 50% of what the consumer pays as “appraisal fee” – and why REVAA lobbies so hard to prevent this.

SEC. 6. INCLUSION OF DESIGNEE OF SECRETARY OF VETERANS AFFAIRS ON APPRAISAL SUBCOMMITTEE.
– The first sentence of section 1011 of the Federal Financial Institutions Examination Council Act of 1978 (12 U.S.C. 3310) is amended by inserting “the Department of Veterans Affairs,” after “Protection,”.

This helps address the pro-banking bias on the ASC board as I discussed earlier in Appraiserville.

OFT (One Final Thought)

This GIF by my friend Nathan Pyle reflects the many times I’ve tried to eat a pizza slice on the sidewalk in between appraisals:

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 eclipsed;
  • You’ll be more in sync with the market;
  • And I’ll eat my pizza slice in peace.

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

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#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
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