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Housing Notes

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads


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


September 6, 2019

Keep Your Housing Chill When Under Pressure

If you find yourself fretting about the future of the housing market with a potential looming recession or the confusion of a jubilant stock market alongside a terrified bond market as illustrated by rates that continue to fall, I wouldn’t recommend remaining oblivious to the world around you — case in point, this gentleman at the bar during a robbery.


And of course, #WhyILoveNYC no matter what the housing market is doing (listen for the bone-crunching street sounds).


But I digress…

Movin’ Out Of New York At Twice The Rate Of Last Year

Since the introduction of the Tax Cut and Jobs Act of 2017, there has been an acceleration of outbound migration according to a Bloomberg article: More People Are Leaving NYC Daily Than Any Other U.S. City.

New York leads all U.S. metro areas as the largest net loser with 277 people moving every day — more than double the exodus of 132 just one year ago. Los Angeles and Chicago were next with triple digit daily losses of 201 and 161 residents, respectively.


In addition to the new federal tax law, the New York State legislature has passed and attempted to pass anti-investment/anti-landlord legislation that reflects a stunning lack of understanding of market forces. The anti-real estate zeitgeist is already reflected in this exodus from New York. I don’t believe the Albany political majority understands the long-term direct consequences of what they have created – the massive tax revenues real estate generates enables extensive social programs they are so focused on.

Why Uncertainty In Real Estate Still Remains, Well, Uncertain

Hint: Trade War With China & Brexit


Wait, Renting Isn’t Throwing Your Money Away?

The classic ‘Rent v. Buy’ argument is thrown upside down in this Bloomberg video “No, Renting Isn’t Throwing Your Money Away.“. The problem with these types of arguments is that it applies the same logic to everyone regardless of their personal situation. The very idea that the ‘homeownership versus renting’ market share is 3:1 in the suburbs but 1:3 in the cities speaks directly to affordability and lifestyle. In current conditions, we are in a housing affordability crisis and a student loan crisis while wage growth has been tepid and mortgage rates flirt with records. I get that the longstanding mantra of “renting is throwing your money away” was never questioned until the financial crisis, but I still find narratives like this too generic (but entertaining).


VOX: Why So Many Suburbs Look The Same


Not So Spurious Housing Correlations: Refrigerator Size v. Household Size

h/t @PlanMaestro @voxmediainc

The Rush To Buy Before July 1 NYS Mansion Tax Deadline Revealed Scorched Earth In July

Last June I warned against the giddiness of the Q219 surge in sales activity, that the excess demand was actualy poached from Q319. Because changes in tax policy change consumer demand patterns, the Q2 uptick was not evidence of a return to better market conditions. Although though I do think the heavy lifting of the decline in activity has already occurred and the continuing drop in mortgage rates may have helped mitigate some of the sales drop and price damage that was expected.

As it turned out I was right as illustrated in these compelling visuals.


Getting Graphic


Our favorite charts of the week of our own making

Len Kiefer‘s Chart Handiwork

Some of My Upcoming Speaking Events

9/12/19 – The Metro New Jersey Chapter of the Appraisal Institute


[click to open application]

9/17/19NYcorp: New York Council of Relocation Professionals

Speaking to NYC Metro Housing Trends.

Appraiserville

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

Sitting In The Witness Chair

I’ve sat in the witness chair as a real estate expert many times over the years. It’s nerve-wracking, but it is also fun and fascinating. My partner in our commercial firm says there is something wrong with me because I enjoy it so much.

Consider that something you wrote in an appraisal report six months ago is being discussed now and what you wrote back then is not subject to edits. You have to live with what you wrote. I think the quality of appraisals in the U.S. would improve substantially if all appraisers had to sit in that chair early in their career and have to answer to all the B.S. they piled into their report.

When you sit in that chair and are sworn in to testify, there is no going back. You are answerable to no one but the truth.

Sadly many of my peers run away from the opportunity of testimony. Or perhaps that fear makes it more lucrative for those that are willing to testify. It can be a worthy alternative to generic bank appraisals and provides absolute clarity on how non-appraisers, especially adversaries, can interpret (twist) your results and how you conveyed them to the report reader. My favorite clients have long been lawyers because of how they think. It is a strategy exercise like playing chess.

Some thoughts:

  • Always get paid for your report before you deliver the result and hopefully at engagement. Always get paid in advance for your court appearance with the understanding that any overage in time will be paid for immediately after the appearance. Don’t block out a bunch of availability dates unless you have been paid so you livlihood is impacted by a false promise or change in their needs.

  • One of the most important things I’ve learned is to simply answer the question. No embellishment. Remember that opposing counsel will ask you incomplete questions, fish when they don’t know what they are looking for and try to trip you up anyway they can if you are a threat to their client. They’re doing their job so you want to prepare and do yours.

  • You are auditioning for more work. One of the greatest complements I can get is when I am hired by opposing counsel for a new matter.

  • Remember that you are the expert and you are not guilty of anything. This sounds trite but that is what runs through the minds of those new to this. Your job is to express your opinion and to do it in a way that is credible and conveys it clearly.

  • If you don’t know the answer, then say “I don’t know” – its ok if you don’t know the answer.

With Fannie and Freddie working hard to automate and the whole world jazzed about evaluations and oblivious to the long term decline in reliability that the now terrified bond market expects, expand your consulting footprint. Legal support services are a great way to start.

OFT (One Final Thought)

What laser focus looks like.


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 hear it through the grapevine;
  • You’ll move to NYC;
  • And I can’t get the sound of crunching chicken bones out of my head.

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


August 30, 2019

Housing Is Treading Lightly Around Our Wheelhouse Because We’re Flatly Tired Of Spinning In Circles This Summer

The month of August is in its final moments, and I already know I am going to miss it. I like the steady pace of this time of year (as long as the air conditioning is working) without the periodic panic from clients who forgot to order an appraisal. Our firm has remained busy. Many of our staff have been able to enjoy a little time off. Some exciting opportunities and changes have appeared for both me personally and my firm too – but more on that later. After all this, I’m “tired” of tire analogies

But I digress…

The ‘Back to the City’ Trend Has Reversed

There’s a good read on the evidence of a reversal in the decade trend of moving to the city from the suburbs in the Brookings blog: Big city growth stalls further, as the suburbs make a comeback. Here’s a fascinating chart.

Why Falling Mortgage Rates Are Not A Long Term Housing Benefit

There was a great article and interview on falling rates and housing last week I missed while on vacation. I was in it so how could I have missed it? (That’s clear proof I was checked out.)


According to Freddie Mac, the 30-year fixed mortgage rate is down a full percentage (100 basis points) from last year. This drop has lit a fire under refinance activity as consumer look to save money with lower homeownership costs. In fact, with the sharp rise in housing costs in the northeastern U.S. due to the Tax Cut and Jobs Act of 2017, the significant drop in mortgage rates has likely helped moderate the damage to the market.

Remember that low-interest rates are not a gift. In the long run, low rates raise asset prices. When rates fall, more people come into the market which is essentially the reason why the Fed raises and lowers rates to manage the economy, current politics aside.

Here’s the part that concerns me. After years of low rates, the housing market appears highly dependent on them yet the drop in rates has resulted in a more muted boost in sales. Affordability continues to be challenged with lackluster wage growth in comparison.


The longer the housing market remains addicted to low mortgage rates, the more vulnerable it becomes to an eventual change in direction (higher). While I’m not of the belief there will be a surge in mortgage rates anytime in the near term, the market is clearly more vulnerable to such a condition but low rates are firmly built into current pricing. This is one of the reasons that housing remains most vulnerable in high-cost areas impacted by the new federal tax law and it will take years for asset prices to adjust to higher homeownership costs. In NYC metro, we are in the thick of that adjustment period.


Parking Your Plane In The Garage

Over in Big Bubble Miami, you can see how easy it is to park your plane at your house. Why? Because you can. Recently I referenced houses with RV parking. Same idea. Handling turbulence but with wings.

Location, Location, Drug-Treatment Center?

Our appraisal firm does a lot of expert witness litigation and I continue to be fascinated by the arbitrary rules of thumb presented by experts. There are many home-spun assumptions formed without reliance on empirical evidence. Translation: they pull it out of their @$$.


Case in point. There was a great New York Times “Ask Real Estate” column last week: Should I Buy a Home Next to a Drug-Treatment Center?

I like the way the writer parses out the logic and that appraiser guy Jonathan Miller lays it out there pretty clearly too.

Investors Are Making A Tight Starter Market Much Worse

The Urban Institute has a write up on why the surge of investors in the entry market could be an issue. The piece is remarkably non-committal but does raise the right questions. The reference a seminal New York Times piece on the topic I’ve shared before. My short answers are in “()”:

1) Are investors taking homeownership opportunities away from individuals and families?
(yes)
2) Are investors creating and maintaining quality affordable rental units?
(possibly)
3) Are investors increasing home prices?
(absolutely)

A Great Take On The Homeownership Rate

Jed Kolko, a super-smart economist of whom I had the pleasure of working with when he was at Trulia, penned a great piece in 2014 on the homeownership rate that is worth revisiting: Why the Homeownership Rate Is Misleading.

Shouldn’t we be panicking that the American dream of homeownership is drifting out of reach?

Nope. At this stage of the housing recovery, the falling homeownership rate turns out to be misleading. In fact, for young adults, who were hit especially hard in the recession and housing crisis, the decline in their homeownership rate might paradoxically be a sign of improvement. The rate can mislead in the other direction, too: During the worst of the housing crisis, the falling homeownership rate clearly understated the damage done.

The current rate is nearly the same as the median rate since 1965.

Appraiserville

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

Appraiserville is back next week.

OFT (One Final Thought)

Because we are chilling over the long weekend, I thought you’d find this insight helpful in your morning coffee ritual.


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 homeowners;
  • You’ll park your plane;
  • And I’ll (continue to) live in the suburbs.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


August 23, 2019

Of Inverted Yield Curves, Negative Interest Rates and Skeeball

Cheryl & I are staying at our usual hotel in Rehoboth Beach, DE right now, where I grew up (some say that is in an inaccurate statement) from 1967- 1982 and then as adults, took our kids there when they were younger and now some of them are even visiting there on their own. It is a not so sleepy resort town, the “Hamptons” of Washington, DC. that grew up too and in a good way. I can assure you that right now we are not thinking of anything but Skeeball, Nic-o-bolis, Kohr Brothers orange sherbet, and vanilla soft serve custard, Grotto Pizza slices on the boardwalk, bookstores, power napping, ocean-swimming and tonight we are crashing a wedding rehearsal dinner.

Next week is another week of recovery and then the following week all hell breaks loose.

But I digress…

In the meantime, there are some great reads below, especially the extra-curricular kind.

See you next week.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


August 9, 2019

Rocky Raccoon Houses A Strong Desire For Stuff

Sometimes people want what they want, no matter what the risk is. There is a lot of that same sentiment coming from regulators and policy administrators in the federal government these days. More on that in future editions of these Housing Notes, but until then, we’ll fight for our jackets.

On an unrelated note, here’s a shoutout to my excellent summer semester Columbia grad students in the GSAPP program who took their final exam yesterday. I really enjoyed the class interaction and wish them well in their careers. When turning in their completed exam, one of the students commented that they specifically enjoyed my discussion on pie versus cake

Oh, the satisfaction of teaching can not be put into words!

But I digress…

Rate Talk: Business versus Consumer Sentiment Is Like Apples versus Oranges

As I’ve mentioned before in these housing notes, the bond market seems terrified of current U.S. economic policies while the stock market seems euphoric (even though the stock market is not the economy.

Sam Khater, Freddie Mac’s chief economist, and aficionado of the only band that matters says, “There is a tug of war in the financial markets between weaker business sentiment and consumer sentiment. Business sentiment is declining on negative trade and manufacturing headlines, but consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.”

I loved this observation about sentiment (and The Clash, obviously).


Chart-Nirvana Market Update In Elliman Magazine

As regular readers of my Housing Notes have noticed, I create a full-page spread for Douglas Elliman Real Estate’s quarterly magazine using the results of my U.S. market research. I’m no Len Keifer but still, the visuals are pretty cool.

A Potential Spike In Refi’s, Illustrated

Here’s a good look at the refinance situation via The Basis Point, always a good read. The one point not made here is that falling rates raise prices which is not good for housing in the long term when matched against tepid wage growth. The drop in rates is a short term win for consumers, not a long term win.

Vox: Where Manhattan’s Street Grids Came From

It wasn’t by accident.

Spurious Housing Correlations: Grocery Stores

Here’s one from ATTOM.

  1. Take a ton of housing data and geotag it for its proximity to a grocery store like Whole Foods (a.k.a. Whole Paycheck) or Trader Joes.
  2. Then measure the value of a neighborhood against those farther away or before and after the store was built.
  3. Base the analysis on zip codes even thought zip codes don’t represent neighborhoods or like housing stock.
  4. And you get…voila…junkstats.

There are so many other factors to be considered that this type of analysis is way too simplistic to be credible. An example of spurious correlations in my housing market of Manhattan would be to compare the average or median sales price of an apartment with or without a fireplace. Homes with fireplaces tend to be “pre-war” (built prior to WWII) or penthouses which sell for a premium above the remainder of the housing stock. My own fireplace amenity analysis was not some sort of boolean logic exercise found in the ATTOM analysis.

Bloomberg Terminals: Miller Samuel Luxury Housing Index

We power 6 different price indices for Manhattan luxury housing on the Bloomberg Terminals. This luxury median sales price chart shows how the market has slid from recent highs and how much prices have surged after the financial crisis.


Downtown Alliance: Q2-2019 Lower Manhattan Market Overview

For many years I’ve been crunching residential housing data for the Downtown Alliance for use in their quarterly reports. Here are the residential pages of their latest report:



Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.) As I said last week, I’m taking a bit of a summer hiatus from appraisal policy discussions, but there is always time for this:

Appraising Unique Properties Like Attached RV Garages

I’ve been at this appraisal thing for 33 years and I’ve never seen or heard of this amenity or the targeted demo it appeals to. My friend and appraiser colleague Ryan Lundquist is the undisputed leader of wacky amenity observations.

OFT (One Final Thought)

Aside from his dirty hands, this would be a typical experience in my kitchen. The skills demonstrated here are strangely satisfying and are required viewing.

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 replay the Beatle’s ‘White Album” for that ‘Rocky Raccoon’ song;
  • You’ll learn to love my charts;
  • And I’ll go to the grocery store.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


August 2, 2019

Buckle Up: Rates Are Falling and Housing Market Is Confused

As a kid, I gave little thought of seatbelts. They were decorative metal things that singed your legs in the summer. Little did I appreciate the deathtraps we were riding in circa the early 1970’s – you know, the Ford Country Squire with blue vinyl seats with fake wood panel stickers and those cool sideways back seats surrounded by metal?

How little we think of safety when we’re sitting in a cool seat.


!!!!Here’s a shoutout to my Columbia GSAPP students who learned yesterday that while pie charts are generally bad, pie is absolutely good.

But I digress…

The Myth of Missing Skyscrapers Between Downtown and Midtown

In addition to some serious “Caisson” talk, Jason Barr, Professor of Economics at Rutgers, wrote a bedrock takedown of the bedrock myth of Manhattan skyscraper building locations – it is worth a full read.

The Bedrock Myth and the Rise of Midtown Manhattan (Part I) – Building the Skyline Blog

I get claustrophobic just thinking about what sandhogs do:

Workers inside the cube (“sandhogs”) would dig up the soil and pass it up through shoots to the surface. The box would slowly sink. Once it hit the quicksand, compressed air was pumped in to keep the soil out. Eventually, the box would reach the bedrock. It was then filled with cement, and piers were built atop it up to the basement level to hold up the structure.


[from Building the Skyline Blog]

Why Is That Neighborhood So Expensive?

Check out the moving bus action above from the article! LOL.

I enjoyed this short piece from a rare source for me: House Beautiful. My friend Constantine Vahouli and founder of NeighborhoodX contributed insight.

While the article is not a deep dive, it is remarkably clear.

Why We Move

Love this from Flowing Data: Why People Move using the Current Population Survey.

I was surprised how small the category “retired” was and conversely, how high “wanted new or better home.”

I’ve Always Wanted A Graffiti-Covered Home

I haven’t seen the film yet but my friend and appraiser colleague Maureen from Chicago is always worried I don’t get out enough so she keeps sending me good things to check out. The documentary “Jay Myself” is one of those.

A while back I appraised a nearly identical building occupied by one of the founders of Blue Man Group and a few others as well. This represented a time when you could buy a modest building for very little in the context of today.


Sellers: Price Your Home Correctly The First Time!

This article by Grant Long, Data Scientist at Streeteasy was one of the best things I read this week:

Price Cuts on NYC Homes Don’t Usually Work. Here’s Why

The article provides empirical evidence and sound logic why MOST PRICE CUTS OFFERED BY SELLERS ARE MERELY CHASING THE MARKET and make little difference to buyers. Price it correctly from the get-go or make a drastic cut as soon as you realize you are wrong.

Long Island’s Nitty Gritty Details by Town

Newsday published an article on the Long Island housing market and shared an epic data table that we provided using our analytics in addition to the Elliman Report: Long Island Sales Q2-2019 we released last week. The table doesn’t appear on mobile devices and won’t be included in the Sunday print edition.

I orangified the table provided in the online article to sort by town name and presented it below – click on graphic to open entire table:


[click on table to open it in full]

Charting Economic Policy Uncertainty

The word “uncertainty” has dominated housing market conversations in the Northeast and because of ongoing policy changes like the day to day China tariff situation, wondering what happens with Brexit and unemployment at 50-year lows but we see the Fed dropping rates.

The bond market has been uncomfortable with U.S. economic policy since last October as evidenced by the sharp drop in mortgage rates…

…yet the stock market has been trending higher…

…and global uncertainty on policy is rising…

…as is China…

…and the US…

Why should we care? While housing market doesn’t care what you think it has always been very clear that it doesn’t like uncertainty. This is why the sharp drop in mortgage rates have had less than the typical impact on the housing market.

Getting Graphic

Our favorite charts of the week

From Greg Daco, Chief U.S. Economist of Oxford Analytics, who I’ve had the pleasure of sharing a green room with and serve on the NYC mayor’s economic advisory panel with. He cuts through the clutter.

All three charts here are worth a look…wage growth is peaking.


We need wage growth to boost the housing market. Low unemployment is never enough.

Appraiserville

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

Appraiser Discovers New State of the Art Home Security Feature in Texas

Forget Simplisafe. This time tested security feature was shared by my good friend and appraiser Ron Box in Dallas who was given this by a local colleague. It was observed in a new home during an appraisal inspection. Ron is always on the lookout for new home amenities.

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 buckleup;
  • You’ll buy an old station wagon;
  • And I’ll be more uncertain.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads


July 12, 2019

Bicycles and Rock Lobsters Can Change Your Housing Outlook

I’m nearly a third of the way into my Tour de France watch-a-thon, a 7-hour per day, 23-day guilty pleasure every July. I just let the NBC feed run on my iPhone with the sound off and periodically glance at it to check up on changes. Forget staring at fishtanks for soothing relaxation. The amazing countryside scenery makes it well worth the time.


So with that frame of mind, here is my biking analogy of the week. It only takes two to bring everything down. Watch this in its entirety on a big screen if possible.


But I digress…

A Shout Out To My Columbia Grad Students

It’s that time of year again to teach Market Analysis in the Master of Science in Real Estate Development (MSRED) Program at Columbia University. It’s a strong program if I do say so myself. If the quality of student participation in yesterday’s first class was any indication, this semester is going to be engaging and fun for all of us. Plus the terrific faculty and alumni support make this position a dream for me.

Remember, a down residential housing trend goes like this:

EXTERNAL EVENT> (i.e. new tax law) >
SALES DECLINE > (buyers pause until fully understand)
LISTING INVENTORY RISES > (sellers remain in denial)
1-2 YEARS PASS > (sellers don’t sell unless they get their price)
PRICES ERODE > (sellers capitulate to the market)
SALES RISE…

Since the real estate brokerage community is transaction-based, I’ve never understood why the industry never spoke about a downturn directly. With greater transparency over the past decade, the smarter, more successful brokerage firms embrace market changes as an opportunity to educate sellers on the market reality that “the housing market doesn’t care what you think.”


Market Report Gauntlet: Elliman Report Q2-2019 Westchester, Putnam & Dutchess Sales

We just completed “week 2” of our four-week quarterly market report gauntlet for Douglas Elliman, part of the expanding Elliman market report series I’ve been authoring for the past 25 years.

Let’s start with Westchester County, New York, an affluent suburban market to the North of New York City.

• Elliman Report: Q2-2019 Westchester Sales
• Elliman Report: Q2-2019 Putnam/Dutchess Sales

Wall Street loves Westchester housing news because many in the securities industry live there. The Bloomberg coverage of our Westchester research was the third most read story on the 350,000± Bloomberg Terminal subscribers worldwide.

Even more fun – a chart, obviously.


Here’s an outline of the northern counties and some charts

______________________________________________________
WESTCHESTER SALES MARKET HIGHLIGHTS

“Countywide sales continued to expand as price trend indicators showed mixed results.”

– Countywide sales have increased at a rising annual rate for the fourth straight quarter
– The largest annual sales growth occurred in the $800,000 to $1,000,000 range
– Co-op and condo sales gained market share over single and 2-4 family sales
– Single family sales surged and outpaced the rise in listing inventory
– Single family listing inventory expanded annually over the past five quarters
– Luxury single family price trend indicators fell short of year-ago levels
– Luxury single family listing inventory declined annually for the third time in four quarters

And who wouldn’t like being superimposed on a chart?



_____________________________________________________
PUTNAM SALES MARKET HIGHLIGHTS

“The second fastest paced quarter in fifteen years.”

– Median sales price increased year over year for the ninth straight quarter
– The number of sales rose annually for the third time in four quarters
– Listing inventory fell year over year for the second time in three quarters


______________________________________________________
DUTCHESS SALES MARKET HIGHLIGHTS

“The surge in sales overpowered the growth of listing inventory.”

– Median sales price declined year over year for the first time in nine quarters
– The number of sales rose year over year for the second time in three quarters
– The pace in the market moved sharply faster than the same period last year


Market Report Gauntlet: Elliman Report June-2019 Manhattan, Brooklyn & Queens Rentals

Despite an uptick in the Manhattan sales market, the Manhattan rental market continued to show strengthening trends. Incidentally, the new rental law passed in Albany has not played a role in the open market rental market yet that would show up in the trends.

But I digress.

The city rental market continues to see rising rents and falling market share of concessions. Rents are rising.

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

Because I’m partial to charts, here’s the Bloomberg story featuring our research that ranked 16th most read yesterday worldwide:

Here are some of the key observations and charts for each borough.

______________________________________________________
MANHATTAN RENTAL MARKET HIGHLIGHTS

“Landlord concession market share continued to decline but remain a significant part of the rental housing market calculus.”

– Landlord concession market share declined year over year for the fifth time in six months
– The net effective median rent has risen annually each month since the beginning of the year
– Rent growth skewed to smaller apartments as market share gains skewed to larger apartments
– New development median rent increased at three times the rate as existing median rent
– Median annual rent gains were most pronounced in the 61% to 90% price strata
– The lowest year over year price growth was seen in the luxury and super luxury markets



______________________________________________________
BROOKLYN RENTAL MARKET HIGHLIGHTS

“The market continued to pivot away from concessions as rental prices continued to rise.”

– Concession market share declined annually for the sixth straight consecutive month
– All three face rent trend indicators have been rising annually since July 2018
– Net effective median rent rose year over year for the seventh consecutive month


______________________________________________________
QUEENS RENTAL MARKET HIGHLIGHTS

[Northwest Region]
“Rental prices pressed higher as landlord concession market share declined.”

– The annual change in concession market share fell sharply for four consecutive months
– Net effective median rent rose annually for the seventh time in eight months
– New development concessions have experienced a more pronounced decline than concessions for existing rentals


Market Report Gauntlet: Elliman Report Q2-2019 Brooklyn, Queens & Riverdale (Bronx) Sales

Here are some key observations on these three NYC sales markets.

______________________________________________________
BROOKLYN SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2019 Brooklyn Sales

“Although median sales price reached a new record, sales slipped annually for the sixth straight quarter.”

– Median sales price set a new record this quarter for the seventh time in three years
– The number of sales declined year over year for the sixth straight quarter
– Listing inventory expanded annually for the fourth consecutive quarter
– Sales from $1-2 million and $4 -10 million were the only price strata to see an increase
– Luxury listing inventory increased year over year for the fifth consecutive quarter
– New development sales surged as price trends showed mixed results

______________________________________________________
QUEENS SALES MARKET HIGHLIGHTS

Elliman Report: Q2-2019 Queens Sales
“Price trend indicators flirted with records as sales continued to slip.”

– Median sales price rose annually to the second highest on record and thirteenth quarter without a decline
– The seventh consecutive quarter with a year over year decline in sales
– Listing inventory increased annually for a ninth straight quarter
– Co-op median sales price reached its second-highest mark after setting records in six of the seven previous quarters
– All 1-3 family price trend indicators rose year over year for the thirteenth straight quarter


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

Elliman Report: Q2-2019 Riverdale Sales
“Price trends pressed higher as sales fell short of year-ago levels.”

– Median sales price rose year over year for the fifth straight quarter
– Number of sales fell annually for the fourth time in five quarters
– Listing inventory moved higher year over year for the fourth consecutive quarter

Albany Legislators Need To Consider Economics For Future Tax Revenue

Since last fall, the Albany legislature has turned New York’s real estate environment upside down. Best intentions I’m sure, but no evidence of understanding of how a real estate economy works, which is needed to generate the revenue needed to fund an expanding budget. Worst of all we’ve seen this movie before (1960s, 1970s and 1980s).

Failed Amazon Deal in Long Island CityThe outcry against it was based on a false common lack of understanding that the city was going to outlay billions to a rich company, when in fact the tax break was coming out of the additional revenue Amazon would provide.

Proposed/Failed “Pied-a-terre tax” – I was reading The Real Deal online this morning and a video with me speaking popped up! It was from March and I had forgotten about the interview – my short term memory is pretty weak. The overturned proposal would have decimated real estate development and investment.


The updated mansion tax and transfer tax – placed a wet blanket on an already struggling new development market. Because the high-end market was so weak, sellers and developers will be forced to cover the cost. The real damage to the market is the global image NYC is creating as a hostile place for investment.

The new rent law – the changes will ultimately decimate the multifamily sales market and effectively end all building improvements. We are already hearing about layoffs of construction workers by landlords who upgraded apartments as they became vacant. State legislators removed all financial incentives to renovate a multifamily property in New York State, likely crushing the multifamily sales market going forward. We are hearing that landlords are stopping renovations – look for the quality of affordable housing stock to deteriorate over the coming years. A repeat of the In Rem housing crisis of the NYC metro area of the 1970s and 1980s is here.

Econ Insight Episode 41 — Real Estate Boom or Bust?

My friend Alex Heil, Chief Economist, Planning & Regional Development of The Port Authority of New York and New Jersey asked me to do another podcast but this time it was culled from my multi-agency presentation at the Port Authority – they step you through my presentation and inserted some of my audio. My first podcast for PANYNJ was back in September 2015 right after the market peaked: Housing and the Metro New York Economy

If you’re not signed up to “Econ Insight” by the Port Authority, it is a good idea to subscribe to their newsletters and podcasts for great monthly snapshots and other insights on the NYC metro area regional economy.


[click anywhere on the image to play podcast]

Here is the first page of June PANYNJ Monthly Economic Indicators newsletter which provides some of the information from my presentation. Great info on these pages every month.


Realogy Sues Compass, Realogy Gets Sued By Investors

There was a big Wall Street Journal story this week: Compass Engaged in Illegal Activity, Realogy Lawsuit Alleges

Here’s the formal complaint

This is a good read for all of you non-lawyers out there. Realogy names names and is incredibly direct against the practices of Compass. It really is a good read.

Of course, if you’re a Realogy fan, no good deed goes unpunished. Realogy was just hit with a class action lawsuit.

From the Real Deal today: On heels of Compass legal battle and dwindling stock, Realogy hit with securities fraud suit

Getting Graphic


Len Kiefer‘s Chart Handiwork

Appraiserville

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

Taking a break this week

Even though there was a lot of important things to discuss here like the one year North Dakota waiver, I simply ran out of time this week if you haven’t noticed the early content in these Housing Notes.

OFT (One Final Thought)

Speaking as wanna be lobster fisherman, I’ve always loved this song. Who knew that this band would get so popular? Always loved their playful vibe. I was a sophomore in college when this came out and wore out the album. So different than the hairband stuff that dominated the airwaves back then.

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 rent;
  • You’ll rock lobster;
  • And I’ll talk a lot.

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


June 28, 2019

The Basis Point Analogy of Swings in the Housing Market

I was out the office this week from Tuesday through Thursday and gearing up for the “Q2-2019 Market Report Gauntlet” that begins early next week, so some of my tweets did the heavy lifting.

NAR’s non-seasonally adjusted existing home sales rose year over year for the first time after eight months of annual declines. The ±75 basis point drop since this time last year had a lot to do with the growing momentum in the swing towards more demand. As more basis drops onto the market rope, participants jump into the market from their safe platforms as enthusiasm grows. The lack of inventory weighs down the participants with more price risk until everyone gets soaked. Hopefully, no one gets hurt but our valuation model ended unexpectedly so we aren’t sure how this plays out.

Illustrated…

But I digress…

New York State Rent Law Will Be Challenged as a ‘Taking’

Because of the new rent law’s perceived overstep by multi-family building owners, we expect to see a lot of litigation in the future. I can’t emphasize how catastrophic this will be to the New York City housing stock as the law is written. This was a good-faith effort to preserve affordable housing but it will likely create several outcomes detrimental to the original intent. I’ve written on this before but have had more time to process the ramifications:

  • Jump in cap rates which would crush multi-family building values because all incentives for rental price upside by making capital improvements have been eliminated, sending NYC back to the “In Rem” housing crisis of the 70s and 80s, where the landlords, especially small building owners, walked away from their buildings. Constrained by caps on rent increases as expenses rose faster removed all incentives for ownership and maintenance. This is a repeat scenario
  • Sales of multi-family buildings will essentially stop as the incentive for ownership has been removed
  • Construction of new rental buildings will fall sharply given the loss of incentives and the harsh anti-landlord political zeitgeist
  • With the removal of ownership incentive, the number of rent-regulated apartments will decline as rental to co-op conversions jump. Perhaps not as frenzied as the 1980s boom but there should be more of this. Current public commentary on this issue is being made by developers who have no experience in this new world
  • Rental conversion to co-op will expand despite the 51% from 15% new requirement for insider votes. The reason? Back in the 1980s I recall that a large portion of conversions during that boom era saw greater than 51% conversions despite the 15% threshold because Fannie Mae financing required it
  • Rental housing stock will decline as conversion activity rises. However, the unintended consequence of the conversion activity will bring more affordable “for sale” housing stock to the market, something sorely lacking before the law change. The 51% ensures that insider discounts will be closer to 50% than nominal discounts from the outsider price. Also, the insider pricing of those fortunate 51 percenters will enjoy instant equity to fuel additional housing sales
  • The city is highly dependent on real estate transfers so the drop in multi-family sales volume could reduce real estate tax revenue to a city that is expanding spending at a record break pace to resolve issues like transportation infrastructure. Spending will need to be cut back or borrowing will need to increase.
  • The City of New York’s reputation worldwide has already taken it on the chin by creating an anti-development, anti-investment reputation from the failed Amazon deal, proposed but withdrawn “pied-a-terre” tax, the new transfer and mansion tax and now the new rent law, all within the last 9 months. That’s tough to undo and is brand damaging to the City.

The first sign of an industry push back will be a lawsuit to be filed in mid-July where it takes the form of government property “taking”.

It’s unclear whether Cuomo will be named as a defendant, but the case will argue that his new rent law violates owners’ constitutional right against the “unlawful taking of property,” sources said.


It’s Not Like Nothing Is Selling

This Bloomberg story illustrated how important context is when measuring value, even when the comparison is a little out of context. A new development on the Upper West Side configured as a rental building with smaller units in the configuration, is in close proximity to Billionaires Row. The marketing narrative is to show how much less expensive this new condo project is than ‘Billionaires Row’ pricing even though it is in close proximity. However, it doesn’t have the same expansive views or the height than most of the Billionaires Row units have. But it does introduce additional smaller condo units to the market and that is a refreshing change from the steadfast overemphasis on super luxury units far into this market cycle.

Are People Still Flipping?

Yes, they are but in places you wouldn’t expect. When I read this U.K. WSJ article on condo flipping activity: British Contract Flippers Stymied by Faltering London Market, I was taken aback at the volume scale of property flippers in the Brexit UK. I wanted to say “Doh!” to the title but was amazed at the scale of the flipping activity.

But my tweet paid homage to the structure that was being converted. Think “Pigs on the Wing.” The lyrics kinda provide a visual for the end of a flipping era.

Getting Graphic


Len Kiefer‘s Chart Handiwork

Not the word “exemption” in 2019 i.e. $10k cap on SALT.

Appraiserville

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

THE COMMENT PERIOD ON NORTH DAKOTA’S REQUEST FOR A 5-YEAR WAIVER IS EXPIRING SOON!!

All appraisers need to provide their opine on this request. It is obvious why its a disaster and you need to share why right NOW to show our industry is concerned!!! At last count, there were only 24 comments!!!

Click here.

Incomplete Data Provides Incomplete Assumptions

In meetings with the National Association of Realtors and The Appraisal Foundation this week, there was a lot of time spent listening to AVM owners espousing their importance and more sober observations of the pitfalls. One of the presenters seemed to be bragging that 90% of the time, a good Automated Valuation Model (AVM) can be within plus/minus 10% of the actual value. Remember that Zillow’s Zestimate is within 5% of the actual value only 50% of the time. Both numbers are very dreadful and very random inconsistency across the marketplace.

But still, there is a place for their use in conjunction with appraisers, just not to the intensity being touted now, especially as their data gets polluted going forward by the impact of waivers.

Here’s a simple scenario on how data pollution works and in large scale has the potential to cause bubbles in the future – a sales transaction is given a waiver by a GSE and the sale happened to sell for 5% above current market conditions. That sale closes and is used by AVMs AND BY APPRAISERS as a valid comp. Multiply that by tens of thousands of transactions and we are creating unnecessary market volatility.

There was an excellent guest speaker from Columbia University, Josh Panknin who made the following observations about “big data” and the current wiz-bang “overhype” that seems to be threatening the future of appraisers.

  • Computers can’t fill in the blanks
  • Computers can’t do qualitative (my interpretation- i.e. views and condition despite UAD).
  • Incomplete data give us incomplete answers (so throwing more data at big data does not resolve that problem).

He also used a “turkey sandwich” metaphor for AVMs.

The quality of this sandwich of bread, cheese, turkey, and mayo get better by improving the quality and components, not by moving around the items.

In other words, we don’t improve quality by simply swapping out technologies.

Sidebar: AVMs Have Trouble Considering Natural Light

Josh Panknin also provided a paired sales discussion about differences in natural light.


Maureen Undoes The Misrepresentation of Appraisals At The House Panel

Chicago appraiser and friend (even though she calls me “fancy pants”) writes a stellar explanation of what an appraiser actual does – and what one of the panel experts got completely wrong because he didn’t understand our role in the mortgage process:


Greetings Congresswoman Waters, Chairman Clay, Ranking Member Duffy, Ranking Member Gooden, and the Members of the Housing Subcommittee:

My name is Maureen Sweeney, and I am a real estate appraiser. I grew up in a real estate family and lived through the savings and loan crisis of the 1980’s, which had a profound impact on my life. I witnessed first-hand illegal and unethical behavior in the real estate and mortgage industry towards homeowners. Through that experience, my greatest concern was, “who is protecting the public?”. In 1989, Congress enacted Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). With this decision by Congress, I decided I wanted to be an appraiser. The appraisal profession was and still is the profession in the mortgage industry that promotes and maintains the public trust in housing finance. We are the first profession in the mortgage industry that was licensed, and we are the only profession that is regulated by Congress.

Because of FIRREA, all appraisers who develop opinions of value for federally related transactions must follow the Uniform Standards of Professional Appraisal Practices (USPAP). What was originally intended as assignment conditions for federally related transactions is now partially or fully embedded in all states’ appraisal laws.

USPAP states in the Ethics Rule, “An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that the homogeneity of such characteristics is necessary to maximize value.” (Lines 200 – 202, USPAP 2018-2019 Edition © The Appraisal Foundation). The Fair Housing Act of 1968 prohibits discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, or sex. All states have laws that prevent discrimination. If an appraisal professional basis their assignment results on race, they can lose their license and may go to jail.

Appraisers develop the Valuation Process in each of their assignments. Each step in the Valuation Process builds on the previous step, so at the end of the report, there is a logical conclusion so those who rely in the report can understand how the assignment results came to be. This 8-step process includes:
1) Identifying the Problem; this includes determining who is the client, who are those who can rely on the assignment results, why is the report needed and how will it be used, what is the effective date of the assignment, what are the characteristics of the property such as the address or legal description, and what are the assignment conditions.
2) Determine the Scope of Work: this is the type and extent of research and analysis in an assignment.
3) Data Collection and Property Description: this is the step where appraisers collect data on the market, data on the subject property, and all data on comparable sales and listings that will be used in the report.
4) Data Analysis: this step includes determining the Highest and Best Use of the property as well as analyzing the market of the subject property. In this step supply and demand are analyzed, inventory levels and marketing times are determined. The data is verified. When appraising for federally related transactions, the closed sales data must be verified through two independent sources, such as the local multiple listing service, the recorder of deeds, or local newspapers.
5) Site Value Opinion: In this step, the appraiser determines the cost of the land where the property is located.
6) The Applications of the Approaches to Value:
a. Cost Approach: this step derives value by estimating the current cost to construct a reproduction or replacement of the existing structure, including entrepreneurial incentives, deducting depreciation from the total cost, and adding the estimated land value. How much does it cost to build the same or similar property? The Cost Approach addresses this question.
b. Sales Comparison Approach: this is the process of deriving a value indication for the subject property by comparing market information for similar properties with the property that is being appraised. The sales comparison approach is based on the [principle] of substitution, which states that a buyer will not pay more for one property when several similar properties are available; the property with the lowest price will attract the greatest demand. What’s my house worth when compared to my neighbors? The Sales Comparison Approach addresses this question. c. Income Capitalization Approach: this step converts income to value. How much money can I make from this property? The Income Capitalization Approach address this question.
7) Reconciliation of Value Indications and Final Opinion of Value: in this step the appraiser analyzes the information reported previously in the valuation process and selects a final opinion of value, which may be a value range or a specific number. If the market is oversupplied and prices are declining, the final opinion of value may be on the lower end of the value range. If the market is undersupplied and prices are rising, the final opinion of value may be on the high end of the value range.
8) Report of Defined Value: this is the last phase of the valuation process. The defined value is stated as of the effective date that was identified in Step 1.

All appraisals have a signed certification. The certification states that the appraiser has personally conducted the appraisal in an unbiased, objective manner in accordance with USPAP. The certification states what the appraiser did or did not do. A signed certification is important because it clearly states the role of the appraiser, thereby clarifying that the appraisal was done by an individual who is impartial, objective, and unbiased. The certification must be signed by the appraiser. Once signed, the appraiser is legally bound to the appraisal.

On June 20, 2019 at the U.S. House of Representatives Committee on Financial Services, Subcommittee on Housing, Community Development, and Insurance at their meeting: “What’s Your Home Worth? A Review of the Appraisal Industry.” Mr Andre M. Perry was one of the five witnesses to testify. Mr. Perry is not a licensed appraiser, yet Mr. Perry concluded that “owner-occupied homes in black neighborhoods are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses.” As an appraiser who deals with data, I was very interested in his claim, as well as the basis for his conclusions.

In Mr. Perry’s written testimony, page 2, Figure 1, titled “Neighborhood median home value by black population share”, Mr. Perry data sources were property listings from Zillow and the value estimates provided to the Census Bureau. Mr. Perry did not provide values determined by licensed appraisers or any apparent recognized valuation method or technique. Zillow was sued in Illinois in 2017 (Vipul P. Patel., et al., v. Zillow, Inc and Zillow Group, Inc., Case No. 17 C 4008) and appealed in 2018 (United States Court of Appeals for the Seventh Circuit No. 18-2130). Zillow explicitly points out that Zestimate does not constitute an appraisal and is what it sounds like, an estimate. An estimate is not an appraisal, nor does it resemble any method or technique recognized by Congress or regulators. An appraisal is, “(noun) the act or process of developing an opinion of value; an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.” (Lines 59 – 60, USPAP 2018-2019 Edition © The Appraisal Foundation).

In his written testimony to your committee, Mr Perry notes on page 2, Figure 1 that the 2016 median list price was provided by Zillow. List price is what a seller is offering their property for sale. List price is not sale price. Sale price is a fact; list price is a suggestion. Rarely do properties in a balanced or declining market sell for above their list price. List price to sale price ratios were not profiled or discussed in Mr. Perry’s study, nor was any final sale price data referenced or profiled. In Figure 1 of his written testimony, Mr. Perry used “Census Bureau” for Median Value, rather than sale price data or appraiser’s conclusions. The Census Bureau is not a valuation agency and obtains their data via a survey. Per the U. S. Census Bureau, the market value is, “the respondent’s estimate of how much the property (house and lot) would sell for if it were for sale.” (https://www.census.gov/quickfacts/fact/note/US/HSG495217 ). An estimate is not an appraisal. [Homeowners] may or may not know the true value of their properties, because they are not valuation professionals, and they have a personal interest in their property. With only Zillow’s list price data and the Census Bureau’s homeowner estimates of their property’s worth, the study lacks any reliable value indicators. None of this data supports discontinuing the use of individual appraisers in preference for using Automated Valuation Models, as Mr. Perry suggested in his opening statement and throughout the hearing.

Is there a problem with poor and underserved communities in the United States? Yes. Is it the appraisal profession’s fault? No. The systematic practice of redlining (licensed broker issue), loan rejection (lending issue), and property taxes (assessor and county taxing agency issue) have nothing to do with the appraising of real property for federally related transactions. Entire neighborhoods fell victim to predatory lending, subprime mortgages, and mortgage fraud, with most of the mortgage loans generated with loan amounts below the de minimis of $250,000, which made them qualify for appraiser-alternative products, including AVMs. There were a whole lot of non-appraisal related issues presented in Mr. Perry’s data. It’s sad that the label of racism got pinned on the only profession in the mortgage process who is charged with protecting the public trust.

It’s like blaming the canary for the bad air in the coal mine or blaming the mirror for your bad hair day. Appraisers reflect the market; we do not create it. We observe, we verify through credible sources and analyze our data, and we report our findings in a manner that is meaningful and not misleading.

It comes down to data and how the data is collected and analyzed. In his opening statement, final statements, and throughout the hearing, Mr. Perry championed the use of AVMs. None of the data presented by Mr. Perry in his written testimony to this committee supports the discontinued use of individual appraisers over AVMs. This presents a question: since Mr. Perry relied on data from AVMs and Zillow, is race baked into these systems and their data? Algorithms and machine learning are built on historical data, which is primarily human driven. Machines may and have been shown to amplify bias in data. If racism has been perpetuated for decades in real estate, then it’s baked into the system and the data, therefore what kind of data will we get from the machines? Some hope that Big Data will save us from the mistakes made by humans. The humans who provide valuation services are licensed by their individual states and regulated by Congress. The licensed humans can lose their licenses, get heavily fined, or go to jail for unethical or incompetent appraisal practices. Who’s regulating Big Data when Big Data makes mistakes?

Today we know that 85% to 90 % of all mortgage transactions backed by the federal government and U.S. taxpayers are currently not subject to the protections Congress enacted through Title XI. Big Data companies that provide AVMs are not regulated. Their valuation process and sources of information are not verified, regulated, or publicly available. How does relying on an unregulated private industry running aggregation models protect the public trust? I don’t believe it does.

The appraiser is central to the checks and balances in the home lending system. The appraiser is hired by the lender to ensure that there is value in the property being used as collateral by the lender to provide funds to the borrower. The licensed broker/Realtor negotiates the price of the property, but they are not qualified or licensed to determine the value. Providing valuation services is the appraisal professional’s job. The appraisal professional provides checks and balances in the housing system, as the appraiser is entirely unrelated to the transaction and is not paid based on the amount of the valuation nor contingent on the closing of any loan.

Public trust is key in promoting the stability in the housing market. The continued reliance of unregulated aggregators and bifurcated products continues to erode the public trust at the expense of discarding the profession specifically intended to promote the public trust. How does this protect the public? The appraisal profession is at risk with this policy change. More important: the public is at risk with this policy change and the continued lack of reliance of the appraisal profession.

David Bunton from The Appraisal Foundation said it best to this committee: “The last thirty years were witness to federal agencies doing their best to circumvent using these trained professionals. Likewise, the government sponsored enterprises are taking on riskier practices that leave appraisal protections on the sidelines. Through exemptions, appraisal waivers, promoting evaluations in lieu of appraisals, and encouraging lenders to use unlicensed individuals, the federal financial institutions regulatory agencies estimate that a mere 10 to 15 percent of all mortgage transactions backed by the federal government and U.S. taxpayers are currently subject to the protections Congress enacted through Title XI. ”

I ask again: How does relying on an unregulated private industry running aggregation models protect the public trust? It doesn’t. The reliance on Big Data, the acceptance of hybrid and bifurcated appraisal reports, the potential rising of the de minimis from $250,000 to $400,000, and the lack of hiring the profession that is charged by Congress to promote and maintain the public trust in the housing industry, is a bad direction for our industry and our country. Please do all in your power to protect the citizens of the United States and prevent the next housing crisis.

Thank you for your time, your service, and your continued interest in protecting the public trust.
Maureen Sweeney

OFT (One Final Thought)

This photo shows how serious and good library humor can be (I’ve got all the 1960s Batman TV shows on my iPhone). Just ask my wife about libraries and humor. Our first date was at the university library and she thought I was kidding – but I had a paper due on Monday.


Brilliant Idea #1

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  • They’ll want more Natural Light;
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  • And I’ll go to the library.

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

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June 14, 2019

While Housing Is Right In Front Of Us, It Doesn’t Mean We Understand It

When our boys were young, we used to go to Canada to ski during the winter break. The first time we made the trip, we rented a chalet and the snow around it was measured in feet, not inches. After a day on the slopes and romping around in the snow, we’d make dinner and sit in the living room and melt into the furniture. But most importantly we’d watch curling on television all week. It seemed to be on all the channels and I was told by locals that it got higher ratings than hockey. I have a curling app on my iPhone and continue to marvel at the sport yet at the same time, fail to grasp how it works (like being quoted in People Magazine). But I do know that for every action, there is an equal and opposite reaction, much like Cycleball, obviously.


But I digress…

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

Ironically, the release of the May 2019 Elliman Report: Manhattan, Brooklyn & Queens Rentals occurred during the crescendo of newly proposed rent control laws coming out of Albany that will provide a sea-change to the housing market (more on that later).

As my Housing Note readers know, I’ve been authoring the expanding series of market reports for Douglas Elliman Real Estate since 1994. The goal is to provide a neutral housing benchmark for its readers.

After several years of modest decline, the rental market has returned to its rising ways since last fall, but largely on the back of the weakening sales market. The sales market has been impacted by the Tax Cut and Jobs act of 2017 that went into effect on January 1, 2018, and dished out a slew of market uncertainty in NYC metro, a high tax, high-cost U.S. housing market. Would-be buyers began to camp out in the rental market last fall. As a result, rents began to rise and concessions began to fall. Here’s a cool chart about it from the sharp Bloomberg story.

Here are some key points for each of the three markets:

MANHATTAN

“While landlord concession market share has been falling since the beginning of the year, they still impact about one-third of apartment rentals.”

  • The vacancy rate has declined year over year for the eleventh time in twelve months
  • Landlord concession market share has continued to trend lower since the beginning of the year
  • The net effective median rent rose year over year for the fifth consecutive month
  • The median rent for studio and 1-bedroom apartments continued to increase year over year while larger sized units declined
  • The luxury entry-threshold hasn’t seen a year over year decline since December
  • Luxury median rent was flat with the most significant annual gain occurring in the Upper Tier

BROOKLYN

“Rental price trend indicators continued to rise as use of concessions declined.”

  • Net effective median rent rose over year for the sixth straight month
  • Concessions market share declined year over year for the fifth consecutive month
  • Median rent for all apartment sizes rose year over year

NW QUEENS

“Landlord concession market share fell by nearly half from April 2018 record.”

  • The annual change in concession market share fell sharply for three consecutive months
  • Net effective median rent rose annually for the third straight month
  • New leases rose year over year for the tenth time in eleven months

The Nelson Report Podcast: What’s the deal with the residential market in New York City?

I was recently interviewed by James Nelson, one of New York commercial real estate’s star brokers at Avison Young whom I’ve known since his Massey Knakal days. I’ve been on his podcast several times over the years and always enjoy the conversation. This time he did the interview at CUNY studios in Manhattan. In addition, he brought in Vince Rocco, a residential real estate agent at Halstead who has a broker-centric podcast known as “Good Morning New York Real Estate with Vince Rocco.” I had never met Vince before so it was nice to get his perspective on the market.

The Waldorf (Not The Salad) Is In Vogue Again

While it’s been widely documented that the new development market has been cooling since its peak in 2014, new development projects continue to be introduced due to their long lead times, although 2020 seems to be the last year of new apartment introductions. The high-end of the new development market has been characterized by “supertalls” since 2012 the likes of which comprise the Billionaire’s Row market in Midtown Manhattan. The demand for the product remains steady if it is priced for 2019 and not for 2014. When Chinese insurance conglomerate Anbang acquired the historic Waldorf Astoria Hotel in 2014, it confirmed my prior thoughts that 2014 represented the peak of the real estate acquisition boom.

The Wall Street Journal and others covered the announcement of the Waldorf condo sales effort this week. I was surprised and a bit relieved that 350 hotel units will remain.

The Waldorf Hotel is a historic treasure to the Manhattan real estate market but the challenge in the conversion to condos will be to differentiate it from the other high-end offerings. The owners have a lot to work with given the hotel’s rich history, but as they say, timing is everything. I’ve presented there, met people for drinks, lunches, and dinners, and even walk through occasionally just for the sake of being in a special place in the city during my workday.

Law of Unintended Consequences: Proposed NYC Rental Regulations Have Significant Repercussions

Here is the Housing Stability and Tenant Protection Act of 2019 that is expected to be signed by New York Governor Cuomo. This version shows the edits recently made. The NYS Assembly (8281) version mirrors the NYS Senate version (6458).

The U.S. housing market has been plagued by a shortage of affordable housing since the financial crisis. The economics of post-crisis housing has encouraged a luxury housing orientation. As a result, entry-level housing has been woefully neglected, placing many hardworking New Yorkers in an affordability crisis. Since the fall elections, both houses in the Albany legislature and the governor are all aligned politically and have pushed out housing legislation initiatives that are counter to business as usual, first with the poorly thought out “pied-a-terre” tax that failed but quickly was replaced with the “Mansion Tax” that passed. This was the beginning of a new anti-landlord, an anti-developer mindset. Perhaps with the best intentions of creating more affordable housing, the opposite will occur in the long run.

Here’s a NY Post infographic on the proposed legislation that Governor Cuomo promised to sign.

Real estate industry leaders did not expect this law would happen.


The proposed, permanent New York State Rent Laws are effectively going to eliminate all financial incentives for building upgrades and crush multi-family sales activity and the tax revenue they generate.

Up until now, rents under stabilization laws were determined by the rent board and expenses were determined by the forces of a free market. So if an allowable rent increase was two percent, but a spike in expenses like insurance, real estate taxes or say, fuel caused overall expenses to rise more than 2%, the landlord has to absorb the difference. That logic may be sustainable in the short term but in the long term, it is not. Other items like vacancy decontrol, preferential rent and incentives for major capital improvements have been removed from the new law, so there are no economic incentives to an owner to perform any maintenance or upgrades to a building. I suspect small landlords are the most vulnerable because they don’t have the staying power or economic efficiency that large landlords do.

In the short term, renters will see only modest rent increases even without the preferential rent loophole. In the long term, the housing stock will deteriorate and landlords, now blindsided with an asset that has no upside, will begin to look at ways to shed the exposure. After all, who wants to own an asset that through better management can’t improve its quality?

I suspect that we will see a return to the days of co-op conversions a largely distant memory. Perhaps condo conversions are part of the mix as well but with co-ops, the upside for landlords can be the underlying mortgage instead of the sales prices achieved in a weakening housing market. However, this method of extracting upside to property owner’s investment will probably not be at the scale of the 1980s conversion frenzy because the legislators considered this. They upped the requirement of insider approval for a non-evict plan from 15% to 51% to ensure that the “insider” prices offered to rent-stabilized tenants would remain at a sharp discount to market prices.

The short term result?

An uptick in conversions will cause a reduction in rent-stabilized apartments over time and an increase in affordable “for sale” properties.

When Cuomo signs this legislation into law, I suspect cap rates for multi-family housing in New York State will spike as multi-family property values plummet and sales of multi-family buildings essentially stop.

Possible long term result?

It looks like we might return to the In Rem housing crisis of the 1970s-1980s as landlords, especially small building landlords, abandon their properties and tenants are displaced. The cause for the In Rem crisis echoes similar patterns of restricting rent increases while operating costs rise according to the market with no other upside allowed.

The state and city governments don’t have the resources to fund affordable housing initiatives without the aid of market forces. In this new effort, there will be no incentives to create more housing.

From the New York Times in 1986:

The figures suggest that the city has still not found a way to recycle expeditiously all the property it takes in tax-foreclosure proceedings, which now begin after only a year of delinquency. In fact, the city had more tax-foreclosed properties at the end of fiscal 1986 (9,716 buildings) than it did at the end of fiscal 1983 (9,194 buildings), even though the real-estate market has improved substantially over three years.


Given the shift in the Albany political zeitgeist against multi-family owners and developers, the outside investor community will no longer contemplate building multi-family open market housing in New York State due to the political uncertainty and bias against all landlords.

In the desire to create affordable housing, the long term impact of these laws will likely result in fewer apartments within rent stabilizations but may provide additional affordable “for sale” properties.

New York State Tax Collectors Are Getting Aggressive

To stem the outflow of tax revenue with the new wave of wealthy migration to Florida from New York as a result of the new federal tax law that promotes it, New York State is getting hyper-aggressive. The CNBC video shows how it works:

New federal tax laws limiting the deduction of state and local income taxes have created incentives for wealthy New Yorkers to move to Florida or other lower-tax states. New York Gov. Andrew Cuomo last month blamed wealth flight for the state’s $2.3 billion revenue shortfall in December and January.

“Tax the rich, tax the rich, tax the rich,” he said. “We did. Now, God forbid, the rich leave.”

Getting Graphic

Our favorite charts of the week of our own making

FYI – I brought in a graphics consultant for all our charts to extract my Crayola Crayons from our tool kit.

Len Kiefer‘s Chart Handiwork

Appraiserville

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

With the rent stabilization law pending of epic proportions and a week of full-on expert witness consulting and testimony in three different ongoing matters, I’m sure appraisers can appreciate that I am just coming up for air. More to follow as I am keynoting at OCAP next week and speaking in DC for NAR on June 26th. Since I was informed that I wasn’t speaking on the House panel covering appraisal modernization on June 20th, I opted to use that day to get some root canal work. No irony there.

OFT (One Final Thought)

The following video informed me about the Rescued Film Project and why I’ll think differently about 31 Rolls of Undeveloped Film from a Soldier in WWII Discovered and Processed.

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 go low rent;
  • You’ll play cycleball;
  • And I’ll develop some film.

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

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May 10, 2019

iBuyers Are Here, But We Still House Antisocial Feelings

I’ve been taking the commuter train from Connecticut into Manhattan since 1990 and much of my daily ride was full of open newspapers before handheld devices became ubiquitous. The morning read of the car tended to be NYT/WSJ/FT and the evening was the NYPost/NYDailyNews as well as a thorough handwashing to remove the black ink:


But I digress…

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

Real estate giant Douglas Elliman released our research today for the April rental market covering Manhattan, Brooklyn and Northwest Queens. This market report is part of the expanding Elliman Report series I have been authoring since 1994.

Elliman Report: Manhattan, Brooklyn & Queens Rentals 4-2019

MANHATTAN
“Rental price trends in the entry tier pressed higher, overpowering the high-end market.”

  • The net effective median rent rose year over year for the fourth consecutive month
  • Landlord concession market share fell sharply, the third year over year decline in four months
  • The vacancy rate edged higher year over year for the first time in eleven months
  • Market share of leases above $10 thousand per month moved higher
  • All luxury price trend indicators moved higher than year-ago levels

Bloomberg included two charts (a twofer!) so that needs a shout out. Click on either for the Bloomberg coverage.


Here are some of our Manhattan charts.

BROOKLYN
“The decline in market share of rentals with concessions continued to accelerate.”

  • The year over year change in the market share of concessions continued to decline
  • New leases rose year over year for the fourth time in five months
  • Net effective median rent increased annually for the fifth straight month

These are some of our Brooklyn charts.

NW QUEENS
“Landlord concession market share fell sharply from the year-ago record.”

  • Market share of landlord concessions fell year over year for the second time in eight months
  • Net effective median rent expanded year over year for the fifth time in six months
  • Studio and 1-bedroom rental leasing grew as 2-bedroom rental leasing fell

These are some of our Queens charts.

My Views on the Value of Views

There is an epic New York Times real estate cover story out today that will be available in print this weekend that covers my takes on the impact of views on value and the philosophy behind it. These insights were developed during our appraisal firm Miller Samuel‘s 33 years of existence and tens of thousands of appraisals completed by our team. Both the photos and the write-up were terrific and I’m super proud to be a key part of this story. Click on the image to read the story and see more photos.


“Flip” is the New 4-Letter Word

Many young investors haven’t seen a declining market and took excessive risks. With the proliferation of flipping shows (mostly shot in Canada BTW) who can blame them? It was not so long ago that we were all talking about how young people had never seen a rising housing market.

The changes in some markets are quite pronounced making flipping inherently a bad idea.

Some Analog Thoughts About The iBuyer Industry

Ben Casselman pens a great piece in the New York Times: Real Estate’s Latest Bid: Zillow Wants to Buy Your House. If you click on the tweet first (not the link to the article) you get a great thread that breaks it all down.


Aspirational Pricing Illustrated

There was an article in the Wall Street Journal: Miami Condo King Brought Back to Earth by Luxury Home Price Correction on setting listing prices in Miami from the perspective of one of the most prolific developers there, George Perez of Related. Here is the history of the penthouse he owns at the development he built known as 1 Collins in Miami:

2016 purchased $4.23M (assuming as the developer, he got a deal)
2016 listed for $20M
2019 dropped the price to $10.95 million

Bloomberg Masters in Business Podcast: Ivy Zelman Discusses Real Estate

This was a twofer – two of my good friends talking about the real estate market and I get a shoutout! Ok, ok, that’s not why I’m sharing this. This was a really enjoyable listen on the topic that drives you to read Housing Notes – you’ll get a sense of how Ivy has been so darn accurate during her career and what she sees now.


[click to open podcast]

Visualizing Monthly Mortgage Payments

Another great “Howmuch.net” visual on mortgage payments. The idea that the average payment in Santa Cruz, CA is $2,940 and in Coffeyville, Kansas is $205 – is mindblowing.


[click to read their post]

Getting Graphic

Our favorite charts of the week

One of the hopes of housing market observers is for continued growth in wages after falling behind housing price gains. Wages are clearly rising but the rate of growth is leveling, which is especially disappointing after the large stimulus insertion into the economy by the tax cut in 2018.


[Wall Street Journal]

NY Fed: The probability of U.S. Recession as predicted by Treasury Spread was 27.5% in April.

Len Kiefer‘s Chart Handiwork

Appraiserville

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

Protect Appraisal Report Integrity By Delivering Locked PDFs

Obviously, it is easy to unlock a pdf report, but we lock every report as an effort to maintain report integrity. This should be a regulatory requirement. Periodically we have seen reports we delivered electronically that ended up being modified to the client’s needs.

This almost happened a week ago.

My firm received this request from Servicelink on a BoA request. In accordance with the new AMC law in New York State, we are including the invoice with our reports. This was the first report to this particular BOA group since the new law was activated so it is reasonable to assume that the BOA clerk handling the appraisal didn’t know what to do about the invoice and Servicelink was passing along the request. The law itself says the invoice must be delivered with the report which infers but doesn’t specifically state that the invoice should be within the report pdf. I would imagine there will be a lot of attempts by lenders to get rid of invoices out of habit but after a while, once appraisers start seeing invoices missing from the applicant copy when an applicant calls the appraiser, the appraiser needs to complain to the CFPB. I remain skeptical that lenders will be able to sustain a systemic fraud or ignorance to the spirit of the NY AMC law by hiding the invoices from the applicant and risk doing future business in one of the largest mortgage markets in the U.S.

Our client, Bank of America, has accepted both appraisal reports. Unfortunately, they are having issues uploading the documents into their system due to them being locked and password protected. Are you able to modify the permissions to allow printing and unlock the document? Please let me know as soon as possible so we can deliver to the client.

Red flag: How could they have accepted the report but never uploaded it?

I personally tested the pdf they sent back to us as well as our original copy. They both printed as usual so we told them they must have a software issue on their end. We have never had to deliver unlocked reports to this client and as practice. It is ALWAYS inappropriate for an AMC to request an unlocked report. There is only a nefarious reason behind it, even if the requestor themselves have no idea.

Causation, not correlation: The first time we get a request to unlock = first time we attached an invoice.

Here is how we respond to these things:

Thank you so much for the business. We greatly appreciate it!

Miller Samuel does not unlock pdf’s or remove passwords. So we just can’t help in this situation. This is done to protect the integrity of our report as a matter of policy with every client.

Thanks again and we look forward to working with you in the future!


Here’s what Servicelink told us after we said “no.”

We were just looking for a partnership here to try and meet the needs of what is a very important client to ServiceLink.

Until the new New York State AMC Law is fully adopted by the AMC industry, expect to get these requests. Part of the issue is software updates or internal procedural changes and part of it – like this example – is nefarious.

Solidifi Wants Insight Into Your Vacation Time

If AMCs weren’t invasive enough already on appraisers personal lives with overly-frequent status calls and other well-documented and demeaning requests, how about vacation time? In addition to the 37-page boilerplate order request the appraiser is required to read, appraisers now have to fill out another form.

The fact that Solidifi and their competitors are in business to fee out to the lowest bidder makes this request silly because appraisers don’t have that kind of relationship with AMCs. It goes like this. They send out an appraisal request to 10+ appraisers and one of them is on vacation and therefore doesn’t respond. Who cares? In my view, a business that treats its vendors like cattle, can’t call it a professional relationship. In fact, there IS NO RELATIONSHIP. The appraiser as the local market expert is really only a widget to them. AMCs can’t expect to have it both ways. If appraisers weren’t bombarded with paperwork and dogged by phone calls from a 19-year-old chewing gum already then this would not be an issue.

XOME Seems Concerned New York Borrowers Will Find Out How Little The Appraiser Gets?

An appraiser/reader sends me this text from an XOME appraisal request:

“Good Morning, The state of NY requires the appraiser to include their invoice in the report. AMC fee does not need disclosed. Please include an invoice in your report when uploading. Thank you”

This is technically accurate. Here is an excerpt from the NYS AMC Law:

38 (e) Knowingly fail to separately state the fees paid to an appraiser
39 for appraisal services and the fees charged by the appraisal management
40 company for services associated with the management of the appraisal
41 process to the client, borrower and any other payer.

Why would XOME go out of its way to tell their appraisers not to disclose the AMC portion of the fee the applicant paid? This is not a regulatory requirement that I am aware of. My firm includes our invoice at the top of the pdf and the pdf is locked (we don’t work with the XOME platform).

OFT (One Final Thought)

I hate Facebook. This pretty much sums it up.


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 analog;
  • You’ll be more aspirational;
  • And I’ll be more antisocial.

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

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