I’m a regular listener to the Slate Money podcast so I was thrilled to be invited to participate.
This week, Felix Salmon, Emily Peck, and Elizabeth Spiers are joined by housing market analyst and real estate appraiser Jonathan Miller to answer all their burning real estate questions including what’s going on with mortgage rates, how do new luxury buildings affect prices, and why is rent so damn high?
Tags: Felix Salmon, Emily Peck, Elizabeth Spiers, Slate+, Slate Money
Yes, big data usually infers ‘quantitative’ analysis, as in “relying on numbers.” The Zestimate legacy of profound inaccuracy finally reached a devastating conclusion with the collapse of Zillow Offers this week and the loss of hundreds of millions in shareholder equity. Zillow never figured out the qualitative part that enables the actual precision in the pricing of a home sale.
There is a lot of talk right now about how other iBuyers are continuing to buy and sell properties so the space is still viable – business as usual. But step back for a moment and think about this:
I feel pretty confident there will be further fallout over time, but the iBuyer space will settle into a small segment of the overall transaction universe. It has been wildly overhyped (at real estate brokers and real estate appraiser’s expense) as investors, burdened with high volumes of capital, desperate for upside in housing in this fintech boom.
Tags: Zillow, Zillow Offers, iBuyers, Softbank
The news came quickly and brutally (especially if you were a ZG investor):
@mortgage_yack #zillow #PINKHolidayRemix #realestate #utahrealestate ♬ original sound – Jack
I jumped on the bandwagon with this:
This just in: The “A” in “Zillow” stands for “Accuracy.” https://t.co/j5ukW1zzA9
— Jonathan Miller (@jonathanmiller) November 3, 2021
And this was a perfect post:
so zillow let a robot buy up thousands of properties, outbidding real buyers and artificially inflating the market, and now will be laying off a full quarter of its workforce and selling off the properties to rental corps like BlackRock at vastly discounted prices. that right?
— Insert Clever Name (@BethLynch2020) November 2, 2021
Now let’s digest this in the context of price accuracy:
While Zillow’s CEO Rich Barton essentially said early on that he didn’t want their iBuying efforts (Zillow Offers) to be seen as gaming the Zestimate like that dumb viral Tik Tok video inferred a month ago.
@seangotcher ♬ San Tropez – Illect Recordings
Yet it would seem unlikely that Zillow Offers used something completely separate and conceptually very different from their ‘Zestimate’ because it would be quite expensive and extremely difficult to keep a radical new valuation concept a complete secret. All we know at this point is whatever valuation methodology they used was a complete fail. And to go a step further their Zestimate valuation methodology has long been a complete failure in the accuracy department. But it hasn’t been a complete failure in the consumer credibility department at all. In fact, it’s been quite successful – after all, Zillow weened control of the U.S. consumer away from the real estate brokerage industry who had enjoyed 100 years of gatekeeper status.
This is why the real estate brokerage industry pays Zillow substantial fees to be featured on a search page in their “Pro” offering, using the source data provided to Zillow by them. Its quite diabolical.
So if we consider the Zestimate to be a proxy for the Zillow Offers valuation tool that failed, it gets worse….
The national median accuracy rate of the Zestimate is 2%.
Because they are using “median” and that term is largely ignored by consumers in the phrase “median accuracy rate” that 2% sounds pretty darn accurate. Yet there is no fine print here. The phrase literally means that 50% of the time the Zestimate is within 2% of actual value and 50% of the time it’s not.
And it gets worse…
The median accuracy rate is only within about 2% if the property being Zestimated is currently listed for sale. But if the property is not currently listed for sale, the median accuracy weakens to 7%.
For the Zestimate to move from 7% to 2%, they are reliant on the broker expertise involved to price the property and get it on the market.
Said another way, in order to get the median accuracy rate from 7% to 2%, they need the brokerage community to price the property to get that touted accuracy rate.
To summarize this point:
The brokerage industry gives all their data to Zillow because Zillow marketed to and won the consumer.
The brokerage industry pays Zillow to market them on the Zillow platform because they gave Zillow all their data.
Zillow became a brokerage firm and therefore a direct competitor to the brokerage industry, something they promised early on would never happen.
Zillow uses the brokerage industry to inaccurately price properties, placing them in an adversarial position with the consumer who wants to sell their home.
Yeah, I get it.
Tags: Zillow, Zestimate Forecast, Rich Barton, Zillow Offers, Accuracy
Cheddar TV reached out to me on March 11th as I was 4 days into my self-quarantine and my voice sounded quite scary. Aside from bad lighting and a red face, the discussion was long-form in nature covering low mortgage rates, which is why I so appreciate Cheddar’s format.
March 11 was soooo long ago!
Using Skype (which has been improved since Microsoft acquired it to be less of a horror show) I am able to blur out the background so you don’t get distracted by my prized autographed drum head from Lynyrd Skynrd, my 2002 March Madness pool victory plaque and my certificate for passing a 1978 Italian Cooking class in my Dad’s former cooking school in the DMV.
Tags: Cheddar, mortgage rates
[NPR]
Well, it has been an odd couple of weeks brought to you by the global pandemic known as COVID-19 or the Coronavirus. We’ve been self-quarantined in our house for 1.5 weeks with many more weeks to go. I might have to refer to this pandemic as “Cabin Fever” although there are many people that don’t have the benefit of working at home, including one of my sons, who is a police officer.
With falling mortgage rates of the past year or so, many in the real estate community thought:
“oh my goodness, refi’s and housing sales are going to boom with these low rates, and any Fed rate cuts will offset the damage of a plunging stock market and the economic damage of a pandemic.”
But please remember this:
Falling mortgage rates are not a gift.
Rates are cut to stimulate the economy, to offset something terrible that has happened.
Rates have been falling for the past year as the Federal Reserve likely increased rates in the recent past to be able to have something to cut when the inevitable recession arrives. Because of the damage to the U.S. economy from the trade war, the Fed has been forced to act earlier to keep the economy from dropping into a recession.
Since March began, the Federal Reserve brought the federal funds rate down to zero in the first half of March with two massive cuts. With the first cut of 0.5% on March 3, consumers became fully aware that something significant was wrong, and it was associated with the Coronavirus (and oil prices). And surprising to many, national 30-year mortgage rates rose.
Mortgage lenders continue to enjoy the large spread instead of lowering mortgage rates substantially because of layoff decisions made over the past year as refi volume cooled. Most banks cannot take full advantage of the rate cut opportunity because they do not have the capacity.
Since the 2020 DJIA peak of February 12, 2020, of 29,551.42, the market has fallen 28.13% to 21,237.88 as of the late afternoon, an insanely large decline.
However, all of these housing-related workers such as appraisers and agents, are starting to see that market conditions do not include the gift that it will be “business as usual.” They and their colleagues are becoming fearful of their own personal safety and the safety of their families.
In light of this slowdown, some real estate agents have suggested that market times be modified to cast a better light on listings that will languish due to the virus. This type of action is precisely what should not be done. In a global pandemic or worldwide catastrophic event, housing market stats will be internally adjusted by consumers to factor the event into the equation. Cherry-picking stat solutions will breed distrust between agents and consumers.
Open houses as a marketing tool fell 38% in Manhattan which is quite astounding but shows how quickly “personal safety” is becoming front and center with both agents and market participants. The outbreak is clearly expanding.
But now, those real estate agents are seeing home sellers and home buyers change their minds about letting strangers walk through their homes all day, and the “nexus between fear and greed” has shifted to fear.
Therefore the spring market will likely be underwhelming in NYC if downright bad and pushed forward into the future with a possible release of pent-up demand at some unknown future date. Perhaps the same will apply to many regions across the U.S. this spring.
Now wash your hands.
Tags: flattening the curve, pandemic, COVID-19, Coronavirus
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Over the years, I have bantered with the Espinal Adler Team (Marie Espinal and Jeff Adler) at Douglas Elliman Real Estate about the market which has been invaluable for on the ground intel. And we’ve become friends. When Jeff and Marie asked me to be formally interviewed for their blog “The Apple Peeled” I was happy to do so, especially because I could veer off the road into issues about the current mortgage and appraisal process. This “The Apple Peeled” blog post: Ask the Experts: Market Dynamics with Jonathan Miller was distilled from the 90-minute conversation (I could have gone on for 5 hours) I had with their team.
I hope you find that this apple was fully peeled:
Jonathan Miller’s Market Outlook
The number of units sold in Manhattan in 2018 was down by more than 14 percent compared to the previous year. The brokerage industry tends to be very linear in its perception of the market, so many believe when the market is rising, it will rise forever. And, in-turn, when the market falls, it will fall forever. That approach can lead to overreaction.
The 10-year Challenge (2009 vs. 2019)
Some analysts are even comparing the current cycle to the last downturn and the housing bubble in 2009, but Miller outlined quite a few differences between then and now.
In 2009, the average discount from listing was 10.2%. In 2018 the discount was 5.2%. In ’09, Miller said sellers were anchored to the “pre-Lehman, pre-financial crisis asking prices” and had to travel farther on price to meet a buyer. (Miller measures listing discount by the percent difference between the contract price and the price that the property was listed for sale at the time of contract – not when it was first listed). The most recent asking price is “really the moment the property entered the market,” he said.
Miller said there are more buyers today compared to 2009, but those buyers are “very jaded about what value is.” Meanwhile, sellers are anchored to another market completely, he said.
The change in tax laws in 2018 and a several-month stretch that saw mortgage rates rise before recently dropping close to previous levels had both buyers and sellers re-calibrating what value is. That process can take time.
“If a seller overprices a listing, it takes them up to 2 years to de-anchor from what their price was without thinking that they left money on the table,” Miller said. “The disconnect between buyers and sellers is measured by lower sales volume.”
Starter Segment vs. High-End Luxury
For the last two years, Miller has said that the NYC market is softer at the top and tighter as you move lower in price.
Overall inventory is up by about 17%, with a significant amount of supply coming from the studio and 1-bedroom market. Studio inventory is up 21% percent.
“The pace of the starter market is still the fastest of all segments,” Miller said. “It’s just not as detached as it was because now you have more supply.”
Interest Rates and Their Impact
Typically, rates rise when the economy is strong. The low rates we’re seeing today understate the strength of the current economy, according to Miller. “That’s the disconnect.” In the long run, interest rates do not impact price trends. Mortgage rates have trended lower for three decades, Miller said, but housing prices have fluctuated up and down during that same lengthy stretch.
Mortgage rates weren’t wildly different in ’09 compared to today. In a recent report, Miller stated that an adjustable rate mortgage rate averaged 4.38% in 2009 and was at 3.98% using the same metrics in 2018.
Miller said that real estate investors should stop trying to perfectly time the market (both with rate and supply vs. demand). Perfect timing is a concept that was born out of the housing bubble, he said, when investors viewed housing as a highly liquid stock, instead of in its proper context. “(Real estate) is more of a long-term asset.”
In-Depth Look at the State of Appraisals
“There was nothing learned from the bad behavior of a decade ago,” Miller said, reminding himself of a Mark Twain quote. “History doesn’t repeat itself, but sometimes it rhymes,” Jonathan Miller recited. Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., said federal regulators are acting irresponsibly in their effort to reduce and perhaps even eliminate the need for an appraisal as part of an overall effort to erase “friction points” that slow-down the mortgage application process.
Miller said the regulators were more concerned with collecting fees than they were with protecting the American consumer. He likened the subtle de-regulation to the housing bubble of a decade ago, pointing out that regulators were getting paid by the failing investment banks they were rating back then. Now, he said, regulators and both Fannie Mae and Freddie Mac are getting paid whenever loan volume passes through those agencies. (Fannie Mae and Freddie Mac are Government sponsored enterprises that purchase mortgages from banks and mortgage companies in an effort to create liquidity so that lenders have the capacity to lend to more homebuyers).
The Office of the Comptroller of the Currency (OCC), The Board of Governors for the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) proposed a rule to amend the agencies regulations requiring appraisals for certain real estate related transactions. The proposed rule would increase the threshold level at, or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000.
In response to our request for comment, spokespeople for the FDIC, the OCC, and The Federal Reserve said they do not comment on proposed rules during the rulemaking process.
Mortgage volume has trended lower despite rates falling steadily since the housing bubble, because lenders don’t want to take on risk, Miller said. “They’re in the fetal position. Banks are afraid of their own shadow.”
The tremendous amount of regulation implemented since Dodd Frank has led to mortgage lenders filling Fannie and Freddie’s portfolios with low-risk “pristine” mortgage bundles. But with rates so low, margins are so compressed, regulators need to stimulate volume to make money, according to Miller. “I think (Fannie and Freddie) are emboldened to take more risk.”
The push for fewer mandatory appraisals isn’t the only thing that has hurt the appraisal industry since the Dodd Frank Act was passed in 2010. The evolution of the mortgage industry’s use of the Appraisal Management Company (AMC) has led to a collapse in quality of appraisals ordered by banks, Miller said. He described the AMC as an institutional middle man that takes more than 50 cents on the dollar away from the professional appraisers who do the actual work.
“It’s like a Hollywood actor paying their agent 60% instead of 10%,” Miller said. “The mortgage industry is trying to widgetize the appraiser.”
The AMC is supposed to act as a communication barrier between the appraiser and the loan officer or mortgage broker, to thwart undue pressure to bring appraised values in at specific numbers. But according to Miller, the AMCs are under the same types of pressure that an individual appraiser might face. Some AMCs receive hundreds of thousands of dollars every month by way of appraisal orders placed by big banks. At least at the sales level, the banks apply pressure to the AMC to not “kill deals,” said Miller, who has testified in several class action lawsuits against AMCs.
In many instances, Miller and his firm were hired to do sample reviews of appraisals that came through AMCs. Often, the AMC would utilize appraisers in the market that would always “hit the number,” Miller said. A lot of those appraisers were ignoring valid comps, sometimes from directly across the street that were virtually the same as the subject property. “The AMC encouraged it because they were getting the work,” he said.
Appraisers are pushing back and there are already signs that AMCs were beginning to crumble, Miller said. Quality appraisers are turning away bank work when they know the order is coming in through an AMC because they’re not happy working for less than they deserve and because they’ve been reduced to “form-fillers,” Miller said.
The Apple Peeled Blog, February 12, 2019
Espinal Adler Team at Douglas Elliman Real Estate
Tags: Espinal Adler Team, Marie Espinal, Jeff Adler, The Apple Peeled
During the Super Bowl advertising blitz, the most controversial advertisement seemed to be (no, not Mountain Dew’s PuppyMonkeyBaby) Quicken Loans RocketMortgage Super Bowl Ad: What We Were Thinking
David Stevens, CEO of the Mortgage Bankers Association was annoyed at the public outrage.
Wow – this piling on @QuickenLoans is outrageous. They try to make a complex process easier for qualified buyers https://t.co/sR8ulREGyq
— David H. Stevens CMB (@DavidHStevens) February 9, 2016
Even the Urban Institute’s Laurie Goodman who is another voice of reason, writes a blog post on Why Rocket Mortgage won’t start another housing crisis.
I am one of those who were angry after seeing the QL commercials that aired before the Super Bowl and my disbelief continued after watching the Super Bowl ad. I lived the insanity and the QL commercial was completely tone deaf and gave me great concern about repeating mistakes in the past. In fact I was so concerned that I made the QL Super Bowl commercial the cornerstone of last week’s Housing Note: Rockets Engineered to Amaze Housing: What was Quicken Loans Thinking?
A week later my view on the ad hasn’t changed and in all due respect to Laurie and David, I think they missed the forest for the trees (there’s a digital v. paper pun somewhere). I’ll explain by going through their own points:
The real reason for the pushback on this rocket thing is not because we are anti-digital, anti-efficiency, anti-credit easing, anti-automation or anti-polyester bellbottoms. The pushback comes from the messenger being the second largest mortgage lender in the U.S. who marketed their product seemingly devoid of any understanding of the housing bubble, which after all, was really a credit bubble.
And it becomes even more clear to me as an appraiser, looking at their complete reliance on appraisal management companies and how awfully unreliable that post-financial crisis industry really is at estimating collateral, that their judgment is flawed in the long run.
The same sort of promises and expectations were made during the run up of Countrywide Mortgage. We are nearly 9 years down the road from the 2007 implosion of American Home Mortgage and those 2 Bear Stearns mortgage hedge funds and yet economically, the world is still in the hangover stage.
I don’t really believe that QL’s Rocket Mortgage product will bring down the world’s economy as we saw with financial engineering in the last cycle. But it is a concern and unbelievable that this was the messaging they chose to go with. As Mark Twain said (paraphrased) “History doesn’t repeat itself but sometimes it rhymes.”
Please watch that commercial again.
Tags: Mortgage Bankers Association, HousingWire, Quicken Loans, David Stevens, Laurie Goodman, Urban Institute
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Read my latest Bloomberg View column Want a House? Good Luck With the Down Payment. This post also went #1 on the Bloomberg Terminal and on the public facing BloombergView.com site for 2 days. Super crazy.
Here’s an excerpt…
Saving for a down payment has long been a big challenge for anyone who wants to buy a home. And it got harder after the financial crisis, as lenders insisted on down payments of 20 percent or more for conventional mortgages, which make up the bulk of the market…
My Bloomberg View Column Directory
My Bloomberg View RSS feed.
Tags: downloads, coventional, Mortgage
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Read my latest Bloomberg View column Real-Estate Agents Ride High Again.
It was disappointing to have so many Realtors go on the attack over this piece showing they missed the entire point – I was writing about the trend, not the dollars or the splits. Are commission incomes higher in say Manhattan than in rural Texas. Doh! The very idea that incomes are rising after years of low transaction volume plus the lack of resurgence in NAR membership since the financial crisis has made for a little less competition today. This seems like good news to me for the industry. But with the barrier to entry so low, the window will close sooner than later.
I even had a PR executive at NAR send me a critical email concerning my numerical calculations and results but made the mistake of exposing her significant lack of understanding about what data NAR actually publishes. To avoid embarrassing her I opted not to share the letter in this post.
Here’s an excerpt…
This is turning out to be a pretty nice time to be a residential real-estate agent. As the housing market recovers, average income has been rising faster than sales largely because there are fewer agents planting for-sale signs…
My Bloomberg View Column Directory
My Bloomberg View RSS feed.
Tags: real estate brokers, commissions, transaction cost, NAR, National Association of Realtors
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Leigh Kamping-Carder over at Brick Underground put together a pretty cool infographic that covers the sales process of a NYC apartment.
Tags: Leigh Kamping-Carder
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Read my latest Bloomberg View column Housing Market Blows Hot and Cold.
Please join the conversation over at Bloomberg View. Here’s an excerpt…
The northern third of the U.S. is locked in a straitjacket of snow, ice and bleak weather better suited to staying at home than going out and hunting for a new one. I can almost hear it now: Remember how awful last year’s polar vortex was for the fledgling housing-market recovery?…
My Bloomberg View Column Directory
My Bloomberg View RSS feed.
Tags: Seasonality, Seasonal Adjustment, average temperature
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Back when I was in college, a good friend of mine owned a large Michigan sod farm with his father – acres and acres of putting green quality sod. They wanted to upgrade their big tractor so I joined him on his visit to the local tractor dealership – International Harvester (my parents tell me I am a distant – really distant – relative of John Deere).
[Source: Hemmings]
The tractor they were looking at included air conditioning and a surround sound stereo system. It was impressive. The salesman said that if they bought the tractor that month the dealership would throw in an International Harvester truck.
My friend’s comment to me under his breath was something along the lines of “looks like we are actually buying the truck too.”
Jhoanna Robeledo’s New York Magazine piece on the guy who throws in a Tesla if you buy his condo talks about this marketing technique. Using a Tesla is buzz worthy as a well thought of brand – after all marketing is about getting eyeballs on the listing – but is it effective? Does this technique actual sell properties?
In my view throwing in such a large concession is a red flag signifying the property is over priced enough to cover the seller’s cost of the “gift.”
Econ 101: There is no such thing as a free lunch.
We’ve seen this marketing gimmick attempted with other cars such as a Prius, a Porsche, a Cadillac and Ferrari.
The funny thing is, you never read a follow-up article that shows how this marketing technique/gimmick was successful.
A buyer for the condo in Jhoanna’s article would have the financial wherewithal to buy their own Tesla and likely isn’t thinking about buying a car during their visit to the property.
We don’t see these extreme marketing gimmicks tried with low margin properties. “If I buy this $75,000 condo I get a free Tesla!” Of course not – the condo seller in this “Tesla” story is telegraphing to a potential buyer the listing is over priced.
Yes, in a typical suburban transaction, a seller may throw in a used lawnmower to close the sale, but this is not something that is usually promoted during the actual marketing of the property.
NEWSFLASH Buyers are a lot smarter than this Tesla-giving away seller is giving them given credit for.
Tags: Jhoanna Robledo, John Deere, farming, tractor, Tesla, Porsche, Ferrari, Prius, Cadillac
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Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.
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You'll be able to choose from an array of robust housing metrics compiled using research developed during the preparation of our market report series. Expanded significantly from prior offerings, use this resource to build charts and custom data tables or leverage your own information for more powerful research and presentations.
In the meantime, here is a small sample of the aggregated data we will provide.
Forbes ('20-)
Appraisersblogs ('17-)
'Three Cents Worth' column 3CW ('05-'16)
When Curbed was acquired by Vox, my eleven years of 3CW chart art and column links were broken on Curbed NY, Curbed DC, Curbed Miami, Curbed Hamptons, Curbed LA, and Curbed Ski.
Many of my 3CW charts can be found here:
Curbed 3CW Full Chart Archive
Op-ed column ('14-'15)
'Economic Spotlight column ('03-'09)
New York Times experiment ('08-09')
Huffington Post (09')
Favorite "How to Value" Posts
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