Change Stinks: Housing Edition

This has been a weird week. J. Geils died, one of my 1970s/80s guilty pleasures with songs like “Love Stinks.” A fresh and heavy wave of news out of Washington, D.C. that suggested the new administration was going mainstream on economic and foreign policy. Throw in a combination of holiday school vacations and religious holidays that made my commute into New York City from Connecticut, well, reasonable. I also think this week also marks the point in the year where we find out if the post-election bump in housing will continue.

But change is supposed to be good, especially in banking.


In fact, change is a two-way street.


But I digress.

So far, the markets I cover across the U.S. seemed to experience a lull prior to the national elections (summer/fall 2016) and a quick release immediately afterward – much like we experienced in 2012 but without the “fiscal cliff” narrative so the pattern was more subtle. In a number of markets we cover, the brokerage community is pushing hard for the “building momentum” narrative to take hold, hoping that the heightened level of activity can be sustained for the remainder of the year. I’ve always been skeptical of the concept of housing momentum and now I’m starting to doubt that we will see this specifically in NYC. While we are seeing more sales at the higher end of the market that should not be confused with improving conditions in the typical sense. Many of the high end deals that have occured are because the seller traveled a longer way to meet the buyer on price. Sellers and developers are significantly more in sync with the market than they were a year ago, and that’s a good thing for transaction volume.

Week 2: Elliman Market Report Gauntlet

We published 7 Elliman Reports this week, part of an expanding series of market research for Douglas Elliman Real Estate that I began writing 23 years ago.

Before we get into the top level snapshots of all the reports, I wanted to speak about the Brooklyn sales market. During the development housing boom of the past 5 years, the optics on the Brooklyn housing market has been one of an outlier. After all, even with all the tall towers rising in Manhattan, Brooklyn was the first NYC borough to exceed the pre-Lehman high after the financial crisis. But in many ways, Manhattan is the outlier and appears to be several years ahead of the other NYC boroughs. The description of Brooklyn (and Queens) sales markets are one of rising sales, falling inventory and rising prices at or close to record levels. Yet this seems to be the mainstream housing narrative if you look at NAR’s most recent existing home sale report on a year over year basis. Incidentally, I’ve never understood the heavy reliance on seasonally adjusted numbers in housing. As an appraiser I know that the more adjustments that are applied to a data point, the less reliable it is.

Our Brooklyn sales market results got a lot of interest, earning the fourth most read spot on the Bloomberg Terminals world wide, but trailed the woes of the London housing market.

And of course, it’s all about the chart.

Elliman Report: Brooklyn Sales 1Q 2017 The Brooklyn housing market was characterized by records for the overall sales price trend indicators, heavy sales volume and falling inventory. Overall prices were skewed higher by more new development closings that averaged twice the size of the prior year quarter. Borough wide median sales price jumped 16.2% to a record $770,000 from the prior year quarter. This was the third consecutive quarterly record set for this metric. Average sales price jumped 25% to a record $993,955 over the same period, and was the second record set in the past three quarters…

Here are some insights on the other markets covered.

Elliman Report: Queens Sales 1Q 2017 The Queens housing market has been performing much like its adjacent Brooklyn neighbor. Price trend indicators showed large year over year gains, sales surged and listing inventory declined as the “Brooklyn spillover” persisted. Borough wide, the median sales price increased 21.3% to $485,000 from the prior year quarter. Average sales price followed the same pattern, rising 17.4% to $558,259 over the same period. The luxury market, representing the top 10% of all sales, showed similar gains. Luxury median sales price…

Elliman Report: Manhattan, Brooklyn & Queens Rentals 3-2017

MANHATTAN Despite a modest rise in net effective median rent, the use of concessions by Manhattan landlords more than doubled to the second highest market share on record. Median net effective rental price edged up 1.2% to $3,294 from the year ago period. Landlord concessions represented 28.4% of all new leases, up from 13.6% in the same period a year ago. Over the past several months growing use of concessions…

BROOKLYN Median face rent moved 2.6% higher to $2,847 above year ago levels with the rise attributed to sharp gains in price and market share in the lower half of the market. The market share of studio and 1-bedroom new leases jumped 5.1%. At the same time, the median rental price of a studio jumped 9.3% and the median rental price of a 1-bedroom rose 6.9%. The market share of rentals with landlord concessions jumped to 16% from 6.6% in the same period last year, the second highest share on record. The number…

NORTHWEST QUEENS Median face rent for northwest Queens, an area comprised of the neighborhoods of Long Island City, Astoria, Sunnyside and Woodside, was unchanged at $2,800 compared to the same period last year. After considering the 42.7% market share of OP and concessions, the net effective median rent declined 0.5% to $2,734 over the same period. Landlord concession market share had more than doubled…

Elliman Report: Westchester Sales 1Q 2017 WESTCHESTER Westchester sales volume remained heavy for the seventh consecutive quarter as listing inventory fell sharply. A significant part of the demand came from city renters and trade-up buyers priced out of their respective markets. The number of sales increased 11.2% to 1,824 from the year ago quarter and the most first quarter sales since at least 1982. Single-family sales represented 54.1% of county sales, and the highest first quarter total in a decade. Co-op sales represented 24.4% of county sales, the second largest market-share by property type. Co-op sales volume was robust with…

Elliman Report: Putnam & Dutchess Sales 1Q 2017

PUTNAM Despite the year over year decline in sales volume, the number of sales in Putnam County was the second highest first quarter total of the past 12 years. There were 219 sales, down 3.5% from the prior year quarter. Listing inventory fell 22.4% to 537 over the same period. With high sales volume and much less supply, the pace of the market moved faster. The absorption rate, the number of months it would take to sell all inventory at the current rate of sales was 7.4 months, down from 9.1 months in the year ago quarter. Yet despite…

DUTCHESS Sales volume in Dutchess County continued to rise, resulting in the most first quarter sales in 21 years. The heavy volume overpowered inventory from keeping up with demand. There were 239 sales in the first quarter, up 27.1% from the year ago quarter. At the same time listing inventory dropped 15.7% to 616. As a result, the pace of the market moved faster. The absorption rate, the number of months to sell all listing inventory at the current rate of sales, was 7.7 months,…

Elliman Report: Riverdale Sales 1Q 2017

RIVERDALE Sales declined in the Riverdale section of the Bronx, including Fieldston, Hudson Hill, North Riverdale and Spuyten Duyvil, limited by available inventory. The shortage of sales was more pronounced at the upper end of the market skewing price trend indicators lower. The median sales price was $285,000, down 1.6% from the same period last year. The decline in average sales price was more pronounced due to less activity at the top of the market, declining 14.6% to $394,711 over the same period. By property type as compared to the prior year quarter: co-op median sales price rose 5.8% to $250,000; condo median sales price fell 27.1% as the mix shifted with fewer sales; 1-3 family median sales price rose 13.6% to $906,000. Listing inventory declined 24.5% to…

Charts of the Week

Mortgage Rates, Jobs and Credit Conditions

All the things that actually drive the housing market: credit, jobs, wages, show weakness….

I know it is a waste of time to second guess the Fed but I continue to have a hard time understanding the narrative on multiple rate hikes for 2017…the markets don’t seem to agree.


AI National’s Smackdown at AARO Conference

At the recent AARO conference in Tampa, Florida there was some good news on the backlash against AI National’s efforts to confuse the public about alternative valuation standards. I was unable to attend but got the download from others that were there. My theory on why AI National has gone rogue in recent years is making more and more sense if you assume they realize they are going under in the near term and want to replace the ASC to receive the national registry appraisal fee revenue. It’s consistent with their bizarre “taking” action put in place last Thanksgiving that resulted in widespread membership outrage. I remind the AI membership that the “taking” policy designed to take control of all chapter’s cash for no legitimate reason will likely be initiated on January 1, 2018. I’m hungry for additional insights and debate on my theory so please share your thoughts.

Here’s what happened. There was a panel discussion on alternative valuation standards that featured Scott Robinson, past president of AI (and star of my first post on AI’s adverse treatment of its membership), David Bunton, president of The Appraisal Foundation and Jim Park, Executive Director of the Appraisal Subcommittee in front of an audience largely of state appraisal regulators. The 90 minute session was to include 10 minutes for each panelist to make their case and then the balance of time would be used for Q&A with a hard stop at the end of the 90 minutes. Unfortunately Scott spoke for about 35 minutes without being stopped by the moderator who was a last minute replacement. David and Jim stuck to their 10 minutes. Most of the questions from the regulators in the audience were directed at Scott, who was a “deer in the headlights.” It seemed clear to attendees that his strategy was to fill the time with hot air so that the actual issues could not be discussed. It was not AI National’s finest moment among many bad moments of the past few years. It was good to see the state regulators express such outrage at AI National efforts to confuse the public, Congress and financial institutions. I can’t wait until the next AARO conference.

FDIC Summary of Appraisals and Evaluations

From the FDIC guide:

Four common exemptions to the appraisal requirements: - Transaction value $250,000 or less (Beginning January 18, 2014, certain higher-priced mortgage loans will require an appraisal. See Financial Institution Letter 11-2013, issued March 18, 2013.); - Lien on real estate taken as collateral in an abundance of caution; – Business loan with a transaction value of $1 million or less and not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment; - Subsequent transaction of an existing credit at the institution if certain conditions are met.

Revisiting My Fight With My Refi Appraiser

Last fall I had an appraisal done on my house which is a 200 year old “plaqued” house that is a “why me” assignment for any appraiser that approaches it. The appraisal firm, who I think is pretty good overall, blew the square footage measurements by a lot and then when I protested, gave an appraiserspeak response through the bank that basically said “we’re right.” I told the bank that I wanted a new appraisal at their expense because every previous appraiser had measured the house in a tight range except the last one. I said that if they just had the appraiser remeasure they would remain biased low and not change the comps.

Well, the appraiser remeasured the house and found about half of the additional square footage they missed the fist time but used nearly all the same data. The kicker was that they didn’t change the value of the house saying the original value was in “range” and therefore reasonable. They originally missed 700-800 square feet. The bank defended them because they are a good appraisal firm. I think our industry has learned that it is better in the long run not to admit our mistakes because we will be punished for the change. It is better to stick to our guns and not change anything. I’m not blaming appraisers – I’m blaming the institutions that we work for. Incidentally, we just applied for a homequity line and the appraiser measured the house in line with the previous half dozen appraisers on prior refis, insurance and the purchase.

I remain pretty frustrated with the appraiser who happens to be terrible at measuring, but otherwise good at valuation.

Updates from the Real Estate Industrial Complex

Here are some posts over at my forum known as the Real Estate Industrial Complex where I have been chronicling the unfortunate anti-membership activities of AI National.

Despite State Level Push, AI National Doesn’t Disclose Actions on Website, Unlike Federal

AI National’s push for evaluations (a.k.a. on/off switch for USPAP) occurs on the state level.  Scott D. is all over this issue in a number of states and few if any of the AI membership – especially at the chapter board level – are aware of what is going on.  This makes sense as they have been bypassing the local chapter leadership to insert text in upcoming legislation.  Unfortunately, the AI National page that would host state legislative and regulatory issues remains “under construction.”  According to the Wayback Machine, that page has sat dormant since at least October 2, 2016.

But if you want to know about federal legislation including the Native American Energy Act,  a bill to clarify that nonprofit organizations such as Habitat for Humanity may accept donated mortgage appraisals, and for other purposes, they are readily available.

It seems that current state-level actions are vastly more immediately relevant to the majority of AI’s residential membership.  Again, a significant trust issue between AI leadership and its membership.

A Brilliant Idea

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. They’ll become your house measurer, you’ll get out of your winter funk and I’ll finally juggle basketballs on fire.

See you next week.

Jonathan Miller, CRP, CRE President/CEO Miller Samuel Inc. Real Estate Appraisers & Consultants

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