London Calling Reminds Me Of The Expanded Mansion Tax
When I was a sophomore in college, The Clash blew up and they were the only band that mattered. Most of my friends were hooked on REO Speedwagon, Styx, Boston, Journey, and Foreigner. While I was tapping my foot at parties, I never bought any of that crap. I was definitely a music snob. Talking Heads, Pink Floyd, Roxy Music, and The Clash were a first priority and I took pleasure in annoying my roommates when it was my turn to use the turntable.
A while ago I came across the Joe Strummer/The Clash lyrics to ‘London Calling’ and read them again, something we used to do when we all bought records. Because there is always a housing angle to everything in my life, it seemed appropriate to bring this up now because of the shift from the NYC “pied-a-terre” tax to the expansion of the mansion tax. While the “ice age was coming” with the former tax proposal, the last line on Joe Strummer’s lyric sheet says it all: “After all this won’t you give me a smile.”
But I digress…
The Mansion, State & NYC Transfer Tax Increase, Illustrated
With the word soup of tax talk swirling about without oyster crackers, I thought I’d attempt to bring some sanity to the analysis, so market participants have some useful context.
The key item for this discussion is that these taxes occur at time of sale, unlike the pied-a-terre tax that is annual and would compress luxury housing prices by as much as 30% and essentially stall the new development market. This is not that type of tax.
The impact to the tax over the long run will come directly out of the seller or developer’s pockets so there will be an impact to the market but it is not expected to be catastrophic to real estate. This is being introduced along with congestion pricing which really go together. The latter encourages the use of public transit (at this point most mansion tax funds will go to the MTA) while public transit is breaking down for lack of funding.
I dropped a sales price into our model to generate the before and after tax scenario and as indicated by the following table, the impact is clearly progressive.
Elliman Report Released: Q1-2019 Manhattan Sales & Q1-2019 Northern Manhattan Sales
The quarterly market report gauntlet begins…
As Housing Notes readers have known, I’ve been authoring an expanding series of market reports for real estate firm Douglas Elliman. The first market and report I ever wrote covered the Manhattan market.
This quarter’s report had quite a bit trend data that showed how the market was weak. This came with the backdrop of the new Mansion tax increase that replaced the Pied-a-terre Tax horror show.
It’s always awesome when a market report story comes with a chart and Bloomberg never fails to disappoint.
Our Northen Manhattan submarket report was also released.
Here are the talking points for both reports:
MANHATTAN SALES MARKET HIGHLIGHTS
Co-ops & Condos
– The record $238 million sale skewed average and average price per square foot upward 5.8% and 4.7% respectively
– Median sales price slipped nominally year over year for the fifth consecutive quarter
– Median resale price rose to new record, increasing for eighth consecutive quarter
– Number of first quarter sales reached its lowest level in a decade and was 16.4% below the two decade average of all quarters
– Number of sales slipped year over year and inventory rose respectively for the sixth consecutive quarter
– Largest inventory growth was seen in the studio and 1-bedroom markets
– Lowest market share of new development closings in four and a half years
– Sales above $5 million fell more than 11 percent but sales above $20 million was second highest level in at least nine years
– Only price segment below $5 million to see sales growth was from $1 million to $2 million
NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS
Co-ops & Condos
– All price trend indicators edged lower as sales declined annually for fifth time in the past six quarters
– Only price segment to see gain in sales share was from $1 million to $2 million
– Northern Manhattan sales share of all Manhattan sales was highest in more than two years
– Listing inventory rose year over year for the fourth straight quarter
– All price trend indicators rose year over year, consistent with gain in average sale square footage
– Listing inventory rose year over year for the fourth straight quarter
– The average size of a townhouse was the largest in three years
Bloomberg TV 4-2-19: Manhattan Housing Conditions
This week’s Bloomberg Trifecta…
After the publication of our Q1-2019 Manhattan Sales Report for Douglas Elliman, there was a coverage by Bloomberg (and others): Bloomberg reporter Sydney Maki, anchor Vonnie Quinn on Bloomberg TV and a subsequent drive-time Bloomberg Radio interview with Denise Pellegrini.
(For a more detailed analysis with charts, commentary and reports, subscribe to my weekly Housing Notes, published on Fridays.)
Walking Your Dog: Stock Market v. The Economy
Josh Brown, the prolific writer behind The Reformed Broker created a terrific video : How I explain the stock market vs the economy.
He closes his post with:
Understanding the economy is a helpful exercise. Placing market bets as a result of this understanding is a carnival game on the midway.
Now watch the video and think of it in the context of the housing market. Crazy to rely on the stock market for housing insights, right? Right.
Double Taxation: Hitting ‘Em When They’re Down
My friend Barry and others have shared this quote with me – since it references our research so I thought I’d share.
I’m going to whine again about the lack of the SALT deduction and its negative impact on the economy after seeing the stats yesterday on Manhattan residential real estate. According to Miller Samuel Inc. and broker Douglas Elliman, transactions in Q1 fell to 2,121, the least in 10 years and down 5.2% y/o/y. Remember back what Q1 2009 was like. It’s also the 6th straight quarter that purchases have fell so there is a supply issue here as well and a general slowing anyway. So at least in NYC, those lower mortgage rates did nothing to help as buyers for higher priced homes in high tax states reevaluate. Multiply this reaction to other high tax states and you have a real economic impact on your hands.
Double taxation is never well received.
Peter Boockvar – The Boock Report
This Week in Aspirational Pricing
50 Cent sold his place! It only took twelve years! Kathy Clark at WSJ broke the story: 50 Cent Sells Massive Connecticut Compound for 84% Less. In a market that averages just over $300k, the 2001 purchase from Mike Tyson for $4.1 million remains the record. The $2.9M sale by listing agent Jennifer Leahy at Douglas Elliman showed the market how it’s done. Unique properties can take years to sell. My favorite description of the place:
At approximately 50,000 square feet, the 52-room compound is much larger than other homes in the town of Farmington. The original listing pictures show a basketball court with the logo for Mr. Jackson’s G-Unit hip hop group, and a night club decorated with murals depicting Mr. Jackson’s large back tattoo and of him wearing a bedazzled cross medallion and pointing a gun.
Question: With the new AP Style Rules that just came out, should “50 Cent” be spelled “Fifty Cent?”
Elliman Magazine: Chart Candy for Five Markets
Each quarter, I am asked by Douglas Elliman to provide 5 charts on whatever markets I cover for them for their Elliman Magazine. I have no criteria for it – just that its interesting. In fact, it reminds of my old ‘Three Cents Worth’ column for various iterations of Curbed for more than a decade – here are a slew of charts I created for my old column.
OMG. This confirms that half of my adult life has been spent using Excel while on the commuter train.
Our favorite charts of the week of our own making
(For earlier appraisal industry commentary, visit my old clunky REIC site.)
Hybrids Are Super Dumb But Appraisers Have A Choice
The hybrid appraisal topic cropped up this week across the appraiser blogosphere and really it comes down to these points:
- Hybrids are a diluted form of appraisals that are something less than a full report and some clients want that.
- The mortgage and regulatory world seem to want them under the guise of efficiency and cost benefits which do not exist.
- The world doesn’t know what it wants from appraisers within the mortgage appraisal world but they seem to value our services little more than what they are willing to pay an untrained, non-standardized inspector.
- Ironically as an industry, we’ve been unsuccessful conveying our value to our users, especially because the damage that follows this type of crap takes years to appear.
- It’s a free country and service providers can offer whatever they want to you. It follows then that it is a free country and you don’t have to accept this work if you don’t want it. Some appraisers do seem to like working at home all day but that rationalization will damage the full fee business.
- It is a fact that hybrid quality is less than in the appraisal where the appraiser inspected. Risk models for the bond market don’t consider this yet and when they do, mortgage rates will rise.
- Complaining as an industry is important but when we do, we need to make it about the damage to the public trust, the taxpayer and the consumer. That’s really who matters in this discussion.
My battle cry a few years ago “There is no shortage of appraisers. There is only a shortage of appraisers will to work for 50 cents on the dollar.”
The same thing applies here.
OFT (One, No Two Final Thoughts)
“Many of the classic skyscrapers that define New York City’s skyline have their design roots in a monumental 1916 zoning law, which established “setback” requirements for buildings above a certain height. In the heart of the Financial District, the Equitable Building, a historic skyscraper that predates the law, remains a symbol of the excesses of the pre-zoning era. (video by Raymond Schillinger) (Source: Bloomberg)”
It took me a while to understand that this cartoon is actually a #dataviz showing research from the American Time Use Survey. How do Americans spend their day? Source and more detail about the survey here: https://t.co/MkydawMaLC pic.twitter.com/OxIdvEB7NO— Simon Kuestenmacher (@simongerman600) June 15, 2018
Brilliant Idea #1
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Brilliant Idea #2
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See you next week.
Reads, Listens and Visuals I Enjoyed
- Inflated Credit Scores Leave Investors in the Dark on Real Risks
- Josh Brown: How I explain the stock market vs the economy [CNBC]
- The Northeast Is Becoming Apartment Country [Bloomberg]
- A Luxury Home Firewall Could Save This Neighborhood From Amazon’s HQ2 [Bloomberg]
- Trump Pick to Oversee Fannie Mae and Freddie Mac Advances in Senate [The Wall Street Journal]
- The winding history of Trump’s first major NYC real estate project [Curbed]
- Harvard’s Fencing Coach Sold His House to a Prospective Student’s Dad for Double Its Listed Value. Then the Kid Got In. [Slate]
- Affordable Housing Crisis Spreads Throughout World [The Wall Street Journal]
- The Ultimate Home Field Advantage [The Wall Street Journal]
- New chapter for Story? Entire town goes up for sale for $3.8 million [BC Democrat]
- Contractor Sues Fortis Over ‘Unsafe’ Leaning Condo Tower Near Seaport [Commercial Observer]
- The rent’s ‘too damn high’ in rural America, too [Curbed]
- This calculator shows how the new mansion, transfer taxes work [The Real Deal]
- Compass strikes deal to buy Stribling [The Real Deal]
- Former Jack White residence in Indian Village asks $1.1M [Curbed Detroit]
- New York state budget raises the mansion and state transfer tax to fix the MTA [Brick Underground]
- In Berlin, a Radical Proposal to Combat Rising Rents: Expropriate Big Landlords [Wall Street Journal]
- Finally! 50 Cent Sells Opulent Connecticut Mansion [Bloomberg]
- Press Releases: Sale Prices Jump After Communities Named Opportunity Zones [Zillow]
- American Families Can’t Afford the Rent – Blog [Joint Center for Housing Studies of Harvard University]
- Update on the New York State Budget Agreement [REBNY]
- Old Buildings House Far Fewer People Than They Did 50 Years Ago. What Happened? [Slate]
- The Malibu House That Was Prepared for One of the State’s Worst Wildfires [The Wall Street Journal]
- Data: Asset Relativity (and the Case of Bay Area Housing) [Andreessen Horowitz]
- Fort Worth Announces Plans to Sell Zoo Land [CandysDirt.com]
- Vroom. Vroom. The First Penthouse Sells at Downtown Miami’s Aston Martin Tower [The Big Bubble Miami]
My New Content, Research and Mentions
- Manhattan real-estate sales just booked their worst first quarter since the financial crisis [Markets Insider]
- Amid Another Sluggish Quarter, the Manhattan Real Estate Market Finds a $20 Million-Plus Silver Lining [Robb Report]
- Tax targets [The Real Deal]
- The Manhattan Housing Market Is On Its Worst Cold Streak In 30 Years [Zero Hedge]
- Why 50 Cent Losing $1.2 Million On His Connecticut House Still Might Be A Good Thing [Forbes]
- New York City Luxury Home Buyers to See Tax Bump [Mansion Global]
- Manhattan Real Estate Market Trends [CBSN]
- Report: New development drags down prices in a 'polarized' Manhattan real estate market [Brick Underground]
- 50 Cent finally sells his 52-room Connecticut mansion, at a huge discount [Marketwatch]
- 50 Cent discount: Rapper sells Connecticut mansion at a sharply lower price [USA Today/The Advertiser]
- Another Nine-Figure Home Cuts Its Price: The Manor Drops To $160 Million [Forbes Middle East]
- Hedge Fund Manager Buys $230 Million Condo, Boosting Prices In New York [710 WOR]
- Ken Griffin single-handedly boosted Manhattan’s real estate with $238M condo purchase [Fox Business]
- Manhattan Home Sales Drop to Decade Low for a First Quarter [Bloomberg]
- Sales of Super-Prime Manhattan Homes Soar [Mansion Global]
- Home Sales Slow in Manhattan (Podcast) [Bloomberg]
- Rather Than Target The Superrich, New York Opted To Tax The Somewhat Rich [Gothamist]
- Hedge fund manager Ken Griffin buys $238 million condo in NYC, boosting prices [USA Today]
- Miller Samuel CEO Expects Weaker Year for Manhattan Real Estate [Bloomberg]
- 50 Cent's Mansion Finally Sold at a Huge Discount. What Took So Long? [Realtor.com/SF Gate]
- 50 Cent discount: Rapper sells Connecticut mansion at a sharply lower price [USA Today]
- Manhattan real-estate sales just booked their worst first quarter since the financial crisis [AOL.com]
- Manhattan home buyers sit back [Taipei Times]
- Manhattan real-estate sales just booked their worst first quarter since the financial crisis [Insider]
- Despite Record Penthouse Sale, Manhattan Real Estate Market Continues To Slip [Forbes]
- New York is projecting $365M in new real estate taxes. But who will bear the burden? [The Real Deal]
- 曼哈顿一季度楼市成交量连续六季下跌 创10年新低_手机搜狐网 [Sohu Finance]
- NYC's ghost towers [The Real Deal]
- 50 Cent Sells Massive Connecticut Compound for 84% Less [Mansion Global]
- Manhattan Homebuyers Make Fewest First-Quarter Deals Since 2009 [Yahoo! Finance]
- NYC Brokers Relieved as Mansion Tax Replaces a Pied-a-Terre Levy [Bloomberg]
- Manhattan real estate sales fall for sixth straight quarter — longest losing streak in 30 years [CNBC]
- Billionaire Ken Griffin's $238 million apartment helped boost the average Manhattan real estate price by 10% [CNBC]
- Another Nine-Figure Home Cuts Its Price: The Manor Drops To $160 Million [Forbes]
- In Manhattan’s “polarized” market, resi developers are getting rocked [The Real Deal]
- These 10 Cities Will Dominate Home Construction in 2019 [Realtor.com]
Recently Published Elliman Market Reports
- Elliman Report: Manhattan Sales 1Q 2019 [Miller Samuel]
- Elliman Report: Northern Manhattan Sales 1Q 2019 [Miller Samuel]
Appraisal Related Reads
- Fannie’s decision to use real estate agents as appraisers is risky [OC Register]
- Proceed with Caution [VaCAP Board]
- 7 Things Buyers Should Know About PIW's & Hybrid Appraisals Or You're Screwed [Birmingham Appraisal Blog]
- Hybrids: An Appraisal by any Other Name…[Appraisal Buzz]
- It might not be an appraiser at the inspection due to new “hybrid” appraisals [Sacramento Appraisal Blog]
- The Big Question [Valuation Digital]
Extra Curricular Reads
- Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street
- Opinion | Are the Clash still the only band that matters?
- PODCAST: Ref, You Suck! [Against the Rules with Michael Lewis]
- The Streets Were Never Free. Congestion Pricing Finally Makes That Plain. [The New York Times]
- PODCAST; Michael Lewis Discusses the Culture of Finance [Masters in Business]
- This or That – Season 3: 1977 Chevrolet Camaro Z28 [Hemmings Daily]
- Late potato planting could affect french fry supply [marketplace.org]
- Meet The Fish Of The East River [Gothamist]
- The Strange Beauty of Salt Mines [The Atlantic]
- PODCAST: The Decades-Long Hunt for the Golden State Killer by Without Fail [Gimlet Media]
- Photographing the New York City Subway Cars That Retired as Artificial Reefs [Atlas Obscura]
- Where in the U.S. Are You Most Likely to Be Audited by the IRS? [ProPublica]
- 616: I Am Not a Pirate [This American Life]
- Death by a Thousand Clicks: Where Electronic Health Records Went Wrong [Fortune]
- The difference between a snafu, a shitshow, and a clusterfuck [Quartz]
- 'The Matrix' Code Came From Sushi Recipes—but Which? [Wired]
- New York Agrees to Congestion Pricing, Mansion Tax and Plastic Bag Ban in $175 Billion Budget Deal [The New York Times]
- The Matrix Is Nothing Without Its Sequels—Nothing! [Wired]