The Housing Market We Read About Is Hard To Translate To Our Reality (Like Punk Music)

December 27, 2019

When I was a kid growing up in Delaware and The DMV, the Baltimore Orioles were a colorful team to follow, to say the least. So before we get to punk rock housing analogies in the final Housing Note of 2019, we need to scream and yell like Bad Brains Earl Weaver (WARNING: NSFW).

Oh, and I’ve always been a list keeper – my Evernote app is full of them…the cars I’ve owned, co-op hallway space sales, $50M+ home sales, toilet company names on construction sites, like…

Royal Flush
Johnny on the Spot
Jiffy John
Scottie’s Potties – we’re no 1 in the no 2 business
Gotta Go
Call a Head
Mr. John
Don’s Johns

Now for the $50M+ home sales…

But I digress…

Not For Mere Mortals: A Collection Of Year-End Housing Lists

Making a list…of successful aspirationally priced sales…

Back in 2014, I started to observe a U.S. housing market pattern of wildly overpriced luxury housing listings that rarely sold. I dubbed it “aspirational pricing.”

But when some of these aspiration listings did sell, a super-luxury group think seemed to ignite more of these listings and more super-luxury sales – a true herd mentality. When I began to track closings of $50,000,000 or higher sales in the U.S. five years ago and then worldwide, it was clear that these outliers were more than a passing fad.

Tracking these sales is more work than it sounds as it requires constant updating of information, but hey, its a hobby. In my reality, I’ve found it akin to a treasure hunt. There have been a number of stories presented this week using my list and they’re all fun reads.

– The Decade of the Uber-Decadent House: How an influx of global wealth gave rise to supertall condo buildings, megamansions and $100 million home sales [Wall Street Journal/Mansion Global]

– A Record Number of Homes Closed for $100 Million-Plus This Year [Wall Street Journal/Mansion Global]

–

– With Recession Fears Abated, Luxury Housing Markets Enter 2020 [Barrons-Penta]

– This Year’s Top 10 U.S. Home Sales Totaled $1.1 Billion [Bloomberg]

– The 5 most expensive condo sales in 2019 [Yahoo! Finance]

Making a list…of large price cuts to aspirationally priced listings…

– In 2019 a $65 Million Price Cut on a Mansion Wasn’t a Big Deal [Bloomberg]

– The biggest losers in New York real estate of 2019 [NY Post]

– One of New York’s Widest Townhouses Narrows Its Aim to $50 Million [NY Times]

Bloomberg Terminals: Luxury Housing Price Trends – Sales Prices Falling, Rental Prices Rising

For more than a decade, the luxury results from our Elliman Report series are used to power three luxury sales and three luxury rental price indices. While Manhattan luxury rental price trends have risen sharply in recent months, they’ve been climbing for quite a while.

Manhattan Luxury Sales

Manhattan Luxury Rentals

Getting Graphic

My chart below was the basis for the awesome Wall Street Journal chart shown above. I still think “magenta” is a cooler color than “blue.” In an era of weakening luxury housing, 2019 seems to prove that super-luxury transactions have little to do with the overall housing market. The strong showing in 2019 also suggests that they will persist no matter what happens in the housing market for mere mortals.

Appraiserville

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

Happy New Year to all my readers of Appraiserville. I appreciate each and every one of you and wish all of you a successful 2020. I have a strong feeling that 2020 is going to be our industry’s best year in ages! And check out my friends at Find My Appraiser to renew your focus on private work and get someone to help market your services. C’mon, you need help.

Sign of GSE Compression Into One Entity

Here’s one little thought before you sip that New Year’s champagne…

Because we appraisers sweat the details to provide credible valuations, we might miss the macro right in front of us.

A few months ago I suggested that the current pilot programs for wide-scale bifurcation assignments were “dead man walking” per suggestions and insider tips related to actions by the new head of FHFA. He has consistently mentioned his aversion to the additional risk taken on by the GSEs in public speaking. Yes there is already bifurcation out there, but nothing near the scale should bifurcation go mainstream (under false pretenses I might add.)

The GSEs remain in receivership yet specifically Fannie Mae still behaves more like a Wall Street Institution than a government-sponsored entity or an entity in receivership under the federal government that they are. Remember that Fannie has a cost advantage over other financial institutions because they have the implicit backing of The Taxpayer if the mortgage market goes south. Perhaps this is why they are more willing to take risks. The GSEs made that implied guarantee a fact in their 2008 bailout and they continue to push the risk envelope with their pilot projects.

Appraisers have felt that impact first hand with our continued, irresponsible, marginalization by the banking industry who is closely and necessarily aligned with the GSEs.

As a refresher, Fannie got into trouble because they chose to serve only one of their two masters (Freddie just follows the actions of Fannie) during the bubble: “The Shareholder,” and they forgot about “The Taxpayer” – that’s what got them into trouble in 2004-2006 and eventually, by 2008 they were bailed out by us, “The Taxpayer.” And then this.

And then there is this announcement made last week from Reuters: Freddie Mac offers early retirement to 25% of workforce

Why is a GSE trying to reduce its workforce by as much as 25%? Here are two potential reasons:

1. Mortgage volume will collapse in 2020 and they are overstaffed – unlikely – rates aren’t going up in 2020.
2. The FHFA is planning the merger of Fannie & Freddie, a goal; of the current administration.

If option 2 is the more likely, then it makes sense that any bifurcation pilot program – which is more expensive, less accurate and slower than traditional appraisals – is not a needed expansion of their risk profile before such a GSE merger is undertaken. A botched merger could bring down the entire economy so why would FHFA take that chance?

Ok, now sip your champagne!

Happy New Year!

OFT (One Final Thought)

From my favorite music web site, Consequence of Sound, here’s a short and sweet video explaining the disconnect: Punks on Film: The Difficulty of Portraying Punk On Screen

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 punk rock;
– You’ll be more list-orientated;
– And I’ll put an aspirational downpayment on my next super-luxury home.

Brilliant Idea #2

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

See you next week.

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

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