Churning Housing: Affording, Buying, Renting

I caught this news story with the best title ever: Worst Greyhound bus ride ever departs Cleveland for New York hours late and winds up in Toledo. I thought it brilliantly represented the concept of “churning” when it came to housing affordability – and who doesn’t love a good bus story that uses excuses like “Road Failure” as a reason for an insane delay.

but lets get back on the road…

Elliman Report: Manhattan, Brooklyn & Queens Rental Report April-2018

Another month goes by and another New York City rental analysis is upon us. If you’re new to these Housing Notes, you won’t know that I’ve been authoring a series of market reports for Douglas Elliman since 1994. They published my research for the April 2018 rental markets in Manhattan, Brooklyn and the northwest region of Queens.

First of all, we need to get the most important issue of the study out of the way. The article that referenced the report was yesterday’s number 1 most emailed article on the Bloomberg terminals worldwide (350,000± subscribers).

And a chart…

The basic premise across all market areas was that the rental market continued to soften:


  • Fifth consecutive monthly year over year decline in median face rent
  • Third highest recorded landlord concession market share in seven and a half years
  • Market share of studios and 1-bedrooms as expanded as larger apartment share slipped


  • Reached highest recorded market share of landlord concessions for the fifth consecutive month
  • Decline in year over year net effective median rent for eleventh time in twelve months
  • Highest combination of free rent and owner pays commission in over two years

Queens (NW)

  • Fifth record market share set for landlord concessions in past seven months
  • Eighth time in past nine consecutive months with year over year decline in net effective rent
  • Largest new development market share in eighteen months

Here is a sampling of our charts (full gallery):

Manhattan Absorption Rate for April (Months to Sell)

[click to expand]

Visualizing Manhattan’s Occupancy By The Hour

This is what Manhattan’s occupancy looks like on an hourly basis. With a 2 million Manhattan overnight count, the population doubles to 4 million during the workday peak Wednesday at 2 PM is the weekly peak. I think it is quite interesting to see northern Manhattan behave like the outer boroughs – the population declines during the day. However, the remainder of the island to the south rises during the day. At peak density, excluding Central Park, the population is about 100,000 per square mile north of Central Park and 280,000 per square mile south of Central Park.

Check out the interactive visualization: Manhattan Population Explorer

This Week in Aspirational Pricing

First, some tractor-talk.

Some sellers simply NEED to sell at a certain price no matter the logic or market evidence presented. When I was in college in the late 1970s, a friend of mine was a sod farmer, and I went with both him and his dad to an International Harvester dealership to buy a new tractor. The new model included surround-sound stereo, air conditioning and other amenities consistent with luxury cars at the time.

And if my friend’s dad bought the tractor, they’d throw in an International Harvester Scout for free.

That seemed pretty extravagant to me, having spent my high school years driving an old Ford Pinto station wagon that used a quart of oil for every tank of gas despite only having 3 working cylinders and whose exhaust was held on by a Bungie cord. I thought to myself, “why wouldn’t the dealer simply mark down the price based on the value of the Scout? We’ve seen this marketing behavior a lot in the housing market when it turns south and it never seems to work.

But I digress…

There is an $85,000,000 listing in a Manhattan location not known for luxury properties. It has been on the market for 5 years at the same price. It is a 15,000 square foot penthouse apartment with river views. And you also get:

  • Rolls-Royce Phantom — hardtop
  • Rolls-Royce Phantom — convertible
  • Lamborghini Aventador Roadster
  • 75-foot yacht, with five years of docking fees on the Hudson
  • A summer stay in a Watermill (Hamptons) mansion that rents for $350,000 a season
  • A year’s worth of weekly dinners for two at Daniel Boulud’s 65th Street flagship
  • A pair of courtside season tickets to the Brooklyn Nets (valued at around $225,000)
  • A year of services from a live-in butler and a private chef
  • Two $250,000 seats on a Virgin Galactic space flight
  • All transfer taxes paid
  • $2 million construction credit because the sale is actually a number of smaller units and seller thinks it will cost about $7.5 million to combine and renovate

I wish I understood the seller logic here. It is almost as if he has a side bet with someone that he can sell it for $85 million.

New in the Real Estate Lexicon: Churn

It is all about Churn.

Brookings Definition: “Churn” is the sum of additions and subtractions to the housing stock. One of the key reasons for the affordability crisis is a chronic shortage of inventory – demand is rising faster than supply. We simply aren’t creating enough housing supply. But it is not as simple as building more.

Here’s an NPR discussion last summer that was linked to the Brookings piece and is related to the topic: “Why Isn’t The Housing Market Booming The Way Experts Expected?

Small is (trying to figure out how to be the) New Big

I recently shared a Miami Herald article on micro units – as cities try to figure out the housing affordability crisis. One of the thought leaders of the movement has been the NYU Furman Center.

On February 21, 2018, the NYU Furman Center convened a panel discussion that explored the viability of small unit housing in New York City.

Given the New York City’s growing population of single-person households and the need for housing assistance across all household sizes, the panel explored the pros and cons of reforms that the city might implement to encourage the creation of more small units, including self-contained micro units and efficiency units with shared facilities. Panelists also considered how the city might strategically allocate subsidy resources.

Race & Redlining: Fair Housing Act

This video is quite compelling.

In 1968, Congress passed the Fair Housing Act that made it illegal to discriminate in housing. Gene Demby of NPR’s Code Switch explains why neighborhoods are still so segregated today.

Real Estate Blockchain, Not To Be Confused With Cryptocurrency

Blockchain explained from Wired


Tindell v. Murphy, Cal. Court of Appeal (2018)

Here are the documents from the case shared by Peter Christensen, General Counsel, LIA Administrators & Insurance Services:

On May 7, 2018, the California Court of Appeal, Third Appellate District certified for publication its recent decision in a case entitled Tindell v. Murphy. The case involved mortgage borrowers who sued a real estate appraiser blaming the appraiser for a purchase they made in 2005 at the peak of the real estate bubble. The trial court had dismissed the borrowers’ suit because they were not intended by the appraiser to use the appraisal, as the appraisal was prepared for the lender, and the Court of Appeal upheld that decision in a straightforward opinion. However, the opinion was not originally slated for publication, meaning that it would not serve as precedent for cases involving other appraisers.

While it was a straightforward decision, an effort was made by Peter as well as the Northern California Chapter of the Appraisal Institute and the National Association of Appraisers to enable this case to be published so it could be used as a basis for future appraisal litigation.

One key issue here that helps limit the liability to appraisers – in a mortgage appraisal, we aren’t responsible to the homeowner directly since they are not an intended user of the report.

Feedback: AQB/AARO Spring Conference, Seattle, Washington May 2018 – Peter Gallo

Here are appraiser Peter Gallo’s notes from the conference. I have placed a sampling of them below. His fill notes are a good summary of the issues appraisers are facing today:

  • “There is also a focus on redefining the term “inspection” as hybrid appraisals and other alternate valuations address an inspection differently from what the current definition describes.”

  • “The Appraisal Subcommittee (ASC) also gave a brief update and talked about the Tennessee bank appraiser waiver request that had been denied, saying that they had received 166 public comments including several from appraisers who worked with the bank that requested the waivers. The final order denying the waiver request has been posted to the federal register.”

  • “There was an update on AQB Certified USPAP Instructors. There are currently 432 instructors which is down 8.3% from 2017.”

  • “time was spent on the changes to the Real Property Appraiser Qualification Criteria and PAREA. The Board emphasized that the reduction in the criteria was not a result of or in response to any “shortage” or pressure from any groups. The sole purpose was to eliminate barriers or hurdles to entry into the profession.”

  • “The Board is currently speaking with and searching for education providers that can assist them with the development and approval of these practicum courses. Board members emphasized that the new generation of appraisers learn in a different way and that technology and simulation can be used to generate real life scenarios that can replace actual experience and that “boots on the ground” is not necessarily the only way to go in the new world of learning.”

  • Scott [Reuter] from Freddie Mac began the session with graphs depicting demand for appraisals, loan volume and the number of active appraisers showing the correlation between these factors. There were some interesting overlays that were shown including that trainees were mostly involved in appraisals being used for purchase transactions. He showed that while appraiser capacity or the number of active appraisers were somewhat steady over the years, there were spikes and valleys in the demand for their services and some of the spikes well outdistanced the supply of appraisers. He did review their property inspection (appraisal) waiver program and the factors that went into their use. There is a joint GSE (Fannie & Freddie) effort to redesign the current appraisal form (1004) underway. He described the current form as “archaic” and that they are in the first quarter of the first year of a three-year effort to revise the form (so they are at the very beginning of this process). They are considering all options including that there might not be a form at all, but it could even be some sort of online schematic or portal for a give and take of information. He said that the will be a lot of outreach to stakeholders and the pursuit of modernization will involve a lot of listening. He also mentioned that “big data is here to stay”.

  • Jim Murrett from the Appraisal Institute was next to speak, and he discussed the thresholds that had been raised as well as evaluations which banks would like appraisers to perform. He said that there are huge amount of evaluations being done and that they are easier for appraisers to complete them outside of USPAP. He described USPAP as something that is mostly a guideline for regulators and that appraisers are more than capable of working outside of USPAP and still developing a reliable/credible report.

  • Sharon Whitaker with the American Bankers Association gave a brief presentation that included a focus on how everything was being done online in their world and it has happened in a very short period of time. There are no more paper forms, everything is done by logging into online systems. She said that disclosures were also now being completed online and that the requirement for disclosures of fees with minimal allowances for changes put pressure on all to abide by tolerances.

  • “There was a discussion of a need for more consistent training where different supervisors train differently and practicum classes will create a more uniform experience for the trainee. AQB stated that experience is not seen as that critical to training and that the exam is the “gatekeeper” to demonstrate competency. AQB reminded the audience that their requirements are only meant to be a “minimum”. There was also discussion of the “trainee” nomenclature and that the AQB criteria allows for other names to be used, that there is not requirement to use the word “trainee”.”

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 churn;
  • You’ll drive a tractor;
  • And I’ll buy an old Pinto.

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 Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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