The Housing Market Is No Place For Sheep

The U.S. housing market is at a crossroads. The mantra of the American Dream has been homeownership first. Our laws and financial incentives favor homeownership. Stalwarts of what we think made the dream occur seem to be slipping away. The mortgage interest rate deduction proposal in the tax cut bill is being reduced, and affordable housing in many cities are now financially further away for many. (We see the same issues in my appraisal profession as appraisers themselves have had a limited say in their future until recently).

So we can whine about it or work harder to understand what’s happening instead of relying on what other people tell us.

Solving the challenges of housing takes sheer will and often wooly solutions to avoid sheepish results (sorry).

but I digress…

Mortgage Interest Rate Deduction Drop Not So Bad For Most

Since the average (not median) sales price of a U.S. home is $287,700, only a small percentage of taxpayers will be impacted by the drop in the threshold to $500k from $1,000,000. Of course, it is reasonable to expect that the deduction will be an easy target for future tax cuts.

According to Brookings, it’s starting to look like it helped create the affordable housing crisis we have now, by encouraging luxury development because that target market tends to itemize their deductions. Honestly, I hadn’t thought of it this way.

First, let’s be clear: The mortgage interest deduction does not raise homeownership rates much, if at all. Countries like Canada, the United Kingdom, and Australia have no subsidies for mortgage debt yet their homeownership rates are slightly higher than ours. Many new U.S. homeowners do not itemize or are in the 15 percent bracket or lower, so the mortgage interest deduction provides little or no current benefit to them anyway.


Instead, the deduction encourages the construction of larger, more expensive houses, which, in turn, leads to higher energy costs, urban sprawl, and fewer investment funds available for business. By encouraging people to finance homes with too much debt, the deduction increased the likelihood of people defaulting when housing prices fell in the financial crisis, thus contributing to the depth of the Great Recession.

After Superstorm Sandy hit the northeast 5 years ago, it became apparent that FEMA was actually encouraging real estate development in low lying areas by offering below-market insurance rates that the public sector could not compete with. The problem with that example is that the federal government was unwilling to make rates competitive because it would impact all people living in these markets, unlike the proposed tax deductions.

Ok, now for something less heavy…

Super Luxury Manhattan Real Estate Already Corrected

I blogged about this already, but for those who missed it on Matrix: One57 Flip Analysis From Manhattan’s Peak New Development:

For those of you that read my weekly Housing Notes, you’ll know I refer to 2014 as “Peak New Development” for the Manhattan housing market. “Peak Luxury” works as a label too.

Bloomberg news broke the story that a $50M+ condo purchased in 2014 just sold at a foreclosure auction for $36,000,0000. There were five bidders. It’s been the fourth resale since the market peaked and the sixth overall – so I created a graphic of all the resales to show how they fared before and after the 2014 “peak.”

The Bloomberg story (that I got to chime in on) lays out the details of the One57 auction sale: One57 Foreclosure Shatters Price Dreams at Billionaires’ Tower

The story reached #1 as the most read on the 350k± Bloomberg Terminals worldwide yesterday.

It is important to remember that there are still a fair amount of units remaining that are priced at 2014 levels. Extell, the developer, has their work cut out for them to compete with current market conditions.

While One57 is a symbolic poster child for the new dev phenomenon, it is not a proxy for the entire new development market. Some projects were priced more reasonably at the peak, hence they haven’t fallen as much. In addition, the quality and design of each project can vary greatly. One thing is clear – since the 2014 peak, investors don’t have the same potential for big and fast returns on flips – their initial strategy was to buy early and realize instant equity as the sponsor increased the offering prices. That scenario no longer applies. Since the market has more choices for buyers now than it did back during peak, One57 is no longer seen as a “new” building like it was back then.

CNBC picked up the story – My firm and I get a shoutout during the conversation on Sqawkbox which was pretty cool.

Luxury condo in One57 tower sold in New York City’s biggest ever foreclosure auction from CNBC.

And here’s the transcript on yesterday’s PBS Nightly Business Report show (owned by CNBC) with the shoutout that is making the rounds.

Ride-sharing Apps Actually Cause More Traffic

Curbed San Francisco talks about How Uber’s new ad is contradictory (FYI I disliked Uber’s original leadership and became a loyal Lyft user.

It’s a thought-provoking ad. However, as StreetsBlog also points out, “Boxes” is a great advertisement against Uber. Why? Because Uber’s entire business relies on the very same car use the ad satirizes.

Although in Manhattan, public transportation is the only way to go.

Knight Frank / Douglas Elliman Super Prime Report

Knight Frank, the global real estate firm, has long partnered with Douglas Elliman, the firm I have been writing market research pieces for since 1994, just released a New York Super-Prime Report to explore the new development market. Douglas Elliman Development Marketing provided the data and I provided some sage advice. Here’s a chart from the report:

Upcoming Speaking Events

November 21, 2017 – Bloomberg Television 3:30 PM ET – We plan to discuss the Hamptons housing market and potential tax strategies in light of changes in the proposed tax cuts by the House of Representatives.


BREAKING…AI IS OUT AT TAFAC: Appraisal Institute’s re-application to TAFAC was overwhelmingly rejected

I am rushing out from TAFAC in D.C. to catch a train home to NYC so I will backfill with more detail and links over the weekend, but this is the gist and it starts with:

The Appraisal Institute left the Appraisal Foundation in September 2010 as one of the founding members after a weird unclear feud. It was an early public sign of AI’s toxic senior executive leadership that is no longer in touch with the needs of their membership.

Back then I spoke with David Wilkes of TAF who was a guest on my former podcast and I even offered Leslie Sellers, then president of AI, the opportunity to provide the AI counterpoint. Unfortunately, Sellers emailed me the always dishonest “I’m excited about our future” answer which is how the damaged leadership culture there thinks this is how you handle an unflattering event. Of course, if he answered “to spend more time with my family” I would have believed it (kidding).

After leaving TAF, AI and TAF tried to reconcile repeatedly but it provided to be a waste of time. And in my short time at TAFAC I have been amazed at how much of a distraction they have provided against solving real issues facing appraisers. The hangup was their refusal to agree to the mission statement of The Appraisal Foundation. How can a large trade group want to join an organization but not agree with the mission statement? Yet it makes sense for AI to refuse as they continue to work hard to undercut TAF by providing lobbying efforts and congressional testimony that appears intended to make AI the standard bearer of standards. The irony here is that TAF’s standards were based on AI’s standards back when AI was a founding member.

AI’s standing with their own membership deteriorated sharply in 2016 and 2017 resulting in the outrage expressed across the U.S. and likely had a hand in the resignation of their prior CEO Fred Grubbe when he sought an extension of his contract

In April 2016, TAF told AI that they needed to re-apply to TAFAC if they wanted to be a TAFAC member. Discussions went on and on. At the TAFAC meeting In June, the attendees voted 27-3 to give AI an extension to comply until November 13, 2017. With drama flair, AI sent their re-application which they referred to as an “amendment” on the final date it was due.

Like anyone else who is a member of TAFAC, AI would be required to agree to the vision and mission statement of TAF among other things. These items are spelled out on the TAF home page:

Vision Statement
To ensure public trust in the valuation profession.

Mission Statement

The Appraisal Foundation is dedicated to promoting professionalism and ensuring public trust in the valuation profession. This is accomplished through the promulgation of standards, appraiser qualifications, and guidance regarding valuation methods and techniques.

I assume AI doesn’t like the “standards” reference because they have been working so hard lobbying Congress and state legislatures to insert their standards including evaluation language that will confuse appraiser clients, doing further damage to the appraisal industry. Frankly, their behavior on these matters is against the residential appraisal industry’s best interest and strongly suggests their irrational behavior is caused by a backstory we know nothing about.

During today’s TAFAC meeting, Scott DeBiasio of AI asked a question to the board, referring passive-aggressively to the “bunch of little check boxes” inferring that anyone agreeing to the mission statement was just signing a little thing. Ugh.

Since AI did not agree with the mission and vision statement as was required for re-application, the TAFAC membership committee recommended to the board that the AI application be turned down and their exit date established as of December 31, 2017.

Interestingly, on the next day, that is the moment when AI can take nearly all of their chapters’ funds for no legitimate reason. Remember that the AI senior leadership continues to frequently fly first class with their wives to Europe, China and elsewhere for the international recruiting effort has yet to yield meaningful success.

Someone suggested the TAFAC membership vote should be made by paper ballot. When questioned why the requestor was concerned about using a paper ballot over raising hands, they were concerned that peer pressure would keep voters from providing their true feelings (inferring paper would yield a larger “reject” vote. DiBiasio voted against using paper ballots, obviously. So a paper ballot was taken and AI’s reapplication was overwhelmingly denied by a margin of 2 to 1 or 66% of the votes or 71% if the abstainers were omitted.

Vote to Reject Re-application of AI from TAFAC for incompleteness:

27 out
11 in
3 abstain

This overwhelming vote to essentially remove AI from the table changes nothing in TAFAC because of AI’s lack of contribution, but it changes everything in the context of moving forward and taking advantage of the current positive moment in the appraisal industry. This is our moment as appraisers to effect change. The ball’s in AI’s court so until their executive leadership changes, freeing up everyone else to focus on more pressing issues facing the appraisal community. Bluer skies ahead for appraisers.

Definition of a ‘Power Move’

As an appraiser, I aspire to be able to say this…

Acronyms Define Appraisal Standards (and D.C.)

As I write this, I am in D.C. for the TAF – TAFAC meeting including the ASB committee, representing RAC to discuss 2020 USPAP. A few weeks ago I also presented to IAC of TAF in D.C. If it helps, my initials are JJM but my sister and business partner is DAM, FYI.

When you’re more than a footnote…

A while back I was asked to provide insight into a complex litigation matter – what I would call a “logic piece.” This wasn’t a form appraisal or a valuation, rather it was market insights I have acquired as a real estate appraiser. After the judge’s decision was handed down and it was a favorable ruling, my client’s attorney happily sent it to me, pointing out this footnote and some other references to my work on the case. There are other issues to be resolved so I can’t give specifics.

Appraisers don’t get a lot of positive written (or any other) feedback – so when it takes an unusual form like a footnote, it makes it even more special.

Appraiser Forum & Festival 2018 Will Be In San Antonio Next Year

Phil Crawford (Voice of Appraisal) and Mark Skapinetz (Skap Report) claim their “for appraisers” won’t be the typical conference “Sausage Party.” I’ll be there and hope you will too. They’ll be teasing out more specifics in the coming weeks.

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 love your favorite pie chart, you’ll discover a new pyramid and I’ll finally accept that pigs fly.

See you next week.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads