To Go Forward With Housing, We Must Back Up
But I digress…
Manhattan Price Gains Slow As Sales Decline From Last Year’s All-Time Record
There was some great coverage on the release including:
Manhattan’s Housing Market Is Starting to Cool With Sales Stalling [Bloomberg]
Manhattan apartment sales declined 18% in third quarter, as rates rose and markets fell [CNBC]
Manhattan Home Sales Sink in the Third Quarter, But Remain Above Pre-Pandemic Levels [Mansion Global]
Manhattan apartment sales tumble 18% in third quarter: report [NY1]
‘Sellers just as uncertain as buyers’ as the Manhattan sales market pivots to a slower pace [Brick Underground]
Metro area’s resi market slowdown drags on [The Real Deal]
MANHATTAN SALES MARKET HIGHLIGHTS
Elliman Report: Q3-2022 Manhattan Sales
Co-ops & Condos
“Despite the decline from last year’s sales surge, levels remained significantly higher than pre-pandemic.”
- Median sales price rose annually to the second highest on record for a third quarter
- Sales and average price per square foot both fell to the second highest on record for a third quarter
- Listing inventory was up nominally from the prior year’s quarter and pre-pandemic
- Co-op sales fell year over year for the first time in six quarters
- Condo sales fell year over year for the first time in seven quarters
- Luxury price trend indicators expanded year over year for the fourth consecutive quarter
- Luxury listing inventory expanded year over year but remained well below pre-pandemic levels
- New development listings accounted for one-third of all luxury listings, consistent with the decade average
- New development sales declined sharply from last year’s unusual high but were significantly above pre-pandemic levels
- The market share of new development sales was well above the decade quarterly average
Elliman Report: Q3-2022 Northern Manhattan Sales
“Listing inventory expanded as sales decreased across property types.”
Co-ops & Condos
– Sales and median price declined year over year for the first time in seven quarters but remained well above pre-pandemic
– Listing inventory slipped from the prior quarter’s high to the second highest on record
– All price trend indicators fell year over year, for the second time in three quarters
– The number of sales fell year over year for the first time in seven quarters
Commercial Developer Builds Over Brownstone
This was one of my favorite New York stories when I first moved to Manhattan in the 1980s. The “A RENT-CONTROL HOLDOUT SHOWING HER GUMPTION” story broke about 5 months after I moved there. Her obituary had quite a title: TENACIOUS TENANT EXPIRES WITH LEASE. I tried to take my family to places like this rather than the tourist traps!
Like the chicken that played tick-tack-toe in Chinatown. It closed in 2002, unfortunately.
My Favorite Manhattan Chart Of Q3-2022 Because It Shows The Context Of Current Elevated Sales
NYC Co-ops Are Easing Requirements After Realizing They Were Bad For Shareholder Equity
Ever since my Manhattan appraisal career began in the mid-1980s, I also wondered why co-op boards thought that requiring “all cash” buyers made their property values higher. They actually didn’t and we showed this clearly in a joint effort with NYU/Furman Center a while back. And our research was done before there was a significant expansion of condominium development. Luxury co-ops today are generally worth less than a decade ago because the board requirements are too onerous for the next generation of wealth causing them to favor condos.
There was a spectacular read in Bloomberg on this evolving trend: How NYC Co-Ops Are Saving Themselves by Breaking Their Own Rules. If you think boards overreach, how about 50-pound weight limits on dogs in some buildings?
Condos aren’t going away, so all co-op boards, not just the luxury buildings, should be reviewing their entry requirements. Board members may think that they are protecting shareholder equity when they are damaging it.
Contracts Are Down Annually Because Of Higher Rates And Comparisons With A Rocketship 2021
In addition to releasing our Q3-2022 Manhattan research, we also released our US. New Signed Contract Reports. The theme was contracts are down by a third from last year’s boom but generally on par with pre-pandemic levels.
Here are the reports and a sampling of charts from a market they cover:
Elliman Report: September 2022 New York New Signed Contracts
Elliman Report: September 2022 Florida New Signed Contracts
Elliman Report: September 2022 Colorado New Signed Contracts
Elliman Report: September 2022 California New Signed Contracts
How Hard Is It To Predict Falling Housing Prices In Hong Kong?
The clickbait lede suggests the cause is interest rates which may be true in the short term:
Hong Kong’s housing market has survived political change and the COVID pandemic to remain the world’s most expensive. But there’s one thing it can’t escape: rising interest rates.
But I contend ongoing political uncertainty is a far more serious problem than interest rates. Rates ebb and flow but China’s dominance will only continue to expand over Hong Kong government functions and free market conditions, a core value component of housing. Therefore this is clickbait, and I’m here to share it!
🏙Hong Kong’s housing market has survived political change and the COVID pandemic to remain the world’s most expensive. Now, it can fall 30% by 2023, Goldman Sachs predicts.— FORTUNE (@FortuneMagazine) October 6, 2022
Here’s why. 🧵 https://t.co/qwFb6Vxcdi pic.twitter.com/LeoKge4duE
The Compass Chronicles: October 2022 Edition
A continuing saga…
A newstorm erupted when it was reported by Business Insider that Vista Equity Partners look at a possible plan to take the company private. This financial engineering is beyond my expertise, but it is yet another questionmark on the viability of a firm that did not make a profit in the biggest housing boom of the modern era. Vita specializes in taking tech companies private.
- Vista Equity Partners is exploring a deal to take Compass private, sources say [Insider]
Vista would not comment, and Compass denied it happened. Of course, we’ve been down this road before when Compass denied they gave signing bonuses yet it was common knowledge they were.
Compass Denies Report of Takeover Interest From Vista Equity [Bloomberg]
Compass denies private-equity takeover talks [The Real Deal]
Compass denies talks of private equity takeover [RealTrends]
This Week in Aspirational Pricing: $150M
Ray Parisi at CNBC features new high-end listings in such a way that I can’t stop watching. This house rental ask is $1.2M per month?
The Super Luxury Market Is A Circus Sideshow
The graphic for the story “Sizing up the booming global market for trophy real estate” was based on something I use to describe the superluxury market – I thought it looked cool.
My favorite charts of the week of our own making
My favorite charts of the week made by others
Housing market @GoogleTrends searches in U.S. have declined on 1-year basis as high prices and mortgage rates keep large portion of Americans out of market … 2022 looks dramatically different from 2021— Liz Ann Sonders (@LizAnnSonders) October 5, 2022
Len Kiefer‘s Chart Handiwork
(For earlier appraisal industry commentary, visit my old clunky REIC site.)
ASC Asks TAF: What Gives On Resolving The Deficiencies Pointed Out In The NFHA Report?
Since there wasn’t much on CSPAN, I took to perusing the new ASC.gov website and found this September 29, 2022 letter from Jim Park, Executive Director of ASC to Dave Bunton, President of The Appraisal Foundation. As a reminder, TAF is comprised of leaders that wrote the bat-shit crazy letter, the chickenshit letter and are the subject of an active investigation by HUD on whether USPAP promotes a lack of diversity in the appraisal profession (BLS: 98% of appraisers are white).
As you are aware, in May 2021, the ASC commissioned a comprehensive and independent review of the Uniform Standards of Professional Appraisal Practice (USPAP) and the Real Property Appraiser Qualification Criteria (Criteria). The review was intended to focus on whether USPAP, the Criteria, and related courses ensure and promote fairness, equity, objectivity, and diversity, in both appraisals and in the training and credentialing of appraisers. The Council on Licensure, Enforcement and Regulation (CLEAR) managed the review and contracted with a consortium led by the National Fair Housing Alliance (NFHA) to conduct the review.
I’d like to point out that HUD has been doing a legal deep dive into the issues brought up in the NFHA Report.
The best part of this letter is the presentation of the barriers to entry into the profession. I believe Dave is not very active these days so this probably falls on Kelly to address. How long does it take for the leadership to take meaningful action? Right now, appraisers are exposed to improper training on fair housing. That should have taken a few days to fix – remove it from the 7-Hour USPAP update course and remove the 7-Hour Update Course for the next two years since NOTHING IN USPAP HAS CHANGED.
Barrier: College Degree Requirements Barrier: Appraiser Education Hours Barrier: Experience Hours Barrier: Standardized Tests
It’s quite remarkable how long it has taken for TAF to do ANYTHING TANGIBLE with the NFHA recommendations that were issued back in January. Ten months have passed and USPAP is frozen for now. What does leadership at TAF actually do?
Voice of Appraisal On How Appraisal Waivers Could Infer Future GSE Performance
Gotta love “getting stuck in the ditch headfirst” video metaphors!
Cosmic Cobra Guy: Wells Fargo Workers Went on Appraisal-Fraud Bender
Unreal. Once again, appraisers are abandoned and abused.
*** FOR IMMEDIATE RELEASE ***
PUBLICATION: WELLS FARGO EMPLOYEES WENT ON APPRAISAL-FRAUD BENDER
VENTURA, Calif. (Oct. 7, 2022) – It feels like Ground Hog Day all over again. Who can forget the Wells Fargo banker who, stressed from opening fraudulent accounts in the name of hapless depositors, had begun guzzling hand sanitizer? That was in 2016. New revelations from the nation’s second-largest mortgage lender will make the U.S. taxpayer want to take a good long pull on the nearest bottle of hand wash.
Dozens of loan officers at Wells Fargo altered values in the bank’s database, so loans would qualify for so-called appraisal waivers, according to recent reporting from Business Insider. In some cases, Wells Fargo employees slashed $1 million or more off home values, reported the publication. The mortgages, based on the chicanery, were then sold to Fannie Mae and Freddie Mac, both of which are in federal conservatorship.
Business Insider’s reporting indicates loan officers at the bank changed values, since waivers were available only to properties valued below $1 million. Reducing the value of a home in their system below that threshold triggered a waiver. In some high-cost areas where Wells Fargo does considerable business, like the San Francisco Bay Area, databased values – some questionable to begin with – may have been reduced from, say, $2 million to below $1 million.
The American Enterprise Institute warned of potential manipulation of appraisal waivers months earlier. Researchers Edward Pinto and Tobias Peter believed loan officers would rely on Zillow and Redfin and then play Freddie and Fannie against one another. This warning turned out to be prescient.
Some Wells Fargo loan officers – an unknown number of whom have since been terminated – protested the allegations, telling reporters that some of the occurrences dated back to the early days of the pandemic and that guidance from senior managers at the time was ambiguous. Less ambiguous were the commissions they received after altering the data. Fannie has since stepped up efforts to force loan buybacks on lenders who peddled these shaky loans and others to the mortgage giant.
Fraud and abuse appear to be part of the dog-eat-dog culture at Wells Fargo.
Astute observers recall the case of Angie Payden, the Wells Fargo banker in Hudson, Wisconsin, who recounted in 2016 how she’d been pressured by managers to defraud customers in various ways, among them informing them there’d been fraud on their accounts in order to keep closing and opening accounts to pocket bonuses for herself and her bosses. But the stress became too great.
“One morning, before meeting with a customer, in which I knew I was going to have to sell unneeded services, I had a severe panic attack,” Payden told the New York Times. “I went to the bathroom and took a drink of some hand sanitizer. From that point, I began drinking the hand sanitizer all over the bank.” The viscous substance, which she drank between 2011 and 2014, gave her the strength to continue ripping off hapless depositors.
During the fake-accounts era at Wells, managers actively trained branch personnel in how to defraud account holders at scale, pressuring employees like Payden to open redundant accounts and cross-sell products at all costs. The bank later said it had fired 5,300 employees it found responsible. The average was 377 fake accounts per fired employee.
The use of appraisal waivers – equally ripe for abuse — exploded during the pandemic, peaking in 2020 and early 2021, reported the Urban Institute.
The benefit to the lender of an appraisal waiver is that it bypasses the need for an appraisal of the collateral used to secure the loan. Instead, lenders use data generated by an automated valuation model – similar to a Zillow “Zestimate” – to determine the home’s value.
Five months after the Federal Housing Finance Agency required Freddie and Fannie to show more flexibility in purchasing mortgages based on the waivers, more than a third of total mortgage originations relied on one. In January 2021, 47.4% of all Freddie Mac loans and 44.5% of all Fannie Mae loans received a waiver.
As predicted by Pinto and Peter of the American Enterprise Institute, loan officers appear to have altered values using websites like Redfin or Zillow when they found it advantageous.
The duo identified another potential downside of waivers for purchase loans: When human appraisals conclude a value that is below contract price, they provide a consumer benefit by alerting the would-be buyer that he is overpaying. With a waiver, this benefit is erased.
Freddie and Fannie began accepting another variant – the so-called “hybrid appraisal” – as of March 19, 2022, reported the think tank. These are valuations in which the appraiser does not view the property collateralized in the loan, instead relying on photos and measurements that are provided by third parties. Pinto and Tobias have requested clarification as to how the hybrid valuations will be reported.
To appraisers, the situation on the ground has caused alarm.
“In two counties I cover, there are now 1,590 homes under contract within the prior two weeks,” said Fort Worth-based residential appraiser George Heredia in late September. “These are newly contracted homes. They need appraisals. Where are the appraisals? We are doing two to four per week.
“[We looked] at Tarrant and Denton counties, and there are many homes (last 30 days) under contract, yet few appraisal orders. A wider problem is that Fannie’s automated valuation model is based on prior months’ data. We are seeing some areas showing stable pricing and some price declines and longer days on market.”
Heredia believes that without new appraisals to scrub Fannie and Freddie’s data, the mortgage giants’ valuation model will become unreliable within the next three to six months.
“Banks got used to appraisal waivers,” said North Carolina appraiser Eric Kennedy. “After all, home prices were going up by double-digits every quarter in some regions. As values are now falling, common sense tells me that bankers wouldn’t want to rely on these waivers as they once did. Of course, that assumes the absence of fraud and that banks are acting responsibly.”
Kennedy wondered aloud where the original values were coming from in these cases of alleged fraud.
“The whole [appraisal waiver] thing is a mess, since it allows commissioned salespeople to game the value of collateral used to secure taxpayer-backed loans in mortgage transactions [from which] they personally benefit. That’s a recipe for disaster.”
Two loan officers with knowledge of the purported appraisal fraud told Business Insider that two mortgage retail sales senior managers in the San Francisco Bay area, Jim Lew and Jarod Johnson, had fired approximately five loan officers in their area. Another estimate suggests that 12 to 15 people were fired across that region.
The departed Wells Fargo employees, schooled in mortgage fraud and industrial-scale larceny, will showcase their talents elsewhere. No doubt, there are still more than a few sociopaths still at Wells, swilling hand sanitizer. As every midnight drinker knows, defrauding the public can be stressful.
Wells Fargo received a $25 billion federal bailout in 2008. That sum was eclipsed by the nearly $200 billion bailout Freddie and Fannie received the same year.
Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.
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OFT (One Final Thought)
Juggling market conditions…
Brilliant Idea #1
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- They’ll think about backing up;
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- And I’ll move forward.
Brilliant Idea #2
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See you next week.
Reads, Listens and Visuals I Enjoyed
- Compass Denies Report of Takeover Interest From Vista Equity [Bloomberg]
- Compass Denies Talks of Takeover by Vista Equity Partners [The Real Deal]
- Upshot: Era of the Big House [NY Times]
- Compass denies talks of private equity takeover [Real Trends]
- EXCLUSIVE: Controversial Palm Beach mansion a tear-down after its sale topped $110M [Palm Beach Daily News]
- How NYC Co-Ops Are Saving Themselves by Breaking Their Own Rules [Bloomberg]
- Working From Home Is Not an Urban Escape Hatch [Bloomberg]
- Work From Home and the Office Real Estate Apocalypse [NBER]
- Will Anyone Ever Buy or Sell a Home Again? [Slate]
- A 95-Square-Foot Tokyo Apartment: ‘I Wouldn’t Live Anywhere Else’ [NY Times]
- Analysis of Results from Compass Agent Equity Program [The Real Deal]
- Retail Real Estate Is Enjoying Its Biggest Revival in Years [Wall Street Journal]
- Untested Solutions to the Housing Crisis [New Yorker]
- Analysis | The most common restaurant cuisine in every state, and a chain-restaurant mystery [Washington Post]
- National October 2022 [The Real Deal]
- The Real Estate Portal + Mortgage Conundrum [Mike DelPrete – Real Estate Tech Strategist]
- Douglas Elliman Enters Payday Loan Business [The Real Deal]
- Goldman Sees US House Prices Falling 5% to 10% [Calculated Risk]
My New Content, Research and Mentions
- This $150M Hamptons estate is trying once more to find a buyer [NY Post]
- No Thanks, Banks: Mortgage Applications Fall 14% in a Week [The Real Deal]
- A $150 million beach home for sale would be the Hamptons' priciest ever — if it can find a buyer [CNBC]
- Manhattan’s Housing Market Is Starting to Cool With Sales Stalling [MSN]
- Hamptons Housing Market Data Emerge After Suffolk Cyberattack [The Real Deal]
- Mortgage rates rise to 6.75%, the highest in 16 years [Daily Mail]
- John Catsimatidis Buys 87-Acre Chappaqua Estate [The Real Deal]
- Home prices fall at fastest pace since financial crisis [Yahoo Finance]
- Manhattan apartment sales tumble 18% in third quarter: report [NY1]
- Manhattan Home Sales Sink in the Third Quarter, But Remain Above Pre-Pandemic Levels [Mansion Global]
- They Pay $500 a Month for a Loft in Brooklyn [NY Times]
- 'Sellers just as uncertain as buyers' as the Manhattan sales market pivots to a slower pace [Brick Underground]
- Rent rates slowly begin to plateau: New data [News Nation Now]
- NYC, Suburban Home Sale Contracts Fell Again in September [The Real Deal]
- Manhattan apartment sales fell 18 percent in latest quarter as interest rates soared [NY Post]
- PALM BEACH COUNTY REAL ESTATE MARKET TANKS [Boca News Now]
- Manhattan’s Housing Market Is Starting to Cool With Sales Stalling [Bloomberg]
- Manhattan apartment sales fall 18% in third quarter, marking reversal [CNBC]
- The housing market is stuck [Axios]
- Real Estate, Finance Experts Predict Impacts of Rate Hikes and Return-to-Work on NYC Housing Market [Real Estate In-Depth]
- Largest price hike in nearly a decade for leases on NYC's rent-stabilized apartments now in effect
Recently Published Elliman Market Reports
- Elliman Report: Colorado New Signed Contracts 9-2022 [Miller Samuel]
- Elliman Report: California New Signed Contracts 9-2022 [Miller Samuel]
- Elliman Report: Normandy Isles/Normandy Shores New Signed Contracts 9-2022 [Miller Samuel]
- Elliman Report: Florida New Signed Contracts 9-2022 [Miller Samuel]
- Elliman Report: New York New Signed Contracts 9-2022 [Miller Samuel]
- Elliman Report: Northern Manhattan Sales 3Q 2022 [Miller Samuel]
- Elliman Report: Manhattan Sales 3Q 2022 [Miller Samuel]
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 8-2022 [Miller Samuel]
- Elliman Report: Colorado New Signed Contracts 8-2022 [Miller Samuel]
- Elliman Report: California New Signed Contracts 8-2022 [Miller Samuel]
Appraisal Related Reads
- Navigating the Waves of Change [RAC]
- Who is buying in today’s housing market? [Sacramento Appraisal Blog]
- Appraisal Reports Are Like Flipbooks [Cleveland Appraisal Blog]
Extra Curricular Reads
- Al Primo, creator of ‘eyewitness’ local news, dies at 87 [Washington Post]
- 12 McDonald’s Locations That Went Rogue [Atlas Obscura]
- I just learned I only have months to live. This is what I want to say [The Boston Globe]
- The SUV-ification of Police Fleets [Curbed]
- Surviving Hurricane Ian in a Fort Myers Apartment Complex [New Yorker]
- Letters to Jeb Bush [New Yorker]
- The Double Life of New York's Black Oyster King [Atlas Obscura]
- The search for the perfect sound [Washington Post]
- Perspective | A new sign at Whitman High will celebrate its demolished dome [Washington Post]