The Summer Rental Market Was No Picnic
This was an abbreviated work week for me, only arriving back on Wednesday. The Manhattan economy seemed to switch back on after the slow days of summer (not our appraisal firm – we had our busiest summer in 30 years). On a side note, I learned what the term “glamping ” was yesterday but did not partake. My wife and I managed to take a few long road trips and short plane trips to exotic places like Detroit and Newark, Delaware. During those trips I saw housing market analogies in our everyday activities so it is fair to say I am not good at separating work time from personal time. Sigh. Here are a few examples.
1 – Picnics
Market Condition: Joe Anuta at Crains New York shared this Bloomberg article  with me and I am still laughing. Selling a unique property can be challenging.
Lesson Learned: You can judge the real estate demand by what you see and there really is no shortage of puns to mine on any topic. 2nd Lesson: Highly personalized exteriors damage value. The Bloomberg author said she worked with two colleagues to come up with the fantastic article title . I managed to incorporate basket puns for the rest of the day to all who saw it which was actually quite a picnic.
2 – Rain and Expensive Cars
Market Condition: Rental and for sale housing markets I cover around the U.S. are soft at the top. Hence my Instagram photo (taken by my wife) shows a Maserati driving in a heavy downpour (had to slow down for the windshield wipers to keep up).
Lesson Learned: Homebuilders can build high end rental and for sale housing as fast as they can but at some point they will get wet.
Manhattan, Brooklyn & Queens Rental Markets: Elliman Report
This week Douglas Elliman  published our rental market research on New York City  – this is part of an expanding market report series I have authored for 22 years (yes, in a row!). There were several clear trends that continue to form:
- Top line rental price trends are leveling off or declining
- Record leasing volume is upon us – I’m wondering if the Millennial moment has arrived?
- Record inventory growth is tempering price trends in top half of market
In speaking to the media this month on the report contents (see links at bottom for coverage) the weakness in price trends has clearly over shadowed the number of new leases. This occurred in both Manhattan and Brooklyn. So when we say the rental market is not as strong as it was a year ago, we need to caveat that with the addition of “but there are more transactions than ever.”
Since all my readers have to love a good chart, here is the one featured in Bloomberg’s story on the market.
…and the one featured in “Chart of the Hour” on the Bloomberg Terminals (the slew of monitors you see in all movies about Wall Street).
What made the interest in this month’s results so prescient was the proclamation by landlords last spring that prices will improve in the coming months, yet that didn’t happen. To show what peak leasing season is, I have charts on new leases signed in Manhattan and Brooklyn by month (since 2008 and 2010 respectively). In both markets, July/August are THE months where the action is heaviest (i.e. Peak Rental):
For the specifics, you can read our market report here: Elliman Report: Manhattan, Brooklyn & Queens Rentals 8-2016 
MANHATTAN Manhattan rental price growth has showed a bumpy but generally stable trend for each month in 2016 on a year over year basis. Median rental price was $3,399 in August, essentially unchanged from the same period a year ago. The market share of concessions was 12.1%, up from 7.4% a year ago. When considering concessions, the net effective median rent slipped 0.5% to $3,359 from the year ago period…
BROOKLYN For the second consecutive month in 2016, the Brooklyn median rental price declined from the same period a year ago. Median rent declined 1.9% to $2,895. Average rental price followed the same pattern declining 1.5% to $3,219 over the same period. The number of new leases jumped 35.8% to a record 1,495…
QUEENS The Northwest Queens rental market, including Long Island City, Astoria, Sunnyside and Woodside, showed gains across all price trend indicators. Median rental price was $2,895, up 5.3% from the same period a year ago and was identical to the Brooklyn median rent this month…
Here are a couple of additional charts on the Manhattan rental market:
Selling At A Loss
One of the biggest mistakes a home seller or a developer can make is miss the market by assuming an unending position of strength. There was a great article in the Real Deal this week by Miriam Hall and Kathy Clark  on a re-sale listing at One57, the “alpha dog” for the super luxury condo development phenomenon. The “Escape from New York LLC” that bought it in 2014 for $32 million was unable to flip it and in May the price was reduced to $25 million. Of course this doesn’t help the developer since the building is believed to be about one third unsold after a strong start in 2011. Big discounts are a way of life  for luxury properties these days. Aspirational pricing is dead.
Appraisals of condos in any new developments are tricky since there can be a 2 year delay between the contract date (when buyer and seller agreed on the price) and the closing date, which is dependent on construction completion.
Some additional thoughts from a terrific read  in The Real Deal this month:
The hard reality is that the U.S. economy has never gone through a period of expansion that’s lasted for more than 10 years (in fact, the norm is less than eight). The market is now seven years into its recovery, meaning the clock is likely ticking for New York City real estate players and the best outcome before 2020 may be prolonged uncertainty.
Real Estate’s First Unicorn
Hiten Samtani, Managing Editor of The Real Deal magazine’s web site has a new column called Paydirt . In recent years I learned that developers always call land, “dirt” and boy does the high price of land in Manhattan bring out controversy . Hiten delves into the strange $1 billion valuation of Compass , a real estate brokerage firm who announced early on that their tech focus didn’t work and were reverting to a “traditional model ” in 2013 after a weak start. Using Hiten’s numbers, that would make Compass worth about a fraction of their valuation.
Why do I care? Well, I don’t really care about business specifics of a real estate brokerage company. But since I am a numbers guy and these numbers jump out in a way that doesn’t make sense, I need to talk it through here.
A Misleading Housing Market Metric
There was a Reuters article forwarded to me this week: Construction worker shortage weighs on hot U.S. housing market . The idea was conveyed that the shortage of construction workers is holding back housing growth and hurting the economy. When I think about that on a national scale, it seems logical. But when we drill down to a specific market like Manhattan, it doesn’t.
Here’s why. The development boom of the past several years focused on super luxury condos (typically north of $5 million) that accounted for 8% of all sales. That submarket stalled out in 2015 and sales are a shadow of their prior pace which the rest of the market is seeing above average activity. Yet those projects are still under construction because it is too late to stop them. And those projects take 2-3 years to complete. So construction employment literally lags housing market performance by at least two years, as well as the economy. I don’t see that metric as a reliable barometer when super lux developers in New York can hear a pin drop in their sales offices despite the jackhammers running outside.
This graphic presented in The Real Deal Magazine says it all.
Freddy Krueger’s Parents Are Trying To Make A Killing Off Their Home
Ok, not really since this is a fictional character. But here’s a great bedroom listing photo .
The theme of this week’s Appraiserville is based on what Ross Perot once said (paraphrased), “we have to pick up the shovel and clean out the barn” which is essentially the AMC legacy problem in this post-financial crisis world.
No shortage of Appraisers
Rob Chrisman wrote a hotly discussed column this week  addressing the appraisal industry and the griping from other industries it intersects. The opening paragraph nails the issue we all face.
Appraisals, appraisers, and the appraisal system continue to be of concern to lenders and others in the residential industry. We all know that a good appraiser can do 2, maybe 3, appraisals a day well. But the issues are bigger than that. Thomas A. contributes, “Appraisals are complicated not only by USPAP but also idiosyncrasies and urban legends imposed by out of date underwriters. AMCs are keeping 1/3 to 1/2 of the appraisal fee. There are no shortages of appraisers but only a shortage of appraisers willing to work for AMCs. Additionally, the state appraisal boards are under the scrutiny of the ASC so they serve as an attack dog over any mistake they can find in an appraisal most of which has no impact on value.”
One of the dumbest things I have read about the appraisal industry  which shows a staggering lack of understanding about the current appraisal industry predicament was written by Lynn David who basically blames appraisers for the financial crisis:
The new regulations are intended to keep the appraisers honest. One objective was to ensure appraisers were not aware of the proposed loan amount or the sales prices that could influence their appraisal. To comply with the new rules, some lenders are using a third-party vendor to randomly select the appraiser to avoid any question of an affiliation between the lender and the appraiser. Some of those third-party appraisal ordering firms also monitor and provide feedback to the lender concerning the quality and turnaround of each appraisers’ work.
Let me translate this disconnected logic for you: The best way to keep appraisers honest is to cut their pay by half and force them to submit to a checklist inquiry by a 19 year old chewing gum with no valuation experience. And lets hide the contract from the appraiser because they don’t need to see anything else like the buyer and seller name or the rider with concessions because a good appraiser will never have any interaction with the real estate agent who sold the property and is receiving a commission. Yeah, that’ll fix things and of course, those dishonest appraisers represent the entire industry right? Why does National Mortgage News allow such misinformed journalism?
To be clear, turn times are slow because of unusually heavy refi volume thanks to Brexit and the lending industry has placed all their self-interest into one basket. Will these same discussion topics by the misinformed be made when refi mortgage volume normalizes?
More on the Coester Lawsuit
Who needs to watch TMZ when we can read the court filings like those in the Coester AMC lawsuit. Unreal. Then ask yourself, with all this concern about appraiser “honesty” by AMC-friendly pundits, who is watching the AMCs?
The defendant just filed a motion to dismiss . Please read this filing in its entirety.
On a positive note
There are a couple of great reads by two of my regulars – see links below. Are there other great bloggers out there like Ryan and Tom? Please share!
A Brilliant Idea
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes . And be sure to have a picnic with a friend or colleague if you enjoy them. They’ll become your picnic blanket, you’ll suddenly love wicker and I’ll finally stop being a basket case.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc. 
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- Discord Over Lobby Remodeling [NY Times] 
- Manhattan Developer Accused of Evading $1 Million in Taxes [The Real Deal NY] 
- Tommy’s parents waited in vain from him to ask for… [Terrible real estate agent photographs] 
- ‘Turning Points’: Here’s Jeff Gundlach’s latest presentation on the US economy, Presidential election, and gold [Business Insider] 
- When Will New York City Sink? [NY Magazine] 
- Selling a $5 Million, Seven-Story Basket Is No Picnic [Bloomberg] 
- Seller at One57 set to take huge loss [The Real Deal] 
- How Do People Pay Rent? [Boston Fed] 
- Construction worker shortage weighs on hot U.S. housing market [Reuters] 
- City and Suburbs – Has There Been a Regime Change? [UPenn] 
- Rich City, Poor City: How Housing Supply Drives Regional Economic Inequality [Trulia’s Blog] 
- Racing against the recession [The Real Deal NY] 
- Flooding of Coast, Caused by Global Warming, Has Already Begun [NY Times] 
- Finding the “Heart and Soul” of Planning [Nextcity] 
- Conditions Are Ripe for a Big-City Exodus [Bloomberg View] 
- New York overtakes London to top the Live/Work Index [Savills] 
My New Content, Research and Mentions
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 8-2016 [Miller Samuel] 
- Report: Rents continue to cool off in Brooklyn and Manhattan [Brick Underground] 
- It’s a buyer’s market (if you’re wealthy) [Curbed NY] 
- Renters Take Back Control in New York City [Mansion Global] 
- Want to sell a luxury condo? Try using wood made by monks [The Real Deal NY] 
- Developers Scour the Earth for Rare Condo Finishes [WSJ] 
- It’s a renter’s market in Manhattan [Seeking Alpha] 
- As NYC rental prices drop, landlords offer more perks [Curbed NY] 
- Northwest Queens Is the New Brooklyn When It Comes to Rent [DNAinfo] 
- Manhattan Renters Win as Peak Season for Leasing Fizzles Out [Bloomberg] 
- Paydirt: The Compass unicorn, a more modest buyer pool, 23 Wall in play … & more [The Real Deal NY] 
- Topping off a building binge [The Real Deal LA] 
- For Sellers of Luxury Homes in New York, Big Discounts are the New Normal [Mansion Global] 
- Election anxiety, “softening” markets,” L train freakouts, and more: What to expect in NYC real estate this fall [Brick Underground] 
- Concierge Service Brings Miami’s High-End Homebuyers Straight to the Beach [Mansion Global] 
- High-End Condos for the Merely Affluent [NY Times] 
- NYC condo developers find refuge in middle market [The Real Deal NY] 
Appraisal Related Reads
- Will a finished basement add value to a home? [Birmingham Appraisal Blog] 
- Tips for working with appraisers when they’re really busy [Sacramento Appraisal Blog]