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Keeping Housing Market Results From The Public Is Never Justified: An Expansive View

Transparency is always the right strategy

When the Covid-19 crisis began halfway through March, the Manhattan housing market was placed on “pause,” as were many housing markets around the country. New York State “Shelter in Place” rules prevented the in-person showing of a property by a real estate broker. That was the beginning of the problem this crisis posed for the industry that lives and dies on sales and rental transactions. Then a startup agent trade group (NYRAC), made up of some of the most productive agents in the market and includes many of my long-time industry friends, pushed to hide the days on market metric from the public for what turned out to be a self-serving reason. I love what they stand for, but this was a strategic error that I could not support.

While I have been a real estate appraiser and market analyst for 35 years, I dipped my toe into real estate as a sales agent in Chicagoland for six months in the mid-1980s.

Lesson learned

From my experience there it was clear to me that the accuracy of the information our office possessed was critical to all parties for the market to function. I still have my old monthly MLS books and remember logging on to the MLS from one ancient (even then) terminal in the office – talk about delayed market information!

Days on market during Covid-19

The days on market (DOM) metric is significant to sellers because they don’t want their home to be perceived as overpriced if it sits unsold too long. DOM can be measured in several ways, but the one I see used the most is the average number of days between the last price change, if any, and the contract date (or today’s date if it has not sold.) When a potential home buyer looks at a listing on a public-facing web site, they look at DOM as one way to determine whether the listing price is reasonable. The longer a listing sits on the market as compared to other listings, the more likely it is over-priced. Sellers look at DOM too and become concerned when their listing sits too long relative to the competition, typically blaming the agent for not marketing the property enough. However, the asking price is usually set by the seller who is slow to recalibrate their asking price if the market is weakening. I’ve found it takes one to two years for a typical seller to capitulate on price in a downturn and not feel like they left money on the table.

Hiding DOM as a marketing strategy

When the government ordered lockdown hit New York City, and real estate agents were not allowed to provide in-person showings, market activity immediately stalled. NYRAC pressured various platforms to hide DOM information from listings. They still wanted users to be able to drill down and uncover the details, but at first glance, the DOM information was to be hidden.

Streeteasy (owned by Zillow), the de-facto Manhattan multiple listing system in the eyes of the consumer, and the Real Estate Board of New York (REBNY), the leading real estate trade group with their own platform known as RLS, initially balked at the manipulation but eventually caved to NYRAC pressure. NYRAC made a strategic error that further damaged the long-term credibility of the real estate brokerage industry with the consumer. Not all brokers agreed with this strategy either, but this group placed enough pressure on these platforms to make the change happen.

Only sellers matter?

The incentive to “partially” hide DOM comes down to this:

1) Give the sellers a “break” after two years of softening price trends.

2) Address the sellers’ concerns about extended marketing times during the pandemic.

3) But the primary reason is that real estate brokers didn’t want to lose their listings if the sellers removed them from the market and returned to the market later with a new agent.

Why this effort was wrong

NYRAC and several real estate agents said to the effect, “the buyer or seller can still look at the listing history to know how long a listing has been on the market. That data was never removed.”

I always respond with “Then why hide it in the first place?” To brokers in favor of this temporary rule who wonder why I appear to be obsessing about a nuance I say, it is never appropriate to manipulate data, made even worse by the primary motivation behind this action.

Ignoring the buyers

This “solution” ignores the buyer’s position in a sales transaction and yet last time I checked, buyers are on the other side of every sale. Any effort to partially or fully hide DOM results or any other market metric conveys the wrong message and smacks of the old “information gatekeeper” mentality, no matter the state of the market.

Recently, the official word came down that all days between the shutdown and the reopening will count as “one day” for the DOM calculation presented to the public.

Going forward I have the following questions:

• Are we to anticipate a suspension of DOM anytime there is an unexpected external event that impacts the housing market (9/11, The Lehman Brothers bankruptcy, Super Storm Sandy)?

• Who makes the call to do this? A trade group, a regulatory body, a for-profit platform?

-Do we think that buyers and sellers of real estate are unaware of the 90+ day COVID-19 market shut down? Will a new listing added today as the market opens with 1 DOM will sell differently than an identical property with a 91 DOM listing that sat through the 90+ day COVID-19 lockdown?

The market doesn’t care what the brokerage community thinks (or what I think). The act of intentionally hiding or partially hiding data from the consumer is never justified in any scenario.

Tags: REBNY, Zillow, StreetEasy, COVID-19, NYRAC, transparancy

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I’ve been asked to participate in Thursday’s New York Times Event New York Real Estate: How Low Will Prices Go?”.

Click on the image below to RSVP!

Tags: New York Times, NYT Real Estate, Frances Katzen, COVID-19, Coronavirus, Stefanos Chen, Nancy Packes, Zoom

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[NYC.gov]

One of the pieces of conventional wisdom we have picked up during the COVID-19 crisis is that high-density residential living will be less favored. The city to suburban migration pattern is already beginning in New York City and could last several years. The rising number of suburban single-family rental inquiries from the city has provided the initial evidence of a trend. City residents seem to be looking to test drive the suburbs and commute to their city job when “shelter in place rules begin to ease.”

Unfair Reputation?

New York City has developed a national reputation as a hotbed of Coronavirus infection because of our higher density. We live a lot closer together than a sprawling suburb in Dallas and have a greater dependency on public transportation such as the subway and buses instead of driving cars. I live in Fairfield County, Connecticut, a bedroom suburb of New York City with a county-wide COVID-19 ratio of 1068 deaths per its 943,332 population. Dallas County, Texas, had 153 deaths per its 2.636 million people. My county has a wildly higher death rate than a county that contains an urban core like Dallas.

Is the city to suburban trend sustainable?

New Yorkers buy into the urban to the suburban narrative, so I believe the push to the outlying NYC metro suburbs could be quite significant in the near term. While the outbound migration began a few years ago, it is not clear whether the trend can continue for more than a few years. The pattern could ultimately be different from what is currently expected including:

• A boost for second-home markets: There might be an influx of demand to areas the Hudson Valley, Northern Connecticut The Hamptons, and the North Fork, to name a few. Consumers made begin to view a second home as an equal asset to the primary home to have similar quality options. This potential trend would be contrarian to other significant economic downturns as second-homes are not considered “second-priority.”

• And because the implications of the SALT tax will remain in place on the other side of the COVID-19 crisis, Florida and Texas can make a compelling pitch to New York City couples with small children cooped up in 1,000 square foot 2-bedroom apartments right now. They are realizing they aren’t as tethered to their work location as they once thought – and schooling via Zoom is not all it’s cracked up to be.

I think that the high-density lifestyle of New York City is what makes living there so great. I’ve lived in or around New York City since the mid-80s. Before we moved to the city, my dad used to proclaim:

Where else can you buy strawberries at 3 am in the morning?!?!?

Placing strawberries aside, I remain skeptical that the urban to suburban outbound migration can be sustained long term. We saw the same outbound pattern after 9/11 and then an inbound return only a few years later.

Density is not the only reason

Urban density is just one reason for the high COVID-19 infection rate that is driving outbound migration. It is not the reason. Other factors influencing the disparity in the infection rate include neighborhood characteristics such as wealth, commute time, and the concentration of multi-generational households.

The map above confirms the argument that it’s not all about density – the highest infection rates are in the “suburban-like” areas of the city including Staten Island and the outer reaches of Brooklyn and Queens. Manhattan, home for many of the tall commercial and residential towers the city is famous for, has the lowest infection rate.

These Manhattan results might help maintain the enthusiasm for that occasional 3 am strawberry run to the corner market.

Tags: Manhattan, NYC, COVID-19, Coronavirus, Urban to Suburban, Strawberry

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If you can indulge me, I was included in the ABC World News Tonight broadcast on Saturday night to talk about the potential urban to suburban housing shift, particularly in NYC. It was cool to be interviewed by Deirdre Bolton for her first World News Tonight segment since just joining ABC via Fox Business and previously from Bloomberg where I had spoken with her before. Great move ABC!

Tags: Deirdre Bolton, COVID-19, Coronavirus, ABC World News Tonight, ABC TV

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This topic was explored in last Friday’s Housing Notes.

In order to understand what is happening now, we need to ween ourselves off of what happened before this crisis and focus on finding data exclusive to the post-COVID-19 era. In Manhattan, that data set is not yet apparent because we are in nearly a total market shut down but it is evident elsewhere to a limited degree. From my perspective, the demarcation line for the onset of the crisis is where market participants would have to be living in a cave on a desert island to be unaware of the sharp pivot in market sentiment.

March 15, 2020

I believe that date is March 15th which is the date of the Federal Reserve federal funds rate cut to zero and was their second cut in less than two weeks.

March 11, 2020

My friend and California appraiser Ryan Lundquist proclaimed March 11th which was the date Tom Hanks announced he and his wife had contracted COVID-19. Phil Crawford of Voice of Appraisal said the demarcation line was March 5, 2020 dubbing it “data point zero” and I had originally said the demarcation line was March 3, 2020, on the day of the 0.5% rate cut in March.

I was talking about this difference in these dates with a friend, Chicagoan, and RAC appraiser Michael Hobbs who brilliantly dubbed this four-day window from March 11 to March 15 as: “From Hanks To Banks.”

And if you do the math, the median and average date of March 11 and March 15 is literally Friday the 13th so what more confirmation of a demarcation line do you need?

Whatever your specific local demarcation line is, use it to keep the data for these two market periods separate.

Tags: COVID-19, Coronavirus, Demarcation Line, Hanks to Banks

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[Johns Hopkins University]

As co-owner of an appraisal firm for 34 years, while based in Manhattan, we generally don’t drive to appraisal inspections. Our staff relies on public transportation to get around including buses, subways, and commuter rail. I’d been following the coronavirus in the news since early this year, and became quite alarmed by mid-February and soon suggested my staff work remotely. By the time the first Fed rate cut was made in response to the coronavirus on March 3, we adopted a screening process for appraisal inspections. When our team made an appointment for the inspection, we inquired about the health of the occupant, and then on the day of the inspection, the appraiser called again to confirm that conditions had not changed.

Soon after we learned that we could be carriers of the virus without knowing and infect someone vulnerable, we stop performing interior inspections.

My appraiser colleagues around the country have become very concerned, if not plain scared.

Here are two scenarios shared by appraiser colleagues in another part of the country. Imagine if the appraiser was a carrier?

Scenario 1 Conversation
Sounds good 10 am is better
Kids are home
With no school
If your sic with a cold or similar please reset appointment

Scenario 2 Recap
Borrower is elderly and on a respirator
Says the appraiser can walk through the house by himself
And reminds the appraiser to keep their distance

Appraisers should not be placed in harm’s way or be in a position to be forced to unintentionally harm another.

So let’s look at some industry actions of the past few days:

HEROES

First Republic Bank
I submitted a temporary driveby appraisal solution to First Republic Bank, a large CA/NYC+ lender we have worked with since 1999. I feared for the safety of our appraisal staff and didn’t want to risk infecting others. Plus we were starting to get pushback from homeowners who are getting uncomfortable. They embedded this solution within days. I challenge any appraiser to name any other bank that is more professional, more appraiser-centric than they are. Here is the note they sent out to their panel.

Citibank
We’ve been working for Citibank since 1986 and have enjoyed a great relationship. This policy treats appraisers as human beings. I’m not sure how closely this policy will be observed by the AMCs they engage to manage their appraisals orders (read-on).

ZEROES (AMCS, etc.)

We are in the early stages of a global pandemic that may infect 100 million Americans (1 out of 3, conservatively) with a 3% death rate (that’s 1 million people if you do the math). The appraiser population has an average age in the high-50s, and we have been told that the older populous is the most vulnerable.

In reality, these AMC policies show disdain not only to appraisers but to their own (bank client’s) borrowers by letting a fee appraiser, who is paid only for the assignments they accept, determine whether or not the appraisers themselves are carriers of this pandemic and whether they can assess the safety of the property they inspect. Here’s a key point.

NO ONE CAN TELL IF SOMEONE IS A CARRIER IF THEY HAVE NO SYMPTOMS.

The following AMCs opted to treat appraisers as a widget instead of a human being requiring them to physically inspect a property when they now know that it is not safe to do so. Today I was told that one federal agency lost 20% of their appraisers because they have refused to continue doing interior inspections. Different cities and states have different rates of infection. Because we don’t have full testing in place as a country, the number of infections might be significantly higher than we might anticipate. My particular location in Manhattan is highly problematic because of the reliance on public transportation – buses, subways, commuter rail, and just walking down a crowded street – no social-distancing here. And based on the comments the NYC Mayor made yesterday, it is possible that tomorrow could see NYC restricted to “shelter in place” like San Francisco.

If you’ll note in this pattern of negligent behavior, great efforts were made to plan for the safety of order staff, but no regard for the safety of the appraiser, who is providing the service – telling appraisers to wash their hands and practice social-distancing when they know that it is not enough. When you get right down to it, these companies sent similar silly instructions so they can check off a box to be compliant. Yet they must know that appraisers could be carriers, and occupants in the property could be carriers. This is not business as usual.

When we pushed back the appointment on a few of our AMC clients for safety concerns, they simply took away the assignment and rescheduled with another appraiser. No human contact to assess the risk. In good conscience, even if the new appraiser doesn’t have symptoms or doesn;t think the occupant does, that AMC or lender is placing the public at risk, going directly against CDC guidelines. This is what robots would do.

Here is a sampling of AMCs that provided COVID-19 instructions in the past few days shared by my appraisal colleagues – this is clear evidence that they see appraisers as widgets instead of human beings. To save you the trouble of reading all of these INSTRUCTIONS, here’s the translation: WASH YOUR HANDS A LOT

Tags: Appraisal Management Companies, AMC, Appraisal Pressure, Appraisal Process, COVID-19, Coronavirus, safety

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[NPR]

Well, it has been an odd couple of weeks brought to you by the global pandemic known as COVID-19 or the Coronavirus. We’ve been self-quarantined in our house for 1.5 weeks with many more weeks to go. I might have to refer to this pandemic as “Cabin Fever” although there are many people that don’t have the benefit of working at home, including one of my sons, who is a police officer.

With falling mortgage rates of the past year or so, many in the real estate community thought:

“oh my goodness, refi’s and housing sales are going to boom with these low rates, and any Fed rate cuts will offset the damage of a plunging stock market and the economic damage of a pandemic.”

But please remember this:

Falling mortgage rates are not a gift.

Rates are cut to stimulate the economy, to offset something terrible that has happened.

Rates have been falling for the past year as the Federal Reserve likely increased rates in the recent past to be able to have something to cut when the inevitable recession arrives. Because of the damage to the U.S. economy from the trade war, the Fed has been forced to act earlier to keep the economy from dropping into a recession.

Since March began, the Federal Reserve brought the federal funds rate down to zero in the first half of March with two massive cuts. With the first cut of 0.5% on March 3, consumers became fully aware that something significant was wrong, and it was associated with the Coronavirus (and oil prices). And surprising to many, national 30-year mortgage rates rose.

Mortgage lenders continue to enjoy the large spread instead of lowering mortgage rates substantially because of layoff decisions made over the past year as refi volume cooled. Most banks cannot take full advantage of the rate cut opportunity because they do not have the capacity.

Since the 2020 DJIA peak of February 12, 2020, of 29,551.42, the market has fallen 28.13% to 21,237.88 as of the late afternoon, an insanely large decline.

However, all of these housing-related workers such as appraisers and agents, are starting to see that market conditions do not include the gift that it will be “business as usual.” They and their colleagues are becoming fearful of their own personal safety and the safety of their families.

In light of this slowdown, some real estate agents have suggested that market times be modified to cast a better light on listings that will languish due to the virus. This type of action is precisely what should not be done. In a global pandemic or worldwide catastrophic event, housing market stats will be internally adjusted by consumers to factor the event into the equation. Cherry-picking stat solutions will breed distrust between agents and consumers.

Open houses as a marketing tool fell 38% in Manhattan which is quite astounding but shows how quickly “personal safety” is becoming front and center with both agents and market participants. The outbreak is clearly expanding.

But now, those real estate agents are seeing home sellers and home buyers change their minds about letting strangers walk through their homes all day, and the “nexus between fear and greed” has shifted to fear.

Therefore the spring market will likely be underwhelming in NYC if downright bad and pushed forward into the future with a possible release of pent-up demand at some unknown future date. Perhaps the same will apply to many regions across the U.S. this spring.

Now wash your hands.

Tags: flattening the curve, pandemic, COVID-19, Coronavirus

4 Comments