And Most Important Of All To The Current Housing Market...Oh, Never Mind

June 26, 2020

And Most Important Of All To The Current Housing Market…Oh, Never Mind

I plan on showing this commercial to my kids to prove how tough we had it with technology back in the day. Good grief what a primitive interface compared to today’s standards, plus I’m on an overdue Monty Python kick, now listening to the John Cleese audiobook “So, Anyway…” immediately after finishing Eric Idle’s delightful “Always Look on the Bright Side of Life: A Sortabiography” audiobook.

Wait for it…

But I digress…

The Jumbo Mortgage Market Might Be Starting To Open Up […a bit]

There was a terrific Wall Street Journal piece The Jumbo Market Shows Signs of Heating Up

Loan activity went into a deep freeze following the onset of the pandemic, but lenders seem to be loosening their purse strings again…a bit

The most important aspect of this article is the “…a bit” reference in the article subtitle above.

While it is too soon to call it a full-scale “reopening” of jumbo markets, there are some emerging signs of life. One measure is the gap between average conventional loan and jumbo rates: In April, conforming 30-year mortgage rates averaged 3.4%, while jumbos averaged 3.7%, according to data provided by mortgage technology company Optimal Blue. That gap narrowed in early June, to 3.3% for conforming loans and 3.5% for jumbos. Another measure is the return of jumbo loans for self-employed borrowers served by niche lenders.

Even with falling mortgage rates and an unemployment catastrophe that has skewed away from upper-end salaried employees, jumbo lending has be largely restrained due to the looming uncertainty about the economy over the next few years. Most of the jumbo lenders we interact with for our appraisal assignments seem to be focusing on existing client relations, especially with refinancing properties we’ve already appraised in the past.

Still, I suspect that part of this uptick now is the release of pent-up demand from a non-existent traditional spring market later in the calendar to overlap with the slower summer months.

My Forbes Column: 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.

Bloomberg Podcast: Two Homes Are Better Than One, for Some

More on my “Co-Primary” housing market theory:

Cheddar TV: Setting Expectations On The Market After Many Residents Left Manhattan

How many will come back?

Douglas Elliman President Scott has his “Big Cheese” moment on Cheddar (sorry), discussing the New York new signed contracts report we had just released. The June report comes out next week.

CNBC TV: Exploring The Covid-19 Discount

It seems that most buyers want to know what “the Covid-19 discount” will be. People were telling CNBC that for NYC it would be around ten percent. While it seems reasonable to assume that the pricing would softer post COVID with an 80% YOY drop in newly signed contracts now, THERE IS NO DATA YET. We have plenty of anecdotal that indicates there is a discount and we have plenty of anecdotal there is not a discount. I have plenty of real estate brokers and closing attorneys telling me both, so which is it?

The market opened back up four days ago (Monday, 6/22) and we will see the return of transparency in market data with brokers able to do in-person showings. I expect it will become much more evident within the next month as transactions ramp up. Until then, chill.

If you look close enough, you can see a shoutout to my firm as a data source in the CNBC segment. Yay! Click on the image to play the clip or down below.

CNBC Video: Big Jump In Homes Not Even Started

New home sales were pressed higher from urban to suburban but largely because of the lack of supply of existing homes. This is May data and it is important to recognize that sales surging has more to do with a release of pent-up demand from “shelter in place” limitations than some sort of new housing boom.

A Conversation About Opening Of The Market: ‘Connecticut Rising’

In an event sponsored by Connecticut Cottages & Gardens with Douglas Elliman, I was brought in as stated in my intro, to provide a reality check. It was a fun conversation, with some candid conversations about the urban to suburban narrative. It began with single-family rentals and morphed into home purchases.

Click on the image for the video. If prompted for a password, it is 4n.&@Qmk


[click on image, password is 4n.&@Qmk ]

Getting Graphic

Our favorite chart of the week of our own making

This is a Hamptons market excerpt from the new Douglas Elliman New Signed Contracts Report for the New York region:

Len Kiefer‘s Chart Handiwork

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

A Growing Kerfuffle At The Appraisal Institute: News At 11 (soon)

And it’s an election year…

My 34-Year Record of Not Driving A Car To An Appraisal Is Officially Over

As promised, this week I drove from my home in CT to do an appraisal inspection in Manhattan. This was the first interior appraisal inspection since the COVID-19 lockdown began in March. Since then its all been desktops and drivebys. Since I am under an NDA for this assignment I can’t disclose my location despite the request to memorialize the special moment by Ryan Lundquist. For the uninitiated, this was the first time in my 34 year career, I drove to a property inspection. I should also note that my 37-mile drive to get there was my longest drive since early March. Surprisingly, I don’t feel bad about my streak being broken but I was incredibly encouraged to see about 99% of all people walking around were wearing masks. Smart people.

This is yet another reason why I love NYC.

This is my official appraisal inspection vehicle.

OFT (One Final Thought)

Areas of the country that initially saw very public pushback from using masks and practicing social-distancing are now experiencing a significant rise in the infection rate. The idea that this pandemic was ever a “density” issue as many people once viewed the infection rate in NYC, has been proven unequivocally false. Critical thinking is needed to defeat this pandemic and this second wave calls into question whether we see much of an economic rebound over the next year.

Brilliant Idea #1

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– They’ll wear masks;
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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 J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller

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