Hard To Track A Scuzzy Housing Market

November 4, 2022

Are we at “peak scuzzy?” Google Books Ngram viewer certainly infers it.

The following “scuzzy” view of St. Mark’s Place was exactly what attracted me to Manhattan when my wife and I moved here (on a whim, because we could) back in the mid-1980s.

Admittedly these Housing Notes are a bit shorter than normal – this morning, I was on a panel in Miami Beach with its mayor!

But I digress…

New Signed Contracts Are Down, But Not As Much As You Think

I’ve been the author of an expanding series of market reports for Douglas Elliman Real Estate since 1994. We added the New Signed Contract series during the pandemic. It covers markets in the New York City metro area, a big chunk of Florida, a little of Colorado, and Southern California.

Here are the reports and some associated charts. For more charts, please go to our gallery.

Elliman Report: October 2022 New York New Signed Contracts

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Elliman Report: October 2022 Florida New Signed Contracts

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Elliman Report: October 2022 Colorado New Signed Contracts

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Elliman Report: October 2022 California New Signed Contracts

Reliance on Year Over Year Results Provides An Overstated Narrative

I’ve long been a promoter of year-over-year comparisons and am not a fan of seasonal adjustments because housing is seasonal and seasonal adjustments help dilute the original numbers. Year over year tends to be more “apples to apples.” But the pandemic housing era has interjected massive extremes into the housing market results as mortgage rates stayed way too low for more than a year. As I like to say, 2021 was a rocket ship for the housing market, so comparisons against the same period last year, while technically accurate, present a more extreme downturn than actually occurred.

In my chart above, I show a sampling of some of the Florida markets I cover for Douglas Elliman that shows the downturn in sales from a pre-pandemic benchmark, i.e., the last third quarter before the pandemic began. Sales are down around about 15% from a “normal” market. However (and I didn’t have time to chart the year over years for these markets), I’ll use an extreme example to make my point (and all the YOY results are available in the reports on this site.

Miami Beach sales declined 39.5% yearly but were 21.6% higher than pre-pandemic. The larger year-over-year drop occurred because sales surged unusually high in 2021 as mortgage rates remained on the floor. Looking at the listing inventory, you can see evidence of the 2021 sales surge. Overall supply is down 42.9% in aggregate from pre-pandemic because it was obliterated by overcharged demand.

The fact that listing inventory is nearly half as much as pre-pandemic provides a firmer underpinning for prices. Prices will rise at much lower rates than the past few years or see modest declines, but it’s hard to imagine a significant price correction coming out of the pandemic housing boom:

– credit conditions always remained tighter than long-term norms (banks never lost their minds)
– listing inventory is generally far lower than the norm
– potential sellers are reluctant to list with the far lower rates they enjoy

We usually see listing inventory pile up during a market slowdown. Listing inventory across the 40+ markets, I cover for Douglas Elliman is either rising slowly but significantly below pre-pandemic norms or falling.

Conforming Loan Limits NEVER Go Down

FHFA sets the limit each year for the loans that the GSEs – Fannie & Freddie – will take back, etc. That limit is based on the FHFA Quarterly National SA Index. This is a repeat sales index like Case Shiller and is based only on sales with a conforming mortgage. Mortgages above the conforming loan limit (CLL) are considered “Jumbo.”

It’s kind of interesting that this index has never gone downward since 1979. It’s a reminder that the GSEs are here to do business with the advantage of having taxpayers as the inferred backstop (even before they were taken into receivership). The GSEs are not neutral arbiters of risk.

Mostly New York City Visuals

Getting Graphic

My favorite charts of the week of our own making

My favorite charts of the week made by others

Len Kiefer‘s Chart Handiwork

Appraiserville

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

Perhaps Its Dawning On TAF To Try To Protect The Public Trust

I used to get the TAF monthly emails that provided nuggets of hypocricy that Dave lacked self-awareness thereof. But, alas, he seems to have removed me from distribution so colleagues send them to me. Censorship in TAF. What will they think of next? Remember that this is the organization that wrote the bat-shit crazy letter, the chickenshit letter and is 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)

But I digress…

It’s refreshing to see that TAF has flat-out admitted they’ve failed at their mission. In their November monthly email newsletter (that he had me removed from), Dave states:

“There are serious pressing issues of public trust facing the appraisal profession…”

And from the home page on their website:

“It is our mission to advance the valuation profession by setting standards of excellence, promoting education and upholding the public trust.” (Bold added for emphasis)

I’m sure this wasn’t intentional on Dave’s part, so it’s incredibly ironic that this is the most transparent TAF has been in many years. Perhaps all the external pressure is finally getting to them – that business as usual in the monarchy isn’t right.

USPAP Supplement Isn’t Ready For USPAP Courses That Begin In One Week

Kind of odd that the USPAP update supplement course that is coming out in a week isn’t ready yet USPAP hasn’t been updated in three years. I suspect TAF is working with their law firm, and it’s taking a while. The positive here is that for what I believe is the first time, they are using legal counsel to review any of their courses. That’s an encouraging baby step.

Appraisal Institute Shows A Canadian “Racial Bias” Sting Video And The Audience Almost Came To Blows

The following video was aired in Canada by CBC in March 2021 and has nearly a half a million views.

At a recent meeting, the Appraisal Institute showed this video and anger ensued. The audience was deeply divided, and the conversations almost came to blows. My guess from past actions of AI CEO to remove the diversity committee would assume the FOJs want to continue to hope that this issue goes away and will continue to do little as an organization. And without Rodman’s leadership on his personal passion point and Super Duper’s deer in headlights compassionate pleas on how awful this is but does nothing because it’s completely up to Jim even though technically it absolutely isn’t (gasp for air), these stories and situations expand to daylight without the industry trying to solve it. At this point, it’s probably better they do nothing and suffer their fate. The issue is not going away.

So the New York Times story: Widespread Racial Bias Found in Home Appraisals, Bloomberg: New Federal Data Shows the Home Appraisal Gap Is Getting Worse, Inman: Those claims of appraisal bias? Another study backs them up, NPR: How home appraisal methods can end up perpetuating racial inequality and The Real Deal: Appraisal gap worsened as racial disparity persists shows that is too late to provide credible input. The cowardice of Appraisal Institute and Appraisal Foundation leadership on this topic is forever etched in stone. Congratulations. Were all those first-class airplane tickets to boondoggles really worth it?

OFT (One Final Thought)

Please take notes…

Brilliant Idea #1

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 because:

– They’ll be more scuzzy;
– You’ll be more scuzzy;
– And I’ll stay scuzzy.

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 following week’s Housing Note.

See you next week.

Jonathan J. Miller, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller

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