The Dog Days Of Housing’s Summer
Some related thoughts about AI in the future…
Did you miss last Friday’s Housing Notes?
August 4, 2023: Housing’s Convenient Bad Zoom Connections
But I digress…
NYC Rents Set Records, But With Signs The Market Is Topping Out
I’ve been the author of an expanding series of market reports for Douglas Elliman Real Estate since 1994. The rental report series has attracted a disproportionate amount of attention during the pandemic-era housing boom with a steady stream of new highs, despite the significant amount of unused office space that was created by the work from home movement. July 2023 rents set records in the three boroughs but new leasing levels declined in what is supposed to be peak leasing season.
By the way, there is a spectacular article in The City on why rents are so high. Yes, it’s a little complicated.
Bloomberg created a terrific chart on the ascent of rents in the three boroughs we cover for the report.
Elliman Report: July 2023 Manhattan, Brooklyn & Queens Rentals
MANHATTAN RENTAL MARKET HIGHLIGHTS
“All three overall rental price trend indicators reached new highs.”
– Median and net effective median rent reached all-time highs for the third time in four months
– New lease signings slipped from the prior month as the market approaches the seasonal summer peak
– Vacancy rate slipped from the prior month and remained below the decade average for July
– Non-doorman and doorman median rental prices rose to new records for the second straight month
– Average price per square foot for new development rentals remained above the $100 threshold for the third consecutive month
– Luxury median sales price was the second-highest on record for the second time
– Luxury listing inventory slipped annually for the second time in three months
– Luxury landlord concessions remained tied at their lowest level in nearly six years
BROOKLYN RENTAL MARKET HIGHLIGHTS
“Average and median rental prices set new records.”
– Net effective median rent and median rent set new records for the fourth straight month
– New lease signings fell year over year for the third time in four months
– Bidding war market share remained at about one in five new lease signings
QUEENS RENTAL MARKET HIGHLIGHTS
– Net effective median rent and median rent set new records for the third time in four months
– New lease signings fell year over year for the fourth straight month
– The listing discount did not reflect a premium for the first time in nearly two years
Zumper: Rental Rate Increases Are Slowing
The rate of rent growth is cooling nationwide. One thing that can be confusing in these reports, is that many who read “NYC” assume they are talking about Manhattan when they are really blending in the other four boroughs. In addition, there is a national narrative that residential rents are falling when I think its more about the rate of growth is falling.
The New York Times breaks down the 1-bedroom markets in the Zumper report.
You can see within our July 2023 rental report that Manhattan 1-bedroom rents are much higher than “NYC (5 boro) rents.
‘Highest and Best’ Real Estate Newsletter Launches
Long time well-respected Bloomberg real estate reporter Oshrat Carmiel packed up and moved from Manhattan to Florida during the pandemic and just began a newsletter called Highest and Best. I suspect there will be a lot of analysis of the relationship between New York and Florida chock full of information. (I have long called New Yorkers in Florida, the “new foreign buyers.”)
Manhattan’s Condo Kings are Migrating South [Highest and Best]
The Celebrity Premium That Isn’t: It’s Hell I Tell You!
As a Manhattan appraiser, one of the most common things I am asked is whether a celebrity sale generates a premium. Not really. I’ve always contended that on average, the best case scenario is a reduced marketing time from greater exposure. Yes there are plenty of examples of homes selling for more and a celebrity was the seller. But every time I see one of those sales, there are plenty more that show no premium. In other words, a sale that got a premium price also occurs when a celebrity is not involved. Hence the difference between correlation and causation breaks out a discussion. Look at it another way: often the most successful agents are those that get celebrity listings, or those that specialize in luxury properties are more likely to get a celebrity listing because celebrities are more likely to have higher end listings. The arguments about a premium seem endless and I fall on the side that believes they are exaggerated as a market phenomenon.
So when I saw this terrific Wall Street Journal article, and finally saw tangible examples of the downside to a celebrity sale (with its awesome title), I was excited: The Hell of Living in a Home With Any Celebrity Connection
Makes a good argument against “celebrity premiums!” These days, even mildly famous houses get tons of visitors. “There were people sitting in our yard, taking videos.” @candaceETaylor @wsjrealestate https://t.co/NMlfMqracx pic.twitter.com/5LVyqkS46Q
— Jonathan Miller (@jonathanmiller) August 7, 2023
[100th Episode] Boroughs and ‘Burbs: Greedflation, Spurious Correlations, and Contradictory Signals
I joined John Engel and Roberto Cabrera on the 100th episode of their podcast Boroughs and ‘Burbs. It’s my third visit on the show and Ithe conversation quite engaging.
The news is full of contradictions. We hear talk of an inflationary bubble and runaway housing costs are met with Fed tightening and the end of the stimulus. A record number of Millennials are starting families, experiencing record low unemployment and rising wages. And yet those wages aren’t keeping pace with record inflation. Add to this supply chain problems, a lack of affordable housing, bank tightening and rising commodity prices seem to add a level of uncertainty not seen in our lifetime. This week we want to talk economics. We are trying to separate the signal from the noise. Our guest is a man who has been studying housing prices since founding his firm in 1986. We’ll ask Jonathan which of those headlines matter most to the real estate market, and which we can safely ignore.
From $110 Million To $30 Million: It Was Never Worth Anywhere Close To $110 Million
The top of the Woolworth Building In Manhattan was once the tallest building in the world. In 2014 it was partly converted to residential condo units at the top. The five story penthouse was often talked about during this period when I observed that the era of “aspirational pricing” began and I started to track closed U.S. residential sales at or above the $50 million threshold. At that time, such a sale wouldn’t have fit on this chart which was capped by the then record of $88 million (the current record is nearly $240 million!)
The Slip: One Of The Most Important Locations For NYC Art You’ve Never Heard Of
I was on vacation in Rehoboth Beach, Delaware last week and was browsing (more like ‘loading up’) at a popular local book store with my wife when I stumbled into the new book called The Slip. While I had heard of Coenties Slip, I knew nothing about its history and so I bought it. It is on my nightstand in position to be my next read.
So this isn’t a book review since I haven’t read the book, but it is intensely fascinating to be made aware of something about Manhattan I’ve never heard before – ever. I’ve appraised all over Soho and Tribeca, made popular by artists. I’ve been in Andy Warhol’s “The Factory” on East 47th Street, but never heard the story behind “The Slip” which is named after Coenties Slip on the East River in Manhattan.
Luckily, Brick Underground just published a great piece on the new book which confirms I didn’t make a bad purchase.
The Risk Of Multi-Family Overbuilding Should Not Be Overshadowed By The Office Market Problem
In this terrific WSJ read, A Real-Estate Haven Turns Perilous With Roughly $1 Trillion Coming Due the argument is made that the multi-family market is also quite vulnerable. I’ve thought this because of higher rates and rampant overbuilding encouraged by the REIT phenomenon – Zelman & Associates first exposed me to this risk. If apartment rents continue to weaken, the challenge to multi-family apartment owners will be much more significant.
“Everyone is focused on office,” Sotoloff said. The risk of apartment defaults, he added, “is a really big issue that is not getting the attention it deserves.”
Here’s a terrific WSJ clip on converting office buildings into multi-family housing that appeared within the piece – I encourage you to watch it:
– Most projects don’t pencil out without tax breaks or subsidies
– Zoning changes require often with community approval
– Debt service challenge – new financing need because collateral changed and interest rates are much higher
Peter Lynch: I’d Love To Know When Interest Rates Are Going To…
I find myself being asked about the future of mortgage rates, reasonable expectations, etc. all the time by the real estate community. After I do all the caveats (helpful dad joke: my crystal ball is held together with duct tape”) I present my thoughts which are based on logic and not data, much like a conversation at a cocktail party. I can’t help myself but I remain deliberately vague, because I don’t “know.” Still, I also don’t believe in going around saying “I have no thoughts on the topic.”
By the way, here is an amazing paper by the SF Fed: Where Is Shelter Inflation Headed?
Here’s the most watch Peter Lynch clip.
We Prefer Bigger And Farther Apart
I found this Pew Research study really interesting, especially as someone who became an empty nester and downsized by half (but with more land).
Visual Capitalist Ranks Cities With Most Office Vacancies
I love how three Manhattan neighborhoods rank in the top ten of the most vacant cities.
My favorite housing market/economic charts of the week made by others
Apollo’s Torsten Slok‘s amazingly clear charts.
Kastle card swipe data charts
Remember that Kastle charts are overstating occupancy* because their pre-pandemic occupancy benchmark was 100% which is simply incorrect (*measures card swipe activity as a proxy for occupancy).
My favorite random charts of the week made by others
Oversightless TAF Shows Dave Made $495,470 In 2021
Nice Work If You Can Get It Without Any Oversight.
For the uninitiated, TAF 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 (400th out of 400 occupations according to BLS in 2021).
According to the 990 presented by ProPublica, TAF’s President Dave Bunton made a base salary in 2021 of $367,537,
and because he did such a great job at making the industry diverse, taking the topic very seriously and didn’t wait until he was pressured and didn’t sit and do nothing tangible other than make lists of new committees and allowed massive conflicts of interest like the one between the Chair of the ASB and Leader at McKissock (they’re married) and exposed hard-working appraisers to distorted national criticism was also given a a bonus of $127,933 (It’s not clear whether that bonus includes global first class travel and lodging to valuation events worldwide that have nothing to do with TAF’s mission to protect the public trust).
This is a tiny organization that lives on top of the backs of hard-working appraisers – how is this much money for bureaucratic positions in an organization over an industry that doesn’t change that much? The top for employees clear well over $1 million annually.
Its now 2023 – what are the odds those salaries and bonuses are a lot higher?
Here’s a clip from the 990.
Rapattoni Is Under A Ransomware Attack Nationwide
As you are aware, there has been a significant interruption at the Rapattoni data center that has affected all Rapattoni customers nation wide due to a cyber-attack.
At times I can yearn for a good old pencil, paper, and old-timey MLS books….
OFT (One Final Thought)
Brilliant Idea #1
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Reads, Listens and Visuals I Enjoyed
- Ranked: The U.S. Cities with the Most Vacant Offices [Visual Capitalist]
- Report Identifies NYC Offices Ripe for Resi Conversion [The Real Deal]
- Live: Analysis of US CPI Report for July [Bloomberg]
- New Lending by Mortgage REITs Has Dried Up [Wall Street Journal]
- The Anti-California [The Atlantic]
- After the shipping industry left Coenties Slip in Manhattan, some of the biggest names in American art moved in [Brick Underground]
- Airbnb’s Lawsuit to Block NYC Short-Term Rental Law Is Dismissed [Bloomberg]
- Rent Increases Are Softening, but Not Everywhere [NY Times]
- A man returned home to find a new $1.5 million house on land he acquired decades ago. Now he's suing for $2 million. [Business Insider]
- Demolishing Office Buildings for the Land Underneath Is Latest Property Bet [Bloomberg]
- City of Atlanta Mistakenly Tears Down Home, Then Sues The Owner For $68,000 in Demolition Costs [The Messenger]
- The Hell of Living in a Home With Any Celebrity Connection [Wall Street Journal]
- Where Is Shelter Inflation Headed? [FRB San Francisco]
- House on Palm Beach's North End Lakefront Sells for 50 Million [Palm Beach Daily News]
- A Real-Estate Haven Turns Perilous With Roughly $1 Trillion Coming Due [Wall Street Journal]
- Majority of Americans prefer a community with big houses, even if local amenities are farther away [Pew Research]
- U.S. Census Data Reveals the Most Miserable Cities In America [Herald Weekly]
- WSJ News Exclusive | Woolworth Building’s ‘Pinnacle’ Penthouse, Once Asking $110 Million, Sells for $30 Million [Wall Street Journal]
My New Content, Research and Mentions
- Don't be fooled by rising consumer price data, take a peek behind the numbers [CNN Business]
- Why Are NYC Rents So High? It’s Complicated [The City]
- Average Manhattan monthly rent rises to record $5,588 [The Hill]
- Rents in Manhattan, Brooklyn soar to new records. When will the monthly increases end? [New York Daily News]
- Manhattan Rents Soar to Nearly $6K in July [Newsmax]
- Manhattan's average monthly rent surges to $5,588 [Fox 4 Now]
- UK Home [Daily Mail Online]
- Rising housing costs fueled a local inflation bump in July [Crain's New York]
- Rent in Manhattan hits record high for 3rd time in 4 months, report says [CBS News]
- NYC Apartment Rents Blow Past Records Again, But Owners Aren't Immune From Looming Distress [Bisnow]
- Manhattan rents soar to another record high in July at nearly $6K — but may be ‘approaching peak’ [NY Post]
- Manhattan renters are now forking out a record-breaking average of $5,588 per month, even though people are still flooding out of New York [Yahoo News]
- New York City apartment hunters hit their limits while rents keep climbing [Business Times]
- As July Rents Notch Record, Tenants Pullback on Signings [The Real Deal]
- City sees record rents across the board once again in July [Crain's New York]
- Manhattan, Queens, Brooklyn Rents Rose to Records in July [Investopedia]
- NYC Rents Hit New Highs in July, but They Might Have Hit Their Peak [Commercial Observer]
- Manhattan renters are now forking out a record-breaking average of $5,588 per month, even though people are still flooding out of New York [Business Insider]
- Manhattan rents hit a record high for the third time in four months [CNN Business]
- NYC Apartment Hunters Hit Their Limits While Rents Keep Climbing [Bloomberg]
- The average Manhattan rent just hit a new record of $5,588 a month [CNBC]
- NYC tourists are choosing to buy studios over paying for cramped hotels [New York Post]
Recently Published Elliman Market Reports
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 7-2023 [Miller Samuel]
- Elliman Report: California New Signed Contracts 7-2023 [Miller Samuel]
- Elliman Report: Florida New Signed Contracts 7-2023 [Miller Samuel]
- Elliman Report: New York New Signed Contracts 7-2023 [Miller Samuel]
- Elliman Report: San Diego County Sales 2Q 2023 [Miller Samuel]
- Elliman Report: Orange County Sales 2Q 2023 [Miller Samuel]
- Elliman Report: Malibu + Malibu Beach Sales 2Q 2023 [Miller Samuel]
- Elliman Report: Los Angeles Sales 2Q 2023 [Miller Samuel]
- Elliman Report: North Fork Sales 2Q 2023 [Miller Samuel]
- Elliman Report: Hamptons Sales 2Q 2023 [Miller Samuel]
Appraisal Related Reads
- Rapattoni System Interruption [SFAR]
- Beware of Bifurcated Appraisals [Appraisers Blogs]
- How Close is Close Enough? [George Dell, SRA, MAI, ASA, CRE]
- A hot & cold housing market [Sacramento Appraisal Blog]
- Top 10 Benefits of Getting a Pre-Listing Appraisal Before Selling Your Home [Birmingham Appraisal Blog]
- Aloft Teases a Groundbreaking Appraisal Toolkit at Valuation Expo: A Glimpse into the Future of Real Estate Appraisals [Businesswire]
- Choosing the Right Appraiser: A Guide for Agents, Attorneys, Accountants, and Homeowners [Birmingham Appraisal Blog]
Extra Curricular Reads
- The Doomed Voyage of Pepsi’s Soviet Navy [Foreign Policy]
- Ghiroli: Orioles' unforced error with announcer Kevin Brown dims team's shine at wrong time [The Athletic]
- The Life-Changing, Solar-Charged Power of 'Regenerative Travel' [Reasons to be Cheerful]
- It's time to change how we cover Elon Musk [Platformer]