Amazon To NYC Housing Market: "Drop Dead!"

Amazon To NYC Housing Market: “Drop Dead!”

A recent headline in the Commercial Observer said it best with a possibly NSFW awesome graphic. The Amazon pull out was all the news rage since Thursday afternoon. I’ll discuss this further down in these Housing Notes and provided a list of links down at the bottom for the Amazon HQ2 situation.

In the meantime, this is what my work week felt like. I was trying to move fast and things kept slowing me down that I didn’t expect:

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Elliman Report Released: January 2019 – Manhattan, Brooklyn & Queens Rentals

As the same time there was all the hoopla on the Amazon decision to walk away from their deal with NYC, Douglas Elliman published our research on the rental market of the Long Island vicinity as well as Manhattan and Brooklyn. This is part of our expanding Elliman Report series I’ve been authoring since 1994.

Elliman Report: 1-2019 Manhattan, Brooklyn & Queens Rentals

First of all, Bloomberg News coverage of the Manhattan rental market gave me a “twofer” in the chart department. And you all know how much I love charts.

But there’s more chartage..

…from Dow Jones:

The Wall Street Journal…

…and Mansion Global…

…and The Real Deal bedazzled the existing chart in our report…

And some of our charts:

NYC Rental Market Talking Points by Region

Manhattan Rentals

“The market share of landlord concessions declined year over year, after forty-three consecutive months of increases.”

– The use of concessions may be peaking as more potential homebuyers move into the rental market, helping push rents up
– Median rent growth accelerated in larger apartments as a shift to higher quality stock continued
– The year over year market share of landlord concessions falls after forty-three consecutive months of increases
– Vacancy rate fell year over year for the eighth consecutive month
– Non-doorman median rent outperformed doorman median rent for the first time in six months
– The entry threshold increased in line with luxury price trend indicators

Brooklyn Rentals

“The market share of landlord concessions declined year over year, after thirty-five consecutive months of increases.”

– The use of concessions may be peaking as more potential homebuyers move into the rental market, helping push rents up
– Market share of concessions declined year over year after nearly three years of increases
– Market share of 1-bedroom rentals was the only segment to see a rise
– Median rent growth was most robust in smaller apartments

NW Queens Rentals

“With rising new development market share, increasing rental price trends continue to be influenced by the shift to higher quality new housing stock.”

– Face rents pressed higher as new development influx skewed prices upward
– Market share of concessions increased year over year for the fifth consecutive month
– Number of new leases increased year over year for a seventh consecutive month

Amazon Gone

On Thursday I was climbing up a ladder in an old Brownstone to access to roof area (hey, I’m an appraiser too) when my iPhone blew up. I got about 20 press calls in the subsequent two hours concerning the impact to the LIC and NYC residential market (see “Amazon HQ2” links at the bottom of these Housing Notes. Here are two call-ins I did (with my high school graduation-like photo) on Bloomberg (lol) – file photo was taken around 2003:


This morning:

I’d pontificate more but the Bloomberg interviews above and the coverage of the real estate angle are included in the “My New Content, Research and Mentions” links below.

My friend Barry Ritholtz gets specific on where he thinks the blame lies for the Amazon decision in this thread…

How Big Is NYC Tech Versus Wall Street?

There was a terrific article in the New York Times related to the Amazon HQ2 deal collapse but it was more of an analysis of how the NYC economy is configured: Even Without Amazon, Tech Could Keep Gaining Ground in New York Seems like mandatory reading for anyone in NYC real estate.

I remember when Wall Street accounted for 23% of the pay, now it is down to 19%. Other sectors have stepped up to fill the void. Here are a few charts from the New York Times piece that give context to the tech and securities role in the NYC economy. Click on the graphics to read the article.

The Housing Bubble/Bust of a Decade Ago May Keep The Market From Repeating It

Bloomberg shared an interesting home sale process video that focused on the phenomenon of rising price AND rising inventory at the same time – not what we are seeing in this cycle.

New in the Real Estate Lexicon: Mosh Pit

The first time I’ve ever been able to use “mosh pit” in a real estate context but it somehow works in this interview:

After Amazon plucked it from national obscurity, it became “overhyped,” says New York City-based real estate appraiser Jonathan Miller. “There have been lots of stories about people buying three apartments sight unseen like there’s some sort of frenzy. … It’s not some sort of frenzy where people are in a mosh pit diving over each other to get the next apartment.”

Small Town Boom: The Indicator from Planet Money

The Indicator is a daily listen for me because its full of economic topics that relate to housing. This one discusses the topic of rural economies and how some rural towns are getting out of the classic failure spiral.

Bloomberg: Why America’s New Apartment Buildings All Look the Same

This was my favorite read of this week: Why America’s New Apartment Buildings All Look the Same I interviewed the author Justin Fox years ago on my old “The Housing Helix Podcast” and have always been a fan of his writing.

I’m not exaggerating when I say that each time I have visited a different U.S. city in the past five years, I always ask myself, “Is it just me or do all these rentals buildings look like all the rental buildings I’ve seen in other cities?” Examples include Boston, Washington, D.C., Dallas, Detroit, Chicago, San Francisco, Los Angeles, Philadelphia, Cleveland, Baltimore, Harrisburg, Wilmington, Annapolis, San Antonio, and Columbus to name a few. It’s crazy. And good grief, I am traveling way more than I thought.

When you look at these images in the Bloomberg story below, I’ll bet most of my Housing Notes readers have seen buildings like this EVERYWHERE.

China: 65 Million Empty Apartments

You think we have a lot of vertical (vacant) rental or condo housing units in the U.S. Take a look at the situation in China from this Nikkea Asian Review article: China’s housing glut casts pall over the economy – A building binge leaves cities with 65 million empty apartments

A few years ago my wife and I were in China and took a 5.5-hour high-speed rail trip from Beijing to Shanghai. During the trip, on both sides of the train, this was essentially the view (I took with my iPhone) Mile after mile of concrete midrise towers.

Upcoming Speaking Events


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

I’m light this week on appraisal issues due to the time devoted to the Amazon HQ2 pull out and its impact on the market over the past 24 hours. So I’ve provided a podcast and interview I gave with top real estate agents in their local markets who care about valuation and want to see our world accurately. These might provide some thoughts on how appraisers can explain the state of their profession and market to those outside the appraisal industry. I think many of us are good at writing about it but not necessarily articulating it. Elements of this will also apply to consumer interaction which is where future opportunities are. Here you go…


My longtime online friend Jim Duncan who is a Realtor and a Broker/Partner in Charlottesville, Virginia of Nest Realty. I’ve only met him once at an Inman Conference about 15 years ago but devotedly follow his online presence, especially his monthly note. He invited me to be interviewed with his colleagues on his new “Sweat The Details” podcast. It’s a 30-minute interview and I think they sped up my voice by 1.5 times to squeeze it into their 30-minute format. Hey, I have a lot to say! LOL.

The Apple Peeled – Ask the Experts: Market Dynamics with Jonathan Miller

Over the years, I have bantered with the Espinal Adler Team (Marie Espinal and Jeff Adler) at Douglas Elliman Real Estate about the market which has been invaluable for on the ground intel. And we’ve become friends. When Jeff and Marie asked me to be formally interviewed for their blog “The Apple Peeled” I was happy to do so, especially because I could veer off the road into issues about the current mortgage and appraisal process. This “The Apple Peeled” blog post: Ask the Experts: Market Dynamics with Jonathan Miller was distilled from the 90-minute conversation (I could have gone on for 5 hours) I had with their team.

I hope you find that this apple was fully peeled:


Jonathan Miller’s Market Outlook

The number of units sold in Manhattan in 2018 was down by more than 14 percent compared to the previous year. The brokerage industry tends to be very linear in its perception of the market, so many believe when the market is rising, it will rise forever. And, in-turn, when the market falls, it will fall forever. That approach can lead to overreaction.

The 10-year Challenge (2009 vs. 2019)

Some analysts are even comparing the current cycle to the last downturn and the housing bubble in 2009, but Miller outlined quite a few differences between then and now.

In 2009, the average discount from listing was 10.2%. In 2018 the discount was 5.2%. In ’09, Miller said sellers were anchored to the “pre-Lehman, pre-financial crisis asking prices” and had to travel farther on price to meet a buyer. (Miller measures listing discount by the percent difference between the contract price and the price that the property was listed for sale at the time of contract – not when it was first listed). The most recent asking price is “really the moment the property entered the market,” he said.

Miller said there are more buyers today compared to 2009, but those buyers are “very jaded about what value is.” Meanwhile, sellers are anchored to another market completely, he said.

The change in tax laws in 2018 and a several-month stretch that saw mortgage rates rise before recently dropping close to previous levels had both buyers and sellers re-calibrating what value is. That process can take time.

“If a seller overprices a listing, it takes them up to 2 years to de-anchor from what their price was without thinking that they left money on the table,” Miller said. “The disconnect between buyers and sellers is measured by lower sales volume.”

Starter Segment vs. High-End Luxury

For the last two years, Miller has said that the NYC market is softer at the top and tighter as you move lower in price.

Overall inventory is up by about 17%, with a significant amount of supply coming from the studio and 1-bedroom market. Studio inventory is up 21% percent.

“The pace of the starter market is still the fastest of all segments,” Miller said. “It’s just not as detached as it was because now you have more supply.”

Interest Rates and Their Impact

Typically, rates rise when the economy is strong. The low rates we’re seeing today understate the strength of the current economy, according to Miller. “That’s the disconnect.” In the long run, interest rates do not impact price trends. Mortgage rates have trended lower for three decades, Miller said, but housing prices have fluctuated up and down during that same lengthy stretch.

Mortgage rates weren’t wildly different in ’09 compared to today. In a recent report, Miller stated that an adjustable rate mortgage rate averaged 4.38% in 2009 and was at 3.98% using the same metrics in 2018.

Miller said that real estate investors should stop trying to perfectly time the market (both with rate and supply vs. demand). Perfect timing is a concept that was born out of the housing bubble, he said, when investors viewed housing as a highly liquid stock, instead of in its proper context. “(Real estate) is more of a long-term asset.”

In-Depth Look at the State of Appraisals

“There was nothing learned from the bad behavior of a decade ago,” Miller said, reminding himself of a Mark Twain quote. “History doesn’t repeat itself, but sometimes it rhymes,” Jonathan Miller recited. Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., said federal regulators are acting irresponsibly in their effort to reduce and perhaps even eliminate the need for an appraisal as part of an overall effort to erase “friction points” that slow-down the mortgage application process.

Miller said the regulators were more concerned with collecting fees than they were with protecting the American consumer. He likened the subtle de-regulation to the housing bubble of a decade ago, pointing out that regulators were getting paid by the failing investment banks they were rating back then. Now, he said, regulators and both Fannie Mae and Freddie Mac are getting paid whenever loan volume passes through those agencies. (Fannie Mae and Freddie Mac are Government sponsored enterprises that purchase mortgages from banks and mortgage companies in an effort to create liquidity so that lenders have the capacity to lend to more homebuyers).

The Office of the Comptroller of the Currency (OCC), The Board of Governors for the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) proposed a rule to amend the agencies regulations requiring appraisals for certain real estate related transactions. The proposed rule would increase the threshold level at, or below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000.

In response to our request for comment, spokespeople for the FDIC, the OCC, and The Federal Reserve said they do not comment on proposed rules during the rulemaking process.

Mortgage volume has trended lower despite rates falling steadily since the housing bubble, because lenders don’t want to take on risk, Miller said. “They’re in the fetal position. Banks are afraid of their own shadow.”

The tremendous amount of regulation implemented since Dodd Frank has led to mortgage lenders filling Fannie and Freddie’s portfolios with low-risk “pristine” mortgage bundles. But with rates so low, margins are so compressed, regulators need to stimulate volume to make money, according to Miller. “I think (Fannie and Freddie) are emboldened to take more risk.”

The push for fewer mandatory appraisals isn’t the only thing that has hurt the appraisal industry since the Dodd Frank Act was passed in 2010. The evolution of the mortgage industry’s use of the Appraisal Management Company (AMC) has led to a collapse in quality of appraisals ordered by banks, Miller said. He described the AMC as an institutional middle man that takes more than 50 cents on the dollar away from the professional appraisers who do the actual work.

“It’s like a Hollywood actor paying their agent 60% instead of 10%,” Miller said. “The mortgage industry is trying to widgetize the appraiser.”

The AMC is supposed to act as a communication barrier between the appraiser and the loan officer or mortgage broker, to thwart undue pressure to bring appraised values in at specific numbers. But according to Miller, the AMCs are under the same types of pressure that an individual appraiser might face. Some AMCs receive hundreds of thousands of dollars every month by way of appraisal orders placed by big banks. At least at the sales level, the banks apply pressure to the AMC to not “kill deals,” said Miller, who has testified in several class action lawsuits against AMCs.

In many instances, Miller and his firm were hired to do sample reviews of appraisals that came through AMCs. Often, the AMC would utilize appraisers in the market that would always “hit the number,” Miller said. A lot of those appraisers were ignoring valid comps, sometimes from directly across the street that were virtually the same as the subject property. “The AMC encouraged it because they were getting the work,” he said.

Appraisers are pushing back and there are already signs that AMCs were beginning to crumble, Miller said. Quality appraisers are turning away bank work when they know the order is coming in through an AMC because they’re not happy working for less than they deserve and because they’ve been reduced to “form-fillers,” Miller said.


The Apple Peeled Blog, February 12, 2019

Espinal Adler Team at Douglas Elliman Real Estate

OFT (One Final Thought)

Well, this week’s OFT is more like (FFT) with 5 thoughts concerning volatility. The housing market is shifting gears and the economy may be doing the same. This infographic from the must-read Visual Capitalist site is fascinating:

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 volatile;
– You’ll be taking inventory;
– And I’ll get up early and talk on TV.

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
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog

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