The Double Wide Housing Market

July 7, 2023

Seriously, this is how you sell a home…stains and all.

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Did you miss last Friday’s Housing Notes?

June 30, 2023: Housing Patterns Fool Ya

But I digress…

Manhattan Sees A Record Two-Thirds Cash Buyers

I’ve been the author of the expanding Douglas Elliman market report series since 1994, and this quarterly Manhattan Sales report series was the one that started it all. It has been widely copied. Reporters constantly complain about how every brokerage has jumped on the market report bandwagon. However, their concerns seem to be more about quality rather than quantity. I’m all for transparency, something that got me plenty of scoldings from real estate industry leadership a few decades ago. Times have changed, which is great to see.

Bloomberg updates an always nifty chart for their piece of the report release: More Manhattan Homebuyers Paying Cash in Sign of Luxury Strength

If you look beyond the percentages, you can see that over the past quarter, the market segment seeing more sales is cash buyers, while mortgage-dependent buyers are falling. Since the probability of using cash escalates with price, this pattern is a statement of the improved conditions of higher-end buyers.

Elliman Report: Q2-2023 Manhattan Sales
Elliman Report: Q2-2023 Northern Manhattan Sales

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MANHATTAN SALES MARKET HIGHLIGHTS

Co-ops & Condos
“The Manhattan market is nearing the end of price distortions experienced with comparisons to the pandemic-era sales boom.”

– Median sales price slipped year over year for the third time to the third-highest on record
– Listing inventory slipped year over year as the number of sales remained sharply below the year-ago boom
– The market share of cash buyers soared to a record two-thirds of all closings because of fewer purchase mortgage transactions
– Co-op median sales price slipped annually for the third straight quarter and was on par with the same quarter in 2019
– Condo new development average sales size fell, pulling condo average and median prices lower, whereas condo resale prices increased as the average size expanded
– New development average price per square foot edged higher year over year for the fourth consecutive quarter
– New development’s listing inventory declined annually for the second consecutive quarter
– Luxury median sales price expanded annually for the fifth time in six quarters
– Luxury listing inventory declined year over year for the first time in four quarters
– The market share of luxury bidding wars was the third-highest on record

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NORTHERN MANHATTAN SALES MARKET HIGHLIGHTS

“Sales fell short of year-ago levels while listing inventory declined.”

Co-ops & Condos
– All price trend indicators and sales remained below year-ago levels
– Listing inventory fell year over year for the third straight quarter

Townhouses
– Price trend indicators surged above year-ago levels as sales declined
– Listing inventory declined annually for the first time in ten quarters

Manhattan’s Highend Market Is Drifting Higher

As you can see in the first post above, the Elliman Report: Q2-2023 Manhattan Sales showed strength at the higher end of the market relative to the remainder through the record market share of cash sales. Here is the Luxury Matrix from the report.

If we take it one step further and look at the entry threshold for the top ten percent of the market (the bottom of the top ten percent), it is clear that the top ten percent is moving further away from the remainder of the market. The threshold is approaching the levels we saw more than six years ago when super tall, super luxury development was at peak and so was unit size.

Visual Capitalist: Housing Price Trends With And Without Inflation (And Focus On Inventory!)

Visual Capitalist: U.S. Home Price Growth Over 50 Years

Zooming in before looking at price trends because this is the difference in this recent cycle: Inventory has collapsed:

Click to expand the following to enjoy it better. As. A reminder – it’s weird to adjust housing for inflation since inflation calculations are more than 50% based on housing – a double dip.

New Signed Contracts Are On The Cusp Of Exiting The Year-ago Comparison Distortions

We cover four regions of the U.S. for Douglas Elliman, looking at new signed contracts and new listing data. Each of those metrics is based on what happened in the reporting month, not cumulatively. So if an agreement were signed in May but hadn’t closed, it would have appeared only in the May report. “New” means “current month only” to get a sense of what is happening now or as close to right now as possible. The reports tout year-over-year comparisons but present a one-year moving window by property type in chart format.

Elliman Report: June 2023 New York New Signed Contracts
Elliman Report: June 2023 Florida New Signed Contracts
Elliman Report: June 2023 Colorado New Signed Contracts
Elliman Report: June 2023 California New Signed Contracts

Here’s a sample of charts from each region. For oodles of charts, you can visit our chart gallery.

Taylor Swift Eras: Concerts Pump $5 Billion Into The U.S. Economy

From Semafor: Entertainment powerhouse Taylor Swift and her wildly popular Eras Tour may be responsible for a $5 billion surge in the U.S. economy — and other countries are taking notice.

Taylor Swift’s Eras Tour might be the thing that avoids an Australian recession. An economic downturn is looming over the country. Still analysts who recently spoke to local media have suggested that the superstar’s 10-day tour stop next year could reignite Australia’s economy as fans flock to shows, even as a cost-of-living crisis makes life unaffordable.

While I’m not a fan of her style of music, I respect it (and she didn’t take FTX money!), and her music is having a global economic impact at the moment. Gotta love that.

Getting Graphic

My favorite housing market/economic charts of the week made by us

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

Post by @businessweek
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Appraiserville

Cosmic Cobra Guy: The False Compassion Of Inflated Appraisals

In my C-SPAN Testimony in May at the Appraisal Subcommittee’s second hearing on appraisal bias, I asked, in my opening statement:

And why is the second appraisal always the “correct value?”

Jeremy Bagott’s latest press release expands on that question…

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Contact: Jeremy Bagott, MAI, AI-GRS
Tel: 805-794-0555
email: jbagott@gmail.com

*** FOR IMMEDIATE RELEASE ***

VENTURA, Calif. (June 7, 2023) – In 2004, several years before the financial crisis that led to Fort Myers, Florida, becoming a national foreclosure hotspot, appraiser Mike Tipton found himself facing a dilemma. His employer, an appraisal management company known as eAppraiseIT, had assigned him the task of valuing a two-bedroom house in a recently developed D.R. Horton subdivision. The paperwork provided by the appraisal management company hinted that the value ought to be $245,000.

But after conducting an inspection of the appraised property and comparing it to five similar sales in the area, Tipton concluded a value of $237,000. That’s $8,000 lower than the initial estimate. Tipton was aware that this discrepancy might not please DHI Mortgage, the lender for the buyer and a subsidiary of D.R. Horton. Tipton’s instincts were right. His value conclusion met with dissatisfaction.

The lender approached Tipton through eAppraiseIT, requesting a reconsideration of value. The lender provided alternate properties for him to use as comparisons. Tipton recognized that the underlying desire was to obtain a higher value. He stood his ground and refused to alter his report.

The appraiser told the Center for Public Integrity, a nonpartisan and nonprofit news organization, that he was never again assigned another appraisal for a D.R. Horton property. “All I can say is that D.R. Horton has continued to be an active developer in Lee County,” he said at the time. “But I haven’t received any further appraisal requests from DHI Mortgage. You draw your own conclusions.”

He is just one of many appraisers who recounted to the Center for Public Integrity that lenders in the United States had been pressuring them for years to inflate home values in order to justify higher mortgages. When asked why Tipton had not received more orders from the company for DHI Mortgage properties, Carrie Gaska, a spokesperson for First American eAppraiseIT, declined to comment.

The news organization obtained copies of lender “blacklists,” containing the names of thousands of appraisers. Some appraisers claim that lenders have used these lists to exclude those who refused to inflate home values.

Fast-forward to 2023, the powerful lobbies of the homebuilders, Realtors, nonbank lenders and fintechs, and their allies at Freddie and Fannie and in the Biden administration, have discovered a much more effective way of keeping the party going this time around when it comes to America’s $14 trillion mortgage market.

They have hitched their wagon to the diversity, equity and inclusion movement. The new approach involves painting appraisers as motivated by racial animus when unsatisfactory value opinions threaten commissions and executive bonuses for loan production and home sales. These industries don’t want buyers getting confused by appraisals that come in below negotiated sale prices – or using them as a pretext to back out of deals when the market is in decline.

Citing unadjudicated cases and now-discredited research, the National Association of Realtors even wants its members to personally broach the topic of “appraisal bias” to buyers and sellers. It’s a naked attempt to intimidate appraisers into rubber-stamping the contract price for every sale. What appraiser wants to battle discrimination charges. You can see NAR’s recommendation to its members at 2:19 in the video here.

In March, the U.S. Department of Housing and Urban Development announced it was awarding $54 million to 182 nonprofits to serve as private posses in a Spanish Inquisition-style drive to tease out racism in appraisals. The grants will pay the nonprofits to find violations of the Fair Housing Act by reporting hapless appraisers who may conclude value opinions that cause sellers to have to renegotiate sale prices or that put broker commissions at risk or threaten a lender’s debt trap on a serial refinancer. The funding will have the effect of chilling the free speech of real property appraisers nationwide. It will cow them into playing ball, which is the point.

With the current administration’s blessing, Fannie has eliminated critical checks and balances in a radical experiment with the U.S. taxpayer and U.S. economy on the hook. The mortgage giant began scrapping or weakening long-accepted underwriting safeguards like FICO scoring, title insurance, mortgage insurance, downpayment requirements and appraisals.

Fannie is even encouraging a new form of the “liar loan.” It’s called “Value Acceptance.” It allows a collateral value to be pulled out of the ether by parties with a monetary interest in the loan’s successful closing. But don’t worry. Fannie checks the stated value against its algorithm – the equivalent of a “Zestimate.”

In an August 2021 report, the U.S. Federal Reserve looked for signs of racial discrimination in mortgage approvals using new data. It found no signs of discrimination. To the contrary, it found black borrowers tended to hold more debt proportionate to their income than Hispanic borrowers, that Hispanic borrowers held proportionately more debt than white borrowers and that all three groups tended to be more leveraged proportionate to income than Asian borrowers. If anything, this finding suggests African-Americans, and possibly Hispanic borrowers, are again being set up for lender debt traps, not that they’re being denied credit.

In another report from 2021, mortgage giant Freddie Mac scoured 12 million appraisals between 2015 and 2020 and published a study that found what appeared to be an indictment of the nation’s state-licensed appraisers: the sales of homes in black- and Latino-majority census tracts were found more likely to appraise below the negotiated sale price than sales of homes in white-majority tracts. But the report failed to control for concessions and closing costs, which have a greater tendency to be shoehorned into negotiated contract prices in tracts that contain more first-time and cash-poor buyers. Freddie Mac’s own underwriting rules require appraisers to deduct for this, causing sales to appraise below their contract price. The Freddie Mac report dishonestly ignores this reality.

Buried in the Freddie Mac report was the begrudging acknowledgment that the comparables selected by appraisers to value homes owned by people of various racial groups tended to be reconciled within ranges that differed little from one another statistically.

Oft-cited research by the Brookings Institution has been discredited by the AEI Housing Center. Brookings’ findings could not be replicated, and problems were found with the coefficients in the study’s regression model.

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Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

# # #

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OFT (One Final Thought)

Think about last year’s housing market while turning up the volume…

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons at 2 p.m.) 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 go double wide;
– You’ll get a trailer for no apparent reason;
– And I’ll get tired of writing about last year’s housing rocketship.

Brilliant Idea #2

You’re clearly full of insights and ideas as a reader of these Housing Notes. Please share them with me early and often. I appreciate every email I receive, as 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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