Admittedly I have a few sports skills that most of my readers aren’t aware of. Specifically I was a darn good putt-putt golf player in my teens, and who knows whether I would have ended up as a pro putt-putt golfer if I knew about it, instead of a real estate appraiser. I’m not really sure which occupation is the more grueling one. I mean, putt-putt professional golf was disrespected for being a tiny low paid niche of a bigger sport, and appraising continues to be disrespected as a tiny low paid niche of the bigger real estate industry. So in the interest of transparency, I always went with an orange golf ball.
Or to put it another way, if I hadn’t heard of the early spreadsheets, I probably wouldn’t be a market analyst. Here’s a fascinating history of the one that started it all – Visicalc.
Now that foundation of my lot in life has been established, let’s talk about bathrooms…
Homes with Blue Bathrooms Sell for More?
[Geithner Bathroom, Westchester MLS]
Today I received a press release from Zillow that shared the results of their research with the headline: Homes with Blue Bathrooms Sell for $5,400 More than Expected.
Like the Zestimate’s results that are presented to the nearest dollar, this type of presentation infers a market precision that does not exist. Labeled as “disrupters,” I think Zillow’s concept of “aggressively marketing an accuracy that is non-existent” is one of the biggest challenges facing real estate appraisers and brokers and in turn, the consumers. Numbers can be magic, especially when presented in an econ-sounding way. The consumer absorbs the results as gospel without challenge.
I’m sure the numbers are accurate for the data they have but Zillow’s application of the results are misleading. Yes their data says blue bathrooms sell for $5,400 more but that doesn’t mean your blue bathroom will get you $5,400 more than your neighbor with the exact same house across the street that doesn’t have a blue bathroom. The problem here is that consumers take this information and run with it.
Are 19 Bathrooms Enough?
There is a 30,000 square foot home listed for sale in New Jersey that has been off and on (essentially on) the market for 7 years. Still vacant, the seller announced that he is ready to sell at $45 million after initially listing it for $69 million.
As I mentioned in the article, an excessive marketing time like 7 years suggests that pricing has not been close to market. I don’t think you need to be an appraiser to understand that.
How About A ‘Beige’ Look In That Bathroom?
The Fed released their “Beige Book” this week and I always look to it for a narrative on the state of the economy right now. The headline in the WSJ says it all: Fed’s Beige Book Reports Slower Growth, Less Optimism in Some Regions
Or just directly to the Fed Beige Book and drill down by the member banks to get a regional anecdotal description. Here are a few summaries for the banks whose regions overlap those of our Elliman report series:
Economic activity has flattened out in recent weeks. Labor markets remained tight, and wages for skilled workers have continued to grow moderately. Input cost pressures have remained fairly widespread, while selling prices have increased at a modest pace. Housing markets have been steady, on balance, while commercial real estate markets have been mixed.
Atlanta (South Florida)
Economic activity modestly improved. The labor market remained tight. Firms noted use of training programs to attract and retain workers. An uptick in wage growth was reported for high-demand positions. Retail sales were soft, however, sales of trucks and large vehicles remained solid. Manufacturers noted increases in new orders and production.
San Francisco (west coast)
Economic activity continued to expand at a moderate pace. Overall, price inflation was steady. The labor market tightened further, and wage pressures grew moderately. Sales of retail goods grew modestly, and growth in the consumer and business services sectors remained strong. Manufacturing activity picked up to a modest pace. Activity in the real estate sector remained strong. Lending activity grew moderately.
Freddie Mac Tells Us That Rate Growth Seems To Be No More
Oh, and no matter how many time Fed FOMC members speak in public about strong economic growth and future multiple rate increases, mortgage rates are sliding.
Mortgage Interest Deduction Lifts Housing Prices
There was an interesting article in The Real Deal Magazine column: The Long View. The mortgage interest deduction is America’s great inequalizer
The concept is pretty straight forward. When you introduce ways to cut costs for homeowners (i.e. making the payment smaller), the price moves higher. We see this in other mechanisms like tax deductions or low mortgage rates. The universe doesn’t remain in a vacuum while you solely enjoy the benefit. I’ve taken the deduction for years and have always been concerned about a price drop if this key homeownership incentive for housing activity was suddenly removed. Here’s why.
According to a well known 1996 study by Richard Green, Patric Hendershott and Dennis Capozza, U.S. home prices may be between 13 and 17 percent higher than they normally would be because of the MID. The logic is simple. The deduction makes it cheaper for Americans to take out mortgages, which means they can afford to pay more for homes, which artificially inflates demand, which in turn drives up home prices.
In addition to the mortgage interest rate deduction, land use regulations also push prices higher. Edward Glaeser, a noted author on this topic – and not because he has cited my market research in the past 😉 – wrote an interesting piece for Brookings on reforming land use regulations.
We changed from a country in which landowners had the relatively unfettered freedom to add density to a country in which veto rights over new projects are shared by a dizzying array of abutters and stakeholders. Consequently, we now build far less in the most successful, best-educated parts of the country, and housing prices in these areas are far higher than construction costs or prices elsewhere.
It is prudent to realize that value isn’t just inherent. Zoning, land use regulations, tax incentives are embedded in that value. So if those incentives are removed, the value will quickly drop. I’m not presenting rocket science here (that’s for later down the page with Elon Musk) but housing value is not just “location, location, location.”
Random Real Estate Information As Ads
In covering over 30 U.S. housing markets for Douglas Elliman, I have a lot of real estate trivia stored in my head. Here are some charts and copy I wrote to showcase this information from our research that was used in their marketing efforts. Click to expand them.
This week I am sitting in my D.C. hotel room about to attend some appraiser regulatory meetings and I’m under the weather and still groggy from Memorial day time off. As a result, I’m a little thin on content this week, plus I needed a little pick me up. I have provided two fascinating interviews that, while they aren’t specific to housing, are about ways to think of the future. I implore you to consume both riveting interviews:
Barry Ritholtz’ Masters in Business on Bloomberg: Marc Andreessen, Venture Capitalist at A16Z [link]
TED – Elon Musk: The future we’re building — and boring [link]
This week it is all about the FTC.
The FTC Has Sided With the AMC Industry Rather Than All The Appraisers Those AMCs Have Gouged
Today was a historic day for the appraisal industry, and not in a good way. After years of the expanding AMC monopoly on appraisal services to a more than an 80% market share, and with these third-party companies taking 50% or more of the prevailing appraisal market rate from appraisers in the mortgage lending space, the FTC has made a tone-deaf move with this action. The FTC made an announcement after what I heard was some hard lobbying by REVAA, to challenge Louisiana Real Estate Appraisal Board on restrictions that they say hurts competition.
The Louisiana Board came right back at the FTC with their own release later in the day. The state board’s counsel is considered one of the best antitrust lawyers in the U.S. so this is going to get interesting. Housingwire provides a summary of what we know at this point. Keep in mind that Housingwire’s editorial position is pro-AMC given their lack of acknowledgment of the infamous AMC Coester v. Skapinetz lawsuit, yet showed a willingness to report on this anti-appraiser announcement.
Phil Crawford gives his always fascinating take on this FTC action and why it is a harbinger of tough times ahead for the appraisal industry.
Corelogic Takes The Zillow Approach
Apparently, we learned that big data can tell you what the best color of paint is for maximum value of your bathroom – even if you believe that, it cannot tell you that the house was occupied by 200 cats.
I was taken aback by the self-serving press release from Corelogic that basically said appraisals are questionable and automated valuations are better. That makes sense coming from a data firm with their own AVMs. The article lists a series of data that question the credibility of comp selection and adjustments with the “…these patterns aren’t sufficient to make conclusions at the loan level; more research is needed. However, he says, “They do reveal aspects of underlying inconsistency in the appraisal development, for which more sophisticated data analytics techniques are likely better suited…”
Part of the analysis that is missing – that contaminates the data pool – is the unending pressure appraisers are subjected to in the mortgage lending process, especially through AMC conduits. I find it weird that this type of analysis was understaken without consideration of the administration pressure the current syste, places on appraiser professionals.
A Brilliant Idea
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. They’ll paint your bathroom, you’ll amass a lot of putt-putt golf scorekeeping pencils and I’ll get a hole in one at the 18th right into the purple hippos opening and closing mouth.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- Reforming land use regulations [Brookings Institution]
- Property gains slow in Miami-Dade amid ‘relative weakness’ in market [Miami Herald]
- Fed’s Beige Book Reports Slower Growth, Less Optimism in Some Regions [WSJ]
- 30-Year Fixed Mortgage Rate Moves Lower [Freddie Mac]
- An interview with Jane Jacobs, Godmother of the American City [Metropolis Magazine]
- The Housing Market Is Ripe for Tech Disruption [Bloomberg View]
- Circa 1950, a Handmade Google Street View of D.C. [Citylab]
- Who Holds U.S. Debt Internationally [The Big Picture]
- Happy 70th to True American Suburbia [WSJ]
- Site of Watergate stakeout sold for $36M [Curbed DC]
- The Long View: The mortgage interest deduction is America's great inequalizer [The Real Deal NY]
- Podcast: Episode 606: Spreadsheets! [Planet Money]
- Beyond the Hamptons: Summer-Rental Arbitrage [Barrons]
- Millennials Want to Buy Homes but Aren’t Saving for Down Payments [WSJ]
- Friday Flash: Check engine [1000watt]
- Luxury Homes in Manhattan Are Finally Getting Cheaper [Bloomberg]
My New Content, Research and Mentions
- Developers Migrate to Areas Near the G, J, M and Z Trains [NY Times]
- Greenwich’s Luxury Housing Market is Fraying [Mansion Global]
- Believe it or not, a $500,000 budget can still snag you outdoor space in the city [Brick Underground]
- Manhattan’s chief closers [The Real Deal NY]
- Flushing’s other condo boom [The Real Deal NY]
- Sales at Central Park Tower can now begin—developer aims to make $4B [Crains New York]
- Matrix Blog: Homes with Blue Bathrooms Sell for More? [Miller Samuel]
- Central Park Tower, NYC's first $4B condo, can now launch sales [The Real Deal NY]
- Greenwich’s Luxury Housing Market is Fraying [WSJ]
- Curbed Cuts: The Oculus’s leak problem, luxury sales slowdown, and more [Curbed]
- Roosevelt Island condo asks record $2M [The Real Deal NY]
- This $2 Million Condo Is Roosevelt Island's Most Expensive Listing Yet [Bloomberg]
- Developers begin migration from L to J, M, Z and G trains [The Real Deal NY]
- Chetrit Group to convert rentals at Cassa Hotel and Residences into below-market condos [The Real Deal NY]
- Ahead of L train shutdown, developers flock to properties along G, J, M and Z lines [6sqft]
- Video: Unsellable? New Jersey's Most Expensive Home Dropping To $45 Million After Seven Years On The Market [Forbes]
Appraisal Related Reads
- Podcast: E157 Our Antitrust Moment has Arrived… [Voice of Appraisal]
- 6-1-17 Newz .Our 25th Anniversary! .Zillow Class Action Lawsuit, FTC Says No to LA Setting AMC Fees [Appraisal Today]
- A high-voltage tower INSIDE the backyard [Sacramento Appraisal Blog]
- FTC Challenges Louisiana Real Estate Appraisal Board Regulations that Restrict Competition [Federal Trade Commission]
- How Comp Adjustments Might be Distorting Appraisal Values [CoreLogic]
Extra Curricular Reads
- The future we're building — and boring [Ted.com]
- MIB Podcast: Marc Andreessen, Venture Capitalist at A16Z [The Big Picture]
- When a Robot Names a New Color of Paint [The Atlantic]
- What Frank Deford Meant to Sportswriting [The Ringer]
- A Spreadsheet Way of Knowledge [Backchannel]
- The GIF Turns 30: How an Ancient Format Changed the Internet [WIRED]
- A Collection of 50 Years Worth of Televised Professional Putt-Putt Golf Championships [Laughing Squid]