The Housing Market Is Nothing A Brick Couldn't Fix

The Housing Market Is Nothing A Brick Couldn’t Fix

I’ve always wanted to do this, but who wants clean bricks?


Did you miss last week’s Housing Notes?
June 2, 2023 – It’s A Housing Market Controlled By Dogs, So Don’t Be A Sheep

But I digress…

New York City Continues To See Record Rental Prices

I’ve been the author of an expanding series of market reports for the firm Douglas Elliman Real Estate since 1994. The NYC rental series has been a highly covered report because NYC rents continue to rise as national numbers seem to be receding.

Bloomberg pushed out an article on the May rental results that ended up staying all day at about the 10th most read story on their 325K terminals worldwide (no screenshot). And the article was the third most shared on their public website

But most importantly, the article contained a chart of our data!

CNBC shares the results of our Douglas Elliman May 2023 Manhattan, Brooklyn, and Queens Rental Report on Squawkbox:

Lots of other press coverage occurred – you can check it out here.

Elliman Report: May 2023 Manhattan, Brooklyn and Queens Rentals


“Median rent pressed higher to new records for the third consecutive month.”

– Net effective median rent and median rent reached new highs for the third consecutive month
– New lease signings surged back to trend after the April banking crisis lull
– Listing inventory continued to expand but remained well below the decade average for May
– Non-doorman median rental price continued to experience more significant year over year gains than doorman median rental price
– The market share of landlord concessions remained larger for new development than existing leases
– The market share of landlord concessions for luxury rentals was about half that of non-luxury rentals
– Luxury listing inventory fell year over year for the first time since last summer
– Lease terms for luxury rentals were at their most extended length since the beginning of 2022


“Median rent reached a new high for the second straight month.”

– Net effective median rent and median rent reached new highs for the second straight month
– New lease signings surged from the prior month’s lull and rose annually for the third time in four months
– Listing inventory rose year over year for the sixth consecutive month

[Northwest Region]

“Median rent was the second-highest on record, just short of the prior month’s record.”

– Net effective median rent and median rent were at their second-highest level on record
– New lease signings surged from the prior month’s lull but slipped annually for the second straight
– Listing inventory rose year over year for the third consecutive month

For more, view the chart library.

Because We All Love Tiny Manhattan Apartment Stories

Here is a Greenwich Village rental apartment story. It’s a 77-square-foot apartment without a bathroom asking $1,975 but, after a bidding war, it rented for $2,350 a month. Other apartments share the same bathroom in the common area.

Why would anyone pay this much for a glorified closet? Because who wouldn’t want to live in Greenwich Village? The smallest apartment I’ve ever appraised was 130 square feet on the fifth floor of a walk-up apartment building in the East Village of Manhattan with its own bathroom. The difference between this apartment and the one I appraised years ago was essentially the square footage of the bathroom (7’x5’=35 sqft).

Take a look.

The Compass Chronicles: June 2023 Edition

After a decade of publicly criticizing the business model of Compass and its inability to make a profit, I was email-splained by two of their senior executives who somehow thought I was being paid to go after them. LOL. I informed them that I had been consistent about my skepticism of their business model since one year after their launch. It’s not personal. I just don’t get what makes them different from other full-service brokers. This is why I have dubbed them “Disrupters by Capital.” After all, they hemorrhaged during one of the biggest housing booms of the modern era. To be profitable in a weaker housing market, they presumably have to cut costs lavished on their recruits. I have a lot of broker friends at the company and wish them well. My focus is the business model.

A few weeks after I received those critical emails, One of the execs promised to give me a look at its numbers and two-year strategy to show how they would turn the ship around. A month after that, I got a Zoom tour of what a broker being pitched would see. It was good, but I’m not a broker, and that’s not what I was promised. They never addressed what was promised. So much for transparency. Sigh.

– Two years into going public, Compass still has issues with its books [The Real Deal]

Two years after going public, Compass still has significant issues with its financial reporting, according to statements in its earnings reports analyzed by The Real Deal.

-Zillow, Anywhere and Compass vanish from annual Fortune 500 list [Inman]

A Great Thread About Aspirational Housing Prices

Make sure you watch the short video before reading the thread.

Getting Graphic

My favorite charts of the week of our own making

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

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

Upcoming Speaking Events

[click to register]

[click to expand program]


Talking About TAF’s Role In The Appraisal Bias Narrative Is A Multi-Channel Effort

Congrats to Emily At BrickUnderground for her NAREE award!

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 (ranked 400th of 400 professions tracked by BLS in 2021).

After her interview with me, Emily calls TAF for answers, and they give the same tired do nothing that works response under the guise of “taking action.”

PODCAST Racism and the lack of diversity in the appraisal business [Brick Underground]

The Cosmic Cobra Guy Calls Out AVMs

Apparently AVMs are not worthy appraiser replacements or non-bias valuation tools their creators claim.

He’s got a press release and gives my friend Phil Crawford of Voice of Appraisal Podcast a well-deserved shout out.



VENTURA, Calif. (June 9, 2023) – Secretary of Defense Robert McNamara was a committed technocrat. Under his direction, a team of policy advisors descended into the Pentagon’s cavernous basement in 1967. They fed punch cards into the basement’s IBM mainframe computers with everything that could be quantified about the Vietnam War. Numbers of ships, tanks, transport helicopters, gunships, fixed-wing aircraft, artillery, troop strength, machine guns, ammo. They queried the computers, “What year will we win in Vietnam?” They went away on a Friday and let the computers work on the problem all weekend. When they returned the following Monday, there was one card in the output tray. It said, “You won in 1965.”

While computing power might have “solved” the Vietnam War on paper, the results clearly didn’t square with reality.

Fast-forward to 2023. Six federal agencies are seeking public comment on a newly-proposed rule designed to “ensure” the credibility and integrity of computer models used in automated real estate valuations. This rulemaking is one more sign that federal bureaucrats are all in on a whacky plan to use technical wizardry to tease out the value of individual properties across the country. The wager? The nation’s $12 trillion residential mortgage market, much of which is now backstopped by the full faith and credit of the U.S. Treasury.

These algorithmic valuations replace trained human appraisers with knowledge of local real estate markets. The so-called “black box appraisals” rely on mathematical formulas and Big Data to produce an opinion of value. The problem? The models aren’t able to think like buyers and sellers. They don’t pick up design flaws, emotion-based style preferences, ambient noise levels, smells, street parking issues, market tastes, perceived quality of school districts and responsiveness of local government. It’s too much to ask of a machine.

Rohit Chopra, director of the Consumer Financial Protection Bureau, rightly sounded the alarm in a recent blog post – the models have the potential to do great harm.

The evidence is there for anyone wishing to look. In a disastrous bet made by Zillow – one in which the company staked its future on investing in residential real estate based on its own algorithms – the company lost $32 billion in market capitalization from February to November 2021. What did Zillow learn about its “Zestimates” when its own money was at stake?

Zillow, a company that gained popularity through its online listings, bet the farm on Zillow Offers, a home-flipping venture that relied on algorithms to identify homes the company would purchase. The plan was to make minor renovations and sell them off quickly for a profit. In a colossal about-face, after a write-down of half a billion dollars, the company announced the closure of the subsidiary, despite it being the primary source of revenue but not profitability. Zillow also reduced its workforce by approximately 2,000 employees, constituting a quarter of its staff.

The company disregarded internal concerns that its algorithms were causing it to overpay for homes, former and current employees told the Wall Street Journal in November 2021.

More than a decade earlier, in one of the first bombshells of the financial crisis, Standard and Poor’s Rating Services abruptly announced it was putting 612 mortgage-backed securities on “CreditWatch negative” and that it expected most to soon be downgraded because of high delinquency and foreclosure rates. Its algorithmic valuation model for the securities was known to spit out investment-grade ratings on junk-quality mortgage-backed securities, after which they could be purchased by pension funds.

Moody’s Investors Service, another purveyor of algorithmic valuations, quickly dropped a similar bombshell. It announced it would be downgrading 399 securities and placing an additional 32 securities on review for possible downgrade. Two days later, Fitch Ratings followed suit, signaling big problems with its own automated valuation models. Many of the once “investment grade” loans were in the portfolios of Wall Street players like Bear Stearns, Citigroup, JPMorgan, Merrill Lynch and Morgan Stanley. Others were held by public employee pension funds as far away as Norway.

In 2009, Calpers, the largest public pension fund in the United States, sued Moody’s, Standard & Poor’s and Fitch for assigning their highest ratings to securities that later suffered enormous losses. The suit would not be settled until 2015. This part of the crisis traces directly to the flawed automated valuations of homes whose mortgages were packaged up in the securities.

The rule now being proposed by six vast federal bureaucracies blithely assumes the holy grail is already in hand – the ability to quality-control imperfect algorithms that can never simulate the workings of a complex market involving millions of buyers and sellers. Until this holy grail is discovered, appraiser and podcaster Phil Crawford believes the automated models will introduce something he calls “data cancer” into the increasingly nationalized U.S. mortgage market. He defines “data cancer” as an echo-chamber effect arising from the proliferation, over time, of distorted values as they work their way into sales data, thereby buttressing ever-more distorted values.

“To paraphrase Hemingway’s quote on bankruptcy,” said Crawford, “the resulting crash will happen gradually, then suddenly.”

The agencies involved in the federal rulemaking include the Federal Housing Finance Agency; the Consumer Financial Protection Bureau; the National Credit Union Administration; the Federal Deposit Insurance Corporation; the U.S. Department of the Treasury; and the Federal Reserve System.

Swedish economist Assar Lindbeck famously called rent control “the most efficient technique presently known to destroy a city—except for bombing,” Were professor Lindbeck still alive, he might now have included the automated valuation of a city’s real estate.

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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)

The smoke in NYC reminded me of a book I read years ago, “On a Clear Day You Can See General Motors” but this is the Manhattan Edition.

Brilliant Idea #1

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– They’ll be a washing machine;
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Brilliant Idea #2

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See you next week!

Jonathan J. Miller, CRE, Member of RAC
Miller Samuel Inc.
Real Estate Appraisers & Consultants
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