When Observing Bathroom Tiles, No One Can Hear You Scream

March 30, 2018

In last week’s Housing Notes and inspired by this screaming article, I linked out to an old Tim Geithner (former U.S. Treasury Secretary during the onset of the financial crisis) Matrix Blog post that featured his blue bathroom in 2009:


[Geithner Bathroom, Westchester MLS]

And here’s the old Daily Show video in case you need more context. John Oliver explores why Tim couldn’t sell his home and is able to get bathroom decorating ideas from Robert Shiller. Classic fun.

Shortly after I released last week’s Housing Notes I received a note from a loyal reader from the same county as Geithner’s 2009 listing suggesting their green bathroom tiles were more impressive than Geithner’s:

The thought process of choosing between these two tile selections made me wonder if this was what the song “Out on the Tiles” on the album Led Zepplin III was actually talking about: “The title of the song is derived from the British phrase for going out for a night on the town. Led Zeppelin drummer John Bonham would talk about going “out on the tiles,” meaning to go to bars…”

In other words, after returning from an evening of bar-hopping, the overwhelming color intensity of these tiles would clearly look, well,…good.

But I digress…

One More Time: Wall Street Bonuses Don’t Correlate With The Manhattan Housing Market

Each year at this time we are welcomed by (no, not chocolate bunnies) the New York State Comptroller’s report on Wall Street Bonuses. It brings thoughts of 30-something Leonardo DiCaprio-style executives running out and buying new Maseratis and snapping up super luxury condos.

No, that’s a myth and might have been some truth to it a decade ago, in today’s world those stories are relegated to on the margin one-offs. The post-financial crisis regulatory environment has been one with a large regulatory overlay designed to reduce “moral hazard.” I know that’s a stretch but with much of this comp coming in a deferred form, you might have to stick around for a few more years before you can actually spend it.

In the following chart, even though the bonus pay per person has been rising, they use “average” as the metric. I’ll bet if NYS OSC used the median as a metric it would show a far different story. We saw this metric play with the “average tax savings” after the new federal tax law came out. This is one of the reasons “median” is the preferred metric of the housing market because it removes outliers. Even though the average bonus is way up per person, I have been told repeatedly that top performers at the top of the executive pyramid (poor word choice) are getting larger bonus comp proportional to the lower echelons. Call it “shift in the mix.”

Wall Street employment has remained somewhat stable in the long term while overall employment, with more high wage earners in tech, has been growing. While still, a very important piece of the employment and comp picture, the city has been slowly weaning itself off of this sector. Therefore the impact of bonus season is less than it has been in the past, no matter how big the bonus pool is.

There is no doubt that Wall Street compensation is important to the city’s economy with wages roughly 5 times the private sector. However, as a smaller share of employment, the impact to the housing market is much more muted than in the past.

One more thing. The stock market is not the economy.

Self-Storage Places Need To Look At Self In Mirror

With the low cost of capital worldwide, we continue to see asset bubbles rise to the top. Self-storage units are popping up everywhere in my neck of the woods and I keep wondering:

How much stuff do we need to keep outside of our homes? Is that need exploding? I see a disconnect. Here’s an interesting article with video in Sarasota.

I saw the stat art below on the storage market in Manhattan in a Core New Development newsletter I never signed up for but put it to good use. Extra space is expensive to maintain. I remember when I first moved to Manhattan, my dad suggested that if you aren’t going to use something in a year, get rid of it. Sage advice. I don’t know about you, but “stuff” continues to grow at the Miller household.

FHFA Is Working Hard To Get Banks To Ease Up On Credit

Mortgage origination volume is still well below housing bubble levels and the GSEs want to see that volume flow through their institutions. They are doing a lot of things to get banks to lighten up on credit conditions as many lenders remain in the fetal position because they have lost the muscle memory to lend. This is a key reason why listing inventory remains so low. It’s MOP money (Money on Paper) because many are faced with the inability to afford or qualify for a trade-up, a lateral move or even downsizing.

Housingwire published a listicle on what the GSE regulator has done to convey to lenders that it is a good time to lend. However in their expediency to ease the credit world, they may have made banks more nervous.

One of these ideas was the introduction of the concept of waiving appraisals on a small percentage of loans that relies on the bad data generated by Appraisal Management Firms that have corrupted the appraisal process. Just imagine the fraud that this will unleash?

I found it hilarious that this ad was in the Housing Wire article. No wonder why banks continue to push back on Fannie Mae’s attempt to ease conditions.

Here is the list with the key comments selected from the Housingwire piece.

1. Student debt – revised their student debt related calculations concerning potential payment shocks.

2. Credit invisible – improves access to credit for mortgage applicants who do not have sufficient credit history to compute a credit score.

3. Low income borrowers – increased to a 95% maximum loan-to-value ratio allowed for adjustable rate mortgages.

4. Mortgage education – planning its own marketing campaign to increase awareness of borrower training and other resources available through its CreditSmart financial education curriculum and borrower help centers.

5. Language barriers – it would include a question on the revised uniform residential loan application to find out an applicant’s preferred language.

6. Housing counseling – work to improve their pre-purchase and early delinquency counseling by outreach.

7. Credit score models – desires to update from the Classic FICO model, it has yet to decide which new model to use as a replacement.

8. Minority borrowers – community outreach and provided training to three major minority trade associations at town hall events.

9. High LTV refinances – will give borrowers with high-LTV loans who are current on their mortgage an opportunity to refinance.

10. Multifamily – loan production caps on each of the GSE’s multifamily business to further the goal of maintaining multifamily activities while not impeding on the participation of private capital. Exclusions include financing for subsidized affordable housing, manufactured housing communities and small multifamily properties, between five and 50 units.

Shock And Awe of Starchitecture But…

One of the great things about the housing boom/bubble a decade ago and the recent development boom of the past 6 years has been the great creativity in external design. When I arrived in Manhattan in the mid-1980s was largely safe, pragmatic and boring. But the introduction of “Starchitects” to the market in the early “aughts” changed everything.

In the same way that George Clooney and Meryl Streep could be counted on to carry a picture, these brand-name architects, or “starchitects,” as they came to be known, helped to set a building apart and gave buyers another reason to want to live there.

One of my favorite buildings in Manhattan is a luxury rental tower built in 2007 known as New York by Gehry. Frank Gehry’s work is amazing.

I attribute the start of the Starchitecture in Manhattan with Richard Meier’s 173/176 Perry Street in 2004. After his success with the Getty Center in Los Angeles, he struck east and created the condominium known as 173/176 Perry Street. It broker price barriers as many of his west coast fans bought there.

The problem with this phenomenon is what does the developer do about the marketing when the new project becomes aligned with the starchitect that is accused of something controversial and criminal?

Here are some thought pieces on the subject:

– Tainted by #MeToo, starchitect Richard Meier’s name is erased from his building [Quartz]

– Architecture’s #MeToo moment and the marketing of ‘starchitecture’ [Curbed NY]

Appraiserville

What A Time We’re Living In!

One of the great things about the changes being seen in the appraisal industry today is through the actions of appraisers themselves. Appraisers are speaking out more often and pushing their thoughts about the industry and the techniques of the profession out into the ether. And most of all, these actions are causing change.

– When Tristar Bank of Tennessee lied about the shortage of appraisers in their request to lend without appraisers, an often fragmented industry unified to call “BS.” One of the biggest pain points of the industry has been Appraisal Management Companies for fighting through their REVAA trade group to keep borrowers in the dark about who gets what part of the appraisal fee.

– Some of the biggest appraisal-related publications were criticized for never giving appraisal industry coverage the perspective of the appraiser, these publications responded by reaching out and including appraisers in their content more often.

– A number of appraisers have been frequently sharing their knowledge and insights to the appraisal industry narrative in a “can do” spirit that I find contagious. Ryan Lundquist, Tom Horn, Rachel Massey, (have I missed any other notables?!?!)

– Appraisers have relentlessly fought the misleading narrative provided by appraisal management companies over the appraisal shortage, their lack of emphasis on quality, their drag on turn time and their increase in the cost of an appraisal. And as new blogger but experienced appraiser Mark Skapinetz so eloquently articulated in his first blog post: What’s not in your wallet?

From My Experience I wonder If AMCs Add Weeks To The Appraisal Process?

Despite being approached all the time to add our firm’s name to an appraisal management company, decline. However, when wealth management companies were forced by their parent company, they made arrangements to help attract better firms like ourselves to consider working with them:

– Pay our fee
– Respect our turn time quote
– Not inundate us with clerical addenda requests

Last fall we were approached by 4 different AMCs because their wealth management clients demanded they fix the problem of not attracting the better appraisers in their coverage area.

In the first three that onboarded us, we got a lengthy addenda request that included things like inserting the “floor” level” of the office address of the client in the report. I’d push back and request a conference call with all the parties and to their credit, they rethought the review process and we rarely see addenda anymore and when we do, its fair. That’s how it should be.

It also proves a very significant point – most of the laundry list items included in addenda requests are either over-interpreted or simply made to justify the AMC’s existence but on our time and money. They are not regulatory requirements that is claimed when appraisers give pushback.

The fourth of these firms finally on-boarded us and our appraisal timeline looked like this:

Day -3 – assumed it took 3 days to find a cheaper appraiser since it was ordered as a rush (borrower wasn’t in a hurry)
Day 0 Rush appraisal requested
Day 0-5 days borrower allowed access
Day 5-8 we delivered report 3 days later as quoted
Days 8-13 reviewed by AMC
Day 13 – AMC delivers a 30 point review of clerical fixes that had nothing to do with the multi-million dollar valuation
Day 14 – I send an email to both the bank and AMC requesting a call to discuss review process. AMC responded that chief appraiser would review
Day 15 – no response yet

By my math, this is a 18-day process although we don’t have a response yet. The appraisal part only took 3 days as a rush.

Here’s a redacted partial (admittedly terse) response – “if [XXXX] continues to apply this approach to the high-end review function, we will no longer continue to accept assignments or will simply triple our fee quotes to reflect the incredible amount of time needed to complete the requested clerical busy work.

I’d be happy to discuss this issue with you and members of the [XXXX] team to resolve this relationship…Let me know how you would like to proceed. We’d love to continue to work for you and I’m sure your high-end clients would like for you to continue to rely on our services.

We don’t have this issue with lenders we deal with directly.

AMCs Are There For A Bank To Say They Checked A Compliance Box

I ran out of time to write about the FHFA paper on the appraisal process. I’ll elaborate next week. It’s important.

Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals [FHFA]

In the meantime, I’ll share my appraiser friend and colleague’s tweet on the topic:

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 mobile;
– You’ll be more aspirational;
– And I’ll name my favorite Christmas song (White Christmas – Bing Crosby version).

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 Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller

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