At Some Point Housing Has To Fly On Its Own

Flying in circles doesn’t necessarily beat not flying at all.

But I digress…

The Plural of Anecdotal is not Data

I have found the past several months exceedingly challenging because everyone wants to know what the number is. You know, the discount that should be applied to every single property in the Manhattan market to reflect the COVID-19 discount.

Well, I’m here to tell you it doesn’t exist yet in a credible way. Current numbers being shared are quite misleading because they reflect closings and we know that most closings have linkage to the pre-COVID19 world prior to mid-March. In an amNY article, factual information is presented by two data providers commonly used by market participants but they are clearly out of context:

Streeteasy results

Driven sellers, however, weren’t afraid to lower their prices in April. The Manhattan price index that StreetEasy monitors fell 2.7%, to $1,075,336. Brooklyn’s price index was down 1.8% to $689,989, while the price index for Queens remained relatively flat at $510,345.

I don’t disagree with the results, here, it’s just that they don’t reflect the COVID-19 world. I would speculate that nearly all sales that closed in April had linkage to the world before Covid-19 whether that was the inspection, negotiation, or contract signing. In addition, Manhattan housing prices were sliding since the beginning of 2020 so sliding in April means nothing, actually. Their index uses the repeat-sales methodology found in Case-Shiller so the lag time of this methodology is longer than relying on aggregating closings. Streeteasy brought me in to look at the index before it launched years ago and I had experience with a now-defunct index that competed with Case Shiller.

Property Shark results

The median sales price in May also stabilized at $700,000, which marked a 2% gain over the May 2019 median price. Even though pricing trends have been “firmly positive throughout the crisis,” PropertyShark’s report noted that the 2% May gain represented “the smallest year-over-year price growth” in 2020.

This analysis using closed sales suffers the same problem as discussed for the Streeteasy results. The vast majority of May closing prices reflect pre-COVID19 conditions since the average number of days between contract signing and closing is around 90 days. In other words, a large swath of their May closings were contracts that occurred in February or March. Again, likely accurate results but provide no indication of actual market conditions post-COVID19.


I suspect the data-picture will change quickly once real estate brokers are allowed to physically show real estate in NYC. Virtual inspections are occurring but their success rate for causing a sale by someone who has never physically inspected the property remain as outliers.

COVID-19: The difference between “Density” and “Overcrowding”

Since the crisis began in mid-March, I’ve been obsessed with the misuse of the word “density” as a driver of the virus. Manhattan has been continually described as a hotspot because of its high population density, yet Manhattan had the lowest infection rates in the five boroughs of NYC but has the highest density.

The same pattern is occurring in LA. Density is certainly a factor, but not THE reason. poverty and overcrowding are also significant factors.

[City Obervatory]

[City Obervatory]

But neighborhoods in South LA and the San Fernando Valley are epicenters of the pandemic, despite not being very dense. And some relatively housing-dense areas, like Santa Monica and Venice, have low COVID-19 case rates. It’s a more complicated relationship than “more housing equals more COVID”.

Why does this matter?

Since many people are prognosticating the death of cities and the boom of the suburbs it is hard to continue to make that argument when the rural Texas panhandle is a hot spot.

And then consider the mindset and our collective memories if a vaccine is developed in 2021. Will the market recover as a “V” or a “Swoosh?”

And then consider the states where social distancing protocols are few and far between as everyone is anxious to get back to business as usual. This restaurant trend suggests a second infection wave in the fall, no?

REFA:”Suburban Green Shoots” Panel Discusses The “Urban to Suburban” Upside

I presented and moderated a fascinating discussion with Randy Salvatore, CEO & President of RMS-Companies, a large development firm in Fairfield County and Jim Fagan, Executive Director at Cushman & Wakefield in Westchester and Fairfield Counties.

Copy the password 1C*%x&9R and then click on the image to see the discussion.

Paraphrased from the REFA web site: The Real Estate Finance Association assists real estate finance professionals by communicating industry information, providing continuing education and networking opportunities and offering venues for members to exchange experiences.

I have worked with REFA in the past and found the organization to be an energetic proactive networking group.

And The Big Manhattan Sales Keep Happening

To escape the COVID-19 talk, I returned to the once tired subject of record-setting housing prices as a respite to the current nightmare. I was nudged to this shift after reading the Amy Rose piece in Forbes: ‘Covid-Pricing’ Hits High-Profile Homes Across U.S. And Billionaires Are Snapping Them Up.

And I chuckle every time I say this, but I had to move my company logo to the left on the following chart to accommodate last year’s record sales price. I will continue to update the year 2020 results but here is what I have for record closings by property type for the year 2020 so far (none are all-time records):

Co-op | $43,000,000 | 4 East 66th St 8
Condo | $56,258,312 | 220 Central Park South 65
Townhouse | $38,000,000 | 8 East 75th Street

[click to expand]

Year over Year April Hamptons Sales Down 73.7%

There was a good read on the state of the Hamptons market in the WSJ. The Hamptons experienced a massive surge in rents in March and April as NYC residents flocked to safety while sales are down sharply.

“It was really a panic,” said real-estate agent Susan Breitenbach of the Corcoran Group. As a result, very few rentals remain available for either the spring or summer, and those that do become available get snapped up quickly. Ms. Breitenbach said last week she arranged a rental for a house that was asking $900,000 for the summer; there was a bidding war and the house rented at close to that amount.

I would imagine that rental landlords are going to be anchored to these “panic” numbers” next year yet conditions post-COVID19 will likely be different.

Here are the numbers we saw for the sales market that I define the Hamptons as the hamlets from Westhampton to Montauk that were used in the story.

WSHU: Will The Aftermath of COVID-19 Push The Suburbs Ahead?

For many real estate participants in the suburban markets surrounding NYC, there is a sense of hope that the suburbs will see the long-term benefits of the “urban to suburban” shift that seems to be occurring in the short-term. Click on the image to play the clip.


Forbes: In A Quickly Changing Market, Pending Sales Are The Best Indicator We Have Despite Flaws

I’m trying out this Forbes thing. Can you support me by following me on Forbes? Just click “follow” under my name at the top of this page.

Original Article: In A Quickly Changing Market, Are Pending Sales A Lagging Indicator?

As I read through available housing stats during this COVID-19 era to get a general sense of where the overall market is going, it is notable how difficult that task has become. Everything we look at seems to require an asterisk. While such punctuation was required before this global pandemic, the need for fresh insights makes the qualitative aspects of information more critical. We know that closing price trends are lagging indicators, but tend not to think of current contract trends as a lagging indicator, yet that assumption has always been wrong. The day to day nature of the COVID-19 pandemic has made the need for qualifiers more evident.

The National Association of Realtors (NAR) metric known as the Pending Home Sales Index (PHSI) is regarded as the fastest moving barometer of market direction. Still, its flaws tend to be overlooked, especially when compared to closed sales.

Meeting of the Minds

The “meeting of the minds” process is where the buyer and seller negotiate general price and terms, usually facilitated by listing and buyer brokers. Once the parties are in sync on price and terms, their respective attorneys work out the written language, which leads to the signing of the contract. Once the contract details are ironed out, both parties sign, and it then appears as a written deal in the MLS.

NAR posits that closing trends follow contract trends by two months.

The Pending Home Sales Index is a monthly release

The April 29th release by NAR is the most current version available as of this moment, and it reflects the market data of March that includes “meeting of the minds” data from February. This PHSI release represents a two-month lag, and the following chart using non-seasonal YOY% change patterns is pretty terrifying. And that’s just the data through March.

NAR Pending Home Sale Index compiled from publicly shared data and charted by Miller Samuel. JONATHAN MILLER

The May PHSI report that uses April contracts will be released on May 28th (four days from now), but I deliberately wrote this beforehand to show the potential lag in contract data.

Pending Sales (Contracts) Is Less Backward Looking

NAR publishes the PHSI monthly and always describes it as “forward-looking,” yet it is not. I think of their PHSI index as “less backward-looking” because it is only forward-looking in the context of closed sales, and we know closing sales are lagging indicators. Closed sale dates generally lag contract dates by 30 to 90 days, the latter being markets like New York. Sales contracts can lag the “meeting of the minds” by a few days or more than a month, depending on the market location and condition.

Contracts Can Blow Up

There are specific periods, especially in quickly deteriorating markets, when large swaths of contracts don’t close. I recall that about one-third of pending sales blew up shortly after the housing bubble burst more than a decade ago. Just prior to the Coronavirus crisis, the contract failure rate was in the single digits. I haven’t found fresh post-COVID19 data on this yet (because it is lagging).

In New York City’s situation where I am based, closing attorneys tell me that written contracts lag the “meeting of the minds” by a month or more right now. Buyers are trying to cut better terms, and sellers are trying to keep the deal together. However, in a rapid market, especially those markets that have recently eased restrictions for real estate brokers to physically show properties, that delay might only be a few days.

The Contract Coverage Area Is Very Broad

NAR says that the PHSI report covers about 20% of the market and we’re not sure what 20% it covers in any given month. Hopefully, most of us know that there is no “national housing market.” Contract activity is much more useful as a local trend indicator but it can give us a sense of the U.S. housing zeitgeist.

Typical Report Timeline

“Meeting of the Minds” – price and terms agreed to

[Less than a week to more than a month]

“Written contract” – parties sign

[A month]

PHSI Reported By NAR “Contracts”

[Two months]

Existing Home Sales Reported BY NAR “Closings”


I still look at pending home sales data as a broad market trend indicator because it is the most recent we have, but it is more useful in local market conditions. But either way, its use often needs an asterisk.

UPDATE Pending Home Sales Slump 21.8% in April

Getting Graphic

Our favorite charts of the week of our own making


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

USPAP will no longer be ‘Misleading’

Back in early February here in Appraisalville, I questioned a new definition that appeared in USPAP for the term “misleading.” Many others took to their platforms to criticize it, such as Phil Crawford of the Voice of Appraisal podcast and Dave Towne, a prolific writer of all things that keep appraisers sane.

Dave writes today:

Gad zooks…..I (and lots of others) hope and wish the Appraisal Standards Board would QUIT making changes to USPAP every friggin’ two years!

There is no way to satisfy everyone’s individual perspective as to how USPAP should be written.

Here is the problematic definition from the current version of USPAP.

While I didn’t question the intent of TAF (the irony of this statement doesn’t escape me), I felt they had overstepped their bounds and the determination of the qualitative nature of intent was for only for the courts to decide. This situation is likely a result of the too frequent two-year updates. After three decades, there isn’t much to update in our industry and therefore the operating boundaries of TAF are more likely to be inadvertently crossed as reasons for changes become harder to find.

The definition of “misleading” unleashed a wave of criticism because it meant that if an appraiser made an inadvertent error (think about the 800+ fields on a URAR), they were essentially a criminal. This exposed appraisers to a potential tsunami of litigation and real estate attorneys were excited about the prospect.

There is always the usual good-faith attempt to rationalize the pretzel logic but all this did was heighten the confusion and angst of appraisers. For what purpose?

Thankfully it looks like the definition of “misleading” has been scratched in the Second Exposure Draft 2022-23 of USPAP:

I am thankful that the industry response has influenced this edit and appreciative that The Appraisal Foundation listened.

Please don’t forget to submit comments to the other proposed changes by July 30, 2020.

OFT (One Final Thought)

I’ve had three.

Brilliant Idea #1

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Brilliant Idea #2

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See you next week.

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