Housing Weakness Is More Rental Than Sentimental

Despite having a reputation as being a difficult person to work with, Apple co-founder Steve Jobs’ marketing legacy is incredible. Being a devoted Mac nut, having built both our appraisal companies using Macs, he made a lasting impression on me. The craft of story-telling he employs is unmatched as far as I’m concerned.

But I digress…

Manhattan, Brooklyn & Queens Rental Markets Show Cooling Price Trends Except for Luxury

I’ve been the author of the expanding Elliman Report series for Douglas Elliman Real Estate for a quarter of a century (yikes!). What has made this affiliation work so well over the years is that Elliman has respected my independence, a deal killer for me otherwise. With their entrepreneurial business culture, they want their clients to understand actual market conditions to enable them to navigate better. I consider myself fortunate to be affiliated with a firm that has never had an issue with me conveying honesty in my market messaging.

One of our research pieces is the monthly rental report that covers Manhattan, Brooklyn and Northwest Queens in New York City. Although few realize this, 2/3 of the NYC housing stock is rental.

Elliman Report: 10-2019 Manhattan, Brooklyn & Queens Rentals

With the massive surplus of news this week, coverage of the rental market reached 18th place yesterday on the ±350,000 Bloomberg Terminal subscribers.

And of course, a chart!


“Rental price trends pressed higher across all apartment sizes.”

– The vacancy rate has increased year over year for three straight months
– Median net effective median rent year over year growth appeared to have peaked in July
– The seventh consecutive month with year over year declines in concession market share
– New development median rent continued to rise faster than the existing median rent
– Share of new leases at or above $10,000 expanded for the fourth straight month
– The luxury entry threshold hasn’t seen a year over year decline in 2019
– The median rental price moved higher year over year at all price strata


“Rising demand resulted in the largest year over year drop in concessions for 2019.”

– Net effective median rent increased annually for eleven consecutive months
– Most significant year over year decline in concession market share for 2019
– The average size of a rental apartment rose across all bedroom categories


“Net effective median rent rose annually for the first time in four months.”

– The market share of landlord concessions fell year over year for the third straight month
– Net effective median rent rose year over year for the first time in four months
– The most significant decline of concession market share in six months

SoftBank Unicorns Got No Apparent Due Diligence

One of the tragedies for investors and current and former employees of WeWork has been the stunning lack of due diligence by SoftBank. I mean, $300 million for a dog-walking app maker and no one blinks?

The sting of WeWork’s collapse is spilling over into other SoftBank unicorns like Compass, the traditional real estate brokerage firm that markets itself as a tech firm, presumably to get a higher valuation. In response to the bad WeWork headlines of late, Compass has sweetened the pot for its agents, probably because of the perception that anything associated with SoftBank is now tainted – that all unicorns received the same lack of due diligence that WeWork did.

The theme of these unicorns seems to be to go big to dominate their vertical, and then presumably after they kill off or buy most of the competition, they can charge higher commissions. They are disrupting through capital, not any apparent innovation. The problem with this strategy, ethically, is that the consumer will end up paying more in the end. With the toxic nature of unicorns these days, that vision is getting blurry. Uber continues to lose billions and was just fined $649 million. Peloton too.

Large signing bonuses create short term loyalty, say, just enough until an IPO when the founders can cash out and leave everyone else with a disruptor that has a lot of capital but hasn’t provided new ideas beyond the traditional brokerage model. I just heard from a broker friend who told me of a top producing team that signed with Compass to get a very large signing bonus to take some of the stress off of maintaining their top performance.

Cooling Rental Markets May Be Holding Back Inflation

Because national rents of primary residences, including the rental equivalent of a home, account for 40% of core inflation calculations, the direction of the rental market has a significant influence on core inflation.

The declines in New York and Boston weighed on the national measure for rent of primary residence, which rose 0.1% on a monthly basis, the least since April 2011.

Click on the chart to read more about this trend.

NAR Attempts To Solve Inventory Shortage By Fighting Whisper-Listings

The fight between Bright MLS and Compass over whisper/Pocket listings fight has been in the news. The grand strategy by Compass looks like they are trying to become the center of the listing universe to capture both sides of the commission in an organized way. This practice cuts off inventory access to the broader public unless they go through Compass and place pressure on housing market affordability already plagued by chronically low levels of supply.

This week NAR approved its “Clear Cooperation Policy” meant to standardize how long a broker can hold the listing until they share it with their members on the MLS. The associations have until the spring to adopt it.

If members don’t adhere to the new policy, they can always leave the MLS, I suppose. Look to see how hard Compass fights this policy nationwide. I believe this disrupts their key strategy of destroying the MLS system to become the center of the listing ecosystem.

Recession Probability Is Losing Steam

I typically speak a few times a week to the real estate brokerage industry and have found the word “Recession” undoubtedly comes up. Often referenced as the “R” word, it stokes fear in the hearts of many a real estate broker. We are in late innings of the proverbial baseball analogy cycle, and yet I think the reason for the elevated concern about such a probability is based on what people associate with a recession. The last one involved a global thermonuclear meltdown of global credit, and those conditions are associated with how a recession might feel today. Yes, we are still in an over-corrected hangover phase of the financial crisis, but fear of the “R” word has become the “boogieman” of the real estate economy. And who can blame the real estate industry’s concerns? We have seen a significant mortgage rate decline over the past year, and that usually occurs when the economy is weak rather than like now when unemployment has remained crazy-low, below 4%.

One of the reasons that rates are falling is because the Fed is trying to offset the economic damage created by the ongoing trade war and its uncertainty. This confluence of events has impacted real estate in the high-cost markets I analyze in my research by slowing sales despite falling mortgage rates. Here’s a variation of a checklist I’ve shared before.

-Sales slow
-Inventory rises

-Sales continue to slow

-Price discovery for 1-2 years

-Market stabilizes

The following is a diagram of the trade war that is driving economic uncertainty and explains why lower mortgage rates aren’t as much impact as one would expect. Click the tweet to expand the infographic:

The best description using a baseball analogy I’ve heard (can’t recall the source – likely on Twitter or heard in a podcast). Here’s how the conversation goes:

“We are in the third inning…”
“Wait; what? How can that be? We are much further in the cycle than that!”
“We are in the third inning of the second game of the double-header.”
“Oh, I get it.”

Getting Graphic

Len Kiefer‘s Chart Handiwork


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

NAR Real Property Valuation Committee Issues Position On Bifurcation

The Real Estate Valuation Committee within NAR, which includes a slew of some of the best practicing appraiser minds in the industry, came out with a position on bifurcation. The release speaks to NAR’s support of independent valuation by state-credentialed appraisers, which is great. And it states that the appraiser must be able to interact directly with a third-party property data collector (inspector), which is also great.

Presumably, the inspector could be a Realtor since NAR is a trade group for Realtors, not for appraisers. Thankfully NAR recognizes that the detachment of appraisers from the process may damage their members’ livelihood as well as hurt home buyers and sellers. It’s great to have NAR in the mix, and they have long supported the importance of our role.

As much as I appreciate the symbolism of this policy position and the hard work by this committee, it is not clear to me how it makes much of a difference in the ultimate use of bifurcation assignments by mortgage lenders. Presumably, if views change with the future of the pilot programs at the GSEs, the use of bifurcation appraisals won’t be stopped. Still, I see their efforts as very important.

But I don’t want our industry to think: “There, we’ve addressed and resolved the threat to appraisers and more importantly, the public trust.”

Home Value Stories Podcast: If the Appraised Value Is Lower Than You Anticipated
If the Appraised Value Is Lower Than You Anticipated

My friend Jamie Owen of the Cleveland Appraisal Blog has a new podcast that you can add to your feed. It gets into the nuts and bolts of our profession yet keeps it interesting and has high-quality production values. Here is the latest episode:

OFT (One Final Thought)

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 upgrade their Mac;
– You’ll rent;
– And I’ll grab that fish.

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

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads