What A Housing Collapse Actually Looks Like

November 5, 2021

Central planning was at it again.

But I digress…

New Signed Contracts: NYC Booming, Suburban Market Intensity Easing

I’ve been the author of Douglas Elliman‘s expanding market report series since 1994. The latest addition to the effort began during the lockdown when we launched four monthly new signed contract reports to capture the most recent market activity at the intersection of supply and demand.

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California New Signed Contracts Report

– The California report contains the counties of Los Angeles, Orange, and San Diego.

Elliman Report: Q3-2021 New York New Signed Contracts

Los Angeles County
October is likely the last month of distortions caused by the post-lockdown surge in activity in 2020. Newly signed contracts were down annually across all price tranches within the single family market, while condo new sign contracts expanded above the $500,000 threshold.

Orange County
October appears to be the last month of distortions caused by the post-lockdown surge in activity in 2020. Newly signed contracts rose annually above the $1 million threshold within the single family market while condos showed year-over-year gains above the $600,000 threshold.

San Diego County
New listings for both property types combined fell annually for the eighteenth consecutive month, severely constraining the potential level of newly signed contracts. Moreover, compared to the same period two years ago, the decline in new listings was even more severe.

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Colorado New Signed Contracts Report

– The Colorado report covers Aspen and Snowmass Village.

Elliman Report: Q3-2021 Colorado New Signed Contracts

Aspen
October appears to be the last month of distortions caused by the post-lockdown surge in activity in 2020. Newly signed contracts were down annually across all price tranches within the single family and condo markets, while new inventory plunged by half, restraining sales.

Snowmass Village
The market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020. Newly signed contracts were down annually across most price tranches within the single family and condo markets, while new inventory plunged significantly, holding sales back.

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Florida New Signed Contracts Report

– The Florida report includes the counties of Duval (New), St. Johns (New), Miami-Dade, Broward, Palm Beach, Pinellas, Hillsborough, and Collier (New).

Elliman Report: Q3-2021 Florida New Signed Contracts

Duval County
Single family new signed contract levels rose year over year for the first time in at least three months as condos continued to increase. However, new inventory was unable to keep pace with demand, falling annually.

St. Johns County
October appears to be the last month of distortions caused by the post-lockdown surge in activity in 2020. Newly signed contracts were down annually across all price tranches within the single family and condo markets, while new inventory fell at a larger rate, restraining sales.

Palm Beach County
New listings for both property types combined fell annually for the eighteenth consecutive month, holding back the potential new signed contracts. Newly signed contracts roughly doubled the same period two years ago for at least the past eight months.

Broward County
Single family and condo new signed contract levels fell year over year for the past four months, overpowered by the larger decline of new inventory over the same period. As a result, the market is near the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Miami-Dade County
Condo’s newly signed contract levels rose year over year, continuing to outperform the single family market, despite the latter remaining well-above the same period two years ago. As a result, new inventory for both property types combined declined annually for the fifth straight month.

Pinellas County
New signed contract levels fell year over year for the past five months combined, overpowered by the larger decline of new inventory over the same period. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Hillsborough County
New signed contract levels fell year over year for the past five months combined, overpowered by the larger decline of new inventory over the same period. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Collier County
Single family and condo new signed contract levels declined annually as the market slowly returned to seasonal patterns. However, by price tranches, newly signed contracts for single families largely rose above the $400,000 threshold and while most condo tranches showed annual gains above $500,000.

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New York New Signed Contracts Report

Elliman Report: Q3-2021 New York New Signed Contracts

– The New York report attached covers Manhattan, Brooklyn, Long Island, Hamptons, North Fork, Westchester County, Fairfield County, and Greenwich, CT.

Manhattan
Newly signed contracts for most price tranches of all property types have been rising year over year since the end of 2020. In addition, new listings rose for the second consecutive month for each property type as heavy volume began to pull new supply into the market. While all three property types showed annual gains, condos continued to show the most growth.

Brooklyn
Newly signed contracts for most price tranches of all property types have risen year over year for sixteen consecutive months. In addition, new listings rose for the second consecutive month for each property type as heavy volume began to pull new inventory online. While all three property types showed annual gains, condos continued to show the most year-over-year gains.

Long Island (excluding H/NF)
New signed contract levels fell year over year for the past four months combined, as new inventory fell over the same period. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Hamptons
New signed contract levels fell year over year for the past five months combined, as new inventory fell over the same period, holding back potential sales. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

North Fork
New signed contract levels fell year over year for the past five months combined, as new inventory fell over the same period, holding back potential sales. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Westchester
New signed contract levels fell year over year for the past four months combined, as new inventory fell over the same period, holding back potential sales. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

Fairfield
New signed contract levels surged year over year for the past four months combined, as new inventory dropped sharply over the same period, holding back sales. As a result, newly signed contracts are significantly higher than the same period two years ago.

Greenwich
New signed contract levels fell year over year for the past three months combined, as new inventory fell half over the same period, keeping the market tight and holding back potential sales. As a result, the market is coming to the end of the significant distortions caused by the post-lockdown surge in activity in 2020.

This Just In: The ‘A’ in ‘Zillow’ Stands for ‘Accuracy’

The news came quickly and brutally (especially if you were a ZG investor):

@mortgage_yack #zillow #PINKHolidayRemix #realestate #utahrealestate ♬ original sound – Jack

I jumped on the bandwagon with this:

And this was a perfect post:

Now lets digest this in the context of price accuracy:

While Zillow’s CEO Rich Barton essentially said early on that he didn’t want their iBuying efforts (Zillow Offers) to be seen as gaming the Zestimate like that dumb viral Tik Tok video inferred a month ago.

@seangotcher

#housing

♬ San Tropez – Illect Recordings

Yet it would seem unlikely that Zillow Offers used something completely separate and conceptually very different from their ‘Zestimate’ because it would be quite expensive and extremely difficult to keep a radical new valuation concept a complete secret. All we know at this point is whatever valuation methodology they used was a complete fail. And to go a step further their Zestimate valuation methodology has long been a complete failure in the accuracy department. But it hasn’t been a complete failure in the consumer credibility department at all. In fact, it’s been quite successful – after all, Zillow weened control of the U.S. consumer away from the real estate brokerage industry who had enjoyed 100 years of gatekeeper status.

This is why the real estate brokerage industry pays Zillow substantial fees to be featured on a search page in their “Pro” offering, using the source data provided to Zillow by them. Its quite diabolical.

So if we consider the Zestimate to be a proxy for the Zillow Offers valuation tool that failed, it gets worse….

The national median accuracy rate of the Zestimate is 2%.

Because they are using “median” and that term is largely ignored by consumers in the phrase “median accuracy rate” that 2% sounds pretty darn accurate. Yet there is no fine print here. The phrase literally means that 50% of the time the Zestimate is within 2% of actual value and 50% of the time it’s not.

And it gets worse…

The median accuracy rate is only within about 2% if the property being Zestimated is currently listed for sale. But if the property is not currently listed for sale, the median accuracy weakens to 7%.

For the Zestimate to move from 7% to 2%, they are reliant on the broker expertise involved to price the property and get it on the market.

Said another way, in order to get the median accuracy rate from 7% to 2%, they need the brokerage community to price the property to get that touted accuracy rate.

To summarize this point:

The brokerage industry gives all their data to Zillow because Zillow marketed to and won the consumer.

The brokerage industry pays Zillow to market them on the Zillow platform because they gave Zillow all their data.

Zillow became a brokerage firm and therefore a direct competitor to the brokerage industry, something they promised early on would never happen.

Zillow uses the brokerage industry to inaccurately price properties, placing them in an adversarial position with the consumer who wants to sell their home.

Yeah, I get it.

Zillow Offers As A Proxy For ‘Big Data’ Shows The Lack Of Qualitative Analysis

Yes, big data usually infers ‘quantitative’ analysis, as in “relying on numbers.” The Zestimate legacy of profound inaccuracy finally reached a devastating conclusion with the collapse of Zillow Offers this week and the loss of hundreds of millions in shareholder equity. Zillow never figured out the qualitative part that enables the actual precision in the pricing of a home sale.

There is a lot of talk right now about how other iBuyers are continuing to buy and sell properties so the space is still viable – business as usual. But step back for a moment and think about this:

– The iBuyer market is currently overcrowded, even with the loss of Zillow Offers.
– The iBuyer bold-faced name is OpenDoor who was the unicorn of Softbank who famously backed WeWork without any apparent due diligence.
– The iBuyer segment is characterized by its razor-thin margins and billions of investment required.
– It was created and run in a rising market, most of it a boom, and was recently turned off during the recent downturn.
– It is wholly dependent on housing markets with homogenous housing stock and will always need high volume just to survive.

I feel pretty confident there will be further fallout over time, but the iBuyer space will settle into a small segment of the overall transaction universe. It has been wildly overhyped (at real estate brokers and real estate appraiser’s expense) as investors, burdened with high volumes of capital, desperate for upside in housing in this fintech boom.

Ritholtz Thread on Stagflation

My friend Barry goes stag on the topic of inflation. Please read the entire thread.

WCBS Radio: The NYC Housing Market And Returning To Work

I had a great conversation with Joe Connolly and Neil A. Carousso of WCBS Radio: Hot real estate market could be cooling as people return to work in Manhattan [WCBS Radio]

CNBC VIDEO: Most Expensive Listing in Highland Beach

My friend Senada Adzem of Douglas Elliman has quite a listing in Highland Beach. I cover the Highland Beach market for Douglas Elliman within our Boca Raton report. I always find it fun to imagine moving into a place like this.

Residential Listing Inventory As A Living, Breathing Thing Is No Match For The Rocket Ship Of Low Rates

Translated:

I’ve been saying this a lot lately as I try to get my arm’s around the chronic lows of supply.

“Inventory is like this living, breathing organism that’s generated by people’s stages of life — downsizing, expanding for a growing family, a big job promotion, more income,” Miller said. “Those things take time.”

Take something organic like inventory creation and throw the rocketship of rapidly falling mortgage rates at it while the economy is strong; during pre-pandemic as the Fed was trying to manage the U.S. economy out of a trade war with China and a potential recession – and after the pandemic began, even when the economy began to bounce back rapidly a few months later…

And we end up with a demand frenzy that organic listing inventory growth is no match for. Even if the market continues to cool and listing inventory begins to trend higher, it is still so incredibly low that the market will still feel relatively tight to consumers.

Getting Graphic

My favorite charts of the week of our own making

My favorite charts of the week made by others

A return appearance of the best chart ever made…

Len Kiefer‘s Chart Handiwork

Upcoming Speaking Events

This will be fun.


[click on image to register]

Appraiserville

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

Tragedy Met One Of Our Own: Stephen Forrester

I didn’t know Stephen, but life can be very unfair. Please help his family.

ASC 2021 Roundtable: Building a More Equitable Appraisal System


[click image to register]

On November 9, 2021, the Appraisal Subcommittee (ASC) will convene its second ASC 2021 Roundtable: Building a More Equitable Appraisal System, to build upon the success of the first roundtable and address historical and contemporary factors that have contributed to the inequities challenging the appraisal system today. Please join us for the second event of this groundbreaking series, which will bring together leaders in government, finance, real estate, non-profits, and communities impacted by the appraisal system.

Featured speakers include Congresswoman Maxine Waters, Chairwoman of the House Financial Services Committee; Melody Taylor, Executive Director, Task Force on Property Appraisal and Valuation Equity; Danny Wiley, Senior Director of Single-Family Valuation, Freddie Mac; Vivian Li, Internal Audit Director, Freddie Mac, and more.

The second ASC 2021 Roundtable will take place on November 9 from 1:30 p.m. to 4:00 p.m. ET (10:30 a.m. to 1:00 p.m. PT) and will include featured speakers, audience question and answer sessions, theme-based concurrent breakouts, and closing comments outlining next steps.

Dean Dawson of West Virginia Continues To Stop New Licensees From Entering The Profession

Here’s a recap of the activities of Dean Dawson and “his” West Virginia Real Estate Licensing and Certification Board. [August Board Meeting Minutes]

– The minutes take 2-3 months to be released and as you can see, and appraisers are not given permission to speak at a public hearing.
– The meeting minutes for June and July were never released.

– Of the 7 applications for a license only 1 was approved, 1 was denied and 5 continued. Not all the applications have been disclosed by the board. Why?

Incidentally, there is someone who has submitted their general license 12 weeks ago and has not heard back from the board.

It’s good to see that they met with the state auditor to bring USPAP into the regulations as they should be. That likely occurred because the ASC is auditing them this week.

Attention West Virginia Legislature/Auditor – As I’ve mentioned previously, one of the dangers of allowing boards to have active appraisers with personal conflicts is they can prevent all potential competition from entering the profession in order to maintain their local monopolies. This particular board appears to be one of the most egregious offenders we’re aware of in the 55 states and municipalities that work with TAF.

The lack of board oversight in West Virginia is likely why Dave Bunton selected Jennifer Wagner of Mountain State Justice last year to be on the Board of Trustees of TAF. She makes her living suing West Virginia appraisers and a large part of the existing West Virginia Real Estate Board, including Chair Dean Dawson, works for her now or has recently. Why on earth would Dave seek out someone like that? Because Dave Bunton and his leadership are not interested in protecting the public trust when it comes to the appraisal industry.

Good news just in for West Virginia appraisers!

I’ve been told by a reliable source that:

Board members Tyke, Nibert, and Julian have been termed out and are being replaced. More appointments are expected in the coming months to fill in the (deliberately?) understaffed board. I also hear that rather than replace Dean Dawson now since they would have to hold a hearing, the governor is opting to let him term out. He has made a lot of enemies in West Virginia politics.

With A 96.5% White Industry, Dave Bunton Continues To Work Hard To Maintain Status Quo

It is getting harder by the day for The Appraisal Foundation to convince the public they are concerned about the lack of diversity in the appraisal profession. President Dave Bunton proudly announced the five new board members he essentially approved for the TAF monarchy in this month’s newsletter. While it’s great to see lots of women selected since women only comprise less than 30% of the profession, the largest deficit is with people of color. There are none.

Incidentally, one of the new board members, Karen Oberman, was formerly on the AQB in 2006. Why on earth would Dave put her on the board again? No personal slight meant to Karen, but why does Dave continue to recycle board members when there are literally thousands of appraisers to reach out to?

Because that is how he has maintained absolute control over TAF.

On the diversity front, remember this about Dave’s rule:

– A white person was placed in charge of the diversity commission
– Only one person of color was ever placed on a technical board and that came after external pressure and three decades of waiting
– TAF’s vision statement just stated that they won’t achieve diversity for nine more years.

After this selection of five new board members with 0% people of color, I think their 2030 prediction is a bit optimistic. This is the same person that wrote this bat-shit crazy letter to ASC.

When does the TAF administrative farce, end?

Never Rely On A Mortgage Broker For Insights on Appraisers

Better yet, don’t ask anyone on commission for an opinion on the real estate appraisal industry. Our interests are not aligned nor is the information. Mortgage brokers only get paid if the deal closes and appraisers can stand in the way of that event.

There was an embarrassingly bad op-ed piece by Joe Lydon of San Diego-based Lendsure Mortgage Corp [non-subscription version].

“Appraisers are aging out and retiring. Fannie Mae and Freddie Mac have developed sophisticated, automated appraisal processes resulting in property inspection waivers for more and more borrowers. The residential appraisal industry will go the way of the horse and buggy soon enough.”

Apparently, Joe doesn’t believe in the free market, and appraisers aren’t allowed to charge the market rate for their services. He is basing his case on a low mortgage rate, high-volume environment where he is enjoying heavy volume and feels on top of the world. How does this play out if rates go above 4% and the music stops? Half of all U.S. mortgage holders have a rate below 4%. Will lenders be willing to base their valuations on AVMs (think Zestimates) where the valuation is wildly inaccurate?

The saddest part about this type of free content is that it is written by parties with specific self-serving bias, but it is presented like they are neutral sources.

As the Oracle from Omaha, Warren Buffet once said:

“Never ask a barber if you need a haircut.”

OFT (One Final Thought)

Weird lyrics, screaming and great guitar riffs always make the Pixies worth a listen.

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 collapse;
– You’ll collapse;
– And I’ll ignore my Zestimate.

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

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