It’s time to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Three Cents Worth:
Manhattan Inventory Changes Are Wildly Consistent

After releasing that Manhattan phonebook yesterday I was still in 10-year trend mode, so I was curious how consistent inventory was in 2009 given the limited activity in the first half of the year versus the second half of the year. I looked at the month-over-month change in listing inventory in Manhattan. I have inventory captured on a quarterly basis back more than a decade but I didn’t get the idea to capture monthly inventory until about eight years ago, so I had to work with that. (I was also trying to figure out a way to have colored ovals in three consecutive 3CW posts. Okay, admittedly that’s a coincidence.)…

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

The 2000-2009 Manhattan Townhouse Report that I author for Prudential Douglas Elliman was released today. Dottie Herman, the President/CEO of Prudential Douglas Elliman is pushing hard to make information more accessible to the public.

Approximately 2,500 Manhattan residential townhouse transactions were analyzed over this ten year period. 1, 2 and 3-5 (delivered vacant) family houses comprised the data set.

An excerpt

…The 2009 median sales price of a Manhattan townhouseÑdefined as a 1-5 family residence that can be delivered vacantÑfell 31.9% from the record set in 2008 to $3,400,000 from $4,995,000. The other price indicators showed a consistent trend over the same period with average sales price falling 32% to $5,012,736 and price per square foot falling 31.2% to $1,111. The decline in prices were not attributable to a shift to a larger mix of smaller sized sales as illustrated in the year over year consistency in square footage. The average size of a townhouse sale was 4,512 square feet in 2009, down nominally from 4,565 square feet in 2008 and was consistent with the 4,481 square foot annual average over the past decade…

Download the 2000-2009 Manhattan Townhouse Report

Download other market reports prepared by Miller Samuel

The 2000-2009 Manhattan Market Report that I author for Prudential Douglas Elliman was released today. (I have been light on posts and podcasts in January – releasing 9 market reports in a month may have something to do with it.)

I have always referred to this report “The Phonebook” for its 61 pages of data largess. This report is downloaded more than all other quarterly studies we produce, combined.

Dottie Herman, the President/CEO of Prudential Douglas Elliman whose name adorns the report is a big believer in historical information as a companion to cutting edge data to provide a better perspective.

Approximately 92,000 co-op and condo sales transactions from more than 6,500 buildings over the last ten years were analyzed. Each of the 53 different market areas have been presented with data tables and charts as well as a summary matrix that compare 2009 to the prior year (2008) and prior decade (2000).

An excerpt

…There were 6,851 listings on the market at the end of 2009, 24.6% less than 9,081 listings in 2008, which was the highest level of inventory in the past decade. The 2009 inventory level was in line with the 6,860 average annual inventory level of the past decade. This resulted in a monthly absorption rate of 11.1 months, up from a rate of 10.6 months in 2008 and above the 9.2 monthly average over the past decade. The cause of inventory decline in the first half of the year was the trend of sellers removing their property from the market in hopes of re-listing when market conditions improve substantially. The decline in inventory in the second half of 2009 was attributable to the surge in sales activity simply working off the properties on the market…

Download the 2000-2009 Manhattan Market Report

Download other market reports prepared by Miller Samuel

The Furman Center for Real Estate and Urban Policy at New York University released a fascinating report on New York foreclosures called: Foreclosed Properties in NYC: A Look at the Last 15 Years.

Here’s a key characteristic of foreclosures in New York state: 54% of properties that received an LP in 2007 had not, by the end of June 2009, been sold or completed the foreclosure process, and had not received an additional LP.

What’s a lis pendens? Recording a lis pendens alerts a potential purchaser or lender that the propertys title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes it subject to the ultimate decision of the lawsuit.

The average time to sell a property with a foreclosure filing in 2009 was substantially longer.

Scott Merrell, also known as the Rowayton Cowboy, was arrested Tuesday as he protested his eviction from his home. The city seized the multimillion-dollar home at Wilson Point after Merrell did not pay more than $110,000 in property taxes.

The home was sold at auction more than a year ago because of the tax situation.

Merrell has repeatedly claimed the city overvalued his home and that he should not have to pay.

‘Rowayton Cowboy’ faces Tuesday eviction [Stamford Advocate]
Police Take Rowayton Cowboy Into Custody [NBC Connecticut]
The Rowayton Cowboy, Scott Merrell is in police custody [The Hour]

There was a lot of coverage in this publicity effort, but if you lose in more than one legal venue, what is the point of all this?

Tax appeals are a growing phenomenon as housing markets decline and municipalities need revenue.

I always thought “The Appraiser” was a good name for a reality tv show. Unfortunately, the reality is real and the appraisal process is one of those accidents waiting to happen.

There is a tongue in cheek style article by Sheree Curry in the recently ramped up HousingWatch page on AOL

Are Appraisals the New Organized Crime?

that essentially takes some of the burden off of other parties in the real estate transaction such as mortgage brokers, and places it on the shoulders of appraisers. In many cases, rightfully so.

Of course this doesn’t apply to all appraisers and in fact many appraisers aren’t really…appraisers. More like form fillers.

And some are appraisers are going to have their day in court – but not enough of them.

Here’s a related article I authored for American Banker last summer called:

Then Don’t Call It An Appraisal.

Hey, you got a problem with that?

It’s time to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Three Cents Worth: Manhattan Market Syncs Up With the Hamptons

Since the Hamptons saw a price correction earlier in this housing cycle than Manhattan’s eventual reckoning, I wanted to see how the two markets otherwise compared to each other. Conventional wisdom said that Wall Street has been driving a lot of the high-end demand out east, and many of those buyers often own a property in New York City, so I expected the two markets to show similar trends.

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

I authored the following article for RealtyTrac which appeared on the cover of their November 2009 subscriber newsletter called Foreclosure News Report. It features a column for guest experts called “My Take.”

When Rick Sharga invited to write the article, he provided the previous issue which featured a great article by Karl Case of the Case Shiller Index and I was sold.

I hope you enjoy it.

Appraisers and Foreclosure Sales Bring Havoc to Housing Markets
By Jonathan Miller
President/CEO of Miller Samuel Inc.
11-2009

In many ways, the quality of appraisals has fallen as precipitously as many US housing markets over the past year. Just as the need for reliable asset valuation for mortgage lending and disposition has become critical (fewer data points and more distressed assets) the appraisal profession seems less equipped to handle it and users of their services seem more disconnected than ever.

The appraisal watershed moment was May 1, 2009, when the controversial agreement between Fannie Mae and New York State Attorney General Andrew Cuomo, known as the Home Valuation Code of Conduct, became effective and the long neglected and misunderstood appraisal profession finally moved to the front burner. Adopted by federal housing agencies, HVCC, or lovingly referred to by the appraiserati as “Havoc” and has created just that.

During the 2003 to 2007 credit boom, a measure of the disconnect between risk and reward became evident by the proliferation of mortgage brokers in the residential lending process. Wholesale lending boomed over this period, becoming two thirds of the source of loan business for residential mortgage origination. Mortgage brokers were able to select the appraisers for the mortgages that they sent to banks.

Despite the fact that there are reputable mortgage brokers, this relationship is a fundamental flaw in the lending process since the mortgage broker is only paid when and if the loan closes. The same lack of separation existed and still exists between rating agencies and investment banks that aggressively sought out AAA ratings for their mortgage securitization products. Rating agencies acceded to their client’s wishes in the name of generating more revenue.

As evidence of the systemic defect, appraisers who were magically able to appraise a property high enough to make the deal work despite the market value of that locale, thrived in this environment. Lenders were in “don’t ask, don’t tell” mode and they could package and sell off those mortgages to investors who didn’t seem to care about the value of the mortgage collateral either. Banks closed their appraisal review departments nationwide which had served to buffer appraisers from the bank sales functions because appraisal departments were viewed as “cost centers.”

The residential appraisal profession evolved into an army of “form-fillers” and “deal-enablers” as the insular protection of appraisal professionals was removed. Appraisers were subjected to enormous direct and indirect pressure from bank loan officers and mortgage brokers for results. “No play, no pay” became the silent engine driving large volumes of business to the newly empowered valuation force. The modern residential appraiser became known as the “ten-percenter” because many appraisals reported values of ten percent more than the sales price or borrower’s estimated value. They did this to give the lender more flexibility and were rewarded with more business.

HVCC now prevents mortgage brokers from ordering appraisals for mortgages where the lender plans on selling them to Fannie Mae or Freddie Mac which is a decidedly positive move towards protecting the neutrality of the appraiser. Most benefits of removing the mortgage broker from the appraisal process are lost because HVCC has enabled an unregulated institution known as appraisal management companies to push large volumes of appraisals on those who bid the lowest and turn around the reports the quickest. Stories about of out of market appraisers doing 10-12 assignments in 24 hours are increasingly common. How much market analysis is physical possible with that sort of volume?

After severing relationships with local appraisers by closing in-house appraisal departments and becoming dependent on mortgage brokers for the appraisal, banks have turned to AMC’s for the majority of their appraisal order volume for mortgage lending.

Appraisal management companies are the middlemen in the process, collecting the same or higher fee for an appraisal assignment and finding appraisers who will work for wages as low as half the prevailing market rate who need to complete assignments in one-fifth the typical turnaround time. You can see how this leads to the reduction in reliability.

The appraisal profession therefore remains an important component in the systemic breakdown of the mortgage lending process and is part of the reason why we are seeing 300,000 foreclosures per month.

The National Association of Realtors and The National Association of Home Builders were among the first organizations to notice the growing problem of “low appraisals.” The dramatic deterioration in appraisal quality swung the valuation bias from high to low. The low valuation bias does not refer to declining housing market conditions. Despite mortgage lending being an important part of their business, many banks aren’t thrilled to provide mortgages in declining housing markets with rising unemployment and looming losses in commercial real estate, auto loans, credit cards and others. Low valuations have essentially been encouraged by rewarding those very appraisers with more assignments. Think of the low bias in valuation as informal risk management. The caliber and condition of the appraisal environment had deteriorated so rapidly to the point where it may now be slowing the recovery of the housing market.

One of the criticisms of appraisers today is that they are using comparable sales commonly referred to as “comps” that include foreclosure sales. Are these sales an “arm’s length” transaction between a fully informed buyer and seller is problematic at best. While this is a valid concern, the problem often pertains to the actual or perceived condition of the foreclosure sales and their respective marketing times.

Often foreclosure properties are inferior in condition to non-foreclosure properties because of the financial distress of the prior owner. The property was likely in disrepair leading up to foreclosure and may contain hidden defects. Banks are managing the properties that they hold but only as a minimum by keeping them from deteriorating in condition.

In many cases, foreclosure sales are marketed more quickly than competing sales. The lender is not interested in being a landlord and wants to recoup the mortgage amount as soon as possible. Often referred to as “quicksale value,” foreclosure listings can be priced to sell faster than normal marketing times, typically in 60 to 90 days.

The idea that foreclosure sales are priced lower than non-foreclosure properties is usually confused with the disparity in condition and marketing times and those reasons therefore are thought to invalidate them for use as comps by appraisers.

Foreclosure sales can be used as comps butthe issue is really more about how those comps are adjusted for their differing amenities.

If two listings in the same neighborhood are essentially identical in physical characteristics like square footage, style, number of bedrooms, and one is a foreclosure property, then the foreclosure listing price will often set the market for that type of property. In many cases, the lower price that foreclosure sales establish are a function of difference in condition or the fact that the bank wishes to sell faster than market conditions will normally allow.

A foreclosure listing competes with non-foreclosure sales and can impact the values of surrounding homes. This becomes a powerful factor in influencing housing trends. If large portion of a neighborhood is comprised of recent closed foreclosure sales and active foreclosure listings, then guess what? That’s the market.

Throw in a form-filler mentality enabled by HVCC and differences such as condition, marketing time, market concentration and trends are often not considered in the appraisal, resulting in inaccurate valuations. As a market phenomenon, the lower caliber of appraisers has unfairly restricted the flow of sales activity, impeding the housing recovery nationwide.

In response to the HVCC backlash, the House Financial Services Committee added an amendment to the Consumer Financial Protection Agency Act HR 3126 on October 21st which among other things, wants all federal agencies to start accepting appraisals ordered through mortgage brokers in order to save the consumer money.

If this amendment is adopted by the US House of Representatives and US Senate and becomes law, its déjà vu all over again. The Appraisal Institute, in their rightful obsession with getting rid of HVCC has erred in viewing such an amendment a “victory for consumers.” One of the reasons HVCC was established was in response to the problems created by the relationship between appraisers and mortgage brokers. Unfortunately, by solving one problem, it created other problems and returning to the ways of old is a giant step backwards.

We are in the midst of the greatest credit crunch since the Great Depression and yet few seem to understand the importance of neutral valuation of collateral so banks can make informed lending decisions. Appraisers need to be competent enough to make informed decisions about whether foreclosures sales are properly used comps. For the time being, many are not.

The call covered the Harris Poll survey commissioned by Trulia to grade Obama’s performance as it relates to housing.

Here’s his report card:

[click to open report]

On Tuesday January 26th 2010, Trulia’s CEO Pete Flint will be hosting an industry call discussing how President Obama did in his first year in regards to turning around the housing crisis. Pete will be joined by real estate experts and pundits Jonathan Miller, President and CEO of Miller Samuel and Howard Glaser, Principal of The Glaser Group…

Here are the notes and more details about the call.

Some of the press coverage about the call.

Since attaching my head to other people’s photos appears to be in vogue, here’s the latest. Gotta love Curbed Hamptons.

They are referencing our two market report releases covering the Hamptons & North Fork 4Q 2009 and 2000-2009.