Speaker 1: M hm. This is Mesters in Business with very Results
Speaker 1: on Bluebird Radio. This weekend. On the podcast, I have
Speaker 1: an extra special guest, Jonathan Miller, returning Champion, returns for
Speaker 1: his fourth appearance to talk about housing and all the
Speaker 1: craziness that is going on. We discuss is housing in
Speaker 1: a bubble? Are we looking at the death of cities?
Speaker 1: What's going to happen with urban real estate from both
Speaker 1: a residential and a commercial perspective, just everything involving real estate.
Speaker 1: And we talk about something that you may not be
Speaker 1: aware of, but as someone who runs one of the
Speaker 1: larger real estate appraisal and data analytics firms, he's been
Speaker 1: very influential in this space, discussing systemic racism that's built
Speaker 1: into the real estate market, both from a realtor and
Speaker 1: an appraisal basis. How a lot of the industry groups
Speaker 1: are in his terms, like me. He said, they're they're white,
Speaker 1: they're male, they're older. They have not been appealing to
Speaker 1: a more diverse crowd. And a lot of people in
Speaker 1: those industries are aging out. And so the why the
Speaker 1: appraisal groups and why the real groups um have been
Speaker 1: so far behind the curve that they're starting to be
Speaker 1: subject to a whole lot of external pressure to become
Speaker 1: more diverse, to to bring in more women, more people
Speaker 1: of color onto the groups that oversee the industry, and
Speaker 1: um Jonathan has been very influential in that space, has
Speaker 1: applied a lot of pressure both to the appraisal group
Speaker 1: and the real estate group and starting to see results.
Speaker 1: More media have been covering the subject, and we we
Speaker 1: actually discussed some crazy stories about African American families who
Speaker 1: have learned that if you're gonna do a refined answer
Speaker 1: of your home and you want or you want to
Speaker 1: sell your home and get it appraised, take out all
Speaker 1: the photos of your family, put in photos of a
Speaker 1: white family, and have one of your friends or neighbor
Speaker 1: meet the appraiser and pretend it's a wide owned home.
Speaker 1: It could be worth more in the appraisal. Crazy stuff
Speaker 1: that he's been very very critical of, and the media
Speaker 1: is now just starting to pick up on it. There
Speaker 1: have been a few stories in the New York Times,
Speaker 1: in the Washington Post about this. Anyway, this is just
Speaker 1: a fascinating conversation about real estate with one of the
Speaker 1: most knowledgeable people about the industry. So, with no further ado,
Speaker 1: my conversation with Jonathan Miller. This is Masters in Business
Speaker 1: with Very Results on Bluebird Radio. HI. Extra special guests
Speaker 1: this week is Jonathan Miller. This is our fourth interview
Speaker 1: and the first let's call it post pandemic. Addition, Jonathan
Speaker 1: is the founder and CEO of Miller Samuel, one of
Speaker 1: the largest real estate data analytics firm. As well as
Speaker 1: being an expert appraiser. In fact, he is the sort
Speaker 1: after the go to appraiser for some of the most
Speaker 1: expensive penthouses in New York City. Their data powers a
Speaker 1: lot of the publication that many large brokerage firms used
Speaker 1: for their own analysis and media presence. Jonathan Miller, Welcome
Speaker 1: back to Bloomberg. It's great to be here, Barry, and Uh,
Speaker 1: I feel like every time is a new adventure. So
Speaker 1: the fourth time is can only be better. Right, So
Speaker 1: let's start our adventure talking broadly about national housing. What
Speaker 1: what is the state of the national residential real estate
Speaker 1: market here in the US. Well, it depends on your perspective. Uh,
Speaker 1: if you're a seller, it's a it's a it's a
Speaker 1: robe US market. Uh, not quite a bubble, but it
Speaker 1: is characterized by a chronic lack of supply across the
Speaker 1: entire country. UH, combined with record low mortgage rates UM
Speaker 1: a little bit of an uptick recently. But that is
Speaker 1: creating this insatiable demand, and it's uh it is it
Speaker 1: is a national condition. It is not you know, pockets
Speaker 1: of the country. It's seemingly national and uh it certainly
Speaker 1: doesn't seem sustainable. So it's interesting. It's interesting you're saying
Speaker 1: it's created by these low mortgage rates, but we've had
Speaker 1: very low mortgage rates for a couple of years now.
Speaker 1: How much of this is driven by the pandemic. We
Speaker 1: heard a ton of stories about, Hey, I just got
Speaker 1: to get out of this tiny apartment with my family
Speaker 1: anyone who could afford to buy a house did? Is
Speaker 1: Is that still a driver here? Absolutely? So. The way
Speaker 1: the way I've looked at the pandemic is it is
Speaker 1: the great disruptor. You know, it has UH. It made Zoom,
Speaker 1: the remote office technology, ubiquitous in twenty four hours. It
Speaker 1: also UH caused a lot of people to sort of
Speaker 1: think about their living conditions and fantasize about moving or
Speaker 1: going somewhere. In many ways, it made things like the
Speaker 1: federal law called the nickname the soft tax job cuts
Speaker 1: and Recovery Act that really fueled a lot of a
Speaker 1: good part of the migration to Florida. Um, there's been
Speaker 1: a whole thing, bunch of things that have been triggered,
Speaker 1: and I think it just was triggered by the pandemic
Speaker 1: in terms of being over the top. And what's surprising,
Speaker 1: it's rushing and a lot of our contract data we
Speaker 1: cover about three dozen housing markets are Douglas Solomon real
Speaker 1: Estate nationwide, and the contract activity is not slowing down.
Speaker 1: In other words, um sales activity in many of the
Speaker 1: markets we cover, like southern California and Florida are seeing
Speaker 1: new signed contracts that are double last year's level or
Speaker 1: more and um and we're starting to see you know
Speaker 1: a lot of that surplus inventory that Florida was known
Speaker 1: for be uh be roaded to not saying that there's
Speaker 1: a dearth of supplied, but nowhere near the levels that
Speaker 1: we saw a pre pandemic. So you could blame it
Speaker 1: on the pandemic or you know, claim at the pandemic,
Speaker 1: but I see the pandemic is more of a you know,
Speaker 1: the disruptor that made these things, accelerated these phenomenon, So
Speaker 1: why is there such a stage of houses for sale
Speaker 1: and how long will it take for a supply to
Speaker 1: catch up with this big demand. Well, uh so, I
Speaker 1: think the question is how how much more will prices
Speaker 1: rise before demand cools. We don't have this sort of
Speaker 1: institutional credit meddleman that is enabling purchases. Credit conditions are
Speaker 1: still sort of, you know, defaulting to more conservative than
Speaker 1: the historical norm in terms of mortgage underwriting. I'm not saying, um, uh,
Speaker 1: you know, we have We're not seeing liar loans, maybe
Speaker 1: things like that on the margin, but generally we're seeing
Speaker 1: you know, a little bit more conservative views taken by
Speaker 1: mortgage lenders than we clearly saw in the housing bubble,
Speaker 1: where you just had to have a pulse or tag
Speaker 1: more a mirror to get a mortgage. We're not seeing that.
Speaker 1: So at some point things are going to the demand
Speaker 1: wal slope because of lack of affordability. One of the
Speaker 1: big challenges I think over the last five or six
Speaker 1: years that was way before COVID, is that inventory has
Speaker 1: been chronically low for a long time. I mean basically
Speaker 1: since the financial crisis, and one of the problems are
Speaker 1: the reasons for that is that a lot of national
Speaker 1: home builders have pivoted to luxury. You know, I think luxury,
Speaker 1: high end home building was the norm in most urban
Speaker 1: markets around the country, most suburban markets, like it was
Speaker 1: all about that. And one of the drivers of that
Speaker 1: has been, you know, land prices haven't had a chance
Speaker 1: to reset after the financial crisis. Uh, you know, rates
Speaker 1: plummeted to the floor after um, you know, the Lehman
Speaker 1: moment and uh, you know, various other issues and really
Speaker 1: fueled the frenzy which kept land prices high. So even
Speaker 1: today we're just not seeing um, you know, that component change.
Speaker 1: And now with lower mortgage rates and the surge of demand,
Speaker 1: resources like labor and materials are off the chart, So
Speaker 1: it's really difficult to build affordable housing. So I think,
Speaker 1: you know, um, the outlook for that is not so
Speaker 1: great if you're looking for housing activity to increase in
Speaker 1: you know, very in a very large way. Um. And
Speaker 1: I think and then on top of it, we have
Speaker 1: a new layer of demand in the market, which is
Speaker 1: investor homes, which are remnant of the foreclosure crisis about
Speaker 1: a decade ago, where Wall Street came in like Blackstone
Speaker 1: and other groups and bought a ton of foreclosure properties.
Speaker 1: Everybody thought it was an in and out strategy and apparently,
Speaker 1: you know, it's not, and we're probably going to see
Speaker 1: more of that. It's a whole new segment of the
Speaker 1: market that is going to end up competing with the
Speaker 1: everyday you know, consumer HomeBuyer type. Yep, that's one of
Speaker 1: the unintended consequences of making bond yields so low. Anything
Speaker 1: that can be financially engineered to look like a bond yield,
Speaker 1: and I would think middle class rental homes probably can
Speaker 1: be massaged into that. That's an issue. But go on,
Speaker 1: go on, No, I was just gonna say, on top
Speaker 1: of that, like that, and now it's becoming a vehicle
Speaker 1: like uh, you know, to you know, for a family
Speaker 1: that wants to get their children into a better school district,
Speaker 1: you know, but they can't afford to buy the house.
Speaker 1: They're renting the house. You know, there's a lot of
Speaker 1: um and and now with zoom and you know, this
Speaker 1: sort of remote idea. I think the next big topic
Speaker 1: is in housing is going to be you know, where
Speaker 1: do you live? Uh? And I know that's a sort
Speaker 1: of silly, open ended way to say it, but uh,
Speaker 1: there's a lot of rethinking that's going to go on,
Speaker 1: what human behavior is going to be like, you know,
Speaker 1: in this next couple of years after hopefully the pandemic
Speaker 1: is brought under control or eradicated or whatever the scenario is.
Speaker 1: Because Zoom is the residual, it's still you know, it's
Speaker 1: not going away, and it's implementation into housing has and
Speaker 1: has an incredible has and will have an incredible impact
Speaker 1: on rethinking the way we think about the relationship between
Speaker 1: work and home. Yeah, that's kind of fascinating. You know,
Speaker 1: my my wife and I who we know each other socially,
Speaker 1: we know each other's wives. We early in the pandemic,
Speaker 1: we would just get in the car and go for
Speaker 1: a drive and look at different neighborhoods, including houses. We
Speaker 1: so I've been in this house, I think September is
Speaker 1: seven years, and we drove through neighborhoods that we had
Speaker 1: looked at and really liked, but said, you know, that
Speaker 1: commute is just it's just fifteen minutes too far to
Speaker 1: do five days a week. Well, pre pandemic, I started
Speaker 1: working from home on Fridays, so it became four days
Speaker 1: a week. And post pandemic, I wonder how many people
Speaker 1: are going to be going into the office two or
Speaker 1: three days a week, which means those more distant I
Speaker 1: don't want to call him suburbs, exerbs. The further writer
Speaker 1: right that that next ring out that maybe it's it's
Speaker 1: more than an hour commute, maybe it's a ninety minute commute.
Speaker 1: Are people going to start looking at those as viable
Speaker 1: options for the magnet cities like New York or DC
Speaker 1: or San Francisco or Chicago or Miami or wherever is
Speaker 1: the premium you're gonna pay for being thirty minutes from Manhattan,
Speaker 1: gonna get arbitraged away, and you're gonna start seeing those
Speaker 1: ninety minute commutes tick up and value. Absolutely, I think
Speaker 1: it's already happening. We're seeing in these suburbs that bring
Speaker 1: New York City, we're seeing a hotbed of activity as
Speaker 1: you move further out, and part of that is affordability.
Speaker 1: So uh, you know you can get more as you
Speaker 1: you're further away, um from the city, because you know,
Speaker 1: I think that. I think the way to think of
Speaker 1: it is, uh, this is sort of a generic application.
Speaker 1: Is you have right now, you have the big office
Speaker 1: towers and in New York and likely most other cities
Speaker 1: are empty and um and they will you know, fill
Speaker 1: back up as everybody starting to feel safer, which with
Speaker 1: the rapid vaccine adoption, that seems to be happening faster
Speaker 1: than what everybody anticipated. Um. But you know, pre COVID,
Speaker 1: about five of the workforce was remote and uh and
Speaker 1: if you know, and there's a lot of talk of
Speaker 1: that doubling or tripling or even more so it ends
Speaker 1: up being ten or fIF um. You know, not a
Speaker 1: huge increase relative to the total workforce. However, more than
Speaker 1: of the remaining employees are going to be in this
Speaker 1: in the fall into the scenario that you're just talking about,
Speaker 1: where you know, maybe they worked five days a week,
Speaker 1: now they work in the office. Now they work for
Speaker 1: or three or two. And I think what you're gonna
Speaker 1: end up seeing is you're going to see a tradeoff
Speaker 1: of fewer commuter fewer miles traveled for commuting, but the
Speaker 1: average length of a commute is going to be longer
Speaker 1: and um. And in fact, one of the one of
Speaker 1: the terms I've used to describe this, and I've made
Speaker 1: great effort to get this into the urban dictionary, is
Speaker 1: the term co primary that you know, we've seen housing
Speaker 1: markets that we're seen as second home markets, like in
Speaker 1: the New York metro area, there's the Hampton's or there's
Speaker 1: upstate Connecticut, or there's the Hudson Valley. Where those markets
Speaker 1: are you know, their vacations homes. That's where you've got
Speaker 1: a vacation home, and now they're becoming a second primary
Speaker 1: home because the consumer, uh you know, says, hey, I'd
Speaker 1: love to be able to be out here and work
Speaker 1: you know a good part of the week. Uh. We're
Speaker 1: seeing the same phenomenon in Aspen, Colorado that I cover
Speaker 1: other sort of you know, you think of vacation type markets.
Speaker 1: You know, the question it would be asked, well, who
Speaker 1: wouldn't want to live in Aspen, um even though they
Speaker 1: have a big home in New York or a big
Speaker 1: home in Florida or whatever. So you're seeing this recalibration
Speaker 1: of I call it the tether between work at home.
Speaker 1: The length has become you know, infinitely longer, and like
Speaker 1: you said, there's going to be an arbitrage that goes
Speaker 1: on in that relationship. So given all that and given
Speaker 1: the rising prices, I mean obviously you make a ten
Speaker 1: million dollar house, there's a ton of markup on everything.
Speaker 1: But wouldn't you expect what's the meeting home price today
Speaker 1: something like three fifty. I haven't kept up with rising
Speaker 1: increases in the threes, right, But but now look at
Speaker 1: depending on the region, look at the under a million,
Speaker 1: but over half a million, that's like a solidly upper
Speaker 1: middle class home in a lot of the countries. Wouldn't
Speaker 1: you think there's a ton of demand for that. Wouldn't
Speaker 1: that attract the builders to move into that space? Yes,
Speaker 1: the problem is that land prices are are the problem
Speaker 1: that that land, you know, as a factor in the equation.
Speaker 1: So when you think about property appreciation, you know, if
Speaker 1: you're absolutely thinking in pure wonky terms, what's actually appreciating
Speaker 1: is the land in terms of housing prices rising. It's
Speaker 1: not the improvements. The improvements depreciate. Now, of course, when
Speaker 1: you renovate, the value of your home goes up, but
Speaker 1: I'm just speaking in sort of general terms that the
Speaker 1: appreciation is the cost of the land is really what's
Speaker 1: driving higher home prices, and that's what builders are facing
Speaker 1: our higher land costs, you know, aside from all the
Speaker 1: other issues like lumber and uh and labor, etcetera. Um,
Speaker 1: So it really is a challenge. I I don't know
Speaker 1: how that gets resolved. The other thing is, um, there's
Speaker 1: been uh, you know, tremendous hype. I know, specifically in
Speaker 1: the markets that I cover, uh that there's been a
Speaker 1: tremendous hype about the suburbs being more affordable. And so
Speaker 1: that's part of this narrative. The cities are expensive, uh
Speaker 1: you know, so the suburbs are cheaper. The problem is
Speaker 1: that in the last couple of quarters, the you know,
Speaker 1: the as we came out of the sort of lockdown period. UM,
Speaker 1: we're seeing, like in New York Metro the suburban housing
Speaker 1: markets that ring those markets, about a third of the
Speaker 1: closings that occur in each quarter are sold above the
Speaker 1: last asking price, meaning they went to bidding wars a
Speaker 1: third of the market, right. So that that sort of
Speaker 1: and and at the same time you're seeing weaker housing
Speaker 1: prices in urban markets, um or not, you're not seeing
Speaker 1: the same rate of growth. UM. That's been sort of
Speaker 1: one of the patterns. So there's this been this equalization,
Speaker 1: if you will, of of comparison. Quite fascinating. So let's
Speaker 1: start with another really big question, which is this is
Speaker 1: the end of cities true or false of. But let
Speaker 1: me add a qualifier. The driver this narrative is just
Speaker 1: it's it's, for lack of a a beoutter word, it's just dumb. Uh.
Speaker 1: And And the reason why I say that is because
Speaker 1: the the problem with the the problem with the way
Speaker 1: this is thinking. And I'm I'm a little Manhattan centric,
Speaker 1: So let me just tell it from that perspective and
Speaker 1: then I'll sort of spill out to the US. Is that, uh,
Speaker 1: you know, when we had this um the lockdown a
Speaker 1: little over a year ago and everybody is hunkered down,
Speaker 1: uh Manhattan. What there was this a sharp outbound migration
Speaker 1: to the suburbs and uh, and the rental market collapse.
Speaker 1: We saw rental prices fall about depending on the segment.
Speaker 1: We saw home sale prices not really they fall immediately,
Speaker 1: but volume collapsed, uh, you know, falling more than and
Speaker 1: a lot of the deals that closed during the lockdown,
Speaker 1: we're just contracts that were virtually closed. Pan. You know,
Speaker 1: maybe you could count on one hand maybe the number
Speaker 1: of people in the market that actually bought something uh
Speaker 1: site unseen and just did it virtually. And the narrative
Speaker 1: was that what you know, it was people are fleeing
Speaker 1: the narrative was fleeing the city and sort of air
Speaker 1: quotes or exodus in air quotes um and the suburbs
Speaker 1: were the beneficiary, and there was going to be this
Speaker 1: sort of structural, permanent move to the cities, from the
Speaker 1: cities to the suburbs. As it turned out, the narratives
Speaker 1: should have uh not been city to suburban or urban
Speaker 1: to suburban in New York Metro, it should have been
Speaker 1: Manhattan to the outer boroughs and suburban because Manhattan was
Speaker 1: really the laggard the burroughs like Brooklyn and Queen's. While
Speaker 1: their rental market was pummeled, their purchase market was a frenzy.
Speaker 1: It was they were acting just like the suburb's work.
Speaker 1: And you know, what we saw initially was just this
Speaker 1: massive um outpouring from the rental market. Rentald volume new
Speaker 1: leasing activity fell between sevent on a month over month
Speaker 1: basis in April. You know, it's just a collapse. And uh,
Speaker 1: and that many of the the first time buyers in
Speaker 1: the suburbs actually um came from the Manhattan rental market
Speaker 1: because they're less um uh, they were less anchored to
Speaker 1: the city. I always felt that many cities went about
Speaker 1: two or three years beyond what I would call an
Speaker 1: affordability threshold, and so they were much faster to leave
Speaker 1: when they didn't feel safe and they didn't have public
Speaker 1: transportation convenience without being concerned or culture oral activities. There
Speaker 1: wasn't anchoring. But but the false assumption is that all
Speaker 1: those people are going to be outside the city forever
Speaker 1: um and there was just a pivot, and that is
Speaker 1: not what happened. And in fact, uh, in the Latin
Speaker 1: in the recent quarters, especially this first quarter, and as
Speaker 1: we look at it in a monthly basis, if you
Speaker 1: go into the spring market, which is sort of the
Speaker 1: super Bowl or World Cup of every housing cycle. Uh,
Speaker 1: I think that the conventional wisdom was, well, now that
Speaker 1: the city Manhattan is starting to fare better, sales activity
Speaker 1: is up the air of a year rental, the rents
Speaker 1: are not falling, and they're falling a lot, but they're
Speaker 1: not falling by nearly as much instead of they're following
Speaker 1: you know, four month of a month rents are stabilizing. Uh.
Speaker 1: And say you would think that Manhattan's signs of positive uh,
Speaker 1: you know, improvement or you know already would last year,
Speaker 1: would mean that the suburbs are you know, a dark
Speaker 1: dystopian healthcape. You know that no one's there there and
Speaker 1: that's not true that suburbs are thriving too. So externally,
Speaker 1: I think there's a lot of this is just uh,
Speaker 1: you know, mortgage rate driven that and and combined with
Speaker 1: sort of fear of personal safety and and that's really
Speaker 1: all it is. So the narrative of urban diserver and
Speaker 1: I think has been really over overstated. On top of that, Uh,
Speaker 1: there's a really good story or study that came out
Speaker 1: of the FED that Cleveland FED using New York FED
Speaker 1: data that basically showed that, UM, really the reason for
Speaker 1: the light population in the cities or lighter is because
Speaker 1: net migration involves two numbers, inbound and outbound, and the
Speaker 1: inbound has been on hold. People aren't going to move
Speaker 1: into an urban location if they don't feel safe. With
Speaker 1: the vaccine adoption, we're seeing record new leasing activity in
Speaker 1: the city. Uh every month since October is for its
Speaker 1: respective month has been the highest on record. UM. So
Speaker 1: there's a lot of churn. And that is it doesn't
Speaker 1: mean we go back to where we were, We're still
Speaker 1: at peak zoom. I think zoom is still going to
Speaker 1: be a factor but by no means are the city's
Speaker 1: far from over? Of course I'm biased. I love New York.
Speaker 1: I love the city, and I was just sort of
Speaker 1: scratching my head feeling. You know, listen, everybody's writing the
Speaker 1: city offices it's over, and I just don't see that.
Speaker 1: So let me see if I can reiterate a few
Speaker 1: key points and ask a few follow up questions. My
Speaker 1: view has always been, Hey, city states have been the
Speaker 1: dominant form of culture, art, economic, business energy for two
Speaker 1: thousand years. There's a reason for that. It's not going
Speaker 1: to just disappear. That's said. You see some of the
Speaker 1: crazy price of your cities like New York and San Francisco.
Speaker 1: Are we looking at a potential price reset? And we
Speaker 1: haven't talked about office space, but assuming that there is
Speaker 1: an excess of office space, is that going to get
Speaker 1: converted to residential? What? How do you see this playing
Speaker 1: out over the next couple of years. Yeah, so those
Speaker 1: are really good points I do see. Um. You know,
Speaker 1: I think many people don't realize like the what I
Speaker 1: call the i candy of real estate, you know, the
Speaker 1: stuff that is the the uber luxury the billionaires row
Speaker 1: Manhattan say, for example, Uh, you know that it's not
Speaker 1: housing for mere mortals. I'd like to say, uh, I
Speaker 1: think many people haven't realized that since two thousand sixteen
Speaker 1: fifteen sixteen, which was the peak of the post lehman
Speaker 1: um uber luxury development market, that prices and some buildings
Speaker 1: are down. Like you look at a building like seven
Speaker 1: on in you know, there were there were seven or
Speaker 1: eight resales in two thousand twenty and the median decline
Speaker 1: in price as a resale meaning the sponsor the developers
Speaker 1: sold at two thousand fourteen and then resold and then
Speaker 1: sold to you know, the person that bought from them
Speaker 1: resold at some point in Uh, you had like one
Speaker 1: sale it was eighteen percent below, five or six sales
Speaker 1: that were below and one that was over below with
Speaker 1: the the seller originally paid from the sponsor. That's quite
Speaker 1: a reset already. And that was going into the pandemic, Jonathan,
Speaker 1: what you're talking s um, you know in what we
Speaker 1: would call a Manhattan Central business district and uh, and
Speaker 1: so you know a lot of that reset had already
Speaker 1: happened before h COVID, before the pandemic. So um, so
Speaker 1: I don't I don't see that, you know, and that
Speaker 1: was a market that was heavily uh invested in the
Speaker 1: idea that there was a wide and deep market for
Speaker 1: billionaires for mega you know, ten million up type units,
Speaker 1: and as it turns out, there isn't There are a
Speaker 1: lot of those buildings were not sold out a couple
Speaker 1: of years ago. Did they ever sell through all the units? Know,
Speaker 1: there's still like an aggregate, if you do a survey,
Speaker 1: it's well over half the units aren't sold some you know,
Speaker 1: the earlier in the earlier in the development boom post
Speaker 1: financial crisis, they have higher sellouts than the more recent entries.
Speaker 1: But it's an aggregate, it's about half uh So that's
Speaker 1: not very successful. But on the you know, on the
Speaker 1: flip side, for the developers themselves, many of them broke
Speaker 1: even our construction costs at sales um and so they
Speaker 1: can hold these things for years. But it's you know,
Speaker 1: it had a limited sort of lifespan, and that is
Speaker 1: not that it's like you're driving down the highway, um,
Speaker 1: you know, at eighty miles an hour, and then you
Speaker 1: get off the exit and the exit speed is forty five.
Speaker 1: It feels like you're going five or ten miles an hour,
Speaker 1: And I think that's the danger in looking at sort
Speaker 1: of uber luxury. I see it as a circuit side
Speaker 1: show and not the real, you know, the real issue,
Speaker 1: which is it's very difficult to build affordability. Affordable housing
Speaker 1: in New York is very complicated and in any urban market,
Speaker 1: and that's a challenge that's been around, you know, for
Speaker 1: for centuries. Let's stick with the topic of urban apartments
Speaker 1: that are for sale. So I'm hearing you break this
Speaker 1: into a couple of different strata. Affordable housing, which if
Speaker 1: anyone's been around Manhattan and and full disclosure, our offices
Speaker 1: are like half a dozen blocks apart in in Midtown
Speaker 1: near um Brian Park. Um affordable housing has pretty much
Speaker 1: been pushed out of Manhattan to the outer borrows. There's some,
Speaker 1: but it's becoming fewer and further between. Then there's sort
Speaker 1: of mid priced housing. And I'm hearing you really differentiate
Speaker 1: between what I think of as luxury housing, which is
Speaker 1: a nice apartment on Central Park West or somewhere on
Speaker 1: the Upper east Side with the balcony, versus these crazy
Speaker 1: uber billionaire housing and and those are two different strata.
Speaker 1: How are they managing in terms of sales and how
Speaker 1: important is that too urban centers like New York or
Speaker 1: Chicago or San Francisco and Miami and and down the
Speaker 1: line is this is this a side show or is
Speaker 1: this really a key part of the real estate market there. Well,
Speaker 1: the the circus side charm referring to is this sort
Speaker 1: of uber luxury category, which you know really starts at
Speaker 1: five million and up. The first wave of new development
Speaker 1: of financial crisis was ten million and up and then
Speaker 1: they realized, you know, that was too much, and so
Speaker 1: split the units in a half or whatever. And you're
Speaker 1: starting to see uh, you know, well you're not starting.
Speaker 1: You've been seeing you know, very slow adoption and large repricing,
Speaker 1: significant repricing from two thousand fourteen fifteen highs the balance
Speaker 1: of the market um new development is being snapped up.
Speaker 1: The lower you go in price, the faster are absorbed.
Speaker 1: So the challenges how do you create something that's affordable
Speaker 1: because the demand is there, it's just there's just not
Speaker 1: enough of it. And that's the problem. The way we
Speaker 1: sort of prime, you know, the sort of you know,
Speaker 1: the optimum new development pricing UM for like a modest
Speaker 1: two bedroom, uh, you know, it's really going to be
Speaker 1: you know, two to four million dollars when really the
Speaker 1: market demand is more like one to three. So sort
Speaker 1: of there's not quite a match because it's been driven
Speaker 1: by land prices. Land prices, you know, have been you know,
Speaker 1: historically mountain land prices have always been very high. But
Speaker 1: it's also very complicated and difficult to build in New
Speaker 1: York and it it takes a person you know, with
Speaker 1: pretty much you know, insatiable drive to develop to do it,
Speaker 1: and you know, the rewards can be very high. Just
Speaker 1: a side note, you know, uh, you know, language and
Speaker 1: how things are articulated as everything. In the nineteen fifties,
Speaker 1: the term luxury meant that you had an elevator and
Speaker 1: maybe had a doorman, like, you know, like that was luxury.
Speaker 1: You know, Today, luxury, you know is I mean, I
Speaker 1: defined luxury in any housing market I cover as a
Speaker 1: top ten percent of transactions by price. I don't. I
Speaker 1: do it in an objective way, not a sort of um,
Speaker 1: you know, a subjective way. But that market, you know,
Speaker 1: often behaves very different than the balance of the market.
Speaker 1: And you know, the market is very segmented. And I
Speaker 1: think when we look at real estate and talk about affordability,
Speaker 1: we tend to sort of look to the very high
Speaker 1: end as sort of a reason. But you know, when
Speaker 1: you have a one bedroom apartment in Manhattan, sort of
Speaker 1: an average one bedroom in a modest building sell for
Speaker 1: a million five, right as sort of an average. You
Speaker 1: know that's that's a big number. But but it does
Speaker 1: have an elevator, right, I mean, so it's worth have
Speaker 1: an elevator, and does have a doorman, and and you
Speaker 1: can it does have a you have a bathroom in
Speaker 1: your apartment. You know, you definitely have the basics. There's
Speaker 1: no doubt that top ten is different than the rest
Speaker 1: of the market. And you and I had a conversation
Speaker 1: a long time ago where we discussed mortgage rates are
Speaker 1: just not relevant to that market segment right until the pandemic.
Speaker 1: So I'm exaggery a little bit when I say that. So,
Speaker 1: so the way to think of Manhattan inaggregate, all the
Speaker 1: sales transactions are in any given year, we have got
Speaker 1: seven years of data are about cash, meaning that they
Speaker 1: bring cash to the closing. Now, they could have gotten
Speaker 1: financing in Ireland and brought the cash over, but you know,
Speaker 1: we mostly see that it's mostly no. So I don't
Speaker 1: know if we discussed a buddy lives on Central Park West,
Speaker 1: and he was trying to do a refinance of his
Speaker 1: mortgage and he found it incredibly problematic, and and he
Speaker 1: was working his way through. This is when rates first collapsed,
Speaker 1: and he went to the head of the co op board,
Speaker 1: was a buddy his, and said, hey, what what's the problem.
Speaker 1: Why are you guys having such a hard time with
Speaker 1: all this paperwork? And the guy paused and said, I
Speaker 1: won't mention his name, but he said, you're the only
Speaker 1: person in the whole building that has mortgage. The entire building,
Speaker 1: not too far from the Dakota, everybody was a cash buyer.
Speaker 1: Just to give you a sense of wealth at that level,
Speaker 1: nobody is borrowing for their primary residence there. How much
Speaker 1: is twelve million? Alright? Alright, you check right exactly, and
Speaker 1: it's not there, right, And they have multiple residences. So
Speaker 1: the way to think of it is when he before
Speaker 1: the pandemic, you split cash fires the market, and there
Speaker 1: they scale by price. So the more reliant users on
Speaker 1: financing tend to be at the lower end of the
Speaker 1: price spectrum. So when you talk about under a million dollars,
Speaker 1: you know roughly of those buyers rely on a I'm sorry,
Speaker 1: pay cast get a mortgage. On average, as you move
Speaker 1: to say the upper end, like north of five million,
Speaker 1: it's around eight, pay cash and get financing. But I
Speaker 1: would argue that they get financing, don't do it for
Speaker 1: the purchase. They do it because their financial planner said
Speaker 1: they can get a deduction. Um. And what has happened
Speaker 1: post pandemic, and I think this is a temporary blip,
Speaker 1: is that the numbers have shifted a little bit, and
Speaker 1: that even you know, instead of eight people paying cash
Speaker 1: at the top, it's like seventy dropped about ten. Just
Speaker 1: because rates are so low, how could you not take
Speaker 1: advantage of them at that you know, even at that
Speaker 1: price point. Um. And because the market has been so
Speaker 1: soft at the top that you don't need that to
Speaker 1: differentiate you from other buyers like you did five six
Speaker 1: years ago. Um, you know, by paying cash and having
Speaker 1: a mortgage or mortgage contingency. We're starting to see we're
Speaker 1: starting to see um uh you know, uh, well, we're
Speaker 1: continuing to see um bidding wars. Even during the pandemic,
Speaker 1: we saw bidding wars at about about three and a
Speaker 1: half percent of the Manhattan transactions, which seems like a lot,
Speaker 1: But in two thousand and fifteen it was much like
Speaker 1: the suburbs are today. Um. But we are seeing some
Speaker 1: upward price pressure now and some of the segments um
Speaker 1: that are that are you know, we're starting to see
Speaker 1: a little bit more intensity because inventory, which was bloated
Speaker 1: during the lockdown, has come down and it's just about
Speaker 1: ten twelve percent above the long term norm. So we're
Speaker 1: not really dealing with the market that's just lousy with inventory.
Speaker 1: It's really tightening up a bit. So I have two
Speaker 1: last questions related to cities, and the first is we
Speaker 1: started talking about office space. Let me let me ask
Speaker 1: that question in a different way. Would you be a
Speaker 1: buyer of commercial real estate in the city. Have those
Speaker 1: prices fallen enough that doing conversions are financially attractive, including
Speaker 1: to those pension funds and institutional investors that are looking
Speaker 1: at real estate, or has that reconfiguration has that reset
Speaker 1: not taken place yet? So? Uh So, when you think
Speaker 1: about a real estate trends action or real estate market
Speaker 1: and how you get to the point where prices are
Speaker 1: much lower, uh there's always a step missing in this process.
Speaker 1: And we're in the middle of this step. And I'll explain.
Speaker 1: So think of it this way. There's an external event
Speaker 1: and sales activity plummets because of whatever you know, think
Speaker 1: of COVID, right, So so transaction activity plummets, whether it's
Speaker 1: leasing or you know, office building purchases, it plummets. So
Speaker 1: what happens right after that inventory kicks up a lot, right,
Speaker 1: you know, supply and demand going opposite directions. And so
Speaker 1: the next assumption, the next step is that prices fall
Speaker 1: except for the part where the seller has to capitulate
Speaker 1: to market conditions, and that takes a couple of years.
Speaker 1: It's like to think of a you know, a seller
Speaker 1: in you know, your neighborhood and they wildly you know,
Speaker 1: you know, they they the market plunges, you know, the
Speaker 1: factory closes, that supports all the jobs in the town,
Speaker 1: and they don't reset their price because for you know,
Speaker 1: they've had this built an idea for a long time.
Speaker 1: And I think that's what's happening with commercial landlords where um,
Speaker 1: you know, where there's gonna be an aftermath that's going
Speaker 1: to be different. Um. The problem right now is that
Speaker 1: it's and there's a lot of funds, there's a lot
Speaker 1: of money being raised to sort of scavenge, you know,
Speaker 1: the dead carcasses. But I think that's a multi year
Speaker 1: process down the road. And the reason for that is
Speaker 1: because it takes a while for the landlords to capitulate.
Speaker 1: Other thing is, you know they had they're locked in
Speaker 1: with tenants you know that might have five years left
Speaker 1: at a full you know, you know pre COVID sort
Speaker 1: of rate. Uh. And so I think this is going
Speaker 1: to play out in sort of slow motion, is my guess.
Speaker 1: One thing I'll say about remote work and you know,
Speaker 1: right now, I like to say we're at peaks zoom. Um.
Speaker 1: And so this is not how it's gonna be for
Speaker 1: our office workers. But it's not going to be the
Speaker 1: way it was pre COVID. It's going to be somewhere
Speaker 1: in between. And we're trying to figure out where that is. Um,
Speaker 1: the same goes as landlords. You know that that uh
Speaker 1: you know office space. Um. We've proved that remote working
Speaker 1: actually works, but it's not optimal. It's very difficult to
Speaker 1: you know, train new people, uh, you know, to create
Speaker 1: office culture. You know. So it's it's it works, but
Speaker 1: it's not perfect. Uh. And after COVID, like I said earlier,
Speaker 1: it's still here. As an option. So we're going to
Speaker 1: see downsizing and we're going to you know, but we're
Speaker 1: also going to see at the lower rents are going
Speaker 1: to see an influx. I call it a youth renaissance UM.
Speaker 1: And that's what I'm kind of excited about about, you know,
Speaker 1: for cities is you know, one of the challenges of
Speaker 1: the urban of urban markets was, you know, the whole
Speaker 1: new urbanism trend. You know, walkability, you know your your local,
Speaker 1: you know you're you live through or four blocks from
Speaker 1: your officer. It's easy rite on public transportation, grocery and
Speaker 1: any shopping is went in like a two or three
Speaker 1: block radius. The problem is is that, uh, as development
Speaker 1: expanded in cities across the country, their creative class, the
Speaker 1: working working class were completely squeezed out. And so we're
Speaker 1: you know a lot of office workers where they had
Speaker 1: to live in the suburbs and then sort of commute
Speaker 1: in UM. And so what's happening now with rents down
Speaker 1: sharply and sales to a lesser degree because they're down
Speaker 1: modestly in terms of pricing, UM, you're already seeing we've
Speaker 1: been seeing record inbound or we've been seeing record new
Speaker 1: leasing activity like the highest sense of financial crisis for
Speaker 1: like the last five or six months. But prices are
Speaker 1: still falling, and that's pulling in a whole new sort
Speaker 1: of demographic. Uh that I think we'll have profound implications
Speaker 1: for the rejuvenation of the city sort of you know,
Speaker 1: I'm calling it like a youth renaissance, and that applies
Speaker 1: to companies, uh, companies that wouldn't be able to afford
Speaker 1: class A office space now that people left, you know,
Speaker 1: holding the bag. Here are landlords who have enjoyed a
Speaker 1: tremendous advantage for a long time. But I think, you know,
Speaker 1: for the mid for the short and mid term, I
Speaker 1: think that you know, it's going to be a very
Speaker 1: challenging world for them, to say the very least. I
Speaker 1: was kind of surprised we were in the city this weekend.
Speaker 1: On Saturday, I actually took my wife and her sister
Speaker 1: down to a renovation hardware which is down in the
Speaker 1: mid packing district. Um. Of course, my sister in law
Speaker 1: wanted to play a dining room table, but wanted to
Speaker 1: see it first, And I was shocked about a number
Speaker 1: of things. First, I was shocked that I was able
Speaker 1: to pull up and get a parking space half a
Speaker 1: block away, which was unheard of. And then second, um,
Speaker 1: I try to get lunch reservations. Like days before, everything
Speaker 1: in the neighborhood with outdoor seating fully booked up, which
Speaker 1: is a positive economic sign. And then when we were leaving,
Speaker 1: I was shocked at how parts of the village in
Speaker 1: Soho were just Now Saturday was beautiful out but it
Speaker 1: was just jam packed with people. It was it was
Speaker 1: a party going on, mostly young people out and about,
Speaker 1: mostly masked. That's a whole another discussion. But the town
Speaker 1: was a ghost town and downtown was just full bore.
Speaker 1: Is that a residential versus office comparison? Because I didn't
Speaker 1: know how how else to read into it. When you
Speaker 1: come through the Ton One, you make you way down
Speaker 1: to the you know, the meatpacking district on the lower
Speaker 1: West Side, you pass through three or four different types
Speaker 1: of neighborhoods, and granted Midtown is usually quiet on the weekends,
Speaker 1: but this was really quiet, especially Soho was just banging.
Speaker 1: It was amazing, right, So so I look at this
Speaker 1: as the way I describe what you just said was
Speaker 1: Manhattan and cities in general have an optics problem. And
Speaker 1: so when you think about like a story on Manhattan
Speaker 1: or San Francisco or you know Chicago. Uh, you know,
Speaker 1: the center business district. The camera pans over the vacant,
Speaker 1: boarded up retail and piles of garbage, and you say, wow,
Speaker 1: you know this is this represents Manhattan or Chicago or
Speaker 1: and then you go to like the Upper East Side
Speaker 1: or you know another number of all the residential neighborhoods.
Speaker 1: They're vibrant. It's not normal. You know, everybody's wearing a mask,
Speaker 1: but there's a lot of activity, a lot of outdoor
Speaker 1: dining in the nice weather, and it it just it's encouraging,
Speaker 1: but it's it's a it's a complete opposite visualization of
Speaker 1: what you're seeing in the central business districts. And um,
Speaker 1: and I think that changes over time is more and
Speaker 1: more people come in. I think the big sort of
Speaker 1: pivot point is going to end up being around September,
Speaker 1: but maybe earlier, because that seems to be when Corporate
Speaker 1: America is talking about calling their employees back. Uh. You know,
Speaker 1: and I think this is a function of the acceleration
Speaker 1: of vaccine adoption. Um. You know that that seems to
Speaker 1: be the default answer, but you started to hear some
Speaker 1: financial firms talk about I think it was Credit Sweez
Speaker 1: and SAP and UM. I think it was JP Morgan
Speaker 1: or Bank of America where talking about July June may
Speaker 1: as really starting to ramp it up. And two things
Speaker 1: happen when that happens in the context of central business
Speaker 1: districts like you know, Wall Street or Midtown. Is that, uh,
Speaker 1: you immediately send oxygen to street level retail, which you know,
Speaker 1: thousands and thousands of office workers are not in that
Speaker 1: locale and all of a sudden they are. So that's
Speaker 1: gonna that I think they'll be rapid deployment or resurgence
Speaker 1: in retail. I'm not saying it goes back to pre pandemic,
Speaker 1: but it's improved dramatically and a fairly fast clip. And
Speaker 1: then the other thing is I think that you know,
Speaker 1: the rental markets in the central business districts are going
Speaker 1: to boom um in the short term as this callback
Speaker 1: happens um uh, which then sort of rings up the
Speaker 1: sort of aggregate numbers of you know, the various markets
Speaker 1: that we cover in terms of you know, real estate activity.
Speaker 1: And I think that's and so I look at as
Speaker 1: this sort of you know, gradual process as opposed to
Speaker 1: some sort of light switch. But I think the closest
Speaker 1: we get to a light switch is when corporate America
Speaker 1: feels safe enough or their employees feel safe enough to
Speaker 1: start calling people back on mass recognizing that it's not
Speaker 1: going to be everybody, but it's going to be dramatically
Speaker 1: more than we are seeing right now. And I think
Speaker 1: people when they think about remote working, they sort of
Speaker 1: stereotype it as you're sitting in your suburban house and
Speaker 1: you're working remotely with your colleagues, you know who may
Speaker 1: or may not be in the office in midtown, for example.
Speaker 1: But I gotta tell you a lot of the remote
Speaker 1: work that's going to happen, I think it's going to
Speaker 1: happen uh in um in the city itself. Just because
Speaker 1: someone say works at home, wants to work at home
Speaker 1: for a couple of days a week. Well, they may
Speaker 1: live in you know, Washington Heights to the Upper East
Speaker 1: Side or soho, and they're still doing that. So it's
Speaker 1: not working. Remote shouldn't be sort of pigeonholed as suburbs
Speaker 1: into sort of you know cities. Um, it's it's it's
Speaker 1: everywhere into you know where these companies are located. Very interesting.
Speaker 1: So last question on the segment on cities, when do
Speaker 1: you go back to the office and when do you
Speaker 1: have your staff come back? So right now our staff
Speaker 1: is already h you know, I'd say we're about back,
Speaker 1: but alternating, we have a schedule so we don't have
Speaker 1: too many people in at the same time. You know,
Speaker 1: we have some people that live within walking distance, I
Speaker 1: don't want to They love their spouse, but they don't
Speaker 1: want to sit in their one bedroom apartment, whether they're
Speaker 1: both working all day or they have small kids and
Speaker 1: they alternate or whatever. Um, So that's uh so that's
Speaker 1: already happening. I'm very anxious to get back in personally,
Speaker 1: but I'm gonna start it slow. I live in Connecticut
Speaker 1: and I'm a commuter, and I've had Yesterday was the
Speaker 1: two week anniversary of my second COVID shot, So I
Speaker 1: feel much better about coming in as well, you know,
Speaker 1: and I'm anxious to. So starting in May, I'm probably
Speaker 1: gonna come in one or two days a week as
Speaker 1: a regular schedule. And and before the pandemic, for the
Speaker 1: last like twelve or thirteen years, I was only coming
Speaker 1: in three days a week. I was working at home.
Speaker 1: I was already working at home on Mondays and Fridays. UM,
Speaker 1: and so now you know, I end up coming in
Speaker 1: two days a week. That's sort of probably the maybe
Speaker 1: stay at home one day than I normally would. We're
Speaker 1: going to take mass transit, gonna take mass mass transient,
Speaker 1: mass transit, you know where the masks try to stay
Speaker 1: away from IM and still be even though I've had
Speaker 1: the had both doses, I'm still going to be very cognizant.
Speaker 1: First of all, Um, you know, there's still risk uh
Speaker 1: and and there's still a lot unknown. Um, But I
Speaker 1: want to start going back in and I'm just going
Speaker 1: to be very um prudent about it. Uh. And I
Speaker 1: think most of my staff feels the same way. We're
Speaker 1: probably not going to have everybody in for you know,
Speaker 1: probably not till the fall. And and what we found
Speaker 1: is that the remote really works. But the big, big,
Speaker 1: big challenge of it, and where it doesn't work, where
Speaker 1: it fails is mentorship. You know, we're really busy, we
Speaker 1: anticipate being very busy for the next couple of years.
Speaker 1: Were desperately trying to hire people and um, but you
Speaker 1: can't train them remotely. You can't, you know, they're not
Speaker 1: immersed in the office and overhearing you know, all the
Speaker 1: problems solving with valuation questions. So it's really, uh, it's
Speaker 1: really a dilemma that we face, but you know, safety
Speaker 1: always comes first. Quite fascinating. Let's talk a little bit
Speaker 1: about something you've been writing about for a long time.
Speaker 1: And there are two key issues here I wanna touch on.
Speaker 1: One is racial prejudice in the housing market. And then
Speaker 1: more specifically, the topic you've been writing about is issues
Speaker 1: of racial inequality and lack of diversity within the housing
Speaker 1: industry itself. You've been a pretty vocal critic of your
Speaker 1: own industry when it comes to this. Tell us what's
Speaker 1: wrong with the housing industry? So, yeah, if you if
Speaker 1: you think back to the nineteen thirties and think about
Speaker 1: the federal government and the redlining that was prevalent um
Speaker 1: and the deed restrictions covenants that uh, we're in place
Speaker 1: for housing in housing markets throughout the United States. I know,
Speaker 1: the Northeast, you know where I've grown up and live
Speaker 1: as live now. Uh, you know big part of the
Speaker 1: history of housing and how housing markets grew and were shaped,
Speaker 1: and so one of the things that is extremely obvious
Speaker 1: in my own appraisal profession is that we are an
Speaker 1: aging professional of middle aged white males. UM. That is
Speaker 1: what we are. And the reason we are is because
Speaker 1: the leadership in our industry is UM UH sort of
Speaker 1: sets the tone and and so giving an example, UH,
Speaker 1: to be a license or certified appraiser, UH, you have
Speaker 1: to follow standards called use PATH United US Professional Praisal
Speaker 1: Practice Standards of Professional Praisal Practice. It's called us PAP
Speaker 1: and and the problem with use PAP is that the
Speaker 1: organization that administers it or or sets its basically sets
Speaker 1: the you know, sets the criteria for entering into the profession.
Speaker 1: You know, what's how to behave. UH. They have technical
Speaker 1: boards for specific things and one of them is called
Speaker 1: the a QB and the Appraisal Qualifications Board. And from
Speaker 1: this organization's founding because appraisers weren't licensed, UM became the
Speaker 1: licensing UH. Licensing requirements really started in the early nineties
Speaker 1: with FI RHEA and UH and and really are UH.
Speaker 1: There's been no change. So, for example, the a QB
Speaker 1: has not had a minority member until this year, and
Speaker 1: only because of external pressure from myself and others that
Speaker 1: have been writing about this. They literally set these these
Speaker 1: standards for entry into the profession, which is anemic, has
Speaker 1: been anemic for the last twenty years. Uh, and so
Speaker 1: we're aging out. And the reason for that is I
Speaker 1: think it's just blindness that they don't realize. So they
Speaker 1: set up a diversity committee and white guy yeah, which
Speaker 1: is insane, and that what that tells you is they
Speaker 1: can't see it. Right. Um. I think there's been a
Speaker 1: lot of sort of um, there's been I believe it's
Speaker 1: three stories that are being recycled over and over nationwide
Speaker 1: about you have you know, um a an African American
Speaker 1: couple refinancing their house or some example like this. There
Speaker 1: was one in the story made described in Florida, a
Speaker 1: northern California. I forget where the other one was, but
Speaker 1: it's all the same sort of idea where where the
Speaker 1: appraiser comes in and they appraise it for X, and
Speaker 1: then the the homeowner you know, has their their non
Speaker 1: minority uh neighbor come in and act like they're the
Speaker 1: you know, the occupant, and they take down all sort
Speaker 1: of personal photos and then magically the home appraises for
Speaker 1: more and they're able to get their mortgage etcetera. You know,
Speaker 1: because you know that you know, and it's sort of
Speaker 1: you know, uh, you're you're basically saying, look, you know,
Speaker 1: this was a prejudiced outlook on the value and UM.
Speaker 1: And I think in a lot of those cases, you know,
Speaker 1: and who knows, I'm sure this is one of those
Speaker 1: things that happens a lot. It certainly happens in the
Speaker 1: brokerage industry. There was just a big Newsday UM story
Speaker 1: last year. UM, you know, sort of an undercover type story.
Speaker 1: So it is prevalent. It's prevalent in I would suspect
Speaker 1: every industry, uh, because systematic racism is is here. It's
Speaker 1: you know, it's it's here. It's just one of the
Speaker 1: things that society is sort of grappling with. UM. But unfortunately, uh,
Speaker 1: you know, it's it's in my industry. It's a big thing.
Speaker 1: And there's nothing that is it's all lip service. It's
Speaker 1: all just I call it like checking the box. Okay,
Speaker 1: we have a diversity committee, check that box. But there's
Speaker 1: nothing inherently different. It's the same people that have been
Speaker 1: in charge for all over three decades and they just
Speaker 1: realized now it's a problem only because outsiders are telling
Speaker 1: him it's a problem. We have the same issues with
Speaker 1: our largest trade group, the Appraisal Institute, where uh, you know,
Speaker 1: a handful of women and no minority representatives. Uh, you
Speaker 1: know as senior executives. Uh. It's just an inherent, systematic,
Speaker 1: systemic problem. Um. But it's being blamed on the local appraisers. Um,
Speaker 1: you know, as like that's the reason. And I think
Speaker 1: it's more top down. It's you know, the people that
Speaker 1: are attracting people to the profession and people that are
Speaker 1: setting the standards for entry. I think I think one
Speaker 1: of the biggest problems in the our industry is that
Speaker 1: unlike being an accountant, until you have two years of
Speaker 1: experience full time, you can't be licensed, can't be certified.
Speaker 1: So it's can you see the catch twenty two had
Speaker 1: license are certified unless that person is like a family friend.
Speaker 1: Because on the economic side, since the financial crisis and
Speaker 1: thanks to dot frank UM, in order to remove moral
Speaker 1: hazard from mortgage lending, a lot of the appraisal functions,
Speaker 1: like the ordering of appraisals, the reviewing of appraisals has
Speaker 1: been shifted to giant third party UM institutions who take
Speaker 1: half the fee. So so you know, you on your
Speaker 1: mortgage application, take pay X dollars and don't realize that
Speaker 1: fift that dollar goes to a third party company that
Speaker 1: all they do is make sure your license in your state,
Speaker 1: make sure that you're compliant with whatever regulations are, and
Speaker 1: that's it. So you're gonna you can't attract new people
Speaker 1: in because the compensation has you know, fallen through the floor.
Speaker 1: And then the regulations that we have are created by
Speaker 1: people that are completely immune to what the challenges are.
Speaker 1: And so we're really at a crossroads where a lot
Speaker 1: of this stuff is being pointed out in public, but
Speaker 1: it's you know, it's been built in for a century.
Speaker 1: There nearly a cential over a century, but in specifically
Speaker 1: the housing uh and there's no sort of proactive response.
Speaker 1: So people like myself and others have been very vocal
Speaker 1: about it, naming names, you know, you know, feeding the
Speaker 1: public intel about what's going on to try to affect
Speaker 1: some sort of change, to bring more diversity and more
Speaker 1: people into uh different you know, real estate industries. And
Speaker 1: that's been my passion for quite a while. So it's
Speaker 1: funny you mentioned most people who who are in the suburbs,
Speaker 1: you don't realize most white families probably don't realize how
Speaker 1: systemic it is. And and the moment when I realized
Speaker 1: I was reading one of the biographies of Robert Moses,
Speaker 1: where and who Robert Moses was a famous builder who
Speaker 1: who had done parks and beach are just you know,
Speaker 1: all over New York State. His fingerprints are everywhere, highways
Speaker 1: and bridges and just endless infrastructure projects. And in the
Speaker 1: New York area there are highways and parkways and what
Speaker 1: separates them is the parkways or cars only you can't
Speaker 1: have trucks on it. And they have these beautiful stone
Speaker 1: archway UM. I know that some of these are in Connecticut,
Speaker 1: also in Westchester, these archway overpasses, and I just thought
Speaker 1: they were pretty. It was only reading one of his
Speaker 1: biographies that I learned that these were designed to keep
Speaker 1: buses from the city from going to the suburban parks, beaches, etcetera,
Speaker 1: which at the time were all white. And I had
Speaker 1: no idea it was literally a physical impediment to keep
Speaker 1: urban dwellers out. It was. It was a sort of
Speaker 1: shocking moment when I learned that you've criticized the National
Speaker 1: Appraiser Board UM and I've read some stuff about the
Speaker 1: National Association of Realtors. What what's going on with these
Speaker 1: big umbrella organizations. Aside from just the total lack of
Speaker 1: diversity in their membership right right, they're definitely challenging the
Speaker 1: It's you know interesting the story just told. Uh that
Speaker 1: was in The Power Broker by Robert Carroll. That's the
Speaker 1: book I was thinking. And that is the first book
Speaker 1: I've read when I moved to Manhattan, and uh, and
Speaker 1: I just felt like I had to know how the
Speaker 1: city was built. And it was a spectacular read. Highly
Speaker 1: recommend it. Um. You know, I think, uh, in when
Speaker 1: you think about the real estate world, the real estate community,
Speaker 1: they're still um these trades. You know, you have to
Speaker 1: remember that these are trade groups, so they're doing everything
Speaker 1: to help their members sell more, you know. And and
Speaker 1: so I think when we look at nar National Association
Speaker 1: of Realtors, they have I believe they spend I I thought,
Speaker 1: I read this recently that they have the highest like
Speaker 1: spend per lobbyists in Washington or one of the top people.
Speaker 1: And you know, their whole thing is to make real
Speaker 1: estate transactions easier and faster. Um. I you know, when
Speaker 1: we saw it when we this News Day story on
Speaker 1: Long Island, I would imagine that's the default everywhere that's
Speaker 1: not Long Island is not, you know, an outlier UM,
Speaker 1: and there's there's just not a lot of insider discussion
Speaker 1: about how to fix this, just like there isn't in
Speaker 1: the real estate appraisal community, which is a tiny sliver
Speaker 1: UM my profession has about seventy five thousand credentialed members
Speaker 1: across the US. Uh NAR has like a million, four million,
Speaker 1: five members. I believe UM dramatically bigger, tremendous lobbying power,
Speaker 1: and they do have an appraisal UH sort of subset
Speaker 1: within the organization that has done some really good work,
Speaker 1: but still the problem remains not nationally UM UH. And
Speaker 1: you know, it's really interesting. There was a study that
Speaker 1: was done by the Brookings Institute Institute like two or
Speaker 1: three years ago that was part of a court testimony,
Speaker 1: a quirk systimony rarestional testimony in Washington, which basically said
Speaker 1: that UM appraisers like it didn't understand what appraisers do.
Speaker 1: And I think this is one of the big biggest
Speaker 1: challenges in valuation is everybody really knows what a real
Speaker 1: estate agent does. But they don't know what a real
Speaker 1: estate appraiser does and that and that makes us sort
Speaker 1: of you know, we get blamed for a lot of things.
Speaker 1: And one of the blame, and we were seeing this
Speaker 1: in a lot of articles in the public, is that, um,
Speaker 1: we're the ones that set pricing in a in an
Speaker 1: in a neighborhood or a city. Um. And the problem
Speaker 1: is is that our profession is really a profession of observers,
Speaker 1: and we create opinions for a living, so certainly vulnerable
Speaker 1: to prejudice in that regard. But our our goal is
Speaker 1: not to set markets. Our charge from learning institutions that
Speaker 1: we do appraisals for is to give a market value
Speaker 1: opinion on what the property would sell for if it's
Speaker 1: sold for today, you know what what is it? And um,
Speaker 1: we don't say, you know, we don't make a neighborhood
Speaker 1: lower priced, because there's what we're literally using sales from
Speaker 1: the neighborhood. So maybe it perpetuates the problem, but the
Speaker 1: larger problems and there's this really miss a big misunderstanding
Speaker 1: about you know, the role that we play and other
Speaker 1: people play, um in the industry. And I'm telling you,
Speaker 1: you know, there's a long way to go, and it
Speaker 1: needs to happen quickly because it's long overdue. Right. That's
Speaker 1: funny you mentioned that. The one accusation is you're you're
Speaker 1: helping to hold prices down during the financial you're leading
Speaker 1: up to it. Anyway, the criticism of appraisers were, well,
Speaker 1: they're using comparable so if a neighborhood is becoming a
Speaker 1: bubble in price, well they're doing is saying, look, all
Speaker 1: these other comparable sold for crazy prices, so therefore you
Speaker 1: could give them a mortgage for this crazy price. Right,
Speaker 1: I mean you know that, and you're absolutely right. And
Speaker 1: this is part of the problem is that we're not forecasters.
Speaker 1: We're not predicting the future. We're saying, here's something that's
Speaker 1: sold yesterday for this price. Uh, three way bidding war.
Speaker 1: So what is the collateral work today? The offset to
Speaker 1: that is the credit profile of the consumer. That's by
Speaker 1: which we have nothing to do with. UM. If we
Speaker 1: were in the forecasting business. Uh, and there is a
Speaker 1: more liability attached to our UM. You know what we're
Speaker 1: writing about then, UM, you know, the costs of an
Speaker 1: appraisal would be you know, five top four or five
Speaker 1: times what it is now. Which i'd gladly, I'd love that,
Speaker 1: but that is not what the mortgage sort of machine wants.
Speaker 1: They want cost to be nominal UM. And in fact,
Speaker 1: during this sanchial, during this pandemic, the g s S,
Speaker 1: which arguably you know, have about mortgage flow through their hands,
Speaker 1: UM about something like seventy something per cent of mortgages
Speaker 1: that were issued during the pandemic did not have an appraisal.
Speaker 1: They were they were just you know, they ran their
Speaker 1: sort of their own estimate UM against their own you know,
Speaker 1: there's there's estimate would be the consumer facing a b
Speaker 1: M or automated valuation model UM and they're running their
Speaker 1: own so you know, that could be a nice little
Speaker 1: mortgage challenge down the road. But UM, but what's really interesting,
Speaker 1: and this is something that's off topic, but when we
Speaker 1: think about estimates or a b M S and their accuracy,
Speaker 1: if you ask most consumers, and I find this amazing,
Speaker 1: you know, this estimate has a median accuracy rate of five. Okay,
Speaker 1: so when you really think about they here five and like, wow,
Speaker 1: within five, UM, that's that's amazing, Except for when you
Speaker 1: actually read what they're saying. That means that the median
Speaker 1: accuracy that means fifty percent of the time it's within
Speaker 1: five and of the time it's not. It's pretty wide.
Speaker 1: And that's basically the A B M world that is uh,
Speaker 1: you know, the idea of automation UM so you know,
Speaker 1: which is something that we're sort of migrating towards over time,
Speaker 1: quite fascinating. So point blank, our our home prices in
Speaker 1: a bubble now, I don't think so. And the reason
Speaker 1: is we don't have that help we got from the
Speaker 1: mortgage industry in terms of when you don't qualify for
Speaker 1: a loan, you can't get one, and M one of
Speaker 1: the things if you look macro mortgage volume is in
Speaker 1: the US has in terms of like the average loan
Speaker 1: amount has not kept pace with home prices. So actually
Speaker 1: we're not as we're becoming less leveraged, even though you know,
Speaker 1: there's a tremendous amount of sales activity and prices are
Speaker 1: ramping up um as opposed to Canada, which it's the opposite,
Speaker 1: which we're seeing mortgage volume rise faster than uh it's
Speaker 1: associated housing volume. So you know, maybe this go around
Speaker 1: they're going to have the problem that we did that
Speaker 1: they didn't have in our housing bubble um and so
Speaker 1: I and I think the one thing that's good to remember,
Speaker 1: and something I just I've discussed before is that mortgage
Speaker 1: underwriting is not normal. It is tighter. You know, if
Speaker 1: you go prior to the housing bubble era and then
Speaker 1: and then go thirty years prior to that and use
Speaker 1: that as the standard, we're tighter than that era. So
Speaker 1: I feel very good about that. We deal with lenders
Speaker 1: all the time. Uh, and there's you know, there's a
Speaker 1: lot of seriousness applied to marketing and in fact, uh,
Speaker 1: you you definitely are seeing lenders could be lending more,
Speaker 1: but they are not. Uh, they are not on the
Speaker 1: same page because as they were in the past, because
Speaker 1: they're they're worried about the future and the future risk.
Speaker 1: And I think that's really encouraging because to me, it
Speaker 1: suggests you know, and you know, we we we know
Speaker 1: that each new each time it's different. But um that
Speaker 1: that I it doesn't seem like we have a mortgage
Speaker 1: or a banking crisis, you know, laying at our doorstep.
Speaker 1: That's obvious. Uh. And and you know, I think that
Speaker 1: at some point we're going to see you know, home
Speaker 1: sales activity dissipate simply because you know, financing is going
Speaker 1: to become a problem. So this is a crazy new
Speaker 1: era where in order to get a mortgage you have
Speaker 1: to qualify for one, have an income abated history and
Speaker 1: a down payment. Um. So obviously it's different than it
Speaker 1: was in oh, five, six seven. But the flip side
Speaker 1: of that is how much of this is interest rates driven?
Speaker 1: And what happens if rates start to tick up and
Speaker 1: what else might cool off this market? Yeah, I you
Speaker 1: know it's funny. I I always hate the blame or
Speaker 1: the driver on low mortgage rates just because you know,
Speaker 1: rates have been falling for over thirty years, and housing
Speaker 1: prices have gone up and down, and volume has gone
Speaker 1: up and down to the psycho, So there's lots of
Speaker 1: other factors and mortgage rates people that sort of track
Speaker 1: it and live and die by it. Um, you know
Speaker 1: they missed a lot of the color. You know. You
Speaker 1: know that sort of results in the pricing, uh decision
Speaker 1: that buyers ultimately make. But it is UM, I just
Speaker 1: think you can't go wrong when you when you have
Speaker 1: lenders sort of leaning away from risk when it comes
Speaker 1: down to this. So I'm not I'm just not that. UM,
Speaker 1: I'm just not that concerned about it. I think things
Speaker 1: will cool off activity when we hit a certain level.
Speaker 1: I've read that about people that have a mortgage in
Speaker 1: the US have a rate that's four or less and
Speaker 1: uh and so I uh and this actually came from uh,
Speaker 1: my friend Ivy's element its element and social uh and
Speaker 1: the uh. So I start thinking of if we top
Speaker 1: you know, that's when we starts seeing like an off
Speaker 1: switch being flipped or you know, for the sort of
Speaker 1: extra activity that we've been in the market's been enjoying. Um,
Speaker 1: you know, with the rate dra um. But that's amazing,
Speaker 1: it's it's it's kind of shocking that that many people have,
Speaker 1: you know, are that low. So when we bought this house,
Speaker 1: and I want to say, it was so it's about
Speaker 1: seven I know it's fourteen. It's about seven years ago.
Speaker 1: People thought I was crazy when I said I'm going
Speaker 1: to do the variable mortgage, even though it was at
Speaker 1: the low low rate of three point seven five. And
Speaker 1: it's since slipped just under three percent. And I'm interest
Speaker 1: about the point where I'm ready to say, okay, let's
Speaker 1: convert this to a to a to a fixed rate mortgage.
Speaker 1: But I remember having people say to me, you're doing
Speaker 1: a variable at three seven five, I'm like, well, as
Speaker 1: soon as you can show me signs that rates are right, Well,
Speaker 1: that happens all the way down to zero. And you know,
Speaker 1: even if it ticked up, there's a hundred and fifty
Speaker 1: basis point limit and you could always convert it to
Speaker 1: to fix back then. But I didn't think I was
Speaker 1: taking a big chance with that. Um the And and
Speaker 1: what I've noticed is I've seen increased solicitations now for
Speaker 1: refinancial mortgage. Those are taking it in right absolutely, and uh,
Speaker 1: you know it's interesting because there's a lot made and
Speaker 1: I don't quite know the answer this, but there's a
Speaker 1: lot made on you know. One of the points you
Speaker 1: brought up is, you know, you know what's inventory? Like
Speaker 1: is it? You know why we have so little of it?
Speaker 1: And one of the reasons I don't know if I
Speaker 1: and I'm sure there's a study, I've never seen one,
Speaker 1: but you know, one of the reasons now for low
Speaker 1: inventory is people don't want to give up their low rate.
Speaker 1: You know that they're not quite and and I I
Speaker 1: don't know, I hear that kind of you know, it
Speaker 1: sounds it sounds logical until you really think about it,
Speaker 1: and I I quite quite there. Yet You're can roll
Speaker 1: out of a three percent to a three point five
Speaker 1: percent that's gonna affect you moving, So you're not going
Speaker 1: to move because it made no sense another bedroom or whatever.
Speaker 1: But that's used. That logic has used a lot, and
Speaker 1: I I need to be better educated about it because
Speaker 1: I'm not buying it. So you men mentioned the z estimate,
Speaker 1: which is the Zilo estimate. But there's now a whole
Speaker 1: new world of eye buyers and open Doors and even
Speaker 1: Zillo that had gone from mirror apps to facilitate transactions
Speaker 1: to actually becoming buyers. Tell us what's going on in
Speaker 1: that world? You you were involved with one of those
Speaker 1: apps some time ago, weren't you? Yeah? I was. I
Speaker 1: was on the Truly Industry Advisory Board a year before
Speaker 1: they had or before they had a website, UM, and
Speaker 1: they came out a year after a Zello and then
Speaker 1: by two thousand fourteen they essentially merged or you know
Speaker 1: air quote, Uh we're bought by Zillo and UM and
Speaker 1: then you know, I was out, But I m I
Speaker 1: learned a lot behind the scenes, and uh, you know,
Speaker 1: in many ways it seems like uh, you know for
Speaker 1: those listeners that aren't aware. But an I buyer is
Speaker 1: essentially a company comes to you and buys your house
Speaker 1: from you. You don't put it on the market. They
Speaker 1: give you an offer, they factor in repairs, there's a
Speaker 1: bunch of charges and um, you know, for many sellers
Speaker 1: it's actually more than a commission might be if you
Speaker 1: sold for the same price. But there's a convenience. You
Speaker 1: don't have to show your house you have to let,
Speaker 1: especially during you know this period of you know, pandemic
Speaker 1: and all that. Uh and so when it first when
Speaker 1: and I've heard a presentation by open Door at a
Speaker 1: at a conference I was at before the pandemic, and
Speaker 1: it's pretty impressive. But it hope he struck me as
Speaker 1: because the margins are razor thin. Um that it only
Speaker 1: will work in a homogeneous housing market like think of
Speaker 1: Phoenix or Las Vegas. You know where these firms really
Speaker 1: um you know, do a lot of deals, activity of
Speaker 1: transactions because the housing stock is very similar, so you
Speaker 1: can be more precise. Um. I think Zella was uh
Speaker 1: late to the party, but certainly had the wherewithal to
Speaker 1: jump in quickly. The problem and what's interesting is in
Speaker 1: their I buyer effort. They've had a press release that
Speaker 1: they're not using there's estimate technology, which which I think,
Speaker 1: I don't know about you, but that to me says
Speaker 1: something saying there have to be a low bowl offer
Speaker 1: because they're buying. It's a resell makes sense, right if
Speaker 1: you're you know, any place you see sell your car
Speaker 1: for cash one cars or whatever it is, you know
Speaker 1: they're they're going to pay you less than if you
Speaker 1: sell it yourself, and it has to be right right,
Speaker 1: And you know, for some that's a convenience, like you
Speaker 1: don't want to have to with all that and the stress,
Speaker 1: and maybe it takes five months, and so I get it.
Speaker 1: There's gonna be a niche. But I think with the
Speaker 1: all this really burst on the scene and open Door
Speaker 1: was really and there's offer Pad, there's others, um you know,
Speaker 1: I think that it was like, hey, this is going
Speaker 1: to replace traditional brokerage, and it's gonna be you know,
Speaker 1: it's a dominant form of of selling your house. And
Speaker 1: you know, I think it's there's a market for it.
Speaker 1: I think it's just gonna be a play a much
Speaker 1: smaller and the problem is that you know, these companies
Speaker 1: are investing billions in technology to be able to get
Speaker 1: comfortable with valuation and UM. And it's really, uh, it
Speaker 1: seems seems like a pretty risky venture. UM. And you know,
Speaker 1: one side of it is after the pandemic lockdown started
Speaker 1: to occur, all these companies ceased operations because they've never
Speaker 1: gone through a down market or you know, what could
Speaker 1: be a down market. I thought that was really interesting
Speaker 1: that you know a lot of the you know, the
Speaker 1: boom we're seeing in fintech and all this is predicated
Speaker 1: on rising market conditions, you know, strong sales activity, growing
Speaker 1: sales activity, UM, and and this that just sort of
Speaker 1: caused me to pause a little bit. You know. It's like,
Speaker 1: and I was saying this before the pandemic, um that
Speaker 1: you know, these these haven't been tested in the down
Speaker 1: market and how the that worked as their inventory explode,
Speaker 1: you know, as sales really slowed down. How does that work?
Speaker 1: And they haven't been tested yet. So I think it's
Speaker 1: an evolving model. It's here to stay. And and I
Speaker 1: think you know, they're they're gonna work really hard to
Speaker 1: figure it out, and there's gonna be pinning the herd,
Speaker 1: so to speak. Um. You know, with all these companies
Speaker 1: out there. There's not enough room for all of them, right.
Speaker 1: It's hey, listen, the inconvenience of selling your house on
Speaker 1: the market and having people trample through your living space,
Speaker 1: that convenience has a value. But I assume that value
Speaker 1: is I don't know, five bucks, two thousand bucks. But
Speaker 1: it's not going to be let me sell this house
Speaker 1: for all its less than I otherwise would have get gotten.
Speaker 1: I don't think it's worth that amount. So it'll be
Speaker 1: interesting to see how this progresses over time. Yeah, and
Speaker 1: I think I think, just like everything in this sort
Speaker 1: of post lockdown pandemic world, there's gonna be there's just
Speaker 1: a recalculation going on right now, all sorts of things,
Speaker 1: and this will be one of them. Really interesting last
Speaker 1: question before we get to our favorite questions. You had
Speaker 1: briefly mentioned SALTS, which is the the tax deduction for
Speaker 1: state and local right taxes against your house, which the
Speaker 1: previous administration had slashed to about ten thous dollars, which
Speaker 1: I know infuriated people in blue states like New York
Speaker 1: and California and Connecticut. So so let me ask you
Speaker 1: the question, who are the geographic winners and losers of
Speaker 1: the pandemic. How much of it is related to that
Speaker 1: salt deduction changing for real estate? And do you think
Speaker 1: there's a move afoot to tie a rollback of salts
Speaker 1: to the infrastructure bill? Do you think this has any
Speaker 1: legs that this will change? And I'm not asking this
Speaker 1: because it personally hit me in the pocketbook, it did,
Speaker 1: But it's a fascinating subject. Sure, sure, I think so.
Speaker 1: You know, essentially, it's a dollar exemption cap on property
Speaker 1: taxes and uh, state and local taxes and salt. You know,
Speaker 1: when I grew up, salt sted for Strategic Arms Limitation treaty,
Speaker 1: but uh, and then there was salt to UM. This
Speaker 1: is a different salt that you know, uh cuts closer
Speaker 1: to home, so to speak, and uh, and it really
Speaker 1: in high cost, high tech states are very vulnerable. You know.
Speaker 1: The offset to this was to double the standard deduction.
Speaker 1: And so I remember being, you know, a couple of
Speaker 1: years ago, because this went into effect January two thou eighteen.
Speaker 1: I remember going to a conference in Dallas and we
Speaker 1: were sort of rainstorming our next conference, and what were
Speaker 1: some of the things we're going to talk about? And
Speaker 1: I brought this up, and everybody from the Midwest like
Speaker 1: stared at me, like, what are you talking about, because
Speaker 1: they don't have the same you know, high taxes the
Speaker 1: relative to you know, different locales, they might, but in
Speaker 1: the context of you know, New York State or New
Speaker 1: Jersey or Connecticut or California, Illinois, you know, these are
Speaker 1: really consequential and um, and I think you know, aside
Speaker 1: from Rockland County, New York being like the highest property
Speaker 1: tax per capita, I believe I've read that in a
Speaker 1: Bloomberg story, or it might be Westchester, Like I think
Speaker 1: they're buying for the top, um, you know, really big numbers,
Speaker 1: and that's sort of been baked into housing prices. So
Speaker 1: really what this does is it if you know, if
Speaker 1: you just to be aspirational for a second, you know,
Speaker 1: you buy a house for ten million dollars and the
Speaker 1: typical annual property taxes are about a hundred seventy Uh.
Speaker 1: And let's just say you're state and local taxes are
Speaker 1: the same. So double your property taxes, uh, and you
Speaker 1: can only write off ten thousand dollars. Now, Uh, that
Speaker 1: really changes the math, uh substantially. And so what you've
Speaker 1: seen is, you know, higher end housing markets pre pandemic Uh,
Speaker 1: in the suburban markets really get hit hard, the north
Speaker 1: shore of Long Island. A lot of the higher end
Speaker 1: housing markets around the country that we tracked UM spent
Speaker 1: most noticeably in California where we focus on southern California. Uh.
Speaker 1: You definitely have seen prices UH fall as a result, um,
Speaker 1: not overnight. It's sort of been a gradual um decline UM.
Speaker 1: And you know, it was really interesting. And again back
Speaker 1: to my idea that the pandemic has been this great disruptor,
Speaker 1: is that Florida has been and was anticipated, you know,
Speaker 1: January one, two thousand and eighteen, the Florida real estate community,
Speaker 1: I covered about fourteen housing markets in Florida on the
Speaker 1: Gulf side and the Ocean side, and and everybody's just
Speaker 1: you know ready, you know, they're just they're you know,
Speaker 1: ready for this massive flood of demand from the Northeast.
Speaker 1: And while it was there, it was tepid. And once
Speaker 1: the pandemic hit, and I think you know, for many
Speaker 1: that have been on the fence and skewing to the
Speaker 1: wealthy in the high cost housing markets, you did see
Speaker 1: this UH surgeon activity during after the lockdown and in Florida,
Speaker 1: UH and surpris rising ly, at least to me, it
Speaker 1: hasn't stopped that, you know, the contract data we're seeing uh,
Speaker 1: you know, in many of these in the five counties
Speaker 1: in southern California, southern Florida, we're seeing contract activity that
Speaker 1: is forty two up year every year in March and uh,
Speaker 1: and it is really absorbing the what Florida had been
Speaker 1: known for on the ocean side for a tremendous and
Speaker 1: build up in inventory, especially as you skew up in price. Um.
Speaker 1: And we're seeing a lot of that get burned off.
Speaker 1: Inventory is definitely coming down because sales activity has been
Speaker 1: at record levels. And I think a lot of it
Speaker 1: had to do with the salt tax and the and
Speaker 1: the and the ability to work remotely. Um uh you know,
Speaker 1: but the pandemic we should look at. The pandemic is
Speaker 1: sort of the trigger or the the the instigator of this,
Speaker 1: because I think it accelerated everything. It accelerated remote you know,
Speaker 1: remote software by probably a decade. It accelerated you know,
Speaker 1: what was an anemic response to the tax, the salt tax, uh,
Speaker 1: federal law all of a sudden became like a big
Speaker 1: marketing point. So I think if you know, there there
Speaker 1: is surprisingly um, you know, an appetite for putting patches
Speaker 1: on the law, but that comes with you know, revenue
Speaker 1: laws and so uh so I would say that the
Speaker 1: odds of something are are you know, I wouldn't say
Speaker 1: it's a sure thing. It seems it's not a sure thing,
Speaker 1: but it's certainly the odds of it are greatly improved
Speaker 1: over the last couple of months. And what I'm detecting
Speaker 1: that doesn't mean it'll happen, but I but I do.
Speaker 1: But I wouldn't be surprised if it did. Well, it'll
Speaker 1: be interesting if it did. There's there's a house I'm
Speaker 1: enamored with on on Center Islands, a few doors down
Speaker 1: by from Sean hannony Um that's listed for sale for
Speaker 1: nine point nine million. And really, until we get that
Speaker 1: salt deduction back, I can't even think about Yeah by
Speaker 1: the house, that's ten times the cost of the house
Speaker 1: I currently so so I'm I'm rooting for the salt
Speaker 1: deduction to come back. But here's the Here's the thing is,
Speaker 1: you know you'd have to act immediately because the market
Speaker 1: right everybody else will pile into it. I literally just
Speaker 1: sent you, I just sent you a link to that house,
Speaker 1: which has its own little nestled cove harbor Marina, but
Speaker 1: it only holds two jet skis. So I don't know
Speaker 1: if that will work for us, but my wife and
Speaker 1: I love looking at that sort of stuff's house. Right well,
Speaker 1: everybody during this lockdown, I think, you know it's you know,
Speaker 1: uh uh, you know, if they didn't have worries about
Speaker 1: being employed or you know, they were thinking about the future.
Speaker 1: And like when we get out of lockdown, I was
Speaker 1: obsessed with I want a lot more land with a
Speaker 1: with a barn. So you know, we're like looking all
Speaker 1: over Connecticut, uh, just just because. And then you'll get
Speaker 1: more land at the same price you get you get
Speaker 1: about yeah, you get like three or four times the
Speaker 1: land and the same house for half the price and
Speaker 1: you know, an historic barn or something along that line.
Speaker 1: So I want to stand alone garage, which I don't have.
Speaker 1: Im in a My garage is part of the house,
Speaker 1: and I can if I can get enough land where
Speaker 1: I could build a free standing garage, it will remove
Speaker 1: limitations on how many uh how many cars I can have,
Speaker 1: how many bring a trailer. I'm literally wearing a bring
Speaker 1: a trailer t shirt as we recorded us, all right,
Speaker 1: so let's but by the way, there was a term
Speaker 1: for that sort of zillo. I'm drawing a blank on it.
Speaker 1: That's sort of zillo browsing. You can absolutely just get
Speaker 1: lost in in that world. And uh, it's pure escapism
Speaker 1: looking at five and ten and twenty five millions. By
Speaker 1: the way, the funny thing is what's shocking about not
Speaker 1: putting a cap on the price when you browse zillo
Speaker 1: is that you're looking at particular neighborhood. Hey, show me
Speaker 1: all the houses in East Hampton and and you know,
Speaker 1: above a million dollars, and you'll see these things come
Speaker 1: up at forty and sixty and ninety million dollars. It's
Speaker 1: um out in Montalk Dick cab its property, which apparently
Speaker 1: is eighteen acres or something like that. It was up
Speaker 1: for sale for some ungodly number. I don't know if
Speaker 1: you get if he got it, but it's shocking when
Speaker 1: we see what happens. All right, before I run out
Speaker 1: of time, let me jump to our favorite questions that
Speaker 1: we ask all of our guests, and and let me
Speaker 1: try and um run through these more quickly than usual
Speaker 1: because we have been b sing the whole time. Tell
Speaker 1: us what you're streaming these days. Give us your favorite
Speaker 1: Netflix or Amazon Prime Entertainment. So uh so, actually I
Speaker 1: I am one of those people like we we cut
Speaker 1: the cable during the lockdown and uh and so I
Speaker 1: have Hulu, I have Netflix, I have all these things.
Speaker 1: It's amazing, but I don't watch it. I like watch it.
Speaker 1: I just don't watch TV other than you know, a
Speaker 1: few Yankee games. I just and you know you've said
Speaker 1: to me, hey, we're in the golden age of television.
Speaker 1: I literally I think you're becoming my dad, like who
Speaker 1: never liked to be. I just don't watch TV anymore, um,
Speaker 1: hardly at all. So so I I'm sort of the
Speaker 1: the opposite of most of my peers. It seems so
Speaker 1: no Queen's Gambit or anything like that. Nothing it is,
Speaker 1: uh you know, I think the closest I get to
Speaker 1: and and this is just silly, Uh, is that I'm
Speaker 1: sort of obsessed with uh radio detective shows from the
Speaker 1: nineteen forties and fifties. Um. I listened to a lot
Speaker 1: of podcasts of like old radio shows a sort of
Speaker 1: white noise when I'm working. So I am I just
Speaker 1: don't fit the profile now that I know that that's
Speaker 1: your gig. Let me just suggest something that you might enjoy,
Speaker 1: which is a little off to the side from that.
Speaker 1: John Pizzorelli hosts a show called Radio Deluxe where it's
Speaker 1: just him and his wife. And that's amazing that So
Speaker 1: you listen to that. It's great music. Plus they're both
Speaker 1: so knowledgeable that you get color on Yeah, you get
Speaker 1: color on the songs and on the writers and and
Speaker 1: a lot of the stuff is from the era you
Speaker 1: would just describe. Yeah, I feel like I'm a young
Speaker 1: soul but with old taste, right, And they do mix
Speaker 1: it up. It's some newer stuff, but a lot of
Speaker 1: it traces back to the Great American Songbook, and that
Speaker 1: obviously is twenties, thirties, forties, fifties. It's very different than
Speaker 1: modern stuff. Um. Let's look about mentors who helped to
Speaker 1: shape your career. Well, I've had two that I really
Speaker 1: would jump it would jump out at me. One is, um,
Speaker 1: my first job coming out of New York. I actually
Speaker 1: went to college to be in the hotel business. My
Speaker 1: father had built a hotel when I was younger. Um,
Speaker 1: and I didn't know what else to do, and I
Speaker 1: knew something with real estate, but not UM specifically, and
Speaker 1: I lasted for three years and pretty much hated every
Speaker 1: minute of it. UM the company that I worked for,
Speaker 1: was eventually acquired by Marriott, and I just it just
Speaker 1: wasn't I wasn't passionate about it. However, I just my
Speaker 1: first boss, gentleman named John Nelson, uh, really taught me
Speaker 1: how to navigate like corporate politics and how to like
Speaker 1: really cut away at the sort of the noise and
Speaker 1: solve the problem. And I just never forgot it. And
Speaker 1: uh and that was, you know, forty plus years ago,
Speaker 1: and I still touch based with them every so often.
Speaker 1: He really meant a lot to me. The other mentor
Speaker 1: I had. The other mentor I had was uh one
Speaker 1: of the founder of Douga Salomons, Doddie Herman, who uh
Speaker 1: she's the one that UM, uh you know basically really
Speaker 1: implored me because of I was, you know, she found
Speaker 1: me I was. I would I would brief the executives
Speaker 1: about a, uh, you know, the state of the market,
Speaker 1: what was going on, and and uh she implored me
Speaker 1: too essentially you know, expand and write about other markets
Speaker 1: that I don't necessarily work in. And um, and that's
Speaker 1: that's what I She really championed me and really relied
Speaker 1: on what the market number, which was very contrarian to
Speaker 1: the sort of real estate seitgeist, which is it's always
Speaker 1: a good time to buy or sell and uh. And
Speaker 1: it was more like we want to give and that's
Speaker 1: spend their mantra. It's sort of entrepreneurial, like we want
Speaker 1: to give our customers, uh, you know, neutral market benchmark
Speaker 1: so they can make informed decisions. That's essentially what it was.
Speaker 1: And to me that was sort of shocking, and I
Speaker 1: was really I went with it. And now we you know,
Speaker 1: issue hundreds of reports a year and they're used by
Speaker 1: the Fed and all the like alphabet soup of agencies
Speaker 1: in Washington, and they're not seen as a brochure. And
Speaker 1: and to her credit, that was you know, she really
Speaker 1: feeled that in me, and I I'll forever be grateful.
Speaker 1: So I want to first of all, you remind me
Speaker 1: of a very infamous National Association of Realtors advertisements they
Speaker 1: threw out early in the collapse in the mid two thousands,
Speaker 1: which is it's always a great time to buy or
Speaker 1: sell a house. I don't know if you remember that,
Speaker 1: but it was all, well, you you know, if you
Speaker 1: have a stock market background, hey, it's either a good
Speaker 1: time to buy or sell, but not both unless you're
Speaker 1: the broker taking the piece in the middle. So either exactly.
Speaker 1: But but I have a very vivid recollection of being
Speaker 1: on a panel with Dottie Herman in like oh five
Speaker 1: o six when the rollover was just starting, And you
Speaker 1: might have been on that panel with us with pre
Speaker 1: Nobel Bob Schiller. If that rings a bell, Yeah, she
Speaker 1: wasn't with us on the I was on, Like I
Speaker 1: think the panel you were on the panel before me
Speaker 1: and I was after is the one I'm remembering, okay,
Speaker 1: And I just remember her looking at me like I
Speaker 1: had two heads when I said, you know, thirty percent
Speaker 1: drop in real estate is not unthinkable for a financial crisis,
Speaker 1: and she just was a guest. I have a vivid
Speaker 1: recollection of that. I could be wrong, but I'm pretty
Speaker 1: sure it was her. Well, it's funny, uh two thousand seven,
Speaker 1: you know, Uh, the US market had already started to tank.
Speaker 1: You know, the uh Bob Shiller Kishiller index peaked into
Speaker 1: that summer two thousand six, So sales activity actually peaked
Speaker 1: in two thousand five. It was volume from that is, Yeah,
Speaker 1: volume leads priced, you know, one or two years. And
Speaker 1: I've learned that in many different instances. Um, but I remember, uh,
Speaker 1: he and I were on a stage at Lincoln Center,
Speaker 1: was like three thousand people in the audience, and the
Speaker 1: the this is two thousand seven. So Manhattan was a
Speaker 1: year or two behind the US market because of Wall Street.
Speaker 1: Camp had really sort of extended our our boom for
Speaker 1: a few years. And I remember him being asked, well,
Speaker 1: what do you think how much will prices reset? And
Speaker 1: he said, and there was just a gasp in the audience,
Speaker 1: and it was right, you know, just it doesn't happen.
Speaker 1: And just like what I was saying earlier, like it
Speaker 1: doesn't happen immediately, you know, the sales drop, inventory surges,
Speaker 1: and then it takes like a year or two for prices,
Speaker 1: you know, for sellers to capitulate. If they don't want
Speaker 1: to sell, they don't sell, they weight, but they have
Speaker 1: to sell more and more have to sell, and then boom,
Speaker 1: you know, the prices are falling. And and that's what
Speaker 1: everybody I think it's wrong with these cycles right there.
Speaker 1: They're always they're always stuck on what the neighbors sold.
Speaker 1: The house for a year or two years ago, and
Speaker 1: it's like, hey, if you have a time machine, you
Speaker 1: could go back to two thousand three and get that price.
Speaker 1: But in oh eight, you're you're screwed. And that thirty
Speaker 1: five percent number came from a piece that Ryan Martin
Speaker 1: Rogeloff wrote. They end up writing a book This Time
Speaker 1: is Different. But it was a research piece that was
Speaker 1: out in oh seven about when you have financial crises,
Speaker 1: you typically see a fifty percent collapse in the in
Speaker 1: the real stock market, real estate falls thirty plus percent.
Speaker 1: I mean, they weren't making predictions. They were saying, here's
Speaker 1: what the averages look like over the past eight centuries.
Speaker 1: And it was so prescient that they ended up writing
Speaker 1: a book about it a couple of years later. Speaking
Speaker 1: of books, what are some of your favorite books? What
Speaker 1: are you reading right now? So, so I had been
Speaker 1: on a on a I don't know, reading about New
Speaker 1: York and history of New York, sort of the cultural history,
Speaker 1: just cool things. When I moved to the city, uh
Speaker 1: in the eighties, I was just enamored with um, you know,
Speaker 1: uh the grit, I guess you'd call it. And my
Speaker 1: dad outside of our office twice coming in and out
Speaker 1: of our office in Midtown and in the you know,
Speaker 1: in the nineties, was mugged in broad daylight. And I'm thinking, Wow,
Speaker 1: this is what a city, you know. And I was
Speaker 1: just thinking about sort of what other components that kind
Speaker 1: of went into that, And so I I just read
Speaker 1: a book called The Club King and it was by
Speaker 1: Peter Gaddion, who is the you know, had all these
Speaker 1: nightclubs and you know, sort of competing with Studio fifty
Speaker 1: four and all that, and and what the culture behind
Speaker 1: that and the limelight was fascinating read. And then the
Speaker 1: book I'm almost done with now is called The History
Speaker 1: of St. Mark's. And you've ever been to Manhattan the
Speaker 1: block it's like a three or four block um uh
Speaker 1: from Astor Place to Tompkins Square Park where the riots
Speaker 1: were in the late eighties, and just the eclectic nature
Speaker 1: of it. And if you ever want to feel for
Speaker 1: like what New York was, although less so now because
Speaker 1: it's gentrified, but that's where it was. It was gritty
Speaker 1: and I just love I just love that about New York.
Speaker 1: So any kind of history of New York and this
Speaker 1: was this book is called The Death of Saint Mark's Place,
Speaker 1: um speaking of gentrification over an alphabet city near there
Speaker 1: a B, C, D is white got its name. The
Speaker 1: gentrification used to be in on Avenue A. Has it
Speaker 1: penetrated to Avenue see dely, it's completely gentrified. Um sort
Speaker 1: of uh. I remember, you know when they had to
Speaker 1: close Tompkins Square Park because I remember one time daring
Speaker 1: myself to walk through it and it was literally, you know,
Speaker 1: junkies and homeless and gangs. I mean it was just
Speaker 1: like in the movies. It was um uh and and
Speaker 1: you know, just going in that area was a little
Speaker 1: rough and um. I remember there was a new conversion
Speaker 1: h called Christo Dora House, which is on the Avenue
Speaker 1: B on the eastern side of Tompkins Square Park. And
Speaker 1: the Kristen Dora House is infamous in sort of local
Speaker 1: New York circles because of all the protests outside of
Speaker 1: it because it was a more affluent although relative to
Speaker 1: today's prices, you know, it was a deal. But where
Speaker 1: they spray painted on the front door, die yet scumb
Speaker 1: And that phraseology became like the mantra of sort of
Speaker 1: the anti uh gentrification moved in. Um and so many
Speaker 1: houses are buildings in that you know, I remember doing
Speaker 1: you know, appraisals in a kindo co op conversion and
Speaker 1: modest place, and across the street. You know, it's it's
Speaker 1: all um, you know, people basically camping out in an
Speaker 1: abandoned house. And eventually many of these were acquired by
Speaker 1: the squatters. I had a friend I met a friend
Speaker 1: of mine or a class colleague. We weren't that close
Speaker 1: in high school, but in I grew up in d C.
Speaker 1: And uh, he was like one of these people that
Speaker 1: ended up like taking control of an abandoned building and
Speaker 1: then selling it with his buddies and like never has
Speaker 1: to work again, absolutely insane. Let me get let me
Speaker 1: get to the last two questions before I run out
Speaker 1: of time. What sort of advice would you give to
Speaker 1: a recent college grad who was interested in a career
Speaker 1: in the real estate industry. Well, if it's the appraisal industry,
Speaker 1: I at this point would say, hold on before you
Speaker 1: go this, just because it's it's uh, you know, in
Speaker 1: the generic sort of mortgage world, it's dying of flow death.
Speaker 1: In especialty world, like what we do, it's you know,
Speaker 1: I feel very competent for a long you know, there's
Speaker 1: always a niche that is hard to automate. UM. In
Speaker 1: terms of the real estate industry, UM, you know when
Speaker 1: we think of that, we think of brokerage. Uh. You know,
Speaker 1: it's like anything like professional athletes you have you know,
Speaker 1: the top makes of the money and um. And so
Speaker 1: the goal is to you know, get to that cycle
Speaker 1: and you know, do you want to do that? UM.
Speaker 1: I'm finding that the there's a lot more people coming
Speaker 1: out of college and you know that coming into this
Speaker 1: uh industry. Then ever before you know, the stereotype is
Speaker 1: like you know, suburbanites that are you know, board and
Speaker 1: want to do sell. Um, you sell real estate on
Speaker 1: the side or it's always a side gig. And I
Speaker 1: think it's one of those professions where and I'm I'm
Speaker 1: probably I think I'm right. Point nine of the real
Speaker 1: estate brokers in America today did not think about being
Speaker 1: a real estate broker until the opportunity presented itself that
Speaker 1: they didn't, you know, in high school or college say boy,
Speaker 1: this is what I want to do. It's always by
Speaker 1: accident and uh. And you know, so maybe if you're
Speaker 1: one of those people, something to think about. It is fascinating.
Speaker 1: Membership in the n A R fluctuates with the performance
Speaker 1: of the housing market. You know, it's you know, it's
Speaker 1: it's up I should know, but I don't. But it's
Speaker 1: somewhere like a million four million five membership and during
Speaker 1: the financial cry since it was like down you know,
Speaker 1: right at a million or you know, just a hair
Speaker 1: under it. So it's there's tremendous like upward and downward
Speaker 1: because you're living on your living and breathing on a
Speaker 1: hundred percent commission. And that's not for everybody, and some
Speaker 1: people have a knack for it and make a lot
Speaker 1: of money. Um, you know, nine digit, eight digit numbers,
Speaker 1: I mean, amazing numbers. But that's the exception, not the rule.
Speaker 1: And our final question, what do you know about the
Speaker 1: world of housing today that you wish you knew thirty
Speaker 1: four years or so ago when you were first getting started?
Speaker 1: Uh So, I think the first thing would be, uh
Speaker 1: is that um is that you uh you know, don't
Speaker 1: aspire to have a bigger rental apartment. I mean I'm
Speaker 1: clearly biased. I mean the you know, I work, I
Speaker 1: do my reports, you know for a real estate brokerage company.
Speaker 1: I'm surrounded with the brokers every day. But the one
Speaker 1: thing I really wish I had was sort of the
Speaker 1: more focus on saving money in my twenties, uh, and
Speaker 1: then and then buying something sooner. I didn't buy my
Speaker 1: first house still about thirty six because I lived in
Speaker 1: the city and you know, I couldn't afford houses until
Speaker 1: I moved out to the suburbs and um, and then
Speaker 1: have traded up from there. So I really wish that
Speaker 1: I had been a little bit more goal ariented on
Speaker 1: that earlier on I realized later now part of it
Speaker 1: was starting a business put every all the money we
Speaker 1: had back into it. But the money I was putting
Speaker 1: into rent, I wish I had I thought about a
Speaker 1: little bit differently. UM. I like to say that my
Speaker 1: I have four boys. They're all adults, you know, twenty
Speaker 1: two to thirty two years old, and my three oldest
Speaker 1: all have houses. So you didn't that age I didn't.
Speaker 1: I mean they all beat me by you know, uh,
Speaker 1: you know, seven eight years and I thought that I
Speaker 1: didn't want to and I could see the moment, but
Speaker 1: you know, starting my own business and you know, not
Speaker 1: just me with my family. Um, and uh, you know,
Speaker 1: paying too much for rent and having a nice place
Speaker 1: to rent. I think you know set me back at
Speaker 1: Tener Tener fifteen years we have been speaking with Jonathan Miller.
Speaker 1: He is the founder and CEO of Miller Samuel. If
Speaker 1: you enjoy this conversation, check out our previous four hundred
Speaker 1: or so other discussions. You can find those at iTunes, Spotify,
Speaker 1: wherever final podcasts are sold. We love your comments, feedback
Speaker 1: and suggestions right to us at m IB podcast at
Speaker 1: Bloomberg dot net. You can sign up from my daily
Speaker 1: reads at results dot com. Check out my weekly column
Speaker 1: on Bloomberg dot com slash Opinion. Follow on Twitter at Ritholtz.
Speaker 1: I would be remiss if I did not thank the
Speaker 1: Craps staff that helps with these conversations together each week.
Speaker 1: Tim Harrow is my audio engineer at Tiko. Valbron is
Speaker 1: our project manager. Michael Batnick is my head of research.
Speaker 1: Michael Boyle is our producer. I'm Battery Ritolts. You've been
Speaker 1: listening to Mastor's in Business on Bloomberg regular