Interview With Jonathan Miller: Masters in Business (Audio)

me a little freedom to try something different. Look, the whole idea behind this show, the whole idea behind Masters and in Business is that you're eavesdropping on a conversation between at least two reasonably intelligent people having a thoughtful

conversation about issues that are of significance. Ends. What ends up happening, partly through my own paranoia and partly through a desire to be thorough and prepared, is that we create a run of questions in five different segments, and each question leads to a different question, and what's supposed to be a conversation really becomes a bit of a Q and a There are a small handful of you, a very small handful of you that I know, deep down inside wish that I would just shut the heck

up and let the guests uh speak and and that would be really boring for me to just sit here and read a list of questions. So for those of you who are hoping this episode is Barry reading questions and shutting up, I'm really sorry to disappoint you. In fact,

this is the opposite. And instead of writing out um, normally we do four, six, five, seven, and twelve questions for each of the segments, I just have really really broad topics and Jonathan and I are by the way, my special guest this week is Jonathan Miller of Miller Samuel. I know him from mill of matrix is blog as well as his podcast. What was that like eight years ago? I started three years ago? It seemed much longer. Um

that's right. Um. So, so this is gonna be a little more informal, a little more conversational, and I'm actually recording this intro before we do the show, so who knows how this is gonna come out, but I wanted to try something a little different and let's see how it how it rolls, So, with no further ado, here is my conversation, and literally my conversation with Jonathan Miller. This is Master's in Business with Barry Ridholts on Bloomberg Radio.

This week on Masters in Business on Bloomberg Radio, my special guest is Jonathan Miller of Miller Samuel. Jonathan is probably best known to fans of real estate as a appraiser extraordinaire. He now really uh special shalizes not only in data crunching and looking at the analytics behind real estate, both residential and commercial, but also looking at the high ends ultra lux real estate here in Manhattan as well as around the country. Jonathan, welcome to Bloomberg. Are great

to be here, Barry. So those of you who are real estate fans are certainly familiar with Jonathan's work. He is the engine that powers a number of real estate companies and agencies companies own. I shouldn't really call it internal data, but you're the driver behind some of the biggest names in real estate. The glossy brochures they put out with all the all the data. That's well, the key word there was glossy, I think, but now I uh.

For twenty two years, my myself and my firm, Miller Samuel, we have published or crunch numbers for the big real estate brokerage firm in New York called glas Elman Dugan Selman is the fourth largest residential real estate company in the country after all the big franchises, the cast of characters, uh, and the idea behind it is that I can speak independently of them. You know that they know that I know what I'm talking about, and it's been a great

relationship for twenty two years. I basically speak in my mind about what's happening in the housing market, and they're happy to hear the unvarnished truth and let the chips full where they make yes. And you would think that more companies would be like that because the whole they're

a transaction based business. So instead of pulling wool over somebody's eyes and saying everything is fantastic, you can help your client navigate a market that is I'm sure it's a lot like the financial markets in that regard of of you know, strategies and thinking, and some people do very well in down markets. I spent the better part of the mid aughts mercilessly mocking the National Association of Realtors, better known as n a R, for there always cheerful

reports and it was just a constant. It's always a great still is it less so? But it's still there's still a sunny side as the as the the the current chief economists nickname Sonny Sonny June, right, is that his name, Lauren June. Yes, I recall the infamous UM material they put out cold It's always a great time to buy or sell a house. And I think all of Wall Street laughed at that, because well, look, it's either a good time to buy something or a good

time to sell something. But it can't be a good time to buy or sell something unless you're the guy getting the commission. So that was that was their reputation. You're actually telling us that not every real estate agency follows that. Yeah, I mean, you know, they are in the selling business and are you know, certainly does a lot of good things for their members. I'm sure, but it is a trade group, you can mention, I'm sure,

but I can't really know. But estate, this was I'm giving you the benefit of the doubt, right, But but but you know, I think the whole idea of UM conveying, Look, the consumer has everything in their fingertips, so you could search for anything you want on Zelo A Trilia you can go to all these websites. You can find a mortgage, you could find a house, you could do uh, practically a fly through of just about any house. I think.

I think the larger picture is that the role of the real estate brokerage company or agent is no longer the gatekeeper. And I think that that's that sentiment or mentality that still exists in some some firms that you know, we don't we don't want to be completely open because we want to control the transaction and U Yet the consumer now as access to virtually everything, but they still

need guidance. What's really amazing is during periods where you have significant housing demand tight inventory, you see a lot of startups that hey, we're going to replace the broker. But the second that the market turns, all those companies go under and all of a sudden, everybody needs handholding again. So we have this sort of up and down psychle

that we see as markets go up and down. There are some really broad and fascinating questions I want to get to in a little while, but before we do that multiple listing service was at one point in time that gatekeeper that actually had all the data, and it

was unique to them. But once that went online, and not only is it MLS dot for US, it's MLS dot l I dot com, but it's whatever your local region is and they're hundreds of them, right, hundreds of versions of it, and everyone from red fin to Zillo to Trulia to you name it seems to pull that data into their web page. So it all comes pretty much from the same database. But still there are things that real estate agents know that you can't get from

that in terms of what are the schools like. I mean, you could look at the ranking, but that's not the same as actually knowing unenaghble talking to somebody that has experienced in the neighbor and it talks to it. What's interesting, though, is there's a study that just came out and it was forgive me, I don't recall the three markets they tested, but it was a study that just came out recently that showed that even MLS data, which is supposed to

be very clean and neutral UH is biased high. The pricing is biased high in other based high with the listing prices. And and also you know, if it closes, the agent will close the the price and report what it is, but that number they found in something like eight of the cases was a high number was higher than what the actual actual price was. You're listening to Masters in Business on Bloomberg Radio. My special guest this

week is Jonathan Miller of Miller Samuel. He is an expert in real estate transactions and appraisals, both here in Manhattan and around the country. So, Jonathan, let's talk a little bit about some of the new rules that have come out over the past couple of months that have really caused the stir. The two I'm thinking of, in particular, the Consumer Financial Protection Board rules about a waiting period on a mortgage were introduced last fall, and that caused

a lot of rucus. And then just recently, the Treasury Department came out with new anti money laundering rules even for cash transactions of real estate. Let's let's talk about why these rules are here and what impact they're having on the housing market. Well, the Treasury rule is a temporary rule that is starting March first, and it's supposed

to last six months. And the idea is or it came about from a New York Times front page story in early two thousand and fifteen called Towers of Secrecy and It was a huge, huge article people hiding money correct right, Louise story was I believe it was one of the authors at the Times. And it was a very well written, big piece with lots of lots of data but also lots of visuals on the web and all. You know. It was very compelling stuff. And and the

takeaway was they didn't really link. Uh. It said, yes, do people do wealthy people that by high end apartments for all cash? Are some of them doing something they shouldn't do? And I think the inferred answer is yes. And I think any reasonable person would assume that right when you say doing something they shouldn't do. So, so what an evolent dictator raiding rating their treasury at the in the home country and buying a twenty million dollar condo,

parking it there for a rainy day? Uh, you know, a drug deal, some anything elicit where you don't you don't want to be traced. So that's the logic. Um, the problem is, uh, there wasn't. There's no proof that this is a widespread problem. I don't have any personal knowledge one way or the other, just basically on the street. It's something. It's not something that people just sort of brush aside and say let's ignore it. It just isn't

something that ever comes up in conversations. And so there's all kinds of implications or problems with with going this route. Um uh in terms of look, if you're if you're a billionaire and you're buying a home in Manhattan, a pieditear uh for your family. Uh, first you fill out a mortgage applicated, right, so so that individual first of all doesn't need a mortgage. Secondly, they don't want the hassle of that and just and the third is privacy

or security. You know that they become a target. This is a you know, I'm all for transparency up to

a certain level. But if I recall correctly, the Time story had an thing about a number of corporate entities and some are here and some are in the camps, and they were essentially set up not to hide income from the I R s, but for exactly what you're talking about, to hide who the owner is, to prevent right safety uh, security and secure and and and and also to um you know, one of the you know, the llc um has been used quite a bit in in In fact, I believe the Times article and some

other things. I've read that at the high end of the market, about half of the transactions are LLC have an LLC of some form within me, and I've I've seen that in other housing markets as well. At the high end of the market. Land sales in the Hampton's about a third of those last year were either on the bye side of the cell side had an LLC associated with them. So so let me ask you a related question, because you we referred to benevolent dictators. But

but sometimes it's not such an affaious situation. I'm in Vancouver pretty regularly. I speak at a conference there every year, or at least I used to until that conference ended. And they have what are called see through uh condos and see through towers. There are these residential high rises their glass they're completely empty. You look, you could literally you're on the highway, you drive by, you see right

through them. But they're fully sold and unoccupied. And I asked a couple of real estate people there and they all told me the same thing. These are Chinese people who still live in China but need to get some money out and kind of cree a life raft in case you get a little hairy in China in other words of yes, it's the same thing, uh, the same

application we have here. Uh many of the newer, newer projects that are being built, especially at the high end of the market, are what we call bank safety deposit boxes. You put your valuables in there and then you rarely visit, right, and so so it's a it's an interesting I think that's for nuclear warhouse. But uh, what what's so there's so on one hand, there's no there's no evidence that it's um that it's a you know, a widespread problem. But on the but there's no evidence that it is,

you know, one or the other. There isn't The problem I have with with this as a as a device to capture money laundering is that what you end up doing is basically throwing a wet blanket over an entire real state asset class for perhaps a few bad actors. And we don't know if it's two zero, we don't know, we don't we don't know what that is. But the but the downside to that is this only applies to properties three million and above in New York County, in

Manhattan and one million dollar properties in Miami. The City of Miami that's Itami is understandable because also all Miami vice drug dealers that was the eighties, right, that was that that was that was sort of cocaine cowboys, that the whole movie of So so isn't that a little odd that it's just two places in the whole country? Right? And and so here here you know, the big thing that that sort of was a red flag for me

is that this is only a six month rule. So you're encouraging people to not do transactions for six six months because all they're gonna do is wait, right, So, but you they have the option to renew. If this was a widespread, deep problem that the Treasury Department suspected, why would it be a six month rule. It would be a forever rule. Uh, it's not logical otherwise. So so I think because of the sort of political or

peer pressure um to do something about it. When there was this front page New York Time story last year and hey, this is low hanging fruit for you know, money laundering. Let's you know, let's let's look at this. Are you saying this is really in the last minute we have in the segment, is this really just an optics issue? Looking for a problem or or that's what I that's what I believe because of the six month timeline, it doesn't make any sense to me. You know, normally,

my knee jerk reaction isn't to react against regulation. Usually when there's regulation, you assume it's there for a good reason. You're saying that's not the case. Yeah, that's that's the way it looks. And and so what it ends up doing is you have a high end housing market that's weakening because of overbuilding. Big Bloomberg article last week saying that has the uh, the high end luxe market real estate peaked, and the article concludes it has I'm Barry Ridhults.

You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Jonathan Miller. He is the co founder and CEO of Miller Samuel, a high end residential appraisal and data crunching shop. You know, you and I have been going back and forth over the years about the Case Shiller numbers, which are reported on a little bit of a lag, but they're still I think,

pretty interesting numbers. But they run into the same problem that much of residential real estate comes into, which is the data ain't all that great. So with Case Schiller, it's interesting, Um, I don't know about you, but when you get up in the morning, do you take the look at the average temperature from six months ago and that's what you use as a basis to get dressed. I see it was raining six months ago, and then

I bring an umbrella, right right. So so the problem with Case Schiller is it was never designed for consumer consumption. It was designed for Wall Street to hedge housing. The problem is is that it's a housing is a slow moving process. And when you get a number casular number released today, the meeting in the minds between buyer and seller on that data occurred six months ago, five to seven months ago. So let's let's put that into context.

So data is released on January whatever. So the data that came out this month occurred in August before Labor Day. So how that's when the transaction took place, which means the offer and acceptance and contract was probably a month or two before that. So it's really no, no, no, no, it's it's that's when the that's when the contract occurred, and the transaction was when they would be two months

three months later. So January we get November data reflecting a contract from August something along those lines exactly, except that the November data is the average of November, October, and September, so it's even more blended. And that's why there's really no seasonality that shows up in a Case Shiller line to nice Bell curve for the housing crash.

But that that is sort of one one. It's certainly the consumer doesn't understand that as a reason as and and I think that the Case Shiller reliance on Case Schiller nothing against Robert Chiller, Nobel laureate and all that is that it was a reaction to the misinformation or spin coming out of U n a R, which was sort of the big provider with the existing homesale report and all that is still widely published. But it's some

concerns about that. And by the way, we had Chiller on the show and he talked about the thinking behind Case Schiller and the report was, hey, how can we find a way for people who want to hedge real estate exposure to do that? There was no trading, transactionable way to do that. The case report and theory was supposed to generate that except for you know, these startups like Zillo can actually accurately project what the next case Shiller number will be within a few tens of a

point the reverse engineer, so it doesn't matter. The other bigger problem I have with Schiller in any price index is that, to me, pricing in housing is the is the caboose on the transaction train? That is it? What matters more? Is it volume? Is it shape? Is it

amount of cash versus mortgages? It's sales, sales, sales transactions. Uh. We found I was with a startup that was going to compete with Ki shill Or a while back before the stock market crash, and what we found was that say that you were, you were an advisor to Radar Logic at the time, ended up getting bought by No. Yeah, they end up going under. Uh. You were also with Truly which on the advisory board Zello Public and that's

been a home run exactly. But the but the the problem with transact or the problem with pricing as a as an indicator, is that we found nationally it lags the sales activity by twelve to fifteen months. Here's here's a perfect scenario, South Florida two thousand five, housing prices are going up and at the greater full full theories and full play where sales activity is falling because affordability is going through the floor and you have fewer and fewer people to buy the next flip. And we saw

that nationally in oh five oh six. Housing peaked in volume of oh five, but it didn't peak in price until the summer of oh six. So as sales are falling, prices are still rising, right, and they don't fall until there's no more buyers left that will are the greater full right, there's no buyers left that will pay. So I feel like emphasis. I'm not saying that you should ignore price trends or indexes. That's what people understand. Watch volume US. It's a it's ahead of pricing and and

and the interaction with inventory. So in the last minute we have in this this segment we had mentioned previously the MLS data was pretty dirty as well. It wasn't updated and sometimes it seemed to be misrepresented by agents. How significant is that? And what can a buyer do to make themselves more So? I think it's less of a problem than it appears because it's a random problem. In other words, I don't think it impacts trends. I think it's it impacts specific references to properties that that

and of itself is a problem. But from a trend, if you're trying to understand whether market is rising or falling, I don't I don't think it is. I'm Barry ri Hults. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Jonathan Miller, and we have been discussing real estate, both the regulatory side of it and some of the data reporting problems. Now let's get into the stuff. Let's talk about the crazy expense of houses, apartments,

and various numbers that are just I popp in. I know here in Manhattan, there have been a few hundred million dollar units. There's a there's a hundred million dollar unit that closed. There's Bill Ackman bought a ninety three million dollar but he got a deal. That is a deal. He got seven million off the hundred Well, no, no, it wasn't that. His price per foot was about three thousand of foot less than the hundred million dollars sail and he's up on like the ninety three or ninety

four floor. It's a different kind of unit. Have you been in that building, that unit, not that unit now, but pretty much been in. You and I have talked about time. You've been in just about every major house in Manhattan. It's like it's like a it's like a work bucket list, Like I want to be in the Penthouse of you know, the Sherry Netherlands Hotel, or or the eight million dollars Sandy Wild or but other than

a handful of them, you've pretty much walked your way through. Yeah. Yeah, I've been in about eight thousand Manhattan apartments in my career, which is probably more than I should admit. Um. But but it's interesting because there's actually right now, it's probably more than a rumor, but there is a two million dollar contract right now at two twenty Central Park South, the new development for that Vernado is building right on

the park. Um. I just read yesterday that there is right now a hundred and ten million dollar contract in the Hampton's. Uh, it's a flip and it's what do you mean a flip? Well, and they went in, they painted it, they made it pretty well. Someone someone bought it like a couple of years ago for in the nineties, and then I guess they decided it wasn't whatever, you didn't have enough space. But but it's interesting because um,

we didn't. And so I actually, as a hobby track actual close transaction of all sales in the US fifty million or above? How many of those? How many? How many actual transactions something in the order of sixty So not a lot. This is really a unique one off market. Yeah, and a big part of that that it comes out of New York and and I and I also play

around a little bit looking around the world. There was just a sale in Paris or three one million, yes, yes, so so, So now that we've gone undred and ten, three hundred, I have to ask you about this hard to fathom. You know where I'm going. There's a spec house being built supposedly in l A for five hundred million dollars. Now is that a real number of these people just making stuff up at this point? You know, I think it's so. Yeah, I think they probably feel

strongly about it. I'm sure it's expensive to build, but not half a billions. It's not a it's not a hundred stories skyscraper. No, no no, no, it's it's a house. It's a house on a hill. Uh So, so you know, I think that'll end up probably being you know, like a corporate retreat or something outside of a single family residence. But but but I think it begs the question is there a real market, say north of a hundred million dollars? Is this a because that's been you know, you certainly

read in the news. There's the last couple of years across the US, there have been these press releases. Hey, I'm putting my market on Jeff Green, the hedge funder that bet right on the market. Um, you know the last down cycle. Uh, he built a house in Los Angeles that is on was on the market for it's sat for eighteen months, reduced, he dropped it to a much more reasonable hundred forty million, and he said this time now I'm serious, and then he took it off

the market. So so the question is does this market actually exists? And my theory is that the market actually was triggered by this the eight eight eight million dollar sail in two thousand and twelve by Sandy while where he arbitrary his he bought it for forty one he you know a couple of years now, well you know, he fixed and then he put it on for eight eight and then a Russian oligarch came in and I'll

take that. But as it turned out, he was going through a divorce and he was buying property and hiding. He just was moving right, But that became a symbolic price, and so shortly after that and it really was like a three year window twelve thirteen, fourteen where we started to see all these press releases from you know, high end, and we're seeing, uh, Manhattan, all these penthouses priced a

hundred above. Look, I'm not saying these Manhattan prices. Penthouses won't get these numbers, but I think that this market was really there was a misperception of whether it was actually a market and not just random one off transactions. It's so funny you say that. I've spent the better part of the past five years arguing with people who have been consistently calling a market top. Look, it's a bubble in name your one off, it's a bubble in art,

Therefore the market has to roll over. It's a bubble. And vintage collectible ferraris, therefore the market has to roll over. And the answer to these things are how many people are buying a Jacome Eddie or a Picasso or name your artist for a hundred million dollars, how many people are looking for this specific Lamon's race to seventy five Ferrari GTB from one or sixty two. That's a unique creature.

And someone who has more money than they know what to do with says, I'll pay thirty million dollars for that, even though it's barely worth a million or two. It's a one off. And Drew, are you saying real estate? I'm saying, I'm saying when you get to that extreme, that that's what it seems to be. It's not that you won't have those transactions going forward. We absolutely will and there will be, you know, a steady procession of them. But I don't at least we saw on the spec

houses built across the country. I'd like to say the plural of anecdotal is not data. So but what the these developers that are building these houses are saying is, look, they're they're asking this price, and there's twenty people asking this price. It must be worth it. Yet none of them ever sell well that that what it does is creates an anchor. And when you hear seventy and eighty and a hundred often enough. You know, if it's million dollars,

this looks pretty reasonable. Maybe maybe that's what the net effect is. Then in the lower end of the high market, you know, all things considered, twenty six million dollars, it's a deal for all right, it's a So now let's go to the opposite ends and talk a little bit. You brought to my attention the mark micro apartments are being proposed as a way to combat the affordability problem cities like New York. What is that about? So so

much is made in the city. Uh, certainly. Uh, I'm a user of the terminology price for square foot and but ultimately, when you get to a small apartment like in Manhattan, say a studio or in Boston studio feet, the average the average studio Manhattan's four fifty square feet. Uh. My parents have a piano tear in the city that's three d square feet on a good day. And in the today it's a kitchen, bathroom, and a bedroom. Right, My sister and I call it the kitchen because it's

mostly a kitchen with a couch on the side. But but there are thousands of those units already in existence, so it isn't about whether the market will accept micro units, which are about usually about three square feet. Um uh. It isn't whether there will be a sceptance because you already have a long, storied history of people living in three under square foot departments. It's the pricing and so what we're seeing what we're starting to see in the

micro unit phenomenon. Remember land, the lands. The person selling the development site doesn't care what they're They're just looking at what the maximum um value they can get for the land, which usually implies you're gonna build a super luxury condo or if you want to max out, you want to optimize your return on a dollar invested, at least from a business perspective. From a policy perspective, there are counter arguments to having a variety of income and

making keeping housing correct. And one of the biggest problems that New York has right now is that we're seeing record job growth, the highest number of employees of those employed in the city and history, and we have this disconnect between what new housing we're building and what we actually need. And a lot of that has to do with of um the price of land. So in the case of micro units, what's really fascinating is and you can see this in the regular rental market, traditional rental

market and the sales market. Is when an apartment gets to a certain price, down to a certain price point, whether it's a rental or purchase, no matter how much smaller it is, it doesn't the price doesn't go down anymore because you're paying for common facility areas. And well, what you see is the price for script It skew up at the bottom because the price won't go below a certain number in a certain market. So what's happened? Why is that? Is that? Is that common areas? Is

that taxes? What? What puts the floor? It's it's it's it's the seller. What the sellers are willing to sell for basically, or what they need to get in order to cover their operating costs of the building. What's interesting

about the micro phenomenon? And uh, a friend of mine runs a website that's going to launch called neighborhood X and they did study and ball Austin and um and I believe the one coming out in New York and the price per foot of a micro unit in terms of what a consumer will handle, is actually fifty to a hundred percent higher than say a traditional sized rental. So in other words, the price per foot is significantly higher.

So say in New York on a studio, say it's eight hundred of foot, a micro might go for without a problem, but it's you know, it's much smaller. Quite fascinating. So if people want to find you, what's the best way they can track you down? On Twitter? On the web. The two best ways to reach me Twitter Number one, which would be Jonathan Miller and it's you know original, I was an early adopter. And then the second is our website, which is Miller Samuel dot com, which has

lots of data and information. If you find that you enjoy this sort of chat about things finance related, you can look up an inch or down an inch on iTunes and see the other seventy five or so conversation is of the sort that we've had. Be sure and follow me on Twitter at rid Halts. Check out my daily column on Bloomberg View dot com. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio. Welcome to the podcast. This has been a fun and

interesting approach. So so you've done both the long winded questions written out and this kind of free form version. What what? What's my takeaway from doing it this way? Free form is the way to go. See. I don't know if I could do free form with a guy like Howard Marks or Leon Cooperman, who are so fastidious and organized, and I think you're just gonna have to do it case by case. I guess it's or maybe certain segments you win it. In certain segments you have it.

I'm a big fan of no preparation. Well, it's not so much no prep so let me let me qualify this. There's a difference between no preparation and and so literally, Mike Batnick is my head of research. So just as an example, the next podcast after you is Ethan Harris. He's the chief economist of Bank America. Mary Lynch. I don't think I could sit down with someone like that and say, yo, man, what's going on? So what's happening

in the world of economics? Anything good going on? But with you, I know I could say what up with housing? And you offen the races? We You and I could talk about this stuff we can talk about I'm sure your wife says the same thing as my wife. You know they are. My kids will say, uh, you know, can you stop talking? And my answer is you should hope. I don't stop talking. It depends if you want to eat tonight. If you want to eat tonight, you're okay.

So before I forget, I'm gonna set up initializing video stream. I'm gonna just do a quick Uh. I'm just gonna do a quick Paris Curt Jonathan Miller uh. And we're talking about real estate so um and this will run this weekend, which will be exciting. So we we covered four really interesting subjects during the show. So the new Treasury rules about three million dollar apartments in New York and a million in Miami. UM, their anti money laundering rules.

We talked about white case shilla data is so problematic. We talked about the ultra lux um hundred million dollars in up market, and then we talked about the micro apartments. But by the way, you mentioned the three hundred million dollar apartment or unit in in Paris outside was that before or after the terrorist attacks? I think it was after. I think it closed. That's an interesting votic. I think it closed in December. And what is a three hundred

million dollars it looks like a palace like Versailles. It's it's that sort of Actually that's the architecture. Oh really yeah, it's meant to And it was interesting because I thought there would be this insane world interest on it, but there really wasn't. And you would think Europe is far more concerned with income inequality and and and a level plan. Was a Middle Eastern buyer and a Middle Eastern developer. Really yeah, wait, so this is a new development. This

isn't like it's a new world cast. No, no, no, this is a new I believe it's all newly constructed. But it looks like a castle. So so how many acres is this and how many square foot feet is the I don't I want to say a hundred thousand square feet and fifty acres, but I'm guessing. But it's substantial. There's a lot of lands. So that's three thousand dollars

a square foot. That's pretty prices. Yeah. Actually, when you look at the very high end of the market, no matter what the land amount is, they tend to they tend to fall within like the two to four thousand a foot. The variation is the size of the land. Right, So now so let's let's keep talking a little bit about the luxe end of the market, because it's so to me, it's so lux or mega ultra super. So,

so here's what I find fascinating. And in my let's start from the bottom up, because that's how most humans interact with real estate. So when you think about real estate, I think about and everything tends to be a chain because you have to sell this house to buy that house, and I believe it's an average of seven transactions that

are linked in one home sale. So so down in the United States, we'll start with the starter home, right, So you buy a start at home, which used to be to fifty or so depending on where you are in the country, not in the US, not in here in this area, but in the US, I mean the averages. So a start of home is more in that range. Around here. A starter home is if you can find a place for three four that's a relatively inexpensive home in the New York area. But the person selling that

house is trading up to something. Maybe it's they're going from a two or three bedroom to a four bedroom with a couple extra baths. So now we're in the half a million to seven hundred thousands, or they're just trading up to a better location, better same size, and every better school district. But I'm trying to come up with a different stratus. So so assuming variables like location, water, view, etcetera. Aren't a key consideration, although I imagine somewhere in the

chain that probably isn't the case. Those do become key issues. But so you go from starter home to little bigger three bedroom to bath or four bedroom to bath, and around here that's five, six, seven, and then from seven to nine you're talking out of four or five bedroom house. Maybe you're on a half acre of lands um, probably a better school district, maybe an easier commute. That's the other thing I noticed. Obviously, the closer you are two

major sources of employment, the more expensive it is. And also commuter lines, you know, are are a big factor. Just as a side. And I'm dating myself, but I moved out of the city, my wife and I in and we moved to Fairfield County, Connecticut, And there's an express stop on the commuter train in Stanford, Connecticut. After Stanford, moving away from the city, every ten minutes on the commuter train. Housing prices dropped a hundred thousand dollars. Really,

that's amazing comparable houses. Yes, yes, because we were actually looking at the time when we first moved out there, and it was unbelievable. And that's still true today. That's that ratio the progression is but the numbers are much higher. But but it was about a hundred thousand every ten minutes,

so you know, so I'm out on Long Island. When you look at the major train lines, the most desirable train line is the Port Washington line, which really is that the north shore of Long Island is a series of peninsulas, and so the first peninsula is the Port Washington line. The next peninsula is actually in between that. The third peninsula is the Oyster Bay Line, which passes

by the second peninsula. It's the same thing. The further out you go, the more expensive, also too, on the commuter lines, or it's also the uh you know, whether you're on a main line, which there's a premium for that in not change you can get an express you can go and also that you know, the spurs on a commuter line are the ones that tend to have more problems because there's only one track and they can't

go around. The other thing too, is that when when you're talking about Long Island is um And this is an interesting when you look at the Hampton's luxury market to the east end of Long Island, one highway right and and one train line and one train line and this congestion, it's it's, you know, very difficult to get something. So they're trying to preserve the character of the area but not having an overbuild. But they're still building like crazy.

So that's why you just helicopter out right go over the traffic. Yes, don't these pleabs know anything but traveled by car? Yeah, that's we'll talk about cars in a little bit. But before we get two cars. So I mentioned seven to nine is now you're talking five bedrooms. Then somewhere in the nine to a million to about a million and a half you're looking at bigger houses. The lands starts getting two acre zing like that. But now, how does this breakdown above two million dollars? Is there

a gradation or is it just bigger? Whatever, all these accoutrements and people just charge with it, can get away with. I think I think another way to look at it is um the bigger the logical step is as you move up in price, the bigger the sort of change in amenities or not the big just you know, whether it's square footage or land size, the jumps get further and further apart. Let's bang for the buck for each.

A simpler a simpler scenario would be just for the listeners, is if you're in Manhattan and you have a studio and then you trade up to a one bedroom, Uh, let make these numbers up. Maybe it's maybe it's thirty more. And then you trade up to a two bedroom and it's double, and then you trade up to a three bedroom and it's triple, and then you trade up to a four bedroom and it's you know, exponential. So so

so you're not just paying for the extra bedroom. You're paying for bigger all around square footage, nicer amenities, location, you know, school district, all those sorts of things. But the problem in a market, and this is this is, this is the problem right now with a housing market, and why there's so much to talk about affordable for ability and affordable housing is that the vast majority of people that have a lot of equity in their home or not. I don't want to say a vast majority,

but certainly many. Uh it's called money on paper because unless you're up right or even make a lateral move because maybe your credit score is because credit conditions are tighter than they were. Well, there were no credit standards during the housing bubble, but it's it's still skewed very tight. There's many people that can't make a lateral mover, downsize or trade up. It's uh either kind of stuck. And and part of the problem is to be able to jump to the next level as your family grows and

as there as everything was rising in price. You know, you can look at it as percentage, but if you look at as dollars, the dollars are spreading and and and that's been part of the challenge, is sort of trade up of of consumers when they're moving from one uh one home to the next size. I'm gonna kill the periscope just so everybody. This is what it looks like here in the studios. And uh, my candy are now that's right. That's that's from the Bloomberg yep um

and I'm gonna so much for that. Um so, so that's kind of fascinating. You know, I love playing with the various apps, so people should realize this. Jonathan and I. Jonathan comes from Connecticut. I come from the North Island. We take our boats. We meet in the Long Island Sounds, and neither of these are yachts. These are just midsize workaday twenty footers. We tie up. We have a couple

of beers. Has a bathroom? I have a bathroom. Well, I have a small head, not that I use it, but uh, in both in both senses, but it's uh. And I was thrilled when I discovered my marina has free pump out services. Really, let's start using the bathroom. Um. But what's fascinating? And I think I showed you this a couple of summers ago. You take the Zillo app, you launch it, you say, show me what's around me.

It zooms in on on the map and says, starts to show you all of the houses along the waterfronts that you can now see from the boat, that you can't see from the road because and it gives you, right, it gives because they're sitting there on an acre or two, they're set way off the road. You can't even see them.

And there are some really insane properties. So it tells you if they were recently sold, what they were sold for, if they're up for sale, what the asking prices, and you could pull up all the details of them, including the taxes and everything else. It's really quite fascinating. That's

of seven. That's transparency one o one. But when you say there's a chain of seven transactions from starter home to the three bedroom, one and a half bath, to the five bedroom to the you know, two acre, two million dollar place, I'm trying to figure out, how do you break down those gradations from what did I just mentioned starter? Three? Five? How do you get from the fourth step up to these twenty million dollar waterfront mansions? What are their legitimate gradations between or is it just

I think negotiable. Yeah, I think you're looking at it to compartmentalized. They're they're there, it's it's more of a

hot mess. It's just smeared over and um. And and also to that, what is when when when someone's in the house and they want to make a trade up, Um, there's many layers that they could you know, they could you know, you go from a dollar house to a three million dollar house, so you go from a five you know, there isn't this sort of you know, tradition necessarily regimented sort of Uh, well, I'm thinking so in other words, what happens typically typically married family buys a

small house your income, We have a couple of career, right, they get they get a couple of kids, they get a little more money, and so now they go from a three. But see but see also in this region you have another thing where you have you have uh, you know, a second home in the Hampton's or you have or in any any or tear you know at a you know, a weekend place, and and so like you you know, there's all this uh you know that we have the multi the super luxury towers that people

aren't necessarily living in. But there are thousands of studio and one bedroom apartments in Midtown where a U a former resident kept it. They moved to the suburbs. They they kept the piano tear, maybe they rented it, maybe they used it for their kids and they're in college. But they have this flexible ality, so so they're they're they're paying for the upkeep of that. Maybe they don't trade up as big in the suburbs to the next

house because they're going back and forth. So what you have in a pretty dynamic you know, in any sort of dynamic urban market surrounded by um suburbs, is there's this interplay between suburban and urban and and right now, with housing prices pushing UH record highs and actually pushing UM consumers seeking out affordability to you know, the outer boroughs to the suburbs. You know, when you're sitting here in Manhattan and you're saying, boy, it's really expensive to

live here. Um. Right now, sales activity in the outlying suburbs is at record highs. Really because people can't afford to buy in Manhattan. Well, I think because they're priced out of Manhattan, they're going to the burbs, whether it's Long Island, Fairfield County, Westchester, New Jersey. So the linkage

with Manhattan is really important. But you're seeing a tremendous outflow because housing prices are up, changes, changes, sort of lack of better word, migration patterns of people moving outward. That's really fascinating. You know, I always thought I wanted a Piatra tear, and then when I finally more or less can afford one, when it comes time to actually firstly start looking at prices there insane And you know my old apartment was in the Gramercy Park area. That's

where I would want a pier a tear. But then when you look at wait, why would I want to spend a million dollars plus some ungodly monthly maintenance of two thousand dollars a month? Wait for twenty four grand? Maybe this is going to appreciate in value, maybe it outpaces inflation, Maybe it doesn't. Aren't I better off not having a pier a tear staying in whatever hotel I want for a long weekend um twenty times a year.

Doesn't that put me well ahead of not having a tie up all this money and heading So I've wrestled with that back because it could be you could also viewed as you know, I'm gonna hold it for twenty years, and there's upside potentially to that as well, but also to you know, some people want to go to a place that is there's where clothes, there their furniture, and that's why there there is no sort of regiment to this. It's just flexibility. You and I talked, I want to say,

eight years ago about Miami. Aside from the fact that the odds. Well, there's a couple of issues aside from the fact that it's sinking into the sea. It's not just the sea is coming up, it's Miami is sinking. That's what happens when you build on a coral basis, a porous coral rock um and the fact that they're winters aren't consistently you know. Yeah. But the other issue is same situation. You could steal a condo down and I'm told it's still even though prices have bounced up,

it's still relatively inexpected. So I tracked the Miami market as well. And if you just look at Miami as a whole and not differentiate between condo and single family, it's about twice or about a third distressed, meaning oh yeah, that's you more inland than on the beach. On the beach, it's more like non distressed distress just rentals anyway. But

buts but so so. In other words, you have a dramatic it's actually kind of surprising that you don't have a great differential, uh in terms of geographic difference or proximity between um sort of areas that have very little distressed real estate in the areas that have a lot of distressed real estate, and they're pricing you know, can be multiples of three or four or five for similar houses.

Um uh. So, so the market is polarized. In other words, they're mutually exclusive for the most part, which I find, uh sort of odd, but but it really is has been the way that the market is morphed. So Miami is seeing has seen tremendous development growth. Um. I was just down there last week, cranes everywhere. You would think

there was never a housing crisis, right right. It's interesting because also what you're seeing now with Miami is there's this so like New York, the new development market is seeing a slow down, right, stronger dollar uh, more building, So the consumer of these properties is taking a longer, you know, to make a decision because they have a lot more choices in their trying to make sure they're comfortable. Still a lot of activity, but not to the degree

it was a few years ago. Um. You're seeing people now talk like in the last housing cycle, Miami was the first to fall. So does this mean with Miami now um uh, showing some weakness at the top of the market, not the but the top of the market. Is this a leading indicator, and I sort of chuckle that because because the last go round it was about doctor I like to say, uh, like nurses and carpenters quitting their jobs and flipping real estate for a living.

In the movie The Big Short, it's the stripper who owns six rental properties and and the Steve Carrell character is talking about, what are you gonna do, uh when your mortgage resets? And she goes, mortgage resets, what are you talking about? And he explains us there and she goes expletive, I have six properties I bought. And it dawns on him. Wait, if strippers are buying, are able to get credit to buy six properties and then rent them and don't even know their variable mortgages, how is

this going to end? It's well, it's it's gonna end badly and and so so what And what's interesting now is that, unlike many other markets, the Miami market is still heavily all cash, so the the cash buyer and not just at the tie and but the is that why the Treasury Department is looking at Manhattan ends Miami. That's one of the reasons. Part of the reason that Miami has heavy cash is because lenders are still very tight,

credit tight credit. And also, you know, there's a legacy of foreclosures and distressed real estate not so long ago. So they they're just very conservative. And that's so So to think of that as some sort of leading indicate it's unique to Miami. It's not a national trend. It doesn't seem to be. I I don't get the connection. Are you seeing anything else? Well, let's look at some of the other problem areas last go around. In addition to South Florida, it was Arizona, it was and it

was the eastern part of Las Vegas. So so what are you seeing in in Nevada, Arizona and and the non coastal regions in California. So still you know, the foreclosure crisis, while it's certainly has eased dramatically from where it was at the peak. Uh, you know, I'd say it's stabilized. These markets Uh wildly overbuilt during the period. You know that. Do you mean you don't want to commute two hours? Right? The ex serbs right doesn't make

any sense? So um in you know, the sort of rule is if you're in a market like Phoenix or Las Vegas where land is cheap, endless. It it's not. You shouldn't expect it to rise dramatically unless there's some external stimulus like credit. Yeah, no credit standards, and which

is exactly what happened. What about an area where let's let's look at d C or New York or San Francisco, where there isn't an endless supply of lands and there are all sorts of restrictions on on buildings or at least regulations on how much we can build, then we have a housing affordability crisis, which is a national condition right now. Every it just seems like every major I get calls from its cities or or or so it's a combination. It's there's no doesn't matter whether you're a

big or small or middle midsize. It doesn't matter whether you're you know, sort of a region with similar employment. UM. It's it's the fact that when credit conditions are tight, it places outsized demand on the rental market because the consumer that organically would have transferred from the rental market to the purchase market become a first time buyer. Which

guess what we have shortage of UM. The uh, the the supply is relatively inelastic, and the rents go up, and and in fact, in you know, credit is there is the reason why. You know, if you look back over the last five or six years, the rent rents got expensive during the foreclosure crisis, you would think that they would get cheap because you have the opposite, people who can't afford a house so they're forced to be a renter, would be buyers, become renters, would be mortgage

applicants become renters because the bank's credit line. Look, I just bought a house, you know, a year and change ago. Um, I tell the story all the time. It's and I think it's hilarious. The first house we bought out in the Bourbs was in a little town called green Vale. I think we picked sixty for this. Fifteen plus years ago, we did a refi in I want to say, oh five or oh six, And I'll never forget. And I had already been pretty t clued in to what was

going on on the real estates. I have been writing about it, but I'll never forget. We did the refi and the plan was to take thirty grands out, lower our costs and redo the kitchen. And now the house value goes up and the guy literally pulls into the driveway, flings the card door open, leaves the engine running, and you hear on the front porch we had it was an old style Victorian with a covered front porch, and hear him run up the up the porch into the house. Hey,

I'm really sorry. I have another closing of of a sale of a house four blocks away. Sign sign initial initial, here's your check, gotta go. And the guy was in and out more than sixty seconds. And I looked at my wife and I said, well, the good news is we we're gonna get a kitchen. The bad news is the is going to end badly. There's no other way that this sort of stuff Like we looked at each other, like what just it was a cartoon where where bugs bunny?

Where where the witch zips out? You see the lines and the hair prints hanging in the air. That that's what it's like. Fast forward fifteen years where I'm trying to get a jumbo mortgage and the torturous process the banks put us through, where I have Mike Bloomberg co signing my mortgage. It's still took that's a joke, it's still but it took forever to get this process because you know, credit in auto loans and credit cards is fast and loose. Yeah, you know, that's why auto sales

are doing so well. Right, it's you could well but there. Now, let's let's talk about auto biles for a second. Because I love this area. So I read this fascinating article about repose and in college. I love the movie Repoman. That's my favorite movie. Get out of here. Yeah, you're you find one in every car. I got it on my phone. That's hilarious. So they not you know the I think the average time. Now I really respect you, Barry,

like you've you've elevated to another people man. Absolutely. Um So, so when you look at a house that goes into foreclosure, so it's it's you miss a payment, it's it's what are the three stages delinquent default? And then so but from from that default where you haven't made payments in ninety days to the actual foreclosure and they take possession of the house and throw the it's five hundred days on average. New York State and New Jersey are a

thousand days. Okay. Now, I thought Miami was worse, but they had those had those rocket courts, which were disasters. Into themselves. Now take an automobile, you miss a payment, they know you work, They have a tracker in the car. Anyway, your cell phone is trackable. And now these REPO guys are paying malls and other places to have these cameras at the entrances and exits of every major shopping center. They read the license plate as it goes in. There

are some amazing things about this. So if you assuming you're not taking your car and saying I'm going to ship it to overseas to be sold and I'm never gonna make another payment again. Assume you're a typical car buyer. You borrow money, or you do a lease, or you do a financing. You get a car, and you go

home and you're going back and forth to work. If you decide to stop making payments on that car, you miss a payment, thirty days later of those cars have been repossessed, and I think the numbers go practically to days later. Right. But the problem of foreclosure, you know that the house side of the story is that no one really knew knows who wants that. Well, that's a

whole different match. Thanks and other other things. It's it's really been a uh and if those thousand day houses are because the uh, the mortgage side of things decided to bypass. There is a I have a whole monograph on this, and I won't go into it here, but there is a whole process for making sure we know the exact survey of the land, the chain of title, and and any changes we've made to the legal status of that land. Did you give this person a neasman,

did you subdivide? Did you do this? And that worked really well for a long time until we decided to bring until the mortgage people on their own, till the banks on their own decided to put together to save money on transaction fees, transaction fees filing costs local taxes. In many ways, I have argued that what they did

was tax evasion and in other ways fraud. They have got argued that, well, we've got an approval or at least and no no fal to that people that are challenging them, when yeah, so so, I can't so it. But it's so widespread it was. It was a huge swath of the mortgage business went through this vehicle. And

if you and and again another another fascinating discussion. If this vehicle didn't exist, and here's the best reason for dissembling it and making it illegal, which is very tough to do when you own Congress, but um, when they

own you want to do something different. You could not have had a secure mass securitization to the degree we did, where the paperwork was a mess without this electronic system, believe it or not, the old fashioned land record system where someone takes a paper, goes down to the county clerk and he takes out his big stamp and okay, this mortgage has been filed, and now we're taking these papers and sending it to the lawyers. It's fascinating. We

have a deep, a deep special effects team. But that process, if you have to send someone down to the county, you're not going to be flipping this property every fifteen seconds. You're not gonna have high frequency trading of mortgages the way we more or less did. And it was just one of those things where, hey, this system works really well and has for hundreds of years. Let's it's funny.

A parallel, maybe a distant parallel is appraisal licensing didn't come into nine and and it was a byproduct of the SNL scandal, and with thousands of people went to jail right right, exactly unlike the last. But what was fascinating is the way that that worked is they would they would find a chrony appraiser and they would appraise

the value of a house every hour. Come on. So it's changed so much because apparently the data was that granular that you could you could you could sort of extract a value change from ten fifteen in the morning until too already five in the afternoon. Here's the great scam. Now I know you no longer do the sort of mass appraisals that that there. What you mean is for like the big retail banks. And that's the whole discussion about that. Well, let's let's quickly have that discussion, because

that's fascinating. If the basis of giving let's step back when when the famous uh Benjamin Graham quote is in the short run, the market is a voting machine, but in the long run it's a weighing machine, meaning opinion and sentiment affects short term prices, but of a long haul, intrinsic value will ultimately win out. Now, the entire appraisal system is I've witnessed it as a buyer or seller of a house seems to be based on comps on

comparable homes in the area. But stop and think about what that means during a credit bubble or a housing boom. Because that house sold for a hundred grand more than we You and I know, wink wink, nudge nudge, it's really worth. But it's similar to my house. Now I could get in my house to go up in value. All you're doing is ratifying an upward spiral. There is no you're not looking at at how home price is relative to income in the area. You're not looking at

the Holmes price relative. There is a check to that because because we also look at contract activity, contract prices, and you can see a market turn whether going up or down. Do appraisers not not approved houses for for in those circumstances. So so think of what's happened since Dodd Frank and financial reform is that they have installed or legitimized a middleman called an appraisal management company or

a mcswards. The bank isn't hiring a favorite appraiser because the implication is the bank knows me for thirty years, uh, and they trust me that somehow morphed into you know, I'm on the doll you know, because and I understand that, you know, there certainly is that component to but but the idea was every major bank had an appraisal panel that you were a member of, and they were hard to get on, and you were vetted and they review

your work and they constantly go after you. It's not like some guy at a death says, hey, I needed to come in. Uh. You know. That was a widespread practice until the housing bubble, when when credit are uh, collateral value didn't matter because everything was already sold off. You could offload the risk to some unwitting investor, a school system in Minnesota, or the Icelandic banking system, whatever,

whatever you happen to pick. So so, so the point is is that what happened to take away the control that the lender or influence a lender would have over the appraiser. Maybe it was best intentions, but it was it was idiotic because what it ended up doing was putting installing a middleman, which is essentially think of them as a giant automated conveyor belt. The faster you do work, the faster you get more work. And the only standards they use, uh, first of all, the bank doesn't pay

for that. The appraiser pay for that by giving up half their fee. So right now there is an app the the banking industry is saying there's an appraisal shortage in the US undesirable. No no, no, no, no, no no. There are plenty of appraisers. They're just are not enough praisers that are willing to work for half the market rate. So so what's happening is you have a misalignment of

the talent pool against what the wages are. So what appraisers like myself and others left retail banking and where we do you know, litigation, cort testimony, estates and trust, matrimonial. And I'm never going back because because to to the retail banking side, because it's so distorted and dis sort of disconnected from any worry about collateral value. So the old problem was, and you had a bunch of appraisers, it was mortgage brokers that were controlling the appraisal the appraiser.

They were essentially the bank is saying to the mortgage broker, find the appraiser. Now, remember the mortgage broker only gets paid if they get it, if the deal closes, right,

So there's a complete conflict. And then as who's going to rubber stamp, who's Gonnas, Who's no longer an appraiser, they're a deal enabler, and so that so that loan closes, and and then the appraiser gets another assignment and you know, they get higher comparable and higher prices are immediately just and all the appraisers that I knew in this area at all of a sudden exploded. They went from two

or three people to a hundred people. And we're you know, the owners are driving in limos with cell phones doing deals with banks. They're all gone. They all exploded because because when the credit uh bubble popped, uh, that was it for the mortgage brokerage industry as well. That's been decimated since the financial crisis. So so the problem that we had was that you had, I want to say

it was oh four. You had a bunch of appraisers go down to Congress and complain about this, saying, look, something's going on in the housing market where we can't do a legitimate appraiser. The prices are coming in crazy, and if you don't approve it, you don't get used anymore. So it's either rubber stamped this nonsensical price, or I'm not sending you any business. It's similar to what took place in the credit rating agency. Hey, if you don't give me triple A, I'll go down to the praisers.

Predicament is exactly the positioning that the credit rating agent are in, UH with the investment banks. I mean that that is the problem is that you're you're at the trough being fed and you can't disappoint your provider. And then so what does this new model do? Does it do anything better or is it just it doesn't It actually is does things worse. It relies on automated valuation, which is um wildly inaccurate. Certainly will improve over time.

But the problem with data, as we we've touched on before is that UH public record data, the quality of public record data varies significantly from municipality. In the municipality, New York City has the most archaic, primitive raw for being the financial capital of the world in quotes, the raw data here through the AQUAS system is the most primitive, raw inaccurate data I cover. I do research in eighteen

different housing markets across the country. By far, New York City is the dirtiest raw data that we come done. Not cheap, dirt cheap. That's amazing. You would think if anyone has good data, maybe this is home country bias here for me as a New Yorker sitting here in Data Central and Bloomberg. But that's amazing that that is still so. I guess it works good enough. So there's no incentive to replace it, right, or it's just been that way for a long time and no one's bothering

to to look at it. The the you know, in the research we do, like I publish a report, for example, on the Manhattan sales market, fifty of our research time is spent cleaning and verifying public record, which to me is insane. Uh. There's lots of issues with wrong numbers, you know, zero's missing punctuation. Uh, combined departments given the wrong square footage. Um, it just goes on and on

and on in public record. Really is only the buyer and the seller, the address, the apartment number and are the unit number if it's a condo, the price, the closing and recording date. That's it. There's no ard put. That's a simple database to assemble. But is it manual. Is it not on a there's enough manual to make it really dirty and in a and and it I've been doing this in the market for thirty years now, started when I was five, as I say, and uh and and the data is exactly the same in the

mid eighties when I started, as it is now. No no upgrade due to technique zero. So so in the last five or ten minutes that we have are there any real estate? I mean, We've already done these standard questions before, so I'm not gonna ask you who your mentors were or what your favorite books were, although I can ask you have you read any interesting books since the last time we've had you on. By the way, you're only our third repeat guest, and so it's an honor.

I appreciate that you took you took the bronze. Well enough stuff has changed in the housing market that I thought it would be interesting to chat about. Hey, what what's different? What's going on? And we still have a fairly okay housing market, it sounds like, but lots of problems, lots of distortion from FED policy and um, you know, the whole idea of of type credit conditions that are

being created from the distortion. So so we basically have a an okay housing market, but it's it's we're dealing with these distortions from the FED. We're dealing with some of these other issues. So if I were to ask you, what's the state of the housing market here and now, how do you contextualize it? What do you say? The uh U S state of the housing market is it's still very uneven around the country. Your what do we basically seeing? So sorry, I don't think that that the

unevenness description applies anymore. I'd say that it certainly has improved. Uh it is in this transition period from UH weak to it, but it has not normalized. And do we still have the same inventory issue we have? I remember you we have chronically low inventory across the you know, that's driving prices, that's driving prices higher that don't match

wage growth. So so that's what you also had previously wrote a long piece about the number of homeowners that either have are either not We all know about underwater homeowners whose house is worth just low equity, but you've talked about no equity or low equity, and that locks them in place. They can't roll into the next link

in the chain in houses. Right, if you're a homeowner and you don't, uh, you don't have any financial problems, you're honor d arrest, You have your job, everything's rate, and you keep reading about record low rates or rates are very low. You apply for a mortgage and you don't qualify because you have low equity. You don't have enough for a down payment. Uh you And I'm not saying that's bad, but it is. There's no but it's

it's impacting the market. It's impacting the market um to the point where Uh so now you, as that homeowner, are you going to list your property for sale? Of course not, even though you have all that money on paper. Uh, you know, even if you only have phantom equity. Yeah, even though even if you only you don't have enough to buy the trade up, but you still have, you know,

a hundred thousand dollars in equity in your house. You can't realize that or do anything with it because you probably can't get a home equity loan credit standards I believe are the standard is sort of I call it quadruple A, like irrationally, it's irrationally tight that any concert you talk to anybody going to a closing, the impression they get from the lender is the bank is up until the day of the closing, are looking for reasons not to close. Let me tell you when I and

again not to make this personal about my transaction. I had a stock option issue and oh four and I resolved it a decade ago. It shows up on the credit report. I actually had to go to forty Street to the I R. S Building, take a number, go to a thing, and and get proof that. So there are apparently multiple levels of If it says tax paid, uh, tax lan sat up because I didn't even know I had a tax lan and the accountant found it. We settled, took care of this a decade ago, no exaggeration, a

decade ago. Now I had to go and get this taken care of. And the hoops they make you jump through. So you go there, you have to sign this thing. You have to prove you have no outstanding taxes, you owe no money, you have none of this. So it's not just satisfied, it's satisfied, discharge, fully, caught up, etcetera. That was a crazy hoop to jump through. And then they would say, so I get paid certain things, certain things on a normal W two And it's not like

it's a variable. It's each month the same amount of money hits. It's more or less the same day. It comes from the same source. Hey, what's this on the dude, I've told you this every month for the past three months. That's a ten. Here's the source. Here it is, and it's like an odd amount ending in nine thirty three spot six six. It's the same thing month after month. It's like you realize that this isn't like, Okay, we're gonna do a cocaine run and and here's what we

got for the haul. It's to the penny, the same exact amount. Why can't you figure this out? And I was lamenting about this to our real estate attorney and he said, well, welcome to housing, and well, well we'll think about why that's happening. Is is uh rapidity over compensation? They were so completely responded my last time. Now they've gone the opposite. But the mindset and banking um in mortgage lending, that is um for you know, the big

retail banks is uh. The legacy of bad decisions in the last cycle, forced by backs by the former g s c S on on loans issued in oh six with a typo a typo or or we're warranting that this is a seven score with someone making dollars and it turned and a loan to value of of when they had a four hundred score they were making thirty grand and the loan to value was a correct So I don't believe if it was like a mere typo. And yes, if they wrote street instead of lane, that's

material and they could put the mortgage back. So so that's but that is we're seeing an extreme um overreaction on that. Uh it's you know, not like oh and E should have been typed as an a. But but it's not material to the collateral to the value is what we're seeing. UM. And on top of that, um, you know, I think low interest rates are also keeping credit tight. Ten year by the way, as as of this recording is to zero zero percent in the United States.

And two years ago I told people, hey, if you have a variable mortgage, you might want to think about locking in these low rates while they're here. And here it is two years later, and we still have well even after the FED right right at the first FED rays and and we have rates drifting lower. So what does that mean? That means that things are not necessarily that great um demand for or it means there's still

such a demand for low demand for capital. Uh that that's what tends to it to some degree course competition

for mortgages and rates. But it's an amazing, amazing and also to also too that you know, the sort of the media conversation about rising rates, it was, it was it was like, you know, it was like waiting for the ball to drop on New Year's Eve that you know that what's you know, the housing markets going to implode, and nothing happened because because it's first of all, um, the the rise would be very was anticipated to be

very small, and it was. And what what are they they're saying under the best of conditions, it's it's gonna they're gonna take it up four quarter point increases over a year, which which still I think the inordinately low rates one that would be one I think the markets are saying there's a fift chance of that or something like that. I am skeptical that they'll be any when the actual rates are drifting lower, but I know that their FED isn't only looking at housing um obviously UM.

But but the idea that low rates are keeping credit conditions tight as well, because there's no margin, there's no spread, there's no money to be made, there's there, there's there's no there's no room for error. And and so it's part it feeds this sort of paranoid or conservative UM mindset. I I use uh, you know, it's it's just the free money out of the FED, which is not really

an accurate thing to describe it as. UM is allowed banks to grow their lines of business, you know, rebuild their capital, but it allows allow all this bad debt that are on the books to gradually run off, either through foreclosure or rising home prices. That took what was once a wildly underwater mortgage and say, okay, tell you what, we'll take the house, will forgive the loan. You're done with it, and now we could sell this and unless you're in Spain, and then you're like on the hook

for life. Well, you know, the US has some states that will recourse, some states that noncre recourse. Different countries don't necessarily have that same dichonomy. There there are some uh any so too. In in New York, I believe we're a nonrecourse state. And basically the contract says, you lend me a more money to buy a house, and I'll give you an interest in the house as collateral to make sure you get repaid. Hey, and if I

ever stopped paying the mortgage, you get the house. That seems like a fair deal, assuming the house price is reasonable and stable. I put ten or down, So I'm not just gonna walk away. I have skin in the game. H an expression I've come to despise and and that's very different then then saying hey, you owe this money and we don't really care what happens. Well, just just sort of a piggyback on this. But maybe maybe I'm

going off on a tangent. One of the things I learned in in the last down cycle is that in the new development world, the deposits that a that a buyer would put on a purchase was ten percent. That was the That was the standard deposit. So it's a million dollar you know, you put a hundred thousand down. When Lehman collapsed and September sales stalled, uh for the next excuse me? In two thousand nine, many many consumers walked away from that ten percent. How do you walk

away as opposed to take in the house as opposed? No, because no, they hadn't closed yet. It was just a contract waiting for the building to build. But they walked away from the from the deposit. Because because they did, they did not close. The consumer is out the hundred thousand dollars and they don't have a million dollar mortgage on a five correct, except for the market came back in like three years. So what I learned from this

is that's fascinating by distress real estate, right. So so what I learned though, is that uh, the the developers were the deposit was twenty or no. One walked away, and um, you know, the developer was in better shape, you know. As as a result, the last house, this house that we we live in now, I think I think the mortgage was either a ten or deposit and we ended up putting down well over, which is really tying up money you can otherwise use for other things.

But from my wife's perspective, she's like, I want to know that there's a huge buffer and we don't have to worry about anything, and and the peace of mind and psychology of not feeling like, you know, is this an optimal financing. No, but it's that place you live in and it's not a place where you want to want to be a source. Well, the problem in the last cycle, the housing bubble, is that there was a

mistaken the fact that was not that securitation. Securization was the problem, but the securitization vehicle and all the financial engineering that went on gave a sort of false security that risk could be managed and and that the the the consumer, uh, you know, thought that prices would go up forever there. It was just leverage the heck out

of it. Uh. And you offer people free money. And I just remember the mindset during that process like oh yeah, you know, I'll just REFI again, or you know, like that was the thinking. But that's what people were told when you went when you went to So I spoke to a number of mortgage brokers in that period. I've always you know, what some people call shopping, I call economic research. And I've spoken to a number of people and I said, why would I want to do variable

with rates as low as they are? By the way, they're much lower today is the joke. But why would I want to do that? You know, the odds are that ten years from the other rates are much higher, And the answer was the same thing, by as much house as you can afford. And if you if you you run into an issue, if rates go up, you could refly, you could do the The assumption was always that the conditions at present would continue into the future.

And you know, when you see aberrational conditions, that's a bad assumption to make, right. You can't assume stuffing is going to stay the same. Actually, the mindset during the bubble was you don't even look at the price, you look at the payment, the monthly nut. I've written about that.

That's exactly right, and so it was. So as the rates went down, the home price went up, but the monthly payment was still more or less the same, And that's something that low rates drive prices up, at least theoretically, if people are buying houses based on what they can afford to pay, right so at once that became unhinged, then all bets were off. Um. So we've talked a

lot about about the current housing situation. We've talked about what went off the rails during the boom and bust, um any any important thing we might have overlooked in terms of housing before we get to automobiles. No, I think I think you've drained my housing song. Okay, so now let's talk about So everybody thinks that you're sort of the middle of the road conservative guy. I think more accurately, I'm a dull and boring number. He's a John. Yeah.

I like Miller. I look at his stuff. He's interesting, he really knows his stuff. He's kind of a data wank. But you're really kind of a gadget head as well. I see you have your Apple watching on and your other stuff. But you recently came into possession of a hillacious vehicle, and I love this story. What are you driving these days? Um, I'm driving a buy American. I know that absolutely, a two thousand sixteen Dodge Challenger s RP coupe with a V eight hemy Is that Is

that the hell Cat version? It is not. It is one step below the hell Cat. And I only did that because I didn't want to wait four months this one was available, and so what's the horsepower on this? And it shaved twelve seconds off my commute, So I feel like it's a there's like a benefit. But by the way, the joke is your commute is how far you drive to the trade. It's about a mile and a half, but you took twelve seconds off. Yeah, you know, efficiency,

you know it. So what's the difference between this and the hell cat? That's seven I think, so yeah, it's like just under seven maybe, uh yeah, it's it's it's a little unnecessary. But so what on earth made you buy such a ridiculous So there's the thing. I have

four kids. We have like an auto dealership in our driveway with all the and let me let me just stop you there and say, you have a driveway full of rust bucket pickup trucks, and there isn't a nice car any The last time we drove by, even the little two seat sports car you had was rusting and a little dinged up. There wasn't much. Yeah, it's it's six three kids in college and and six cars besides mine with my wife and my son. So so I've

been holding off for a while. And uh my my my wife, who incidentally, today is our thirty second anniversary. So you can see I'm a great husband. I'm here talking to you, but we're happily married. She's awesome, but anyway, just alone, she's awesome at alone where we're going to six thirty now and you're not just see her till

later class tonight, honey, wake up, Happy anniversary. But but anyway, what it was funny because I had long eyed the Tesla and and also just in car d yes, so I and that insanity mode is pretty zero to sixty and that's mostly it's amazing crazy, but that's faster than any production guest line car in the world. It's it's amazing.

And I'm a Mac nuts. So the whole idea of updating your software overnight and plugging in and you know, the interstate next to me, there's a supercharge station and I could put one in my house, and you know, the whole sort of you know, uh n Musk called the whole sort of Internet, right. It was. It was just sort of that feel that appealed to me. And I was looking at the prices, you know, for somewhere expense.

I drive three thousand miles a year, so so it was without the incentives, it was like eighty five thousand dollars for the mid size model and without the full insanity mode pack, correct, And it was eighty five thousand, And I thought, well, you know three thousand, wells here eighty five thousand. This seems excessive. You're not really pull it.

You're plluting more with the both than you are with the car, right, like in multiplied by six cars, it's a difference, right and then uh, and then the other one was um just looking at like a used like a Porsche. Uh, Panamera. I wanted an adult car, but so I've been I have to tell you my wife first saw that car and she is not a go get something expensive. She's like, you know, we could get a used hand to be fine. I'm the ones like shiny, I want that. The Panamera is gorgeous, but having two

giant dogs. The back seats are buckets. You can't put dogs back the Um, we don't have any dogs, so that was never factored into the math. Now, if you like the Panamera and you need a back seat, they're mccan s. They're small, small, which is based on the outer Q five. Every review I've seen of them are off the charts. You've you've seen my driveway, which is like a a cross country mountain climbing expeditions, and people who follow me on Twitter have seen my orange crush,

my midlife crisis, which I picked that up. That was a salvage vehicle that some idiot had fried the electrical system, and the the insurers sold it for you know, pennies on the dollar, and it it costs next to nothing to turn that into a full I was never a jeep guy. I always thought they were bouncy and idiotic vehicles. And after last winter, I am a full blown convert I used to get into. So I remember last year, I think, I don't think I've told this story on

the air. Go to work, a foot of snowfalls, come home the Long Island Railroad and all their wisdom decides to plow the parking lot, and of course plow everybody in. So everybody comes in and people are digging out. My buddy with his out he is trying to is in a suit and tize digging out. And I get into the jeep and go, let's see what happens. And I put into reverse. This is like a three ft hill because go right over it, up and over it. And

I'm the first guy out of the parking lot. And I just laughed at the thought of this guy's grimace as I drove by and making a gesture as I as I drove by, So I'm a convert into that. And every review I've read of the mccan s, which, by the way, the interior very much looks Porsche Panamara. That's the whole thing with the luxury. Porsche's the uh we could talk about the pronouncement and Porscha. Porscha is

really top notch. That's one of my attractions. But again, I drive three thousand miles a year, so so I have like all my monitors open. I've got, you know, the website for Tesla, for Porsche, and uh, I pull up the Dodge option only because it's much Dodge. Are you looking? At the time, I was looking at the Challenger, which for my whole life, I've always wanted one, the old Challenge of the class. But I'm not American Monkey.

I don't want to or I don't want to like have a mechanic auto mechanic be part of my family, can't say so. So I I just love the lines and and it was so much less expensive orders of magnitude or it retailed for fifty two, which which you know, compared to eight five. Uh. And not only that, but it's got a heavy and it's your wife tells the story that you guys went to the Yeah. Yeah, So what happened was I showed my wife and she and I said, well, let's go just check it out, and

she said yeah sure. And um and in the parking lot, you know, you're you're worried about what the uh. We go to this dealership, which is the only one in

Fairfield County that has this car. And ironically, twenty years ago, when our kids were young, we bought a Dodge Caravan and uh and I and I said a joke to the sales guy because we're looking at caravans and grand caravans and the difference in you know, they're about fourteen inch is different in length behind the back seat, so there's still and but the difference in retail price was about a thousand dollars. So I said, oh that's how, that's why it's a grand caravan. It's a good it's

a good grand bar and find humor in that. Anyway. So we go to this deal ship and the and the guy um uh walks out to the parking lot and all he did I couldn't see the car is he turned it on and it was he wasn't just the idling of it. I turned to my wife and said, that's it. And then we did a test drive and she loved it. She loved it. And hey, we've been married thirty two years, so I'm twenty three years and I'm so I'm the irresponsible one in the family. My

wife is down to earth. Look, we've we've hung with each other and the four of us have gone out. I'm the one, Hey, what's this new restaurant. Let's go try this. So I'm usually the one who is pointing at the shiny objects and my wife is like, down, boy, sit, stay. So so we were driving the other day, uh, and this before the snow had come down, and we come across the new corvette, which is also about fifty grand about fifty horse and she's I go, is it just me?

Or is that a really good looking corvette? And she's like, I would have that in the minute. The trick is, there are only a handful of cars left that you can buy with a stick shift, and if you want to drive us old guys who like to shift our own gears and not use a ridiculous flappy uh the paddle flippers um, which on my infinity is titanium. I don't need a titanium paddle shifter. I want a proper three pedal car. But anyway, UM, she's like, you want to go get that and we have another car that's

all will drive feel free. We have the jeep. You could do that. The problem that I'm run into is so I start looking at the VET and then the next step up from the VET is the L T one, which is the six horse engine. UM. And then if you've ever seen that Jaguar F type, I have never I have never desired a Jaguar since the E type,

which is spectacular. Every Jaguar ever since has been Yeah, okay, let me know when you make something during the during every era from the E type until last year, the new F type, which you can get the six cylinder with the stick. You can't. I don't believe you get the eight cylinder with a stick, but you can get the six cylinder, which according to UM, according to top gear, you really don't need more than that for that car. That's kind of so that My problem is the same

thing happened with the boat whenever I start shopping. So my wife, right, So my wife grew up her brother had to sail both. The other brother had a motor boat. I will live on an island by the water. I want a boat. Who needs a boat? After not eleven she said, all right, go get yourself a boat. And then I spend the next seven years researching boats until I finally then the financial crisis hits, and then I

buy a boat. I have a different relationship with my wife because I was at a little league game and we're talking to this woman's single mom with two kids. And she said, uh, and she had a boat, and she had a boat, single mom, two kids, right, And so my wife said really and uh, and told her, you know how you do it? You know, go to this marina blah blah blah and uh and she said, well that sounds great, and I we took her. I just I said, let's go. Look, we went and bought

a boat that day. Really, Now, you didn't disclose to your wife that this woman has a trust fund and that you know the marina fees are five grand a year and it's not. Listen, the only thing that makes the toys fun is if your partner has fun with it. Because if it's a source of agitation or it's not worth it, and so I only want to do things like that that she's on board with because that's what

makes it fun. I'm the same way we I occasionally have to twist her arm on vacations, and look when when I show her vacation goes gee, that's awfully expensive. I'm not talking like a forty dollar lux vacation package. It's like a six or seven or an eight thousand dollar vacation, which is not cheap, but it's not egregious for two people who work, have no debt and no kids. It's not a crazy number. Look if I said to her,

look at this package, we're gonna go to Bali. It's only ninety dollars, she would hit me in the head with a frying pan. But when I show her, look this is St. Thomas, it's eight grands. Really, isn't that a lot of money? No, I take a week off a year. I think we can. But you're absolutely right. If your partner is not on board, it's right. It's it's not worth it. It's so she signed off on on the h on the house, she signed off on the boat. The smartest thing I did in my relationship

was when we were dating. I taught her to drive a stick. So the Jeep is a stick, the BMW is a stick, and whatever replaces that car is gonna be a stick. And she couldn't be happier. And my wife can drive a stick. You have to because one day you'll be drinking and somebody has to get you home or uber well that's the other option, but then you're leaving a car in some restaurant or bar. That was literally my thinking. I said to her, I like a stick. Trust me, you'll learn to like a stick.

But one day, listen, it's it's yeah, absolutely, you know. I could digress about automobiles over and over again. The five series BMW, if you've ever driven one, I think they're pigs. That's just my opinion outside of the M five. But about ten years ago, maybe it was close of fifteen years ago, we were gonna buy a five with a stick and it was one of the nicest driving cars. We drove it, we went home, we made an offer, it was accepted. The next day, the guy's wife hit

a pole. That was the end of the car. But literally, that was just a beautiful car. And my wife says, I love this car. I never liked the five series. This drives like a dream. And the difference is, you know, the floaty automatic versus a proper versus a proper three pedal car where you're controlling the power man, you're controlling where now, where you are, you're not that far from

Lime Rock. You should get up to that. We have not to race, but no, I mean to to do the either the advanced driving classes or put in some laps. It's ridiculous amounts of fun and you come away feeling like I'm a much better driver now because I know I know what I'm doing, all right. So it's way after six thirty. I know you have to take a train home eventually. My train just left, so I'm good

for another forty five minutes. Um. Any other subjects that we haven't touched on that are relevant to the three or four listeners who are still hanging around at this point. To get a prize or award, that's right, anybody who's listened this far, send an email to tweet me or Jonathan Miller either at Jonathan Miller or I was even clever.

I'm at rid Halts and and we'll we'll arrange some special prize for people whoever, at least you'll have our respect and admiration for listening to and that's got to be worth Where something did we Did we leave anything out? Have we probably left? And I think there is nothing left on the carcass, So I'm again. I started out by saying, this is a little different type of podcast where I'm not going to just put out a list

of questions. We're just gonna kinda I don't want to say wing it, but have broad topics and and very Larry David like improv. You know, Curb is an improv, but it's it's loosely defined in the actual dialogue itself is within the framework is pretty improved, and I think we kept this fast and loosen. I don't know if I can I'm gonna be able to do this with Muhammed Alarian or somebody else like that. I think I

have to be a little more structured like that. But by the way, if if you guys, if the listeners, that both of you guys who are still left listening, if you go to dinner with Jonathan and myself and our wives, this is pretty much dinner count It's it's boats and houses in real estate and cars other than the food and we actually we have some Bloomberg sponsored yep. This this is pretty much it. So I want to thank you again for doing this and being so generous

with your time. Um So to to reiterate for for those people who want to find Jonathan's search and work in addition to Douglas Aleman, you'll see it at Jonathan Miller on Twitter or at Miller Samuel dot com, and the blog and the podcast regularly all showing up at Miller Samuel dot com. I would be remiss if I did not thank my recording engineer, Mark, my producer Charlie Vohmer, and today my head of my head of research, Michael bat Nick, got the day off because this was a

less deeply researched than usual podcast. I'm Barry Ridults. You've been listening to Masters in Business on Bloomberg Radio. Michael Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg Radio.