Jonathan Miller on the Real Estate Industry (Podcast)

And we talk about something that you may not be aware of, but as someone who runs one of the larger real estate appraisal and data analytics firms, he's been very influential in this space, discussing systemic racism that's built into the real estate market, both from a realtor and an appraisal basis. How a lot of the industry groups are in his terms, like me. He said, they're they're white, they're male, they're older. They have not been appealing to a more diverse crowd. And a lot of people in

those industries are aging out. And so the why the appraisal groups and why the real groups um have been so far behind the curve that they're starting to be subject to a whole lot of external pressure to become more diverse, to to bring in more women, more people of color onto the groups that oversee the industry, and um Jonathan has been very influential in that space, has applied a lot of pressure both to the appraisal group and the real estate group and starting to see results.

More media have been covering the subject, and we we actually discussed some crazy stories about African American families who have learned that if you're gonna do a refined answer of your home and you want or you want to sell your home and get it appraised, take out all the photos of your family, put in photos of a white family, and have one of your friends or neighbor meet the appraiser and pretend it's a wide owned home.

It could be worth more in the appraisal. Crazy stuff that he's been very very critical of, and the media is now just starting to pick up on it. There have been a few stories in the New York Times, in the Washington Post about this. Anyway, this is just a fascinating conversation about real estate with one of the most knowledgeable people about the industry. So, with no further ado, my conversation with Jonathan Miller. This is Masters in Business

with Very Results on Bluebird Radio. HI. Extra special guests this week is Jonathan Miller. This is our fourth interview and the first let's call it post pandemic. Addition, Jonathan is the founder and CEO of Miller Samuel, one of the largest real estate data analytics firm. As well as being an expert appraiser. In fact, he is the sort after the go to appraiser for some of the most

expensive penthouses in New York City. Their data powers a lot of the publication that many large brokerage firms used for their own analysis and media presence. Jonathan Miller, Welcome back to Bloomberg. It's great to be here, Barry, and Uh, I feel like every time is a new adventure. So the fourth time is can only be better. Right, So let's start our adventure talking broadly about national housing. What what is the state of the national residential real estate

market here in the US. Well, it depends on your perspective. Uh, if you're a seller, it's a it's a it's a robe US market. Uh, not quite a bubble, but it is characterized by a chronic lack of supply across the entire country. UH, combined with record low mortgage rates UM a little bit of an uptick recently. But that is creating this insatiable demand, and it's uh it is it is a national condition. It is not you know, pockets of the country. It's seemingly national and uh it certainly

doesn't seem sustainable. So it's interesting. It's interesting you're saying it's created by these low mortgage rates, but we've had very low mortgage rates for a couple of years now. How much of this is driven by the pandemic. We heard a ton of stories about, Hey, I just got to get out of this tiny apartment with my family anyone who could afford to buy a house did? Is Is that still a driver here? Absolutely? So. The way the way I've looked at the pandemic is it is

the great disruptor. You know, it has UH. It made Zoom, the remote office technology, ubiquitous in twenty four hours. It also UH caused a lot of people to sort of think about their living conditions and fantasize about moving or going somewhere. In many ways, it made things like the federal law called the nickname the soft tax job cuts and Recovery Act that really fueled a lot of a

good part of the migration to Florida. Um, there's been a whole thing, bunch of things that have been triggered, and I think it just was triggered by the pandemic in terms of being over the top. And what's surprising, it's rushing and a lot of our contract data we cover about three dozen housing markets are Douglas Solomon real Estate nationwide, and the contract activity is not slowing down.

In other words, um sales activity in many of the markets we cover, like southern California and Florida are seeing new signed contracts that are double last year's level or more and um and we're starting to see you know a lot of that surplus inventory that Florida was known for be uh be roaded to not saying that there's a dearth of supplied, but nowhere near the levels that

we saw a pre pandemic. So you could blame it on the pandemic or you know, claim at the pandemic, but I see the pandemic is more of a you know, the disruptor that made these things, accelerated these phenomenon, So why is there such a stage of houses for sale and how long will it take for a supply to catch up with this big demand. Well, uh so, I think the question is how how much more will prices rise before demand cools. We don't have this sort of

institutional credit meddleman that is enabling purchases. Credit conditions are still sort of, you know, defaulting to more conservative than the historical norm in terms of mortgage underwriting. I'm not saying, um, uh, you know, we have We're not seeing liar loans, maybe things like that on the margin, but generally we're seeing you know, a little bit more conservative views taken by mortgage lenders than we clearly saw in the housing bubble, where you just had to have a pulse or tag

more a mirror to get a mortgage. We're not seeing that. So at some point things are going to the demand wal slope because of lack of affordability. One of the big challenges I think over the last five or six years that was way before COVID, is that inventory has been chronically low for a long time. I mean basically since the financial crisis, and one of the problems are the reasons for that is that a lot of national

home builders have pivoted to luxury. You know, I think luxury, high end home building was the norm in most urban markets around the country, most suburban markets, like it was all about that. And one of the drivers of that has been, you know, land prices haven't had a chance to reset after the financial crisis. Uh, you know, rates plummeted to the floor after um, you know, the Lehman moment and uh, you know, various other issues and really

fueled the frenzy which kept land prices high. So even today we're just not seeing um, you know, that component change. And now with lower mortgage rates and the surge of demand, resources like labor and materials are off the chart, So it's really difficult to build affordable housing. So I think, you know, um, the outlook for that is not so great if you're looking for housing activity to increase in

you know, very in a very large way. Um. And I think and then on top of it, we have a new layer of demand in the market, which is investor homes, which are remnant of the foreclosure crisis about a decade ago, where Wall Street came in like Blackstone and other groups and bought a ton of foreclosure properties. Everybody thought it was an in and out strategy and apparently, you know, it's not, and we're probably going to see

more of that. It's a whole new segment of the market that is going to end up competing with the everyday you know, consumer HomeBuyer type. Yep, that's one of the unintended consequences of making bond yields so low. Anything that can be financially engineered to look like a bond yield, and I would think middle class rental homes probably can

be massaged into that. That's an issue. But go on, go on, No, I was just gonna say, on top of that, like that, and now it's becoming a vehicle like uh, you know, to you know, for a family that wants to get their children into a better school district, you know, but they can't afford to buy the house. They're renting the house. You know, there's a lot of um and and now with zoom and you know, this sort of remote idea. I think the next big topic is in housing is going to be you know, where

do you live? Uh? And I know that's a sort of silly, open ended way to say it, but uh, there's a lot of rethinking that's going to go on, what human behavior is going to be like, you know, in this next couple of years after hopefully the pandemic is brought under control or eradicated or whatever the scenario is.

Because Zoom is the residual, it's still you know, it's not going away, and it's implementation into housing has and has an incredible has and will have an incredible impact on rethinking the way we think about the relationship between work and home. Yeah, that's kind of fascinating. You know, my my wife and I who we know each other socially, we know each other's wives. We early in the pandemic, we would just get in the car and go for

a drive and look at different neighborhoods, including houses. We so I've been in this house, I think September is seven years, and we drove through neighborhoods that we had looked at and really liked, but said, you know, that commute is just it's just fifteen minutes too far to do five days a week. Well, pre pandemic, I started working from home on Fridays, so it became four days

a week. And post pandemic, I wonder how many people are going to be going into the office two or three days a week, which means those more distant I don't want to call him suburbs, exerbs. The further writer right that that next ring out that maybe it's it's more than an hour commute, maybe it's a ninety minute commute.

Are people going to start looking at those as viable options for the magnet cities like New York or DC or San Francisco or Chicago or Miami or wherever is the premium you're gonna pay for being thirty minutes from Manhattan, gonna get arbitraged away, and you're gonna start seeing those ninety minute commutes tick up and value. Absolutely, I think

it's already happening. We're seeing in these suburbs that bring New York City, we're seeing a hotbed of activity as you move further out, and part of that is affordability. So uh, you know you can get more as you you're further away, um from the city, because you know, I think that. I think the way to think of it is, uh, this is sort of a generic application.

Is you have right now, you have the big office towers and in New York and likely most other cities are empty and um and they will you know, fill back up as everybody starting to feel safer, which with the rapid vaccine adoption, that seems to be happening faster than what everybody anticipated. Um. But you know, pre COVID, about five of the workforce was remote and uh and if you know, and there's a lot of talk of that doubling or tripling or even more so it ends

up being ten or fIF um. You know, not a huge increase relative to the total workforce. However, more than of the remaining employees are going to be in this in the fall into the scenario that you're just talking about, where you know, maybe they worked five days a week, now they work in the office. Now they work for

or three or two. And I think what you're gonna end up seeing is you're going to see a tradeoff of fewer commuter fewer miles traveled for commuting, but the average length of a commute is going to be longer

and um. And in fact, one of the one of the terms I've used to describe this, and I've made great effort to get this into the urban dictionary, is the term co primary that you know, we've seen housing markets that we're seen as second home markets, like in the New York metro area, there's the Hampton's or there's upstate Connecticut, or there's the Hudson Valley. Where those markets

are you know, their vacations homes. That's where you've got a vacation home, and now they're becoming a second primary home because the consumer, uh you know, says, hey, I'd love to be able to be out here and work you know a good part of the week. Uh. We're seeing the same phenomenon in Aspen, Colorado that I cover other sort of you know, you think of vacation type markets.

You know, the question it would be asked, well, who wouldn't want to live in Aspen, um even though they have a big home in New York or a big home in Florida or whatever. So you're seeing this recalibration of I call it the tether between work at home. The length has become you know, infinitely longer, and like you said, there's going to be an arbitrage that goes

on in that relationship. So given all that and given the rising prices, I mean obviously you make a ten million dollar house, there's a ton of markup on everything. But wouldn't you expect what's the meeting home price today something like three fifty. I haven't kept up with rising increases in the threes, right, But but now look at depending on the region, look at the under a million, but over half a million, that's like a solidly upper middle class home in a lot of the countries. Wouldn't

you think there's a ton of demand for that. Wouldn't that attract the builders to move into that space? Yes, the problem is that land prices are are the problem that that land, you know, as a factor in the equation. So when you think about property appreciation, you know, if you're absolutely thinking in pure wonky terms, what's actually appreciating is the land in terms of housing prices rising. It's

not the improvements. The improvements depreciate. Now, of course, when you renovate, the value of your home goes up, but I'm just speaking in sort of general terms that the appreciation is the cost of the land is really what's driving higher home prices, and that's what builders are facing our higher land costs, you know, aside from all the other issues like lumber and uh and labor, etcetera. Um, So it really is a challenge. I I don't know how that gets resolved. The other thing is, um, there's

been uh, you know, tremendous hype. I know, specifically in the markets that I cover, uh that there's been a tremendous hype about the suburbs being more affordable. And so that's part of this narrative. The cities are expensive, uh you know, so the suburbs are cheaper. The problem is that in the last couple of quarters, the you know,

the as we came out of the sort of lockdown period. UM, we're seeing, like in New York Metro the suburban housing markets that ring those markets, about a third of the closings that occur in each quarter are sold above the last asking price, meaning they went to bidding wars a third of the market, right. So that that sort of and and at the same time you're seeing weaker housing prices in urban markets, um or not, you're not seeing the same rate of growth. UM. That's been sort of

one of the patterns. So there's this been this equalization, if you will, of of comparison. Quite fascinating. So let's start with another really big question, which is this is the end of cities true or false of. But let me add a qualifier. The driver this narrative is just it's it's, for lack of a a beoutter word, it's just dumb. Uh. And And the reason why I say that is because the the problem with the the problem with the way

this is thinking. And I'm I'm a little Manhattan centric, So let me just tell it from that perspective and then I'll sort of spill out to the US. Is that, uh, you know, when we had this um the lockdown a little over a year ago and everybody is hunkered down, uh Manhattan. What there was this a sharp outbound migration to the suburbs and uh, and the rental market collapse. We saw rental prices fall about depending on the segment.

We saw home sale prices not really they fall immediately, but volume collapsed, uh, you know, falling more than and a lot of the deals that closed during the lockdown, we're just contracts that were virtually closed. Pan. You know, maybe you could count on one hand maybe the number of people in the market that actually bought something uh

site unseen and just did it virtually. And the narrative was that what you know, it was people are fleeing the narrative was fleeing the city and sort of air quotes or exodus in air quotes um and the suburbs were the beneficiary, and there was going to be this sort of structural, permanent move to the cities, from the

cities to the suburbs. As it turned out, the narratives should have uh not been city to suburban or urban to suburban in New York Metro, it should have been Manhattan to the outer boroughs and suburban because Manhattan was really the laggard the burroughs like Brooklyn and Queen's. While their rental market was pummeled, their purchase market was a frenzy. It was they were acting just like the suburb's work. And you know, what we saw initially was just this

massive um outpouring from the rental market. Rentald volume new leasing activity fell between sevent on a month over month basis in April. You know, it's just a collapse. And uh, and that many of the the first time buyers in the suburbs actually um came from the Manhattan rental market because they're less um uh, they were less anchored to

the city. I always felt that many cities went about two or three years beyond what I would call an affordability threshold, and so they were much faster to leave when they didn't feel safe and they didn't have public transportation convenience without being concerned or culture oral activities. There wasn't anchoring. But but the false assumption is that all those people are going to be outside the city forever um and there was just a pivot, and that is

not what happened. And in fact, uh, in the Latin in the recent quarters, especially this first quarter, and as we look at it in a monthly basis, if you go into the spring market, which is sort of the

super Bowl or World Cup of every housing cycle. Uh, I think that the conventional wisdom was, well, now that the city Manhattan is starting to fare better, sales activity is up the air of a year rental, the rents are not falling, and they're falling a lot, but they're not falling by nearly as much instead of they're following

you know, four month of a month rents are stabilizing. Uh. And say you would think that Manhattan's signs of positive uh, you know, improvement or you know already would last year, would mean that the suburbs are you know, a dark dystopian healthcape. You know that no one's there there and

that's not true that suburbs are thriving too. So externally, I think there's a lot of this is just uh, you know, mortgage rate driven that and and combined with sort of fear of personal safety and and that's really all it is. So the narrative of urban diserver and

I think has been really over overstated. On top of that, Uh, there's a really good story or study that came out of the FED that Cleveland FED using New York FED data that basically showed that, UM, really the reason for the light population in the cities or lighter is because net migration involves two numbers, inbound and outbound, and the inbound has been on hold. People aren't going to move

into an urban location if they don't feel safe. With the vaccine adoption, we're seeing record new leasing activity in the city. Uh every month since October is for its respective month has been the highest on record. UM. So there's a lot of churn. And that is it doesn't mean we go back to where we were, We're still at peak zoom. I think zoom is still going to be a factor but by no means are the city's far from over? Of course I'm biased. I love New York. I love the city, and I was just sort of

scratching my head feeling. You know, listen, everybody's writing the city offices it's over, and I just don't see that. So let me see if I can reiterate a few key points and ask a few follow up questions. My view has always been, Hey, city states have been the dominant form of culture, art, economic, business energy for two thousand years. There's a reason for that. It's not going to just disappear. That's said. You see some of the crazy price of your cities like New York and San Francisco.

Are we looking at a potential price reset? And we haven't talked about office space, but assuming that there is an excess of office space, is that going to get converted to residential? What? How do you see this playing out over the next couple of years. Yeah, so those

are really good points I do see. Um. You know, I think many people don't realize like the what I call the i candy of real estate, you know, the stuff that is the the uber luxury the billionaires row Manhattan say, for example, Uh, you know that it's not housing for mere mortals. I'd like to say, uh, I think many people haven't realized that since two thousand sixteen fifteen sixteen, which was the peak of the post lehman um uber luxury development market, that prices and some buildings

are down. Like you look at a building like seven on in you know, there were there were seven or eight resales in two thousand twenty and the median decline in price as a resale meaning the sponsor the developers sold at two thousand fourteen and then resold and then sold to you know, the person that bought from them resold at some point in Uh, you had like one sale it was eighteen percent below, five or six sales that were below and one that was over below with

the the seller originally paid from the sponsor. That's quite a reset already. And that was going into the pandemic, Jonathan, what you're talking s um, you know in what we would call a Manhattan Central business district and uh, and so you know a lot of that reset had already

happened before h COVID, before the pandemic. So um, so I don't I don't see that, you know, and that was a market that was heavily uh invested in the idea that there was a wide and deep market for billionaires for mega you know, ten million up type units, and as it turns out, there isn't There are a lot of those buildings were not sold out a couple

of years ago. Did they ever sell through all the units? Know, there's still like an aggregate, if you do a survey, it's well over half the units aren't sold some you know, the earlier in the earlier in the development boom post financial crisis, they have higher sellouts than the more recent entries. But it's an aggregate, it's about half uh So that's

not very successful. But on the you know, on the flip side, for the developers themselves, many of them broke even our construction costs at sales um and so they can hold these things for years. But it's you know, it had a limited sort of lifespan, and that is not that it's like you're driving down the highway, um, you know, at eighty miles an hour, and then you get off the exit and the exit speed is forty five.

It feels like you're going five or ten miles an hour, And I think that's the danger in looking at sort of uber luxury. I see it as a circuit side show and not the real, you know, the real issue, which is it's very difficult to build affordability. Affordable housing in New York is very complicated and in any urban market, and that's a challenge that's been around, you know, for for centuries. Let's stick with the topic of urban apartments that are for sale. So I'm hearing you break this

into a couple of different strata. Affordable housing, which if anyone's been around Manhattan and and full disclosure, our offices are like half a dozen blocks apart in in Midtown near um Brian Park. Um affordable housing has pretty much been pushed out of Manhattan to the outer borrows. There's some, but it's becoming fewer and further between. Then there's sort

of mid priced housing. And I'm hearing you really differentiate between what I think of as luxury housing, which is a nice apartment on Central Park West or somewhere on the Upper east Side with the balcony, versus these crazy uber billionaire housing and and those are two different strata. How are they managing in terms of sales and how important is that too urban centers like New York or Chicago or San Francisco and Miami and and down the line is this is this a side show or is

this really a key part of the real estate market there. Well, the the circus side charm referring to is this sort of uber luxury category, which you know really starts at five million and up. The first wave of new development of financial crisis was ten million and up and then they realized, you know, that was too much, and so split the units in a half or whatever. And you're starting to see uh, you know, well you're not starting.

You've been seeing you know, very slow adoption and large repricing, significant repricing from two thousand fourteen fifteen highs the balance of the market um new development is being snapped up. The lower you go in price, the faster are absorbed. So the challenges how do you create something that's affordable because the demand is there, it's just there's just not

enough of it. And that's the problem. The way we sort of prime, you know, the sort of you know, the optimum new development pricing UM for like a modest two bedroom, uh, you know, it's really going to be you know, two to four million dollars when really the market demand is more like one to three. So sort of there's not quite a match because it's been driven by land prices. Land prices, you know, have been you know,

historically mountain land prices have always been very high. But it's also very complicated and difficult to build in New York and it it takes a person you know, with pretty much you know, insatiable drive to develop to do it, and you know, the rewards can be very high. Just a side note, you know, uh, you know, language and

how things are articulated as everything. In the nineteen fifties, the term luxury meant that you had an elevator and maybe had a doorman, like, you know, like that was luxury. You know, Today, luxury, you know is I mean, I defined luxury in any housing market I cover as a top ten percent of transactions by price. I don't. I do it in an objective way, not a sort of um, you know, a subjective way. But that market, you know, often behaves very different than the balance of the market.

And you know, the market is very segmented. And I think when we look at real estate and talk about affordability, we tend to sort of look to the very high end as sort of a reason. But you know, when you have a one bedroom apartment in Manhattan, sort of an average one bedroom in a modest building sell for a million five, right as sort of an average. You

know that's that's a big number. But but it does have an elevator, right, I mean, so it's worth have an elevator, and does have a doorman, and and you can it does have a you have a bathroom in your apartment. You know, you definitely have the basics. There's no doubt that top ten is different than the rest of the market. And you and I had a conversation a long time ago where we discussed mortgage rates are just not relevant to that market segment right until the pandemic.

So I'm exaggery a little bit when I say that. So, so the way to think of Manhattan inaggregate, all the sales transactions are in any given year, we have got seven years of data are about cash, meaning that they

bring cash to the closing. Now, they could have gotten financing in Ireland and brought the cash over, but you know, we mostly see that it's mostly no. So I don't know if we discussed a buddy lives on Central Park West, and he was trying to do a refinance of his mortgage and he found it incredibly problematic, and and he was working his way through. This is when rates first collapsed, and he went to the head of the co op board, was a buddy his, and said, hey, what what's the problem.

Why are you guys having such a hard time with all this paperwork? And the guy paused and said, I won't mention his name, but he said, you're the only person in the whole building that has mortgage. The entire building, not too far from the Dakota, everybody was a cash buyer. Just to give you a sense of wealth at that level, nobody is borrowing for their primary residence there. How much is twelve million? Alright? Alright, you check right exactly, and

it's not there, right, And they have multiple residences. So the way to think of it is when he before the pandemic, you split cash fires the market, and there they scale by price. So the more reliant users on financing tend to be at the lower end of the price spectrum. So when you talk about under a million dollars, you know roughly of those buyers rely on a I'm sorry, pay cast get a mortgage. On average, as you move to say the upper end, like north of five million,

it's around eight, pay cash and get financing. But I would argue that they get financing, don't do it for the purchase. They do it because their financial planner said they can get a deduction. Um. And what has happened post pandemic, and I think this is a temporary blip, is that the numbers have shifted a little bit, and that even you know, instead of eight people paying cash

at the top, it's like seventy dropped about ten. Just because rates are so low, how could you not take advantage of them at that you know, even at that price point. Um. And because the market has been so soft at the top that you don't need that to differentiate you from other buyers like you did five six years ago. Um, you know, by paying cash and having a mortgage or mortgage contingency. We're starting to see we're starting to see um uh you know, uh, well, we're

continuing to see um bidding wars. Even during the pandemic, we saw bidding wars at about about three and a half percent of the Manhattan transactions, which seems like a lot, But in two thousand and fifteen it was much like the suburbs are today. Um. But we are seeing some upward price pressure now and some of the segments um that are that are you know, we're starting to see a little bit more intensity because inventory, which was bloated during the lockdown, has come down and it's just about

ten twelve percent above the long term norm. So we're not really dealing with the market that's just lousy with inventory. It's really tightening up a bit. So I have two last questions related to cities, and the first is we started talking about office space. Let me let me ask that question in a different way. Would you be a

buyer of commercial real estate in the city. Have those prices fallen enough that doing conversions are financially attractive, including to those pension funds and institutional investors that are looking at real estate, or has that reconfiguration has that reset not taken place yet? So? Uh So, when you think about a real estate trends action or real estate market and how you get to the point where prices are much lower, uh there's always a step missing in this process.

And we're in the middle of this step. And I'll explain. So think of it this way. There's an external event and sales activity plummets because of whatever you know, think of COVID, right, So so transaction activity plummets, whether it's leasing or you know, office building purchases, it plummets. So what happens right after that inventory kicks up a lot, right,

you know, supply and demand going opposite directions. And so the next assumption, the next step is that prices fall except for the part where the seller has to capitulate to market conditions, and that takes a couple of years.

It's like to think of a you know, a seller in you know, your neighborhood and they wildly you know, you know, they they the market plunges, you know, the factory closes, that supports all the jobs in the town, and they don't reset their price because for you know, they've had this built an idea for a long time. And I think that's what's happening with commercial landlords where um, you know, where there's gonna be an aftermath that's going

to be different. Um. The problem right now is that it's and there's a lot of funds, there's a lot of money being raised to sort of scavenge, you know, the dead carcasses. But I think that's a multi year process down the road. And the reason for that is because it takes a while for the landlords to capitulate. Other thing is, you know they had they're locked in with tenants you know that might have five years left at a full you know, you know pre COVID sort

of rate. Uh. And so I think this is going to play out in sort of slow motion, is my guess. One thing I'll say about remote work and you know, right now, I like to say we're at peaks zoom. Um. And so this is not how it's gonna be for our office workers. But it's not going to be the way it was pre COVID. It's going to be somewhere in between. And we're trying to figure out where that is. Um, the same goes as landlords. You know that that uh

you know office space. Um. We've proved that remote working actually works, but it's not optimal. It's very difficult to you know, train new people, uh, you know, to create office culture. You know. So it's it's it works, but it's not perfect. Uh. And after COVID, like I said earlier, it's still here. As an option. So we're going to see downsizing and we're going to you know, but we're also going to see at the lower rents are going to see an influx. I call it a youth renaissance UM.

And that's what I'm kind of excited about about, you know, for cities is you know, one of the challenges of the urban of urban markets was, you know, the whole new urbanism trend. You know, walkability, you know your your local, you know you're you live through or four blocks from your officer. It's easy rite on public transportation, grocery and any shopping is went in like a two or three

block radius. The problem is is that, uh, as development expanded in cities across the country, their creative class, the working working class were completely squeezed out. And so we're you know a lot of office workers where they had to live in the suburbs and then sort of commute

in UM. And so what's happening now with rents down sharply and sales to a lesser degree because they're down modestly in terms of pricing, UM, you're already seeing we've been seeing record inbound or we've been seeing record new leasing activity like the highest sense of financial crisis for like the last five or six months. But prices are still falling, and that's pulling in a whole new sort

of demographic. Uh that I think we'll have profound implications for the rejuvenation of the city sort of you know, I'm calling it like a youth renaissance, and that applies to companies, uh, companies that wouldn't be able to afford class A office space now that people left, you know, holding the bag. Here are landlords who have enjoyed a tremendous advantage for a long time. But I think, you know, for the mid for the short and mid term, I think that you know, it's going to be a very

challenging world for them, to say the very least. I was kind of surprised we were in the city this weekend. On Saturday, I actually took my wife and her sister down to a renovation hardware which is down in the mid packing district. Um. Of course, my sister in law wanted to play a dining room table, but wanted to see it first, And I was shocked about a number of things. First, I was shocked that I was able to pull up and get a parking space half a

block away, which was unheard of. And then second, um, I try to get lunch reservations. Like days before, everything in the neighborhood with outdoor seating fully booked up, which is a positive economic sign. And then when we were leaving, I was shocked at how parts of the village in Soho were just Now Saturday was beautiful out but it was just jam packed with people. It was it was a party going on, mostly young people out and about,

mostly masked. That's a whole another discussion. But the town was a ghost town and downtown was just full bore. Is that a residential versus office comparison? Because I didn't

know how how else to read into it. When you come through the Ton One, you make you way down to the you know, the meatpacking district on the lower West Side, you pass through three or four different types of neighborhoods, and granted Midtown is usually quiet on the weekends, but this was really quiet, especially Soho was just banging. It was amazing, right, So so I look at this as the way I describe what you just said was

Manhattan and cities in general have an optics problem. And so when you think about like a story on Manhattan or San Francisco or you know Chicago. Uh, you know, the center business district. The camera pans over the vacant, boarded up retail and piles of garbage, and you say, wow, you know this is this represents Manhattan or Chicago or and then you go to like the Upper East Side or you know another number of all the residential neighborhoods.

They're vibrant. It's not normal. You know, everybody's wearing a mask, but there's a lot of activity, a lot of outdoor dining in the nice weather, and it it just it's encouraging, but it's it's a it's a complete opposite visualization of what you're seeing in the central business districts. And um, and I think that changes over time is more and

more people come in. I think the big sort of pivot point is going to end up being around September, but maybe earlier, because that seems to be when Corporate America is talking about calling their employees back. Uh. You know, and I think this is a function of the acceleration of vaccine adoption. Um. You know that that seems to be the default answer, but you started to hear some financial firms talk about I think it was Credit Sweez

and SAP and UM. I think it was JP Morgan or Bank of America where talking about July June may as really starting to ramp it up. And two things happen when that happens in the context of central business districts like you know, Wall Street or Midtown. Is that, uh, you immediately send oxygen to street level retail, which you know, thousands and thousands of office workers are not in that locale and all of a sudden they are. So that's gonna that I think they'll be rapid deployment or resurgence

in retail. I'm not saying it goes back to pre pandemic, but it's improved dramatically and a fairly fast clip. And then the other thing is I think that you know, the rental markets in the central business districts are going to boom um in the short term as this callback happens um uh, which then sort of rings up the sort of aggregate numbers of you know, the various markets that we cover in terms of you know, real estate activity.

And I think that's and so I look at as this sort of you know, gradual process as opposed to some sort of light switch. But I think the closest we get to a light switch is when corporate America feels safe enough or their employees feel safe enough to start calling people back on mass recognizing that it's not going to be everybody, but it's going to be dramatically

more than we are seeing right now. And I think people when they think about remote working, they sort of stereotype it as you're sitting in your suburban house and you're working remotely with your colleagues, you know who may or may not be in the office in midtown, for example. But I gotta tell you a lot of the remote work that's going to happen, I think it's going to happen uh in um in the city itself. Just because someone say works at home, wants to work at home

for a couple of days a week. Well, they may live in you know, Washington Heights to the Upper East Side or soho, and they're still doing that. So it's not working. Remote shouldn't be sort of pigeonholed as suburbs into sort of you know cities. Um, it's it's it's everywhere into you know where these companies are located. Very interesting. So last question on the segment on cities, when do you go back to the office and when do you

have your staff come back? So right now our staff is already h you know, I'd say we're about back, but alternating, we have a schedule so we don't have too many people in at the same time. You know, we have some people that live within walking distance, I don't want to They love their spouse, but they don't want to sit in their one bedroom apartment, whether they're both working all day or they have small kids and they alternate or whatever. Um, So that's uh so that's

already happening. I'm very anxious to get back in personally, but I'm gonna start it slow. I live in Connecticut and I'm a commuter, and I've had Yesterday was the two week anniversary of my second COVID shot, So I feel much better about coming in as well, you know, and I'm anxious to. So starting in May, I'm probably gonna come in one or two days a week as a regular schedule. And and before the pandemic, for the last like twelve or thirteen years, I was only coming

in three days a week. I was working at home. I was already working at home on Mondays and Fridays. UM, and so now you know, I end up coming in two days a week. That's sort of probably the maybe stay at home one day than I normally would. We're going to take mass transit, gonna take mass mass transient, mass transit, you know where the masks try to stay away from IM and still be even though I've had the had both doses, I'm still going to be very cognizant.

First of all, Um, you know, there's still risk uh and and there's still a lot unknown. Um, But I want to start going back in and I'm just going to be very um prudent about it. Uh. And I think most of my staff feels the same way. We're probably not going to have everybody in for you know, probably not till the fall. And and what we found is that the remote really works. But the big, big, big challenge of it, and where it doesn't work, where

it fails is mentorship. You know, we're really busy, we anticipate being very busy for the next couple of years. Were desperately trying to hire people and um, but you can't train them remotely. You can't, you know, they're not immersed in the office and overhearing you know, all the problems solving with valuation questions. So it's really, uh, it's really a dilemma that we face, but you know, safety

always comes first. Quite fascinating. Let's talk a little bit about something you've been writing about for a long time. And there are two key issues here I wanna touch on. One is racial prejudice in the housing market. And then more specifically, the topic you've been writing about is issues of racial inequality and lack of diversity within the housing industry itself. You've been a pretty vocal critic of your own industry when it comes to this. Tell us what's

wrong with the housing industry? So, yeah, if you if you think back to the nineteen thirties and think about the federal government and the redlining that was prevalent um and the deed restrictions covenants that uh, we're in place for housing in housing markets throughout the United States. I know, the Northeast, you know where I've grown up and live

as live now. Uh, you know big part of the history of housing and how housing markets grew and were shaped, and so one of the things that is extremely obvious in my own appraisal profession is that we are an aging professional of middle aged white males. UM. That is

what we are. And the reason we are is because the leadership in our industry is UM UH sort of sets the tone and and so giving an example, UH, to be a license or certified appraiser, UH, you have to follow standards called use PATH United US Professional Praisal

Practice Standards of Professional Praisal Practice. It's called us PAP and and the problem with use PAP is that the organization that administers it or or sets its basically sets the you know, sets the criteria for entering into the profession. You know, what's how to behave. UH. They have technical boards for specific things and one of them is called the a QB and the Appraisal Qualifications Board. And from this organization's founding because appraisers weren't licensed, UM became the

licensing UH. Licensing requirements really started in the early nineties with FI RHEA and UH and and really are UH. There's been no change. So, for example, the a QB has not had a minority member until this year, and only because of external pressure from myself and others that have been writing about this. They literally set these these standards for entry into the profession, which is anemic, has been anemic for the last twenty years. Uh, and so we're aging out. And the reason for that is I

think it's just blindness that they don't realize. So they set up a diversity committee and white guy yeah, which is insane, and that what that tells you is they can't see it. Right. Um. I think there's been a lot of sort of um, there's been I believe it's three stories that are being recycled over and over nationwide about you have you know, um a an African American couple refinancing their house or some example like this. There was one in the story made described in Florida, a

northern California. I forget where the other one was, but it's all the same sort of idea where where the appraiser comes in and they appraise it for X, and then the the homeowner you know, has their their non minority uh neighbor come in and act like they're the you know, the occupant, and they take down all sort of personal photos and then magically the home appraises for

more and they're able to get their mortgage etcetera. You know, because you know that you know, and it's sort of you know, uh, you're you're basically saying, look, you know, this was a prejudiced outlook on the value and UM. And I think in a lot of those cases, you know, and who knows, I'm sure this is one of those things that happens a lot. It certainly happens in the brokerage industry. There was just a big Newsday UM story last year. UM, you know, sort of an undercover type story.

So it is prevalent. It's prevalent in I would suspect every industry, uh, because systematic racism is is here. It's you know, it's it's here. It's just one of the things that society is sort of grappling with. UM. But unfortunately, uh, you know, it's it's in my industry. It's a big thing. And there's nothing that is it's all lip service. It's all just I call it like checking the box. Okay, we have a diversity committee, check that box. But there's

nothing inherently different. It's the same people that have been in charge for all over three decades and they just realized now it's a problem only because outsiders are telling him it's a problem. We have the same issues with our largest trade group, the Appraisal Institute, where uh, you know, a handful of women and no minority representatives. Uh, you know as senior executives. Uh. It's just an inherent, systematic, systemic problem. Um. But it's being blamed on the local appraisers. Um,

you know, as like that's the reason. And I think it's more top down. It's you know, the people that are attracting people to the profession and people that are setting the standards for entry. I think I think one of the biggest problems in the our industry is that unlike being an accountant, until you have two years of experience full time, you can't be licensed, can't be certified. So it's can you see the catch twenty two had license are certified unless that person is like a family friend.

Because on the economic side, since the financial crisis and thanks to dot frank UM, in order to remove moral hazard from mortgage lending, a lot of the appraisal functions, like the ordering of appraisals, the reviewing of appraisals has been shifted to giant third party UM institutions who take

half the fee. So so you know, you on your mortgage application, take pay X dollars and don't realize that fift that dollar goes to a third party company that all they do is make sure your license in your state, make sure that you're compliant with whatever regulations are, and that's it. So you're gonna you can't attract new people in because the compensation has you know, fallen through the floor.

And then the regulations that we have are created by people that are completely immune to what the challenges are. And so we're really at a crossroads where a lot of this stuff is being pointed out in public, but it's you know, it's been built in for a century. There nearly a cential over a century, but in specifically the housing uh and there's no sort of proactive response.

So people like myself and others have been very vocal about it, naming names, you know, you know, feeding the public intel about what's going on to try to affect some sort of change, to bring more diversity and more people into uh different you know, real estate industries. And that's been my passion for quite a while. So it's funny you mentioned most people who who are in the suburbs, you don't realize most white families probably don't realize how

systemic it is. And and the moment when I realized I was reading one of the biographies of Robert Moses, where and who Robert Moses was a famous builder who who had done parks and beach are just you know, all over New York State. His fingerprints are everywhere, highways and bridges and just endless infrastructure projects. And in the New York area there are highways and parkways and what separates them is the parkways or cars only you can't have trucks on it. And they have these beautiful stone

archway UM. I know that some of these are in Connecticut, also in Westchester, these archway overpasses, and I just thought they were pretty. It was only reading one of his biographies that I learned that these were designed to keep buses from the city from going to the suburban parks, beaches, etcetera, which at the time were all white. And I had no idea it was literally a physical impediment to keep

urban dwellers out. It was. It was a sort of shocking moment when I learned that you've criticized the National Appraiser Board UM and I've read some stuff about the National Association of Realtors. What what's going on with these big umbrella organizations. Aside from just the total lack of diversity in their membership right right, they're definitely challenging the It's you know interesting the story just told. Uh that was in The Power Broker by Robert Carroll. That's the

book I was thinking. And that is the first book I've read when I moved to Manhattan, and uh, and I just felt like I had to know how the city was built. And it was a spectacular read. Highly recommend it. Um. You know, I think, uh, in when you think about the real estate world, the real estate community, they're still um these trades. You know, you have to remember that these are trade groups, so they're doing everything

to help their members sell more, you know. And and so I think when we look at nar National Association of Realtors, they have I believe they spend I I thought, I read this recently that they have the highest like spend per lobbyists in Washington or one of the top people. And you know, their whole thing is to make real

estate transactions easier and faster. Um. I you know, when we saw it when we this News Day story on Long Island, I would imagine that's the default everywhere that's not Long Island is not, you know, an outlier UM, and there's there's just not a lot of insider discussion about how to fix this, just like there isn't in the real estate appraisal community, which is a tiny sliver UM my profession has about seventy five thousand credentialed members

across the US. Uh NAR has like a million, four million, five members. I believe UM dramatically bigger, tremendous lobbying power, and they do have an appraisal UH sort of subset within the organization that has done some really good work, but still the problem remains not nationally UM UH. And

you know, it's really interesting. There was a study that was done by the Brookings Institute Institute like two or three years ago that was part of a court testimony, a quirk systimony rarestional testimony in Washington, which basically said that UM appraisers like it didn't understand what appraisers do. And I think this is one of the big biggest challenges in valuation is everybody really knows what a real

estate agent does. But they don't know what a real estate appraiser does and that and that makes us sort of you know, we get blamed for a lot of things. And one of the blame, and we were seeing this in a lot of articles in the public, is that, um, we're the ones that set pricing in a in an in a neighborhood or a city. Um. And the problem is is that our profession is really a profession of observers, and we create opinions for a living, so certainly vulnerable

to prejudice in that regard. But our our goal is not to set markets. Our charge from learning institutions that we do appraisals for is to give a market value opinion on what the property would sell for if it's sold for today, you know what what is it? And um, we don't say, you know, we don't make a neighborhood lower priced, because there's what we're literally using sales from

the neighborhood. So maybe it perpetuates the problem, but the larger problems and there's this really miss a big misunderstanding about you know, the role that we play and other people play, um in the industry. And I'm telling you, you know, there's a long way to go, and it needs to happen quickly because it's long overdue. Right. That's funny you mentioned that. The one accusation is you're you're helping to hold prices down during the financial you're leading

up to it. Anyway, the criticism of appraisers were, well, they're using comparable so if a neighborhood is becoming a bubble in price, well they're doing is saying, look, all these other comparable sold for crazy prices, so therefore you could give them a mortgage for this crazy price. Right, I mean you know that, and you're absolutely right. And this is part of the problem is that we're not forecasters. We're not predicting the future. We're saying, here's something that's

sold yesterday for this price. Uh, three way bidding war. So what is the collateral work today? The offset to that is the credit profile of the consumer. That's by which we have nothing to do with. UM. If we were in the forecasting business. Uh, and there is a more liability attached to our UM. You know what we're writing about then, UM, you know, the costs of an appraisal would be you know, five top four or five

times what it is now. Which i'd gladly, I'd love that, but that is not what the mortgage sort of machine wants. They want cost to be nominal UM. And in fact, during this sanchial, during this pandemic, the g s S, which arguably you know, have about mortgage flow through their hands, UM about something like seventy something per cent of mortgages that were issued during the pandemic did not have an appraisal.

They were they were just you know, they ran their sort of their own estimate UM against their own you know, there's there's estimate would be the consumer facing a b M or automated valuation model UM and they're running their own so you know, that could be a nice little mortgage challenge down the road. But UM, but what's really interesting, and this is something that's off topic, but when we think about estimates or a b M S and their accuracy, if you ask most consumers, and I find this amazing,

you know, this estimate has a median accuracy rate of five. Okay, so when you really think about they here five and like, wow, within five, UM, that's that's amazing, Except for when you actually read what they're saying. That means that the median accuracy that means fifty percent of the time it's within five and of the time it's not. It's pretty wide.

And that's basically the A B M world that is uh, you know, the idea of automation UM so you know, which is something that we're sort of migrating towards over time, quite fascinating. So point blank, our our home prices in

a bubble now, I don't think so. And the reason is we don't have that help we got from the mortgage industry in terms of when you don't qualify for a loan, you can't get one, and M one of the things if you look macro mortgage volume is in the US has in terms of like the average loan

amount has not kept pace with home prices. So actually we're not as we're becoming less leveraged, even though you know, there's a tremendous amount of sales activity and prices are ramping up um as opposed to Canada, which it's the opposite, which we're seeing mortgage volume rise faster than uh it's

associated housing volume. So you know, maybe this go around they're going to have the problem that we did that they didn't have in our housing bubble um and so I and I think the one thing that's good to remember, and something I just I've discussed before is that mortgage underwriting is not normal. It is tighter. You know, if you go prior to the housing bubble era and then and then go thirty years prior to that and use that as the standard, we're tighter than that era. So

I feel very good about that. We deal with lenders all the time. Uh, and there's you know, there's a lot of seriousness applied to marketing and in fact, uh, you you definitely are seeing lenders could be lending more, but they are not. Uh, they are not on the same page because as they were in the past, because they're they're worried about the future and the future risk. And I think that's really encouraging because to me, it suggests you know, and you know, we we we know

that each new each time it's different. But um that that I it doesn't seem like we have a mortgage or a banking crisis, you know, laying at our doorstep. That's obvious. Uh. And and you know, I think that at some point we're going to see you know, home sales activity dissipate simply because you know, financing is going to become a problem. So this is a crazy new era where in order to get a mortgage you have to qualify for one, have an income abated history and

a down payment. Um. So obviously it's different than it was in oh, five, six seven. But the flip side of that is how much of this is interest rates driven? And what happens if rates start to tick up and what else might cool off this market? Yeah, I you

know it's funny. I I always hate the blame or the driver on low mortgage rates just because you know, rates have been falling for over thirty years, and housing prices have gone up and down, and volume has gone up and down to the psycho, So there's lots of other factors and mortgage rates people that sort of track it and live and die by it. Um, you know they missed a lot of the color. You know. You know that sort of results in the pricing, uh decision

that buyers ultimately make. But it is UM, I just think you can't go wrong when you when you have lenders sort of leaning away from risk when it comes down to this. So I'm not I'm just not that. UM, I'm just not that concerned about it. I think things will cool off activity when we hit a certain level. I've read that about people that have a mortgage in the US have a rate that's four or less and uh and so I uh and this actually came from uh, my friend Ivy's element its element and social uh and

the uh. So I start thinking of if we top you know, that's when we starts seeing like an off switch being flipped or you know, for the sort of extra activity that we've been in the market's been enjoying. Um, you know, with the rate dra um. But that's amazing, it's it's it's kind of shocking that that many people have, you know, are that low. So when we bought this house, and I want to say, it was so it's about seven I know it's fourteen. It's about seven years ago.

People thought I was crazy when I said I'm going to do the variable mortgage, even though it was at the low low rate of three point seven five. And it's since slipped just under three percent. And I'm interest about the point where I'm ready to say, okay, let's convert this to a to a to a fixed rate mortgage. But I remember having people say to me, you're doing a variable at three seven five, I'm like, well, as soon as you can show me signs that rates are right, Well,

that happens all the way down to zero. And you know, even if it ticked up, there's a hundred and fifty basis point limit and you could always convert it to to fix back then. But I didn't think I was taking a big chance with that. Um the And and what I've noticed is I've seen increased solicitations now for refinancial mortgage. Those are taking it in right absolutely, and uh, you know it's interesting because there's a lot made and I don't quite know the answer this, but there's a

lot made on you know. One of the points you brought up is, you know, you know what's inventory? Like is it? You know why we have so little of it? And one of the reasons I don't know if I and I'm sure there's a study, I've never seen one, but you know, one of the reasons now for low inventory is people don't want to give up their low rate. You know that they're not quite and and I I don't know, I hear that kind of you know, it sounds it sounds logical until you really think about it,

and I I quite quite there. Yet You're can roll out of a three percent to a three point five percent that's gonna affect you moving, So you're not going to move because it made no sense another bedroom or whatever. But that's used. That logic has used a lot, and I I need to be better educated about it because I'm not buying it. So you men mentioned the z estimate,

which is the Zilo estimate. But there's now a whole new world of eye buyers and open Doors and even Zillo that had gone from mirror apps to facilitate transactions to actually becoming buyers. Tell us what's going on in that world? You you were involved with one of those

apps some time ago, weren't you? Yeah? I was. I was on the Truly Industry Advisory Board a year before they had or before they had a website, UM, and they came out a year after a Zello and then by two thousand fourteen they essentially merged or you know air quote, Uh we're bought by Zillo and UM and then you know, I was out, But I m I learned a lot behind the scenes, and uh, you know, in many ways it seems like uh, you know for

those listeners that aren't aware. But an I buyer is essentially a company comes to you and buys your house from you. You don't put it on the market. They give you an offer, they factor in repairs, there's a bunch of charges and um, you know, for many sellers it's actually more than a commission might be if you sold for the same price. But there's a convenience. You don't have to show your house you have to let, especially during you know this period of you know, pandemic

and all that. Uh and so when it first when and I've heard a presentation by open Door at a at a conference I was at before the pandemic, and it's pretty impressive. But it hope he struck me as because the margins are razor thin. Um that it only will work in a homogeneous housing market like think of Phoenix or Las Vegas. You know where these firms really um you know, do a lot of deals, activity of transactions because the housing stock is very similar, so you

can be more precise. Um. I think Zella was uh late to the party, but certainly had the wherewithal to jump in quickly. The problem and what's interesting is in their I buyer effort. They've had a press release that they're not using there's estimate technology, which which I think, I don't know about you, but that to me says something saying there have to be a low bowl offer

because they're buying. It's a resell makes sense, right if you're you know, any place you see sell your car for cash one cars or whatever it is, you know they're they're going to pay you less than if you sell it yourself, and it has to be right right, And you know, for some that's a convenience, like you don't want to have to with all that and the stress, and maybe it takes five months, and so I get it.

There's gonna be a niche. But I think with the all this really burst on the scene and open Door was really and there's offer Pad, there's others, um you know, I think that it was like, hey, this is going to replace traditional brokerage, and it's gonna be you know, it's a dominant form of of selling your house. And you know, I think it's there's a market for it.

I think it's just gonna be a play a much smaller and the problem is that you know, these companies are investing billions in technology to be able to get comfortable with valuation and UM. And it's really, uh, it seems seems like a pretty risky venture. UM. And you know, one side of it is after the pandemic lockdown started to occur, all these companies ceased operations because they've never gone through a down market or you know, what could

be a down market. I thought that was really interesting that you know a lot of the you know, the boom we're seeing in fintech and all this is predicated on rising market conditions, you know, strong sales activity, growing sales activity, UM, and and this that just sort of caused me to pause a little bit. You know. It's like, and I was saying this before the pandemic, um that you know, these these haven't been tested in the down market and how the that worked as their inventory explode,

you know, as sales really slowed down. How does that work? And they haven't been tested yet. So I think it's an evolving model. It's here to stay. And and I think you know, they're they're gonna work really hard to figure it out, and there's gonna be pinning the herd, so to speak. Um. You know, with all these companies out there. There's not enough room for all of them, right.

It's hey, listen, the inconvenience of selling your house on the market and having people trample through your living space, that convenience has a value. But I assume that value is I don't know, five bucks, two thousand bucks. But it's not going to be let me sell this house for all its less than I otherwise would have get gotten. I don't think it's worth that amount. So it'll be

interesting to see how this progresses over time. Yeah, and I think I think, just like everything in this sort of post lockdown pandemic world, there's gonna be there's just a recalculation going on right now, all sorts of things, and this will be one of them. Really interesting last

question before we get to our favorite questions. You had briefly mentioned SALTS, which is the the tax deduction for state and local right taxes against your house, which the previous administration had slashed to about ten thous dollars, which I know infuriated people in blue states like New York and California and Connecticut. So so let me ask you the question, who are the geographic winners and losers of the pandemic. How much of it is related to that

salt deduction changing for real estate? And do you think there's a move afoot to tie a rollback of salts to the infrastructure bill? Do you think this has any legs that this will change? And I'm not asking this because it personally hit me in the pocketbook, it did, But it's a fascinating subject. Sure, sure, I think so. You know, essentially, it's a dollar exemption cap on property

taxes and uh, state and local taxes and salt. You know, when I grew up, salt sted for Strategic Arms Limitation treaty, but uh, and then there was salt to UM. This is a different salt that you know, uh cuts closer to home, so to speak, and uh, and it really in high cost, high tech states are very vulnerable. You know. The offset to this was to double the standard deduction. And so I remember being, you know, a couple of years ago, because this went into effect January two thou eighteen.

I remember going to a conference in Dallas and we were sort of rainstorming our next conference, and what were

some of the things we're going to talk about? And I brought this up, and everybody from the Midwest like stared at me, like, what are you talking about, because they don't have the same you know, high taxes the relative to you know, different locales, they might, but in the context of you know, New York State or New Jersey or Connecticut or California, Illinois, you know, these are really consequential and um, and I think you know, aside

from Rockland County, New York being like the highest property tax per capita, I believe I've read that in a Bloomberg story, or it might be Westchester, Like I think they're buying for the top, um, you know, really big numbers, and that's sort of been baked into housing prices. So really what this does is it if you know, if you just to be aspirational for a second, you know, you buy a house for ten million dollars and the typical annual property taxes are about a hundred seventy Uh.

And let's just say you're state and local taxes are the same. So double your property taxes, uh, and you can only write off ten thousand dollars. Now, Uh, that really changes the math, uh substantially. And so what you've seen is, you know, higher end housing markets pre pandemic Uh, in the suburban markets really get hit hard, the north shore of Long Island. A lot of the higher end housing markets around the country that we tracked UM spent

most noticeably in California where we focus on southern California. Uh. You definitely have seen prices UH fall as a result, um, not overnight. It's sort of been a gradual um decline UM.

And you know, it was really interesting. And again back to my idea that the pandemic has been this great disruptor, is that Florida has been and was anticipated, you know, January one, two thousand and eighteen, the Florida real estate community, I covered about fourteen housing markets in Florida on the Gulf side and the Ocean side, and and everybody's just you know ready, you know, they're just they're you know, ready for this massive flood of demand from the Northeast.

And while it was there, it was tepid. And once the pandemic hit, and I think you know, for many that have been on the fence and skewing to the wealthy in the high cost housing markets, you did see this UH surgeon activity during after the lockdown and in Florida, UH and surpris rising ly, at least to me, it hasn't stopped that, you know, the contract data we're seeing uh, you know, in many of these in the five counties in southern California, southern Florida, we're seeing contract activity that

is forty two up year every year in March and uh, and it is really absorbing the what Florida had been known for on the ocean side for a tremendous and build up in inventory, especially as you skew up in price. Um. And we're seeing a lot of that get burned off. Inventory is definitely coming down because sales activity has been at record levels. And I think a lot of it had to do with the salt tax and the and the and the ability to work remotely. Um uh you know,

but the pandemic we should look at. The pandemic is sort of the trigger or the the the instigator of this, because I think it accelerated everything. It accelerated remote you know, remote software by probably a decade. It accelerated you know, what was an anemic response to the tax, the salt tax, uh, federal law all of a sudden became like a big

marketing point. So I think if you know, there there is surprisingly um, you know, an appetite for putting patches on the law, but that comes with you know, revenue laws and so uh so I would say that the odds of something are are you know, I wouldn't say it's a sure thing. It seems it's not a sure thing, but it's certainly the odds of it are greatly improved over the last couple of months. And what I'm detecting that doesn't mean it'll happen, but I but I do.

But I wouldn't be surprised if it did. Well, it'll be interesting if it did. There's there's a house I'm enamored with on on Center Islands, a few doors down by from Sean hannony Um that's listed for sale for nine point nine million. And really, until we get that salt deduction back, I can't even think about Yeah by the house, that's ten times the cost of the house I currently so so I'm I'm rooting for the salt

deduction to come back. But here's the Here's the thing is, you know you'd have to act immediately because the market right everybody else will pile into it. I literally just sent you, I just sent you a link to that house, which has its own little nestled cove harbor Marina, but it only holds two jet skis. So I don't know if that will work for us, but my wife and

I love looking at that sort of stuff's house. Right well, everybody during this lockdown, I think, you know it's you know, uh uh, you know, if they didn't have worries about being employed or you know, they were thinking about the future. And like when we get out of lockdown, I was obsessed with I want a lot more land with a with a barn. So you know, we're like looking all

over Connecticut, uh, just just because. And then you'll get more land at the same price you get you get about yeah, you get like three or four times the land and the same house for half the price and you know, an historic barn or something along that line. So I want to stand alone garage, which I don't have. Im in a My garage is part of the house, and I can if I can get enough land where I could build a free standing garage, it will remove limitations on how many uh how many cars I can have,

how many bring a trailer. I'm literally wearing a bring a trailer t shirt as we recorded us, all right, so let's but by the way, there was a term for that sort of zillo. I'm drawing a blank on it. That's sort of zillo browsing. You can absolutely just get lost in in that world. And uh, it's pure escapism looking at five and ten and twenty five millions. By the way, the funny thing is what's shocking about not putting a cap on the price when you browse zillo

is that you're looking at particular neighborhood. Hey, show me all the houses in East Hampton and and you know, above a million dollars, and you'll see these things come up at forty and sixty and ninety million dollars. It's um out in Montalk Dick cab its property, which apparently is eighteen acres or something like that. It was up for sale for some ungodly number. I don't know if you get if he got it, but it's shocking when

we see what happens. All right, before I run out of time, let me jump to our favorite questions that we ask all of our guests, and and let me try and um run through these more quickly than usual because we have been b sing the whole time. Tell us what you're streaming these days. Give us your favorite Netflix or Amazon Prime Entertainment. So uh so, actually I I am one of those people like we we cut the cable during the lockdown and uh and so I have Hulu, I have Netflix, I have all these things.

It's amazing, but I don't watch it. I like watch it. I just don't watch TV other than you know, a few Yankee games. I just and you know you've said to me, hey, we're in the golden age of television. I literally I think you're becoming my dad, like who never liked to be. I just don't watch TV anymore, um, hardly at all. So so I I'm sort of the the opposite of most of my peers. It seems so

no Queen's Gambit or anything like that. Nothing it is, uh you know, I think the closest I get to and and this is just silly, Uh, is that I'm sort of obsessed with uh radio detective shows from the nineteen forties and fifties. Um. I listened to a lot of podcasts of like old radio shows a sort of white noise when I'm working. So I am I just don't fit the profile now that I know that that's your gig. Let me just suggest something that you might enjoy, which is a little off to the side from that.

John Pizzorelli hosts a show called Radio Deluxe where it's just him and his wife. And that's amazing that So you listen to that. It's great music. Plus they're both so knowledgeable that you get color on Yeah, you get color on the songs and on the writers and and a lot of the stuff is from the era you would just describe. Yeah, I feel like I'm a young soul but with old taste, right, And they do mix

it up. It's some newer stuff, but a lot of it traces back to the Great American Songbook, and that obviously is twenties, thirties, forties, fifties. It's very different than modern stuff. Um. Let's look about mentors who helped to shape your career. Well, I've had two that I really would jump it would jump out at me. One is, um, my first job coming out of New York. I actually went to college to be in the hotel business. My

father had built a hotel when I was younger. Um, and I didn't know what else to do, and I knew something with real estate, but not UM specifically, and I lasted for three years and pretty much hated every minute of it. UM the company that I worked for, was eventually acquired by Marriott, and I just it just

wasn't I wasn't passionate about it. However, I just my first boss, gentleman named John Nelson, uh, really taught me how to navigate like corporate politics and how to like really cut away at the sort of the noise and solve the problem. And I just never forgot it. And uh and that was, you know, forty plus years ago, and I still touch based with them every so often. He really meant a lot to me. The other mentor

I had. The other mentor I had was uh one of the founder of Douga Salomons, Doddie Herman, who uh she's the one that UM, uh you know basically really implored me because of I was, you know, she found me I was. I would I would brief the executives about a, uh, you know, the state of the market, what was going on, and and uh she implored me too essentially you know, expand and write about other markets

that I don't necessarily work in. And um, and that's that's what I She really championed me and really relied on what the market number, which was very contrarian to the sort of real estate seitgeist, which is it's always a good time to buy or sell and uh. And it was more like we want to give and that's spend their mantra. It's sort of entrepreneurial, like we want to give our customers, uh, you know, neutral market benchmark so they can make informed decisions. That's essentially what it was.

And to me that was sort of shocking, and I was really I went with it. And now we you know, issue hundreds of reports a year and they're used by the Fed and all the like alphabet soup of agencies in Washington, and they're not seen as a brochure. And and to her credit, that was you know, she really feeled that in me, and I I'll forever be grateful.

So I want to first of all, you remind me of a very infamous National Association of Realtors advertisements they threw out early in the collapse in the mid two thousands, which is it's always a great time to buy or sell a house. I don't know if you remember that, but it was all, well, you you know, if you have a stock market background, hey, it's either a good time to buy or sell, but not both unless you're the broker taking the piece in the middle. So either exactly.

But but I have a very vivid recollection of being on a panel with Dottie Herman in like oh five o six when the rollover was just starting, And you might have been on that panel with us with pre

Nobel Bob Schiller. If that rings a bell, Yeah, she wasn't with us on the I was on, Like I think the panel you were on the panel before me and I was after is the one I'm remembering, okay, And I just remember her looking at me like I had two heads when I said, you know, thirty percent drop in real estate is not unthinkable for a financial crisis, and she just was a guest. I have a vivid recollection of that. I could be wrong, but I'm pretty

sure it was her. Well, it's funny, uh two thousand seven, you know, Uh, the US market had already started to tank. You know, the uh Bob Shiller Kishiller index peaked into that summer two thousand six, So sales activity actually peaked in two thousand five. It was volume from that is, Yeah, volume leads priced, you know, one or two years. And

I've learned that in many different instances. Um, but I remember, uh, he and I were on a stage at Lincoln Center, was like three thousand people in the audience, and the the this is two thousand seven. So Manhattan was a year or two behind the US market because of Wall Street. Camp had really sort of extended our our boom for a few years. And I remember him being asked, well,

what do you think how much will prices reset? And he said, and there was just a gasp in the audience, and it was right, you know, just it doesn't happen. And just like what I was saying earlier, like it doesn't happen immediately, you know, the sales drop, inventory surges, and then it takes like a year or two for prices, you know, for sellers to capitulate. If they don't want to sell, they don't sell, they weight, but they have to sell more and more have to sell, and then boom,

you know, the prices are falling. And and that's what everybody I think it's wrong with these cycles right there. They're always they're always stuck on what the neighbors sold. The house for a year or two years ago, and it's like, hey, if you have a time machine, you could go back to two thousand three and get that price. But in oh eight, you're you're screwed. And that thirty five percent number came from a piece that Ryan Martin Rogeloff wrote. They end up writing a book This Time

is Different. But it was a research piece that was out in oh seven about when you have financial crises, you typically see a fifty percent collapse in the in the real stock market, real estate falls thirty plus percent. I mean, they weren't making predictions. They were saying, here's what the averages look like over the past eight centuries. And it was so prescient that they ended up writing a book about it a couple of years later. Speaking of books, what are some of your favorite books? What

are you reading right now? So, so I had been on a on a I don't know, reading about New York and history of New York, sort of the cultural history, just cool things. When I moved to the city, uh in the eighties, I was just enamored with um, you know, uh the grit, I guess you'd call it. And my dad outside of our office twice coming in and out of our office in Midtown and in the you know, in the nineties, was mugged in broad daylight. And I'm thinking, Wow,

this is what a city, you know. And I was just thinking about sort of what other components that kind of went into that, And so I I just read a book called The Club King and it was by Peter Gaddion, who is the you know, had all these nightclubs and you know, sort of competing with Studio fifty four and all that, and and what the culture behind that and the limelight was fascinating read. And then the book I'm almost done with now is called The History

of St. Mark's. And you've ever been to Manhattan the block it's like a three or four block um uh from Astor Place to Tompkins Square Park where the riots were in the late eighties, and just the eclectic nature of it. And if you ever want to feel for like what New York was, although less so now because it's gentrified, but that's where it was. It was gritty and I just love I just love that about New York.

So any kind of history of New York and this was this book is called The Death of Saint Mark's Place, um speaking of gentrification over an alphabet city near there a B, C, D is white got its name. The gentrification used to be in on Avenue A. Has it penetrated to Avenue see dely, it's completely gentrified. Um sort of uh. I remember, you know when they had to close Tompkins Square Park because I remember one time daring myself to walk through it and it was literally, you know,

junkies and homeless and gangs. I mean it was just like in the movies. It was um uh and and you know, just going in that area was a little rough and um. I remember there was a new conversion h called Christo Dora House, which is on the Avenue B on the eastern side of Tompkins Square Park. And the Kristen Dora House is infamous in sort of local New York circles because of all the protests outside of it because it was a more affluent although relative to

today's prices, you know, it was a deal. But where they spray painted on the front door, die yet scumb And that phraseology became like the mantra of sort of the anti uh gentrification moved in. Um and so many houses are buildings in that you know, I remember doing you know, appraisals in a kindo co op conversion and modest place, and across the street. You know, it's it's all um, you know, people basically camping out in an abandoned house. And eventually many of these were acquired by

the squatters. I had a friend I met a friend of mine or a class colleague. We weren't that close in high school, but in I grew up in d C. And uh, he was like one of these people that ended up like taking control of an abandoned building and then selling it with his buddies and like never has to work again, absolutely insane. Let me get let me get to the last two questions before I run out of time. What sort of advice would you give to a recent college grad who was interested in a career

in the real estate industry. Well, if it's the appraisal industry, I at this point would say, hold on before you go this, just because it's it's uh, you know, in the generic sort of mortgage world, it's dying of flow death. In especialty world, like what we do, it's you know, I feel very competent for a long you know, there's always a niche that is hard to automate. UM. In terms of the real estate industry, UM, you know when

we think of that, we think of brokerage. Uh. You know, it's like anything like professional athletes you have you know, the top makes of the money and um. And so the goal is to you know, get to that cycle and you know, do you want to do that? UM. I'm finding that the there's a lot more people coming out of college and you know that coming into this uh industry. Then ever before you know, the stereotype is like you know, suburbanites that are you know, board and

want to do sell. Um, you sell real estate on the side or it's always a side gig. And I think it's one of those professions where and I'm I'm probably I think I'm right. Point nine of the real estate brokers in America today did not think about being a real estate broker until the opportunity presented itself that they didn't, you know, in high school or college say boy, this is what I want to do. It's always by accident and uh. And you know, so maybe if you're

one of those people, something to think about. It is fascinating. Membership in the n A R fluctuates with the performance of the housing market. You know, it's you know, it's it's up I should know, but I don't. But it's somewhere like a million four million five membership and during the financial cry since it was like down you know, right at a million or you know, just a hair under it. So it's there's tremendous like upward and downward because you're living on your living and breathing on a

hundred percent commission. And that's not for everybody, and some people have a knack for it and make a lot of money. Um, you know, nine digit, eight digit numbers, I mean, amazing numbers. But that's the exception, not the rule. And our final question, what do you know about the world of housing today that you wish you knew thirty four years or so ago when you were first getting started? Uh So, I think the first thing would be, uh is that um is that you uh you know, don't

aspire to have a bigger rental apartment. I mean I'm clearly biased. I mean the you know, I work, I do my reports, you know for a real estate brokerage company. I'm surrounded with the brokers every day. But the one thing I really wish I had was sort of the more focus on saving money in my twenties, uh, and

then and then buying something sooner. I didn't buy my first house still about thirty six because I lived in the city and you know, I couldn't afford houses until I moved out to the suburbs and um, and then have traded up from there. So I really wish that I had been a little bit more goal ariented on that earlier on I realized later now part of it was starting a business put every all the money we had back into it. But the money I was putting into rent, I wish I had I thought about a

little bit differently. UM. I like to say that my I have four boys. They're all adults, you know, twenty two to thirty two years old, and my three oldest all have houses. So you didn't that age I didn't. I mean they all beat me by you know, uh, you know, seven eight years and I thought that I didn't want to and I could see the moment, but you know, starting my own business and you know, not just me with my family. Um, and uh, you know, paying too much for rent and having a nice place

to rent. I think you know set me back at Tener Tener fifteen years we have been speaking with Jonathan Miller. He is the founder and CEO of Miller Samuel. If you enjoy this conversation, check out our previous four hundred or so other discussions. You can find those at iTunes, Spotify, wherever final podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can sign up from my daily

reads at results dot com. Check out my weekly column on Bloomberg dot com slash Opinion. Follow on Twitter at Ritholtz. I would be remiss if I did not thank the Craps staff that helps with these conversations together each week. Tim Harrow is my audio engineer at Tiko. Valbron is our project manager. Michael Batnick is my head of research. Michael Boyle is our producer. I'm Battery Ritolts. You've been listening to Mastor's in Business on Bloomberg regular