Jonathan Miller on Urban Real Estate

the biggest real estate agencies in the country. He always has a tremendous amount of insight as to the current state of the market and the best way to contextualize what's going on in real estate. And we really talked about everything from aspirational UH pricing to our markets at a peak, and how when markets do peak and roll over. In real estate, why it takes so long for prices to adjust UH newsflash, sellers are anchored via the endowment effect to their own value of their home prices, which

lagged the actual market UH for a long time. We we talked about the death of cities being greatly overstated and and why it's so challenging to convert all that excess office space into residential properties. If you are at all interested in real estate, buying a house, selling a house, renting an apartment, owning a condo, or cooper just want to know what the heck is going on with real estate today. Uh, you will find this conversation to be

absolutely fascinating. So, with no further ado, my conversation with Jonathan Miller. You're listening to Masters in Business with Very rid Holts on Bloomberg Radio. I'm Barry rid Holts. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Jonathan Miller. He is the CEO and co founder of Miller Samuel, a real estate appraisal and consulting firm he first founded in six His data and analytics powers many of the largest brokerage firms

um reporting and information about the state of the housing market. Uh. He is our returning champion. I think you and Scott Galloway are tied for the most Masters in Business appearances. Jonathan Miller, Welcome back to Bloomberg. Great to be here, Barry. Thanks. So, so let's just talk a little bit about your background. You co found Miller Samuel in in six what what led you to the appraisal, real estate and consulting business

way back then. Well, UH, initially I worked for a management company that was bought by Marriott back in the mid eighties, and I said, well, what am I gonna do with myself? And I got my real estate license and I became a real estate agent in Chicago, and UH was more on the analytics side, you know, sort of the bean counter type. And then I moved to New York and UH was eventually became a sales director on a new condominium building and saw these appraisers coming

in without really data. There was no multiple listening system in Manhattan. And I eventually got together with my family and we started our firm, Miller Samuel in the eighties six and it covers the New York City metro area. And then UH, starting in n I started offering UM market studies UH for the real estate company UH Douglas Solomon and basically follow their footprints. I'm covering about forty different housing markets in the US right now, and that's

really fun. And then it sort of marked in. I teach market analysis at Columbia for grad students UM, and so you know, it's just been this sort of progression of but everything related to housing in real estate trends. Well, I love that you are are one of the number crunchers who dive into the data and come up with analytics to really teach us about what's going on in the marketplace. And so I have to start with that question, what are you seeing these days in the real estate

markets you cover? Are prices and volumes still going up? As of this recording, mortgage rates have just about doubled to six from you know, the low threes or even high twos um. What's going on in real estate? Well, I think of it as you know, you know, with affordability dropping literally by half since the end of December, the market is going through a pause where there is a tremendous pullback in demand and you know, this is

a significant jump in rates. So you have this pullback, and what that's done initially is you know, new sign contract volume is down across all the markets we cover. Uh, And actually that's been occurring for the last couple of months. This is you know, the slowdown now is has accelerated, but really we started to see contract activity slowed down at the end of March, beginning of April. Initially it was because inventory had collapsed, uh and was keeping sales

from occurring because there was no product. But it's really completely morphed into an affordability issue because nationally, you know, depending on the metrics you follow, we're looking at increase in housing prices plus rates doubling. What else could happen to slowdown? I think you told me this, or you got this from the internet somewhere somewhere you said, one of the best things for high housing prices or high housing prices. Well, that's that's the that's the old commodity

trader's joke. The cure for high poses are high prices. At a certain point, either the demand cools or the supply rushes to meet it. Yeah, And I think what people generally have wrong with with the market cool down is, you know, initially, when you have an external event like great Spiky, you have sales activities slow immediately, and you have inventory rise immediately, albeit from an unusually low place.

And I'll expand on that. But but the part, the third step that I think most people get wrong is they expect crisis to immediately fall and there's really a one or two year period that it takes sellers to capitulate to market conditions, although I do think that they'll capitulate faster in this condition, uh than in the past. But I you know, buyers are in already, you know, that's their hesitation. And then you throw in a war,

you know, record or you know, high inflation. Um, you have all these uncertainties, and everybody just I mean, it's one of the biggest enemies of the housing market is uncertainty. And we certainly have a basketfull of that right now. You know, I have a very vivid recollection at like cocktail parties and barbecues in two thousand and nine, even people saying, why can't I get X from my house? The same house down the street sold for X and it's not as nice as mine, and that was sold

in two thousand six. And my answer is always, well, you could get that money first. You need a time machine go back to two thousand six and you could get That's what the market was. And I watched what's amazing, especially about all the online services today. I watched these home sellers chase the price down. They were always lagging behind the market. Is that really a two year process for people? Before people you know, find religion and say here's where the market is. If I want to sell this,

I have to get that. So yeah, So in my own you know, thirty eight years of experience, you know, it's a sort of anecdotal experience that has telling me that it takes an average nationally about fifteen sixteen months. But call it you know, year, two year and a half,

two years, sort of, it's not a couple of months. Um. And to clarify, what I'm really saying is that it takes a long time for the seller to capitulate to the market so that they feel like closing, like they didn't leave money on the table, right, So so it's where they didn't like walk away from a sure thing,

and that takes a lot of time. Um. I think what's a little different in this cycle is there's been so much equity build up because of the rapid run up at prices that maybe it's less painful, uh, because it's money on paper too many um, you know in that in the sense of um, you know, people uh, you know, worried about walking away from something that they

had in their in their hands. So if you're a contrarian, you become a buyer in the summer of Yes, yeah, I think so, and and and what what I find, uh interesting, is that, um, you know, when people look at pivoting conditions, pivoting markets, you append the word forever, like prices are falling forever, prices are rising forever. It's like this linear view. And if you look at some serious downturn periods in the housing market, like the housing bubble, um,

you know, fifteen or so years ago, thirteen fifteen years ago. Uh, really, prices really didn't recover, took about six years, but activity actually returned pretty quickly by two thousand, late two thousand nine, early two thousand and ten. So this isn't like a decade or a you know, a generational thing. Um, it's you know, it's a shorter window than that. And um, honestly, I felt, you know, rap should have been raised specifically

through housing market optics about a year ago. Uh. It feels like the fed plate to the party, because you

could just see the obliteration nationwide of inventory. Like one of the ways I think about housing supply, I think we have a tremendous amount of over reliance on when you look at the state of the housing market of looking at new construction, new development, which in most local and national we're really talking you know, ten percent, and you know ebbs and flows of total inventory, Well what about the other eighty five or of supply? Um? That is the think of that supply as sort of the

life cycle of occupants of the real estate. You know, they're they're you know, they're they're trading up to a larger home because they have an expanding family. They're trading down, they're downsizing. Um. You know, there's all these sort of life changes. And when you come at them with a two point six you know that market with a two point six thirty year fixed uh, you create this sensatiable demand this and you obliterate supply. And so this became

a housing market of bidding wars. Most of the forty plus markets I covered for Douglas Sellman are seeing bidding like in southern California two thirds to three quarters depending on the segment of closings. In the early part of this year, we're above the asking price. You know, Uh, that would be our proxy forbidding wars. In Fairfield County, Westchester, Long Island, you know that ring New York City, we were looking at forty five. How is that sustainable? How

is that a good thing? So I'm quite relieved at least thinking long term that we're moving out of this untenable frenzy. And you know, you and I have spoken about another aspect of UM, not the demand side, but the supply side. You know, there's normally that chain of purchases that takes place. Someone moves into a starter home, there's a move up, there's a move to a larger home, to a nicer neighborhood, eventually to waterfront, and that last

person is downsizing. During the pandemic, especially when people were locked down in apartments, there were a lot of purchases with no correlating out. People just went out and bought a second or third house. That had to have a massive impact on the supply out there. Yeah, there's two things that happened. One was, uh so specifically with a Manhattan example, after the lockdown, the pandemic lockdown, rental prices

fell a lot. They fell, um, you know, but there was no vaccine, there was you know that the city was the global hotspot, and so the rental demand weakened because would be tenants with the collapse and mortgage rates fled to the you know that sort of in air quotes, the narrative was fleeing the city or another air quote sort of a headline was exodus. UM. And so it was all outbound migration and no inbound And you had these these renters buying, and then you had people weren't

selling during the pandemic. They in the city, they were buying a second home, something that I dubbed co primary, which should be you know, they're looking at a second primary residence that they can sort of toggle back and forth between the city and the suburbs and um. And it there was no seasonality you had. You had maybe five years of you know, the typical you know, young couple moves to the suburbs to have kids. You know that compressed into like three months, UM. And they had

this whole distortion of sort of migration patterns UM. And then on top of it all you have remote, which became you know, zoom became ubiquitous in twenty four hours, and all of a sudden, you have a rethinking of what remote meant, and it became a powerful force. What I was saying during the lockdown was the tether between work and home became infinitely longer because you have a

lot more flexibility. And on top of it, you have this skewed towards higher end meeting that you know, because of the economic damage from the lockdown was heavily weighted towards lower wage earners. The upper half of the market was where what woke up or saw this boom first. And part of it is because you know, just as sort of a generalized statement is that the higher the wage, the higher the mobility or you know, the ability to work remote and it just dovetailed together really well, quite

quite interesting. So a couple of we're recording this UM in the middle of this week on the June one UM, some really interesting data points came out this week. Existing home sale prices hit a record of four hundred and seven thousand, six hundred dollars in May, and at the same time, home sales decline three point four in the face of rising interest rates. Is it sort of contradictory that prices are going up even as sales decline or is that more about the mix of of hiring homes

and lauren homes. So I think it's more about the lag in UH closing information versus actual onmographic contract activity. Uh, it is UM. You know, if you can think of home price trends at the caboose on the end of the train. I always use this analogy, even though there's

no cabooses on ends of trains anymore. UM. But really the initial impact you should really for trends, you should be looking at sales like petting, home sales, contract activity in general, and then new inventory entering the market that's much more fluid and in front of the prices occur

after the dust settles. So, for example, UM we published monthly research in four different regions of the country, and new stign contracts were already beginning to cool back in March, and uh, you know, eventually that leads to an uptick in UM listing activity, which then eventually, uh you know, you know, levels off are cool sales. So I don't think the pricing, the prices rising is a result of a shift in the mix towards higher property. I think it's really just a lag in the actual data itself.

So so where are we in this housing cycle? I noticed that more supply is coming online. There was a great chart the other day at at Calculated Risk showing the most single family home completion. Since I think, oh, seven, it is like a well over dead kid. Are we seeing that many more um new homes and existing homes come on the market as supply or is it really just been down so long it looks like up To me,

I think the latter. So the way to think of it. Uh. And this is my analogy just using my my hometown in Connecticut. Uh, my town saw two hundred listings pre pandemic for the prior four or five years plus or minus twenty listings, but it was, you know, straddling the two D threshold. A year after the pandemic there were fifty and so you look at and go, wow, that's a real drop. Uh. And then the beginning of the year before the rate increases, there were twelve. Wow. And

so that's where I would call it a clap. So now inventory has quadrupled, there's fifty. It's still s below pre pandemical bubbles. So when I look at I look at that and say, yeah, inventories rising, and that's a good thing. Um. But I don't know if people realize how insanely low inventory became began. Um. And and you know, one of the things, um, you know that I think is going to be apparent in the coming year or two is that we have probably built too much multi

family rental product um right now. You know that it's all sort of responding to this surge in you know, the in rental prices. But part of that search in rental prices is because, uh, the surge or the rising rates are just the fact that lenders are not fast

and loose that they are. You know, we're not going to have a banking crisis on the other side of this, because lenders are ti or than they were in the decades prior to the housing bubble um, and so people that don't qualify they tipped into the rental market, right, I mean, they're not. Um, you know, we don't have we don't have financial engineering like we did. You know in the mortgage world circa two thousand and five. Six, What a what a funny coincidence that mortgage lenders were

much looser before the housing crisis. I mean, you know, sometimes these coincidences are just just amazing and sing And since the financial crisis, it's become much harder to get a mortgage. Um. And I'm not talking about you know, all day or sub prime I mean prime borrowers really had to jump through some hoops in the years after o ee oh nine. Is it's still that tight or has things you know normalized a little bit. So the way to look at it is uh uh underwriting standards,

mortgage underwriting standards. You know, during the the housing bubble, you just had to have a pulse or bogramere. In the years subsequent it has the restrictions have deteriorated, but we're still not on par with sort of pre housing bubble era lending standards. That that lending is generally more conservative and there's less sort of maybe on the margin, but there's really less sort of alternative workarounds for financing.

I think it's much more sophisticated. I think some of the restraints with Dodd Frank uh you know, have have helped to a certain degree which makes us in a much less vulnerable, vulnerable position. But that has helped create

much more tightness in the rental market in general. And I think we have this, you know, law large response in multi family rental development being created, and I suspect in over the next year or two that that's going to be a um where it's gonna be apparent because people when they look at the rental development being created, there's assumption of well more units lower rent. But just like new home construction, new rental constructions used to the

upper half of the market. It doesn't address the entire market. So you're creating a lot more rental units, but you're creating not necessarily the right distribution of rental units. And I think that's the challenge for the rental market going forward. Just for I was just gonna say, just in New York, um, you know, we we report every month the rental um you know, the rental market, and in Manhattan, the median rent was four thousand dollars, cracking the four thousand threshold

for the first time in history. Average rents are just shy of five thousand a month. It's still an all time record. And we're not even to peek leasing season, which is in August. The rental market sort of peaks at the end of the summer, and so there's still a lot of pressure in the rental market going forward over the you know, whether or not we um you know,

we have rising inflation. It's it's very tenuous and this is not unique to much of the US so so let's let's address that because during the pandemic, I read at least in the New York Post, new York City is dead. It's never coming back, No one's ever going to move here. It's all over for cities, and not just New York, but San Francisco and Chicago and Austin

and Philadelphia and Boston. And go down the list. What is the state of real estate in in the big cities and and where are you seeing more of the explosive of growth. Is that more the sun belt or is that the coast? What's the state of well well, well, so in terms of um urban markets, just starting with New York first, since some base there, uh here we have and this sort of speaks for what we're seeing

across the US. You're looking at a city like New York and the office towers are two thirds empty right now. Yet Ino we've had some of the highest sales volumes in history. We've had record pricing in the rental market. We've had some of the highest new leasing activity in history,

and we're having record rents. So people being in the city again to this sort of tether between work at home, it's you know, you have empty office because of remote but people are in the still in the city or want to be in the city, So it is um. This is uh. There is a white paper in the source escapes me from NBR talking about price growth is related during the pandemic era, is related to remote work in the churn that it has created. UM. And there's

a bigness nomer. You know, there has to be another reason why people are in these urban coming back to these urban markets. And I think part of it is just what the cities have to offer and what um, you know, the cultural activity. I'm not working for the trade that the tourism bureau, but you know, there's other reasons people are in the city, you know, lifestyle or

whatever broker term you want to call it. UM. And this is being borne out in the fact that office towers and two thirds empty still That almost sounds like a problem that solves itself. And my frame of reference was after September eleven, two and one, many of the office towers in Lower Manhattan either were converted to residential or partially converted to hotels and residential. How realistic is it?

And and you know, I'm glad I wasn't an investor in Hudson Yards that came online just as demand for office space went through the floor. But how realistic is it to convert offices to to residential real estate? And and let me point out when I was in grad school and for about a decade afterwards, I lived at ninety Lexington Avenue that originally was a Blue Cross Blue Shield building that was converted to residential like a few decades before I got there, and a decade after I

left it it went condo. So I know it's doable. How realistic is it? Uh, It's not very realistic at all in terms of scale. Uh. And the reason there's a couple of reasons for it. One the financial districts Uh conversion frenzy that was mostly Class B office older almost laugh like a lot of the development that I'm familiar with Class A. Yeah. So the way I look at it is um when you So there's a couple of things. One is time, so a lot of the conversion. Listen,

there there will be some conversion. I'm saying there won't, but I think nowhere near on the scale of what could be. Uh, you know, the sort of the the opening question in this discussion is what are we gonna

do with all these you know, empty offices. Well, part of what you're gonna do is you're going to drop the rents um but somewhat you know, in theory, except for that you've got them financed and this is a collateral right and all of a sudden, you know, the cash flow as much as half or you know, a third of what it was precandemic. UM. You also have uh, you know, converting these buildings to red to have residential

certificate of occupancies is tremendously expensive. And the third is community approvals zoning approvals UM, which is a long process. I'm not saying it can't be done, but who knows what the conditions are going to be like five years

from now. Um. One of the things we're seeing is, uh, we're seeing a tremendous amount of uh, you know, well obviously vacancy, but also concessions because landlords some aren't feeling the pain because you know, say eight of the leases in the building have you know, five or more years remaining on them. So uh, you know, if if if there's if there's still an occupancy, the business hasn't gone under. They're still paying their rent and they're paying sort of

pre pandemic levels. Um. What we're seeing a tremendous amount of in the commercial world is that leasing on a

per square foot basis. Everybody talks about sort of the asking rent, and when you look at all the reports on the state of the office market in cities, uh, they never talked about like the net effective you know, less the free rent and the build build outs and all those expenses you know, which you know in reality many land larger seeing thirty to fift hits at least in my you know, in my through my optics, um,

which is not an inconsequential amount. Um. And so I think the asset that gets holding the bag on the post pandemic world is really, um, you know, the commercial sector. To a lesser degree, the retail sector, uh, which is you know, gets its oxygen, especially in central business districts from commercial office buildings. So you know, we're in, we still are in you know, three to five years of sort of figuring this out. This is this is a

slow motion train wreck. Um. You know I mentioned the sun Belt earlier, where wherever I look, um, where the weather is warmer and the taxes are lower, and that could be places like Austin or Nashville or southern Florida. It seems they've been a magnet for people leaving either cold weather or higher tax state or or just sort of you know, retiring what's going on in the sun

Belt and and and what does that look like going forward? Well, I cover almost two dozen housing markets in Florida, for example, And uh, what's interesting about a lot of these markets is just like you say, they're coming there for lower taxics bosure, but also these areas are aggressively going after the c suite of companies to relocate in these places for the tax credits UM and the weather and all

that sort of thing, and have been relatively successful. I think initially after the the lockdown, you know where when you lines screamed in like to your earlier point about New York City is dead forever, you felt like by the end of that there's going to be eleven people left in New York City. You know that everybody was leaving. Um. But what we're finding is that the people that have left have been fairly quickly replaced. But we're still you know,

net net losing population markets like Florida or Texas. Those housing markets are being restructured essentially because of remote and what we're seeing for the first time really is we're seeing um uh you know. The sort of the story was that the affluent you know, the wall streets that would um, you know, buy a second home somewhere, they would buy in Florida, they buy Palm Beach and Miami.

And now we're seeing luxury or high end real estate statewide all over the place, like you know, and that's a sign of sort of structural I don't know if the word is dispersion, but it's just spreading out because the because the regional economy you know, has quickly adapted to um, you know, to this inbound cohort of the population. That this isn't a boom and bus cycle for Florida. UM. Sure, their market will slow down because of the spike and reals in interest rates. UM, but this is I don't

think this is a flash in the pan. I think this is real because of every seemingly every part of Florida is expanding. So it's a secular trend, not a temporary issue. Let me let me ask you about California. I always thought California was a wonderland. The last few times I've been there. I've been kind of surprised at you know, you drive to Lahoya from San Diego. There used to be a lot of open space between the two and and now it seems like every ridge has

a house on it, every every hill, every mountain. You know, it really seems like it really seems like they've wildly built, maybe even overbuilt parts of Southern California. What are you seeing in that that region, well, well southern California of

all the regions that I cover. Uh, you know, the average market and this is a little dated now where it will be coming out with a second quarter in a couple of weeks, but the first quarter data was showing that on average, UM, about six of the transactions from Los Angeles down to San Diego. Uh, we're selling above the last asking price, like a tremendous demand above asked So our proxy forbidding wars is a purchase price

that closed higher than the last asking price. UM, it's about two thirds of the transactions and in some sub markets that's UM we're not seeing that intensity now, but but still there's a significant in balance between supply and demand. Work demand is still overpowering UM. There has been a tremendous outbound uh migration into low tax states like Texas. But you know, at least in the housing market there's

still it's still extremely tight. UM. The thing about California, they're going through a lot of problems draft and wildfires, you know, partly from overbuilding and are encroaching on woodlands, so it seems more tenuous, but it is still highly popular. Tremendous amount of demand at least in southern California that we're seeing. Um. But even in southern California, just like Florida, Uh, you know, you're seeing with the rise and raids, you're

seeing a pullback in the intensity of contract volume. Really quite interesting. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Jonathan Miller. He is the CEO and co founder of Miller Samuel, a real estate appraisal and consulting firm. His analytics power UH some of the most influential real estate agencies, back offices and

back ends. He is also a professor at the Graduate School at Columbia University and additionally sits on the Mayor's at Economic Advisory Panel and the New York State Budget Division Economic Advisory Board. So let's talk a little bit about the the appraisal business. It has dramatically changed since the Great Financial Crisis and the mortgage boom and bust of the two thousands. Tell us what's going on in

the world of real estate appraisals. Sure, so you have this uh sort of butting heads between human beings and uh, you know, uh we call them a v MS automatee evaluation models or press a button and you get a a number of value for the house. UM sort of the poster child for this. And if you don't mind me talking about this estamate real quick, sure, just to understand sort of the disparity between automation automating numbers and

housing and how dirty the data is UM and human beings. So, if you look at the zestimate nationwide, the nationwide accuracy rate that let me clarify, the median accuracy rate of as estimate is two. So that means that fifty of the time the z estimate is within two percent of the actual value, and fifty at the time it's not. Now the consumer just sees, hey, two percent, it's within two percent. That's pretty accurate, But it's only fifty percent of the time it's within two UM. But it gets

if you dig a little bit deeper. UM, it's only within two percent of the property is currently listed for sale. If it's not listed for sale as estimate, median accuracy rate is seven percent in the US, so that means that's seven percent at the time it's within seven If it's not listed, it's within what it will sell for within seven percent and five two percent of the time it's not. So In other words, this estimate needs human

beings to price the listing to shave off five and accuracy. Listen, I'm not saying as human beings like appraisers or brokers don't have our flaws. But it is kind of interesting that it's been brilliantly marketed, yet it's wildly unreliable and half the time it works every time, exactly, I think, well percent of the time half the time that works every time. But but I but I look at that and and you know, it's sort of overpromising and under delivering.

Because public record, the quality of public record across the the US is incredibly varied by municipality, by county. You know, however you want to break it out, UM, and they're they're they're largely reliant on that, and just a few years ago they started ah significantly waiting um the list price. So if you you know, house is worth a million five according to this estimate, you put it on for two The next day the estimate is too and then

it doesn't sell and you take it off. This estimate goes down to a million and a half the next day. What is that like? That is? I don't And so any time I see a news story that relies on zestimate related information, to me, it's problematic because it's not what it is. It's certainly fun to poke around and look at stuff, but it's not necessarily it doesn't have the precision that has been brilliantly conveyed in their marketing. Well, obviously Zillo didn't do well trying to build a home

flipping business relying on their own home. Yeah, they took a giant right on that. Yeah, the Zelo offers uh uh, you know that broke And I think the same goes for um, you know, the ie buyer, the Internet buyer subset um, where you know, there's this automation promise UM, and there's some validity to it I'm not saying that, but you've got the impression initially that that was going to just take over the entire market, and now it's something like one of transactions. It's a very small number.

Uh and in a declining market. They haven't really been tested. Um, they've only existed in rising housing markets, flats arising. So it's going to be an interesting few years to see how they do huh, really really intriguing. I'm kind of surprised, um that they didn't do better, because you would have thought, hey, forget the what we're sharing publicly, we have our own internal net tricks. Let's let's see how we can use that.

And it turns out they were just relying on everybody else. Uh, you know, everybody the same date to everybody else saw and it didn't really work out. No, no, it didn't. And I think it also says something about there's just too many people in the space. Uh. And so I think there's gonna be some compression in participation just because the scale of investment is so enormous, the stakes are so high. Um. Yeah, I wish so well. I just

I think it's it's been a little bit over over hyped. Um. But back to your question, sort of the state of the of the appraiser, sort of the appraisal world. Um, the you know, we're going through a period. It's it's fascinating. Um. You know the appraiser I was told by someone senior to me a long time ago. You know, UM doesn't have the answer in the transaction has the answer, the answer being the price. The brokers have the answer, the

mortgage company has the answer. The buyer and the seller all have the answer because they all have skin in the game, right, they're all sort of part Right, everybody's smart. They all know what the value is, what the number is. And the external third party that doesn't have they get paid whether it's high or you know, they're above or below or at the the purchase price. UM. Uh, you know they and they don't. We don't have as an industry,

we don't have much representation. Um. In Washington, we're just a fraction. There's only about you know, optimistically, there's seventy five thousand appraisers in the US versus a million and a half real estate agents. So you know, we're vastly outnumbered. In lobbying, you might have two lobbyists really of any um, you know, UM gravitas in Washington compared to a much different world, so we tend to be sort of run over. However, our industry also has some real problems where we have

no diversity UM as an industry. UM the beer of Labor Statistics ranks four occupations by diversity, you know, inclusion of women and yes, who's dead last in the BLS ratings the eppraisal industry, it's it's night white and so I'm a middle aged white guy and I'm I'm I'm

the profile of of the industry. And yet we go through periods like re five booms where those of chronic shortage and a lot of the problems UH stem from primarily UH an organization called the Appraisal Foundation, which I have been a pain in the neck for them for a few years. You are anticipating a question of mine and let me frame this for listeners. So so you put out a weekly email that I've been getting for

a hundred years. It comes out Friday afternoon, and it's just a broad overview of the state of the market with lots of charts and data, and at the end there are a whole bunch of lengths including a bunch of real estate links and your links and some more interesting odd bowl lengths. But every now and then, it seems that you and the UM I keep calling them the Appraisal Institute, the Appraisal Foundation. You seem to have a beef with the organization that supposedly represents your field.

Is this the underlying basis of your ongoing UM harassment of them for everything from incompetency to I don't know if I could say criminality, but you've certainly come pretty close to accusing them of that. Yeah, I just think it's um. So what the Appression Foundation does is they essentially maintain, uh, for lack of about a word, sort of the standards that I, as an appraiser to be certified, have to adhere to, and that's embedded in states and

means un territories, fifty five states and territories. And every time there's an update, you know that all the fifty five states and territories have to update. And they've wildly overstepped what I think their charter is. Like, they they the diversity thing, I told you, uh, you know they're so they hired the head of their new diversity effort is a middle aged white guy seems that I have a problem with it. And and also, um, they have

created a essentially UM it's called us PATH. That's our license. Are the standards uniform standards of professional appraisal practice that we have to follow and sign certifications and our reports um to you know, it's a whole idea is to protect the public trust. The problem is that it's really a sort of an effort. The rules that are are our world doesn't change very much, um, and yet this

is updated every two years and UM. And they what they do is they make changes and then they and then they embed that into state law and two years later they remove those same changes or four years later, and and it just kind of goes back and forth. And the reason for that is that they can sell and charge for classes to maintain your license by providing new materials every two years that the praisers have to buy.

So you can show me that this, you know, year two thousand, two thousand to two thousand four, two thousand six, two thousand and oh four were the same O two and oh six. I mean, is it that metronomic? Are they that blatant? Uh? It's it's more through incompetence. So I'll give you, I'll give you an idea. So uh, they they changed a rule that said if you're intentionally or unintentionally misleading, then you violated your license. So in other words, if you made a typo, you've basically uh,

you know, can lose your license. And and uh, they don't have counts up until at least you know, lately, they don't have lawyers to review this. This is getting embedded into fifty states and municiparia that keep saying MUNI about territories uh, across the US. And yet uh, there's

no review of this. It's just a bunch of appraisers on a board that sort of say, Hey, wouldn't it be nice because I know this because I've been there, Uh, would it be nice to just define misleading when definitions like that should be done in a court of law, interpreting a court a lot, and not just by a bunch of appraisers on a board, um the other And and so that came, that became challenge because of my writings, um.

And then there's just an endless example of this. The bottom line is that, uh, I'm against anything that damages the credibility of appraisers in the public eye, because if you don't have that public trust, which is what this organization is charter, you know, supposed to maintain UM, then you're doing a disservice to everybody in the industry UM you know that has a license that you know puts their their job on the line every day when they do sign off on an appraisal. It's just sort of

amateur hour. And I'm doing it, and I've I've myself and sort of a band of other people I think have really created pressure to UM to invoke change, but it's slow going, quite quite fascinating. So so let's talk a little bit about one of my favorite topics, which is a phrase that you coined a couple of years

ago called aspirational pricing, to tell us about that. Sure, it's uh, it's sort of a safety and numbers really started seeing this in luxury vacation UH locations where I'll just throw out random numb versay, a home luxury at home is purchased for five million dollars and they put a million into it or two million into it, and then they put it on the market for thirty million, and and and you're like, okay, well, that's silly, right, but but you know, they become a bold faced name

in on page six on the post, you know, because hey, they've got a home on the market for thirty million. And then what happens The ten houses in that vicinity put their homes on the market for million and none of them ever sell because they're not worth that. But it's like the safety and numbers and that was quite a phenomenon, uh, leading up to the sort of the pandemic era. And this is another sort of this is a recent development, UM that is starting to starting to

see uh. And it's like the if we you know, for your nationalists, be the Park Avenue, fifth Avenue, Manhattan type apartment luxury sort of old world type apartments, and um, you have they have boards that approved the buyers and uh and and making the numbers up to say, someone you know pays ten million dollars for an apartment and uh, you know three years ago something in the same line sold for fifteen or thirteen, um, and it sold for less, and so the board kills the sale because they're not

happy about the price because it went down. And then the seller put you know, puts it back on the market and they get another offer of ten million. Department has been clearly vetted by the market, and it's the board kills that sale. And and I'm aware of a handful of those recently. And and that's as operational pricing in the context of the the co op board. Because they think that they're protecting their you're performing their fiduciary

duties of protecting the value. However, they can't control the market. The market is the market is, you know, as someone once said, and um, and what they're actually doing is damaging value of you know, they're violating their fiduciary responsibility. And I think there's going to be We always see this in a in a market that's cooling, We tend to see this activity and then we get involved in litigation, you know, as an expert, um to to um sort

of empirically demonstrate this. Just just a reminder that there's a special room in hell for anyone who's ever served on a condo board or cooper you know, it's they're endless. If you're in New York for any length of time, and I'm sure other cities have comparable things. There are endless, endless, endless stories about UM. The relentless stupidity of the behavior of boards. I don't know what it is you put six people together in a room involving real estate and

their average I Q haves. It's it's quite amazing. Um that that that's kind of fascinating and related to you know, you mentioned old world New York City, Um, Fifth Avenue and Park Avenue apartments. Um? Am I stating this wrong? Or have you pretty much been into just about every penthouse in Manhattan? How how accurate is that statement? I'd say I've been in probably nine I mean, I'm I'm wild guessing here nine plus percent. The one missing, the big one missing from my list is the Pierre Hotel.

And how so been in the Sherry, Netherlands and about most of the penthouses on Central Park South and West. That's the one big one that's left over. I came close, but it didn't quite make it. And it's it's it's always very exciting, um, you know, to see very large space, spectacular views. Um. And it's really a mixture of Some apartments are in amazing condition and some haven't been renovated

and you know, multiple decades. But but just being and seeing the entirety of it is quite never gets old, you know. I can imagine and and do those go for market prices or are we still seeing aspirational pricing now? They go they go for market Like during this sort of five or so years ago sort of peak aspirational pricing, there was a penthouse I want to say it was you know, I can't recall off and by where it was, but it was asking a million, and uh, you know,

catch a following knife. The price kept dropping and I think it's sold for in the forties, all right, but you anchored people up at a hundreds, so maybe it would have gone for twenty otherwise. Is is that the thought process behind this, let's get people anchored higher. I

think that's the the the the idea. But you know, after it's on the market for three or four years, I can't imagine that being a uh sort of a positive uh positive thought for the owner, um, especially if they're barely living in it and they're paying twenty five a month in homeowner association piece. You know. So so maybe initially that was the strategy, but I find that that almost never works. Uh. It just you know empirically that, um, the market is not that dumb. Right, So let's talk.

You and I have talked about one of my favorite Zillo tricks. Pick a town, especially higher in town. You could do Greenwich, Connecticut, or Santa Barbara, California, or by me Sands Point, New York, and uh, you'll get a full listing of everything that's for sale. Um. And you could then use the Zillo app to sort and I always like to sort by. Now, show me the most recent listings, and then I scroll all the way down

to the bottom. And your shocked that this has been the hottest housing market certainly since O eight oh nine, if not oh six oh seven, if not our lifetimes. And it's amazing. There are houses that have been listed for sale for three hundred days, five hundred days, fifteen hundred days. I mean, is are those homes really for sale? If they can't find a buyer after five years, that

just seems absurd. Yeah, yeah, I mean they are. And it's all based on the notion that hey, you know, somebody, you know, I get you know, it's sort of like I'll get lucky. Uh. Didn't Google have that a search button at one time? I don't know it still does? You know? Uh? I feel lucky. Yeah, Yeah, it's sort of analogous to that. Maybe I don't know, but it is. It is amazing. I also think part of that is just dirty Zello data, you know that it's just not removed. Um.

Oh no, a lot of this stuff is. I'm gonna disagree with you on that because I sifted through a lot of these um most recently. So most recently. Uh, this kind of small waterfront um supposed to be on an acre and you look at the map and it's like, there's no way that's an acre. And they were asking nine five, which I thought was insane, when right, you know,

three houses down. So this is like a three thousand square foot UM, one car garage, no basement, waterfront, lovely house on a built around a um sort of center courtyard, but tiny down just like three or four houses down is like a twenty five thousand square foot three acre house is half the price. So I called the agent and said, I don't understand. I'm not looking at bust your chops, but how do you figure nine and a half when for four and a half I get four

times out? Well, you know, the owner is a collector of fine arts, and he thinks eventually he'll get his price. So now I have to go back through the Zillo history and it was originally up for sale for like twelve or fourteen, six years ago, off back on for eleven and off back on for ten off, And I'm like, so this house really isn't for sale. This is just someone goofing around. Call me when the call me when the estate has to dispose of it, and the market

will find a real price. Yeah. I mean if if you're looking at a listing that in this market that you know is a hundred eighty days or older just as us, or it's not even serious, right, I mean, it's not even Um I had a situation. Um I remember this is four or five years ago when Grenwage was really a weak market. I may have told you the story of the past. And you know, some well known financier you know, had a house I'm guessing you know was worth six or seven million, put it on

for fifteen million, no offers. You know, this is that aspirational pricing era. Uh, no no activity. And then they cut the price to a eleven you know, it's worth six or seven probably on a good day, cut it to eleven four million dollars and uh, sat on another year and no offers, and then they go on stage and say you can't give a house away in Grants, Connecticut.

And it's like, well, you know, that's really not fair to Gramwich, Connecticut because you're, you know, your view of the value of your property has nothing to do with what the market will support. And I find that I you know, we would see that all the time, you know, where it's like they view the original price as like their equity, and then out of the goodness of their heart, they're giving away, um, you know, a chunk of it,

even though you know it's all based on nothing. One of the things that I do as a hobby is I collect listings I'm sorry, closed sales around the u US that sold at or above million dollar. You've had

a chart of this that you update on a regular basis. Yes, yes, And it's sort of a hobby gone wild because in two thousand and fourteen, I remember I was approached by a homeowner that had a house in California and I don't even know what it was probably worth, but you know, it was single digit, you know, but a lot of money, and they put on the market for like thirty plus million and that's when we started to see this sort of aspirational prop pricing phenomenon occur. And it never sold.

And um, I just started tracking them nationwide and not listings but just actual sales and U as in one was the biggest year by far, and they were well over forty transactions in the US residential that whether single family condo or co op that sold for UM fifty million or higher. And and this is sort of just before uh, you know, well up through today. I think there's been if you if you were to annualize, you know, so optimistically, if you annualize the sales to date, it

would be the second highest in history. And there was just a closing of a hundred seventy five million dollar transaction in Florida just this week. Um. And so what in two thousand and fourteen was something I would add to the list once a month or two months, It literally is now once a week. I remember the I remember the developer that had created that five hundred million

dollars spec house in l A, which seemed absurd. He filled it with you know, high end sports cars and art, and I believe, if I remember correctly, it was ventually auctioned off at bankruptcy for about a quarter of that price. Yeah about him. I think it was a million five. Yeah that was yeah, that was the one. It was called the one, and well now you can call it

the quarter. Yeah, the corn exactly. Uh. But but you know, it's funny because it's sort of this circus side show for housing, because you know, just like in New York there was a two nine million dollar condo, and there was a hundred million dollar condo, and at least these big numbers and so um. You know, you'd see people with modest houses saying, hey, if someone's willing to pay, you know, h million for a home, then my home has to be worth ten more. And you're like, no,

it has nothing to do with you. It's a it's a circus side show, you know. That's the aspirational pricing is great for your realistic neighbors. So the six million dollar house that's up for sale for thirty million, Hey, if you're two houses down and your house is five, you could say, hey, I really am looking for seven. Look at that house down the street. It's thirty million. Seven is a bargain if you're realistic. Yeah, Well, we were having people in Manhattan in a you know, six

floor tenement walkout. Uh. You know, looking at you see you have to walk up six flights of sarious your your apartment, you know, much more modest pricing. Uh, making comments that, you know, when Michael Bell bought his for a little over a hundred million at seven that hey, you know mine has to be worth more. And we're like, no, it's a different market. It's a different market, has nothing

to do with you. Plus, he's worth twenty three billion dollars and a hundred million is a rounding era to him, right right, exactly. People, people forget that. All right, I have one curve bawl question for you before we get to our favorite question, and that is why does your Twitter bio mention that you're a lobster fisherman. Well, let's just say I'm kind of hanging onto the past. Um. I lived close to Long Island Sound, um, big body of water, and when I I'm an empty nest now.

But I had four sons and we used to drop lobster pots and you know, fish for lobster. But I only caught We only caught one legal lobster a year. Everything else we had to throw back the end to be a certain weight, and you know, we had a instrument to measure them and um. And I always said it was the most expensive lobster caught on the Eastern Seaboard every year, because when you add up the cost of the boat, the dock, the fuel, the winterization, um.

The time, uh, you know, and then half the time when we caught a legal lobster, I just threw it back in cast and release. But it was it was really, it was really fun. Um. Uh. They I think they've pretty I think they've banned UM. I sold my boat two years ago, so we don't lobster fish anymore. But I'm very proud that I was once a lobster fisherman, even though if you delve in deeper, I wasn't that

good at it. All Right, let's jump to our favorite questions that we ask all of our guests, starting with tell us what you're streaming these days? What was keeping you entertained during lockdown and beyond? So I'm going to UH. I was anticipating this question as I listened to other UH interviews, and I'm very sad to say that I hardly watch any television and I don't stream anything. My wife does. I could answer for her, but I literally and I think, I don't know where this came from.

But my grandfather was a motion picture projections at the Town Theater. And my my dad was a latchkey kid and watched you know the same movie a hundred times only in sections and did his homework with his dad and uh, and so as a kid, I we never went to movies. Um. And so I'm like, it's funny. I'm just I don't know what it is. I guess maybe that makes me old fashioned or something. I don't

know what it is. I just don't care. So I became a full blown television idiot during the lockdown, just we couldn't go anywhere, we couldn't do anything, and it's just stream stream stream, And now I'm trying it's become a habitual. And now I'm trying to break that habit and uh get out of the house more as the world rights up again. But it's a rabbit hole that you can use. I just I just like screen time for me is I just I try to fight it.

I'm on my laptop so much, you know, working at all that that I try not to um, try not to do it. It probably makes me dull and boring, but not at all. So so I'm gonna give you one streaming recommendation, which is a very broad one. I signed up for YouTube Premium, so there's no ads, no commercials. YouTube is an endless world of just whatever your favorite topic is, There's an infinite amount of it and more

every day. It's genuinely astonishing, right. I mean, if you think HBO or Netflix has a lot of stuff, YouTube believes them in the dust. Amazing. Yeah, I I, Um, I have Hulu, but I really just use that to watch, you know, the occasional sports or whatever. Um. We cut the cable connection during the pandemic. Interesting, Um, tell us about some of your early mentors who helped to shape your career. Uh So, one of them was, um, it was a gentleman named John Nelson, who was my first

job out of college. I worked as a department head in a hospital and and he taught me. Um. First of all, you know, very organized guy, but he spoke very softly. And one of the things I learned when you're speaking in public, uh, is that it the less. I just found that the audience leans in a little bit more when you're not shouting, you're soft spoken. I just found bit very It's been very effective for me

and sort of that's just how I present. And I just before that, I always, you know, thought public speaking was sort of shouting and you know, really being it's if you're slower and delivery in a little bit less um, I don't want to say less animated. I just find at least in the subject material that I speak with, I'm I'm I'm a better presenter than I would be otherwise. And so I've always appreciated it was like a subtle thing.

And I've always appreciated that. Let's talk about books. Tell us some of your favorite books, and what are you reading right now? So I'm I'm on an auto industry kick and uh and so um, partly because my father in law, I'm in Detroit. Um, my father in law worked for Ford for thirty nine years and like most of my wife's family, had some connecttion to the auto industry.

So I've always been intrigued by it. And I just read an amazing book called finns Um and it's it's all about Harley Earl, who was essentially the GM uh you know sort of yeah, just lad lead the industry brought Finns into the mix. And uh. And one thing I learned in the book was I didn't didn'tonomy that that. You know, the president of GM his last name was Sloan,

and the second in command was Kettering. And my one of my daughter, Dodden Lawyers, works at Sloan Kettering because they were sort of behind the that hospital in terms of getting it started, is my understanding. And who would have thought. I'm reading a book about Detroit auto industry and they had this cancer hospital in Manhattan, which is sort of, you know, this world class saying. So I thought that was really interesting. And then the other thing,

and I've read like that. I just reread The Reckoning by David Halberstan and and and and I just never realized how backwards Henry Ford was, uh, you know, beginning in from the Depression on, he just built one car. You know, the famous saying you can you can have any color you want as long as it's black, um. All that um. And how the industry really changed and Harley Earl really sort of brought it into accessorizing and making cars decorative and a sort of a statement of yourself. Um.

And and that's been my my focus. I've read several auto industry books just in the last couple of months, just because, Um. I think I was subconsciously because I was preparing to go to Detroit and I wanted something to talk about with me and loss. You know. The funny thing is, I just read the book some seven UM trying to remember who who wrote it, but I love everything he writes and he talks about. That was kind of a myth that it was you can get a Model T in any color you want, as long

as it it's black, um, Bill bright. It turns out of if you've got the coupe, you could get in this color and the convertible and that color or or

they were like adding, Yeah, I started. It's like three or four colors they started adding, but only after intense pressure and shutting the factory down for a year to retool for the next Really interesting Yeah, Ford was in Ford was in a lot of trouble and and GM had really given them a run for the money in the twenties, UH by introducing design and new innovations right, and a lot of people because of the car itself, made fun of ed Salt like what EDEL stood for,

but exel is really the one that kept are going as you know, the father sort of you know, was sort of anchored to the past and not such a nice guy, um to say the least. But yeah, yeah, for sure. Let's talk about advice to a recent college grad who was interested in a career in either real estate or appraisal. What what sort of advice would you

give them? Well, uh, I think, you know, in when I think of real estate or valuation, I think there's a lot more upside in terms of future potential going into the commercial side rather than the residential side of the of the business. Um, I think there's more opportunity. Um, it's a on the residential side. And this is going back to my earlier criticism the appraisal foundation. To get into residential you essentially have to work for two years

for nothing or barely anything. You have to hire somebody. You have to be hired by somebody is willing to mentor you. And the reason why they generally don't is because after they teach you everything you know for two years, many many times the new person goes out on their own right. So there is a UM, it's an industry that's aging out and That's part of the reason why I'm so emphatically you know, trying to um sort of hit a swing a baseball bat against what the Appraisal

Foundation has done. They've essentially you know, part of the problem is this to your mentoring system, which accountants and lawyers and like, no one has this. After you take your license recensing test, you can function and make a living. You don't make as much as somebody with more experience, but you let the market sort it out in terms of you know, feed for service. In our industry, you can't do that. So I wonder if there's a correlation

between mentoring process and the lack of diversity. If you're hiring a friend or a family member, hey, maybe that person is less likely to be different than you are. Oh. Absolutely, that's a big part of it, And that's part of the problem. Uh, you know, it just it just um, you know, sort of continues the sort of the composition of the industry, which industry desperately needs, you know, new voices. Um. So that's why I've been very outspoken about it. Um. So,

I have four boys. I they're all adult men now, and they all are gainfully employed. So I feel like we did our job as parents. Um, they're all, you know, doing well and all that, But I with my wife and I wouldn't let them take over from us because I fear for the future. Um of the infloor are of the residential industry. Uh And and you know also too, I think kids taking over the family business. I feel like they need to be out in the world for five or seven years, UM, and then come back if

they really want to come back. But I think that that ship has sailed really interesting. And our final question, what do you know about the world of real estate appraisals market pricing today that you wish you knew way back in the nine eighties when you were first launching Miller Samuel. Uh So, this is really a a I thought a lot about this. UM. People with experience in real estate don't know as much about market pricing as

you think they do. Just because someone is experienced has been around a long time doesn't mean they're any better than someone that has experience that is a fraction of that. And the reason why I say that is there's a lot of lethargy where UM, individuals, Hey, I've been doing it this way for twenty five years, UM. And As it turns out, real estate in the last decade or maybe a little bit longer last years, has become a

lot more volatile. So all the rules of thumb, so to speak, that someone you know with my my sort of level of experience in terms of you know, time, um, is it relevant and uh and so I think I think you don't want to have that sort of age bias towards you know that youth is is also a good source of feedback on market conditions. Huh, really really quite interesting. Thank you Jonathan for being so generous with your time. That was Jonathan Miller. He is the CEO

and co founder of Miller Samuel. If you enjoyed this conversation, well check out any of the previous four hundred discussions we've had over the past oh, I think it's just about seven years. You can find those at iTunes, Spotify, wherever you get your favorite podcasts. We love your comments, feedback and suggestions right to us at m I be podcast at Bloomberg dot net. Sign up from my daily reading list at Rid Halts dot com. Follow me on

Twitter at rid Halts. I would be remiss if I did not thank the team that helps put this conversation together each week. Sebastian Escobar is my audio engineer. Sean Russo is my head of research. Attica Valbron is my project manager. Paris Wald is my producer. I'm Barry Rihlts. You've been listening to Masters in Business on Bloomberg Radio.