Transcript: Jonathan Miller



The transcript from this week’s, MiB: Jonathan Miller of Miller Samuel Real Estate Appraisers & Consultants, is below.

You can stream and download our full conversation, including the podcast extras, on Apple iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.



(VOICEOVER): This is Masters in Business with Barry Ritholtz on Blomberg Radio.

RITHOLTZ: My special guest today is Jonathan Miller. He is President and CEO of Miller Samuel. The firm is best known for supplying data and analytics to the real estate industry. Anytime you see a report from one of the major real estate brokers showing houses that are on the market for how long, what the state of the market is, the odds are that Jonathan is the man behind that.

Jonathan Miller, welcome to our shelter in place version of Masters in Business.

JONATHAN MILLER, PRESIDENT, CEO, MILLER SAMUEL: Very glad to be here and getting a break from the self-quarantine talking to another human being and so it’s nice.

RITHOLTZ: So, let’s talk a little bit about what’s going on. We’re recording this the last week in March. Normally, this is the time of year when we would see a ton of new real estate listings and open houses and really the kickoff of the spring selling season. How’s the real estate market?

MILLER: It’s interesting. The fact is there’s very little data to test the water so to speak. Really, the only thing we’re sitting right now that is in real time because real state generally is much slower moving type of asset class is the change in patterns of listing inventory.

So, for example, in Manhattan for basically since the beginning of time, inventory rises from year end of any given year whether it’s a weak or strong market through the end of March. And over the last five years, it’s averaged about a 10 percent increase plus or minus a couple percent every here and this year, it’s down nine percent.

So, we’re not seeing people put properties on the market and that literally is one of the only validated points right now in the housing market at least in New York. We’re seeing stories about contract activity but that’s actually misleading because contracts typically I think when people think of a contract, they think those — what buyer and seller sort of shake hands and, boom, that’s the contract.

But the reality is the contract data that we’re seeing now represents two to three weeks ago. An offer is made, it’s accept by the seller and then you have or vice versa and then it goes to the attorneys and it takes a couple of weeks. So, I really think next week or the week after is where we’re going to start seeing the real slowdown in activity.

RITHOLTZ: So, real estate on a big lag. Last week, I saw a really amusing article on Bloomberg News, people are still putting their mansions on the market and is that really going on or is that still part of the lag that might have been happening in February and the beginning of March but its listings have dropped off?

MILLER: Listings have dropped off at least in what we’re seeing. When you look at January and February this year after — at least in New York Metro, it’s been a tough couple of years with the onslaught of new taxes beginning with the — in 2018 and then into 2019, all kinds of headwinds for housing.

RITHOLTZ: You’re referring to the change in the SALT deductions?

MILLER: SALT tax. We had the rent law which punished landlords which is primarily what investors are. We also saw an increase in the mansion tax, transfer tax.

So, there’s a lot of headwinds to use that phrase or word and now, we have– I mean, we saw an uptake in sentiment. A lot more offers are being made and all that is sort of out the window because we have new sort of milestone to grapple within the market and that’s the uncertainty of the virus.

It’s interesting, a lot of comparisons have been made to other seminal events in real estate like the 9/11 moment, like the Lehman moment and they’re all very different in scale and what actually occurred. But what’s a little different this time is that in those prior two moments, there is actually another — a new day and the further you got away from that moment, you could sort of process it, the tragedy, and start thinking about the future.

Right now, we don’t know other than — anything other than it’s got further to go and we don’t know how much further it has to go. So, there’s definitely a grayness to the outlook.

RITHOLTZ: So, one little ray of sunshine amongst to all this negativity, the Fed took rates down to zero that has to be good for mortgage rates or not. Tell us what’s going on with mortgages

MILLER: Well, if you look at Freddie Mac’s 30 — over the last 30 days — 30-year fixed, mortgage rates actually are a little bit higher now than they were at the end of February and one of the reasons is just capacity that many lenders laid off of the larger kind of processing staff six or nine months ago when there wasn’t much action going on in changes in rates and there’s some stability.

In addition, especially in the refi world, there’s a tremendous concern about liquidity. In other words, when you have escalating layoffs rising unemployment and people will say in the middle of their application and lose their job, that is a much different risk profile than we were in the conditions we were a couple of months ago.

So, the low rates in many ways have fallen on deaf ears in the housing market. Initially got everybody excited that it would help housing run through this crisis but I think it’s have — it will have limited effect. Certainly better than not doing it but not much tangible evidence that it’s going to make a difference.

RITHOLTZ: I was kind of fascinated, Jonathan, by something I read about on your weekly newsletter and I was very surprised to read that brokers are now hiding the number of days that houses have been on the market from buyers. What is that about? Why would anyone imagine that that is helpful to buyers and shouldn’t we be in favor of more transparency in these transactions?

MILLER: Well, Barry, you hit it on the head that we should be in favor of greater transparency. What the real estate community or the brokers have been grappling with in many markets is that things have slowed down before we came in to this crisis in certain segments of the market and they’ve been dealing with anxious sellers.

And then we have this crisis and it’s being presented as let’s give the sellers a break and let’s — essentially, there is no other word for it but hide the calculation for days on market on some list sites like New York StreetEasy which is owned by Zillow is — announced that they will be hiding days on market. Same thing with the Real State Board of New York which is somewhat of our local multiple listing system.

And we hear this in other parts of the country but other parts aren’t. The problem is — with this is that it ignores — I mean, last time I checked that there’s a buyer and a seller in each transaction and the buyer is essentially this data is being hidden from them.

The problem is or actually, the — what’s actually happening is the raw data like the listing dates, things like that, are not being hidden. But when you open and look at a listing, instead of saying on the market 108 days, they’ll just be blank or not — or hidden.

And to me, that breeds — that will breed future distrust between the consumer and the real state community and I think the actual reason they’re doing it having talked to many agents about this over the last couple of weeks, because I’ve sort of been sparring with the community about this specific topic, is that the actual motivation is really not to help the seller, it’s to really help the real estate agent hit the listing. In other words, consumers don’t want to say, hey, I’m going to take my home off the market because nothing’s going to happen for the next two, three, four months and they’re …


MILLER: And the real estate agent is worried that they’re going to lose the listing when they come back on the market, something else might get it. And that’s not good for the market. You can’t cherry pick data.

RITHOLTZ: So, Jonathan, why not a more targeted solution than not reporting this? Why not just toll days on the market for, I don’t know, 90 days until the coronavirus theoretically passes?

MILLER: Let’s say this crisis is over at 90 days and then we all go out and start – rates are low, we start buying up houses as a nation, the reality is that every house that was on the market in this period has an additional 90 days added to the days on market.

The consumer is not stupid. They are going to understand that we just came out of this. So, to me, it’s a lot about nothing. It’s not going to help stimulate sales activity and it endangers the idea of people coming back in because they’re going to say, well, are these numbers real now, are they being tweaked. I just think the whole idea is a bad idea.

RITHOLTZ: So, what’s going on in the world of appraisals? How are people doing appraisals on either refis or new purchases if everybody is socially distancing.

MILLER: Right. It was quite astounding. Up until a week ago prior to last week when there was an announcement by FHFA, which is the regulator over Fannie and Freddie, and there were some standards being set for allowing appraisers when mortgages are done not to physically inspect the property if they’re endangered.

And we were getting — for a couple of weeks, we stopped inspecting interiors of properties in New York prior to Cuomo — the governor’s shutdown or quasi-shutdown. And because I just couldn’t put my stuff in harm’s way, we had a couple of close calls and it seemed crazy especially when it became apparent that you don’t have to be symptomatic to be a carrier.

So, not only are we putting our staff in harm’s way to do an inspection on a mortgage appraisal but we’re also putting the homeowner or the occupant of the home in danger. So, that seemed to have the question. So, there was a stalemate.

And across the agency in the mortgage spectrum, appraisers were rapidly growing numbers pushing back on being forced to do appraisals, interior inspection. And so, essentially, what is coming out of all this pushback is that there are different types of alternatives, something that my firm is doing a lot of in New York because our risk to our appraisers are going on public transportation.

It’s not that they’re in a car insulated driving up to the curb, that’s really not an option in New York as it might be in the suburbs. So, what’s happened is there’s — and these solutions that are evolving and now we’re doing essentially what they call best option, your sitting at your desk and it is — and we’re actually getting photos from the homeowner.

All of this is less than, a full interior inspection by our professional. But the idea and I think government’s thinking is that it helps liquidity keep things moving forward. What they’re not is they’re not on cash out refinance that they’re not (inaudible) the interior inspection. So, that makes it all problematic.

And the second biscuits out of — this became mainstream where we could do no inspections for refis, I can only imagine the fraud and the predatory lending that would simply explode. And so, I don’t think you’re going to see as much of that in the solution simply because the emphasis is on the sale side not the refi side.

RITHOLTZ: Quite fascinating. Let’s talk a little bit about real estate in the time of pandemic. What can we do virtually? Can we use FaceTime to inspect the house? Can you do these virtual 3D showings or is real estate one of those things that you literally have to get into the space and look around and see what’s going on yourself?

MILLER: So, I think that virtual is clearly going to be an option for many during this crisis. But I don’t think that it goes mainstream, I think it’s more on the margin.

And I think because of the human element, the sort of the passion around housing, I think it’s a lot harder to convince many people with their largest asset in play here to just do it sort of all digital.

However, that’s the thinking now and that may change if this goes long enough, this crisis goes long enough. One of the things that has been really problematic that I think we’ll benefit from the virtual phenomenon would be actual closings.

You can be in a state like Maryland where you can do closing almost entirely on a simple iPad and you go across the line to say Virginia and it’s — you’re signing papers that say you signed another paper, the tremendous — it’s tremendously inefficient and I think there’s going to be a lot of cleanup of that.

One of the things we’re seeing in the appraisal industry or the valuation in general is something that we curbside appraisals and the idea is that you — if you’re in the suburbs, the appraiser drives up to the front of the house, they can — there’s nobody around, there’s social distancing, they can kind of walk around the exterior of the property.

They physically — a friend of mine actually just wrote about this in California. He’s already doing it where you call the homeowner on FaceTime and then they literally walk you through the house. You point — ask them to point in certain directions and make sure that you can see things.

And then why you’re doing it, because you can’t capture the video with FaceTime and I’m sure there will be alternatives or there isn’t alternative, they’re just doing screenshots of the video screen that they’re viewing the house on to capture it so that when they deliver the report to the client whether it’s a lender or a private individual that there’s some digital reference, visual digital reference to the interior of the home.

And I think this is going to play out significantly after this aftermath — in the aftermath of all this.

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RITHOLTZ: So, that makes sense for appraisals and that certainly makes sense to be a little more virtual and efficient on closings. But I keep coming back to the issue of how every piece of property is unique.

Photographs don’t really capture a neighborhood, the unique view of a given property, the feel you get when you walk into certain houses. There are certain architecture that just has this — the right energy, the right vibe. And sometimes, you walk into a house that looks spectacular online and you immediately recoil, there’s just something off about everything.

So, while appraisals …

MILLER: Or the smell, which we can run into (two door) you’re next to — you have a property out rural area and there’s a tremendous odor from the farm coming from your neighbor.

I mean, there’s all kinds of problems with going completely virtual. That’s why I’m very skeptical that it replaces the in-person experience and I know the appraisal industry itself is very worried that banking will just go all virtual and then worry about the consequences later in terms of collateral valuation.

And that — I’m not that worried about that but it certainly is a concern. And for homeowners, I just have a hard time processing and maybe that’s just me of a first-time buyer just by coming online. That’s challenge enough with (par during the) first time. But house I think is a little bit more — there’s more intangible.

RITHOLTZ: There can be a little doubt about that and we haven’t even talked about inspections where someone literally has to come and look at the foundation, look at the roof, look at the plumbing, the electrical system, all the machinery. How can you possibly do that virtually?

MILLER: You can’t or you — anything you do is something less than an inspection and do something less could be a little less or dramatically less and that’s the problem.

One of the things that — if this carries — this crisis carries on longer than anybody thinks and we have a severe economic meltdown, whatever you want to call it going forward, there’s going to be a tremendous amount of cleanup on the other side in terms of foreclosures and workouts and properties that shouldn’t have been purchased for what they were purchased because the property is not what it appears. I think that there’s a lot of concern about that.

RITHOLTZ: I just have to share a funny story with you. You’ve been to my house. I’ve been here almost six years.


RITHOLTZ: When we first saw this house online, there’s a whole long story, I’ll spare everybody, but I had set up a Zillow alert. I want a contemporary house either near the water or near the woods with the master bedroom on the ground floor, the laundry room on the ground floor and I wanted it to be contemporary.

And I kept on getting these crazy $30 million mansions in East Hampton, and just finding a regular house like that was rare. Lo and behold, our house in Locust Valley pops up and we go to see the house and every time we go to visit the house, the owner is cooking
something. They’re frying bacon. They’re baking muffins or cookies.

I mean, we visited the house seven or eight times and no matter what time of the night or day, stuff was cooked. And we get the engineers report and it says part of the roof has been replaced. It’s a contemporary house with a flat roof.

Of course, flat roofs are big pain in the neck and the engineer says, this was repaired, you should — and the house is 30 years, you should plan on replacing the roof sooner rather than later because it’s going to be a problem. Lo and behold, we moved into the house and within a week, you could smell the mold, you could smell — mold is really the wrong word.

You could smell the dampness from the leaking roof and fast forward three years later, we replaced the entire roof of the house. It was not inexpensive. The smell was — the frying bacon, that was the hint, they were covering something up.

MILLER: Well, I had experience probably 10 years ago in a litigation where the retail store, this is a condominium in Manhattan, and the retail store at the street level was a Starbucks and they had — and the landlord had incorrectly dented the exhaust from the store and it was getting — it was — the smell of like Jamaican Blue Mountain bold coffee was 100 percent on the air in the apartment right above it.

You could hardly think of anything else and imagine trying to litigate that virtually, it’s — it would be impossible.

RITHOLTZ: I want to talk a little bit about what the marketplace is going to look like after we get through this coronavirus. I’m assuming one day this will pass and things will start getting back to normal. What is that going to look like and how dependent is it on how severe and long-lasting our lockdown is?

MILLER: So, I think the future is highly dependent on how long the lockdown last. You can imagine the longer that the lockdown lasts, the more damage to our economy occurs even with this stimulus money that’s coming out.

The problem is that if this runs very long, you’re going to have a much higher unemployment rate and in theory that cuts down on potential purchasers for properties. One of the — if it’s a short window, then there’s a greater probability that the market recovers quickly.

But we have no way of knowing and they’re literally — at this moment, there is virtually no data that response — in a large — something that’s available and clean and speaks to the whole market. So, the longer the crisis, the more the damage, the bigger the hit to the housing market.

RITHOLTZ: Let’s take a reasonable scenario. Let’s say the lockdown is two months and sometime by the middle of May, we start crawling out from our shelter in place and social distancing and things get back to normal more or less, what sort of real estate market are we looking at then? Do we resume the spring selling season or do we lose half the season? What happens then?

MILLER: I think then at that point, the spring selling season has essentially passed us by because I don’t think it’s — the market is going to snap off like plumping and switch.

What you might see is the market being pushed to this hole. I think of an annual housing market, I always describe it as a two-hump camels, spring and fall, and the spring hump being much larger than the fall hump. We could very well see a big fall of large release of pent-up demand if unemployment doesn’t surge out of control.

I mean, that’s really the liquidity of being able to make payments on mortgages and all that is really kind of determines that. The other thing is I think what this — what is may be a silver lining in the sense that in markets that have been deteriorating over the last couple of years and that’s certainly SKUs to the higher-end markets and not lower-priced or mid-ranged type markets, higher end markets, you — the problem that it’s been is that sellers are being anchored to the market conditions several years ago and this, in my view, would clearly accelerate their ability to see the market as it is as opposed to the way it was.

And the reason I see that is any time you have an economic milestone, the consumer starts to — you’re unable to look before the milestone occurred as some sort of basis of rationale for what you think your home was today. And I think there’s going to be a lot of that going on.

And I think my gut if we’re talking about May that tells incredibly optimistic just in the context of the [virus] and how it will spread. It seems like the earliest would be something along the lines of July.

RITHOLTZ: And you mentioned the tendency of sellers to be behind the market. We saw something very similar in the early to mid-2000s as we headed into the financial crisis. Sellers always seem to be remembering the peak of the market but they don’t seem to recall the recent drop. Is that just a persistent quality of real estate that people want to get the top and they’re not paying attention to what is actually taking place within their local market?

MILLER: Especially in a multifamily market in a city where you might have properties in the same unit line. You own 15A, 20A sold three years ago for X. So, if you want to be five or 10 percent more, this is very common.

Even though they missed that there was some sort of pretty downturn in the market, they’re looking at public records and saying, well, that’s the last sale. And the problem with that is that it takes seller that anchored to the wrong number one to two years at least in my observation sort of decouple to deanchor from that incorrect number not to feel like they left money on the table at the closing.

And now, we have — and we’ve — and I think that’s one of the reasons why in New York anyway we saw this uptick in sentiment in January because the sellers just went through two difficult years in the market with all the new taxes and there seemed to be a fresh start entering 2020 and now that’s gone.

So, you mentioned taxes are suppressing the real estate market in the past couple of years. What about this $2 trillion bailout? I keep reading about all of these goodies sprinkled throughout that are going to help either real estate developers or real estate investors. But what’s in this bailout package for the benefit of real estate?

MILLER: Well, I think there’s — there will be — hopefully, from what I can tell, there will be some relief for landlords the problem with this is something I’m not clear is that the bailout is that a large portion of the real state the contra Parker’s are not eligible for landlords. The problem with — and this is something I’m not clear in the bailout is that a large portion of the real estate community are independent contractors and they, therefore, not eligible for unemployment.

So, this could be a real problem. I think anything coming into the economy is going to be helpful. I just don’t know if it’s soon enough to help small independent contractors that are going to really be challenged financially over the next two, three, four months

RITHOLTZ: Jonathan, who are independent contractors? Do you mean real estate agents, appraisers …

MILLER: Yes. Agents, real estate agents, home inspectors. A large — the majority of appraisers, people that are servicing the real estate industry of vast majority with the exception of executives tend to be independent contractors. So, they’re very much at risk in going forward without some sort of help. I know there had been attempts to lobby to put this in but I’m not clear whether that’s included in this stimulus package.

RITHOLTZ: Quite interesting. So, based on — without guessing whether this last till May or July or beyond that, just based on what you’ve seen, January, February, March, what is the next 30 to 90 days in the real estate market look like?

MILLER: Well, first of all, I think all the research that’s going to come out at the end of the — at the completion of the first quarter is not going to be very reflective of the conditions that have actually changed on the ground because of the lag crisis that’s mentioned in days, not weeks or months.

And so, I think there will be somewhat of a false positive in terms of data that describes the conditions of the market. I think what you’re going to have is a — this period of inactivity is going to see listings removed from the market. We’re going to have a tremendous amount of pent-up demand built by those that buildup that were intending to buy that are not worried about their job.

And assuming that rates stay low, you could see some sort of release of any kind, small, medium, large, but some sort of release once the, quote-unquote, “coast is clear.”

The other — it’s funny, on my blog, I wrote sort of a list of things that might change after the crisis is over and one of them is I would think that everybody that’s scoped up in apartment or house is starting to think about something, a larger space in the future whether they carried out or not. It certainly provides a little oxygen for the real estate community to think about the future.

RITHOLTZ: We were just having that very identical conversation about how your house is laid out and whether or not the structure of your home is going to lead to either a baby boom or a divorce tsunami after this is over. If you’re in a sort of compact space that’s on a small footprint and rises off of that, there’s really nowhere in the house to hide.

If you’re on sort of a longer piece of design with a little more acreage in your backyard, well, you have a place you can go on escape from your significant other just for a break for a little bit. I’m really going to — I’m really curious to see how our divorce infrastructure is set up and what sort of a wave of –that was 30 years of marriage in three months, I’m out.

I wonder what’s sort of stuff we’re going to see following that. I know you have a large house with a lot of places you can hide. My house is set up like a railroad flat. So, it’s much longer than it is wide or deep. So, if we’re on the opposite ends of the house, you can’t even yell to each other, you can’t even hear anything.

MILLER: That’s actually what — my wife and I are in that same arrangement. We both — our home offices are on the opposite ends of the house and then we meet in the middle, in the kitchen and have meals together. I mean, I’m simplifying it a bit but it kind of works.

RITHOLTZ: We’ve been doing the same thing. We try and meet every day for breakfast at 8:30, lunch at 12:30, happy hour at 5:30 and then dinner at 6:30. And depending on the weather, we’ll either take the dogs out for a walk.

The two of us — last week, it was 65 degrees. I took the convertible out for a ride. We went for — so, we’re keeping a little bit of the schedule with both alone time and together time and I’ve been talking to friends who have some of my employees who recently got married and, man, let me tell you, this is a baptism of fire.

It’s one thing to have a date that lasts a couple of hours. It’s another thing to have a date that starts in March and ends in July. I mean, you really find out if you’re compatible with someone.

MILLER: Yes. I think people are really learn about their partners and we actually — in all seriousness, we’re expecting — just from feedback, we — the large part of our practice are legal support services. The minority — probably about a quarter of our business really is relating to mortgage type work [repurposes].

But we do a tremendous amount of matrimonial-type litigation and the attorneys are getting ready because this could be a phenomenon. And I think I agree with your — about the birthrate. We can have a baby boom and we have to figure out what to call the next generation.

RITHOLTZ: The pandemic boom. Well, Jonathan, thank you so much for spending some time with us. Is there anything else we haven’t touched upon that you think is worth bringing to our listeners’ attention?

MILLER: I don’t think so. I think the only sort of final point is that right now, we don’t really know that much about the future of the housing market other than that we don’t know that much about the future of the housing market and this really is a developing story.

RITHOLTZ: We have been speaking with Jonathan Miller, President and CEO of Miller Samuel. If you enjoy this conversation, be sure and come back and check out the podcasts extras where we keep the tape rolling and continue discussing all things real estate. You can find that on Apple iTunes, Spotify, Overcast, Stitcher, wherever you find our podcasts are sold.

We love your comments, feedback and suggestions. Write to us I would be remiss if I did not thank the crack staff that helps put these conversations together each week, Charlie Vollmer is my audio engineer, Michael Boyle is my producer, Michael Batnick is my head of research, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.


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