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Jonathan Miller on Real Estate After the Coronavirus · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Boomberg Radio.
0:07
Speaker 1: My special guest today is Jonathan Miller. He is president
0:11
Speaker 1: and CEO of Miller Samuel. The firm is best known
0:14
Speaker 1: for supplying data and analytics to the real estate industry.
0:17
Speaker 1: Anytime you see a report from one of the major
0:20
Speaker 1: real estate brokers showing houses that are on the market
0:24
Speaker 1: for how long, what the state of the market is,
0:26
Speaker 1: the odds are that Jonathan is the man behind that.
0:29
Speaker 1: Jonathan Miller, Welcome to our Shelter in Place version of
0:33
Speaker 1: Masters in Business. Very glad to be here and getting
0:37
Speaker 1: a break from the self quarantine. Talking to another human
0:41
Speaker 1: being is always nice. So let's talk a little bit
0:44
Speaker 1: about what's going on. We're recording this the last week
0:48
Speaker 1: in March. Uh. Normally this is the time of year
0:52
Speaker 1: when we would see a ton of new real estate
0:56
Speaker 1: listings and open houses and really the kickoff of the
1:01
Speaker 1: spring selling season. How's the real estate market? Yeah, it's uh,
1:06
Speaker 1: you know, it's interesting. The fact is there's very little
1:11
Speaker 1: data to test the water, so to speak. Really the
1:14
Speaker 1: only thing we're seeing right now that is in real
1:18
Speaker 1: time because real estate generally is a much slower moving
1:23
Speaker 1: type of asset class is the change in patterns of
1:27
Speaker 1: listing inventory. So, for example, in Manhattan, for basically since
1:34
Speaker 1: the beginning of time, inventory arises from year end of
1:38
Speaker 1: any given year, whether it's a weak or strong market,
1:41
Speaker 1: through the end of March, and over the last five
1:45
Speaker 1: years it's averaged about a ten percent increase plus or
1:51
Speaker 1: minus a couple percent every year, and this year it's
1:54
Speaker 1: down nine. So we're not seeing people put properties on
1:58
Speaker 1: the market, and that literally is one of the only
2:01
Speaker 1: valid data points right now in the housing market, at
2:04
Speaker 1: least in New York. We're seeing stories about contract activity,
2:10
Speaker 1: but that's actually misleading because contracts typically, I think when
2:15
Speaker 1: people think of a contract, they think of you know
2:18
Speaker 1: when Byron sellers sort of shake hands and you know,
2:21
Speaker 1: boom um, that's the that's the contract. But the reality
2:25
Speaker 1: is the contract data that we're seeing now represents two
2:29
Speaker 1: to three weeks ago. An offer is made, it's accept
2:32
Speaker 1: by the seller, and then you have um or vice versa,
2:38
Speaker 1: and then it goes to the attorneys and takes a
2:40
Speaker 1: couple of weeks. So I really think next week or
2:43
Speaker 1: the week after is where we're going to start seeing
2:46
Speaker 1: the real slowdown in activity. So real estate on a
2:51
Speaker 1: big lag. Well last week I saw a really amusing
2:56
Speaker 1: article on Bloomberg News. People are still putting their mansion
3:00
Speaker 1: on the market, And is that really going on or
3:03
Speaker 1: is that still part of the leg that might have
3:06
Speaker 1: been happening in February and the beginning of March. But
3:09
Speaker 1: it's listenings have dropped off, the things have dropped off,
3:14
Speaker 1: at least in you know what we're seeing when you
3:17
Speaker 1: look at January and February this year after at least
3:20
Speaker 1: in New York Metro. It's been a it's been a
3:23
Speaker 1: tough couple of years with the onslaught of new taxes
3:26
Speaker 1: beginning with the two thousand eight eighteen and then into nineteen,
3:32
Speaker 1: all kinds of headwinds for housing. And then there was
3:35
Speaker 1: someone referring to the change in the salt deductions salt tax.
3:40
Speaker 1: We had the rent law, which punished you know, landlords,
3:45
Speaker 1: which is primarily what investors are. We also saw an
3:48
Speaker 1: increase in the mansion tax transfer tax. So there's a
3:52
Speaker 1: lot of headwinds, you know, to use that phrase, our word,
3:56
Speaker 1: and now um we have this we saw an upticking sentiment. Um,
4:02
Speaker 1: a lot more offers are being made and all that
4:05
Speaker 1: is sort of out the window because we have a
4:08
Speaker 1: new sort of milestone to grapple with in the market,
4:12
Speaker 1: and that's the uncertainty of the virus. You know. It's interesting, Um,
4:16
Speaker 1: A lot of comparisons have been made to other seminal
4:20
Speaker 1: events in real estate, like the UH nine eleven moment um,
4:25
Speaker 1: like the Lehman moment, and they're all very different in
4:28
Speaker 1: scale and you know, and what actually occurred. But what's
4:31
Speaker 1: a little different this time is that in those prior
4:35
Speaker 1: to moments UH, there was actually another a new day,
4:40
Speaker 1: And the further you got away from that moment, you
4:43
Speaker 1: could you could sort of process it the tragedy and
4:47
Speaker 1: start thinking about the future. Right now, we don't know
4:51
Speaker 1: other than anything other than it's got further to go,
4:55
Speaker 1: and we don't know how much further it has to go.
4:57
Speaker 1: So there's there's definitely a grain at to the outlook.
5:02
Speaker 1: So one little ray of sunshine amongst all this negativity.
5:06
Speaker 1: The FED took rates down to zero. That has to
5:10
Speaker 1: be good for mortgage rates or not. Tell us what's
5:13
Speaker 1: going on with mortgages. Well, if you look at Freddie
5:17
Speaker 1: Mac's thirty over the last thirty days, fixed UH mortgage
5:22
Speaker 1: rates actually are a little bit higher now than they
5:25
Speaker 1: were at the end of February. And and one of
5:28
Speaker 1: the reasons is just capacity. That many lenders UM laid
5:34
Speaker 1: off a large amount of processing staff six or nine
5:38
Speaker 1: months ago when there wasn't much action going on in
5:41
Speaker 1: UM you know, changes in rates and there's some stability.
5:45
Speaker 1: In addition, especially on the in the refi world, there's
5:49
Speaker 1: a tremendous concern about liquidity. In other words, you know,
5:53
Speaker 1: when you have escalating layoffs, rising unemployment and people will say,
6:00
Speaker 1: you know, in the middle of their application and lose
6:02
Speaker 1: their job, that is a much different risk profile than
6:07
Speaker 1: if we were in the conditions we were, you know,
6:10
Speaker 1: a couple months ago. So UM the low rates in
6:14
Speaker 1: many ways have fallen on deaf ears in the housing market.
6:17
Speaker 1: Initially got everybody excited that it would help housing run
6:21
Speaker 1: through this crisis. But I think it's have It will
6:26
Speaker 1: have limited effect, certainly better than not doing it, but
6:30
Speaker 1: not not much tangible evidence that it's going to make
6:33
Speaker 1: a difference. I was kind of fascinated, Jonathan by something
6:37
Speaker 1: I read about on your weekly newsletter, and I was
6:42
Speaker 1: very surprised to read that brokers are now hiding the
6:47
Speaker 1: number of days that houses have been on the market
6:52
Speaker 1: from buyers. What is that about? Why would anyone imagine
6:57
Speaker 1: that that is helpful to buyers? And shouldn't we be
7:02
Speaker 1: in favor of more transparency in these transactions? Well, Barry,
7:06
Speaker 1: you hit it on the head that we should be
7:09
Speaker 1: in favor of greater transparency. What the real estate community
7:14
Speaker 1: of the brokers have been grappling with um in many
7:18
Speaker 1: markets is that things have slowed down before we came
7:21
Speaker 1: into this crisis in certain segments in the market, and
7:26
Speaker 1: they've been dealing with anxious sellers and then we have
7:29
Speaker 1: this crisis, and you know, it's being presented as let's
7:34
Speaker 1: give the sellers a break, and let's essentially there's no
7:39
Speaker 1: other word for it, but hide the calculation for days
7:42
Speaker 1: on market. On some list sites, like in New York,
7:45
Speaker 1: Street Easy, which is owned by zillo Is, announced that
7:49
Speaker 1: they will be hiding days on market. Same thing with
7:53
Speaker 1: the Real Estate Board of New York, which is somewhat
7:56
Speaker 1: of our local multiple listing system. And we hear here
8:00
Speaker 1: of this in other parts of the country, but other
8:03
Speaker 1: parts aren't. The problem is with this is that it
8:06
Speaker 1: ignores I mean, last time I checked that there's a
8:09
Speaker 1: buyer and a seller in each transaction, and the buyer
8:13
Speaker 1: is essentially this data is being hidden from them. The
8:17
Speaker 1: problem is, or actually the the you know, what's actually
8:21
Speaker 1: happening is the raw data, like the listening dates, things
8:24
Speaker 1: like that are not being hidden. But when you open
8:27
Speaker 1: and look at a listing, it instead of saying, you know,
8:30
Speaker 1: on the market a hundred eight days, it'll just be
8:32
Speaker 1: blank or not or hidden. And to me, that breeds
8:37
Speaker 1: that will breed future distrust between the consumer and the
8:41
Speaker 1: real estate community. And I think that the actual reason
8:44
Speaker 1: they're doing it, having talked to many agents about this
8:48
Speaker 1: over the last couple of weeks because I've sort of
8:50
Speaker 1: been sparring with the community about this specific topic, is
8:54
Speaker 1: that the actual motivation is really not to help the seller.
8:58
Speaker 1: It's to really help the real estate agent keep the listing.
9:02
Speaker 1: In other words, um, you know, consumers don't want to say, hey,
9:06
Speaker 1: you know, I'm going to take my home off the
9:07
Speaker 1: market because nothing's going to happen for the next two
9:10
Speaker 1: or three or four months, and they're uh, and the
9:13
Speaker 1: real estate agent is worried that they're going to lose
9:16
Speaker 1: the listing when they come back on the market. Somebody
9:19
Speaker 1: else might get it, and that's not good for the market.
9:22
Speaker 1: You can't cherry pick data. So Jonathan, why not a
9:26
Speaker 1: more targeted solution than not reporting this? Why not just
9:30
Speaker 1: toll days on the market for I don't know, ninety
9:34
Speaker 1: days until the coronavirus theoretically passes. Let's say this crisis
9:40
Speaker 1: is over in ninety days and then we all go
9:43
Speaker 1: out and and you know, start rates a law, and
9:46
Speaker 1: we start buying up houses. Um, you know, as a nation.
9:49
Speaker 1: The reality is that every house that was on the
9:53
Speaker 1: market in this period has an additional ninety days added
9:57
Speaker 1: to the days on market. The consumer is not open there.
10:01
Speaker 1: They are going to understand that we just came out
10:05
Speaker 1: of this. So to me, it's it's a lot about nothing.
10:08
Speaker 1: It's not going to help stimulate sales activity, and it
10:11
Speaker 1: endangers the idea of people coming back in because they're
10:14
Speaker 1: going to say, well, are these numbers real now? Are
10:17
Speaker 1: they being tweaked? Um? I just think the whole idea
10:21
Speaker 1: is a bad idea. So what's going on in the
10:24
Speaker 1: world of appraisals? How are people doing appraisals on either
10:29
Speaker 1: refies or new purchases If everybody is socially distancing, right,
10:35
Speaker 1: It was quite astounding up until a week ago, prior
10:40
Speaker 1: to the last week, when there was an announcement by
10:44
Speaker 1: f h f A, which is the regulator over Fannie
10:48
Speaker 1: and Freddie UH, and there were some standards being set
10:52
Speaker 1: for allowing praisers when mortgages are done, not to physically
10:58
Speaker 1: inspect a property if they're in danger, and we were
11:02
Speaker 1: getting for a couple of weeks we stopped inspecting interiors
11:06
Speaker 1: of properties in New York prior to AMA the Governor's
11:11
Speaker 1: um shut down or cars I shut down UH and
11:16
Speaker 1: because I I just couldn't put my staff in harm's way. UH.
11:21
Speaker 1: We had a couple of close calls, and it seemed crazy,
11:26
Speaker 1: especially when it became apparent that you don't have to
11:29
Speaker 1: be you don't have to be symptomatic to be a carrier.
11:33
Speaker 1: So not only are we putting our staff in a
11:36
Speaker 1: harm's way to do an inspection on a mortgage appraisal,
11:40
Speaker 1: but we're also putting the homeowner or the occupant of
11:43
Speaker 1: the home in danger. So that seemed out of the question.
11:46
Speaker 1: So there was a stalemate, and across the agencies and
11:50
Speaker 1: the mortgage spectrum, appraisers were rapidly growing numbers pushing back
11:55
Speaker 1: on being forced to do appraisals interior inspections, and so
12:00
Speaker 1: essentially what is coming out of all this pushback is
12:05
Speaker 1: that there are different types of alternatives, something that my
12:08
Speaker 1: firm is doing a lot of in New York because
12:11
Speaker 1: our risk to our praisers are going on public transportation.
12:15
Speaker 1: It's not that they're in a car insulated driving up
12:18
Speaker 1: to the curb. You know, that's really not an option
12:21
Speaker 1: to New York as it might be in the suburbs.
12:24
Speaker 1: So that what's happened is there's been these solutions that
12:27
Speaker 1: are evolving and now we're you know, we're doing essentially
12:31
Speaker 1: what they're called desktops or you're sitting at your desk
12:34
Speaker 1: and it is and we're actually getting photos from the homeowner.
12:38
Speaker 1: Um all this is less than a full tear inspection
12:44
Speaker 1: by a professional. But but the idea, and I think
12:48
Speaker 1: government's thinking is that it helps liquidity, keeps things moving forward.
12:52
Speaker 1: What they're not is there not on cash out reef
12:57
Speaker 1: finance and they're not waiving the interior inspection requirement, so
13:03
Speaker 1: that that makes it all problematic. Um and you know,
13:07
Speaker 1: the second this gets out of you know, um, if
13:11
Speaker 1: this became mainstream where we could do um no inspections
13:16
Speaker 1: for reefs. I can only imagine the fraud and the
13:20
Speaker 1: um the predatory lending that would simply explode UM. And
13:24
Speaker 1: so I don't think you're going to see as much
13:26
Speaker 1: of that in the solution, simply because the emphasis is
13:29
Speaker 1: on the sales side, not the reef buy side. Quite fascinating.
13:33
Speaker 1: Let's talk a little bit about real estate in the
13:36
Speaker 1: time of pandemic. What can we do virtually? Can can
13:42
Speaker 1: we use face time to inspect the house? Can you
13:45
Speaker 1: do these virtual three D showings? Or is real estate
13:50
Speaker 1: one of those things that you literally have to get
13:53
Speaker 1: into the space and look around and see what's going
13:56
Speaker 1: on yourself. So I think that virtual all is clearly
14:02
Speaker 1: growing to be a an option for many during this crisis,
14:07
Speaker 1: But I don't think that it goes mainstream. I think
14:11
Speaker 1: it's more on the margin, uh, And I think because
14:15
Speaker 1: of the human element of you know, the sort of
14:17
Speaker 1: the passion around housing, I think it's it's a lot
14:20
Speaker 1: harder to convince many people with their largest asset UH
14:25
Speaker 1: in play here to just do a sort of an
14:28
Speaker 1: all digital. However, that's the thinking now, and uh, you
14:32
Speaker 1: know that may change if this goes long enough. Uh,
14:36
Speaker 1: this crisis goes long enough. One of the things that
14:39
Speaker 1: has been really problematic that I think will will benefit
14:43
Speaker 1: from the virtual phenomenon would be actual closings. Uh. You know,
14:49
Speaker 1: you can be in a state like Maryland where you
14:52
Speaker 1: can do closing almost entirely on a single iPad, and
14:58
Speaker 1: you go across the line to save orge in you
15:00
Speaker 1: and it's you know, you're signing papers that say you
15:05
Speaker 1: signed another paper. You know. The tremendous um you know,
15:10
Speaker 1: tremendously inefficient, and I think there's gonna be a lot
15:13
Speaker 1: of clean up of that. One of the things we're
15:15
Speaker 1: seeing in the appraisal industry or the valuation in general,
15:19
Speaker 1: is something that we call curbside appraisals. And the idea
15:24
Speaker 1: is that you you know, if you're in the suburbs,
15:29
Speaker 1: the appraiser drives up to the front of the house.
15:32
Speaker 1: Uh they can, you know, there's nobody around. This social distancing,
15:36
Speaker 1: they can kind of walk around the exterior of the property.
15:38
Speaker 1: They physically uh you know. And a friend of mine
15:42
Speaker 1: actually just wrote about this in California, he's already doing
15:45
Speaker 1: it where you call the homeowner on face time and
15:48
Speaker 1: then they literally walk you through the house, you point,
15:52
Speaker 1: you know, asked him to point in certain directions and
15:55
Speaker 1: make sure that you can see things. And then while
15:57
Speaker 1: you're doing it, because you can't capture the video with FaceTime,
16:01
Speaker 1: and you know, I'm sure there will be alternatives or
16:04
Speaker 1: there is an alternative. Um, they're just doing screenshots of
16:08
Speaker 1: the video screen that they're they're viewing the house on
16:12
Speaker 1: to capture it so that when they deliver the report
16:14
Speaker 1: to the client, whether it's a lender or a private individual,
16:18
Speaker 1: that there's some digital reference, visual digital reference to the
16:23
Speaker 1: interior of the home. And I think this is going
16:25
Speaker 1: to play out significantly after this aftermath, in the aftermath
16:30
Speaker 1: of all this. So so that makes sense for appraisals,
16:34
Speaker 1: and that certainly makes sense to be a little more
16:36
Speaker 1: virtual and efficient on closings. But I keep coming back
16:41
Speaker 1: to the issue of how every piece of property is unique.
16:46
Speaker 1: Photographs don't really capture a neighborhood, the unique view of
16:51
Speaker 1: a given property, the feel you get when you walk
16:55
Speaker 1: into certain houses. There are certain certain architecture that just
17:01
Speaker 1: the right energy, the right vibe, and sometimes you walk
17:03
Speaker 1: into a house that looks spectacular online and in your
17:08
Speaker 1: immediately recoil is just something off about everything. So the
17:16
Speaker 1: smell you know, which you know we can run into
17:20
Speaker 1: two or you know your next to um, you know,
17:24
Speaker 1: you have a property out the rural area and there's
17:28
Speaker 1: a tremendous odor from the farm coming you know, coming
17:32
Speaker 1: from your neighbor. I mean, there's all kinds of problems
17:36
Speaker 1: with you know, going completely virtual. That's why I'm very skeptical, uh,
17:41
Speaker 1: that that it replaces the in person experience. And I
17:46
Speaker 1: know the appraisal industry itself is very worried that banking
17:51
Speaker 1: will just go all virtual and then worry about the
17:55
Speaker 1: consequences later in terms of collateral valuation UM. And you
18:00
Speaker 1: know that I'm not that worried about that, but I
18:02
Speaker 1: certainly is a concern. And for homeowners, I just have
18:05
Speaker 1: a hard time processing. And maybe that's just me of
18:09
Speaker 1: of you know, a first time buyer just buying something online.
18:12
Speaker 1: You know, that's challenge enough with car doing it the
18:15
Speaker 1: first time. UM. But you know, the house, I think
18:18
Speaker 1: is is a little bit more. There's more intangible. There
18:22
Speaker 1: can be little doubt about that. And we haven't even
18:25
Speaker 1: talked about inspections where someone literally has to come and
18:31
Speaker 1: look at the foundation, look at the roof, look at
18:33
Speaker 1: the plumbing, the electrical system, or all the machinery. How
18:37
Speaker 1: can you do possibly do that virtually you can't, or
18:43
Speaker 1: anything you do is something less than an inspection. And
18:46
Speaker 1: the something less could be a little less or dramatically less.
18:51
Speaker 1: And and that's the problem. Um. You know, one of
18:54
Speaker 1: the things that if, if, the if, this carries on, Um,
18:59
Speaker 1: this cry this carries on longer than anybody thinks. And
19:03
Speaker 1: we have a severe economic you know, meltdown or whatever
19:07
Speaker 1: you want to call it going forward. Uh, there's gonna
19:11
Speaker 1: be a tremendous amount of clean up on the other
19:15
Speaker 1: side in terms of foreclosures and workouts, and you know,
19:20
Speaker 1: properties that shouldn't have been purchased for what they were
19:23
Speaker 1: purchased because the property is not what it appears. You know,
19:28
Speaker 1: I think that there's a lot of concern about that.
19:31
Speaker 1: I just have to share a funny story with you.
19:34
Speaker 1: You've been to my house. I've been here almost six years.
19:38
Speaker 1: When when we first saw this house online. There's a
19:41
Speaker 1: whole long story I'll spare everybody, but I had set
19:44
Speaker 1: up a Zillo alert. I want a contemporary house either
19:48
Speaker 1: near the water or near the woods, with the master
19:51
Speaker 1: bedroom on the ground floor, the laund room on the
19:53
Speaker 1: ground floor, and I wanted it to be contemporary. And
19:57
Speaker 1: I kept on getting these crazy thirty million all our
20:00
Speaker 1: mansions in East Hampton. To find a regular house like
20:03
Speaker 1: that was rare. Lo and behold, our house in Locust
20:07
Speaker 1: Valley pops up, and we go to see the house,
20:11
Speaker 1: and every time we go to visit the house, the
20:14
Speaker 1: owner is cooking something. They're frying bacon there, they're they're
20:20
Speaker 1: baking muffins or cookies. I mean, we visited the house
20:24
Speaker 1: seven or eight times, and no matter what time of
20:28
Speaker 1: the night or day, stuff was being cooked. And we
20:33
Speaker 1: get the engineers report and it says part of the
20:36
Speaker 1: roof has been replaced. It's a contemporary house with a
20:39
Speaker 1: flat roof. Of course, flat roofs are big pain in
20:43
Speaker 1: the neck. And uh, the engineer says, this was repaired.
20:48
Speaker 1: You should and the house is thirty years old, you
20:50
Speaker 1: should plan on replacing the roof sooner rather than later,
20:54
Speaker 1: because it's gonna be a problem. Lo and behold, we
20:57
Speaker 1: moved into the house and within a week you could
21:00
Speaker 1: smell the mold. You could smell mold is really the
21:02
Speaker 1: wrong word. You could smell the dampness from the leaking roof,
21:07
Speaker 1: and fast forward three years later we replaced the entire
21:11
Speaker 1: roof of the house. It was not inexpensive. The smell
21:16
Speaker 1: was the frying bacon. That was the hint they were
21:19
Speaker 1: covering something up. Well. I I had an experience probably
21:26
Speaker 1: UH probably ten years ago in a litigation where the
21:30
Speaker 1: retail UH store This is a condominium in Manhattan, and
21:34
Speaker 1: the retail store at at the street level was a
21:39
Speaker 1: Starbucks and they had Landhord had incorrectly vented UH the
21:45
Speaker 1: exhaust FM from the store and it was getting It
21:49
Speaker 1: was the smell of like Jamaican blue Mountain um Bold
21:54
Speaker 1: coffee was of the air in the apartment right above it.
21:59
Speaker 1: You could you could hardly think of anything else and
22:03
Speaker 1: imagine trying to litigate that virtually, It's it would be impossible.
22:08
Speaker 1: I want to talk a little bit about what the
22:11
Speaker 1: marketplace is going to look like after UM we get
22:16
Speaker 1: through this coronavirus. I'm assuming one day this will pass
22:20
Speaker 1: and things will start getting back to normal. What is
22:23
Speaker 1: that gonna look like? And how dependent is it on
22:27
Speaker 1: how severe and long lasting our lockdown is? So I
22:31
Speaker 1: think the future is highly dependent on how long the
22:35
Speaker 1: lockdown lasts. You can imagine if the longer that the
22:39
Speaker 1: lockdown lasts, the more damage to our economy occurs, even
22:43
Speaker 1: with the stimulus money that's you know, coming coming out.
22:48
Speaker 1: The problem is that if this runs very long, you're
22:53
Speaker 1: going to have a much higher unemployment rate, and in
22:58
Speaker 1: theory then that cuts down on potential purchasers for properties.
23:02
Speaker 1: You know, one of the if it's a short window
23:05
Speaker 1: and you know, there's a greater probability that you know,
23:08
Speaker 1: the market recovers quickly, but we have no way of knowing,
23:12
Speaker 1: and they're literally at this moment, there is virtually no
23:18
Speaker 1: data that reflects you know, in a in a large
23:22
Speaker 1: you know, something that's available and clean and speaks to
23:27
Speaker 1: the whole market. So longer the crisis the damage, the
23:31
Speaker 1: bigger the hit to the housing market. Let's let's take
23:34
Speaker 1: a reasonable scenario. Let's say the lockdown is two months
23:39
Speaker 1: and sometime by the middle of May, we start crawling
23:43
Speaker 1: out from our shelter in place and social distancing and
23:48
Speaker 1: things get back to normal more or less. What sort
23:53
Speaker 1: of real estate market are we looking at? Then? Do
23:55
Speaker 1: we resume the spring selling season or do we lose
24:00
Speaker 1: half the season? What? What happens. Then I think then
24:04
Speaker 1: at that point the spring selling season has essentially passed
24:09
Speaker 1: us by, because I don't think it's the market is
24:12
Speaker 1: going to snap up like you know, flipping a switch. Um.
24:16
Speaker 1: What you might see is the market being pushed to
24:21
Speaker 1: the fall. You know. I think of an annual housing market.
24:25
Speaker 1: I always describe it as a two hump camel spring
24:27
Speaker 1: and fall, and the spring humping much larger than the
24:31
Speaker 1: fall hump. We could very well see a big fall
24:35
Speaker 1: of you know, a large release of pent up demand
24:39
Speaker 1: if unemployment doesn't surge out of control. I mean, that's
24:44
Speaker 1: really you know, the the liquidity of being able to
24:48
Speaker 1: make payments on mortgages and all that is really kind
24:51
Speaker 1: of determines that. Um. The other thing is, I think,
24:54
Speaker 1: what this what is maybe a silver lining in the
24:59
Speaker 1: sense that in markets that have been deteriorating over the
25:03
Speaker 1: last couple of years, and that's certainly excuse to the
25:06
Speaker 1: higher end, higher end markets and not uh sort of
25:10
Speaker 1: lower priced or mid range type markets, um, higher end markets.
25:16
Speaker 1: You the problem has been is that sellers have been
25:18
Speaker 1: anchored to you know, the market conditions several years ago. Uh,
25:23
Speaker 1: And this, in my view would clearly accelerate their their
25:27
Speaker 1: ability to see the market as it is as opposed
25:32
Speaker 1: to the way it was. And the reason I see
25:35
Speaker 1: that is, um. You know, anytime you have an economic
25:38
Speaker 1: van of milestone, UM, the consumer starts to you know,
25:42
Speaker 1: you're unable to look before the milestone occurred at some
25:46
Speaker 1: sort of basis of rationale for you know, what you
25:50
Speaker 1: think your home is today? Um. And I think there's
25:52
Speaker 1: gonna be a lot of that going on. UM. And
25:55
Speaker 1: I think, my gut if we're talking about May, and
25:58
Speaker 1: that feels incredibly optimistic, just in the context of the
26:03
Speaker 1: virus and how it will spread. It seems like the
26:06
Speaker 1: earliest would be something more in the lines of July
26:10
Speaker 1: and you mentioned the tendency of sellers to be behind
26:15
Speaker 1: the market. We saw something very similar, uh in the
26:19
Speaker 1: early to mid two thousands as we headed into the
26:21
Speaker 1: financial crisis. Sellers always seem to be remembering the peak
26:28
Speaker 1: of the market, but they don't seem to recall the
26:30
Speaker 1: recent drop. Is that just a persistent quality of real
26:35
Speaker 1: estate that that people want to get the top and
26:39
Speaker 1: and they not paying attention to what is actually taking
26:42
Speaker 1: place within their local market, especially in a multi family market.
26:46
Speaker 1: You know, in the city where you might have properties
26:49
Speaker 1: in the same unit line. You know you own fifteen,
26:52
Speaker 1: you know twenty a sold three years ago for X,
26:55
Speaker 1: so you want to be five or ten percent more.
26:58
Speaker 1: This is very common. Even though I missed, you know
27:01
Speaker 1: that there was some sort of you know, downturn in
27:03
Speaker 1: the market there. You know, they're looking at public record
27:05
Speaker 1: and saying, well, that's the last sale. And the problem
27:08
Speaker 1: with that is that it takes seller that's anchored to
27:12
Speaker 1: the wrong number UM one to two years at least
27:16
Speaker 1: in my observation, to d couple or d anchor from
27:20
Speaker 1: that incorrect number not feel like they left money on
27:24
Speaker 1: the table at the closing. And now we have and
27:29
Speaker 1: we and I think that's one of the reasons why
27:32
Speaker 1: in New York anyway, we saw this upticking sentiment in January,
27:36
Speaker 1: because the sellers just went through two difficult years in
27:40
Speaker 1: the market with all the new taxes, and this seems
27:43
Speaker 1: to be a fresh start entering. And now that's that's gone.
27:49
Speaker 1: So you mentioned taxes as suppressing um the real estate
27:54
Speaker 1: market the past couple of years. What about this two
27:57
Speaker 1: trillion dollar bail out. I keep reading about all of
28:00
Speaker 1: these goodies sprinkled throughout that are going to help either
28:04
Speaker 1: real estate developers or real estate investors. But what's in
28:09
Speaker 1: this bailout package for the benefit of real estate. Well,
28:12
Speaker 1: I think there's UH. They'll be hopefully from what I
28:17
Speaker 1: can tell, will be some relief for landlords. Um. The
28:21
Speaker 1: problem with UH, and this is something I'm not clear
28:25
Speaker 1: is in the bailout is that a large portion of
28:29
Speaker 1: the real estate community are independent contractors and they therefore
28:33
Speaker 1: not eligible for unemployment. So this could be a real problem.
28:38
Speaker 1: I think anything coming into the economy is going to
28:41
Speaker 1: be helpful. I just don't know if it's soon enough
28:46
Speaker 1: to help small, you know, small independent contractors that are
28:51
Speaker 1: going to really be challenged financially over the decks two, three,
28:55
Speaker 1: four months, Jonathan, Who are independent contractors? Do you mean
28:59
Speaker 1: real estate at agents, appraisers and sectors or agents, real
29:04
Speaker 1: estate and age, sent home inspectors. A large the majority
29:08
Speaker 1: of appraisers, people that are servicing their real estate industry,
29:14
Speaker 1: of vast majority, you know, with the exception of executives,
29:17
Speaker 1: tend to be independent contractors. So they're very much at risk,
29:23
Speaker 1: UM in going forward without some sort of help. I
29:28
Speaker 1: know there have been attempts to lobby to put this
29:32
Speaker 1: in but I'm not clear whether that's included in this
29:34
Speaker 1: UH stimulus package. Quite interesting. So so based on without
29:42
Speaker 1: guessing whether this last till May or July or beyond that,
29:46
Speaker 1: just based on what you've seen January February March, what
29:51
Speaker 1: is the next thirty to ninety days in the real
29:53
Speaker 1: estate market look like. Well, first of all, I think
29:58
Speaker 1: all the research that's going to them out at the
30:00
Speaker 1: end of the you know, the completion of the first quarter,
30:03
Speaker 1: it's not going to be very reflective of the conditions
30:08
Speaker 1: that have actually changed on the ground because of the
30:10
Speaker 1: lag because this crisis is measured in days, not weeks
30:14
Speaker 1: or months and UH and so so I think there'll
30:17
Speaker 1: be somewhat of a false positive in terms of you know,
30:20
Speaker 1: data that that describes the conditions of the market. I
30:25
Speaker 1: think what you're gonna have is, AH, this period of
30:29
Speaker 1: act in activity is going to see listings removed from
30:32
Speaker 1: the market. We're going to have a tremendous amount of
30:36
Speaker 1: pent up demand built by those that build up that
30:39
Speaker 1: we're intending to buy, that you know, are not worried
30:42
Speaker 1: about their job. And assuming that rates stay low, you know,
30:46
Speaker 1: you could see some sort of release of any any
30:50
Speaker 1: kind small, medium, large, but some sort of release once
30:55
Speaker 1: the quote unquote coast is clear the other there's been.
30:59
Speaker 1: It's funny. I I'm on my blog. I wrote sort
31:03
Speaker 1: of a list of things that you might change after
31:06
Speaker 1: the crisis is over, and one of them is I
31:09
Speaker 1: would think that everybody that's cooped up in an apartment
31:13
Speaker 1: or a house UH is starting to think about something
31:17
Speaker 1: a larger space in the future, whether they carried out
31:20
Speaker 1: or not. H It certainly UH provides a little oxygen
31:24
Speaker 1: for the real estate community to think about the future.
31:26
Speaker 1: We were just having that very identical conversation about how
31:32
Speaker 1: your house is laid out and whether or not the
31:36
Speaker 1: structure of your home is going to lead to either
31:38
Speaker 1: a baby boom or a divorce tsunami after this is over.
31:43
Speaker 1: If you're in a sort of compact space that's on
31:45
Speaker 1: a small footprint and and rises off of that, there's
31:49
Speaker 1: really nowhere in the house to hide. If you're on
31:51
Speaker 1: sort of a longer piece of design with a little
31:56
Speaker 1: more um acreage in your backyard, well you have a
32:01
Speaker 1: place you can go and escape from your significant other,
32:05
Speaker 1: just just for a break, for a little bit. I'm
32:09
Speaker 1: really gonna I'm really curious to see how our divorce
32:13
Speaker 1: infrastructure is set up and what sort of a wave
32:16
Speaker 1: of all Right, that was thirty years of marriage in
32:19
Speaker 1: three months. I'm out. I wonder what sort of stuff
32:22
Speaker 1: we're gonna see following that. I know you have a
32:25
Speaker 1: large house with a lot of places you can hide.
32:28
Speaker 1: You know, my house is set up like a railroad flat,
32:32
Speaker 1: so it's much longer than it is wide or deep.
32:35
Speaker 1: So if we're on the opposite ends of the house,
32:38
Speaker 1: you can't even yell to each other, you can't even
32:41
Speaker 1: hear anything. That's actually what my my wife and I
32:43
Speaker 1: are in that same arrangement. We both are home offices,
32:46
Speaker 1: are on opposite ends the house, and then we meet
32:49
Speaker 1: in the middle in the kitchen and have meals together.
32:53
Speaker 1: I mean, I'm simplifying it a bit, but but it
32:56
Speaker 1: it kind of works that we've been doing the same thing.
33:00
Speaker 1: We We try and meet every day for breakfast today thirty,
33:03
Speaker 1: lunch for twelve thirty, Happy hour at five thirty, and
33:07
Speaker 1: then dinner at six thirty, and and depending on the weather,
33:11
Speaker 1: will either take the dogs out for walk the two
33:13
Speaker 1: of us. Last week it was sixty five degrees. I
33:16
Speaker 1: took the convertible out for ride we went for. So
33:20
Speaker 1: we're keeping a little bit of a schedule with both
33:24
Speaker 1: alone time and together time. And uh, I've been talking
33:29
Speaker 1: to friends who have some of my employees who recently
33:32
Speaker 1: got married. And man, let me tell you, this is
33:35
Speaker 1: a baptism of fire. It's there's one thing to have
33:38
Speaker 1: a date that lasts a couple of hours. It's another
33:41
Speaker 1: thing to have a date that starts in March and
33:43
Speaker 1: ends in July. I mean, you really find out if
33:46
Speaker 1: you're compatible. Some going to really learn about their partners
33:50
Speaker 1: and uh, and we actually, you know, in all seriousness,
33:54
Speaker 1: we're expecting um, just from feedback. We have a large
33:58
Speaker 1: part of our practice are uh legal support services. The minority,
34:03
Speaker 1: you know, the probably about the court of our business
34:05
Speaker 1: really is relating to you know, mortgage type work refunds,
34:10
Speaker 1: but we do a tremendous amount of matrimonial type UH litigation.
34:16
Speaker 1: And uh, the attorneys are getting ready because this could
34:22
Speaker 1: be a phenomenon. And and I think I agree with
34:25
Speaker 1: your you know about the birth rate. Uh, you know,
34:27
Speaker 1: we could have a baby boom when we have to
34:29
Speaker 1: figure out what to call the next generation the pandemic boom. Well, Jonathan,
34:35
Speaker 1: thank you so much for spending some time with us.
34:38
Speaker 1: Is there is there anything else we haven't touched upon
34:40
Speaker 1: that you think is worth bringing to our listeners attention.
34:44
Speaker 1: I don't think so. I think I think the only
34:46
Speaker 1: you know, sort of final point is that right now
34:49
Speaker 1: we don't really know that much about the future of
34:53
Speaker 1: the housing market. Other than that, we don't know that
34:56
Speaker 1: much about the future of the housing market, and this
34:59
Speaker 1: really is developing a story we have been speaking with
35:03
Speaker 1: Jonathan Miller, President and CEO of Miller Samuel. If you
35:07
Speaker 1: enjoyed this conversation, be sure and come back and check
35:10
Speaker 1: out the podcast extras, where we keep the tape rolling
35:13
Speaker 1: and continue discussing all things real estate. You can find
35:17
Speaker 1: that on Apple, iTunes, Spotify, Overcast, Stitcher, wherever your finer
35:23
Speaker 1: podcasts are sold. We love your comments, feedback and suggestions
35:27
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
35:31
Speaker 1: I would be remiss if I did not thank the
35:33
Speaker 1: crafts staff that helps put these conversations together each week.
35:37
Speaker 1: Charlie Bolmer is my audio engineer, Michael Boyle is my producer.
35:42
Speaker 1: Michael Batnick is my head of research. I'm Barry Ritolts,
35:46
Speaker 1: You've been listening to Masters and Business on Bloomberg Radio.