The pandemic has changed the housing market in fundamental ways that are still continuing, according to Jonathan Miller, President and CEO of Miller Samuel Real Estate Appraisers & Consultants. “It doesn’t seem like a reactive short-term decision,” he said. Denis Scully on this week’s episode of The Home Business Podcast. “It seems more structural.”
With the widespread adoption of remote working, many city dwellers have migrated to states like Texas and Florida, and they’re not necessarily returning even now that city streets are bustling again and offices have reopened their doors. According to Miller, “the link between work and home has become infinitely longer” as employees at the high end of the housing market have increasingly opted for longer, but less frequent commutes, such as a trip monthly from Austin to New York.
This does not mean that everyone has moved. Although remote work is becoming more commonplace, cities like New York are experiencing an increase in rental demand and skyrocketing rental costs. The median rent in Manhattan hit $4,000 this summer, and Miller predicts the market will soon reach affordability, a tipping point where living in Manhattan becomes unaffordable for most renters. The current state of the economy may help explain the phenomenon: at present, much of today’s rental property development is aimed at the high-end market, as this price range makes it easier for developers to recoup their investment in construction and labor costs. It also contributes to a growing shortage of affordable housing.
Although the rental market remains competitive, the rise in interest rates has begun to cool the home ownership market which has been in crisis since the start of the pandemic. Much of Miller’s job as a real estate consultant involves analyzing hard data to get a better assessment of the health of the market. He also teaches a course on market analysis at Columbia University, and as he explains to his students, the metrics we use to understand the market don’t always paint the complete picture. “What happens is the median [home price] actually increases when a market starts to weaken because low-end selling activity goes down first, and it moves the middle of the market, the median, up,” Miller explains. “So while the median is sort of the unofficial measure of real estate, and the one that’s usually most cited because it removes outliers, it still has its challenges.”
Miller also becomes aware of the numbers you find online. While scrolling through Zillow’s listings may fulfill home-finding fantasies, he cautions against treating the site’s “Zestimates” (the perceived resale value of a home) as hard facts. “The median accuracy rate of a Zestimate is 2%,” he says. “So you go, ‘Wow, they’re under 2%, that’s pretty good.’ [But since] it’s median accuracy, meaning 50% of the time they’re within 2% and 50% of the time they’re not.
Elsewhere in the show, Miller addresses concerns about doubling mortgage rates and shares his methods for analyzing the health of the housing market as a whole. Even though the current situation may seem complex and frantic amid inflation and post-pandemic adjustments, Miller is trying to maintain a hopeful outlook. “I’m not terribly worried,” Miller said. “But you know there will be weakness for sure – here’s a bit of pain. I don’t know how long it lasts, who knows. One end of the spectrum is, ‘It’ll be depression forever , a black hole, we will all die.’ And then the other end is, ‘There’s nothing to it at all.’ So again, being in the middle of the range is probably healthier.
Homepage image: Courtesy of Jonathan Miller