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podcast | Jul 25, 2022 |
Jonathan Miller on rising mortgage rates and the folly of Zestimates

The pandemic has shifted the housing market in fundamental ways that are still playing out, says Jonathan Miller, president and CEO of Miller Samuel Real Estate Appraisers & Consultants. “This doesn’t seem like a reactive, short-term move,” he tells Dennis Scully on this week’s episode of The Business of Home Podcast. “This seems more structural.”

With the widespread adoption of remote work, many city dwellers migrated to states like Texas and Florida, and they’re not necessarily moving back even now that city streets are bustling again and offices have reopened their doors. According to Miller, the “tether between work and home became infinitely longer” as employees at the higher end of the housing market have increasingly opted for longer, but less frequent, commutes—say, a monthly trip from Austin to New York.

Still, that doesn’t mean everyone has relocated. Despite remote work becoming more common, cities like New York are experiencing a surge in leasing demand and skyrocketing rent costs. The median rent in Manhattan hit $4,000 this summer, and Miller predicts the market will soon hit an affordability threshold—a tipping point where living in Manhattan becomes inaccessible for most renters. The current state of the economy can help explain the phenomenon: At the moment, much of current rental property development caters to the high-end market because that price range makes it easier for developers to recoup their investment in construction and labor costs. It also contributes to an increasingly dire shortage of affordable housing.

Although the rental market remains competitive, rising interest rates have begun to cool the home buyer’s market that has been on a tear since the onset of the pandemic. Much of Miller’s job as a real estate consultant involves parsing the hard data in order to get a better gauge of the market’s health. He also teaches a Columbia University course on market analysis—and as he explains to his students, the measurements we use to understand the market don’t always paint the complete picture. “What happens is the median [home price] actually rises when a market starts to turn weaker because the lower-end sales activity drops out first, and it moves the middle of the market, the median, upward,” says Miller. “So even though median is sort of the unofficial metric of real estate, and the one that’s usually most cited because it removes the outliers, it still has its challenges.”

Miller also gets real about the figures you find online. While scrolling through Zillow listings can fulfill house-hunting fantasies, he cautions against treating the site’s “Zestimates” (a home’s perceived value at resale) as hard facts. “The median accuracy rate of a Zestimate is 2 percent,” he says. “So you go, ‘Wow, they’re within 2 percent, that’s pretty good.’ [But since] it’s median accuracy, that means 50 percent of the time, they’re within 2 percent—and 50 percent 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 at large. Even though the current situation may feel complex and frenzied amid inflation and post-pandemic adjustments, Miller strives to maintain a hopeful perspective. “I’m not terribly worried,” says Miller. “But you know there’s gonna be weakness, for sure—here’s a little bit of pain. I’m not so sure how long it lasts, who knows. One end of the spectrum is, ‘It’s going to be a depression forever, black hole, we’re all going to die.’ And then the other end is, ‘There’s nothing to this at all.’ So once again, coming in the middle of the range is probably healthier.”

Listen to the show below. If you like what you hear, subscribe on Apple Podcasts or Spotify. This episode was sponsored by Serena & Lily and the Future of Home conference.

Homepage image: Courtesy of Jonathan Miller

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