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Appraiser Jonathan Miller Answers Your Real Estate Questions

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Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to Today's topic: Jonathan Miller answers your questions!

Appraiser, graph guru, and Curbed columnist Jonathan Miller dropped by our Curbed University Friday Open Thread to answer your questions. As promised, we're collected some of the Q's and Jonathan Miller's A's here. And so we'll turn the floor over to JMillz.

Curbed Reader: Many developers/owners are predicting multifamily rental rates in most neighborhoods in Manhattan and prime Brooklyn to increase 4-5% YOY for the next 5 years or so - do you think this is feasible and how much will it impact the sales market if they're right?

Jonathan Miller: I suppose anything is possible but that's pretty aggressive. Over the past 2 years, rents have been rising sharply, driven first by tight credit and lately, by (slowly) rising NYC employment. Tight credit tends to tip would-be buyers back into the rental market driving up rents because supply is pretty inelastic (slow to react). I think rents remain fairly strong for several years out (assuming no surprises) because credit remains tight and NYC employment continues to rise. But I don't think this kind of price growth can be sustained unless incomes and employment begin to rise as well. Plus, if mortgage lending standards begin to ease in a few years (because of improved income and employment numbers), easier mortgage lending will cause more inventory to come to sales market and more sales activity will poach some of the rental demand that is needed to keep rents rising.

When will supply/demand normalize in Manhattan? Or how long do you see this inventory shortage lasting?

I see it lasting for a while - tough to be more specific than that. This is a great question since the tightness of inventory is really the cause of all "feel good" housing news lately. In order to gauge the length of this market condition, look at the primary cause: tight credit. Sales are not rising as fast as inventory has fallen, not by a long shot, so I think the question to ask becomes "when does credit ease?" That's not something that the Federal Reserve or any economists have been able to figure out. To look at it another way, it doesn't look like we will seen a significant addition to supply in the near future.

One other thought: Also break it down by existing and new dev:
· Existing listings: nearly half of all US mortgage holders have either low or negative equity - they can't buy so they don't list. Those who have no issue with equity but can't find what they want don't list until they find something, compounding the problem.
· New Dev listings: they're coming big time over the next 2 years and not enough (new dev is 10-20% of the market-what about the other 80-90%?) and the product being built is nearly all luxury (top 10% of market). So what about the other 90%?

Do you think the current outlook for local tax policies will disadvantage NY real estate for global high net worth investors? NY looks cheap compared to London, Hong Kong etc. Will the gap ever narrow?

I don't think so. We are currently far more affordable to high net worth individuals?and since the credit crunch is global and many governments are entering periods of revenue shortfalls like us, the wealthy will probably be the target for disproportionately higher taxes and more regulatory overlay in their businesses everywhere. With all the economic uncertainty and the political stalemate in US, we seem to be more certain as a location to invest in RE than in other areas across the globe. That's why we have seen a proliferation of trophy and other record high end sales in the past 2 years. This was the running theme in the recently released Wealth Report by Knight Frank in London.

I inherited an apartment. The apartment needs a complete renovation. Is it better to sell it as it is or renovate and sell?

I've never been a fan of "renovating to sell" unless you are in that business. You delay entry to the market and risk that your costs and hassle won't be paid for to their fullest or achieve a premium by your buyer. Check out this weekend's NYT Real Estate cover story, "Home Buyers Seek Manhattan Wrecks," by Constance Rosenblum that addresses this very point. I provided some stats for the piece that show with the chronic inventory shortage we are seeing a rise in listings that need TLC. I would imagine that the spread between listings that are renovated and those that aren't renovated to narrow with the lack of supply right now.

I've seen your research on valuing outdoor space (via Manhattan Loft Guy) as 50% per sqft of the indoor space. If the outdoor space is completely finished with a full outdoor kitchen (Viking grill, burners, sink, fridge, dishwasher etc) and has 360 views (completely private). Do you see it going beyond the 50% rule of thumb? Size wise it does not exceed the size of "diminishing returns" by being outsized relative to the indoor space. At what point does spending additional $/sqft on outdoor space renovation become pointless?

The 360 degree views are already considered in the ppsf analysis of the interior space as if there was no terrace. While those amenities sound nice, I am wary that they make the space more personalized rather than neutral and therefore may provide a diminishing return to the overall value of the outdoor space.

· Open Thread: Ask Jonathan Miller Your Real Estate Questions [Curbed]
· Curbed University archive [Curbed]