Total Housing Inventory - 5% Build
A: Thanks to Calculated Risk for this chart. I just want to sway away from Manhattan real estate for a moment and show you what is going on in the national real estate marketplace. As I reported yesterday, existing home sales slowed to the lowest level in 4 years and the result was a 5% build in total inventory levels. Total existing housing inventory rose to 4.43M units, enough supply for 8.9 months given May's sales pace; a level not seen since July 1992. Here in Manhattan we are governed by a completely different set of fundamentals that make our housing market lag in recessions and lead in recovery's. Question is, how long we can keep it up!
According to Calculated Risk:
This graph shows the year end inventory levels, since 1982, for new and existing homes. (2007 numbers are for April, I'll update when the New Home numbers are released tomorrow).Bill over at CR was referring to the statement by NAR economist Lawrence Yun, who stated in the WSJ article titled, "Existing Home Sales, Price Declines"..."If builders can be disciplined and cut back on production, then overall inventory would begin to diminish,"Yes, the builders need to cut back on production, but even if the builders stopped building, it would take some time to work through the significant excess supply currently on the housing market.
Alternatively a significant price decline might spur demand; I wonder why the NAR economist doesn't suggest that solution?
Here is the chart (click the chart to enlarge):
Not a pretty picture going on around the country! With inventory levels so high, it seems outright silly for any economist to go on record for saying we are anywhere near a bottom. Given housing's illiquid nature, it will take time to get through this supply problem and I am very thankful to be working as a real estate agent in a marketplace that is experiencing the exact opposite of this!
Some fundamentals that separate Manhattan housing from other markets include:
* Tight Inventory / Limited Options For Buyers
* Very Healthy & High Quality Buyer Pool / Lack of Significant Sub-prime Presence
* Strong Jobs Market / High Salaries
* Rental Vacancy Rates Under 1% / High Rental Rates
* Growing Trend To Live Closer To Place of Work / Healthy 2nd Home Demand
* Lack of Speculative Activity / Flippers (75% of Manhattan RE is Co-op)
* Cheap US Dollar Attracts Foreign Investment
* Growing NYC Population
* Investment in Infrastructure / Development Benefits
* Low Crime Rate / Great Place To Live
You just can't compare New York City real estate to other local markets and it further proves that real estate is a local phenomenon.
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Comments (4)
Noah - what is your view about the decision of the NYC rent control board? Would be interested to hear your reaction to any permitted increases in rents for stabilized apartments, and any flow on effect to the broader Manhattan rent/purchase market. Cheers.
Posted by sydney | June 26, 2007 11:11 AM
I dont think they voted yet? Usually they keep rate inreases at the lower end of expectations and I dont expect much of an effect to the broader markets. Most rent stab apartments stay occupied anyway, I believe. By no means an expert on this
Posted by Noah | June 26, 2007 11:56 AM
Is it foolish for us Manhattanites to ignore the state of the nat'l housing market since as you wisely note, 'You just can't compare New York City real estate to other local markets.'
Posted by d stein | June 27, 2007 8:18 AM
D Stein - No, its not foolish. However, it doesnt take much to keep tabs on what is going on nationally. MOST people do ignore the state of the nat'l housing market. Manhattan real estate is hard enough to learn to invest wisely in.
However, NYC, while immune to many issues facing nat'l market, historically LAGS in recessions and LEADS in recoveries. So, its not totally immune.
When issues arise nationally that might affect the buying power or other fundamental that affects ALL buyers regardless of geographic location, yes you should have that on your radar.
Personally, I would focus 90% on Manhattan and 10% on what is going on macro economically and nationally for buyers here. Try to learn what ultimately might affect NYC buyers and our marketplace so you know for future investing.
Im a bit obsessive and love to learn so I put alot of time into trying to understand macro fundamentals and things that might ultimately affect real estate across the country.
Posted by Noah | June 27, 2007 10:00 AM