"I" is for Inventory: NYC Still Very Tight
A: Readers often confuse statements that I make on this blog and interpret something I say as a prediction of future price appreciation. Not so. I rarely delve into that area as its way too hard to predict what short or medium term price appreciation will be in any given neighborhood of Manhattan. What I do strive for is to report to you what I see in this fast changing marketplace so that you can get a front row seat to any changes before mass media reports on them. I'll also provide my opinions and tips so that you see my opinions on handling the changing marketplace in the best way possible. When I state that 'because Manhattan is 75% co-op, we are somewhat protected from the subprime mess' it does NOT mean I am predicting an overly optimistic picture for future price appreciation. It means that this market is driven by unique fundamentals that if understood, will explain why we have not seen a correction thus far. Which brings me to today's post on inventory.
Inventory in the New York City real estate market is still very tight. My clients, who range in price point from low $300's (yes I still work with all buyers) to low $2M's, are still having trouble finding products that meet their living needs. Its not to say that there is absolutely nothing, it's just that options are very limited and what is available usually has more than one item that discourages them from bidding.
These clients are not picky either. They know that compromise is inevitable and that they will have to buy a property that has at least 'something' to it that they dont like. The key is, what that 'something' is. It's my job to make sure that the 'something' is NOT a permanent feature that will eventually limit resale profit potential. These 'somethings' include location, light, views, or raw space. This is where the problem is. Finding a property priced right in the perfect location, with good natural sunlight, at least decent views, and enough raw space to meet the buyers' needs. That is where inventory is limited.
Which brings me to today's market report. While the macro economic environment is still very uncertain, it is less uncertain than it was just a few weeks ago. Today, we know that:
a) The Fed is ready to step in when needed; although if stocks continue to rally on the assumption of a rate cut, that rate cut will never happen
b) The banking system seems to be reacting favorably to fed liquidity injections and cut in discount window
c) Major banks, like Bank of America taking a $2B stake in Countrywide Financial, are ready and willing to jump into buying opportunities for struggling smaller lenders
...this is helping to restore investor confidence and therefore stock prices. What is beneath the surface AND the ultimate economic side effects of this credit squeeze are still yet to be known. So we are not out of the woods yet. So what does this mean to NYC real estate that we know is so directly tied to wall street and wall street related jobs and bonuses?
It means that as long as NO MAJOR STOCK SELLOFF OR ECONOMIC RECESSION OCCURS, our marketplace fundamentals will NOT be so quick to change. Manhattan market fundamentals in place right now include:
* Tight Inventory - opposite of what is going on in most other local suburban markets
* Strong Jobs - jobs are still plentiful. There is only talk of job losses as a result of an economic slowdown from this credit squeeze; it did not happen yet.
* High Salaries - NY'ers are still making plenty of $$$. Again, there is only talk of a restriction in salaries as a result of any future recession.
* Bonuses - Umm, we are still only 800 points from record highs on the DOW. Who knows where we will end the year but if things pass over better than most expect and stock markets hold up, bonuses will not get hit as much as everyone expects. There goes that doomsday scenario.
* Weak Dollar - foreign buyers still see value in NYC real estate based on currency trends
* Lifestyle - urban lifestyle is still in demand as trend to live closer to workplace grows stronger
* Rental Rates Soaring - any change in this trend will be lagging from economic slowdowns. Soaring rents make buying more attractive options for those that can afford it, and as I mentioned above there are still plenty of buyers out there.
I see this recent headline from the NY Times story on Sunday that states "...Since June 2006, the national inventory of houses has increased by 12%, but Manhattan's apartment inventory has decreased by 32%":
The Manhattan Real Estate Slump That Wasn't (NY Times) -
Even the condo glut that so many real estate executives feared has turned out instead to be a boon of sorts. "If we didn’t have new development coming on at the pace we did, we'd have a chronic shortage across all sectors, and we’d see 20 percent price growth," said Mr. Miller, the appraiser.Tell me where I am wrong here right now? I discussed the potential threats to jobs, salaries, and bonuses as the red flags are being waved; but doomsday hasn't hit yet. So far the fed has handled this credit squeeze admirably and Bernanke's actions seem to be working. That's not to say it wont get worse, because it may, but it hasn't changed any of the fundamentals yet; at least I am not seeing any changes.To the extent Manhattan's housing market is threatened by a weak national economy and by declining bonuses, said Mr. Miller of Miller Samuel, "then the fact that we have a lower level of supply coming on would help keep the market from correcting."
UrbanDigs Says - As long as inventory remains tight, I just don't see how prices can come down as aggressively as some people think. That is not to say I expect 10% appreciation per year for the next two years! I don't. Rather, I see a sideways market for the near term. Corrections are perfectly normal for longer term sustainable growth, I've said this a number of times, so for now its important to continue to monitor the macro economic environment to see how that ultimately effects jobs, salaries, bonuses, affordability, rental rates, and ultimately inventory here at home!
Comments (16)
Thank you for your balanced and more nuanced view about the situation, Noah. No, I won't ask you to become a bear overnight. You are right, the fundamentals have remained positive for the New York. There are, of course, some statistics that paints a less than positive picture. The foreclosure rates have gone up significantly. Sales numbers have gone down.
A correction is helpful for a healthy economy.
Posted by Bobby | August 24, 2007 12:21 PM
I really want to thank you for this blog and for the insight you provide. I am just entering the Manhattan real estate market and it sure takes a lot of courage right now. Unfortunately I had to rent for the last eight years. I didn't realize credit was so easy or I would have qualified long ago. Amongst all the panic and overstatements out there (on both sides) it is such a relief to find real commentary and discussion. Kudos!
Posted by Gail A | August 24, 2007 12:59 PM
Thx Bobby! Pleasure to provide what I see..Ill leave it up to reader to agree or disagree but goal will always be to discuss these important topics in an open forum.
Lets see how changing marketplace effects NYC real estate, if at all.
Posted by Noah | August 24, 2007 1:34 PM
Thx Gail too - I love doing this and talking about this stuff. All this information should be made easily available to everyone who is in the manhattan marketplace to make a buy or sell investment decision.
Ill do my best to keep content up to par!
Posted by Noah | August 24, 2007 1:35 PM
Noah,
I agree with you on one issue. Manhattan housing won't drop in price unless there is a stock market crash and recession. I am by no means convinced we are out of the woods yet. I have a very negative view of the economy. The consumer is tapped out: there is no equity left to withdraw, no savings, housing depreciation and anemic job growth. This spells recession to me. A recession will affect Wall Street and NYC housing market negatively.
On another topic, why are NYC rents dropping if supply is so tight? I heard it on NPR a few days ago.
Posted by Sam | August 24, 2007 3:40 PM
Hey Sam --hmmm, I dont see NYC rents dropping at all unless its happening in past 1-2 weeks and I missed it.
95% of my business is sales, the other 5% is rentals for my landlord clients that use me to rent out their units. So Im not the best rental person to ask.
But, can you supply link to article here?
Posted by Noah | August 24, 2007 5:02 PM
Hi dude, your website is hot, there is one thing about NYC inventory that make me think that the statistics you and the rest of the real estate munchkins show us is wrong.
Just go to the NY times real estate and count all listing in manhattan (including the upper island), the number is ...15,256.
Is it a bid deal?, I don't know but it make me think that there is lots of misinformation out there.
Posted by Ronen | August 24, 2007 5:05 PM
Ronen - I have an answer for you, and its called open listings!
Almost ALL:
BOND NY
HOMESTEAD
METROPOLIS
CITY SPACES
NYLS
MANHATTAN APT's
CITYSITES
DOMAIN PROPERTIES
etc...
are simply ads by individual brokers to GET A PHONE CALL from a prospective buyer to convert them to a potential buyer client! These open listings advertise new dev's and other listings making the actual inventory count FAR MISLEADING!
Use this formula - IF IT HAS NO EXACT ADDRESS --> ITS AN OPEN LISTING
That includes a description where the address should be or a phrase like 'W 90s', 'W 72nd ST', 'Upper West Side', 'Be One Of The First To Own This Condo', 'Luxury Condo For Sale', Live in One Of Manhattan Premier Residence, 'Condo Conversion', etc..
Get it? Dont be scammed my friend! But then again, Im a munchkin so take it for what it is!
Miller Samuel reports more accurate data from Elliman's listing system, a subset of realplusonline.com. They count exclusive listings and new devs, NOT open listings; the right way to count inventory. If you did count open listings, then each individual unit may be counted up to 20 times!
Posted by Noah | August 24, 2007 5:31 PM
I have a question about nyc inventory. Based on the NYT article, there are about 5800 apts in ny right now (current inventory). But if i look at one of the listing services for manhattan, i can see that a certain new condo development on the UWS shows 180 condosfor sale, 50 are sold which leaves 130 on the market. But the building actually has 450 condos in it. So there are another 330 waiting in the wings...that are really available, just not listed. I could easily investigate 10 new developments and see similar scenarios. So my question is, is inventory drastically higher than what is represented?
Posted by John | August 24, 2007 10:58 PM
Do you think the inventory might become less tight in the near future? From today's NYT: ...a record number of units are nearing completion. Manhattan will have 6,444 new condominiums completed this year, compared with 1,614 in 2005, according to Halstead Development Marketing. In Brooklyn, 3,768 units should be finished this year, compared with 480 in 2005.
And another question, let's say there is a price correction. Do you think it will equally affect apartments at all price points? I would think that if the price for a condo goes from $800,000 to $750,000, this might already create some interest, whereas it doesn't make much difference whether a condo costs 4 or 3 million. But maybe it's just from my viewpoint.
Thank you for this blog, I find it very useful.
Posted by Kathy | August 25, 2007 10:13 AM
John - Its a common practice for new devs to ONLY release a portion of units per category; i.e. 5 1br's, 5 2 br's, 5 3 br's, etc.. and then once those sell to release the next batch usualy with a new amendment and higher price.
It all depends on sponsor and eagerness to sell quickly. Few new devs release their entire inventory at once, although that has happened. You can find out by simply asking what % of the bldg is sold thus far and how many units are left to be released.
Posted by Noah | August 25, 2007 12:17 PM
keep up the good work!... the effects will take time to meander around the system. currently the pause button has been hit, and until they finally figure out how to determine the value of the credit markets, the pace will continue to be slow.
Posted by sang | August 25, 2007 9:15 PM
Hi - A number of web sites, including this one, keep pointing out the unique nature of the New York City real estate market. This view, however, seems to be contradicted by the recent New York Times article on housing prices (and the graph comparing New York City real estate to the national trends). Based on that article - it appears that New York real estate prices have closely followed the national trend (except in 89-90 and 02-03). Can you explain this discrepancy in perception? (Is it that the rules just don't apply to Manhattan real estate?)
Posted by David | August 26, 2007 8:25 AM
But doesnt that graphic include suburbs of New York as well and therefore data is skewed if you are just looking for data on Manhattan alone?
Caption states that suburbs of NY prices are falling
Posted by Noah | August 26, 2007 9:04 AM
Any thoughts on the Brooklyn condo market? We're thinking of buying in one of the new developments on the waterfront in Williamsburg. There are so many new condo towers springing up there and in downtown Brooklyn that it seems inventory there will be/is very high for the conditions that are developing.
Posted by Ken | August 29, 2007 9:25 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Mbt | June 3, 2010 1:33 AM