Weeeee - Manhattan Doing Fine, But....
A: Cmon now, you can't expect me to let such a solid report on Manhattan real estate come and go without a little attention here! As far as I can see, the year-over-year reports from the likes of Elliman, Corcoran, Halstead, & Brown Harris Stevens are solid! My concern is the lagging nature of these reports in the media and that the true state of the Manhattan real estate market has undergone a psychological shift which is NOT reflected in any of these numbers. Consider me cautiously optimistic as I await the next report that will better show how our housing marketplace handled the recent credit squeeze!
With that said, lets review this bullish report on Manhattan real estate that in my opinion is a direct result of the extremely tight inventory over the past 3 months!
According to CNN Money:
Prudential Douglas Elliman reported that inventory in Manhattan fell 31.7 percent to 5,204 units in the third-quarter from a year-ago total of 7,623 units, while units stayed on the market for 123 days, faster than the 150 days seen in the same period last year.So what do we have here, lets do some text based math:The broker reported that the number of sales increased 65.6 percent this quarter to 3,499 units as compared to the 2,113 units sold a year ago. In similar quarterly reports from Brown Harris Stevens, Halstead Property and the Corcoran Group, all three brokers also reported shrinking inventory.
SHRINKING INVENTORY + SHRINKING TIME ON MARKET + RISING # OF SALES = SOLID BUYER CONFIDENCEI discussed in a past post that buyer confidence / inventory is ruling Manhattan prices right now and the threats to changing this trend in the future! I stated:
It all comes down to the buyers when evaluating the strength of a local real estate marketplace. Are there buyers out there? Do they have choices or not? Do they have buying power? Do they have confidence in the local housing market? Are they motivated to buy? These are extremely valuable questions that I wish I had real data on, but I don't; so I'm left to speculate. The answers to these questions in large part will determine the effect on local inventory and pricing. And that is where you can stop and analyze a local market for its strength or weakness. When buyer demand is strong, choices are limited, buying power is prevalent, confidence is high, and motivation is rising then I'm willing to bet that inventory in that local marketplace is very tight.This report confirms my inventory reports (Sept 24th, Sept 11th, Aug 23rd, Aug 9th) but its the sales volume that I question in the upcoming quarterly report for the months of August, September, & October. My gut is telling me that sales volume will slow resulting in a slight build of inventory for these months!
This hasn't happened yet and we will not know until reports come out in the media in December/January! My feeling is that buyer psychology / confidence has negatively shifted a bit with the headlines from the credit mess, tighter lending standards and rising loan rates ultimately resulting in some hesitation from those buyers that either:
a) weren't sure whether to rent or buy
b) are heavily reliant on bonuses as significant portion of annual salary
c) first time buyers
d) employed in financial sector; especially hedge funds, derivatives, structured credit, debt / fixed income positions
What I don't know is the percentage of the entire buyer pool that fits into these categories. Let's see how it plays out in a few more months especially after the fed's action to increase liquidity / confidence sparked a new stock rally, and I'll revisit this post for a follow up. If Manhattan proves to emerge from these past 3 months with continued shrinking inventory, continued rising sales volume, and falling time on market then there will be little argument against the near-to-medium term strength of this housing market!
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Comments (8)
I think on the next quarters report is a slow down in sales,
and a tighter inventory because sellers are seeing a slow down. They will take their apt off the market or not list it.. It's going to be a little bit of a stalemate for the next quarters number. As you know you have very savvy owners in Manhattan. They ar not going to sell in a slow market because they can afford not to. Those that can't afford not to are going to slim pickings. I am talking Manhattan and Manhattan only here.
Now as far as West Village, Tribeca and GV they will be just fine if not stronger going into the fourth quarter.
Posted by Anonymous | October 2, 2007 1:55 PM
Interesting. I wonder how many sellers will choose to take their listing off the market if they dont get their price. At the same time, I wonder how many new listings may decide to sell for whatever reason; i.e. change in near term outlook?
Near term, within 6 months and upcoming bonus season, as long as inventory is tight and staying at these low levels, he market will remain strong. But what if THAT TREND changes. How will we notice it? Will we notice it as it happens or AFTER?
Big test upcoming in the next 6-8 months for Manhattan. Look to inventory trends in April/May to see how we held up after the normally frenzy season! Will it be a frenzy or not?
Posted by Noah | October 2, 2007 2:16 PM
I have heard the "seller chess strategy arguement" for 5 years now and I dont buy it (regarding sellers trying to time the market by testing it as a listing then taking it off).
I dont believe that is a credible impact on inventory. For each cycle/quarter sure you are going to have those testers that adjust status from for sale to not or vice versa sale to test the waters but not really having the intention. But I think that number is consitent for each quarter - there will always be a subset of sellers that will try this.
So basically take the x number amount of inventory and consider 10% of that not serious buyers. the x number as it fluctuates up or down will always include this externality in the equation. I dont think it is more or less each month.
Posted by Mike | October 2, 2007 8:12 PM
Mike - I have to agree with you.
I dont buy it either. Its a percentage of every market out there and therefore no different here than in bumblefuck, Illinois!
excellent point!
Posted by Noah | October 2, 2007 10:13 PM
Noah,
Your blog is my greatest resource for understanding the NY City real estate market . Thank you for your hard work. It is very appreciated.
The unknown in this post is what number of people fall into the categories mentioned. I am interested in your and other brokers anecdotal experience of the % of foreign buyers and Wall Street bonus buyers. These buyers supporting the NY market is a plausible explanation of why NYC is not subject to the US market forces but as an auditor I am skeptical. I see the same types of people at every open house. I don't think the 1 million dollar bonus Wall Street person is going after the same 1100 SF 2 bedroom that I am.
The rising prices throughout the US were supported by plausible explanations in the last several years and it turned out otherwise.
Posted by Jon | October 2, 2007 10:30 PM
Jon,
I definitely dont doubt your rationale. I think the number at this point to continue to watch is inventory. As much as we are or should be similar to other markets over the last few years one thing seems to be different - inventory. Most US markets all you hear about is the glut of homes for sale. They other thing is rent, rent still is relatively inline with a comparable unit to purchase. Just as home prices have gone up 10-20% consistently each year here so has rent. Not saying at some point this will change because I agree this cannot go on forever. I also think the manhattan may experience more swings in the market as I remember in the dot com bomb days near the peak when I was trying to rent an apartment they wanted 3 months security - a brokers fee - etc, then once it bust I got that same apartment with no brokers fee 1 month security and about a 20% discount.
Aside from all this inventory definitely should be a very important number to watch over the coming months.
Posted by Mike | October 3, 2007 9:04 AM
Jon - Hmm, I would think RIGHT NOW, there is a higher concentration of wall street and financial services buyers than new foreign buyers that have yet to buy.
Just a hunch, no real evidence to prove.
Mike - another interesting point and I agree. I also recall after the stock burst what happened with rents. I actually closed in April 2002, lived there for a year, then rented out. I thought I would be able to get 4200, but ended up getting 3250, for a 1100 sft JR4 with 660 sft terrace in lux drmn bldg on 93rd & 2nd. Meanwhile, 2 years earlier I was paying 2400 for a 750 sft 1 br in ugly buiding on York ave.
Question is, what comes first as indicator of health of market demand? Rental price moves OR Sales price moves? If rental prices top out, inventory builds, and there are deals out there, will that later effect sales or vice versa? Economic weakness first OR rental/sales weakness first?
Posted by Noah | October 3, 2007 9:21 AM
What do you think about the inventory of condo units in Brooklyn?
And how come you never mention Brooklyn real estate in your postings?
Posted by Tanya | October 11, 2007 1:54 PM