Manhattan Housing: Mid Year Review
A: Why not, recall my 2008 predictions made Dec. 27, 2007! In a nutshell, right now I see new listings coming to market slowing down a bit, which is completely normal for summertime in Manhattan and after such a significant rise of inventory levels since mid-December 2007. Let us not forget that inventory levels are about 45% higher right now, than they were 7 months ago. As I said a few weeks ago, I would expect the next few months to see stagnating inventory levels as both sales and new listings coming to market remain at lower levels. For buyers, you will not see the amount of options that you saw during the past 4-5 months when inventory surged. For sellers, pricing correctly is everything.
Today's market is a very difficult one to discuss for me because I am extremely busy. So, while my little world is active, how is the market in general doing? From talks with colleagues, it is soft. Overpriced properties are lingering, price reductions are common, and buyers are much savvier than they are being given credit for by sellers. If you think you can fool a buyer into paying a 10% premium over 2007 comp's, think again! You'll only be doing your listing a disservice, and chances are it will remain on the market with little to no traffic until seller denial is overcome by reality. Seller denial is a very powerful thing.
Barry Ritholtz's review (a great read) of the 5 Stages of Grief comes to mind here, as the softness hits Manhattan real estate. The 5 stages and an example of how the Manhattan seller likely is thinking goes something like this:
1. Denial - My home is worth way more than others'. Its MY home. I can easily get 10-15% appreciation for my family's memories experienced here and hard work on renovations over 2007 comparable sales.
2. Anger - Why isn't this idiot real estate broker doing their job! I mean, 20 people come in and no bids. WTF! Stupid broker, what good are they anyway with their 6% commissions. If they don't get my price, I'm switching my listing to another firm.
3. Bargaining - You can tell that low ball bidder I have no response. If they come higher, I will respond. Not before. Earn your money. Did you tell them how wonderful my home is? What? They aren't budging? Ok, lets lower the price a bit then before accepting such a low offer.
4. Depression - What do we need to do to get this property to sell? More price reductions? But you originally said the place will sell for my price! Were you lying to me just to get this listing (hint hint)? Let me think it over at the bar tonight with my friend Jack Daniels. He always has the answers.
5. Acceptance - Lower the price to where the market is right now and let's sell this apartment. I'm willing to go down to X to move this property. Just get me a bid, any bid, and I'll consider it!
Now, it isn't this cut & dry but you get the picture. Psychology plays a big role in real estate transactions, and in the end, the seller must realize the type of market that it is right now (preferably educated by their broker to stay ahead of the curve, rather than playing catch up) before exiting the denial stage. Brokers MUST educate their sellers about the effect of declining confidence/tighter lending standards on buyers' willingness to throw money at real estate. I recall a recent office meeting where 60 or so agents attended and a question regarding the 'mindset of sellers' was asked...the office in unison responded, "denial".
As for my opinion on where we are in the cycle, probably between Anger & Bargaining. I think denial still exists out there in listings that tack on a 20% appreciation in their asking price from 2007 comps, but for most part serious sellers have realized that they need to price correctly to sell or reduce their price to re-attract buyers. Given that demand is still out there, I'm not sure we will reach the depression/acceptance phase unless job losses really accelerate and our local economy notably slows. We know what's happening on wall street, the question is how deep will it ultimately affect us? I stated in January how 2009's bonus season will reflect the credit crisis we are going through.
I can generalize this update to you folks, but there will always be that prime property with fascinating views, insane renovations, or the perfect location that finds the perfect target buyer willing to pay top dollar. That's what makes Manhattan such a different marketplace than say Miami or Phoenix. But the volume of these types of premiums being paid is slowing and our market has a history of lagging in slowdowns and leading in recovery.
In late 2007 (here, here, and here), I declared that..."2008 is going to be the year that Manhattan real estate inventory reverses course". I stand by this today, although I expect us to linger around this level for a while now that a big runup already occurred.
As for prices, if you are the type of person that listens to lagging quarterly reports for a clue on how the market is doing today, there is little hope getting through to you what is really happening on the streets of Manhattan real estate. The combination of high end condo conversions (15 CPW & The Plaza) and lagging new development closings will continue to skew price data to the upside; read my piece "Why Manhattan Price DATA Will Stay Strong in 2008" for an in depth discussion on this dynamic. However, if you are someone who prefers real time data on what is happening, then look to sales volume, price reductions and inventory levels to see what we are seeing on the streets. In the past few weeks, the weekly average for both inventory and new listings retraced; with new listings dropping more significantly than contracts signed:
Hey, I use what I have at my disposal to make Manhattan real estate a bit more transparent in the hopes of finding out what the heck is going on out there! In the above weekly average chart, you can see that the drop in new listings in the past week or two has been more dramatic than the drop in contracts signed. Normal for this time of year. Now, is this data perfect, No! But it's what we have to work with and we put a lot of time into making this analytical tool as accurate as possible.
I expect a slow summer. Perhaps this is the time for buyers to get a bit of a better deal as sellers are pushed to the brink with light traffic and lower demand for private showings; raising their desperation level. But this comes at the expense of less options for buyers. By no means is there a glut of inventory in this marketplace, leading me to watch the current uptrend for the next move. Nothing goes in a straight line! I'll keep you posted here on UrbanDigs.