Manhattan Inventory Surges; Confidence 'Shaken'
A: Here is the 1-Month chart of Manhattan real estate inventory. In short, supply shot up about 14.13% in the past four weeks, as wall street underwent reconstructive surgery sending shockwaves to general confidence. Real estate is 'ALL ABOUT THE BUYERS'. That is where it all starts, buyer confidence. Buyer confidence is comprised of many variables, mainly including job security, affordability, and near term prospects for the asset. Clearly, the public dismantling of wall street and the end of the wall street business model (the game is over), has shaken confidence not only in buyers, but in sellers alike. Here are the charts.
Items to NOTE:
1-MONTH INVENTORY ---> Up 14.13%
PRICE REDUCTIONS 1-MONTH WEEKLY AVERAGE CHANGE ---> Up 818%
*price reductions and contracts signed data are collected and displayed as a weekly average to show you the trends without the spikiness that results from minimal activity over weekends. The initial sharp rise up is probably a temporary anomaly, but a continued sustained trend up will tell us that sellers have gotten considerably more nervous as events unfold on wall street
This is quite a move in a short period of time; and it is worth noting since during this time we had the following events:
a) Lehman Brothers declare bankruptcy
b) AIG taken over by the Treasury
c) Merrill Lynch selling itself to Bank of America
d) Fannie Mae / Freddie Mac put into Conservatorship
e) Washington Mutual fails / JPM buys toxic assets, deposits, and branches
Simply unbelievable. The effect of these events and the headline blitz that came with it is directly shaking buyer & seller confidence. We must monitor if this trend continues as we head into a weak 2009 bonus season that is likely to see a dropoff of 50% or so in issued bonuses. In addition, we must be wary of the media shock that is likely to come when the first year-over-year significant decline is reported for Manhattan real estate. As I said before, I expect this to come in 4Q of 2008, or 1Q of 2009, in my piece back in July, "Preparing For Price Reports w/out New Devs":
While it was fine to see Manhattan average prices rise 17% due to closings at these high end buildings, it certainly won't be fine when reality takes OUT this temporary anomaly and prices show a drop of 15%! This of course did not happen yet, but it will as the quarter with the upside (4Q of 2007) is compared with the future quarter that doesn't include these high end sales anymore.I'll be on top of this and report to you here on UrbanDigs as things change in our local marketplace.
As with the seasonal component for BLS inflation data, new developments and condo conversions have skewed the price data significantly HIGHER! I urge you to watch out for this concept: WHAT GOES IN WILL EVENTUALLY COME OUT!
To view charts, click on the CHARTS tab in the main panel above the most recent post. When you get to CHARTS page, you will have options for data at the top to select between TOTAL INVENTORY, PRICE REDUCTIONS, CONTRACTS SIGNED & NEW LISTINGS (see below). Once you have the chart, you can select the time frame above the actual chart.
Posted by AvnerUWS
Fri Sep 26th, 2008 10:17 AM
Noah, You really should add a line for "price increases". It would make the statistics more neutral in flavor. It would also be there in a year or two (or three) to help signal when the market stabilizes or even turns. In any case, if you include price chops because you consider them relative data points then you should include the increases as well. This would be true even if they are someone playing with the pricing, after all the price decreases could be the same thing as a $5,000 price decrease would still register even if it is not material.
Posted by Noah
Fri Sep 26th, 2008 10:27 AM
Avner - well, streeteasy provides the data and the data we agreed to have provided to me from them, were these four categories. Our partnership is friendly, so I take what I can get.
But in general, I dont think price increases are nearly as important a metric as price reductions. Besides, its not the increases vs reductions comparison that I am interested in, I am more interested in the trend of the price reductions compared to previous data collected.
If weekly ave of reductions is 30 for the past 12 months, and all of a sudden we have 3 consecutive months of an average of 65 reductions, well then that is a very telling metric.
Also, if I did get more data, I would probably want a category other than price increases to monitor. Likely, DAYS ON MARKET from listing to IN CONTRACT.
Posted by Anonymous Buyer
Fri Sep 26th, 2008 11:10 AM
Are you seeing many buyers signing contracts or trying to get out of contracts given the financial news in the last couple of weeks? Also, what is the traffic like at open houses lately?
Posted by Noah
Fri Sep 26th, 2008 11:17 AM
Are you seeing many buyers signing contracts - YES
or trying to get out of contracts - NO
traffic like at open houses lately? - DONT KNOW. I took SEPT off and I just got back from 13 day trip to Europe. I am just now getting back to work and I currently have 8 BUY SIDE clients requesting my services. I am IN CONTRACT for my two exclusive listings that I was selling for my SELL SIDE clients.
Posted by OT
Fri Sep 26th, 2008 11:38 AM
Noah,
Thanks for keeping up the great work - I have been an avid reader for over 2 months now. I am on the Toes side of the fence at this moment. I have several friends who are RE agents in the city and they say that while business has slowed, they continue to be very busy and most are getting very close to asking for their exclusives provided they are accurately priced. I certainly think that bonuses will be down in 09, but Manhattan is still a desirable place to live and people think long term when they are investing in Manhattan property. I think a 10 - 15% contraction is a reasonable expectation, but I simply don't see how we can see a 40% drop in 18 months as some bearish posters are predicting.
Care to take a stab at year on year numbers for Q2 09?
Posted by EV
Fri Sep 26th, 2008 11:48 AM
Noah-
These are very useful charts. I am sure you have tried to get 1 year data which will show seasonal trends. But to me that is the only info lacking in these charts. Thanks for all your work.
Posted by Noah
Fri Sep 26th, 2008 11:51 AM
EV - Ill try. Have to hire another programmer
Posted by Noah
Fri Sep 26th, 2008 12:05 PM
OT - YAY, A Toes fan on the site! Thanks for kind words. Manhattan IS a desireable place to live and I LOVE living here and cant imagine moving out to burbs. However, things change, times change, quality of life changes, and right now we have some forces coming together that COULD, and I stress could, change some of these items or at least the perception of some of these items. I mean, right now, the term 'wall street' is perceived along the same lines as 'fraudsters', 'criminals', 'the cause of this crisis', by many!
Quite a change from a few years ago. Certainly, I dont expect a 50% drop in 18 months, but I do think we are down 10% right now, and probably will fall another 10% given the stress on wall st, over the next 12-18 months. Then it may trickle lower a few more years. It wont be a V retracement and recovery. It will be a L, correct, and then hang out for years.
Posted by mh23
Fri Sep 26th, 2008 12:55 PM
I suspect we will see inventory cresting above 10k by the beginning of Q1 09. However, the real kicker is that many of these sellers will be desperate sellers. This will lead to rapid price depreciation across the board. Anyone who does not need to sell should take their listing off of the market. Anyone who does need to sell better come in very low, or they will find themselves having to sell at an even lower price three months from now. Conditions are perfect for vultures with cash. even patient buyers that want to jump in will be chased away by high mortgage rates that are difficult to get and that require more substantial down payments. It is difficult to imagine a scenario that is more bearish than the one that exists today.
Posted by Sharon
Fri Sep 26th, 2008 01:19 PM
So the inventory increase can't be explained by summer being over, people coming back from vacation, putting places on the market? I thought a September bump in inventory was par for the course. I guess that's where a comparison to last year's September numbers would be helpful.
Posted by Michael Oliver
Fri Sep 26th, 2008 01:21 PM
I think with the very uncertain times on Wall Street and the fact that NYC real estate prices went up over the past 5 years, a lot of sellers are going to panic and start price reductions. I think it will settle out once the financial crisis is over however it will be very interesting to see what happens in the NYC real estate markets over the next 12 months.
Posted by SRealist
Fri Sep 26th, 2008 03:24 PM
The speed with which sentiment in the different sectors of the credit markets changed caught investors with surprise. Last year, the general consensus was that the subprime mortgage sector's problems were localized. And so it was, except when it wasn't, and ever more sectors of the economy got caught up in the maelstrom. In every case, the change was sudden and sharp. I predict that the Manhattan real estate market will also see a sudden, sharp decline beginning late 2008/early 2009 (after Wall Streeters' have their compensation discussions and learn their comp will be down sharply this year and not likely to increase next year). All the elements are in place: a massive disconnect between rental yield and cost to own; sharply declining incomes and wealth (Bear and Lehman employees wiped out); increasing inventory; and a change in sentiment from optimism to fear. The last is particularly potent, and it's going to be magnified here in Manhattan because of all the Wall Streeters who experience the tumult of the credit markets every day at work. You can't help but take some of that home with you. So, yes, a 30%-50% decline in the next 18 months is the most likely outcome.
Posted by TenthStreet
Fri Sep 26th, 2008 04:40 PM
The financial crisis will subside in the next twelve months. The problem is that we will be left with a much smaller and more conservative Wall Street when it's over, and that will create the L-shaped recovery described earlier (and not a V). We won't need an ongoing crisis for home prices to be down 30% or more for an extended period of time. Prices will just resize to fit lower incomes and fewer buyers.
Posted by Noah
Fri Sep 26th, 2008 05:17 PM
tenthstreet - Im in 100% agreement
Posted by Jon
Sat Sep 27th, 2008 09:59 AM
What % of nyc residential purchases were purely investment properties over the past 5 years? and can rental market help these investment property owners ride out the storm?
I don't think the buy-&-flip situation here on Manhattan is as severe as say in Miami or Spain. So for the short term, unless a owner NEEDS to fire sell, I don't see great bargains.
The long-term prospective will depend on the livelihood of the city, like everywhere else.
Posted by Nat Tahnam
Sat Sep 27th, 2008 01:58 PM
August '07 inventory - 7504
Sept '07 inventory - 8365
(average of each month)
11.5% increase. Remember this is also an average whereas your numbers are taking the peak of September versus the low of August. Looking at your numbers for 2008 and these for 2007, this seems to be more of a seasonal adjustment.
I am a fan of yours and UrbanDigs but I think, especially in the current climate where people are easily spooked, you should have a moral responsibility to your readers to not make fantastical comments without checking the facts. Will we see a rise in inventory in the near future because of recent events, most likely yes, but as a quasi journalist you should take care to cover your basis on facts and trends first. Especially knowing that curbed and real deal are going to pick up on what you say... :)
Won't stop me from reading...but I had to point this out...
Posted by Noah
Sat Sep 27th, 2008 02:58 PM
where did you get those averages? Also, keep in mind that JULY/AUG 2007 saw the very start of the public credit crisis with the fall of two Bear Stearns hedge funds that had sig exposure to RMBS.
Very important. I only started collecting data in late OCT/early NOV 2007, so you must be getting data from Jonathan Miller.
Plus I think your data is incorrect. When I look at JM's charts of listing inventory for Manhattan co-ops/condos, I see:
http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1168399259Jmtnq&Record=12
AUG 2007 - 4700
SEPT 2007 - 5200
When I go back to 2006 I see:
AUG 2006 - 7300
SEPT 2006 - 7600
When I go back to 2005 I see:
AUG 2005 - 5000
SEPT 2005 - 5800
AUG 2004 - 4900
SEPT 2004 - 5100
AUG 2003 - 5200
SEPt 2003 - 5400
So YES, you are correct that there is a seasonal component when you look at AUG to SEPT. However, to ignore the current environment and simply state their is a seasonal component as a result of this, is quite narrow sighted. Besides, this latest jump is from about
AUG 25- 6900
SEPT 27 - 8018
or a jump of about 16% in 4 weeks time. That is by far the largest spike comparing the months of AUg to SEPT for the past 5 years, and to me, reflects something MORE than a seasonal adjustment.
However, you have a point that I should have mentioned a statement about the seasonality jump from AUG to SEPT in the discussion, with the above data I just used. Thanks
I try to be very unbiased in my discussions, very real, and very forward looking. Quite simply, this year is NOT the same as any we have seen in the past 5 years that I just compared to.
Posted by Jonathan J. Miller
Sun Sep 28th, 2008 03:26 PM
Noah - great commentary. My own stats for September so far (month isn't over) looks like a similar jump to yours. However, for perspective, last year the Aug to September jump was 12% and the year before was 4.3%. A trend is emerging, but this year isn't that much different than last year, suggesting to me that the bailout morass being fleshed out in DC is not the primary reason for the larger uptick in inventory. I don't think anyone should be shocked by the revelation that inventory is rising, 'cause the level of sales is already weaker.
And how about those Jets?
Posted by Noah
Sun Sep 28th, 2008 08:18 PM
Hey JM! JETS BABY! I had their Defense on my fantasy team so it was a good day!!
Thanks for the comment Jonathan! I think our market is in for a wild ride in '09
Posted by bennat
Wed Oct 1st, 2008 12:21 PM
Noah
Do these inventory numbers include all unsold units in new developments or just the units that are currently released?
Posted by Miles2Go
Wed Oct 1st, 2008 05:38 PM
thanks for all the info; interesting discussion, but lets note, all data becomes insufficient in the midst of rapid changes...
here is a suggestion about another way to cut into the issues by using more finely tuned data::
Don't treat all data on Manh. or any boro as a unitary number---;in fact it isn't:
1/ break the boro into nhds and then
2/ track listings, sales and price over months or quarterly.
That way you will reduce distortions, such as those introduced by rise/fall in listings v. rise/fall in sales without cross tabbing them to
price.
Another data set one might want to explore is
to look at mortgages given per month or quarter by nhds, amounts of and price/cpots of r.e.
The more fine tuned and the more cross-tabbed data is, the more valid it is and the more reliable it becomes as a basis for prognostication....
peace.
Miles2Go