My Take on Q3 Manhattan Real Estate
A: Sales down, inventory up, and prices UP slightly to an average of $1.5 Million. Why is this no shock to me or UrbanDigs readers? Because if you read this site you have known since April exactly WHY Manhattan real estate prices will remain strong for much of 2008! Lets recap and discuss again.
First the news. According to NY Times, "Concern for 2009 as Manhattan Real Estate Market Slows":
Even though the national housing market is suffering and jobs on Wall Street are being lost every day, Manhattan real estate prices are higher now than they were a year ago. The average price of a Manhattan apartment rose slightly to $1.5 million in the third quarter of this year compared with the same period last year, propelled largely by a few purchases at the high end of the market, according to reports released yesterday by four large real estate brokerages.Thats the jist of the Q3 report. It is not news because I have been discussing since late 2007 how buyer confidence has been declining, and how sales volume has been slow since early 2008.
And data tracked by the brokerages indicates that the market has slowed: there are fewer sales than in the last five years, there are more apartments for sale now than in the past eight years, and more sales contracts are being canceled. Even the pace of growth for luxury apartments, long the strongest segment of the Manhattan market, has slowed.
I started talking about Mortgage Unbacked Secuirities, Credit Woes and severe national housing woes in July of 2007, some 14 months ago! You want to be ahead of the curve, keep it here!
Back to the topic at hand. In April, I explained to readers WHY Manhattan real estate prices will remain strong for most of 2008, even as I stated on a daily basis how severe this credit crisis is and that we are no where near the end of the problems. I titled the post appropriately, "Why Manhattan Price DATA Will Stay Strong in 2008":
The reason is in the new development closing dynamic and the fantasy of perceived timing; deals signed 10 months ago that close two weeks ago are considered recent and reflective of current market conditions.That was 6 months ago! So put yourself back and then look at today's Manhattan pricing reports; and you should understand why prices are holding strong. That whole piece is a worthy read.
If a contract was signed in 2007 for a new development that closes 12 months later in 2008, the price data reported will reflect the market conditions for when the original contract was signed! However, human nature will perceive the future report as current and in line with the market at the time of the reports publish date! PRICING DATA THAT IS YET TO COME WILL REFLECT PRICES PAID FOR NEW DEV CONDO'S MANY MONTHS EARLIER!
For a better indication of the CURRENT health of the Manhattan real estate market, look at different metrics such as sales volume and inventory trends! It's clear that sales volume is down and inventory is up. You can track this data in real time via UrbanDigs Charts with data provided by Streeteasy.
I am on record for stating that the first significant price declines are likely to emerge in the reports for the 4th quarter, which will be released in January of 2009. The 4th quarter of 2007 showed a tremendous increase in the average price of a Manhattan apartment and a 17% increase in prices, due to closings of high end new developments; specifically 15 CPW and The Plaza. Without these upwardly skewing closings, the 4Q of 2008 will likely show year over year declines, as the anomaly is removed. As I said in the market report back in July, "Low Ball Bids & Cold Feet", what goes in will eventually come out! The worry is how the mass media will handle the price declines and the effect on buyer confidence. Unfortunately, when mass media starts writing articles titled, "Manhattan just fell off a cliff, down 10% Y-o-Y", buyers tend to back away for fear of catching a falling knife. Let's see how things play out.
Posted by Douglas Heddings
Fri Oct 3rd, 2008 11:13 AM
Totally agree with you on all fronts. Q4 2008 and Q1 2009 will be much more telling.
Posted by Noah
Fri Oct 3rd, 2008 11:22 AM
yea, one of those two reports should reveal the first noticeable drop.
Posted by brenda
Fri Oct 3rd, 2008 11:30 AM
This is just a general observation, so I could be wrong, but I've noticed a lot fewer new listings from new developments in the last month or so (Tempo just went on, and Riverhouse has been putting some on, but it seems like a lot less than previously). That, if true, would indicate that this increase in inventory is even more meaningful, as it is coming increasingly from resales now, which will further reduce the upward price skew.
Posted by Noah
Fri Oct 3rd, 2008 11:35 AM
an interesting observation...no data to confirm officially, But Ill buy into it. Ill also buy into that as time goes on, existing resale transactions will consistently grab more of the pie over new devs...Since no much less building is going on now, the sponsor sales of all the boom building is past its peak and we start to see which consumers may be swimming naked and how the open market values units that simply have to be sold
Posted by JC
Fri Oct 3rd, 2008 11:40 AM
Noah, you should just fix this BS with the real estate reports by publishing your own. It's not like equities where a static index will work, there is judgement in it as to what should be considered a comparable apartment.
Posted by dan
Fri Oct 3rd, 2008 11:50 AM
Why not look at coop pricing for a better reflection of trends. You avoid the noise created by condo closings 12 months after contract. Coops would just have a 2 or 3 month time lag from contract to close as they are all existing stock. Not a substitution for absolute sales prices, but a much better indicator of trends.
Posted by Music Therapist
Fri Oct 3rd, 2008 12:45 PM
I think your hypothesis is spot on - we will see the first huge declines in the numbers that come out for January. Hopefully, though, things turn around quick and we see an uptake in the statistics at the halfway point of the year.
Posted by michael
Fri Oct 3rd, 2008 03:36 PM
so should we wait to buy until 3rd quarter 2008 OR will it quickly have gone up by then.....
Posted by chris
Fri Oct 3rd, 2008 06:04 PM
Noah, if this truly is your point of view (one that I happen to largely agree with - except that I am far more bearish), how do you handle your clients on the buy side? Do you tell them to hold off until the dust settles? Is it really ethical to represent Manhattan RE buyers in this market if all they want is to buy NOW? Do you advise them to the contrary?
Posted by Noah
Fri Oct 3rd, 2008 06:26 PM
Chris,
Its a great question. First off, I dont proactively try to find buy side clients. They all are readers of urbandigs and reach out to me.
Second, they ALL ask me questions about the market, and I tell them my views.
Third, the ones the buy have already made the decision to purchase for various reasons, and in general, is the right time for them. If during our conversations, I think they are stretching or are speculating, I strengthen my discussions with them. I try not to make their mind for them, but to be an adviser.
Fourth, they hire me to find the best product in their price point, to do a valuation on it, and to negotiate on their behalf to get the lowest price possible. We get our price, we go, we don't, well, they hear my views and make a decision.
If you ask me how many clients decided not to buy and to wait after talking to me, in 2008 alone, I would say about 30-35. In the end, I think they respect the unbiased and honest opinions
Posted by brenda
Fri Oct 3rd, 2008 08:07 PM
Noah,
I can't tell you how much I appreciate your talking about your "clients" who decided to wait. I have a long-standing relationship with my broker (10 years, a couple of sales and a couple of purchases, a few referrals), who is always happy to help me explore the market although I may not be ready to buy right now. I go to open houses on my own (giving him credit on the sign in sheet of course) and do as much of my own work as possible (my personality) and refer happily anyone I know who may need someone to assist them buy or sell.
I've read so many comments about buyers "wasting" brokers time when they just look. Yes, some are just joyriding, but this is, or should be, a very thoughtful decision, and a good broker/client relationship could last for years.
Posted by Noah
Fri Oct 3rd, 2008 09:32 PM
Brenda - thanks! Coming from you it means alot! One of my favorite commenters! It certainly SHOULD be a very thoughtful decision, and there are great brokers out there that provide a genuine service.
Although they get muddled by the more brokers out there with one thing on their mind.
Posted by Noah
Fri Oct 3rd, 2008 09:37 PM
Michael - make sure your type the 'nyc' security code for comment publishing, found yours in junk.
Anyway, Q3 is over, we are in Q4 now, and this report will come out in JAN showing results for OCT/NOV/DEC...
Buying is a very personal decision that should overweight some factors, and underweight others. Call me if you want to discuss in detail. If its right time for you, certainly use the current uncertainty to your advantage in bidding, or at least try to. I dont see any forces that would make this market run away from you on upside in next 12 months.
Posted by mh23
Sat Oct 4th, 2008 09:00 AM
The two factors that matter are inventory and buyer sentiment; both are moving in a direction that is bad for sellers. As for inventory, I suspect we will crest over 9k by early q1 09. There has been an utter eradication of buyer demand, and even for those who want to buy, exogenous factors such as mortgage rates, new down payment requirements, unstable job futures poor cold water on that demand.
We are at the beginning of what will be a prolonged period of decreasing and stagnant pricing. We are coming out of one the greatest boom periods in Manhattan and national real estate history. For Manhattan there was the perfect storm of low mortgage rates for mortgages that were easy to get, low inventory, record bonuses year in and year out, booming local economy, multiple streams of demand (foreigners, retiring baby boomers, wealthy parents buying starter units for their kids), all of the factors have been gutted.
For those who want to own, now is the time to be patient yet active. Find the areas you want and units that are listing higher than you want to pay. If you have cash or access to a mortgage and you find you dream place, go in with offer that are very low and negotiate hard. Unlike the past several years, when people listed their units to test the market, many buyers now need to sell. If they bought pre-2002, they have enough equity where they will take a lowball offer, don't be embarrased to try and don't listen to a broker who tries to dissuade you. Brokers are now entering a transactional mindset where they want to get deals done. No more of the nonsense that you will "insult" the seller with an offer.
Posted by Property Wonk
Sat Oct 4th, 2008 11:05 PM
Also, inventory may be significantly higher than it seems to be given that new developments typically don't release all units at once. That doesn't mean they're not there, waiting for a buyer. A development agent will lower her voice conspiratorily after showing the officially on the market units-- "Well, this one isn't really on the market yet, but if you like 12A you should see 15A!!!" etc. and developer is quite happy to accept a strong offer (maybe ANY offer at this point) on the officially not-on-the-market 15A, 16A, 17A, 18A, 3G,4G,8G, and on and on. But does this shadow inventory show up on official tallies? I don't think so... Thoughts?
Posted by chris
Sun Oct 5th, 2008 09:35 PM
Thanks, Noah. I appreciate your response to my questions, and wish other brokers had your professionalism and ethical standards. It's most unusual to see that. Keep it up !
Posted by Investor Llew
Mon Oct 6th, 2008 05:49 PM
Thanks for the great info as usual Noah!
BTW, how do you see the Manhattan Residential Rental Market?
I own several multi-Family Brownstones in the Fort Greene area. During the last 3 months, I have had a good response to my ads and replaced vacancies very quickly.
Some of my new tenants have come from the Manhattan Market.
Is there anything to read into this observation? I'm tempted to extrapolate that there is a general lowering of salary due to smaller bonuses, causing more workers to look at much cheaper rentals in the outer boroughs.
Like to get your opinion on that.
Thanks in advance.