Manhattan Inventory Stagnates - For Now
A: With Q4 in the books, we are getting the first glimpses of what happened to our marketplace in the period after the fall of Lehman and the gov't rescue of AIG. However, use caution when reading into these reports because they are lagging in nature & are still a bit skewed from new dev closings whose contracts were signed up to 18 months ago. I have reported on the illiquid nature of this market since mid November, as buyers seemed to disappear and sellers had to 'hit the bid' to get deals into contract. When bids disappear, we see who is swimming naked and nobody likes a slow market. But we deal with what the market offers, and right now it is a waiting game to discover the price that some of these deals occurred at. Since quarterly reports are the most widely used barometer of the health of this market, and are lagging in nature, we must wait until Q1 of 2009's report to come out to see where deals were done at for the past few months.
In the meantime, Manhattan inventory seems to be stagnate. Generally speaking, some sellers take their listing off the market in late NOV and DEC for the holiday season/new years, to 'freshen up' the property for re-listing. I think it is safe to say the decline in total inventory for the past month or so is a result of this, and NOT a result of increasing sales volume for this time of year.
Looking at the UrbanDigs Real-Time Manhattan Inventory Chart (this real-time tool was launched to try to add some transparency to our local housing market with the hopes of gaining more information on trends as they change), we can see the runup of inventory since August, and the latest retrenchment as we neared the holiday season.
I find the % change tool at the bottom of the charts very useful. As you can see, inventory is:
Quite telling. Real time data will compliment what I see out in the field and what I hear from clients I am in touch with. It will allow me to continue reporting to you guys on what is really going on out there, without bias, and with data to back me up. Granted, the data is not perfect and the guys at Streeteasy are doing all they can to make the data as accurate as possible, it's still very useful for trends.
Checking in on the accuracy of the data, I see the UrbanDigs Widget says we have inventory right now of 8,925 for Manhattan; this excludes listings with no address, duplicates, and is only for the island of Manhattan. Checking in on Miller Samuel's Co-op/Condo Listing Inventory charts, it seems we are very close! As you can see, at end of December, it appears total inventory was a touch over 9,000! A great sign and a vote of confidence to the Streeteasy tech team in charge of data mining & cleaning.
Back to the market, not much new to report. As reports come out showing price declines and sales volume declines, you will start to hear brokers talk about bottoms and recoveries! Ask yourself if they ever discussed this downturn to begin with! With unemployment in the city expected to rise in 2009 & 2010, as the wall street crisis spreads from layoffs in the financial sector to the real economy, it is quite silly to start discussing bottoms or recoveries right now. The boom that led us to peak arguably lasted about 8-14 years (seeing prices rise a wide and staggering range of about 100% - 500% for some units, depending on how far back you go and other variables attributed to the product), and right now I think we are about 7-12 months into the slowdown. Are we to believe that a boom of this caliber and duration, will lead to a downturn that only lasts a few quarters when facing a crisis of such high magnitude? Especially when this city revolves around wall street!
When I look at Continental Towers, a full service condo at 301 E 79th, I can see what a unit did in the mid 1990's compared to what it recently sold for (based on internal system data), and the results may surprise you:
16B SALE HISTORY
1994 - $240,000
2000 - $575,000
2008 - $1,100,000
17G SALE HISTORY
2002 - $391,000
2008 - $765,000
Want another condo? No problem, lets stay in the UES and check in at The Gotham, a full service condo at 170 E 87th Street:
W 12A SALE HISTORY
1995 - $630,000
2008 - $2,325,000
E 15D SALE HISTORY
1995 - $297,000
2008 - $1,070,000
How about The St. Tropez condo on 340 E 64th:
22B SALE HISTORY
2000 - $925,000
2008 - $2,090,000
12J SALE HISTORY
2003 - $860,000
2008 - $1,830,000
We can do this all over the place, but the point is that the boom that allowed prices to inflate the way it did relied on a number of factors that happened to converge at the same time, ESPECIALLY FROM 2002 - 2007:
a) ultra low interest rates in response to dot com crash
b) unwillingness to put money to work in stocks after dot com crash
c) deregulation in banking system allowing very loose lending standards
d) host of exotic loan products to allow the borrower to reach above affordability to purchase as much house as possible
e) securitization model allowing loans to be packaged, rated, sliced/diced, and resold to investors - leading to a quantity over quality management style that generated high revenues
f) combination of brokers/appraisers/lenders working to sustain higher and higher prices and to make the # work so the deal occurs
g) inflow of foreign demand from a weakening dollar helping to soak up pricey new development units specifically targeted to them; keeping inventory tight, buyers excited, and bidding wars everywhere
h) strong wall street bonuses
i) strong equity gains from 2003 - mid 2007
etc..This is now over and people need to realize the structure that was in place for the past 6 years, which helped to fuel the housing boom, is gone and not coming back anytime soon. In August of 2007 I explained this risky NEW WORLD. So, to expect a 'V' recovery or call for a bottom in housing with no quantifiable data or logic to say where demand will come from to sustain higher prices, is silly.
Quarterly reports are lagging and only count units that close, meaning the data for the next 1-2 years is likely to be sobering. As the tide goes out, we see who was overexposed, overleveraged, and needs to sell to raise cash because they can no longer satisfy their debt service. As long as unemployment rises, negative wealth effect is in place, lending is very tight, consumers get frugal, and confidence is declining, bids will come in at a snails pace compared to the past few years that we got used to. When the market stays illiquid, sales volume will reflect that and inventory tends to rise. Those with a time pressure to sell have to compete with each other to offer the best deal, and price discovery ultimately occurs. Finding a 'greater fool' to pay peak prices will get harder and harder as buyers read media headlines, hear about job losses from friends and family, and and see their net worth shrink from equity losses. Once we see where some deals are happening, it sets the new benchmark for the real-time market and bids are usually placed around that and the confidence/desire in the individual asset in question.
Appraisers already started placing a negative time value on appraisals, and one appraiser I recently talked to, it is the first time in 15 years their firm has done this for Manhattan. Time is what we need to get through this cycle. Until then, lets KEEP IT REAL!
Posted by dw
Wed Jan 7th, 2009 02:32 PM
Listing the historical sales like you did is an eye opener. Makes me wish I was the original owners.
However, I don't know if these same listings were to go back on the market you can get it for the previous sale price that you list.
What is your guess they're worth now?
Posted by chris
Wed Jan 7th, 2009 02:54 PM
Thanks Noah, that is brilliant analysis. I found it fascinating reading.
It would be interesting to see, in conjunction with this, how the profession of real estate broker has changed throughout this bubble. For instance, how many brokers were there in 1994 and how many are there now? How is the profession likely to change during this rapidly accelerating crash? Will the traditional broker go into oblivion, the same way the stock brokers did? Would be interested in hearing your thoughts on this.
Posted by Thisson
Wed Jan 7th, 2009 03:23 PM
Great post. As a NYC resident, I think the two biggest factors were D (borrowers reaching above affordibility) and H (wall street bonuses).
I've been asking for years: who can afford these asking prices for 2-bedroom co-op units in full service buildings? As a responsibile working white-collar professional, I know I can't afford it. My conclusion is that finance types pulling in 300k+ per year (each!) were bidding up the market.
Those days are over. Jobs at top I-banks like Goldman Sachs and Morgan Stanley are being repriced. They're already paying 50% of boom-year comp (that's if you still have a job!) and I predict those wages will decline further.
The boom is over. Prices will have to collapse until they are supported by neighborhood median income.
In my estimation, that means the realistic price for a 2-bedroom unit, as described above, should come down from approx 1.2mm-1.5mm to about $600k. You may find that number shocking. But a decline of ~50% or so is reasonable in light of the 500%+ runup we had in the past.
Posted by jeff
Wed Jan 7th, 2009 04:39 PM
Thisson,
I don't think your crazy at all. My guess is that the $1.5MM to $4MM price range which was Wall Street and bonus driven is going to get creamed. The sub $1.5MM level at which mere mortal doctors, lawyers, architects, accountants and businesspeople played a larger role will probably show a little more resilience. But prices will fall to the level it takes to move apartments for those who need to get liquidity (orderly liquidation value) and will initially be picked up by nimble and aggressive vulture buyers. That's why we are headed for a big initial step down in prices.
Posted by angler7
Wed Jan 7th, 2009 04:48 PM
Great post, and a big up to the folks at StreetEasy!
For some time I have discounted the StreetEasy inventory numbers based on my faith in the Miller Samuel numbers. Turns out it is J. Miller that had to adjust his methodology. The current period notwithstanding, he has revised upwards his inventory figures going back to at least 4Q2000.
I haven't scrutinized them all, but in comparing Miller Samuel's archives against its 4Q08 report the 4Q07 inventory was changed from 5,113 to 6,518; and the 3Q08 inventory was changed from 7,003 to 8,811. So far J. Miller has been silent as to why the change. However, it does paint a different picture of market absorption over the last number of years when you consider that his periodic sales figures remain the same.
Posted by anonymous
Thu Jan 8th, 2009 09:33 AM
Thisson, is 1000% correct.
No one has any money, banks aren't lending. A generic, but good two BR condo will need to be priced under $800,000 in order to find even a single buyer.
Hello brokers, the reset button has been pushed. Get used to it.
Posted by Thisson
Thu Jan 8th, 2009 11:28 AM
I don't know anything about the luxury market, but in non-luxury (but nice) buildings where working professionals want to live, the spreads between studios (~430k), 1BRs (~650-720k) and a 2BRs (~1.1m-1.5m) are far too wide. It makes it impossible to climb the Manhattan property ladder unless you're in finance making $300+ individually. That rules out most normal professionals/couples (like lawyers) unless they are DINKs.
How does it make sense for a 2BR to be double the price of a 1BR? Often the 2nd BR is very small (~10x10 or so) so what you are really paying for is a 2nd bathroom, since you could get a 1BR + alcove dining area (aka a "Junior 4") for far less.
I think prices MUST collapse, at least on 2BR apts.
To my way of thinking, 3BR+ are for rich people. I'm just considering what working white-collar professionals ought to be able to afford, and surely we are a large segment of the market.
Posted by Donald
Thu Jan 8th, 2009 01:48 PM
Thisson,
There are far fewer 2 bedroom apartments in Manhattan than 1 bedrooms so that is a main reason for the significant price jump. Also, most newer 2 bedroom apartments have a second bathroom.
Posted by Donald
Thu Jan 8th, 2009 01:51 PM
"A generic, but good two BR condo will need to be priced under $800,000 in order to find even a single buyer."
Except for Harlem and the LES, I think 2 bedrooms for under $800k is a very aggressive dream.
Posted by Thisson
Thu Jan 8th, 2009 02:09 PM
It's very aggressive, but it's *realistic*.
Let's run some sample numbers. To buy at 800k in an average Co-Op requiring 25% down would require a deposit of 200k and a mortgage of $600k, which, at 5.25%, translates into about $3600 a month.
On top of that, you have maintenance (I'm guessing about $1800/month for a 2BR). So that's a total of $5400 a month.
A husband/wife of junior/mid-level lawyers make about 160k-200k/year each, which after taxes is about $9166/month. Their income is not enough to support the monthly nut ($5400/$9166 = 58% of takehome pay to support the monthly expense, leaving very little for food, dry cleaning, cable bills, daycare and other ordinary expenses).
If yuppie couples earning market-rate wages at top lawfirms can't afford these NON-LUXURY 2BR units, who can? Once again, I submit that the answer has been: Investment Bankers/Financiers.
Take them out of the picture and these prices cannot be supported.
Posted by johnsmith
Thu Jan 8th, 2009 04:31 PM
Continental Towers is a condominium - not a coop.
Posted by johnsmith
Thu Jan 8th, 2009 04:32 PM
Continental Towers is a condominium - not a coop.... I know, I live there....
Posted by Noah
Thu Jan 8th, 2009 08:02 PM
johnsmith - yes, I was told about this in the morning but was out all day. I made an error typing it as I was swamped past few days with Inman conf and clients. My bad. I just adjusted. Sorry, and thanks for correcting here anyway.
Posted by DW
Thu Jan 8th, 2009 09:12 PM
Thisson,
Not all buyers will put down the minumum when purchasing. Some will put 30-40%.
Posted by Thisson
Fri Jan 9th, 2009 11:46 AM
@DW,
Yes, that's true. But it would take quite a while for young professionals (let's say mid-30's) bringing up kids to save up enough wages for 25%, let alone 30-40%, at Manhattan prices.
I think the market is still way too high compared to median income. Especially since all the people who could afford the prices previously have been the most vulnerable to layoffs and compensation reductions.
Also, I'll amend my prior posts to note that I expect major inflation, so when I talk about prices I'm talking about real dollars, not nominal dollars.