Manhattan Inventory Crosses 10,000
A: Ding Ding Ding....And here we are! I remember when I first got the widget up here on UrbanDigs in an attempt to make this residential marketplace more transparent, and total inventory was around 5,500 or so. All it took was the dismantling of wall street, the worst credit crisis since the depression, ZIRP fed policy, a $700Bln bank rescue plan, the failure of Lehman/AIG, the nationalization of the GSEs, life support for Citibank/Bank of America, shotgun marriages for Countrywide/Merrill/Bear Stearn/Wachovia/WaMu, two fiscal stimulus packages totaling over $1Trln, a 76% drop in the price of oil, 40% plunge in equities, and well that's about it! We are at now now, and while anecdotal reports suggest a counter-trend surge in activity, it is yet to show up in the trends.
Don't you just love that widget! Thanks to the crew over at Streeteasy.com for powering the data for the widget and working with me to apply some rules to fine tune the raw data for a more accurate picture of what Manhattan real estate is doing real-time!
A quick guide to the data, and how the widget works:
As a broker/blogger, I strive to provide the most real time reports for you guys and at the same time mix in my thoughts/experience following changing macro trends to put the pieces of the puzzle together, AS I SEE IT! Since about the fall of 2007, that picture has been quite negative, as readers of this blog know. Anyone can look in the rear view mirror and re-iterate what has just happened, but to put the pieces together and use some vision/logic to assume what may happen in the near term is a bit more difficult. I do the best I can and this blog is simply a window into my thoughts on the markets and Manhattan real estate; so interpret at your own risk.
The only real time report I can add for what I see in Manhattan is that there IS an uptick in activity, I am submitting bids for my buyers, and I am getting new listings to market. I tend to shy away from reports on foot traffic and buyer calls because that doesn't really mean anything. What is meaningful is whether or not deals are happening, contracts are being signed, where those contracts are being signed, and are those deals closing! Thats the important stuff. Everything outside of this is anecdotal and a surge in open house traffic doesn't mean the market just got infused with thousands of willing & able buyers ready to pull the trigger on a moments notice!
I want to see the DATA! For now, we simply hit a comfort zone where buyers are comfortable placing bids for products some 15-25% below peak prices. So, where was peak? I put peak at deals signed in early - Fall of 2007, and closed 2-3 months later or so. But if you find a comparable unit that closed in the summer of 2008 (meaning the contract was signed a few months earlier), it's a good bet that bids will be coming in around 20% below that level; properties with unique sell side features that are not in the high end should be cushioned a bit. This really is a high end recession here as the core of the problems we face are on wall street; and between the destruction of net worth, hit on stock options held, negative wealth effect on overall portfolios, loss of high paying jobs, loss / reduction of bonuses, tightness in mortgage markets, etc., it's the high end that is adjusting the quickest.
I just did an audiocast for The Real Deal, that pretty much sums up my feelings on where we are right now in the Manhattan real estate cycle, here are some tidbits from that interview:
a) we are in the initial snapdown from peak, after the market rolled over and bids disappear. Since Lehman failed, the market became very illiquid. Deals are probably being done about 15-25% from peak right now. Certainly the inventory and contracts signed trends doesn't show this yet.
b) I don't see mass strength anywhere, but I do see an uptick in activity and I am hearing colleagues discussing an uptick as well. Call it a counter-trend surge in activity, embedded in a bigger longer term correction.
c) nothing goes in a straight line forever, there are deals at every price on the way up to peak and on the way down to the ultimate bottom. Right now is a far cry from the illiquid 4th quarter, which was totally dead.
d) I am not a fan of the stimulus package. They are not letting the market work naturally, and for defaults to happen, and for companies to fail and consumers to puke up debt. They need to let the market do what it needs to do to cleanse the system - purge the bad debt. Government is not an efficient use of money, it will not equate into job creation right away, and they keep pouring more money into the banks without letting price discovery occur and hits to be taken. If they have to issue bonds to fund these bailouts/stimulus, what happens when our friendly funders aren't friendly anymore? We can see rates surge and that can come right when Manhattan is in the middle of the correction.
e) High end is getting hurt a lot faster than the studios/1BRs. I don't like to talk about bottoms or recoveries yet when fundamentals are still so negative.
f) I'm seeing an uptick, like everyone else, but I am not seeing deals signed everywhere. I am submitting bids, and I am seeing a lot of action on the sell side which is quite telling for me. There is still a bit of a disconnect between what sellers think their place is worth and what a buyer deems it's value on the open market.
The entire audiocast is about 9 minutes. Enjoy!
Posted by henry
Thu Feb 12th, 2009 08:48 AM
The surge in inventory continues to overwhelm any increase in activity.
Posted by Noah
Thu Feb 12th, 2009 09:10 AM
no question Henry. The amount of new listings coming on clearly is outpacing any pickup in contracts signed right now. That is why I love these real time tools. Although CS data is lagging a bit, because many agents wait a week or so before updating their webads in the hopes of getting more buyers to call.
Posted by Rachel
Thu Feb 12th, 2009 09:42 AM
Thank you, Noah, for continuing to provide both the insider and the layperson with a comprehensive view of the real estate market. As a potential buyer who has been squirreling away funds for years and watching in horror as the market flew out of control, it is with a deep sense of satisfaction that I read your postings and anticipate finally being able to afford an apartment that had been out of my realm for ages. I, too, am waiting for sellers to readjust their expectations before I jump in. Again, much appreciation for your keen insight.
Posted by jd
Thu Feb 12th, 2009 10:03 AM
it's a landmark...thx Noah for providing these tools. One note -- in line with the uptick, it seems, the slope of the inventory line vs time has been decreasing....seems that it is largely due to a dramatic recent decrease in new listings rather than in signed contracts. The latter have increased some but are still oscillating about the average of the last several months.
What is the normal seasonality for Feb-Apr -- do a lot of new listings come on or is it normal for them to come in Jan and then tail off?
Posted by OT
Thu Feb 12th, 2009 10:22 AM
Noah - thanks for keeping it real. Your analysis is extremely relevant, valuable and in my opinion consequential to NYC real estate. You are and will continue to be a leader in your field.
Posted by Noah
Thu Feb 12th, 2009 10:27 AM
JD - thanks! I would say it is normal for new listings to jump in the months JAN - MARCH, mainly in JAN/FEB for the usually active first 4 months of year.
Since we are talking 'usually' here, usually sales volume increases, foot traffic surges, bidding wars occurred, and lots of deals happen. So its supposed to be active now.
Posted by Noah
Thu Feb 12th, 2009 10:29 AM
OT - hearing this makes the time I put into this worthwhile! Thank you so much! I'll keep it up!
Posted by joenyc
Thu Feb 12th, 2009 10:50 AM
Noah, though it's too early to start talking about a bottom, do you think it's possible to see 2006-7 prices ever reached again at any point in the next 10 years, even without a hyperinflation scenario?
Also, with both RE values and the rental market tanking, which one of them is more likely to recover first?
Posted by Thisson
Thu Feb 12th, 2009 11:06 AM
Keep in mind that (reportedly) Manhattan rents are falling.
At the same time, NYS is talking about increasing taxes on "rich" (haha, yeah right) families earning >~200k (the people we'd expect to be buying residential property in Manhattan) and I fully expect NYC to follow suit with higher taxes and/or service cuts.
So there are going to be further factors making ownership in NYC less desirable in the near term. Until those are baked into the market prices, and unemployment rates stabilize, things will be dicey.
Posted by cfranch
Thu Feb 12th, 2009 11:21 AM
As for rents falling: My lease in a midtown west hi-rise expires April 30th. I was sent a new lease recently and they are seeking a 5% increase. I countered with a 25% decrease and 2 free gym memberships. The same apartment 2 floors above rented at 15% less than my current rent in November. Market conditions certainly have deteriorated since then. I have not heard anything back as of yet(1 week). This particular building has many leases expiring in the March to June period. I think this is probably true for most large buildings. Will post when I finally have a deal but keep it mind this is only anecdotal.
Posted by AvUWS
Thu Feb 12th, 2009 12:41 PM
Re: inventory rising. Yes the slope has evened out, but also remember that as inventory went up for a long time prices did not come down. That means that those people who kept their apartments listed "to see what they could get" kept them listed. I would bet that a lot of the non-serious sellers who were looking to cash out a lottery ticket have probably pulled their listings. In a sense the lists are both growing and probably getting purged of the non-serious sellers.
Then again, even if there is not "acceleration" in the increased listings, the velocity would still mean an addition of about 1,000 listings every quarter until the market starts to turn.
Noah, you already know I am a fan.
Posted by chris
Thu Feb 12th, 2009 12:46 PM
Thanks for this very timely update. At current transaction volume, how much time will it take to work down an inventory of 10,000+ units?
Posted by chris
Thu Feb 12th, 2009 12:49 PM
I am sorry I just realized you listed 360 contracts signed for a 30-day period. So it would take 27.7 months to work the current inventory off. That seems ...a LONG time
Posted by OT
Thu Feb 12th, 2009 01:43 PM
Chris,
Your math is correct but I think your assumptions may be questionable. Miller Samuel computes the absorption rate (ratio you are looking at) regularly and very recently reported around 13 months. I think the flaw in your calculation is using a denominator that is only 1 month's data, rather than an average across trailing 6 or 12 months.
It has certainly gone up, and is one of the most salient metrics for market analysis. Worth noting that absorption rates in other previously hot markets are 5 - 8 years, so I'm not terrified just yet.
Posted by AvUWS
Thu Feb 12th, 2009 02:08 PM
the absorption rate probably has the most changes in its delta-V than any of the other stats. One day a price range will be reached that either causes non-serious sellers to leave the market (indefinitely) or buyers of some kind or another to come back in.
Posted by anonymous
Thu Feb 12th, 2009 03:39 PM
the first qtr is supposed to be active .. entirely normal ... and its only been able to be "active " compared to the 4th qtr ( a very low bar) ...sales still down big yoy... wait until the 2nd qtr ...or 3rd .. Im one of those buyers sniffing around, and I can promise you that if NY raises its taxes on me to an effective 14% rate all in , then I am OUT of here ...regardless of how boring the suburbs area....14% is highway robbery...14% so that Councilwomen Quinn can funnel it to her nameles "community groups"?
Posted by Brad
Thu Feb 12th, 2009 03:53 PM
We closed on the sale of our apartment a few weeks ago. The contract was signed in November. Because we were waiting on a sales contingency that allowed us to show the apartment, the broker (a major NYC broker) didn't update its website to say "in contract." For whatever reason, that didn't get updated after the contingency was met and we were actually in contract. There may have been a change in the "MLS," I don't know. Once we closed, the listing was simply pulled from the website. StreetEasy shows the apartment as "sold" but it never showed up there as being "in contract."
I point this out for your benefit: Does my anecdote suggest that StreetEasy is not a good measure of sales activity? Or at least not a good "live" indicator? If it relies on web listings, it is not necessarily up to date. And in a world where financing falls apart, contingencies are being used, and buyers back out of deals, some brokers aren't indicating "in contract" on the website because they are trying to find backup buyers in case something falls through. Are you sure StreetEasy is giving you the right numbers?
Posted by Noah
Thu Feb 12th, 2009 04:00 PM
Brad - exactly why I said "Although CS data is lagging a bit, because many agents wait a week or so before updating their webads in the hopes of getting more buyers to call." in my 9:10AM comment above.
The streeteasy web crawl is ONLY as good as the AGENT that updates the webad on their employing brokerage site. Streeteasy caught the SOLD, which is great, but since agent didnt update website, the CS never got counted. This is common in this business. Brokers do it on purpose alot to get more calls.
Thanks for sharing! How did you do on the sale? Are you willing to divulge aprox how much from peak you think your property sold for?
Posted by sang
Thu Feb 12th, 2009 06:38 PM
Loving the widget Noah! I still remember the days back when we were talking about it in concept. Good job.
Posted by chris
Thu Feb 12th, 2009 07:11 PM
Noah, the audiocast you referred to above is no longer available it seems. Was it deleted? Thanks for looking into this.
Posted by Noah
Thu Feb 12th, 2009 07:15 PM
still works for me
http://ny.therealdeal.com/articles/current-uptick-is-only-a-dead-cat-bounce
YES SANG I REMEMBER!! THANKS FOR LISTENING!
Posted by RWZ
Thu Feb 12th, 2009 09:17 PM
OT:
still hoping to hear from you on the renovation and contractor. - RWZ
Posted by OT
Thu Feb 12th, 2009 11:30 PM
RWZ - my bad! It has been hanging over my head the entire week. Promise to call tomorrow.
Posted by Brad
Fri Feb 13th, 2009 12:42 PM
I think we ended up about 11% under the 2007 "peak" value of our apartment, and about 7.5% under what I actually expected to get if you had asked me in August. We put it on the market in September around the time of the Lehman bankruptcy. It really helped that we cut our price aggressively and early, rather than trail the market. We were in contract to buy another home so we really did need to sell. We also happened to find some buyers who had personal reasons for being ready to buy and for whom the apartment was a perfect match.