Contracts Continuing To Be Signed

A: Many of you may have noticed your SAVED searches on Streeteasy.com are starting to dwindle? Are you? Speak up in the comments about what you are seeing so we can all get a clearer picture. For the past few months this market has been steadily picking up steam and it seems the past 3-4 weeks have been particularly active in seeing deals happen - and the normal euphoria that the worst is over with it. I don't need to remind everybody here of the seasonal nature of this local market, which is why you must use either a seasonally adjusted measure of activity or compare data y-o-y to see the bigger picture. How did this wall street bonus season compare to previous ones? It's active because it's supposed to be active now. But the busy season is coming to an end, and once you get past Memorial Day Weekend we get into the transition period to the slower summer months. But this year is different because of what we experienced, and that is what I think is causing many to wonder if this pickup is a sure sign of a bottom.

Going back 2 years ago, I wrote about the seasonal nature of Manhattan's marketplace:

If I were to visually design for you how the NYC real estate market is seasonal, it would look something like this, for months JAN - SEPT. I left out OCT-DEC because those months seem to me to be very erratic; sometimes hot and sometimes cold. The months of JAN - SEPT have market characteristics to them that are easy to notice and eventually take advantage of:

But when the busy season starts right after a frozen 4th quarter that saw hardly any deals done, even the slightest pickup will seem to be more than it is. People are really starting to wonder, is this it? Is this market at its bottom and on the road to recovery? Of course you know my feeling on this, no, I don't think it is because of fundamental reasons and where this market came from. Prices are still too high compared to rent ratios, unemployment is still rising, there is still a strong negative wealth effect even with the markets 38% rally in 10 weeks, buyer confidence is still depressed, and the system of credit that allowed the boom to occur is changed forever. Folks, forget about seeing peak prices here for a long long time! Right now it is a question of when do we stabilize.

Lets start at the contracts signed trend for the past 6 months:

*IMO, contracts signed data is the lowest quality of all the data I collect. It is lagging in nature and only as good as the agent that updates the listing and the system that picks up on this update. It is good to watch for trends, but that is as far as I will look into it. I will try to solve this problem for UD 2.0.

When you go from a weekly average of under 10 contracts signed to a weekly average of between 20-30 contracts signed, you are bound to both hear and see this activity on the blogs and in the field. Many of you may have noticed those saved listings are now IN CONTRACT, and you are wondering if you missed the boat? I continue to call this a countertrend pickup in activity embedded in a larger adjustment process - nothing goes in a straight line and there will be deals at every price.

This is the psychological aspect of home ownership; yes there is a huge one. Put timing the market away for now and lets just talk this out. Missing out on a few of the homes you have been keeping your eye on, may make you a bit edgy and more eager to pull the trigger if another home you like happens to hit the market. Emotion plays a role here, and I always try to remove the emotional element in my consults with my clients so we can focus on what the market is doing and where the product is likely to trade given current trends. Not to say emotion is a bad thing, its not, but sometimes it may cloud the bigger picture. If my clients like something enough, they bid appropriately regardless of what I say - that's how it works. To each his own and you can't day trade or perfectly time real estate - so at some point emotion will likely lead a bunch of sideliners to ultimately pull the trigger earlier than they may have originally thought. Will it move the entire market? No, of course not! Buyers are just comfortable making the decision regardless of where the market may be headed in the medium term.

On to the data. Over the past 30 days, my widget states:

1,755 NEW LISTINGS
867 CONTRACTS SIGNED

Using one of my internal sharing systems that is a direct source for brokers, I see the following data for the past 4 weeks:

1,072 NEW LISTINGS
742 CONTRACTS SIGNED

A bit of a discrepancy here. I would tend to monitor the internal system more, to be honest with you. But my widget has some rules to it that fine tunes the data so who the heck knows what is really going on out there. One thing is for sure, the period of MARCH - PRESENT saw a nice uptick in activity when comparing it to the frozen market in the 4-6 months prior. This will come out in the data later on, but when it does we should focus on the year over year changes instead of the month to month advance.

For me, instead of looking at month-to-month or quarter-to-quarter pickups, I like to focus on the bigger picture and the macro fundamentals for where we might be in the cycle:

Fundamentals ---> still deteriorating, although pace of decline has slowed and confidence has risen with latest equity rally (so called green shoots)
Wealth Effect ---> still big time negative, even with the latest 38% rally
Buyer Confidence ---> still depressed, although a bit less so with the rollover from peak to the first comfort zone + recent equity rally and green shoots media blitz
Affordability ---> price/rent ratios are still out of whack and with rents declining, the fall in property prices on this ratio is muted
Availability of Credit / Lending Standards ---> tight, tight, tight...the days of e/z money are gone and you actually have to prove you can afford a property to get a loan commitment. Credit has tightened and there is more liquidity in the mortgage markets from last year, but still not anywhere near what we saw during the boom years. Another wave of the credit tsunami can change this, so my eyes are watching out for that
Inventory ---> up abut 40% from last year, and up about 100% since I started collecting inventory data in late 2007 (total inventory was about 5,400 at that time)
Rates ---> something to watch out for as part of endgame to this credit crisis, will rates surge and how will this effect both the economic recovery and housing.

Yet with all this, contracts continue to be signed as buyers are comfortable putting money to work with this market trading down to its first comfort zone; a move down that most brokers/executives denied as even possible this time last year. If this market was so strong, you wouldn't see Coldwell Banker Hunt Kennedy closing its doors! Fact is, even with this pickup being reported the first two quarters of 2009 are probably going to prove to be the most sluggish in terms of number of sales in the past 10 years.

I will leave you with HSBC's MAY 2009 Mortgage Bulletin with the following Housing Update for Manhattan, which included the following charts. I'll let you interpret them on your own and I apologize that I don't have the full report available. Notice the first chart showing the widened gap between condo & coop prices and market rents - now that rents are falling too, it makes the down move in prices more muted for this ratio of valuation premiums and affordability:

*Sources: Prudential Douglas Elliman, Citi-Habitats, Miller Samuel

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