Manhattan Q2 Report Thoughts

Posted by urbandigs

Thu Jul 2nd, 2009 10:54 AM

A: Due to the lagging nature of these quarterly reports, nothing disclosed here is a surprise; at least not if your reading UrbanDigs.com! The biggest mistake one can do is to read one of these quarterly reports, and just assume this is exactly what is going on right now! The thing is, the market today is significantly more active than what this report suggests because Armageddon has been priced OUT of this marketplace over the past 7-9 weeks or so - something not reflected in this report. When you hear, 'sales volume plunges 50% from year earlier', you may immediately assume today's market is completely dead - not so. So, make sure you understand this lag and acknowledge that this market did equalize from the frozen months of OCT - MARCH. The bulk of the pickup in activity occurred between mid-April to end of June - as confidence rose with the equity rally and a wave down in prices. The telling aspect of this report lies in the y-o-y price declines reported by price point - something that I reported to you as early as March 9th, ironically the day the stock market hit its most recent lows. At least I feel good that my reporting to you guys is both accurate and timely. I will do my best to continue this front line reporting mixed with macro economic thoughts going forward as there is always something to talk about when it comes to Manhattan real estate.

Lets discuss price first, and then move onto sales volume. In early March, right at the height of the fear and the top of the severe illiquidity since Lehman's collapse, I wrote a piece called "Understanding 'Liquidity', or Lack Thereof For Manhattan" to describe what I was seeing out in our marketplace - note, this is before the equity rally and shift in psychology from Armageddon to Reflation that occurred (whether you like it or not or buy into the sustainability of it or not):

Right now the market seems illiquid because the bid-ask spread is too wide creating a disconnect; meaning that either sellers are still in denial about the price drop of their asset (current market value) OR buyers are too cautious to bid more aggressively for the asset.

This is really a high end recession in the Manhattan real estate market, that is rippling through to the lower price points. That is the best I can describe it. If I were to divide Manhattan into a few categories and where deals seem to be happening now, it would be something like:

HIGH END ($5M+) - down aprox 25% - 40% from peak
HIGH/MIDDLE ($2M - $5M) - down aprox 25% - 30% from peak
MID END ($1M - $2M) - down aprox 20% to 30% from peak
LOWER END (Under $1M) - down aprox 15% - 25% from peak
Remember, we will have to go through Armageddon price discovery first, before we see the slightly higher deals that took place over the course of the 7-9 week confidence/reflation shift. We are seeing the beginning of this now, but expect it to last a few more quarters on the pricing side.

Fast forward to today and Bloomberg reports on Manhattan's Q2 Report, "Manhattan Apartment Prices Drop as Lehman Effect Hits Home":
Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation’s most expensive urban market.

The median price fell 18.5 percent from a year earlier to $835,700, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. The number of sales plunged by half, the most since Miller Samuel began keeping data in 1989.

The price of studio apartments declined 16 percent from a year ago to a median of $405,000, according to Miller Samuel. One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.
Notice that last paragraph that discusses the structured effect of this slowdown on each price point and compare that to what I reported to you guys in early March! You want to keep it real, keep it here!

Now, lets move on to sales volume. As most brokers used this latest equity rally and countertrend pickup in activity to call for a bottom or recovery, you must use caution when analyzing month-to-month trend changes in a seasonal market. Instead, you should compare data on a year-over-year basis or seasonally adjust the data.

In May, I did a piece discussing this exact topic and showed you a graph going back 10 years that looked at NUMBER OF SALES by quarter - in an attempt to analyze how the first half of 2009 would compare to previous first halves of the year over the last 10 years. While brokers discuss the pickup in action on a month to month basis, which is true, the bigger picture tells a different story and todays Q2 report confirms this. I estimated that number of sales for Q2 would come in around 1,700 - 1,800 or so, which would put the first half of 2009 as 'the most sluggish in the past 10 years'. The report notes that y-o-y sales volume plunged 50% - and Q2 2008 sales totaled about 3100. That would mean Q2 sales came in lower than my estimate and closer to 1,550 or so. I cant find an exact number in the report, but will do a separate piece on this in a few days - clarifying the bigger picture.

Now, what this report doesn't reflect is the last 7-9 weeks of action that occurred. Whether you like it or not, whether you are a perma bear or perma bull, we must be able to accurately discuss what is happening out there, without bias or agenda, BUT take into account what we just went through and how the macro economy may or may not affect our market in near term. I expect the countertrend pickup in activity to level off soon, and this market to slow down a bit as we enter the normally slower summer months - seasonality at play, nothing more.

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