3-Month Reflections: Those That Wanted To Buy, Did....

Posted by urbandigs

Mon Jul 20th, 2009 09:37 AM

A: I think its safe to say that the 'pent up' demand from the brutally slow Q4 2008 - Q1 2009, re-entered this market over the past 8-12 weeks and made their purchases. Many brokers I speak to are telling me that their most motivated clients already signed deals and now its feeling a bit more like summer again - as in, the change in the past few weeks that is typical of the transition to seasonally slower summer months. Make no mistake about it, I think the pent up demand for the most part pulled the trigger over the course of the past 12 weeks. This is very clear when looking at 'inventory' and 'contracts signed' trends since early May or so. In fact, the action over the past 2-3 months was more typical of the bubbly 2007 levels; as I'll get into below w/ contracts signed data. But for those that come here for real time conditions, combined with a little gut feeling, my opinion is that the wave of activity has peaked and that we are now slowing down the way it usually does for summers in Manhattan. Take the buy side motivation and general activity down a notch or two from where it was in May and June and adjust expectations on both sides of the market. This observation/opinion should not be a surprise to anybody and reflects the seasonal nature of this market.

When I look at my internal systems, I see there were about 2,120 contracts signed in the past 8 weeks or so dating back to the last week in May for Manhattan co-ops and condos - two weeks ago I checked this same data trend and it was closer to 2,350 when comparing the last 4 weeks to the 4 weeks prior, so you can confidently say that the bulk of the activity was in May and that it is now being timed out of the recent data trends. If you look at my ticker for 30-DAY contracts signed, it is just under a thousand. However, I rely more heavily on the internal sharing systems when it comes to contracts signed data - as the source is direct with the agent that is maintaining the listing and when a contract is signed, usually the broker doesn't want to deal with 'other co-brokers' anymore!

Looking back at the past 8 weeks (limited by data I have available to me), 2,120 contracts signed is quite a lot! Its as if we saw peak-type levels of activity in the past 8-12 weeks or so with the first wave down in prices for our market. Talk about buyers coming in! But I don't think the 'fierceness' of this action is sustainable and the past 2-3 weeks already seems to me to be more like summer - slower buy side requests and motivation to pull trigger down a notch or so. Lets just be real, if this pace of action were to sustain itself, that is an average of about 1,060 contracts signed per month putting us on pace for over 12,700 contracts to be signed for all of 2009 - a level that was achieved at the height of the credit boom in 2007 for Manhattan. Trust me that is not going to happen! The spurt was due to a combination of factors that I discussed before and is our markets way of equalizing itself after a sharp drop in prices and a subsequent shift from Armageddon to well, something brighter. We are at now now. The perma-bears expecting a one shot move down 50% were wrong and the perma-bulls that promised sideline buyers/foreigners would never let this market down were wrong.

This dropoff in activity is a normal thing and these are observations that I, Noah, one man in a big industry, currently sees out there right now. Manhattan is a seasonal market and we are normally slow during the summer. Adjust accordingly if you are a seller that must sell and are noticing a tick down in traffic from say 6-8 weeks ago.

Looking ahead at what this spurt of action will do to future reports, you should see a tick UP in sales activity (especially as the prior quarter saw the 50% plunge in activity so the future quarter will easily look way more positive in comparison), contracts signed, and perhaps even deal levels from quarter to quarter as this market seemed to price OUT Armageddon - so the bulls, brokers, and execs will likely have some supportive quarter-to-quarter data coming to build bottom call arguments in Q3 or Q4 in comparison to Q1's ugly discoveries. For me, I need to see fundamentals improve before jumping on that ship; so Ill remain considerably less bearish than I was only 18 months ago now that process has started, yet still cautious that the economy and likely our market may have another wave to deal with.

Breaking down the activity, most of the deals were for 1BR and 2BR properties, with 3BR properties seeing a nice tick up in action as well. The biggest driving force? Cheaper prices, hands down.

Like I said, I feel that most of the people that wanted to buy, did. So where does that leave us now looking ahead? Well, that's the story. You cant look ahead by peeking into the rear view mirror, which is what you would be doing if you look back at the past action to try to predict future activity. So, I think we have a period of normalcy ahead, seasonality if you will, where this market will naturally slow down a bit until after Labor Day or so. I would expect:

a) contracts signed going forward to drop from past monthly levels - not quite as low as Q1 but not quite as high as Q2
b) new listings hitting the market to slow down a bit as sellers wait for seasonally more active months to maximize profit potential
c) properties to be taken off the market for various reasons if seller couldn't sell and doesn't have to
d) listing inventory to muddle, if not, rise a bit with the slowdown in action that is typical for this time of year

The wild card is equity markets affect on confidence and how that may make some view our markets - especially the higher end that got hit the most. This stock market is reflecting a stimulus induced recovery that who knows how long can last - the amount of stimulus is unprecedented. Its very likely we see the effects of stimulus on economic data in 2nd half - perhaps further boosting confidence. The loop can feed on itself and that may lead to higher stock prices and higher confidence for businesses. My fear is that stimulus induced economic recoveries are usually both not sustainable and not without its unintended consequences from financing them. For now, people just want the reflation party to roll on and stocks to rise making everyone feel a bit wealthier. After what we just went through, can you blame them? Party on Wayne, party on Garth!

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