Expect Significant Quarter-to-Quarter Improvements
A: Manhattan real estate is seasonal, like all local real estate markets, and should be analyzed on a seasonal basis to ignore the noise and trend mis-interpretations that come from month-to-month or quarter-to-quarter moves. However, you cannot deny the activity that this local market has had starting in late April and the coming media effect that will come from next quarters improved report. Combine the lagging effect of our marketplace and what you have is a Q2 report that defined the downturn and an upcoming Q3 report that will look much improved when compared to the prior quarter. Expect significant quarter-to-quarter improvements when the report comes out in early October and a number of bullish arguments and bottom calls to hit media headlines.
We have to keep it real and can't deny the action that has been going on for about 4 months now. When the data is compiled and compared to the prior Q2 report it will probably show:
a) a surge in contracts signed when compared to prior quarter
b) perhaps a rise in prices when compared to prior quarter as our market priced out fear
c) a notable decline in inventory when compared to prior quarter
When the Q2 report came out on July 2nd, it defined the downturn and the sharp tiered price declines this market saw. I cautioned readers NOT to mis-interpret the very negative report as what was actually happening at the time in the field - "Manhattan Q2 Report Thoughts":
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.It surprised some to hear me say these things, but in the end I will always do my best to keep it real on this fast paced marketplace. I was a bull turned bear in Fall of 2007, then turned 'less bearish' in late 2008; and continue that stance today. I try not to let my bigger picture opinions influence front line reports in our marketplace. For the bigger picture, I still have my worries that a 'W-shaped recovery' lies ahead - although the double dip is looking to be a late 2010 or 2011 concern with inventory restocking and stimulus effects yet to fully play out in the macro data.
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.
Since Q2 was the report that defined the downturn, expect a MUCH IMPROVED REPORT when the third quarter data is released and compared. A part of me thinks we may have to wait for Q4, but I'm more confident than not that it will show up in next quarters data. Consider this your real time heads up for it!
Total inventory is declining as a result of:
a) more listings being removed from the marketplace (seasonality)
b) fewer new listings hitting the marketplace (seasonality)
c) surge in contracts signed (combination of delayed seasonality and first wave down)
When I say 'delayed seasonality' what I mean is the first wave down distorted the period of time that our marketplace is usually more active - or the seasonality effect got delayed. The usual period of high action in Manhattan is right around the wall street bonus season, or the time between late January to late May or so. Those 4 months or so are typically much more active than during the summer period. We are in summer now. As the first wave down occurred, buyers RAN AWAY and the bids disappeared - the downturn began. This lasted for about 6 months starting around mid-September and ending around late March; overlapping and influencing the first few months of our busy season!
Because of the deeper forces at play during this wave down, our normally active period that starts in January was pushed back to around April. So, what we are seeing now is in my opinion a delayed seasonality effect mainly due to the first wave down. What makes this action more compelling is in fact the lower prices that are re-stimulating interest in our markets products. Manhattan is a very different animal than most other markets out there, and certainly is much more fast paced. The amount of wealth and the depth of the buyer pool in this city always surprises me. While this market has proven not to be immune from this crisis, it certainly is reacting to it at a lag and stabilizing from it quite quickly. What took other markets a year or more to fall 25-30%, we experienced in a short 4-6 months. Consider this market to be trading at the higher end of the first comfort zone reached from this first wave down.
Q3 will report action from the months of July / August / September and likely the closing prices of contracts that were signed in May / June / July (all very active months that priced OUT Armageddon)! This lag is one reason why Manhattan's downturn, while discussed in detail here in late 2008, was not defined until the Q2 report.
Posted by uptownbroker
Fri Aug 21st, 2009 01:20 PM
Good to see you level-headed here Noah. I am a broker in uptown Manhattan and see the same activity you describe. However there are still plenty of properties that are simply priced too high.
Posted by joey
Fri Aug 21st, 2009 01:35 PM
the numbers maybe good, because it represent the number of people on the sidelines buying, but when those people run out, then what?
what about the lay-off people, are they being hired? or are they just out of the unemployment picture because their unemployment payments have ended. when do those people start to effect the economy?
Posted by Noah
Fri Aug 21st, 2009 01:39 PM
joey - absolutely. fundamentally and structurally the bigger picture I refer to in the post, there are pressures. But we had the wave down, massive stimulus is there, stocks going higher, this could all feed on itself a bit for a few quarters. Eventually the reality of the problems will resurface. Until those problems are fixed, I cant be anything more than 'less bearish'. Looking forward to being a bull though!
For now, still plenty of buyers out there. Its as if Q4 and Q1 vsales volume was deferred to Q2 - present. So it may last even the face of those pressures you mention!
Posted by SteveF
Fri Aug 21st, 2009 02:30 PM
Excellent synopsis. Gutsy call on the Q3 postive vs prior Q2 improvements, with media acknowledgements(see below). I think you are correct. See you on SE.
Combine the lagging effect of our marketplace and what you have is a Q2 report that defined the downturn and an upcoming Q3 report that will look much improved when compared to the prior quarter. Expect significant quarter-to-quarter improvements when the report comes out in early October and a number of bullish arguments and bottom calls to hit media headlines.
Posted by Donald
Sat Aug 22nd, 2009 02:20 PM
So Noah, are you calling bottom? Also, what do you make of the recent spike in existing home sales? Is this a new trend or just a fluke?
Posted by Noah
Sat Aug 22nd, 2009 06:33 PM
Donald - Not for Manhattan, no, but for other hard hit local markets that are down like 40% on case shiller and being bought today for another 10-20% below that, yes this could later on to prove to be very close to bottom.
as for existing home sales on a natonal level, not really a fluke but there are some flaws. Price destruction and incentives were so great, that distress activity and foreclosure activity is really kicking into high gear. Still credit issues and not many move up buyers. First time buying is not sustainable at current pace. Bottoms in housing take years to be put in and tend to muddle. But we had such fierce destruction in some markets, you might get some outlying hits to major indexes that later on see a natural rebound of some sort, removing the overshoot to the downside.
I would feel pretty confident buying in some hard hit areas now because of the discounts near 50-60% off peak or so. These units can prob be cash flow positive as investments. Not so yet in Manhattan. Markets are so different hard to generalize
Posted by Former Seller
Mon Aug 24th, 2009 10:14 AM
Uptownbroker and joey- it's pointless in any market to ask: "what will happen when the buyers go away"? The answer is always, prices will decline or go flat- that's the whole idea behind a market. If you argue that properties are overpriced, your argument has the same validity as that of someone who says they are underpriced. At some point in time, you both will be able to say you were right, guaranteed. If prices should 'revert to the mean', as many have stated here (without articulating what the 'mean' is), they probably would have done so by now.
The fact is, early this year many readers came here on a regular basis after the big wave down and smugly pointed out that RE was still overpriced, and that it would continue to tank into the summer with no signs of recovery- I think the consensus was something like avg $500psf by end of year. They already look to be proven quite wrong, even if there is a second wave down at some point. They've been very silent over the past few months.
Posted by Noah
Mon Aug 24th, 2009 02:16 PM
no doubt former seller, that many out there thought the first wave down would be way more severe or at the very least, around for longer than it was! Not to say we are trading above the first comfort zone, we are not, but trades at the lowest prices occurred during those 2 fear months of FEB and MAR..many thought that type of environment would hang around for much longer.
for a while I did too, but that didnt last long. I never thought we would fall 70%. I argued relentlessly with friends and colleagues that I thought 40-50% retracement in total seems about right for the cycle. After the first move, seems were are 50-60% the way through, although higher price points came much closer during the fear months!
Posted by Johnson County KS Real Estate
Fri Aug 28th, 2009 07:13 PM
You bring up some great points here. Do you expect this overall trend to continue, or do you feel things will revert back to 2008 status?