Putting Manhattan Into Perspective
A: Everyone wants to know what is next for Manhattan. Geez, can't we even go a month or two and just focus more on where this market is now and put into perspective the wave down we just experienced? NAH, that's no fun! A few days ago I discussed why I think we will see quarter-to-quarter improvements in sales volume that will lead to a new round of bullish headlines and bottom calls - this is due to the delayed seasonality trends as a result of the first wave down in prices. But when it comes to analyzing real estate trends, its always best to put things into perspective by comparing year-over-year data to filter out any noise that comes from seasonality. In other words, how did the 2nd quarter of 2009 compare to the 2nd quarter of 2008 and so forth? The short answer is that regardless of how active this marketplace became after the wave down, the first half of 2009 has proven to be the weakest in the past ten years. Since real estate is about sales volume, commissions, and spinning of data to increase the number of deals, expect the focus to be on the short term trend and NOT on year over year comparisons.
Let me remind all of you what this downturn looked like in terms of # of sales so we can put our market into perspective:
That IS the data, and you can't deny the data. Clearly, the first half of 2009 for the Manhattan residential marketplace shows to be the most sluggish compared to the past 10 years. Take a close look at the above chart and do your best to focus on the relative performance of each color (representing a quarter); this makes it easier for you to dissect year-over-year trends. In doing so, you will notice the blue + red bars trend since the peak as being down.
We should be comparing Q3 2009 (green bar) to Q3 2008, in which case we would need to top 2,650 sales or so to represent an improvement from year ago periods. Instead, headlines will probably focus on comparing Q3 2009 data to Q2/Q1 2009 data in which case we only need to top 1,550 sales or so to support a bullish argument of three consecutive quarters of improving sales. That should be easy as pie to accomplish given the activity and contracts signed over the last few months that will ultimately get recorded in the upcoming Q3 report. For the record, I would expect sales for Q3 to come in around the 2,000 - 2,250 level or so.
Comparing the upcoming Q3 sales number to year ago levels, I don't think there will be enough umph in the pipeline to beat the 2,650 deals closed in the same period last year. Therefore, I think the y-o-y trend for the first 3 quarters over the past two years since peak will continue to be down.
We were expecting a wave down, and we got it. As a result, I am less bearish on our markets. It certainly is a better time to buy today than it was only 18-24 months ago as you get a discount due to general market conditions. Looking ahead, I expect this market to muddle around the comfort zone reached in the first wave down for a while, reflecting the new realities of our real estate marketplace and macro environment. Should a dislocation occur somewhere, I'll report on it here. For now, credit is still dramatically improved from the distress levels seen late last year. Buy for the right reasons, know where the market is and where your target product should trade off peak levels. Do not buy because a broker convinces you that three quarters of improving sales data warrants an uber aggressive bid over market value or else you will be priced out forever!
The decline in total inventory is being affected by:
1) removal of existing listings - 2,342 Manhattan listings removed from market since July 1st
2) fewer new listings coming to market - 1,696 new Manhattan listings came to market since July 1st
3) rise in contracts signed activity - 1,890 Manhattan contracts signed since July 1st
The first two are seasonal trends and the surge in activity is due to a delayed seasonality effect as a result of the first wave down in prices. The threat to activity levels sustaining itself lies with sellers' willingness to continue to do deals in the comfort zone range down from peak in the face of a surging equity market and a general boost in confidence now that Armageddon seems off the table. If sell side optimism rises too high and expectations increase for significantly more aggressive bids, its up to the buyers to play along.
Posted by Fred
Wed Aug 26th, 2009 01:05 PM
with new listings outpacing contracts signed by 1.5 to 1 and 2009 sales velocity running at 60% the 10 yr average, these do not bode well for all those option arms and new flashy condo developments sitting upside down.....i think i started to see another big drop in asking rents for non-prime UWS rentals this month? did you sense any of this? desperation is very strong beneath the surface and underwriting is only getting harder. there is a whole wave of buyers out there who have just stopped looking because they spent time, found nothing compelling and would rather wait than to watch their dinero depreciate. finally, the boomers' downsizing will only increase in momentum from here on out. $500 psf $500 psf $500 psf.....
Posted by Noah
Wed Aug 26th, 2009 01:22 PM
Fred - well we have to keep it real and recognize that over the past 6 months the gap between new listings and contracts signed has narrowed dramatically.
Not really following rental markets too closely, no time.
I agree that there is a whole subset of buyers that are being patient, however, there ALWAYS are. Maybe that subset is bigger than in normal times, who knows as there is no way to quantify that.
For now, the market still seems more active than usual for this time of year before labor day.
It will be interesting to see the changes in listings removed and listings added in the weeks AFTER labor day.
Posted by In Debt We Trust
Wed Aug 26th, 2009 02:12 PM
A few years ago, there were the "big fish" Russian buyers. Do you still come across those? Sources in California tell me they are waiting for their equivalent of "big fish" Chinese buyers to show up. So far, the record is mixed.
Posted by Noah
Wed Aug 26th, 2009 02:17 PM
nope, I dont see it. But that doesnt mean much. I have my own niche business from this blog and referral business. Since Im taking a different route with this blog and my model, I didnt establish my re business to really be able to capture those types of clients.
with that said I do have a group of foreign investors, but not the 'big fish' you mention that likely will plop down that 4-5M+ on their digs.
So just because I dont see it, doesnt mean they are not there! Im sure the top groups have a healthy mix of buyers in that category.
Posted by Fred
Wed Aug 26th, 2009 02:29 PM
Noah - agreed that the gap has narrowed substantially between new listings and signed contracts but in large part the 2Q data doesn't seem to indicate any meaningful reversal of the trend; on the contrary the bump from 1Q to 2Q reinforces the notion that the new reality is an oversupplied market. an interesting graph to create would superimpose total inventory onto sales. the visual would drive home the drop in liquidity - as you mention 4Q will be the interesting data since at least in theory most portfolios have recovered a lot since march. whether or not the real estate sellers can attract that capital away from equities seems to me to be the real question. and i guess we can't underestimate the potential for a Guiliani effect on NYC......if he goes for Albany afterall.
Posted by Noah
Wed Aug 26th, 2009 02:34 PM
your comment reminds me why I am trying to solve the lagging quarterly data problem in manhattan, and UD 2.0 will be right up your ally!
I wrote about the upcoming Q3 report, and it may even be Q4 too, but what I am discussing and what my real time charts are telling you is what will ultimately be reported in the next quarter or two. So the meaningful reversal in trend you discuss, may be ongoing right now, and it has been since late April, early May - I can attest to that because I see it everyday in my real estate business.
Hard to get a grasp on oversupply or undersupply with a shadow inventory market here. But clearly it was safe to say at 11,200 units back in early MAY or so, the prior months dead market was affecting inventory to the point of oversupply. Along with other factors, prices fell and buyers showed up and here we are today.
Your chart idea is interesting. When I get back Ill get backdata and do that.
Posted by paul.b
Wed Aug 26th, 2009 03:16 PM
"an interesting graph to create would superimpose total inventory onto sales. the visual would drive home the drop in liquidity "
I second that!
Noah, what type of real time data will urbandigs2.0 provide? will it cost anything? can you divulge any details to those of us waiting? thanks
Posted by Noah
Wed Aug 26th, 2009 05:05 PM
yea Ill work on it when I get back from nawlins!
Well all i can tell you is that you will have a customizable real time analytical tool to follow a number of metrics around Manhattan real estate. Cant get into details now, too soon. General data will be provided for free, that includes the 4 datasets I show now and another 2-3 datasets.
A low fee monthly susbscription model will probably be implemented that allows you to get full access to our micro analytical tools. Say you want to get a real time glimpse into 10-15 datasets around classic 6s, in the UWS, between 1.5M - 2M. Or you want to get a real time glimpse into 5room condos in the UES, priced between 1M and 1.5M. Whatever the user wants. You customize it based on 3-4 criteria, and the system will generate a suite of analytical tools based on your niche market that are following.
That is all I can tell you for now. Cant get into specifics on what the datasets will be yet.
Posted by DR
Wed Aug 26th, 2009 11:38 PM
I may be the third to ask but I would be interested in the total sales value Q/Q and Y/Y. By researching ACRIS and SE it looks to me that the majority of sales are in the $400-900K range and there is a huge disparity between the "# of sales" to the "value of sales" y/y and even Q/Q as the new dev slide has to hit the metrics at some point to really tell the story of the current market. Who knows, One Madison could be this quarters 15 CPW but that was a sales and marketing shit show, can't wait to see ACRIS for these.
Great work, I am a regular reader who watches metrics and appreciates your take. It may be more optimistic than mine but you are in it every day. I work on the commercial side and am just a blood sport spectator in the resi market.
Posted by Noah
Thu Aug 27th, 2009 07:04 AM
Thanks DR - Yep, that will all be in the new UD 2.0!