Fed Beige Book: New York

A: Here is the latest info from the Fed Beige Book for Second District - New York.

Via Fed Beige Book September 9, 2009:

Commercial real estate markets in the District were steady to somewhat softer since the last report. Manhattan's office vacancy rate rose moderately in July and August, while asking rents continued to decline--rents on Class A properties are down roughly 20 percent from a year earlier, and that does not include increased concessions by landlords. Elsewhere in the District, however, office markets have generally been stable: vacancy rates rose modestly in Long Island, northern New Jersey and metropolitan Syracuse but edged down in Westchester and Fairfield Counties and in the Rochester area; vacancy rates held steady in the Albany and Buffalo areas. Asking rents on Class A properties are down modestly over the past year across most of the District. Industrial markets have been mixed but mostly steady.

The housing market has shown scattered signs of a pickup in parts of the District, though conditions have continued to weaken in New York City. A New Jersey contact notes signs of a mild pickup at the lower end of the resale market--helped by the homebuyer tax credit--but maintains that sales and starts of new homes remain flat at low levels. Prices are said to have firmed slightly in New Jersey's resale market, though they remain substantially lower than a year ago. Similarly, Realtors across New York State report that prices rose in July but are running well below comparable 2008 levels.

In contrast, New York City's multi-family market has continued to weaken. Manhattan co-op and condo prices have reportedly continued to fall in the current quarter. However, transactions activity, which had been exceptionally sluggish in the second quarter, has reportedly picked up in the current quarter, except at the high end of the market, where activity has evidently been constrained by tight credit. Prices of newly-constructed condominiums, which are mostly at the high end of the market, have been discounted steeply, reflecting a large inventory. The apartment rental market has also continued to deteriorate, especially at the high end: overall, asking rents are reported to be down 6 to 10 percent from a year earlier in August; moreover, landlords are typically waiving commissions and offering concessions, such as 1-2 months free rent.

We will likely find that prices are slightly rising and now stabilizing on a quarter to quarter trend yet still falling on a year over year basis. This is due to the last quarterly report catching the February and March fear trades closing. The freeze up started in mid-September, then overshot to downside in February & March, and since priced out Armageddon and started to stabilize at current levels down from peak. The end result looked something like this:



The simplest way to look at what has happened in this marketplace is to understand that we had a wave down in prices that started around September 2008, lagging national markets - this wave produced a frozen market for about 6-7 months followed by a surge in contract signing activity as prices reached comfort zone levels. There is generally a 2-3 month time lag between contract signing and closing; obviously more with pre-construction deals. As a result, reports up to Q4 2008 do not reflect the wave down in prices. It really started with the Q12009 report which showed closings and activity from JAN-MARCH of 2009, the fear factor months.

Therefore, it is safe to say that pricing pressures on a y-o-y basis will be pressured up until Q12010 or so, when the comparison will finally catch up to the prior year report that captured the wave down. However, we will see improvements on a quarterly basis for contract signed activity and total sales volume when the Q3 report is released in October. The media and brokerage community will likely use that rolling improvement as proof the market has bottomed and in recovery. Until fundamentals start to improve, I have to remain cautious and be in the camp that sees price actions muddling at current comfort zone levels until outside forces clarify a new path.