Get Ready! Here It Comes...
A: Its starting early and I suspect it will only get louder as we get to week end. With Manhattan's Q3 Residential Real Estate report slated to come out in a few days, expect a surge in activity to be reported. Quarterly reports are a peak into the rear view mirror for the past few months; so lets do a little backward looking. As usual, due to the lagging nature of these reports headlines may mis-represent what seems to be going on out there now. If you want to see whats in front of you, don't look in the rear view mirror.
Expect both contracts signed activity and actual sales to surge on a quarter-to-quarter basis. The preferred analysis will be y-o-y and that will probably show a level sales comparison with lower prices from the year ago quarter.
In Q3 2008 we had 2,654 sales. Its quite possible that we get close to that level in this upcoming report (closed sales) and actually beat next quarters level of around 2,300 when Q4 is ultimately reported. After all, many contracts were signed over the past 3-5 months and now we are just waiting for them to close; a 2-3 month process. In terms of sales volume, the quarters that defined the downturn for the Manhattan residential market were Q4-2008 through Q2-2009 - so we got some favorable comparable reports in our future for y-o-y analysis. Take a look...
*data courtesy of MillerSamuel.com
The one area we won't see improvements is in price levels. The NY Times discusses in "At Long Last, a Leveling Out? ":
A review of closing data shows that median and average prices on co-ops and condos have continued to drift lower in the third quarter. Sales volume has picked up from the moribund levels earlier in the year, but remains about 29 percent below the levels of a year ago.I guess we can hope for a surge in sales on headline news too. So, the headlines will likely remain focused on the sales volume rebound as proof this market has not only bottomed, but is now recovering. Buy now or be priced out forever right? Umm, no.Because of the long lag time between contract signings and closings in New York, many brokers are hoping to see stepped-up activity reported in the fourth quarter, normally a sluggish period. They are also looking forward to a surge in sales based on a forecast of significant bonuses, at least among the Wall Street firms that survived the downturn.
Its true that you can't deny the pricing out of fear this market experienced via the improvement in bids for Manhattan property. But to cherry pick price action and ignore the entire correction by looking at the improvement in bids recently is to miss out on the adjustment this market has made. Stabilization is quite different than a new sustainable rise in prices built on improving fundamentals. What we had is a stabilization of prices after an enormous shock that saw bids for Manhattan property adjust to a new, lower level. It took a few bumps to find that new, lower level, but then again that is usually how markets work. This is where we are now and this is where I think we will stay for a while.
The Q3 report will probably show this muddling around of prices on a quarter to quarter basis. No market was immune from the deflationary forces of the greatest round of debt deflation since the 30s. Anyone expecting a prediction from me going forward, I'm sorry to disappoint. The correction I was expecting happened, and other than muddling around for a while I don't see any big moves in either direction until some outside force acts upon us. This could be a number of things:
a) another shock to the credit markets - so far, the exact opposite has happened and credit has improved significantly
b) a sharp rise in rates - who knows how mortgage markets may react to the winding down of fed quantitative easing policies, continued supply of treasury auctions or perceived inflationary pressures in the years to come
c) another fierce equity selloff - tied to 'a' above, who knows when stocks will decide to fall given all known information being fully priced in - right now the path of least resistance is clearly up.
In the meantime, individual distress will be where the best values are and I'm sure consumer deleveraging will continue for years as homeowners in trouble will do everything they can before being forced to sell their primary residence. The banking system continues its recapitalization with plenty of outside help and bad debts need to ultimately be written down. At the same time consumers are repairing their own balance sheets via higher savings, less spending, and paying down of excess debts. When we reach the end of this cycle we can start to talk about sustainable credit expansion without emergency fed facilities for an economy that sees job creation and consumers with rising credit quality - that is when loans will start to accelerate and the money multiplier effect kick in again. For now, the patient is still receiving a steady IV drip to nurse itself back to health.
Comments (12)
Noah - what are the biggest drivers of your outlook for close to flat 3Q09 sales (vs 2,654 3Q last year) now vs. low 2,000s projected in August?
http://www.urbandigs.com/2009/08/putting_manhattan_into_perspec.html
There seems to be some real sustained volume momentum that never really let up late summer.
Posted by Anonymous | September 29, 2009 10:41 AM
I revised my thinking upwards since that post a month ago as I had more talks with sales managers I know and many many colleagues I often keep in touch with to get an idea if what I see out there is in fact true, or just my own business.
May, June, July were very active months, close to 1,100-1,200 contracts signed each month I believe. That is peak types of levels. Of course the first 4 months prior were dead, even going back to last 4 months of 2008.
The biggest driver was combination of:
a) lower prices
b) dramatic shift in confidence from fear to reflation
c) delayed seasonality due to first wave down - meaning the usually active months of JAN - MAY didnt start until MAY! So that pent up demand jumped on deals and lower prices and since it has been like the active season.
Best I can come up with.
Posted by Noah | September 29, 2009 11:51 AM
What do you think of the listing prices of the recent new listings in Manhattan?
In the $2-3 million range, I noticed that many of the new listings are on the high side and definitely do not reflect the 20 - 30% below peak prices that motivated buyers to sign contracts. I think many sellers are overly confident and we will have flatter sales this quarter b/c of buyer and seller disconnect.
Posted by Potential Buyer | September 29, 2009 1:22 PM
It is interesting you choose not to predict any price movement other than "muddling around for a while"
As a future buyer in the two to three bedroom market I think there is more risk to the downside than to the upside. Brokers spitting out bullshit that we have to "act now" or "bid near ask and fast" just pisses us off.
So your saying we are here to stay for a while, makes me wonder if I really want to wait for another move down. By no means are we market timers, but I can see the change in the market recently and I dont buy into it.
Posted by ian | September 29, 2009 1:31 PM
Potential Buyer - mixed, some do, most dont. I am definitely concerned about sell side re-adjusting their strategy because they think the market is now moving in their direction and buyers must pay up for that premium.
Thats what made me write:
http://www.urbandigs.com/2009/09/seller_pricing_should_ignore_s.html
and..
http://www.urbandigs.com/2009/08/equity_rally_may_cause_disconn.html
"But this fierce equity rally may just be enough to alter the psychology of sellers and slow this market down a bit. Unless buyers change too we will see a disconnect again leaving brokers and those same buyers wondering what the heck is going on."
Posted by Noah | September 29, 2009 2:15 PM
Those that wanted to buy did. The rest of the buyers do not need to buy right now and believe that there is more down side risk than up. Thus, I see activity slowing down significantly in the upcoming months and through the winter, especially because sellers are back on their high horse. There WILL be another slide down (not as extreme as before, but I project another 10% down by this time next year).
Posted by Anon | September 30, 2009 12:24 PM
I tend to agree with Anon (above). I have been out in recent months and I'm starting to think the renewed confidence on the sell side (no doubt fueled even more by reports and media coverage next week) will be met with ramping down of demand on the buy side (as a general statement) as the overall pent up demand cleared the system the past quarter. At some point the sellers in "wait and see - but I need to sell in <12 months" come back into the system and help Manhattan complete a natural and totally predictable cycle from boom, bust, to a stepped and very slow recovery. Then again, perhaps the 60% income tax rate in 2010 will help the market take off again, right? right?
Posted by Anon (2) | September 30, 2009 2:07 PM
All
Allow me to make a prediction:
I predict the next big move down in equities (profit-taking)will adjust Sellers bravado and squeeze hold outs harder than Bernie Madoff.
Stop pretending you're trading stock. Real Estate is the most illiquid asset on earth after Private Equity.
Posted by mikeg | September 30, 2009 4:25 PM
so what happens when private equity LBOs start to blow up in a few years?
Posted by Noah | September 30, 2009 5:31 PM
Noah, nothing. Nothing at all. People will rejoice that private equities are blowing up because people don't own them. Private equity has become the devil. The only companies that will matter are the media companies because of legal complications of owning too much newpaper/tv/radio in one particular market.
Posted by MeekSheep | September 30, 2009 7:30 PM
Speaking of LBO's I have a stupid question that may not make sense so bare with me. What type of activity is there with LBO's of REIT's right now. Is there any data on that, or are LBO's focused on a different sector of the market?
That said, in NJ we are seeing buyer/seller disconnect all over the place. Positive numbers this summer and I expect fall to be the same, but I do see sellers having the mentality that the market is turning and that more and more are holding firm. I even had one guy the other day tell me that NJ has turned into a sellers market. LOL. My prediction is a 1% drop per month until end of Q2 2010. Maybe conservative
Posted by Scott | September 30, 2009 7:33 PM
Scott - "but I do see sellers having the mentality that the market is turning and that more and more are holding firm. I even had one guy the other day tell me that NJ has turned into a sellers market. LOL"
I am seeing same phenomenon starting again here. Too early to call it, so just talking about it.
my fear: http://www.urbandigs.com/2009/08/equity_rally_may_cause_disconn.html
Posted by Noah | September 30, 2009 8:02 PM