Watch For a Seasonal Uptick in Inventory
A: With a delayed seasonality effect hitting our marketplace due to the recent wave down in prices, we need to keep our eyes on all the listings that were removed from our marketplace over the past two months. Over the past 8 weeks, some 2,321 listings (coops + condos in Manhattan) were taken off the market for various reasons. This does not include listings sold or entering contract. These are listings whose internal status updates were changed by the listing agent from ACTIVE to either POTM (permanently off the market) or TOTM (temporarily off the market). To put that number into perspective, over the same 8-week period we saw 1,624 new listings hit the market and 1,819 listings signed into contract. The net result is a total active inventory reduction of about 2,500 listings. This information is based on one of the internal broker sharing systems and not part of the widget displayed on UrbanDigs.
This is as real time as I can give it to you guys right now until my new system is up and running.
I would argue that our normally active months of JAN-MAY or so was delayed due to the more powerful market forces that were in place during the first half of that period in 2009. Instead of seeing a very busy January-February-March, we saw a frozen start to 2009 as the ripple effect from Lehman's failure made its way through to our local real estate marketplace. As a result, the 4-5 months that usually define our seasonally active marketplace was pushed back; starting in late April instead.
What you guys need to know is that the dramatic reduction in total active inventory is happening for 3 main reasons:
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)
Here are the real time numbers corresponding to each letter above:
a) In the last 8 weeks 2,321 listings were removed from this marketplace
b) In the last 8 weeks 1,624 NEW listings were brought into this marketplace
c) In the last 8 weeks 1,819 listings were signed into CONTRACT, thereby being removed from active inventory from this marketplace
I don't have more data on these trends to chart it out because the system I use to check these trends is very limited and not designed for analytical purposes. But I can tell you that the 4-week trend for each of the 3 metrics discussed is DOWN significantly from the prior 4 weeks! This tells me a number of things that most people watching our marketplace obsessively don't get to see:
LISTINGS REMOVED trend is falling (down 27% compared to prior 4 week period) ---> this is one of a few seasonality effects. As we get passed Labor Day and the upcoming Jewish holidays, expect a significant amount of listings to come back onto the market and fewer listings to be removed. As I mentioned above, we saw 2,321 listings temporarily or permanently removed from our marketplace over the past 8 weeks. Many sellers decide to take advantage of the generally slower summer months to take their listings off the market in an attempt to 'freshen them up' for a new try. Sometimes the seller switches brokers after taking 1-2 months off. The point is that we are getting to the time of year where fewer listings are removed from our marketplace and more new listings tend to come on. New listings usually see a noticeable rise as we get closer to the upcoming bonus season.
NEW LISTINGS trend is falling (also down 27% compared to prior 4 week period) ---> another seasonality effect. During the month of August, fewer new listings hit our marketplace. This usually changes after Labor Day and I expect history to repeat itself this time around. Over the next 4-6 weeks I would expect to see a rise in active inventory that represents not only brand new listings, but, older listings that were removed for temporary reasons.
CONTRACTS SIGNED trend is falling (down 23% compared to prior 4 week period) ---> looking at the real time inventory charts here on UrbanDigs may have led you to believe that contract signing activity has surged again on a month to month basis. Not so. In fact, over the last 4 weeks our market saw 789 listings go into contract compared to 1,030 in the prior 4 week period. This is quite telling. What I can tell you is that the trend for contracts signed has been falling for about 2-3 months now; telling me that the peak activity was during the months of May, June & July following the first wave down in prices. The UD real time charts on these metrics have been especially useful for this down cycle so far.
All in all, this market is still actively trading at the lower end of the discount range from peak based on price point - and the market still seems to be more active than usual for this time of year. The surge in activity was a function of lower prices and higher confidence in the asset class. The slight rebound in prices was a function of removing Armageddon and Fear trades from the table that saw our market naturally overshoot to the downside in February & March. I expect this market to muddle around this new comfort zone for a while. However, I expect the upcoming Q3 report to show relative improvement from the prior quarter in terms of contracts signed & number of properties sold that will likely lead to a media headline frenzy that the 'bottom is in' and 'rebound underway'. I expect Q3 sales to come in around the 2,000 - 2,250 level or so. I will be more interested in the year-over-year trends to see where this market is in the grand scheme of things and where we came from.
Expect continued pricing pressure in the upcoming reports for another quarter or two as lagging sales get flushed through the system and compared to year earlier levels.
Posted by Follower
Tue Sep 8th, 2009 09:06 AM
"Armageddon"? "overshoot"?? I don't think so.
NYC prices are still close to double any arguable equilibrium price.
They are far higher than construction costs, conversion costs, or replacement cost, so if builders thought current prices were sustainable, they'd increase supply and drive prices down.
Sale prices are still extremely high relative to rental investment values, so if investors thought current prices were achievable, they'd be busy converting rentals to owner-occupied and driving prices down.
Meanwhile, demand is constrained by the new discovery that prices can go down, leading buyers and lenders to be less willing to stretch to the limits of affordability.
Expected returns are far below competing investments by all conventional measures, so financially motivated buyers -- including the financial sector employees who dominate Manhattan -- are less likely to want to tie their money up in real estate.
Moreover, most people who bought in the last several years can no longer trade up, since they have lost their equity and therefore their downpayment on the next place.
Manhattan's chief competitors, both local and national, are all getting cheaper just as NYC's wage advantage is diminishing.
And we are in a recession with at least a possibility that NYC will suffer from a permanent shrinkage of its major industry.
Real time trading info is all very well, but don't lose sight of the big picture. Prices remain unsustainably high.
Armageddon is highly unlikely. But a major price drop from current levels is virtually guaranteed. Only unprecedented levels of "irrational exuberance" or unlimited and cheap non-recourse credit could prevent further drops.
Posted by Noah
Tue Sep 8th, 2009 09:26 AM
Follower - i never lose track of the bigger picture. you know that. However, the market is what the market is and right now we are trading in a range down from peak that is simply NOT as fear based and pressured as we were 6-7 months ago. I have seen where some deals happened at fear peak, although few because volume was so low at the time, and trust me deals today are happening at higher levels. Again, it is what it is.
I know many traders out there who are brilliant, called this crisis since mid 2007, and yet they claimed that stocks are wrong and manhattan prices are wrong and should be closer to 1998 levels. Well, I just dont see it right now.
Here is the deal. We had a fierce wave down that was defined by 6-7 months of extremely low sales volume. We fell between 20-40% depending on price point, with higher end getting hurt more due to nature of this crisis. We are at now now and I would say we are trading between 15/18%-30% or so down from peak levels depending on price point. Cant deny it. Its happening. I see it.
Does that mean another wave wont come, of course not. I am simply LESS BEARISH because the process started and prices had a wave down. So I cant be as bearish as I was when this market was trading at peak levels, yet writing on the wall. I cant get bullish because of fundamental concerns, fear of another less fierce wave, unintended consequences of policy actions, and rising unemployment environment here in NYC. This cycle will last years, not quarters, and I expect us to muddle for a while after the first wave down. I never expected a one shot wave to hit taking us down 50%, but I know many did. And they were wrong.
With that said, there is a reflation mentality going on that I dont buy into; but doesnt mean its not out there. It is. As long as buyers get more comfortable with lower prices, those expecting another wave down will have to wait for some type of catalyst to remove confidence in the asset class here. The question is, when will that happen and what will be the catalyst?
Posted by Former Seller
Tue Sep 8th, 2009 12:53 PM
Follower- your arguments are identical to those being made by readers here back in December in January: prices are still to high even after the massive correction, lenders not willing to lend, wages eroding, big picture really bad, increased price competition, industry shrinkage, etc.
-and yet, despite all this there was a surge in buyer demand in late spring. What should this tell any observer? Rationalizing future market movements with the logic you choose is pointless. If your conclusions are correct now, why were they so incorrect 6 months ago when they seemed much more likely to bear out? Why didn't buyers just obey this logic and stay on the sidelines until the market corrected down 70% as many of them argued should happen?
Maybe reflation mentality will dry up and there will be another wave down, maybe it will go flat, maybe even incremntally inflate- but expecting markets to behave rationally is to ignore how markets have historically behaved- and for some here (not saying you), wishful thinking.
Posted by Follower
Tue Sep 8th, 2009 03:05 PM
Former Seller: Some people have been saying this since 2001, when prices first started to hit unprecedented highs relative to the usual measures. Rational pricing always exerts a gravitational pull, but the momentum of "exuberance" can beat rationality for a long time. But momentum works on the way down too -- once people realize that real estate doesn't come with an "guaranteed price rise" sticker, they may become far less willing to tie up their money or take the chance of losing their equity.
UD: Very few people buy real estate as "traders" -- mostly people buy with quite long time frames. For someone trying to decide whether to sell or buy now, the question is less what is going to happen in the next quarter -- who knows? -- but what is likely to happen in the next 5 years or decade. With prices so far above the fundamentals, and exuberance so badly wounded, it is hard to see where "reflation" is coming from or why it should last.
Buyers at current prices need to include in their calculation the strong possibility that they will not see their downpayment again, even in nominal terms, for many many years. For most people, that means they'll be trapped -- a very unpleasant prospect that should make buying far less attractive than it was during the bubble when everyone thought that prices could only go up and the biggest risk was being 'priced out forever'.
Posted by Costa Rica Real Estate
Tue Sep 8th, 2009 04:03 PM
Lower prices is a determining factor for the resurgence of the market, but I guess people is also filled with confidence as we are just stepping out from the bubble
Posted by Former Seller
Tue Sep 8th, 2009 04:50 PM
Follower, you are right: very few people buy real estate as traders- but that just reinforces my point that the effect of rational economic fundamentals is relevant, but ultimately limited. At the end of the day, you may buy a large chunk of GE or AAPL because you believe you'll get a decent ROI. On the other hand, if you strongly desire- or need to live in Manhattan, you're more likely going to buy that 2BR because it's where you want to live, regardless of whether it has a guaranteed price rise sticker on it or not. I'm sure a large percentage of people don't pay close attention to economic conditions or how likely their property will appreciate compared to other assets; they just prefer to own their home rather than rent it.
If everyone in the pool of prospective buyers was concerned about ROI more than the practical need to have a home, I'm sure the market would behave quite rationally and we'd see that ever evasive 'reversion to the mean'.
Posted by In Debt We Trust
Tue Sep 8th, 2009 06:04 PM
Noah,
How does this data affect and/or interact w/the current FHA loan problems? Some people have been calling FHA the next "time bomb" akin to CMBS but I don't see that happening. If anything, Bernanke and friends will create a new program to buy up those loans.
Thoughts?
Posted by Noah
Tue Sep 8th, 2009 06:08 PM
Follower - true, but know that I write here my daily opinions and my real time observations for manhattan real estate. Sometimes people just assume I am day trading real estate, not so. I never condoned that. However, I find that people want to know how this market is changing and where it is trending and like stocks, manhattan real estate becomes a daily or weekly obsession for many; especially those about to buy into it or sell into it.
You cant take away the emotional element that confidence has on the buyer pool. For a while, so many thought Manhattan would never fall. Then we did. So buyers are cautious yet always motivated I find. What I mean is, the depth of the buyer pool in this city never ceases to amaze me. While my buyers are cautious and cant wait for analytics to know what is going on in real time to adjust their strategies to, many deals out there still seem to be happening. So how is this happening? In my opinion, its a combination of lower prices (frozen market saw buyers disappear until prices reached comfort zone) and a raising of confidence in the asset class.
Buyers dont necessarily want to time the bottom, but they do want to get some kind of discount to represent the change in the world since this credit crisis began. If you ask me if I think prices will fall again, I would lean towards YES. Except I dont know when or by how much. Only that it wont be as fierce as the first wave down. But most serious buyers out there usually have some motivating factor that forces them to pull trigger before they are fully comfortable with sustainable appreciation in the very near term. So they buy, and they bid cautiously and leave emotion out of it. None of my buyers expect to flip a property in 2-3 years or expect price levels to be significantly higher than where they buy. They just want to find the right place, at market value, that meets their needs, and the seller is realistic as to where the property should trade. Sometimes they miss a property or two and that feeds the motivation further.
Great topic to discuss.
Posted by Noah
Tue Sep 8th, 2009 06:11 PM
IDWT - doubtful that FHA has a big presence here in Manhattan. I will inquire about that.
And on your 2nd comment, I agree, they wont let FHA get to the point that they could possibly have a liquidity crisis. They will support them like they do Frannie. However, if FHA needs to be bailed out or given hefty injections, that might rattle confidence considering the dramatic improvement in credit. For now, its lets keep the lending engine rolling at any cost to support housing prices.
Posted by Noah
Tue Sep 8th, 2009 06:13 PM
Former Seller - "If everyone in the pool of prospective buyers was concerned about ROI more than the practical need to have a home, I'm sure the market would behave quite rationally and we'd see that ever evasive 'reversion to the mean"
It IS happening for income producing segment of our marketplace which uses basic revenu generating formulas to verify market value - 10-12x rent roll or so. Mixed use properties are getting creamed and so is office space. A cap rate analysis makes valuation cleaner for these kinds of investor friendly properties. Going to find a recent report to discuss this, but I think we need to wait a bit for fresh data
Posted by sideliner
Wed Sep 9th, 2009 07:45 AM
1931 new listings were added to Manhattan inventory today? Given that i'm looking to buy a place late this year or early next, i wouldn't complain if that were true. I wonder how high the total inventory will get by, say, January or February, and how this will influence prices.
Posted by Noah
Wed Sep 9th, 2009 08:18 AM
ha...certainly seems like an error. I have emails into SE team about it
Posted by butterfield
Wed Sep 9th, 2009 09:39 AM
A possible explanation for the 1931 new listings on Streeteasy today: it appears that EVERY in-contract listing at Elliman has been relisted "Listed in StreetEasy, already in contract, by Prudential Elliman at $XXXX."
Posted by Noah
Wed Sep 9th, 2009 09:41 AM
yes, it seems its an elliman data pull issue.