Is Manhattan Getting 'Cranky'?

Posted by urbandigs

Tue Dec 15th, 2009 10:17 AM

Quick Note: With the holidays, my clients and working more than part time on the new site I won't have much time to write here for the next 3-4 weeks. I'll do my best to keep posts shorter and to the point though so at least I can try to keep you updated on what I am seeing in the Manhattan market real time.

A: Interesting discussion on Streeteasy.com a few days ago, discussing whether or not sellers are cranky? Given the time of year and what we just went through, I figured it might make for a good discussion here. Are sellers cranky? Are buyers cranky? Is it the media's fault? Lets discuss.

cranky.jpgManhattan real estate is always a topic of interest. I find that even if you are a buyer or seller that is not interesting in transacting in the very near future, you still have a desire to follow the market and read the real estate sections of the NY Times or other to 'stay in the loop'.

While I am just one man in a very big market, I'll try to give some thoughts on WHY both buyers and sellers may be cranky:

CRANKY BUYERS?

Buyers may be cranky because of these two main reasons:

1) Declining Inventory - My new backend systems have active inventory around 7,810 or so right now. We spent many months tweaking and spot checking our new data feed and fixing many bugs that were affecting the real time status of each listing. We have over 180K records and over 13M status updates going back 6 years, so you can imagine the job we had to ensure that accuracy and quality of the data was very high.

Looking at where we came from, I see this active inventory down 25.7% over the past six months alone. The reason was a combination of listings removed from the marketplace and the strong pace of contracts being signed. In short, the market was active for properties that were priced right OR where the seller was reasonable in terms of hitting a market rate bid submitted.

When buyers have trouble finding adequate options in their price point that meet their needs, they tend to get frustrated.

2) Improvement in Bids - The recent lows from the adjustment we had occurred during the months of February, March & April of 2009. Those were the so-called fear trades I discussed here often. Since then, the market has gradually and sustainably priced OUT fear and bids improved just like they did across all asset classes. This is known as a reflation trade and I can't deny it. Since the adjustment I was looking for in late 2007 and early 2008 took place, I became significantly less bearish on Manhattan property prices.

Buyers are frustrated because the fear trades only occurred over the course of a few months and that bids improved so quickly and continued to do so right up to today's' market. Every buyer wants a deal and every buyer has a hard time buying into the fact that they have to raise their bid to get a deal done. While trades are still occurring noticeably below peak levels in 2007, bids have noticeably improved in all price points.

CRANKY SELLERS?

1) Sell-side Optimism Outpacing Improvement in Bids - This is a psychological force that I discussed around August - which was about 3-4 weeks after I first started to see out in the field here. It takes two to tango, so if sell side optimism outpaces the improvement in bids submitted by buyers we will see another period of slower sales - and we all hate that! Well maybe not the buyers but then again if sellers do not see bids in their 'perceived acceptable range', they are likely to remove the listing from the market and try again at a later time. By the way, my new data shows a huge surge in listings removed from the market in September of 2008 - now why would that be????

Sellers may be cranky because they are seeing healthy traffic levels, tons of private showing requests, receiving multiple bids on their property but not near levels they feel is appropriate given the reflation that has occurred in other asset classes. Reports from brokers, media, and seeing most of their competition enter into contract likely re-inforces this optimism that the perfect buyer with the strong bid is just around the corner. That optimism may cloud the sellers thinking from working with a perfectly good buyer who submits a solid market rate bid that may be just a few percentage points off from being accepted. Sellers should know that it is all about pricing right OR being reasonable when a market rate bid is sent in.

2) Media Effect / Uptrend in Contracts Signed - Between reading reports here on strong activity the past 6-7 months, seeing streeteasy listings go to contract, and reading the NY Times articles stating that "Bidding Wars Resume", why wouldn't sellers expect to get much more for their property?

You can't deny the affect this all has on the average seller - you know, the seller that really is not pressured by financial turmoil or forced to sell real fast for personal reasons. Going into the mind of the seller, if you were affected by this media effect and the traffic is there but the bids aren't, you may tend to get cranky!

My $0.02: Everyone should just calm down. Sellers should be happy that this market has proven to be as resilient as it has when faced with a crisis as severe and wall street centered as we just had. Buyers, while in hindsight probably wished they bought at the height of fear, usually do not want to bid when things are outright scary out there! Hindsight is 20/20 and right now I see a market that stabilized quite well considering the nature of this crisis. If I was a buyer, I would feel safer and more secure buying in a market that saw a healthy adjustment in prices but is not imminently facing Armageddon.

Sales volume has been unseasonably strong and has been solid for about 7-8 months now. Its normal for listings to be removed from the market and for new listings to not come to market this time of year! The last few weeks in December usually is slow and boring, so why get cranky? I would expect more listings to come back on starting in mid January in anticipation of more buyers getting serious about pulling the trigger in the first 4-5 months of the year. Until then, crank down!

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