Quick Pre-Holiday Market Check
A: I wanted to wish everyone a very Happy Holidays and a safe and enjoyable upcoming New Years! Its been another great year for UrbanDigs and 2010 looks to be even more exciting. I can't wait to share with you guys what I spent so much time working on and years trying to secure the right data source to build the tools I think this market so desperately needs! For now, here is a quick check into the pre-holiday real estate market.
The market is still more active than normal for this time of year. What amazes me is the traffic levels and demand that seems to be out there for higher price points. I simply cannot deny it and will continue to try to keep it real; whether it be bearish or bullish for the very short term. In the end, pricing correctly is the most important thing a seller can do right now to take advantage of a healthy buyer pool in a much stabilized marketplace. If anything, I am finding a lack of properly priced quality products in the marketplace today.
Since following the market on a short term basis is so in demand, I have to describe things in relative terms. What I mean is, bids seem to be coming in about 5-10% higher than they did 8-9 months ago, but still 15-25% lower than peak levels - depending on price point. The improvement in bids was documented here many months ago, has sustained itself up to todays marketplace, and is a result of a reflation mentality from the fed's liquidity facilities, guarantees, and zero interest rate policy. Credit is much improved and on fire lately, as the search for yield continues! Stocks are a proxy for everything as bids improved in asset classes across the board.
You know my thoughts on that gravy train ride - at some point it will end and a carry trade unwind will occur. When? Who knows? How fierce? Who knows? Just keep your eyes on it.
As for our market, I can see a few general trends:
1) Listings Removed - I see about 2,146 listings taken off the market in the past 30 days or so. The majority of which were removed in the past 3 weeks as we entered December. This is a seasonal pattern and follows a trend where fewer sellers were removing listings from the marketplace likely as a result of the improvement in bids. I have listings lingering off market at around 11,283 or so - the new site will offer a breakdown of this metric so we can try to pinpoint the shadow inventory trends that encompasses existing inventory removed and not just new development units that are yet to hit the marketplace.
2) Contracts Signed - Healthy. I have 1,089 contracts signed in the past 30 days or so; very solid given this time of year. Contracts signed surged from 550/mth in February & March to about 1,100-1,200/mth in June-August or so as pent up demand from the freeze up period swamped in with lower prices - as discussed in mid-July.
Now, there are a few listings where the broker keeps adjusting the status from CONTRACT SIGNED to PERM OFF MARKET back to CONTRACT SIGNED back to PERM OFF MARKET, etc., over and over and over again. So, we are in the process of accounting for these types of errors in the backend so that trends and data we release to you is as accurate and bug free as possible. Trust me, it's a very tedious process that has taken us many months to get to where we are at now. I'm about 95% confident right now in the data we have and should be closer to 97-98% confident in another few weeks before launch. We will explain everything once we launch so you know up front how we count each datapoint and what flaws might exist due to source data problems.
3) Active Inventory - We have active inventory at 7,787 units as of right now. This represents a 10.2% decline in the past 3 months and a 25.8% decline in the past 6 months.
4) Pending Sales - We have pending sales data at about 4,938 units. These are listings in contract that are awaiting closing. Relatively speaking, pending sales went from 7,500 units or so in early-mid 2008 (a function of the post-peak market), to about 3,250 units in early 2009 (a function of the freeze-up period and buyer-seller disconnect after Lehman), to about 4,938 today. We have flatlined around this level for the past 4-5 months. This means pent up demand surge came and went after the adjustment and the market has stabilized to more normal levels the past few months. Although I would add that the market to me still seems a bit stronger than usual for this time of year, since after Labor Day.
All in all, I would expect minimal activity for the next 2-3 weeks for holidays. The market tends to pick up in mid-January and listings start to come back on around the end of January and into February for the active season. The data will show it, so we will track it!
Happy Holidays all!!
Posted by paulb
Tue Dec 22nd, 2009 01:05 PM
so you are telling us that there are 11K plus apartments waiting to come back on the market? how did you calculate shadow inventory? this seems like a ton, no?
Posted by OT
Tue Dec 22nd, 2009 02:37 PM
Thanks for the great commentary this year, Noah. Look forward to the new tools for the new year. Have a great holiday season.
Posted by Noah
Tue Dec 22nd, 2009 05:32 PM
paulb - well im not saying all 11K are coming back, Im telling you that if you measure listings renoved from market and do some math to figure out at what point in time chances switch from that listing coming back to market or staying off, you can come up with a snapshot in time of listings considered OFF MARKET.
Its possible any of these listings come back at some point in time. We are still working to break this down further and get as much useful interpretations from this very important metric
wont get into our calculation formulas now, will publicly disclose when site launches
Posted by Noah
Tue Dec 22nd, 2009 05:33 PM
OT - thanks OT! Much appreciated and you do the same!
Posted by In Debt We Trust
Tue Dec 22nd, 2009 06:37 PM
This looks interesting.
NEW YORK (Reuters) - For most Americans, the U.S. housing market collapsed about four years ago. For three real estate heavyweights, it's just getting started.
Boutique investment bank Westwood Capital, veteran apartment building owner and manager Gerald Guterman, and appraiser Jonathan Miller plan to buy $1 billion worth of new condominium buildings from struggling banks and convert them into rental apartments.
The venture, Condominium Recovery LLC, would buy whole buildings or large swaths of 50, 100 or 200 units at a time from banks that soon may be forced foreclose on billions of dollars in loans they made to developers.
Its team plans to start buying in New York City and south Florida. In both places, the financial crisis and recession shuttered construction projects in what were among the hottest U.S. real estate markets.
LOTS AND LOTS OF INVENTORY
There is no shortage of inventory. In Manhattan alone, about 6,500 condo units completed or near completion but have not been listed for sale. Add to that new listings on the market, and that figure jumps to 8,500.
In New York City there are about 22,000 condos completed or near completion, but not listed for sale. That's more than 26,000, counting new units on the market.
In the third quarter, new condos comprised 22 percent of sales. However, stripping out contracts signed before the Lehman Brothers collapse froze credit markets, it is more like 15 percent, Miller estimated. At that rate, it would take more than seven years sell the inventory of available units.
Once the developers' interest reserves run out and the property or the bank must write down non-performing loans, those properties need to find buyers.
Guterman thinks this will start happening next year.
If a bank sells its condos at fire-sale prices, others might join in, pushing prices down even more than they have already fallen. That could cause even bigger loan loses, perpetuating the cycle.
Condominium Recovery LLC is eyeing an average 10 percent return, and expects to hold the properties for about four years. Based on market conditions then, it could sell rentals as co-ops or condominiums. or it could create an apartment real estate investment trust.
http://www.reuters.com/article/idUSTRE5BL4GE20091222?
Posted by Jay
Wed Dec 23rd, 2009 11:31 AM
You know what would be _really_ useful? A buyer "inventory" number. And by that I mean how many buyers are out looking. Maybe you could survey a bunch of brokers and tally the number of buy-side clients they had and create an index? (I think an actual number would be close to impossible.)
Anyway, keep up the good work!
Posted by Juan
Wed Dec 23rd, 2009 11:38 AM
It's crazy, walking around our neighborhood, or most any other for that matter, and seeing all the new condo buildings either half-completed or completed and completely vacant.
The Reuter's article posted by In Debt We Trust seems to state what is obvious to anyone who doesn't have his eyes closed: there is a huge amount of new construction that's not on the market. It's problematic to developers, banks, agencies, and prices. Pretend and extend isn't going to work forever.
For this point, it matters much less whether the listing data can be parsed with 95% or 97% accuracy, or whether 116 sellers took their apartments off the market for Christmas and might relist them in February. The important information isn't hidden in the data, it's hidden in plain sight: a bunch of unlisted and unfinished new construction that is not now and never has been listed.
Posted by Noah
Wed Dec 23rd, 2009 11:52 AM
Jay - that is interesting but will be very hard to quantify with a high degree of confidence.
What I would love to really build is a buy side confidence index for our markets. I always wanted that and approached SE about that over 2 1/2 years ago with a whole formula for calculating it that takes into account: sales volume, inventory, rates, equity markets, broker surveys on traffic, and a few other variables I deemed worthy that could affect buyers confidence.
Oh how I would have loved to see how that index fared since mid 2007!
Posted by Scott
Wed Dec 23rd, 2009 04:16 PM
Noah,
Awesome insight as always. I just did some activity charts for Hoboken / Jersey City and sales/pendings are up along with NYC as you mentioned.. You know I'm a loyal reader and I hope that we can continue to discuss macro NYC and Jersey much more in 2010. Enjoy the holidays as well and looking forward to the launch of UD 2.0!
Posted by Ana Maria
Thu Dec 24th, 2009 07:55 PM
A buy-side confidence index would be fantastic! Couple that with a sell-side index ... you think it's too late to ask Santa for that tonight? Still have a few hours left.
Arguably, Shiller's DMM and UMM ETFs could do just that (short and long the national residential housing market) but that's only at a national level. It would be great to have such indices at the city-level, even though you wouldn't be able to distinguish the buyers and the sellers among the investors ...