Will Sovereign Debt / Carry Unwind Ripple Into Manhattan?
A: 2/3 of my biggest fears for 2010 seem to be rattling markets. Its clear that Sovereign debt concerns in Europe triggered the selloff after what seemed to be an endless rise upward for all asset classes since early 2009. As equities get hit we are left to wonder if this will ripple into Manhattan real estate? My feeling is that it has to, but considering where we came from it should not be a shock to see our markets cool off a bit for a while.
So the trigger reveals itself (sovereign debt concerns / dollar carry unwind) and the markets start their adjustment. Another 5-7% down in main indices and you start to see trading momentum, margin calls, and nervous retail investors start to really power the markets. As I see it now, it looks to me like the S&P 500 just crossed below the 200-day moving average - not the most optimistic of technical indicators!
With the VIX at 44.67, up 200% in the past 4 weeks, prepare yourself for a rocky ride. This is the kind of environment where buy side psychology can change fairly quickly - so my eyes are open. At this point, I don't see buyers running to the sidelines and the market data continues to show strength - buyers are still signing contracts!
I will say this --> "Considering where we came from 14-15 months ago and the improvement in our markets, it would be more than normal and seasonal if we start to take a breather for a few months. So, Im expecting sales volume to lighten up from the 1,100-1,200 deals signed pace we sustained for the past few months."
I'll also say this in regards to upcoming Q2 & Q3 reports --> "Considering the lagging nature of these reports and that the Avg & Median Sales Prices in most major reports revealed the downturn in Q2/Q3 2009, I would expect the next two quarterly reports to show Y-o-Y price gains - largely a function of being compared to the worst reports of 2009"
As time goes on, the market improvement noted here will be filtered through. Which always leaves the new question being, 'What is going on in the markets TODAY'! Well, today I see nervous markets and that could mean less-aggressive buyers if this trend sustains itself.
Buyers may want to take advantage if competition backed off of a desirable and well-priced property; and the seller is ready to go.
Sellers should keep in mind the improvement this market had, not get greedy, and choose to move property sooner rather than later - that means making sure your pricing strategy is right as we head into the slower summer months. It's still too soon to tell definitively if something deeper is going on, but I'll certainly let you know if the data shows any major changes.
Posted by Topper
Thu May 20th, 2010 02:34 PM
It seems strange how Manhattan seems to be so disconnected with what's happening on Mainstreet. My understanding is that nationwide real estate purchases plunged in the first two weeks of May with the end of government incentives (Mortgage Bankers Association). In addition, new permits have also dropped sharply...contributing to the drop in this month's Leading Economic Indicators. But Manhattan does seem to be continuing to party on.
Posted by Mobile-noah
Thu May 20th, 2010 02:51 PM
Yep, manhattan tends to do that. But as we saw in late 2008 and into early 2009, when it adjusts it does so in a dramatic way. We used to have Manu discussions on whether a future slowdow would be fast and furious or long and drawn out. I was in the drawn out camp. I think we are seeing parts of dns game starting across the world. Ijust wonder if it occurs in an orderly fashion or if the world gets scary again like it was in early 2009. People forgot how scary the systemic risk was. So how does this play out and where are we when the dust settles?
Posted by Mobile-noah
Thu May 20th, 2010 02:52 PM
Oops, dns should be "end" as in end game
Posted by Eastvillboy
Thu May 20th, 2010 05:20 PM
Richard Russell of the Dow Theory Newsletter has this to say:
If I read the stock market correctly, it's telling me that there is a surprise ahead," Russell wrote. "And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead."
"Do your friends a favor. Tell them to “batten down the hatches” because there’s a hard rain coming," Russell warned.
"Tell them to get out of debt and sell anything they can sell in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, ‘How the dickens does Russell know—who told him?’ Tell them the stock market told him."
Posted by Noah
Thu May 20th, 2010 05:31 PM
I def hear talk of deleveraging..but then again, whenever the markets do these types of moves you hear this kind of talk.
As to the totally different country call, ehhhh, not so sure I buy into the end of the USA chants. It was way scarier in Feb 2009, in my opinion, when nobody knew what bank may fail next and if a systemic collapse could actually happen. The question now to me is whether this is something that we must go through as markets balance out looking for equilibrium OR if all the CBs are starting to really lose control of the situation and cause another liquidity crisis. I think for now its part of a carry unwind and major unwinds in currency arena. But who knows. Maybe something else is cooking that nobody has mentioned yet. China certainly is telling us that global growth over the 2nd half is likely to be slower than what markets priced in already. And markets in Europe seem to confirm this concern.
Posted by alittleworried
Thu May 20th, 2010 05:58 PM
Stocks falling apart with no near term relief in sight. This will impact the NY RE market. People are loosing mega $$$ in the last 2 weeks alone. There goes the downpayment...
When stocks recovered from their March '09 lows, Manhattan began to firm up it's prices. Now as the stock market continues it's downward spiral, sellers will soften and we'll be seeing aggressive price reductions. Ie: Williamsburg (way overpriced)
Money will be coming out of Manhattan RE as sellers are less optimistic about the short term future and will get the ball rolling down hill.
Two months ago I was on the fence about buying into NY. Now, I'm looking for dramatic price drops. Chop, chop, chop.
I'll be expecting to hearing from the RE bulls :)
Posted by Fred
Fri May 21st, 2010 11:16 AM
Market has corrected to the downside, negativity is now too high, so expect a bounce. the question remains are we in a secular bear market or not? and as always, it depends. there will always be good investments that remain uncorrelated to the overall indices. as for real estate, even if NYC has "bottomed", it doesn't mean there will be any net appreciation in values. there are many headwinds still, unemployment being number one and state deficits a close second.
Posted by In Debt We Trust
Fri May 21st, 2010 12:25 PM
Noah,
You ever look at the Commitment of Traders report? Only 3% of the money is bullish on the EURUSD. Looks like a short squeeze is being set up. I'm already seeing it on the Globex June call premiums.
With only 2 weeks to go until Opex (June 4), I sold a few OTM vertical call spreads on the Euro to help make up for the losses in vix puts. The 50 MA is 1.32 and seems to be solid short term resistance.
Posted by OT
Fri May 21st, 2010 01:58 PM
Good piece, Noah - I am personally diversifying my portfolio by picking up a short sale condo in the Carolinas. About 60% down from peak prices, good tenant, cash flow positive day 1. 15 yr mtge at 4.5%, can't beat it!
Posted by Thisson
Fri May 21st, 2010 02:26 PM
My plan is to buy property in 2012 or so, based on the expected timing of arm recasts/end of foreclosure moratoria.
Posted by Mbt
Wed Jun 2nd, 2010 10:37 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by coach handbags
Fri Aug 13th, 2010 04:20 AM
Sellers should keep in mind the improvement this market had, not get greedy, and choose to move property sooner rather than later - that means making sure your pricing strategy is right as we head into the slower summer months. It's still too soon to tell definitively if something deeper is going on, but I'll certainly let you know if the data shows any major changes.