Q2 2010 Report Out - Doesn't Capture Recent Slowdown

Posted by urbandigs

Thu Jul 1st, 2010 12:15 PM

A: With Q2 report now in the books, we have the most recent lagging look at what the market did 3-6 months ago. The story is basically the same, with the usual discrepancies between the largest brokerage firms. Streeteasy is becoming the go-to report only because I trust them the most and the in house tech guys that parse the available data to come up with the most accurate measurement of what's going on out there. The story is basically the same: YoY Sales Surge, YoY Prices Up, and Qtr-to-Qtr Prices Mixed. As discussed previously, Corcoran's report was in fact the least rosy of the top brokerage firms. But what is happening NOW????

What these reports do NOT show is the real time movement of Inventory in the most recent months that basically define what is going on out in the Manhattan real estate market today. That's where the gold really is! The future is real time and the future is almost here!

What I wonder about is how the most recent adjustment in equity markets may have affected confidence in buyers? Where are bids coming in now? Are they high enough to get deals done and a listing status changed from ACTIVE to CONTRACT SIGNED? Are buyers signing contracts or getting nervous from market selloffs? This is what we need to know!

From my real time data, the answer is quite simply: This market has definitely slowed!

Take a look at the Month-to-Month pace of Contracts Signed; updated directly from the brokers maintaining the listings in the Manhattan real estate market:

pending-pace-monthly.jpg

Two things are clear in this one chart:

1) Sales pace was unsustainably strong for Feb-April, during what are normally our most active months
2) The dropoff in sales pace began in late April and continues today

Now, we have to be careful how we interpret this. Part of it is seasonal and to be expected, part of it is a result of equities selling off / negative wealth effect, and part of it is how confidence changed recently with the very active Feb-April months (sellers confidence rose and got anchored to expectations of higher bids seeing comparable units sell fast / buyers confidence started to wane). What we can be sure of is that the market today is not seeing the pace of deals being signed, like we did 3-4 months earlier. This is to be expected for most calendar years come May & June, but unfortunately 2008 and 2009 were not 'normal' calendar years. In 2008 we had the beginning of the wrath of doom from the credit crisis. In 2009 we had a delayed seasonality as fear levels rose and sales volume dropped off a cliff.

The reason we cannot go back farther for this chart is because of The New Dev Problem; where we found a mass upload of 'contracts signed' by sales offices in late 2007-early 2008 for deals that in reality were signed into contract up to 24 months prior. The result was inaccurate data, poisoning an otherwise accurate platform to measure the movement of this market's inventory from one state to another:

"In reality, unreleased units were for sale; they just were not released to the public and had no record created that the unit ever even existed. Therefore, what we have is a situation where the sales teams uploaded a batch of signed contracts in one swoop (for ease) well AFTER the actual contract signed date and leaving us with a new unit whose first history record is set to CONTRACT SIGNED. The result is that anyone trying to measure both active inventory and pending sales will have a problem as a result of how these new developments handled the maintenance of their inventory.

As it is now, we have to pull out all new devs with no prior ACTIVE state from our data so as to not poison all the efforts we made to enhance accuracy for measuring the existing resale marketplace in Manhattan."
That last part is quite important when understanding why we did what we did. I personally sifted through thousands of these 'inaccurate records' and verified that contracts signed in mid 2006 and early 2007 (the height of the boom), were in our broker sharing system and on record for being signed into contract much much later; in early 2008. So, naturally the charts show a surge in pending sales in early 2008 - when in reality the surge was late 2006 into mid 2007. The decision was made to remove the poison.

Moving on, what you need to know is that these quarterly reports are lagging and not necessarily representative of what is happening today in the Manhattan real estate markets. The market peaked in 2007, adjusted in late 2008, troughed in early 2009, progressively improved for the past 14 months leading to a mini-frenzy from Feb-Early April, and slowing down now. It's simply too early to tell where bids are coming in across the broader market and submarkets. I am both seeing & hearing more reports though of buyer hesitation and the data is confirming this.

Add a comment

18 comments

CAPTCHA Image