The August Lull
A: The month of August seemed to top off the record hot NYC summer in dullness; yep, it was that hot this summer. Combine a hotter than normal Feb-April with a slower than normal record hot summer in Manhattan and you get a real crazy market seeing heightened seasonality. Reports of a 'summer uptick' are simply anecdotal reports of pockets of action. Lets look at the full market and see for ourselves.
What people need to understand is that deals are being signed at all times, by all sorts of brokers out there. You have a new broker get a few deals, and to him/her, the market is active. You get a top producing team experiencing a slow summer, and to them you see a slow market. Its all very personal and related to any one agent's lead pool - sometimes I work months to build up enough leads to pull of 3-4 deals in one month. The market is bigger than all of us and should be measured as a whole, not individually, taking into account ALL broker updates from one listing state to another. It is this movement of inventory from one state to another that is so empowering in getting that pulse on the market.
Here is an update to two of the dozens of new charts that will be launched very soon. Please keep in mind the absolute numbers will change upon launch of site and full system regen is performed, but trend will be the same.
MONTHLY PACE OF 'CONTRACTS SIGNED'
MONTHLY PACE OF NEW LISTINGS 'ACTIVE' TO MARKET
A steep tick down for both. A measure of Active to Pending Sales would tell us that the decline in inventory is muting the decline in signed deals - so I need to wait another 4-6 weeks after Labor Day to see if we get more action. If this pace continues another month or two, I'll start to worry about sellers out there that need to hit lower bids to move property. For now, due to seasonality, it's too soon to make the call.
Posted by sandy mattingly
Tue Sep 7th, 2010 09:40 AM
Fun stuff, indeed, Noah!
Posted by Noah
Tue Sep 7th, 2010 10:03 AM
very fun! Thx Sandy. Finally, I cant wait to get this out there.
Posted by Mike
Tue Sep 7th, 2010 10:34 AM
I know I would like to put my condo on the market in the next 6 months however if prices or buyers dont show up and the market continues to look stale I will probably just rent the place out for a year or 2 and reevaluate the market then. Curious if there are alot of others out there like me that are interested in selling their place but are in no rush. Perhaps its more of a sign that there arent many people forced to sell in manahattan at the present time? The option to rent in a very liquid renters market is always a perk for owning in manhattan.
Posted by Noah
Tue Sep 7th, 2010 11:05 AM
well Id certainly wait a bit. The beauty of this new system is you can actually see the market ticking up or down, so you can time your new listing when there is a clear return of activity.
Posted by rootless cosmopolitan
Tue Sep 7th, 2010 11:45 AM
Mike,
"The option to rent in a very liquid renters market is always a perk for owning in manhattan."
But only if the rent that can be fetched covers the costs for owning the apartment. And, in addition to the other costs, this depends on for what price the apartment was bought and how the purchase was financed. I suppose you bought the apartment when prices weren't as high yet, or you paid all cash or with a high down payment at least, if you were able to cover your owner's costs with the cash that came in by renting it out. Otherwise, I have done the calculation again and again for apartments for sale in the current market. Prices are generally way above a level at which one would get a rent break-even, if one has to pay-off a mortgage and interest. Mostly, it doesn't make any financial sense right now to buy an apartment and to rent it out then. Thus, the option to rent out isn't one that is generally available to owners, if it is supposed to be a financially sound one.
Posted by Mike
Tue Sep 7th, 2010 12:25 PM
rootless cosmopolitan
I agree with you're analysis and I am fairly certain most owners get that especially in manhattan. I would also assume those that are "forced" to sell would not be able to carry the apt clear of carrying cost or at a decent acceptable loss rate. Thus those are the people that are selling today or the last year. If they arent being put into a financial predicament that makes them uncomfortable they will just continue to hold and wait out the market.
So I would argue that although you crunch your numbers and alot of the purchases dont make sense by putting 20% down and tax deductions and market rent rates then carrying the cost of the purchase, I am not sure you will ever see that perfect world purchase in Manhattan. I would have to agree they are definitely getting closer to that perfect world today then 2 years ago but I question if it ever is "perfect" in a market as high demand as this.
Posted by vikingal
Tue Sep 7th, 2010 03:33 PM
Mike,
I would count myself as being in the same boat as yourself, and I am sure there are many others. This certainly relates to the ongoing discussion of "shadow inventory," though I still question the impact of shadow inventory given the growing strength (and interest) in people renting. After all, if inventory increases dramatically due to shawdow inventory dumping, why not just continue to rent so that you avoid selling at a depressed price? Of course, the financials underlying your apartment need to be there to do this. However, I would argue that many people in Manhattan do have their act together on this, hence the lower decent from peak prices versus the rest of the country.
Overall, while selling prices may stay flat for a few years, I would say that the recent job creation in NYC over the last few months, and the lower loss of jobs that were forecasted going into the recession, are positive undertones to holding onto your apartment as long as you see fit.
Posted by rootless cosmopolitan
Tue Sep 7th, 2010 05:31 PM
It might be comforting for home owners in Manhattan to believe in it, but I don't buy the "Manhattan-is-special" meme as reasoning why prices in Manhattan wouldn't significantly come down from here over the next years.
If it just was Manhattan, maybe, but price-income ratios or price-rent ratios of the other boroughs are way above pre-bubble normal as well. For instance, the ratio of average price per square foot to median household income * 1000 was around 3 in the Bronx in year 2000. With the Jun - Aug 2010 average square foot price, the ratio was at about 5.6. This implies that this ratio has to come down from here by 40% to 50% to get back to a pre-bubble value. Or are the other boroughs special too and for that reason also immune against what is going on everywhere else in the country, like it was supposedly the case for Manhattan? More probable is that the whole New York Market is just lagging behind, but will go through a trajectory, which is similar to the ones other inflated markets in the country have already gone through.
One would have to assume an overly optimistic scenario regarding the development of the economy under which inflated price-income or price-rent ratios could be sustained. However, it's much more likely that the economy will be in recession again soon, if it's not in one already. There likely won't be economic conditions that are favorable for an inflated real estate market in the five boroughs over the next years. And if the other boroughs come down, it's not really plausible do believe that Manhattan wouldn't be affected by this too.
There is a good chance for those home owners, also for the ones in Manhattan, who believe they just can wait it out for a few years at max and then the market will come back to higher prices, that they will be in for a rude awakening and that they will be chasing down the market. I'm afraid that the temporary effects of the unprecedented government stimulus last year on the economy, the stock markets, and the real estate markets have had a very deceitful effect on the thinking and psyche of people. They have taken the temporary asset re-inflation as something that will be sustained.
Anyway, from my perspective as a prospective buyer I'm quite optimistic that there will be better opportunities than now within the next five years to buy something and to do this in a financially more sound way than it is possible today and that time works in my favor, currently.
Sell now or be priced in forever. -;)
Posted by john
Tue Sep 7th, 2010 06:35 PM
rootless -
I'm neither a buyer or seller but don't how you can possibly compare the outer boroughs to manhattan.
separately, it seems to me that at this point in time we find ourselves at a post-lehman peak for manhattan real estate. the dr dooms of the world (roubini) only (italicized) place a double dip probability at 40% (whereas you claim the dd scenario is almost certain). in the event we are in a Peter Schiff's double dip scenario where the price of gold goes through the roof - to $5000/oz - I might even argue that owning real estate as part of your portfolio could be beneficial.
bottom line, I wouldn't try to time how macroeconomic forces are going to play out if you find a place for the right price and see yourself in this area for years to come.
Posted by Ken
Tue Sep 7th, 2010 07:33 PM
I can see why people would want to wait and rent the place out. They are just buying time, which totally makes sense. However, this action, at most, would keep the housing prices in Manhattan flat. If I get the same leverage and money, instead of using it as a down payment for a house, and put it into something else, perhaps the picture will become clearer. Maybe others can shed some light on why the housing market in NYC will enjoy a 10% increase in home prices, whereas the housing prices of the whole nation would face another decrease of 10%. There are indeed markets where home prices rose *modestly* during the past year, and they are markets which didn't enjoy much of the housing boom.
I have a friend, who thought he was taking advantage of the very low interest rate in Nov 2009 (he thought inflation was coming), got himself a condo. And you know what? The interest rate is even lower now. Again, this is back to Noah's article on the divergence of the equity and bond markets, which I still have no answer.
Posted by MeekSheep
Tue Sep 7th, 2010 10:11 PM
It's funny but I swear the more people I talk to the more I hear the same thing. Noah, I bet you can shed some light on this. The people who might want to sell aren't because they feel the market will reinflate to match their expectations. On the other hand, those that might want to buy aren't because they feel the market is going to do a double dip, allowing them more bang for the buck. The inventory problem is due to an unstoppable object meeting an immovable shield. Five bucks says 3 years from now the housing prices stay the same. +/- 5%.
Posted by Fred Peters
Tue Sep 7th, 2010 11:12 PM
I am not sure I know anyone who believes with confidence that prices will go up 10% over the next year, although the past has certainly demonstrated to us that anything is possible. But if we posit a smaller increase in prices, I would lik to suggest to Mike that a possible benefit of listing the condo for sale sooner is the likely increase in capital gains taxes in 2011. Depending on when, and for how much, you bought tha place, any uptick in price may be offset by a bigger tax bite.
Posted by Google Guy
Wed Sep 8th, 2010 07:46 AM
Searches for the phrases "manhattan real estate" and "manhattan condos" are showing YOY declines for the past 4 months. It will be interesting to see how this plays out in real life.
Posted by Mike
Wed Sep 8th, 2010 10:31 AM
@Fred from what I understand if you sell you're primary residence there is no capital gains unless its over $250,000. For me that wouldn't be the case. Hopefully this doesn't change in 2011.
@Google Guy - Perhaps we are seeing a YOY decline. Rental rates seem to be growing stronger so for me I have alot of confidence if I dont put my home on the market in 2011 that I can command a strong rental rate. Who knows perhaps I turn my condo into a long term 5-10+ year rental, one of the huge benefits of the city. My original point leads to this. I am not looking for a huge upside from here, just a little more life in the sales market. Not all markets of owning property give you that luxury.
Posted by sls
Wed Sep 8th, 2010 11:26 AM
Noah - If you'll forgive me the repetitive adulation (since I've said before that I love your previews of the new site), I just want to say (again) that these new data charting features are really, really cool. Can't wait for the launch.
Posted by Noah
Wed Sep 8th, 2010 12:12 PM
hey, keep it coming and always feel free to disagree with a post or comment of mine. UrbanDigs is all about the community and opinions and talking out loud..referring to the krugman piece that I extended from a zero hedge article.
Thanks again!!
Posted by rootless cosmopolitan
Wed Sep 8th, 2010 02:09 PM
John,
"I'm neither a buyer or seller but don't how you can possibly compare the outer boroughs to manhattan."
My argument is I don't buy that the price trend in the Manhattan market is just decoupled from the price trends in the other boroughs. I doubt that such a decoupling thesis could be supported with historical data. It was the whole New York market that went up during the boom years of the housing bubble. And it is the whole New York market, for which the price-income ratios and price-rent ratios are still inflated compared to the year 2000. And if the other boroughs come down from these inflated levels, and they have to come down a lot to get back to pre-bubble normal, so will Manhattan, although, in Manhattan, everything happens on a higher price level, and also on a higher price-income ratio than in the other boroughs. The difference between the prices in Manhattan and other boroughs and the suburbs can't be limitless large. If the difference becomes too large, there will be forces that bring this difference down again, like people moving out of Manhattan to the more affordable boroughs and suburbs, decreasing demand in Manhattan. Sure, this difference can also become larger with time, if the difference between the incomes of the population in Manhattan and the incomes of the population in the other boroughs increases as well.
As for the "double dip". I don't know what Roubini currently says, but the recession can already be seen in the data, like in the demand for discretionary consumer goods through online transactions, which is tracked by the Consumer Metrics Institute:
http://www.consumerindexes.com/
Hussman issued a recession warning late June based on thresholds for a combination of data sets, which have been exceeded only in cases of a recession for the available sample:
http://www.hussmanfunds.com/wmc/wmc100628.htm
Lakshman Achuthan with the Economic Cycle Research Institute, certainly not a "Dr. Doom", places the odds of a recession at higher than 50% based on ECRI's leading indicators, although he says it's not conclusive yet.
http://finance.yahoo.com/tech-ticker/more-than-50-chance-of-new-recession-says-ecri%27s-lakshman-achuthan-535386.html
So, the statement about the high likelihood of another recession isn't just an opinion. There are data that support it. Sure, one can see many quoted statements in the media, according to which the probability for a recession was low and the economic expansion was going to continue this year instead. However, there I have only seen opinion, but nothing that is actually founded in statistically valid data and analysis.
Also, recession calls like the one by Hussman or by the Consumer Metrics Institute have nothing to do with "doomsday". Labeling such calls as "doomsday-scenario" as it is done by some who dismiss these statements, is just a distraction. For instance, Japan has been in a modern day depression for many years now, with recessions on and off. It's not the apocalypse, though. People are still living their lives.
If there is another recession this year then I doubt it will be supportive for house prices. Recessions exert usually strong deflationary forces. So, unless there are other factors that counteract these forces, prices rather tend to go down. Another recession will also be rather supportive for an acceleration of the ongoing debt deflation in the economy.
"bottom line, I wouldn't try to time how macroeconomic forces are going to play out if you find a place for the right price and see yourself in this area for years to come."
Well, the question is how do you determine the "right price", if not based on metrics like price-income ratio, price-rent ratio, or by calculating what price would allow for a rent break-even, particularly if one takes into account the years to come? Brokers tend to determine the "right price" simply by comparing with other properties in the market for the current state of the market, whether prices are inflated or not and no matter where the market is heading. Therefore, it's always "a good time to buy" for many of them. I consider this a dangerous approach, if one commits a large amount of money for years to come.
Posted by Mike
Wed Sep 8th, 2010 03:00 PM
Rootless
I feel fortunate that around 98% of the pool of buyers do not analyze or think things through like you.
Posted by john
Wed Sep 8th, 2010 03:58 PM
rootless -
enjoy renting for the next 25 years while you compare price-to-income ratios for the bronx against that of manhattan...
sounds more like someone that is not very confident in their earning potential or ability to keep a job over the coming years, which i would say is a better reason not to buy than what you propose in your essay above
out of curiosity - do you happen to presently reside in the outer boroughs?
Posted by anonymous
Wed Sep 8th, 2010 04:29 PM
Mike,
I agree that many of the buyers don't do the analysis rootless may be mentioning, but remember that many of the banks financing the transaction might be doing these calcs, and they control much of the buying power.
I would agree that people generally buy what they can afford based on a down payment and monthly run rate. The price/income ratios can show that affordability is strained even in Manhattan where the population is unique compared to most other neighborhoods. It may not be as reliable in Manhattan, but if it is too far off, it could still mean something.
Even if you don't believe in statistical analysis, I would be cautious in the near term as wall street is not feeling so hot. Unless markets pick up substantially, bonuses are not going to be so great, and layoffs could be in the works. To hold and rent out a property hoping for some small appreciation doesn't seem to be a very favorable risk/reward scenario to me if liquidity is available today.
Posted by anonymous
Wed Sep 8th, 2010 05:45 PM
" but remember that many of the banks financing the transaction might be doing these calcs, and they control much of the buying power."
Because clearly they followed this discipline well the last decade they will do the same in the future? Eventually they will get back to wanting to make deals, I know plenty of mortgage brokers that will help make that deal a reality still.
Posted by m&a
Thu Sep 9th, 2010 10:41 AM
albeit a subsector of investment banking, m&a activity in august was at an all time high, with $300b+ worth of transactions in the month alone. m&a bankers expect to be paid well this year.
Posted by rootless cosmopolitan
Thu Sep 9th, 2010 02:01 PM
John,
I reside in Manhattan. My earning potential is one of an academic with MS and PhD working for a prestigious educational and scientific research institution in New York City. So it's not as great that I could afford to not pay attention to the probability of a potentially large loss when making an investment.
Smug ad hominem comments about my confidence and abilities don't refute what I had written before.
Posted by Mike
Thu Sep 9th, 2010 05:25 PM
rootless-
Curious if the Price of your education (the cost to obtain your PhD from a prestigious institution) divided by your current earnings as an academic made sense when it was all said and done compared to those with other varying college degrees.
Ultimately your P/E ratio vs others?
Posted by Ken
Fri Sep 10th, 2010 10:44 AM
Mike,
P/E ratio of education? How do you calculate that? I paid X amount for my college and now I earn Y amount. Is that simply Y/X?
What's the average?
Posted by Marc Brodeur
Tue Sep 14th, 2010 10:38 PM
Interesting trends. 2008 was much better in NYC than in our market (Phoenix, AZ) transaction wise. Jan 2008 was the slowest month in over a decade here, as was all of 2008 the slowest year of the decade. Your market is trending opposite to ours in number of transactions. Southern California is up significantly this year too.