Explaining What Off-Market Trends Are Telling Us
A: I hope this post makes it out to most of the brokers out there with a presence in the Manhattan sales market. Interpreting real time trends is the hardest part of launching a platform like this. Nobody expects anyone to become a market statistician overnight and a users first experience with new tools are usually confusing and frustrating. Just like with any new service, with time, understanding the signals these tools are engineered to tell you will become more natural. As I chat with colleagues and subscribers, I consistently here how they don't really pay attention to 'Off-Market' trends because they don't quite understand what it was telling us about the current markets. This post hopes to explain what the off market charts on urbandigs.com are telling us.
First, the methodology of UrbanDigs Off-Market Inventory:
A listing is actively counted as "Off-Market" if it meets the following criteria:
1) Changes from an ACTIVE listing state to an OFF-MARKET listing state. Generally this occurs as the listing agent enters a broker status update of TOTM (temp off market) of POTM (perm off market) through the ROLEX sharing process.
2) Remains in an OFF-MARKET listing state for up to 270 days. Once a listing has been off-market longer than 270 days, it is no longer counted in the UrbanDigs Off-Market trends. **We placed this setting at 270 days because we did not want the measure to be too sensitive to real time changes - instead, we wanted to try to filter out seasonality so that true market shifts could be more easily interpreted.
And then the usual UD data cleansing process that removes duplicates, stale listings and other integrity issues that can infect accuracy. So thats it.
Basically, off-market trends are telling us the behavior of sellers! Just like pending sales tells us the pace of buy side demand (behaviors of buyers), off-market trends tell us a bit of the sell-side story. Are sellers failing to get their property into contract and instead choosing to REMOVE THEIR LISTING from the active marketplace?
Most agents keep it simple and only choose to track both supply and demand trends. But off-market trends are the missing piece. In the real world, Active Inventory can and does fall due to Off-Market trends rising; makes sense right, if 1000s of listings all of a sudden are removed from the market then Active Inventory should be pressured to the downside? But if you didn't track off-market inventory, you might mis-interpret the fall in supply as a sign of strengthening demand. So, tracking off-market trends is as worthwhile a trend to follow as any because:
a) in times of seasonal slowdowns, sellers will choose to REMOVE their listing from the market and we will see Off-Market trends rise
b) in times of strength and seasonal upticks, sellers either find a buyer and go to contract OR keep their listing on the market while activity is hot and we will see Off-Market trends fall
c) in times of serious market stress, we will see sellers quickly take property off the market and Off-Market trends will surge - this happened in late 2008 and early 2009. It's almost as if off-market trends are like the vix of Manhattan real estate, rising fast in times of fear and falling low in times of complacency.
Think about it, the seller and the hired selling agent have way more information about the success of the current pricing strategy than anyone else. They know if action is high or not and they know at what levels bids are coming in. It would be wise to use that information to assess current marketing strategies. The rest of the marketplace (the buyers and their buying agents) are left to do their own diligence. If a listing is getting tons of calls and OH traffic, it would be silly for a seller to take the listing off the market.
Selling real estate in Manhattan is a numbers game! Get the most traffic you can into the property, and you raise the potential for both an offer to come in and that offer to be as close to ask as possible; maximum exposure = maximum profit potential.
If the seller gets no action and is unwilling to adjust their price, the next move is probably going to be to take it off the market and wait for another time to re-list.
Take a look at two UD charts that measure Off-Market trends. First, the monthly bar chart showing you the pace of listings removed from the marketplace:
I love this chart because it so clearly shows that when the Manhattan market was at its highest stress levels, the pace of listings being REMOVED from the active marketplace surged (the arrows in the chart point this out). The purple/blue bars represent the first 5 months of 2011; notice how the monthly pace of inventory being taken off the market is down significantly. This tells me that sellers are either going to contract or keeping property active on the market - a sign of strength.
Now look at this Off-Market line chart for the past 3 years:
In the beginning of the chart, you can see the surge in off-market trends as the Manhattan market started to shift as a result of the credit crisis. Levels remained elevated until about August 2009, where the measure started to fall - it was at that point that the Manhattan market was starting its reflation. The blip up in late 2009 was seasonal because you can see a quick reversal in early 2010 - sellers took property off market in December, likely for holidays, and put it right back on the market in January/February 2010. Since then, its been a progressive decline in off-market trends to present day, signaling a strengthening market.
Give these tools time! I will continue to put blog posts up on how I interpret these charts, and if you continue to pay attention and use the tools for your buyers and sellers, you'll start to get real good at interpreting the signals!
Cheers!
Posted by krishurd17
Fri Jun 17th, 2011 11:43 AM
Noah, this is great information. As a seasoned agent in the market, I know 2 things are true 1) the buyer today, for various reasons, is very savvy and as a result, we as agents must stay on top of understanding what drives the market in order to stay in the game and 2) the lack of consistent information systems in our market creates data that leaves any competent person questioning what is really happening.
I feel that your tool helps streamline this data in a way that helps me stay on top of my game and speak intelligently about the market.
The off market option gives me such a better understanding of the REAL seller behavior.
Keep up the great work!
Posted by urbandigs
Fri Jun 17th, 2011 12:18 PM
Thx Kristin! I LOVE what you are doing with Doug over at Heddings Property! Your using the real time tools exactly as I hoped agents would use it. We still have lots of work to do here at UD to get this site where it needs to be for you guys, but all in time!
You do the same and continued success!!
Posted by question
Fri Jun 17th, 2011 12:41 PM
Noah, why not put the setting to less than 9 mos? Maybe 6mos or 4mos? I would think more sensitive to changing conditions is better no?
Also, my original comment never made it up here? Just a heads up
Posted by urbandigs
Fri Jun 17th, 2011 12:59 PM
q - Off-market trends are very seasonal. They tend to rise around end of year as well as in summertime when markets slow down. So I wanted to downplay the sensitivity of the measurement so that it did not lead to misleading interpretations. If I set it to 4mos or 6mos, it would be more impacted by a seasonal slowdown and the moves would be greater - the reason being the total inventory levels would be smaller and the % change moves greater. We did 9 months because it fit the rest of the charts better and we though was a better representation of what we wanted the metric to signal to us. This way, if the markets see a shift that is not seasonal, we should be able to tell.
We might revisit that setting in the future when we launch more real time tools on UD. Right now Im focusing my efforts on researching integrity issues with DAYS ON MARKET trends. OMG! So many issues that are adversely affecting DOM charts. I found 16 issues already. So, we have to engineer our systems to adapt to these integrity issues so that we can build accurate Days on Market stats, and I think that will be most useful as market and submarket barometer. So all in time!
Posted by Lee
Fri Jun 17th, 2011 10:20 PM
Noah, I think you are giving too much weight to off market trends. I think you would agree that most listings go off market because they are over-priced. However, you state that:
a) in times of seasonal slowdowns, sellers will choose to REMOVE their listing from the market and we will see Off-Market trends rise
b) in times of strength and seasonal upticks, sellers either find a buyer and go to contract OR keep their listing on the market while activity is hot and we will see Off-Market trends fall
Are the two truly related? Even in a very hot market, an over-priced property is still over-priced and will not sell. Eventually the seller will take their home off the market. Conversely, in a down market homes that are well priced and getting traffic will remain on the market. The bottom line here is that off market trends simply tell us how many homes were over-priced.
The real numbers will always be the closed prices. The only way to speed up capturing this data would require you to gather contract prices, which will never happen. Track closed sales and you know the direction the market is going. The issue you encounter here is that not all closed sales are equal. If you have three one bedroom coop apartments in neighboring buildings that all sold this week, you cannot simply take the average price per sf and say that is the price per sf the next unit will sell for. Even if the apartments were all identical (size, layout, floor, condition, light, amenities, etc.), if the maintenance of one apt is $200 more than one of the others and $500 more than the third, the apt with the lowest maintenance is worth the most, and the other two need to be adjusted downward for their higher maintenance. How much impact the $200 and $500 has on the price is a function of current mortgage interest rates and how much a buyer can borrow for $200 and $500 each month. One other factor would be tax deductibility. Still we know that most buyers have a good idea how much they are willing to spend each month to live in an apt/home, and that number is a constant for each of the three identical apts, whether that means spending $x on mortgage and $y on maintenance each month, or spending $y on mortgage and $x on maintenance, the sum of the two must be equal.
All this said, I believe the real work that needs to be done is to always compare apples and apples or oranges and oranges. A good agent will choose wisely when looking for comps to price a listing or when recommending a purchase price for a buyer. This just scratches the surface of pricing.
I am happy to talk about pricing any time.
Lee Presser
Corcoran Group Real Estate
Posted by urbandigs
Fri Jun 17th, 2011 10:54 PM
You raise some good points Lee. Let me try to address a few:
1. "The bottom line here is that off market trends simply tell us how many homes were over-priced."
Yes I like this interpretation alot. However, off-mkt trends are the missing link when it comes to shifts in the market. For example, we see pending sales and active inventory make their moves in seasonal upticks and downticks, but when you add in off-mkt trends, you really get the full picture of whats happening. When the market does experience a shift, we should the entire sell side pool expand big time, so even though off-mkt trends surge as many sellers want nothing to do with a piss poor market, tons of new sellers are now entering the market. In the end, its about net gains/losses in supply and demand. Active inventory is a function of a) new supply coming on, b) demand, and c) pace of supply going off-mkt
I guess you can say its a measure of over-priced apts, or how big or small the gap is between the BID-ASK..I like that angle.
2. "Are the two truly related? Even in a very hot market, an over-priced property is still over-priced and will not sell. Eventually the seller will take their home off the market."
True, but overall the market tends to show the general trend and that is what this site is all about. Identifying the trends in advance of everyone else not using these tools, to stay ahead of the curve. In all times, there are overpriced listings. In all markets, there are unrealistic sellers asking unrealistic prices..but at times that 'pool' of listings that are overpriced rises or falls. That is what we are trying to capture and interpret. Looking at history of off-mkt patterns, I make those assumptions. Its nice to have an event like Lehman to compare our new Manhattan tracking platform too and see what happened to the 3 metrics (supply, demand, off mkt) during extreme market shifts.
3. "The real numbers will always be the closed prices. The only way to speed up capturing this data would require you to gather contract prices, which will never happen. Track closed sales and you know the direction the market is going. "
True, and I discussed the acris lag many times. Our UD sales charts are all set to a 90 day lag so that we can accurately represent a months sales data knowing most of the sales have been filed and included. However, simply tracking CLOSED sales will only tell you the direction the market moved at a lag. If you time shift the closed sale so that it gets counted when the CONTRACT WAS EXECUTED, and either u trust the RLS data for that or you scrape the RP tax forms on acris to get the actual contract data (at a lag of course), then you have an accurate representation of price action. Either way, both median and avg price trends will be exposed to outliers and frequency of certain types of products closing in the reported period. I like the SE condo repeat sale index for market action. That fits in real nice with my mental vision of what the Manhattan market has done. That is apples to apples.
4. "A good agent will choose wisely when looking for comps to price a listing or when recommending a purchase price for a buyer. This just scratches the surface of pricing."
Yes. This post was never intended as a comparable market analysis or as a Broker Price Opinion for any specific property. Ive written many posts on CMA and Valuing individual units. Every argument I make surrounds using as close to same unit comp as is possible, usually settling for same line comps and adjusting for floor, time, condition, size (if necessary). So I agree with you here.
I also would argue that every bldg in Manhattan is its own little local marketplace, and its up to the agent and the consumer to understand how to analyze comps (meaningful comps, not units from different bldgs, different lines, etc.) and make proper adjustments to come up with a somewhat accurate opinion on pricing expectations.
http://www.urbandigs.com/2011/04/doing_a_comps_analysis.html
http://www.urbandigs.com/2010/01/valuing_manhattan_real_estate_1.html
http://www.urbandigs.com/2010/12/floor_multiplier_valuing_low_f.html
*floor multiplier discussion
Its never black and white and its more of an art that gets crafted from experience and following the sales data and getting more natural with what this markets' buyers pay up or bid down for. Many brokers can relate to that.
After that, its about 'how r we priced and how is the market changing now', and to stay ahead of that means a platform to accurately track inventory movement w/out the noise of bad or obsolete data.
Great comment, hope to see u here more!
Posted by Sedry
Fri Jun 17th, 2011 11:24 PM
Noah... Great post as always. One question: how do you address listings that go off-market at one brokerage due to a cancelled or expired listing, that then pops up as an active listing a few days later with a new brokerage? And I guess the same question applies to Days on Market stats that, if I understand rlx correctly, restart at 0 when listings switch brokerages....
Posted by urbandigs
Sat Jun 18th, 2011 08:55 AM
Hey Sandy! Im set to work with my engineer today and tomorrow to hopefully finish the PDF white label tool. Let me ask him again and confirm exactly how we handle that.