Explaining What Off-Market Trends Are Telling Us

Posted by urbandigs

Fri Jun 17th, 2011 10:23 AM

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!