A: The last week or so has seen a minor tick up in the pace of new deals being signed in the Manhattan marketplace, but nothing we can call a new trend yet. Its just too soon and 7 days is not a trend make when it comes to measuring housing market performance. The 30-day pace of new deals signed is still below 600, but that is on par with September of 2010; which came in at 583 new deals signed. Since Manhattan is seasonal, we should always look at monthly data on a year over year basis when coming to conclusions on under/over performance. Generally, I find that post labor day first the inventory ticks up and then the pace of demand follows usually in October. This seems to be the case right now.
First, here is a quick check of the Real-time Manhattan market ticker that parses the RLS broker sharing system to push forward only notable daily listing status changes - its as real time as we can get on what is happening in the field of Manhattan real estate today:
Focus on the middle CONTRACTS SIGNED row where I boxed out the 7-day (blue) and the 30-day (red) trend. The tick up is showing itself in the 7-day totals of 173 new deals signed, as the 30-day total remains below 600. Its nice to see we had a chunk of 36 new deals put into contract Yesterday.
Now, lets take a bigger picture look at how far this marketplace came back since January 2009, when we saw only 317 deals put into contract.
The chart below is comparing Manhattan Pending Sales <$1M market (green line) versus the >$5M+ market (red line) - two sides of the spectrum (low end + high end) and how they reflated from early 2009:
Its clear that the low end was the first segment of the Manhattan market to reflate after our markets ceased up in early 2009. The high end took far longer to get going, and started to really get hot in early 2011 - we are still awaiting for all those deals from May/June to close and get publicly recorded to be counted in the quarterly reports. This is one reason why Im on record for thinking that the upcoming Q3 report may show some strength - as lagging high end deals closed after the Q2 report cutoff date of June 30th.
Both the high and low end have ticked down noticeably over the last 2+ months.
This is where we are now and where we came from so that you can put the moves into perspective. We are still waiting to see if recent equity market volatility/Euro concerns will impact future demand for Manhattan property. Last October we saw 749 new deals signed, so lets use that as a barometer for the upcoming month in our markets. Again, right now the 30-day pace is at 576 new deals signed, so we are a good few hundred deals away from remaining on par with October of 2010's production. Time will tell. If that 30-day stays below 600 or worse, if it falls below 550, we will know that buyers are either staying on the sidelines to wait out the recent uncertainty or, that bids are not aggressive enough to get sellers to accept. Either way, its all about the buyers and their bids!
A: The fed clearly is worried about global growth and took some expected yet crazy actions today to try to proactively impact longer term yields. Prior to the announcement, 10YR Treasury yields were at 1.92% + 30YR yields at 3.1%, apparently too high for today's appetites - r u kidding me Ben Bernanke! You see, according to the fed, that is why we are not seeing growth...because rates are too high. You have to ask yourself if you really believe that?
Basically the fed announced that rates will remain manipulated until mid 2013 citing "significant downside risks to growth", and that they will sell their short term treasury holdings (aprox $400bln) and use that money to buy longer dated treasuries in an effort to keep longer dated yields down from already record lows. In addition, they will reinvest maturing agency debt principal into buying more agency securities.
The immediate effect this had was to push up short term yields and push down longer dated yields, in effect flattening the curve. This is very non-bank friendly and I just don't understand how in a bank recapitalization environment like we have been the past few years, you would want to do this when long term yields were already pushed to record lows by natural market forces pricing in future downside risks that we already knew about?
I discussed this on Monday stating, "The article also talks about how the fed can sell their short term securities and buy longer dated ones...what would this accomplish really? First off, that would kill the bank recapitalization effort that is ongoing and second the fed naturally will have much more difficulty trying to manipulate rates at the longer end of the curve - their control is at the short end. "
Yet they did it and here we are. Are we no longer even considering potential future unintended consequences of all this action, this manipulation of markets?
On Kudlow this evening one guy (Jim LaCamp) had it right and argued this exact same point (click the image for the video: fast forward to the 4:18 mark):
CNBC transcript: Jim LaCamp: "look, the further you go out on the yield curve, it encourages risk in a yield curve. Where it flattens out, you are not encouraging risk. At the same time ben bernanke is discouraging risk, he's telling you that the economy stinks, too. This makes no sense whatsoever. Ten years & Thirty years yields are sitting at all time lows. They do not need help from ben bernanke and at the same time, we have the bank downgrades going on. This is a serious problem and nobody yet has talked about europe. the three biggest u.s. banks, their debt to gdp is 39%. The three largest french banks are 250%. not only do we have these problems going on here, things are getting worse in europe."Yes, exactly, rates are not the issue here! Thank you Jim LaCamp for speaking some common sense. If you think this is wrong can someone please explain the other side of this one to me, because I just don't get it.
And here is the quote from today that got me to start drinking an hour earlier, courtesy of Yahoo's "'Very Unusual' Fed Action Fails To Boost Animal Spirits: Dow Drops 285":
For the record, former fed governor Mark Olson says he would have voted for Wednesday's action if he were still a voting member of the FOMC. "I would have because I don't see any downside risk to it," he says. "Should inflationary pressures start to build, it's a circumstance where they can adjust that portfolio just a quickly and reduce the size in a way that won't have long-term negative implications."Oh, no downside risk huh with long term rates down so much already without any fed action? Let me ask you this: WHAT HAPPENS IF/WHEN INFLATIONARY PRESSURES DO RISE, AND US TREASURY YIELDS SURGE AS THIS MASSIVE ONE-WAY TRADE REVERSES? The fed is now going to sell $130bln+ in longer dated treasuries onto the open market while everyone else ditches their longer dated treasuries at the same time? What do you think that added selling pressure in the fed's "unwind" will do to yields if/when 'inflationary' pressures actually do start to build, as this guy says? That is what you call a potential unintended consequence of market manipulation, even if it is years away. If rates surge in the years to come right as we start to turn the corner, you can blame the Fed for that one!
The idea that rates are too high now to promote borrowing and growth is short sighted. Rates are already very low right now from the markets pricing in upcoming pressures to global growth; acting as a natural stimulant to invest in riskier assets. We didnt need this added action unless something else is cooking. I fear maybe the fed worries about something deeper in the near future and is taking this action to both appease markets and put forth policy initiatives to prepare for a possible near term event in Europe. I dont know.
By the way, three fed governors dissented this move: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, all who did not support additional policy actions at this time - bravo to these guys. The list of fed dissenters grows, albeit slowly.
A: Some good stuff from TheRealDeal.com showing what's in store for future new development filed with the Attorney General's office. These numbers may surprise you by how far off they are from 2006's peak, but given the nature of the crisis we just went through and the state of new lending/underwriting guidelines, we should not expect a significant rise in new projects for at least a few more years. Another point we should mention is that Manhattan's inventory was grossly under-inflated during the development boom from 2005-2008. This was discussed on UrbanDigs during development of our real time tracking system and labeled as "The New Dev Problem".
Now take a look at where UrbanDigs has Manhattan Inventory today and the trend over the past 3+ years (our proprietary data cleansing system ensures the highest accuracy by eliminating stale listings and adapting to data integrity breaches unique to Manhattan's RLS database - in other words, 'the data is really scrubbed so only the good stuff is counted!'):
*chart updated, Lehman failure year was wrong on prior chart...
I pointed out 3 items on this chart, and I want to go through them briefly.
1. Manhattan Inventory was under-inflated from 2006-2008: This was the time when 1,000s of new development projects began pre-marketing of the finished building that was years away. A typical 200-unit building would only release a batch of 15-20 units to the public for sale. The rest of the units were held back, but marketed at the sales office/developer's discretion. Once the first batch sold, a new batch was released usually with a price amendment. The issue was that while a 200-unit building was in reality being marketed and all 200 units were for sale, inventory did NOT reflect them - this is known as shadow inventory. As a result, 1,000s of new dev units went uncounted in Manhattan inventory data; resulting in under-inflation of market stats. For a detailed read on this, please go to "The New Dev Problem".
2. Lehman Failed, Seller Pool Swelled, Pace of Listings Removed from Market Surges: After the shock that was Lehman's failure, the pool of sellers that wanted to list property swelled. We saw 1,000s of new units come to market likely for a variety of reasons including fear or the need to liquidate. At the same time, the pace of listings coming OFF the market surged as well; just not as much as the pace of new listings coming to market. It went like this: Between SEPT 2010 - DEC 2010 we saw 7,500 new listings come to market, while at the same time we saw about 3,770 listings come off the market - the net gain was + a few thousand listings minus listings entering contract.
3. Manhattan Inventory is at 7,085 Today: Our system has rules to it, so that stale listings and active listings exposed to data breaches are not counted. So its likely our #s for Manhattan inventory will be lower than what you find elsewhere. Relatively speaking over the last few years, we are at the low end of the range in terms of supply. And looking at the new dev pipeline to come, we probably will stay in this range for months to come.
I simply do not see the desire (the developer/investors) or the structure (the banks/financing vehicles) to support a sustainable surge in new dev units over the next few years. However, its possible we do see a bit of a bounce off this bottom of around 466 new condo units expected to hit the marketplace in 2011.
A; INCONCEIVABLE! Oh, the fed must act huh? Really? Have they not acted already and look at where we are? Everytime stocks fall, there are more calls for the fed to act - to pump up markets, because we got so used to bondholder bailouts, and stimulus/liquidity injections, and asset guarantees that investors threshold for selloffs is non-existent anymore. The backwards logic of the day comes from this statement, "The move markets are anticipating is a new effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply...". Oh really? Because rates are so high right now that businesses and consumers can't get loans?
As Vencini from Princess Bride would say --- INCONCEIVABLE! So if stocks fall hard at the open then we need more fed actions. If stocks rally by the close, then what? We don't need more fed actions? This short sightedness is nuts.
You can't have it both ways. Rates are this low right now, record lows in fact, because the macro environment is deteriorating and uncertainty is rising as Treasury markets price in a global slowdown - not the best environment for consumers or businesses to take on more debt! Yet the calls continue for the fed to get rates even lower so we can borrow. Has it crossed these guys minds that businesses and consumers may not want to borrow in this environment and banks may not want to lend? Europe is falling apart, unemployment is still high, businesses and consumers are still deleveraging, and credit woes still lurk both on and off balance sheets. Risk is OFF and yields on safe treasuries are plunging, and the call is for even lower rates. Puhlease!
Yahoo Finance reports, "Fed Runs Risk of Doing Less Than Investors Expect":
Investors have concluded that the Federal Reserve will announce new measures to promote economic growth after a meeting of its policy-making committee ends Wednesday. Long-term interest rates have moved as if the Fed had already spoken.I seriously have to laugh when I read stuff like this. The "hope" is that even lower rates will encourage companies to build factories and hire? Lower rates than what? Record low rates now?
The central bank is often described as facing the choice of whether to do more to improve the economy. But the anticipatory behavior of investors means the Fed really faces a slightly different choice, one it has confronted often in recent years: whether to risk doing less than expected.
The move markets are anticipating is a new effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply. Yields on the benchmark 10-year Treasury note fell to a record low of 1.88 percent at the start of last week, reflecting the Fed's earlier efforts to lower rates and investors' pessimism about the economy.
The hope is that an additional reduction in rates will provide a little more encouragement for companies to build factories and hire workers and for consumers to buy cars and dishwashers.
Cmon now! Lets at least all agree that businesses and consumers are not taking on new loans right now because rates are 'not low enough'. Rather as mentioned previously, confidence is low, unemployment is high, deleveraging continues, and uncertainty on future tax changes/deficits are the main reasons why companies are not expanding or hiring right now. I mean, what do you want a company to build new factories and ramp up production for anyway? The surge in demand from those still struggling to find a job or sell their house? Companies will re-hire when confidence and certainty rises over future prospects of their business and the economy as a whole! And that won't happen until we get our fiscal house in order and enact policies that help to increase confidence/certainty for small & big businesses.
The article also talks about how the fed can sell their short term securities and buy longer dated ones...what would this accomplish really? First off, that would kill the bank recapitalization effort that is ongoing and second the fed naturally will have much more difficulty trying to manipulate rates at the longer end of the curve - their control is at the short end. The fed should only buy longer dated treasuries if longer term rates start to surge, likely in response to past reflationary policies.
Between bank bondholder bailouts, a transfer of wealth of private losses to public balance sheets, dozens of liquidity facilities and guarantees on anything and everything, we prolonged this deleveraging cycle and manipulated the free markets - undercapitalized and overleveraged institutions that may have failed via pre-packaged bankrutpcy, didn't. And now the dominoes are falling in Europe with what seems like a guaranteed Greek default in some way, shape or form. Unfortunately the bond markets are signaling that we have some more medicine to take in the near-medium term.
A: Got some nice press in both the NY Times and The Real Deal the last few days and wanted to chat a bit about the article in the Times about Buyers' Brokers. In this day and age, I believe its extremely important to not only understand how to navigate the Manhattan real estate market but what the current trends are and how to properly produce a comps analysis to prepare a bidding strategy. Lets briefly discuss.
In the end, all that matters is the target property your making a play for. The other listings' seen should serve their purpose by making you a mini expert on your price point and submarket and to see what unique property features are 'the norm' and which are hard to come by. By viewing 15+ properties, you should know a high quality deal when you see one in your desired submarket.
The NY Times reports, "The Buddy System, or the Buyer's Broker":
IN this do-it-yourself era of online real estate listings, it is easy to find out what is on the market, visit open houses and even research sales data to come up with a reasonable price to offer for a home. So why should a buyer bother using an agent?For my business, I only work with buyers and created an application that I believe focuses on the real meat of the buyer brokers role in the process --> the property price opinion and comparable sales analysis.
In a nutshell: to protect his or her interests in an expensive, often complex purchase that can become even more complicated by the labyrinthine co-op approval process in New York City. A buyer who relies on the seller's agent to handle both sides of the deal may not hear about problems with the apartment or the building, or have a real advocate during contract negotiations.
Noah Rosenblatt, the founder of the real estate data site Urban Digs, is among the agents who focus exclusively on the buy side of the deal.
"The buyer clients who come to me tell me that they're not interested in someone to show them what's on the market," Mr. Rosenblatt said. "Once they find a property they like, my services really kick in at that point."
Those services include providing a market analysis, evaluating comparable sales, coming up with an offer based on the value of features like outdoor space, and handling the back-and-forth of negotiations and contract terms. "I would not allow my client's offer to be used as leverage by a seller who might be entertaining two or three other deals on the side," Mr. Rosenblatt said. "I would put a deadline on the offer."
The buying process begins with an initial property search and ends at a closing table - all the stuff in between may include:
1) Browsing current inventory and understanding what unique property features demand what types of premiums/discounts
2) Understanding current market + submarket conditions today and where we came from in the recent past
3) Producing a Comparable Market Analysis on the target property and adjusting for time, floor, renovations, size and other variables using pre-selected similar sales
4) Producing a Price Opinion given a comps analysis and current market/submarket trends
5) Producing a Bidding Strategy
6) Preparing the full offer for a desired property (offer letter, financial statement, pre-approval from lender)
7) Selling the offer/terms to the Listing Agent/Seller
8) Negotiating Strategy & Handling counter-offers/terms
9) Protecting the offer until Contract Execution (from unexpected bumps in the road, warning signs)
10) Purchase Application / Board Package prep
etc.,...all while managing your clients expectations and keeping them one step ahead of the curve at all times.
So as you can see, simply sending over available listings and setting up private appointments w/ sell side agents is only one part of what is a complex buying process for those with no experience in the Manhattan housing market. There are protocols and standards that brokers are used to in this industry and understanding the 'how' and the 'timing expectations' can be critical to getting a deal done. Afterall, we are 'brokers' and our job is to service the client and 'broker the deal' with our clients interests' in mind. How one broker goes about providing service may differ from another broker. This is simply how I do it and while this may not work for everyone the idea is for buyers to have options on levels of servicing they may require.
In this day and age, buyers have the tools to be able to see whats on the market and listing histories, and sales prices, etc., but do they understand the expected fair market opinion on where the product should trade in today's market given comparable sales? What is the time adjustment? How do we adjust for floor and the difference in light/view? What discount or premium should be given for a renovation or the existence of outdoor space? What if the bid was submitted but no response was returned? What if there are so called 'other bids' on the table, now what do we do besides 'raise the offer aggressively' as the seller agent advises? At what point is the bid 'stretching'? When the deal is accepted and no deal sheet is provided, now what?
These are the questions that often come up in everyday deals in this market, and over time, brokers gain experience and wisdom to ultimately pass on to clients. Every situation really is unique in this fast moving marketplace and expert consulting is what buyers, especially first time buyers, should have access to - you never know when that curve ball might be thrown at you and it's best to have an expert on your side when it does.
A: Lets do a quick check on how Manhattan is faring right now, compared to a few months ago and whether or not the data is signaling seasonal weakness or a buy side pause.
First, lets take a look at the Real-Time Manhattan Market Ticker, available to subscribers only - snapshot taken late last night, September 13th:
As usual, please focus on the 30-day moving window totals for both New ACTIVES and New CONTRACTS SIGNED; boxed out in red. Over the last 30 days Manhattan has seen 1,380 new/BOM listings come to market while the pace of new deals signed dropped to the low 600s.
If you recall, the ticker had the 30-day pace of new deals signed in the high 900s back in late June - clearly we have seen a general market tick down in demand as the summer slowdown took hold.
This is the time (post-Labor Day) when we first see 'new stuff' come to market followed by an uptick in new deals being signed. Since sales data is lagging, the leading indicators for the Manhattan marketplace must come from accurate inventory volume trends.
Now, lets put the 30-day real time ticker stats into perspective by looking at historical monthly data for both supply and demand.
First, lets take a look at the pace of supply - this chart is showing you monthly total of new listings/BOM to hit the Manhattan marketplace over the last few years:
Since real estate is seasonal, its best to measure monthly performance to the exact same period one year prior. That way you eliminate month to month seasonal noise. Looking at this chart, its clear that September generally sees a huge tick up in the pace of new supply to hit the market. Right now we are seeing that tick higher as only 8 days ago I discussed how the 30-day pace of new supply was in the mid 900s - now its approaching 1,400. We still have a way to go to get on par with the past two Septembers'.
Second, lets take a look at the pace of demand - this chart is showing you monthly total of new contracts signed in the Manhattan marketplace over the last few years:
As you can see, August & September tend to be slow months in terms of new deals signed. The tick up usually begins in October and lasts for a month or two before taking a pause again before the start of the new year. In Sept 2009 we saw 761 deals signed, in Sept 2010 we saw 583...so far the monthly pace of new deals signed is in the low 600s (from the ticker above). So we are on track to come in slightly higher than this time last year assuming the last few weeks keep apace.
Conclusions? The pace of supply is still low compared to norms for this time of year, but on the right path. The pace of demand is right around where it was this time last year. Nothing out of the ordinary here to report as equity markets deal with the European sovereign debt/banking crisis.
If Manhattan were to experience a hit, we would see:
a) pace of demand sustainably fall (as buyers pullback bids)
b) pace of supply surge (seller pool swells as new sellers try to sell out of fear or necessity to liquidate)
c) pace of off-market trends surge (casual sellers won't list in stressed markets)
The math formula for the trend of supply is something like this: Total Active Supply + the pace of new stuff coming onto market - the pace of listings being removed from market - the pace of listings entering contract + the pace of listings in contract failing to close and coming back on market - the pace of listings going stale due to lack of agent updates + stale 'active' listings being updated and confirmed as 'active' again
At the end of the day, its the net gain of this math that determines the trend of Manhattan Active Inventory!
A: While talk of low interest rates and how its a great time to buy hit media outlets, readers should know why we are seeing market turbulence that is resulting in rising uncertainty. It is flawed to think about low interest rates while dismissing general confidence, as the two are inter-related. Rates may be at record lows, but sales volume across the nation is severely pressured due to macro economic factors that are flooding US Treasury markets with money that simply wants to be returned. Right now, its about return of capital not return on capital. In my opinion, confidence trumps lending rates every day of the week and twice on Sunday. If it didnt, we would see a mad rush to buy real estate to take advantage of low rates. If you want to know what is at the center of this current mess, look at the Eurozone and specifically Greece, as something is cooking.
Holy Batman, 1YR Greek Govt Bonds are now yielding just under 98%! Its possible that a sovereign default and Eurozone shakeup is closer than many would like to admit. Courtesy of Bloomberg:
You cant make an argument on low lending rates being a great time to buy when rising uncertainty and declining confidence are at the other end of the equation. Confidence trumps lending rates and when it comes to real estate markets, its all about the bids. As markets play this cycle out, how are buyers adjusting their bids as equities fall and a negative wealth effect takes hold? The markets will do what the markets want, regardless of us having a discussion about it - so lets at least try to understand what is causing this mess and how it might play out.
CDS on Sovereign debt is something to watch as the cost to insure bonds against a default rises. Businessweek reports, "Bank, Sovereign Bond Risk Surge to Records on Greek Debt Woes":
The cost of insuring European financial and sovereign debt rose to records after Juergen Stark said he will resign from the European Central Bank's Executive Board and Greece's debt woes deepened.Just prepare yourself for some surprises (emergency bailouts, outright default, Eurozone unravelling starting with Greece, EFSF, etc.) as this situation plays out. Sovereign debt haircuts are coming.
"A Greek default could accelerate the bank deleveraging process," said Alberto Gallo, a strategist at Royal Bank of Scotland Group Plc in London. "Balance sheet losses and rising risk premia could force banks and investors to sell other assets. In an illiquid market, this could be a fire-sale." The Euribor-OIS spread, a measure of banks' willingness to lend to each other, widened to 82.3 basis points in London, the highest since March 2009 and up from 73.95 basis points yesterday.
The Greek default probability, which is based on a standard pricing model, assumes investors would recover 40 percent of the bonds' face value were the country to fail to meet its obligations within five years.
Swaps on Portugal climbed 60 basis points to 1,126, Ireland rose 20 to 856 and Italy was up 24 at 458, CMA prices show.
A: The summer slowdown should be, and I stress should be, coming to an end as historically August is one of the slowest months for new inventory to come to the active marketplace. In terms of the monthly pace of demand, August & September tend to be the slowest months in the calendar year and this year seems no different. In my experience, sellers take their unsold listings off the market in July & August only to put them back on the market post Labor Day for a second try. The brief time off is supposed to 'freshen up' the listing; listings tend to get stale after 3-4 months and no price reductions. So, September historically tends to be a good month for new and old inventory to come back on to the market, and right now, we need the supply!
Sellers --> make sure to talk to your brokers about the proper pricing strategy using selected comps in your building that most closely match your property. Once you start going outside your building to justify a higher asking price, you are introducing more variables into the equation which ultimately degrades any comps analysis. So, as you interview potential listing brokers who show off their marketing skills and personality, also make sure they have a sound pricing strategy using relevant comps. In the end, pricing right is most important as the market ultimately dictates value!
With that said, we now have the ability to measure with a high degree of accuracy how many new listings are coming to market every day and every month with the UrbanDigs real time tracking system. If we were to add up the total new listings to hit the Manhattan marketplace every month, it would look something like this chart (I squared out the months of August & September and averaged them out so you can see the sharp contrast):
As you can see, over the last 4 years the month of August saw an average of 1,113 new/back on market listings to hit the marketplace. Over the last 3 years the month of September saw an average of 2,110 listings to come to market. The defining day is Labor Day as the usual trend is to take the listing off the market or hold off marketing a new property during the summer, and then list the market for sale in September.
The UrbanDigs Real-Time Market Ticker is confirming this trend so far, with 83 new listings to hit the marketplace today alone! Take a look:
BLACK BOX --> Shows you the daily count of new listings to come to market today in an ACTIVE state, so far 83 listings already came to market in a clear sign that it's back to business on Day 1 after Labor Day; and there are still 1-2 more updates left in the day. The 30-day moving total of new ACTIVEs is only at 955, so we have a long way to go if we are to reach the 3YR average of over 2,000+ listings to come to market this September.
RED BOX --> Shows you the 30-day moving total of new CONTRACTS SIGNED, in this case its at 628, down significantly from the 900s and low 1,000s back between March through June. Remember, this ticker was designed to show you the market tick ups and downs in real time; and that 30-day column is what subscribers should be monitoring.
But take another look at that first big bar chart above again and this time focus on the purple bars (2011) versus the red bars (2010) for the more defined trend -- Manhattan has seen declining year over year new monthly supply for about 11 consecutive months now. This has put continued pressure on Manhattan Active Supply, which is now around the 6650 level; that's down 16% in the last quarter, down 7% over the past year and down 11% over the past 2 years. To put that into perspective, Manhattan Active Supply hit a high of 9,524 on April 3rd, 2009 as the height of the crisis hit our marketplace.
The data doesn't lie and this market certainly is not pressured by excess supply right now. Sure there are those plain vanilla apartments with high price tags attached to them that are just sitting, but there is also a lack of high quality well priced units right now with those desirable features that buyers tend to bid up for; think city/river views, private outdoor space, unique layouts, etc..
The last 3 months looked like typically seasonality to me where we saw:
Pending Sales decline 22%
Active Inventory decline 16%
Off-Market Trends rise 23%
Even in the face of rising volatility and falling stock markets, we saw a decline in supply. This is important to note because if our markets were to experience a shift down in price action due to external macro factors, we should see a surge in active supply. Makes sense right? In the face of fear and liquidation needs, the seller pool in Manhattan should swell as sellers that never planned on selling start to list their apartment on the active marketplace for whatever reason.
Remember what happened in the 3-month period after Lehman failed in September 2008, where the Manhattan markets saw:
Pending Sales decline 51%
Active Inventory rise 16%
Off-Market Trends rise 4.5%
In times of stress, we should see a) rising inventory, b) rising off-market trends, and c) plunging pending sales trends at the same time sustained for 3-4+ months. Just like we saw in late 2008 and early 2009.
In times of seasonal slowdowns, we should see a) declining inventory, b) rising off-market trends and c) declining pending sales trends at the same time - and that is what I see right now.
Equity markets are rattled, but its simply too soon to go out and say that there is a shift down in price action in the works. The uumph from a very active high end market from March through June should also be reaching its full impact on our industry's quarterly sales reports soon; so I wont be surprised to see a decent Q3 report in terms of median price trends. If Q3 does reflect most of the high ends action from earlier this year, there won't be much uumph left for Q4s report down the road given what Im seeing in the data right now for the high end over the last 3 months.
A: It seems that the worries of a few years ago regarding the effect of a changing wall street and future regulation post credit crisis are starting to happen now. All those wall street jobs associated with investment banking divisions tied to the mortgage securitization 'profit machine' are severely pressured. Now more than ever wall streeters have to worry about what they are bringing to the table for the firm. As for those holding deferred stock that vests soon or over the next year, ouch! Take a look at the stocks of these banks and IBs and its the markets' equivalent of a clawback on past deferred bonuses tied to stock. I'm starting to hear about continued less cash and more deferred options for awarded bonuses and that the always desired longevity bonus is not a guarantee for this year. Lets discuss.
Make no mistake about it, fixed income bankers will see the worst of the bonus cuts/layoffs this year. All those sectors of wall street that should never have existed but did because of the housing/credit bubble, are under serious pressure to perform. And if they dont perform, headcount is reduced. Thats the reality on wall street post crisis.
Meanwhile, those that are producing are seeing higher base salaries and lower cash bonuses. If 2010 was about 2/3 cash and 1/3 deferred with potential for longevity bonus, 2011 looks to be about 1/3 cash and 2/3 deferred w/out the longevity bonus. These are the ramblings Im hearing about from my old wall street contacts; so Id love to hear from some wall streeters out there on what your hearing?
Here is the news so far on planned wall street layoffs:
Credit Suisse to axe 2,000...
UBS to layoff 3,500; 50% in investment banking...
Barclay's cuts 3,000 job...
Bank of America could cut up to 10,000; hit Merrill Lynch unit...
Goldman and Morgan Stanley announced cuts too, but nothing as drastic. And HSBC is looking to shed 30,000, but that is globally. Europe is seeing a bloodbath when it comes to investment banking layoffs and the lawsuits from housing agencies to big banking institutions for 'misrepresenting the risks" for 100s of billions of packaged asset backed securities (ABS), are just beginning to take their toll on the industry. Remember, when it comes to the banks its all about capital, leverage and liquidity and Europe's banking industry is under the heaviest pressure right now; dragging US banks down with it.
Back to our markets. Prior years bonuses that were tied to stock performance are getting the equivalent of a clawback right now with the recent pressure on bank shares. Think of all the deferred compensation tied to stock prices that are vesting now. Take one look at the XLF and its easy to see why what was awarded back in 2010 may not be worth as much as originally hoped today. Bank stocks are down between 10% and 40% from a year ago.
Bonuses are one variable in the ever complex equation of how wall street ultimately affects the Manhattan real estate markets. While the numbers may be down and the layoffs continuing, there are still plenty of high paying jobs and solid bonuses being handed out that will be used to buy property in this market. In my opinion, investor confidence tied to equity markets and volatility play a much bigger role when it comes to immediate impact on the Manhattan marketplace. As of now, we had plenty of volatility and a scare or two with equity markets around the globe; but nothing nearly as eventful as what we saw in late 2008 and into early 2009 causing a temporary 'disappearance of bids' for property. Put another way, if equities rally 10% from here by early 2012, it won't matter much if overall bonuses are down slightly from last year; the Manhattan market will continue to function. Time will tell.
As long as Gold is trading around $1,900/oz and 10YR US Treasuries are yielding below 2% all is not well, and I'll continue to be more concerned that the markets may have another round of fear/volatility left in them. It seems clear that its risk off right now and that US Treasuries are pricing in another wave of slowing global growth; its very likely we are in a recession right now that will be called later on by the NBER.
Personally, I rather the markets purge hard now and get it (bad debts exposed, over-levered under-capitalized banks/institutions fail) out of our system already so we can restructure and move past this debt deflationary episode faster and on better footing. Kicking the can down the road only prolongs this whole process. A fed engineered backstop and proactive reflationary policies to so called "calm" markets is not the making of a strong foundation for future economic growth and job creation. We still have some time and unintended consequences to deal with before we get through this cycle.
Until then, bonus talk is more of a media effect than anything. Instead, focus on credit, and equity markets (possible negative wealth effect of another equity selloff) and general confidence towards risk assets as more of a clue to how the Manhattan housing market might trend as this Euro-bank/debt situation plays out. How are buyers adjusting their bids in this changing environment? Are sellers hitting lower bids? It takes 4-6 months minimum to see the ultimate sales prices so lets keep our eyes on real time volume trends in the meantime.