Preparing for the Q4 Report / Happy Holidays!
A: I just wanted to take a moment to wish everyone a very Happy Holidays and upcoming New Year! May 2012 be a safe, healthy and prosperous one!! The Q4 Manhattan report is due out January 2nd and will be powered by sale closings that took place between October and year end; deals that were likely signed between late July and October! Always keep in mind the two major lags on closings data: a) it takes 2-4 months to go from contract signing to closing, and b) it takes weeks if not months for that sale to be filed with the city register and publicly recorded. Lets take a peak at how real-time trends in the Manhattan market over the last 3-4 months may impact this upcoming Q4 report that so many use to interpret the current state of the market.
Flashback almost 6 weeks ago to November 14, "Looking Ahead to Q4" and you got my early predictions on how the quarter may shape up:
"The pace of newly signed Manhattan deals started to slow from its peak in July and eventually bottomed out in October. The pipeline of 'pending deals' today is significantly lower than 3 months ago leading to the conclusion that Q4 sales volume will most likely be much lower than this past Q3. I would also expect slight qtr-to-qtr drops in both median and avg price action given the makeup of deals waiting to close for Q4 - i.e., all price points saw a decline in pending sales during Q3. "Whenever you are attempting to interpret how the current market is doing, the answer will vary depending on how far back you are comparing it to. For example, I can say the following statements about the state of the current market and have all of them be accurate:
**The market today is trading at a weaker level than it was during the summer of 2007
**The market today is trading at a stronger level than it was during early 2009
**The market today is trading at a weaker level than it was in early 2011
**The market today has ticked up from sluggish levels in September & October
All of these statements are true because current trends are relative to the start point in your comparison. So when preparing for a new quarterly report release and attempting to interpret how the market is today compared to a past point in time, usually we focus on:
1. Year-over-Year trends - to factor out seasonality
2. Quarter-to-Quarter trends - to get an idea of price action given latest sale closings
This discussion will focus on quarter to quarter trends for Manhattan. Since sale closings are so lagging and reflect a marketplace from 4-6+ months ago, we must look to current Inventory Trends (shifts in inventory trends such as supply and new deal volume, a.k.a. pending sales) for a clue on how the market is doing right now.
Back on Nov 14th when I wrote the last discussion on the upcoming Q4 report, I compared closing volume with pending sales to see how the pace of all Manhattan new deal signings might impact future sales volume. At the time (click here for that chart/discussion), sales volume was at its highest levels for 2011 reflecting the very strong market that we experienced back in early 2011 - remember, a rise in new deal volume today will take 4-6 months to impact final sales #s! That is what powered such a strong Q3 report and the rise in both median/avg price trends that came with it - all those high powered deals signed in March/April/May/June closed in July, August & September fueling a strong Q3 report that was released October 2nd.
The Q4 findings will report on sale closings for October, November and December that get filed before the reports publication date. Sales volume for these months are dependent on new deal signing trends for July, August, September and October. So in order to understand how the Q4 pipeline of closings may play out, we should look at pending sales trends from July to end of October:
Click here for larger chart. Forget what is happening in terms of new deal volume in November and December. Production for those months will not show itself until the Q1 2012 report is released in early April. This is what I mean when I say things like, "quarter to quarter trends may not jive with how the market is doing right now". This is also the biggest reason why a market like Manhattan needs real-time tools to track segmented market trends and why readers should be educated on what the quarterly reports are actually reporting on. If you want to see what may lie ahead of you, don't look in your rear view mirror!
Now, lets take a bigger picture view of how the leading indicator for Manhattan, Pending Sales, is trending compared to the verifiable ACRIS Sales Trends; remember that the UrbanDigs ACRIS Manhattan Sales trends are set to a 90-day delay to allow time for lagging sales to roll in. If you are confused by the ACRIS Delay and why we engineered the metric this way, please read the discussion "A Glimpse Into The "ACRIS" Closed Sales Lag" written back in March.
I would comment on the #s in the chart above in the following way:
1. The rise in pending sales reflected the surge in new contracts signed from early to mid 2011; especially the higher end of the Manhattan market. Subscribers can see monthly contract signings here.
2. That rise in pending sales in early and mid 2011 ultimately fueled a strong Q3 report as those deals eventually closed. The rise in the red line reflects the increase in daily closings filed with the City Register at a lag to pending sales. The latest tick we show for Manhattan sales pace is a level of 57 closings a day back on September 21st - which still reflect Q3 levels of action. For sake of accuracy and to eliminate the need for future revisions to this data, we set the sales volume chart to a 90-day lag.
3. The only way to estimate Q4 closings accurately is by looking at the UrbanDigs Pending Sales trend. The trend highlighted here should represent the future direction of Q4 sales volume (the red line). In this case the leading indicator predicts a noticeable downtick in quarter to quarter sales volume for the upcoming Q4 report.
I only discuss broader market trends for these quarterly discussions, but the UrbanDigs system does let you get much more granular to track specific areas and price points across the island. Here are some examples of how subscribers can use UD to further break down these trends and follow markets such as:
- The TriBeca $2-$5M Condo market
- The SoHo $1-$2M Condo market
- The Upper East Side $1-$2M Classic 6 Co-op market
Last year the Q4 report showed a sales volume decline of 14% from the prior Q3-2010 report, with median price declines of 5%-7% or so. This year I would expect steeper sales volume declines from last quarter with similar median price declines. To me, today's market is a tick or two weaker than it was earlier this year. April, May & June of 2011 marked the peak of the progressively reflation we enjoyed for 2+ years that started in early 2009. Since then, we have ticked down in volume and price action. I see todays market trading around late 2005 to early 2006 levels in most price points. Expect a slow market around the holidays and new year, with action coming back towards the end of January. As is usually the case, we should first see new inventory come on in January followed by an uptick in deal volume in February to kick off 2012's active season.