How to Interpret The Trend: The Anatomy of a Chart

Posted by urbandigs

Wed Jan 18th, 2012 01:26 PM

Share |

A: Interpreting real-time Manhattan charts could at times be very confusing, leaving us to wonder what the ultimate market signal is that we may be missing. Between positive and negative correlations and seasonality, are the charts telling us that the market is weakening, strengthening or simply 'bouncing around'? Enter Ana Maria Sencovici, agent at Douglas Elliman and publisher of The Apple Peeled, who had the great idea to discuss "How to Interpret The Trend: The Anatomy of a Chart" here on UrbanDigs. I knew a long worded discussion with numbered points might be difficult for some to digest, so it was Ana's idea to visualize a basic Manhattan chart and simply circle different trends with an explanation of the market signals it may be telling us. A thousand thanks Ana for the help in putting this discussion & visual together!

Lets take a simple look at Manhattan Pending Sales vs Active Supply trends since January of 2008, and see how we can break down different trends over the last 4 years:



The basic trend types as outlined in the above image:

#1 The Positive Correlation - occurs when both supply and demand trends rise or fall together.

When they are rising together its a sign of a pickup in general market activity and usually a moderately strong market signal. We usually see a positive correlation in the first 4-5 months of the calendar year as new supply comes to market and buyers step up deal signings.

When they fall together its a sign of broader market sluggishness as both the pace of supply & demand decline. When sellers lose confidence that they can secure a strong big in the current marketplace, they have a tendency to remove their listing from the market. Those that must sell for whatever reason will make up the bulk of supply as those testing the market fade away.

#2 The Negative Correlation - occurs when both supply & demand trends are in opposing directions. Generally indicates an ongoing shift in the marketplace either to the upside or downside:

Positive Market Signal: when supply falls but pending sales rises
Negative Market Signal: when supply rises but pending sales falls

#3 Off-Market Seasonality - occurs when supply falls sharply but the pace of demand stays relatively constant.

Might indicate a slight leverage advantage to the seller as supply tightens up, but more than likely it is a general market pause as sellers use a holiday break or slow summer market to "freshen up" a listing. As supply falls, many buyers tend to pause as well until more inventory comes back to market.

#4 Gap Narrows - occurs when one measure outpaces the other and effectively "closes the gap" between the two. Could indicate either a positive or negative market signal:

Positive Market Signal: when the rise in pending sales outpaces the rise in new supply and may eventually cross if supply falls enough
Negative Market Signal: when the rise in supply outpaces the rise in pending sales OR the fall in pending sales outpaces a fall in supply. Turns into a more negative signal as the lines cross if pending sales falls enough

There you have it! I'll hope this generates some questions, especially if my conclusions need editing? Would love some opinions as interpreting the Manhattan trends is what this site is all about!!