Equity Markets Jittery Again -- Manhattan Deal Vol Stays High
A: A tale of two markets as equity markets get jittery over the same old concerns while Manhattan continues to enjoy peak levels of new deal volume -- weekly pace of newly signed contracts is hovering between 320-350, as the past two days alone (mon+tue production) saw 130+ new deals across Manhattan get signed! Today we booked another 40+. Its common for the pace of new deal volume to lag equity markets by at least a few months - just think back to 2007-2008, as Manhattan held on until Lehman failed in Sep 2008. But today's Manhattan real estate sector is a very active one and the data suggests a notable shift in leverage to the seller over the last 4-6+ weeks or so. I'm especially curious to see how current conditions may affect future lending rates if bank pipelines get too backed up, or how appraisals come in for deals where bidding wars resulted in offers well over ask. Expect today's market conditions to ultimately be reflected in the Q3-2012 market report released October 1st. For now, lets look at what equity markets are worried about again and how we can tell if/when it starts to impact Manhattan RE.
Major equity indexes traded down over 1% today before rallying back as worries over Greek and the EU once again 'mean something' - concerns over Spain are also worth pointing out. Stock markets are psychotic like that as things matter until they don't...until they matter again - its the markets way of self-cleansing itself of bad debts and mis-valuations and it almost always first shows up in bond markets (corporates, government, asset-backed securities, etc.)!
An example of this would be how the Greece 1YR Govt Bond Yield is at 1,143%!! - a sure sign of the turbulence that likely lies ahead for Greece. At all times, equity markets are trying to discount the potential future impact on corporate earnings and in essence is barometer of investor confidence and their taste for risk assets over the near-medium term.
But what I want to point out is just how far we have come since 2009, and how we are at the height of that up move right now -- this leaves contrarians worried over future risk/reward after climbing a big wall of worry and the optimists who want to continue to ride the euphoric wave.
The EU problems are yet to full out crash our markets -- and now it seems like there will be another round of tests of the markets durability to these known sovereign debt concerns. For this to get Manhattan messy, equity markets need to see some kind of substantial selloff strong enough to impact buy side confidence and bids. One technical indicator of rising sell side momentum is watching to see if the S&P500 crosses its 200-day moving average. Looks like we need another 7%-8% selloff to reach that 200-day moving avg and if we close below it, the markets may be in for a deeper down move than many might otherwise suspect.
Below is a chart showing the S&P500 since May 2009, along with the 200-day moving average in red. The last time these concerns surfaced was August of last year and markets dipped below their 200-day moving average and nose-dived 12%-13% over a matter of weeks (shown on chart below) - since then, its been a gradual reflation back to over 1,400. Take a look:
Manhattan real estate deals take weeks to go from verbal agreement on terms to fully executed contract of sale; when it gets counted as 'pending' on UrbanDigs.com. Here is the latest snapshot of the Daily Market Ticker:
The ticker lets us track:
-- 2 doses of daily updates; both today's deal production and yesterday's #s
-- a weekly pace of deal volume
-- a monthly pace of deal volume
Looking at the monthly pace allows us to see the broader trend and as you can see, Manhattan produced over 1,300+ new deals over the last 30 days! Daily deal volume continues to be very strong during the week, reaching the 40s, 50s, and 60s and sustaining these levels for weeks now. If the market were to feel an impact to a stock market selloff, this ticker will be the first to show it as future deal volume dies down dragging with it the weekly and monthly #s.
So far that has not happened. In the meantime, lets keep our eyes on equity markets to see if EU worries start to 'matter' again as we finish off a very active start to 2012!.