Manhattan Closing out 'Active Season' Strong / Threat of Eurozone 'Event'

Posted by urbandigs

Thu May 24th, 2012 08:47 AM

A: The threat of a Eurozone event is starting to show itself in credit markets, but not to the point where a 'market event' seems imminent. Putting yourself back in time & place, in late 2007 credit stress indicators across the board were alerting bondholders and derivative traders that something nasty was about to happen -- and 2008-2009 was just that. I don't see credit/interbank stress anywhere near levels from 4+ years ago, but I do see the Eurozone threat for the 4th or 5th time now attempting to rattle markets. Credit spreads across high yield (HY), investment grade (IG) and emerging market govt bonds are all wider relative to treasuries -- a recent move which 'feels' kind of like the move down equities had the last few weeks. So its worth keeping our eyes on. Eventually something will happen with Greece and nobody really knows how markets will ultimately react -- either a quick correction and bounce back or a prolonged downturn that feeds on itself until a panic sets in. What we should note now is the selloff in all risk assets and the flight of money into US Dollars & US Treasuries; a.k.a, "risk-off and a flight to safety".

Markit CDX Indexes for HY and IG show the widening spread recently in corporate bonds. Meanwhile, the 10YR US Treasury yield was "6 basis points" from a new record low -- Bloomberg discusses: "Treasury Yield 6 Basis Points From Record Low":

Treasury seven-year yields dropped to a record as euro-area officials argued over how to keep the 17- nation currency bloc together, boosting demand for the safety of U.S. government debt.

Ten-year yields were within four basis points of an all- time low and borrowing costs tumbled to the least ever in Germany and the U.K following yesterday's EU summit in Brussels.

Treasuries will continue to benefit from the flight to quality, according to Robert Brown, president of the bond unit at Boston-based Fidelity Investments, which oversees $1.62 trillion. Ten-year yields may fall to 1.5 percent, he said yesterday on Bloomberg Television's "Street Smart" with Adam Johnson and Trish Regan.

"We are looking at a period of significant volatility," Brown said. "Our number one focus is preserving principal."
These are all deflationary market signals and why investors will start to worry more about 'return of capital' rather than 'return on capital'. We are in that grey area now where the market can shrug this off as another non-event to worry about at a later time, or, when a 8% selloff may turn into a 15%+ selloff that may spark bigger moves in all asset classes. Watch credit and spreads to treasuries on which way we may be headed.

In the meantime, Manhattan is closing out May in spectacular fashion. The numbers don't lie and it is what is so lets talk about inventory trends for Manhattan property.

The Manhattan Daily Market Ticker tells us hour-by-hour market production in addition to the weekly & monthly pace of new deal volume:

ticker_may24.jpg

# of deals signed so far today --> 14
# of deals signed Wednesday --> 84! Yes, that's a lot!
# of deals signed last 7-days --> 313
# of deals signed last 30-days --> 1,296

Ok, so we know Manhattan produced 84 deals yesterday and is producing 300+ deals a week and 1,200+ deals a month. Last May we booked 951 deals so it's easy to say we will blow that # away this May. Last month Manhattan produced 1,164 new deals signed, so activity has also risen from last month.

Here is a chart of Manhattan Monthly Deal Volume so you can clearly see year over year as well as monthly trends (I put an estimate to where MAY's # likely will come in based on the 30-day pace shown in the Market Ticker -- May's # will be published June 1st):

may_dealvol.jpg

Few points:

1. The last 3 months are on pace to produce over 3,500+ new deals -- most of which are still 'pending' and likely will close in the months of June, July, August & September. Understanding the ACRIS sales filing lag, this is why I think today's market strength will reveal itself in the Q3-2012 market report released by the major brokerage houses.

2. Sellers listen up! Manhattan is seasonal and as we get into the summer months of June, July & August, deal volume slows dramatically. It's hard to imagine the market getting 'more active' in 2+ months than it is today so I would take advantage of the action and listen to what the market is telling you in regards to your property's fair market value!

If you have been listed for sale for 3+ months with no offers --> your asking price is wrong
If you have been listed for sale for 3+ months with multiple offers --> you are witnessing where the market currently values your property

It is up to the seller whether or not to hit the bid. The seller broker should be educating their client on fair market value + current market conditions in the broader market and your local submarket.

It's unwise to take a "wait-n-see" sell side approach at this time of year with this kind of deal volume going on! Chances are you will wait yourself into a slower marketplace with much less fish biting at the bait! Sure it may work for a few, but waiting for that perfect buyer to show up in the heat of summer is low risk play.


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