July in the Books -- SE Condo Index Starts to Reflect Past Market Strength

Posted by urbandigs

Wed Aug 1st, 2012 10:58 AM

A: With July in the books, let's take a quick peek at how this 'typically slow' month performed. We must remember that UrbanDigs' tools are showing us inventory trends as listings come to market, go into contract, close, or are removed from the market. If you are looking for the latest #s on Manhattan price action, I would refer you to the Streeteasy Manhattan Condo Index - which is kind of like the Case-Shiller for Manhattan. I think this repeat-unit index on Manhattan price action is in the very beginning phase of an uptrend that will continue for another 4-5 months as past deals close and become public record. Lets discuss.

Manhattan produced 952 "new contracts signed" in the month of July. This is:

- down 12.7% from June
- up 33.5% from July of 2011

With July finished, we should note that the last 5 months in Manhattan produced the following # of "new contracts signed":

July --> 952 new deals signed
June --> 1,091 new deals signed
May --> 1,298 new deals signed (highest on UD record)
April --> 1,164 new deals signed
March --> 1,213 new deals signed

That is a lot of deals over a 5-month stretch and most of these are still waiting to be captured and counted in the market reports we follow so closely. This is why I am confident the Q3 & Q4, as well as the SE Condo Index, is yet to fully reflect just how active the first half of Manhattan has been.

All of this is happening with less inventory coming to market every month.

For the month of July, Manhattan managed to bring 1,140 "new units/back on market units" to the marketplace. This is:

- down 13.5% from June
- down 2.3% from last July

Here is an interesting stat:

If we look at Monthly new inventory that Manhattan produces, only once in the last 22 months did we see a year-over-year rise in "new supply" to come to market!
This tells you that the current tight inventory levels have been a story in the making since late 2010! This did not happen overnight! Serious buyers who have been watching the market since then have not seen a sustained rise in supply at all. You can imagine how this impacts the mentality of a serious buyer when they do in fact find a property they love in their price point. That has been the story of this marketplace for the last 5 months as both new buyers + those who have been waiting/monitoring, came out with a frenzy between mid-April and early-June.

Add it all up and your basic Manhattan ACTIVE SUPPLY (blue line) vs PENDING SALES (red line) trends over the last 2 years looks like this (chart below does not require subscription):


This shows you where we are right now in terms of supply & demand, and where we came from. We would expect the torrid pace seen a few months ago to slow down as we get into the heat of summer (happens every year!), and that is what seems to be happening now; noting that current deal vol is still higher than what we typically see for this time of year.

Finally, lets discuss Manhattan price action. It takes time for real-time inventory trends to translate into changes in price action. For example, even though the bottom of the market after Lehman failed was very early 2009, most reports put the 'bottom' closer to the end of 2009. This is due to the lag between when the deal was signed and when it closed. In the field, we know that: WHEN THE DEAL WAS SIGNED TRULY REFLECTS THE MARKETPLACE AT THAT TIME - NOT MARKET CONDITIONS WHEN THE DEAL CLOSES.

If you view how market conditions were at the time of the property's actual closing, you are interpreting the wrong market conditions! It should always be 'how was the market?' when the deal was signed into contract!

I think Manhattan already experienced its peak in terms of price action back in May and early June. Those were the times when multiple offer situations were happening everywhere and buyers were submitting "gap up" bids to get desired property. While the market is active right now, I don't see these kinds of situations nearly as much.

The Streeteasy Condo Index is the only tangible tool I see out there to accurately track Manhattan price action -- subject to the delay of deals closing.

Streeteasy Condo Index RIGHT NOW --> 1.941
Streeteasy Condo Index in JANUARY --> 1.890
Streeteasy Condo Index JUNE 2011 --> 1.900
Streeteasy Condo Index NOV 2009 (stated bottom) --> 1.790

So, this index is saying that today's marketplace is roughly up 8.4% since the bottom in late 2009, and slowly ticking up since January. I expect this to continue for another 4-5 months as past deals close and populate future #s in this index. Just understand that what's going on in the field at that time may be very different than what the future reports are telling us on what already happened in the past! That's where UD reports come in.