Our First Glimpse of Rising Price Action

Posted by urbandigs

Wed Aug 29th, 2012 08:07 AM

A: Since all of us are always so curious about which way prices are headed in Manhattan real estate, lets keep today's discussion on price action tools to watch. Lets also define price action as the general trend in closing prices as they become public record giving us the first glimpse of "where bids came in" for deals signed into contract 2-3+ months ago. The first place I look to find quantifiable trend changes in Manhattan price action is the Streeteasy Condo Index. Then I expect the brokerage's in-house quarterly market reports will confirm or disprove what UD real-time inventory trends have been signaling for months and what the Streeteasy Condo Index is showing for sales prices. With the latest info in on the SE index, we get our first glimpse of rising price action as deals finally close and become public record.

I want to be clear I am talking about general market price trends here for all of Manhattan by analyzing same unit repeat condo sales. There are a bunch of ways we can further slice and dice Manhattan up, whether its:

a) by prop type, coop versus condo price trends
b) by price point
c) by neighborhood
d) by bldg service level or age
e) by quality tier (think rooftop PH condos in Tribeca w/ Hudson river views, etc)

The fact is that in Manhattan every building is its own local marketplace and that is where you should focus when a target unit needs to be priced out. So for this discussion lets just keep it simple and focus on the recent uptick in broader market price trends for Manhattan.

Below is a chart showing the SE Manhattan Condo Index from 2005 to July 2012 (using the downloaded data), with a little formatting to the range on the left side vertical axis so the market changes are a bit easier to visualize:


Lets recap the major trend changes this price action index for Manhattan experienced since 2005:

2005 Pre-Euphoria --> This is when sales offices for a host of new dev's started to open up. Inventory was very tight back in these days and I recall buyers' rising excitement over new projects that weren't even close to completion as they wanted in on first level pre-construction prices. Most sales offices would only release batches of units which often sold out in weeks and then was followed by higher prices as sponsors filed new amendments to take advantage of the rising demand for new dev supply. Tight inventory, rising demand.

The Peak --> Supply builds as 100s of sales offices are kicking into high gear. I put the peak of the Manhattan marketplace at deals signed into contract between early and fall 2007. The brewing credit crisis was yet to have any meaningful impact on bids. Growing inventory, high demand.

The Credit Crisis --> All bets are off as buyer confidence plunges and so do bids. Buyers start to price in 'future downside risks' in their bids and deal volume plunges as sellers fear the worst. The best deals were had in the early months of 2009. Rapidly rising supply, plunging demand.

Stabilization --> We see a progressive reflation starting in the lower price points and moving to higher end price points as we go through 2010 and 2011. Buyers start to realize the 'end of the world' isn't happening from Armageddon fears in 2009. After a quick pop off the bottom, Manhattan prices tend to stabilize in a trading range for much of 2010 and early 2011, before the high end sees a big uptick in activity in mid 2011. Supply starts to decline, demand starts to return.

The Recent Up-Trend --> The last 5-6 months saw very strong contract activity with the peak occurring around May. These deals are starting to close and the Index is beginning to reflect the rise in "price action". I still expect this trend to continue as the pipeline of pending sales remains high. Inventory is very tight, demand continues to be relatively strong compared to years past.

It makes me so excited to see the UrbanDigs real-time tools accurately predict future price action trend changes by tracking inventory shifts in this fast paced craziness we call Manhattan real estate. In the end, nobody knows where those bids are on a mass level until the City Register files the closing; and that could take anywhere between 2 weeks to 5+ months. In the meantime, we are all screaming for this information so that we can properly advise our clients and manage both buy side and sell side expectations on market changes that may be occurring in real-time. No easy task.

But this uptrend that started 3yrs ago and went into overdrive over the last 5 months, was easy to interpret using UrbanDigs tools. Now comes the price discovery part -- expect more to come.