The Hottest Year Since '07

Posted by urbandigs

Fri Aug 17th, 2012 11:32 AM

A: Ok the year is not over yet, but at this point I can confidently say that this market is quickly shaping up to be the hottest market I have experienced in Manhattan real estate since the peak back in 2007. This is a combination of sustained new contract activity, declining inventory trends, and "price action". Out of these 3 micro market forces, only "price action" is measured at a lag as we wait for price discovery on deals that were signed months ago. Therefore, all the activity from April through July should start to reveal itself in the upcoming quarterly reports. Expect these reports to show positive price trends..

Lets get right into the data and put the pieces together on where Manhattan is right now and where we came from. I am a big fan of keeping it simple, so lets look at what Manhattan is producing on a monthly basis over the last 3 years; both new contracts signed and new supply coming to market.

MANHATTAN MONTHLY NEW DEAL VOLUME SINCE 2009 (contract activity)

aug_dealvol.jpg

Conclusions: I chose 2009 as the start point for this monthly bar chart to show you just how far Manhattan has come since the height of the credit crisis and how long the market has sustained recent high levels of new deal volume. As a seasonal marketplace, the months of March through June typically sees the highest levels of deal volume throughout the calendar year -- but this year, the months of March through July have blown past prior years production! Most of these deals (either still pending sales or closed but not filed by the City Register yet) will eventually get filed, become public record, and populate the quarterly reports. Since I am a buyer's broker working on the front lines of Manhattan real estate I can tell you that today's marketplace, while still active, is not as "frenzy-ish" as it was 2-4 months ago -- but overall, this is the strongest 6 months of action I have seen since 2007! The chart shows this month-to-month "tick-down", but we must acknowledge that compared to the same period in years past we are still solidly outperforming; and August so far looks to continue that trend.

Let's move on to monthly supply trends since 2009.

MANHATTAN MONTHLY NEW SUPPLY SINCE 2009 (listings new to market + back on market)

supply_aug.jpg

Conclusions: If it were a few months of declining monthly supply that would be one thing, but what we have seen since 2009 is entirely different. Try to wrap your head around this as you view the above chart:

OF THE 43 MONTHS OF NEW SUPPLY DATA SHOWN ABOVE SINCE JAN 2009, 35 MONTHS SAW YEAR OVER YEAR DECLINES.
Since September 2010, Manhattan only had 1 month where we saw more supply come to market from the prior year same period. In other words, there has been a sustained trend of "less stuff" coming to market for 3+ years now!

Today's tight inventory is not a recent thing, and rather has been a work in progress for years. This impacts the psychology of buyers that have been waiting, watching Manhattan real estate since the 'sh*t hit the fan' in 2009. To me, these buyers have been thinking along these lines:

-- 2009, "no way I am buying Manhattan real estate until it falls 50%..."
-- 2010, "I don't buy into this rally, it can't last..."
-- 2011, "wtf!, where are all these bids coming from! I'll wait until things change and I have more options..."
-- 2012, "that's it, I'm starting to believe this market is the real deal..."

I've had a number of old buyer clients finally pull the trigger and buy in recent months -- taking years to rebuild confidence. Sellers are you listening? This is not a market to try to time a new listing. If you know you are going to list your property for sale, I would get it up while deal volume remains at very high levels and inventory trends reach their lowest point since January of 2008!! Take a look:

MANHATTAN SUPPLY SINCE 2008 (actively updated inventory)

suppl_augu.jpg

I've been singing this tune since April and while it gets boring writing about the same thing, the data is what it is -- and in regards to real-time inventory trends, its strong! A few thoughts as we go forward and future reports reveal just how hot the market got:

-- When the Q3 report comes out October 1st, will the market continue to see bids and deal volume at levels seen earlier in 2012? The media effect of a very strong market is yet to be determined.

-- With inventory so tight I would think brokers have excellent ammunition when pitching new sellers. But I am wondering how this might affect pricing strategy? Will sellers be tempted to price too high as strong reports come out and strong bids for comparable properties ultimately close and give us price discovery? Can the market sustainably absorb listings if sellers keep lifting asking prices and anchoring themselves to recent strong data?

-- Will we see stalled development projects come back to life as future Manhattan reports are digested and the #s behind these projects start to make more sense? I am especially curious to see where "new projects" trends go from here, I would think only up. Will this ultimately change the trend in declining supply that we are so used to? Will the market be able to absorb higher asking prices if price trends do rise noticeably?

-- Finally, whats with the narrowing wall street compensation fears, EU sovereign default fears and U.S. "fiscal cliff" fears? So far all have been a non-event as the data confirms sustained market strength for Manhattan real estate. In regards to wall street comp, I think that is a force that will gradually impact Manhattan for years rather than a 1-time sharp impact that many expected. So far, the depth of wealth interested in Manhattan property has proven to be too big a force for narrowing of wall street compensation and its impact on high end sales. In regards to an overseas event or US fiscal fears, it only matters when our equity markets start to care about them again. Who knows when that will be. As long as equity markets are juiced by the fed/govt, bids will come in for Manhattan property. Its only when we see a 15%-20%+ sustained correction in stock prices that we see deal volume in Manhattan come to a noticeable halt as buyers sit back and sellers try to cash in before any impact. So far we haven't seen a downturn turn into anything really worrisome; but time will tell how long that trend continues!




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