Q3 in the Books -- So where are we now??

Posted by urbandigs

Fri Oct 5th, 2012 10:03 AM

A: With the biggest firms sending out their Q3_2012 reports, let's check in on how Manhattan has performed in the latest quarter and what's happening out there right now.

First a couple of quick stats from the UrbanDigs' real-time system that tracks Manhattan inventory trends (subscription req'd for links):


-- Manhattan saw 1,537 new listings come to market in September
a) This is down 16% from last September's total new supply
b) This is up 50% from the prior month

-- Manhattan Active Supply came in at 5,646 on Oct 1

a) This is down 13% from the end of Q2
b) This is down 22% from exactly one year ago


-- Manhattan saw 750 new deals signed into contract in September
a) This is up 31% from last September's total deal volume
b) This is down 20% from the prior month

-- Manhattan Pending Sales came in at 2,536 on Oct 1
a) This is down 19% from the end of Q2
b) This is up 38.5% from exactly one year ago

CONCLUSIONS: Over the last 3 months, Manhattan supply is down 5% while Manhattan pending sales is down 20%. Clearly the market is not as active as it was back in April, May or June yet we continue to outperform on a year over year basis. In other words, considering what we are used to for this time of year the Manhattan market continues to be very tight in regards to inventory and quite active in regards to new deal volume. Over the last 30 days, the market has seen an uptick in new supply of 11% or so which is consistent with seasonality post Labor Day.

Now lets move on to price action and what the firms Q3 reports showed. I like to look at median price trends over average price trends due to the lowered impact of outliers on the general trend.



The #s change from firm to firm but generally speaking it looks like median price trends have been rising month to month, but are down slightly from levels seen last year. This is largely due to the "type" of apartments that have been closing since Q3 of 2011, compared to this year. The easiest way to show you this is by looking at a chart from UrbanDigs breaking up pending sales by price point - (chart link):


Notice how the high end saw a surge in deal volume in mid 2011 which ultimately impacted Q3-Q4 #s last year. Whereas, this year we saw a broader rise in pending sales powered mostly by the lower end, especially the $2M and under price points which is now showing up in the reports. This is impacting YoY comparisons, especially for Average Price trends which are more exposed to the high end outliers.

Which takes me to the Warburg Q3 market report published by Fred Peters:

"First, a word about the deals themselves. The conventional wisdom about summer sales did prevail when it comes to dollar value. While the market was extremely active in August, most of those deals were not big deals. Those big deal buyers actually ARE at the beach. But all summer long we have seen acceleration in the market for $2 million and under.

Equally interesting, and more unexpected, is the acute lack of inventory throughout the sales marketplace."
In my opinion, both median and average price action measures have their own unique flaws; mainly exposed to what types of properties close & when plus the impact of higher end deals that affect average price trends. If we looked at median price trends compared on a year over year basis, we would conclude that today's Manhattan RE market is down a few basis points over the course of the last 12 months.

Yet if you ask any buyer out there today who is struggling to find quality inventory that is also priced right, they would say "no way are prices down over last year". Just the fact that we have 22% less product to choose from puts more pressure on buyers to find that perfect value play.

This is why I like to look at the Streeteasy Condo Index, which is a repeat unit based regression analysis index that attempts to track Manhattan price action without the variables of mixing low end & high end, walkups & f/s building sales, simplexes & lofts. Rather, the index focuses only on how a same unit sale has changed over time and keeping as many variables as possible constant. This, in my humble opinion, is our best measure when trying to answer, "How is the Manhattan market trading today versus a year ago, or 3 months ago" -- which is what we are all after anyway.

SE Condo Index today --> 1,996
vs 3 months ago --> +2.8%
vs 6 months ago --> +5.6%
vs 1 year ago --> +5%
vs 3 years ago --> +10.2%

In Manhattan, every building is its own unique marketplace. I can't stress this enough. I personally do not focus on median or average price trends and would rather look at the SE condo index when trying to interpret market changes over time. In the field, when a target unit is identified either for a buyer or a seller I would prefer to analyze in-building sales trends for comparable units to see what someone bid for a highly relevant comparable apartment in recent months. If the data is lacking and recency is not to our benefit, Id rather do a time adjustment for 1yr than look at a 'less relevant, but more recent' sale to the target unit that would require a # of adjustments -- that's when the SE condo index comes into play to determine how today's market has changed from say 1 year ago and allowing me to focus on the more relevant, yet older comparable sale.

I still expect the pipeline of pending sales to produce a strong Q4 report, and lets not forget that there are probably 700-1,000 sales that closed in Q3, but have not yet been filed by the City Register -- see "A Glimpse into the ACRIS Sales Lag" for more on this topic. Those lagging sales will also populate the Q4 report that comes out in January.


Corcoran Market Report Q3_2012
Elliman Market Report Q3_2012
Halstead Market Report Q3_2012