Ringing in the Manhattan New Year / Rates to Surge??

Posted by urbandigs

Fri Jan 4th, 2013 09:54 AM

A: Manhattan rings in 2013 with 4,495 active listings marketed for sale by brokers in the Rebny Listing Service, and 2,334 units in contract awaiting closing. I would look back at 2012 for Manhattan residential real estate and call the year 'the strongest since 2007'. The story is really all about the sustained decline of inventory with strengthening levels of new deal volume. Add it all up, and Q4 market reports from the big firms are all confirming what the real-time UrbanDigs tools have been saying all year long. Lets discuss the year in review and touch on the recent surge in 10YR treasury yields and whether that may ultimately drive lending rates higher.

First, lets take a broad look at how Manhattan-wide Inventory & Demand trends have fared over the course of 2012:


So, 2012 saw Manhattan inventory drop from 6,319 units on market Jan 1st, 2012 to 4,495 units active on the market right now. We also saw the number of deals 'in contract - awaiting closing' jump from 1,936 to 2,334 that we see today.

With inventory so tight and demand not only holding up, but strengthening, its no doubt that leverage is in favor of the sell side for quality property that is priced correctly. In all real estate markets, its all about pricing. An ask is just an ask, and if a high quality product hits the market at an inflated asking price then the sell side won't experience the traffic or demand that the data seem to be conveying to us. Thats why its extremely important for brokers and their seller clients to be cognizant of building trends and pricing the apt based on relevant comparable sales. Otherwise, the sell side will be disappointed. Price right, price realistic and the market should produce traffic/bids. If it doesn't, re-check your pricing and marketing efforts.

On a neighborhood level below 96th, here is a list of the top performing neighborhoods by Pending Sales Performance in 2012 (strongest to lowest):

1. Tribeca --> pending sales up 54.2% in 2012
2. SoHo --> pending sales up 25% in 2012
3. Lower East Side / Union Square --> pending sales up 24.8% in 2012
4. Upper East Side --> pending sales up 24.1% in 2012
5. Midtown West --> pending sales up 22% in 2012
6. Upper West Side --> pending sales up 16.4% in 2012
7. Midtown East --> pending sales up 16% in 2012
8. Battery Park City --> pending sales up 13.3% in 2012
9. Murray Hill / Kips Bay --> pending sales up 3.7% in 2012
10. Chelsea --> pending sales up 1.1% in 2012
11. Gramercy --> pending sales down 8.2% in 2012
12. FiDi --> pending sales down 21.4% in 2012

Manhattan is in desperate need of inventory so I hope this message is getting out to potential sellers as we head into the 2013 'active season'. I can't think of a better time to list a Manhattan property for sale since the 2007 peak.

Fears of a EU breakdown, an Asian slowdown, Fiscal cliff, etc., still exist but clearly are not impacting Manhattan real estate the way some thought it would. The reason is because there has been no selloffs yet! Nothing has gotten in the way of stopping demand for Manhattan property. Its been a progressive 4-year reflation now and we are sitting close to the highs of that long move. Two macro events that would disrupt this trend are:

a) a stock market selloff -- excluding unexpected disasters, a stock market selloff of say 20% or more is guaranteed to push potential buyers of Manhattan real estate to the sidelines. Serious buyers tend to either re-think how to price in the 'uncertainty' of the future into their bids or move to the sidelines altogether. Sellers dont want to make rash decisions so they either say no to these lower bids or remove their listing from the marketplace until things calm down. The combination drives pending sales lower and off-market trends higher -- exactly what happened in mid/late 2008.

b) a surge in lending rates --10YR treasury yields jumped from 1.59% to 1.94% over the last 30 days. We really dont know how our markets will react if/when rates rise noticeably, but there are new warning signs that this may start happening sooner rather than later. While lending rates are derived from movements in the mortgage bond markets, in low credit stress environments there is also a relationship between 10yr treasuries and lending rates; albeit at a lag. Right now I see yields on both 10yr treasuries and mortgage bonds surging.

Bloomberg is reporting, "Mortgage-Bond Yields Soar to Highest in Four Months on QE Doubt":

Yields on mortgage securities that guide U.S. home-loan rates jumped to the highest in almost four months as the minutes of a Federal Reserve meeting signaled the central bank's bond buying may end this year. A Bloomberg index of yields on Fannie Mae-guaranteed mortgage bonds trading closest to face value rose 0.07 percentage point to 2.34 percent as of 3 p.m. in New York, the highest since Sept. 12.
If history is any guide, lending rates will rise at a slight lag to these two market forces. So it begs me to ask the question, what happens when the conforming 30yr rate is 4.5% instead of the current 3.5%? What happens when the jumbo rate is 5% compared to the current 3.875%? We all knew rates couldnt possibly stay at record lows forever; yet the sustained surge in rates that many predicted is yet to come to pass. Time will tell, but for those that are in contract and expecting to close within 60 days, I would re-check those rates with your lender now and hope they haven't moved too much higher on you!

Timing any market event is a fool's game, so for now lets just stick to what the real-time data is showing. The demand is there, the inventory is very tight, and buyers are bidding up for views & full renovations. If anything changes with real-time production, I will report about it here on UrbanDigs.com.

Cheers and wishing everyone a happy, healthy and successful 2013!