Manhattan Continuing to Seasonally Outproduce

Posted by urbandigs

Thu Oct 24th, 2013 10:56 AM

A: I say outproduce and not outperform because there is a difference between deal volume out there today and lagging price action. In terms of volume, Manhattan continues to produce at very high levels with October monthly contract activity on pace to come in 30% higher than the average for this time of the year. Meanwhile, price action is likely peaking right now as deals signed in May, June, and July finally close and get counted in the SE Condo Index. I would expect the rising pace of the SE Condo Index since 2011 or so to start to quell, and perhaps fall a bit over the next 4-6 months. This thinking is more a function of the new pipeline that is yet to close not being as 'potent' as was the pipeline when contract activity peaked in May & June. Remember, sales data will always be 4-6 months or so delayed and will therefore be a 'rear-view' mirror look as to how Manhattan was producing 1-2 quarters ago. Lets discuss.

While deal volume continues to come in at very strong levels, my expectations for continue rising price action are dwindling. Currently the SE Index is at 2,175 and at its highest point since mid 2008:


With the SE Index currently at 2,175, I expect maybe one more month of positive appreciation before giving some of the recent gains back due to normal market forces.

As for UrbanDigs data on Manhattan Contract Activity (deal volume -- the best indication we have for the pace of new demand), here is a chart since 2009 with an estimate on October's soon to be published production levels using the 30-day "contract signed" trend on the UD daily market ticker:


So what do we know?

-- Manhattan Contract Activity peaked in May -- we are currently producing at a level 33% lower than in May, 2013

-- Manhattan Pending Sales currently stands +13% higher than exactly 1 year ago

-- Manhattan Active Supply currently stands -25% lower than exactly 1 year ago

-- Manhattan Price Action, as defined by the SE Condo Index, follows this flow:
Since August 2008 --> +1%
Since August 2009 --> +20%
Since August 2010 --> +14%
Since August 2011 --> +14%
Since August 2012 --> +10%

Using the UrbanDigs realtime inventory chart system, I would tweak this price action flow to be more like this:

-- Manhattan Price Action, as defined by me and the UD system, follows this flow:
Since August 2008 --> +5%
Since August 2009 --> +25%
Since August 2010 --> +18%
Since August 2011 --> +15%
Since August 2012 --> +10%

This is how I would adjust for time if I found very relevant comparable sales that happen to be a few years old; using the SE Index as the main guide.

Perhaps the most telling chart is one that will be released on the new UrbanDigs system, set to launch in early 2014. Take a peek at this Manhattan Days on Market chart -- 1 Year:

Manhattan Days on Market trend over past 1 year is down 71%, to only 29 days!!

Put simply, Manhattan is producing at a very high level given continued tight supply; although the 'frenzy' of May/June has died down. A fast declining "Days on Market" chart is another confirmation of the continued leverage shift to the sell-side in todays market. Which leaves the great unknown: PRICING!

Manhattan is a vertical, highly segmented marketplace of different price points & property types; in the end every building acts like its own little unique marketplace and buyers will perceive unit features/views very differently. The best way for sellers to screw up is to overprice and then NOT listen to what the market is saying when traffic/bids are light!

When something doesn't sell its one of three things that is the likely cause:

a) either the unit has undesirable features, or
b) the market is the problem, or
c) the price is the problem

It should be fairly clear if the reason is item (a) above. I'm here to tell you it certainly is not item (b), and hopefully presented enough data in today's post to justify that conclusion. Which leaves item (c), pricing!

Quick note on brokers or buyers dealing with unrealistic sellers when the comps are so clear
: Sellers with unrealistic prices that ignore real bids, are simply not true sellers at this current point in time. Its ok, it happens and at all times we should expect a small portion of total supply to consist of these kinds of sellers. In the end, the seller needs to be ready to move at a price the market dictates and has to ultimately execute that contract! Sometimes they need to go through this process in their own way, to know for sure they tried to get the highest & best price possible.