A: Its been a while since there has been a reason for me to write something other than "equities continue to rise & so does Manhattan real estate" stories. Lets face it, in this fed engineered environment for the past few years volatility was non existent. This translated into a "risk on" mentality and utter lack of fear in the Manhattan marketplace. But looking at the markets 'unglueing' over the past week or so, could there be some cracks in the foundation?
For the past year or so this market has experienced a lack of "1-on-1" negotiations amidst a very tight inventory crunch. In its simplest terms, there has been too much demand chasing too few quality properties out there in Manhattan.
Buyers had to get very aggressive to win deals and in multiple offer situations, it isn't hard for one very interested buyer to "gap up" their bid to win out. I already know of a few pending deals from a few weeks ago that will blow away some brokers/consumers once the deal closes and becomes public record. The first few weeks of January 2014 is reminding me of the peak back in May last year. But things could very easily change over the near term.
As I often say here on UD, its all about the buyers ('the bids')! When the bids pause, its up to the market to adapt and right now I am telling you that sellers have nothing but incredibly strong comparable sales to base future price expectations on. I wonder if a gap will open up between bid & ask if equities & credit continue their current selloff.
Here is what has happened in the past week or so:
-- Equity markets are roughly 5%+ off their peak highs
-- VIX (volatility index) surges; Emerging Markets VIX sells off most in 2 years
-- Credit Spreads starting to widen
Putting aside what is causing this (who the heck really knows anyway, we could simply be selling off after a ridiculous reflation for the past 4+ years), lets discuss the dangers here.
Now, one week won't impact Manhattan markets unless some kind of surprise event akin to Lehman failing occurs and kicks off a much more aggressive deterioration in markets. I mean, if volatility comes down tomorrow and equity indexes just muddle around these new lower levels, I don't see Manhattan real estate being impacted by recent events. However, what we have to watch out for is whether this current selloff starts deepening and feeding on itself.
Its something to start watching for one reason alone --> all it takes is continued rising uncertainty to put a bit of pause in buyer's bids . There is no quicker way to insert uncertainty & pause in a buyers mind than (a) a fierce selloff in equities + (b) a surge in volatility indexes + (c) widening of credit spreads which might indicate more weakness is yet to be priced into equities. All of which seem to be occurring to some degree.
Its all about the bids. Lets face it, for over a year now sellers have been tapping what seems to be an endless well of aggressive buyers with tons of cash! A long enough time for brokers/buyers/sellers to adapt and change their expectations.
Should this credit/equity selloff continue it would be hard to imagine buyers not being impacted and being the first to update their expectations.
It starts with rising uncertainty and real reasons for buyer confidence to fall --> that leads to less aggressive bids and a shrinking of the buyer pool (some buyers decide to wait) --> dropping deal volume will be the first sign of trouble when compared to historical averages for that month --> sellers will have to adapt until either bids come back or their price expectation falls to meet the new market.
There is a cycle to this madness and if equities reach full correction territory, I am sure the media will amplify the affect and quicken the cycle. The psychology of asset cycles tells us that down cycles often feed on themselves changing euphoria very quickly into anxiety, then denial, then fear, then panic, and then depression.
TheRealDeal posted its 2014 Predictions story and I was quoted saying this:
"The warning signs will likely first appear in credit spreads and then equities and bond markets will react. That's how it started last time, in 2007, so that is where I'll be looking again. The hard part is figuring out whether a minor blip is just that, a blip on a longer-term positive trend line, or if it's a true warning of some bigger event."I didnt think it would happen this quickly but I find myself right now in that position wondering if this selloff is another "blip on the longer term trend line" or "a true warning sign of a bigger event".
Lets keep our eyes peeled and watch credit for an indication if this selloff has legs or not. In the meantime I will report if there is meaningful change in what I see in the field or in the Manhattan data coming in.
We got some data feed maintenance that is going on right now with our RLS vendor. Our Daily Ticker and supply/pending #s will be 'lower' for a few days until this is finished. Once finished, the UD system will auto-correct itself over the next week or so for the few days of incoming data missed due to maintenance.
A: As I look back on 2013 phrases like "a lack of fear in the market", "multiple offers in", "record pace of deal volume", "inventory shortage", "is this contingent upon financing", come to mind. All of which favor sell side. But does the data back that up? This post will cover my thoughts on what happened in 2013 as well as some stats that the UD system provides.
I would describe 2013 as a combination of two other markets I experienced when I first began my real estate career. In early 2005, I recall a much different Manhattan market before the condo boom began and before Streeteasy existed. These were the days when the NYTimes ad generated listings systems ruled the day. Transparency was non existent and the reason I founded UrbanDigs.com and built the Manhattan tracking system we provide for the brokerage industry.
Inventory in early 2005 was dull to say the least. Supply was tight, barely anything good came on with any consistency and brokers couldn't wait for more planned developments to start sending out their offerings so we could kickstart frustrated buyer clients and 'get our buyers in first'. A sense of urgency began in 2005, that sense strengthened in 2006 and ultimately peaked in 2007.
It was the early stages of a 2+ year condo boom. Developers would take advantage by scaling back new units and release only batches of apartments at a time; a few 1brs, a few 2brs and a few 3brs would consist of a typical batch. They would sell like hot cakes and the sponsor would then file an amendment with the attorney general and release a new batch of units at a higher price level. Buyers quickly learned how aggressive they needed to be and what would happen if they wait it out. This situation continued for most of 2006 and ultimately peaked in 2007 which saw record levels of deal volume.
I would describe Manhattan's 2013 as a combination of 2005's tight supply and 2007's record pace of deal volume & buy-side sense of urgency; that's how crazy it has been in the field this year.
To me it seems that 2013 saw Manhattan prices rise approximately 11% to 14% or so from a year ago.
Looking ahead to 2014, I have trouble seeing the pace of deal volume or such strong price action sustaining itself. I would expect to see prices rise at a slower clip; perhaps in the 4% to 7% range for 2014.
The only thing that stops it will be a sustained disruption in credit that causes spreads to blowout and fear levels to rise; usually this is accompanied by falling stock prices, rising bonds and a rising US dollar as money seeks safety. If this should occur, all bets are off as deal volume would plummet with buyers pausing and/or going to the sidelines. One thing I learned from late 2008/early 2009 after Lehman failed is: first the bids withdraw, then the bids adjust lower & price in future risks, then sellers deny it, then sellers accept it, and only then will deals start to happen again. In the end its all about the buyers and their confidence in Manhattan property. UD systems will tell me in realtime if there is any disruption in deal volume trends in the field.
Now, Back to Manhattan & The Data!
A few basic but key stats regarding Manhattan's Production Levels in 2013:
-- MANHATTAN INVENTORY DROPPED -13.4%, from 4,476 units to 3,876 units on the market today
-- MANHATTAN PENDING SALES (the pool of listings in contract/awaiting closing) ROSE 16.4%, from 2,342 units in contract to 2,726 units in contract today
-- MANHATTAN ON PACE TO PUT 13,400 UNITS INTO CONTRACT IN 2013, for perspective that is about 2,000 more units signed into contract than all of 2012
-- MANHATTAN ON PACE TO HAVE LISTED 17,300 NEW UNITS FOR SALE IN 2013, for perspective that is about 1,200 more units than we saw in all of 2012. This is the first time in 4 years that we saw an annual tick up in new supply. A good sign, but this market still needs a lot more supply month after month to normalize and shift leverage away from sell-side.
--*MANHATTAN DAYS ON MARKET PLUMMETS FROM 83 to 29, *this chart is still in beta on our development site, but confirms all other datasets and what we have been seeing in the field with our buyer clients.
-- STREETEASY CONDO INDEX HAS MANHATTAN PRICES UP 10.92% FROM 1 YR AGO
Finally a quick look at the neighborhoods across the city that saw the strongest pending sales trends throughout the year: Manhattan's BIGGEST % GAINERS FOR PENDING SALES LIST OF 2013 (below 96th -- subscription required for chart link):
Murray Hill/Kips Bay: +45.1%
Chelsea/Midtown South: +40.1%
Midtown East: +38.8%
============ MANHATTAN BASELINE PENDING SALES +16.2% =================
LES/E. Village: +12.8%
Midtown West/Clinton: +12.3%
Upper West Side: +12.3%
Battery Park City: +11.8%
Upper East Side: +9.2%
SoHo/NoHo/W. Village: +1%
Got to stop it here as Im swamped working on the next version of UD! Wishing everyone a Happy Holidays and a very safe and healthy New Year!! See you in 2014 when exciting new tools will be released!
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.
A: A quick follow up on the last discussion and the impact it had on UrbanDigs charts.
On Sep 18th, REBNY took full control over the Manhattan brokerage industry distribution mechanism (previously known as ROLEX). As a result of this internal changeover, there was a period of filtering & purging of files that for whatever reason were not shared before. This impacted UD supply and off-market charts temporarily (see my last discussion for details on this) causing erroneous sizeable swings in both metrics.
We identified the incorrect listings and are in the process of removing them & regenerating all UD charts right now. Our Manhattan Active Supply charts should be updated now for those that want to see this broad inventory trend without the interference of last month's REBNY changeover.
The Neighborhood & Submarket Charts are still affected. Regenerating datapoints to fill all of our charts take time because of the # of options UrbanDigs subscribers are given to create charts. For example, in our Sub-market Chart section users have the ability to generate 6,144 different chart combinations all of which need to have 70 months of supply & off-market datapoints regenerated. As a result of this maintenance some of our data tools will be temporarily offline or impacted for a few more days as our update takes hold.
I will write another post once I get word all charts have been updated.
A: I apologize for the lack of content lately as we are in the process of transitioning to a new development team that will facilitate the launch of our new site & ongoing improvements in the near future. Between site dev, the transition, and our buyer clients there are not enough hours in the day to write on UD. However, I think its important to quickly point out that there was a major switchover of the internal Manhattan broker sharing system from the Realplus controlled ROLEX engine to the now REBNY controlled RLS transmission engine last Wednesday. As with any major data transmission engine rollover, there are bound to be some temporary data discrepancies and we are seeing that now with UrbanDigs Active Supply trends -- to the tune of about +8% or so. I want to spend a few minutes to discuss.
For the longest time brokerage firms shared listing information and status updates via ROLEX, which stood for the Realplus Online Listing EXchange. Last Wednesday, REBNY took control of that distribution mechanism.
For a quick recap of the new REBNY RLS changeover, please see The Real Deal's "New REBNY listing system launched today" which stated:
The transition to the new RLS -- the electronic portal through which all REBNY members can view and share listings, enabling them to co-broke - has been years in the planning.Its impossible to predict exactly how 300+ brokerage firms with all their data and 9,000+ agents managing listings will perform with a major backend change like this. The transmission engine is basically a huge distribution hub that processes 1,000s of status updates a day throughout the entire brokerage industry so everyone sees the same data at the same time. Updates to this mechanism should help to improve data transmission quality, data completeness, data reliability, and data timeliness; as well as be scalable to plug in new apps/tools in the future.
The new system replaces an older transmission system maintained by RealPlus -- dubbed R.O.L.E.X. Developed by Katonah, N.Y.-based Stratus Data Systems, the new system conforms to a nationwide industry standard called the Real Estate Transaction Standard, or RETS. Brokers have awaited a RETS-compliant system for years, decrying the fact that New York City has been technologically behind every other metropolitan area in the nation.
"Having worked meticulously with each of the RLS vendors on the transition to the new engine for more than a year, participating RLS brokerage firms will now be able to take advantage of a powerful tool to improve their day-to-day business operations and help brokers better serve their clients," REBNY said in a statement to The Real Deal.
It doesnt change the fact that the data is maintained and edited by brokers ---> so in the end, its up to the brokerage community to step up to the plate and enter as much verified information they can for new listings & update the status of those listings as needed -- certainly update OLD listings that may be incorrectly set! The data will always only be as good as the broker that inputs & maintains it.
Now that this major backend change took place, we are all monitoring changes with our data sources.
On our end, on Saturday the 21st we saw about 480 new listings come in from firms that we previously didnt have a record for. As instructed we updated our vendor who is now looking into it. The simplest explanation is usually the correct one and in this case what we have are 100s of firms' databases being distributed via a new platform and we should expect the system to have a filtering & purging period, until all bits of information are fully processed. This should be a 1-time thing and it is a healthy thing; so expect the unexpected for another few weeks or so. From what I have seen most of those listings are older listings but a small % are listings that seem active but were somehow missed in the old feed. In the end, more data is a good thing.
Here is the ticker showing the jump in 7-day and 30-day ACTIVE trends:
And here is a 3 month chart showing Manhattan Supply, where the spike in supply just occurred following the changeover:
The UrbanDigs Manhattan tracking systems were engineered with a layer 1 flow algorithm, allowing the system to self correct over time. It's great to have more listing information for units that were on the market in the past for our new tools in development, but the temporary side effect is that we have to wait for those listings to filter through our system and out of current trends like Active Inventory. Right now, I would say supply is about 8% or so inflated.
Its great to see our systems so clearly show these discrepancies and such quick reaction by users of the UD tools. But in this case it is not a market phenomenon. Im even hearing brokers starting to complain that they are getting calls for listings that haven't been on the market for many months and years. So its something we should all understand and expect to continue, and adapt to in a month or so when the transition is fully stabilized. At that time we can review any and all discrepancies that occurred and remove poisonous data from our charts via a backward revision.
A: Never discount the element of 'buyer emotion' from the equation when trying to understand what has been going on in the Manhattan marketplace since February/March. There continues to be strong buy side competition for reasonably priced quality products at a time of year when we typically see a slowdown in both deal vol & supply trends. So far, deal vol has slowed a bit since May but we are still producing at a very high level considering this time of year. The action is in the higher price points and not so much for the under $1M market, or for those properties that lack views & renovations but are still testing the market with a very high asking price. As for supply, we have actually seen a tick up in the Year over Year trend although not enough to see any change of market dynamics in the field. I think the best way to describe the marketplace for serious buyers out there is..."there is a lack of 1-on-1 negotiations going on right now". What I mean is, as buyers weed out the most desirable property in their sub-market and ultimately bid on them, there are almost always offers in or "coming in" already. Buyer's expectations must be managed property and seller's testing the market shouldn't wait long to adjust their strategy if no 'acceptable' bids come in after the first 3-4 weeks. Lets discuss and look at some charts to see what the data says.
Before I get into the charts, I want to re-iterate something that must be understood if you are an active buyer out there: SELL SIDE HAS WAY MORE INFORMATION THAN YOU. THE SELLER KNOWS TRAFFIC LEVELS, WHEN BIDS ARE ON THE WAY, WHERE THOSE BIDS ARE COMING IN & THE QUALITY AND TERMS OF THOSE BIDS, ETC.
In today's marketplace, buyers are not only competing on bid amount but also bid quality. Given what I have been discussing since Feb-March here on UrbanDigs and the real-time data to confirm it, it's not surprising to expect sellers to play into those conditions as much as they can.
So what is a realistic seller of a desired property thinking these days when a few bids come in? There are 3 general ways they can handle their listing strategy when multiple interest presents itself:
1. If a Strong Bid is in but More Bids are Expected ---> Sellers can leverage the high demand for the property and create an even deeper sense of urgency by waiting 5-7 days and holding one last 'open house' for everyone to get a fair shot at the property. This drives buyers who already have a bid in but are put on hold, crazy! Either you bid against yourself to a seller that has stated you will get no response, or you wait for other bids to arrive and see what happens next. Tough one to deal with but hopefully the seller and their broker are transparent on their plans and have a stop date where they will no longer wait for bids that may or may not come in.
2. Private Negotiations w/ the Strongest Multiple Offers in --> Sellers can negotiate privately as they see the quality and bids of all offers in. If one bid is both higher & stronger, well that 2nd bid is not going to get much of a response and there is not much you can do about it other than raise your offer until u get a response, or just put your best foot forward and put a 24 hour deadline on it. The thing is, when buyers do NOT hear that a best and final is planned, they tend to not put their best foot forward. So they bid expecting a response, only to find out the seller decided to outright accept another offer and not even give the other buyer a chance to play the game. Buyers and their brokers have started to adapt and bid more aggressively as the 'bid low and negotiate' strategy has failed too many times.
3. Declare a Best & Final for All --> Seller brokers will provide a deadline for all required bid docs to be submitted with buyers' best offers. A day is taken to review all offers and clarify whatever needs to be clarified, and 1 is accepted and given a chance to produce a signed contract in a short but reasonable period of time. If a contract is not produced by then, the seller can proceed on next steps with the backup offer.
These 3 scenarios have been the majority of the situation for our clients over the past 4-5+ months. If you are in the field, you are likely experiencing this for your top choices. The most frustrating part of it for me are the unrealistic sellers out there that get a strong, realistic bid but demand 'all cash' or 'no finance contingency' because they know the deal is at high risk of not appraising -- so naturally, they dont want the banks involved, or at minimum, they want the deal not contingent upon financing.
Now, what does the data show?
Here is a preview showing 2 of the new Manhattan charts that will be on our upcoming site re-launch:
MANHATTAN DAYS ON MARKET TRENDS -- 2 YEARS (this chart uses the old design as I have to keep the new designs out of the public for now -- shows to June 1, 2013):
Conclusions --> Days on market is a new trend UrbanDigs will launch when our new site goes live. It really does compliment our other real-time charts and puts the recent Manhattan strength into perspective. The sharp decline in days on market trends since the start of the year confirms the frothy nature of today's marketplace as the majority of new supply is absorbed very quickly by waiting buyers.
MANHATTAN CONDO $ PER SFT TRENDS -- SINCE 2008 (this chart uses the old design as I have to keep the new designs out of the public for now):
Conclusions --> Our new quarterly chart system showing Condo Price per sft really does a nice job showing the progressive reflation Manhattan experienced since 2009 and where the market is now. The trend shows the recent strength and seems to compliment the SE Condo Index; especially in Q2-2013. Still, buyers & sellers would be advised to track relevant comparable sales in the target building when devising a bidding or pricing strategy. Let's try not to forget that in Manhattan every building is it's own little marketplace. Comparing a target building to a nearby one that is deemed similar introduces many variables that are impossible to quantify for. So, keep it simple and stay in-building when trying to determine fair market opinion for any unit.
Final Thoughts --> So lets first address the big elephant in the room -- rising rates and their perceived 1:1 relationship on Manhattan price action. In my opinion the recent surge in lending rates has not had a meaningful impact on the Manhattan market. We are talking bids in the field right now here, not lagging closed sales data. I mean, I would see it right? Either it would show in overall Manhattan deal vol (which it isn't) and it would show across our buyer clients (and it isn't). It's the fact that Manhattan monthly deal volume continues to come in at levels 40%+ from what we are used to seeing in the month of August! And this is happening with Total Supply down 11% over the past 30 days. The data is the data, and the data is still seasonally very strong.
There has yet to be a sustained disruption in equities or credit (think 15% plus decline in equities & widening credit spreads) to change the mindset of Manhattan buyers en masse. And until that happens, buyers will have to continue to adapt to a tight marketplace with stiff buy side competition. There is just a lack of fear out there right now and no reasons to give buyers 'pause' -- in the end, buyers will see for themselves what's going on out there. If anything changes I will be the first to let you all know...trust me, you will start to see me writing a lot more if my data systems start flashing warning signs that the Manhattan marketplace may be shifting.
Nobody knows what's going to happen with rates after the recent surge. All I know is, the market is not prepared to see a selloff in both equities & credit at the same time rates surge. That combination is both mysterious and worrisome and seems to be the new trend. Keep an eye on that dynamic as we go through the next few quarters. For now, the buyer pool seems to be adapting to higher rates in stride. Otherwise my daily ticker would show a sharp decline in deal vol as sellers initially balk at lower bids that are pricing in a higher cost of carry.
Exciting times ahead with the new site coming & all, so please stay tuned for UD version 2.0!
A: I originally published this article in May of 2011. But given the market conditions across Manhattan & Brooklyn right now, and the recent NY Times article "The 'Shift the Goalpost' Home Sale" on the topic, I figured to push this discussion forward once again. Here goes:
I go through this all the time with clients, so I figure to make a nice short discussion on what I look for after a verbal agreement on price has been reached between buyer & seller. How does a buyer know when things are getting a bit fishy? Is their deal at risk? What is normal and what is not normal? Let me try to discuss this in a very simplistic way and tell you the few warning signs I keep on my radar as red flags that the deal may be running away from us.
This market doesn't operate in a vacuum and you must understand that every situation is unique. I've seen deals take 2-3 weeks up to months to get done; with plenty of stressed out buyers or sellers along the way. With that said, here are a few general guidelines for you with time tags attached to certain aspects of this part of the transaction process. One thing I learned in this business is that TIME IS A DEAL KILLER! So I keep my clients educated before we get started on what to expect and how to be best prepared for what lies ahead. There are a few jobs that need to get done once a verbal agreement is reached and before a contract is signed by the buyer (the diligence process) - so lets review them here along with expected time(s) for each:
BUYER & SELLER BROKER (about an hour or two max)
Fill in deal sheet with all information necessary for the contract to be drawn up, terms of the deal, commissions to be paid, managing agent information, closing on or about date, etc..
SELLER BROKER (1-3 days max, depending on if seller has these doc's ready)
a) Offering Plan
b) 2-Yrs Building Financials (less for new devs, none for new construction)
...over to the buyer's attorney!
SELLER ATTORNEY (1-3 business days max)
Draw up a contract of sale and get it over to the buyer attorney for comments! The deal sheet is used to help draw up a contract of sale with all terms for the deal spelled out clearly. Generally, buyer and seller attorney will go back and forth editing comments until both parties are satisfied.
BUYER ATTORNEY (3-5 business days max for diligence once all docs received)
In addition to reviewing the contract of sale, offering plan and building financials, the buyer attorney should visit the managing agent and review the board minutes.
Okay, that is what needs to be done after a verbal agreement in price/terms is reached. So, lets take a step back and talk about timing. All in all, this whole process usually takes a total of between 1-2 weeks. Document procurement, logistics and servicing existing clients all play a role in this total lag time its very rare for everyone to just stop what they are doing and focus exclusively on any one deal.
Here is the important part to know:
The beginning steps by the brokers and the seller attorney tell you plenty of information on how this process will play out!What I mean is, it should take the buyer & seller broker all of 30 minutes to gather all the information needed to draw up a deal sheet. It takes 2 minutes to email this deal sheet to all parties involved in the next steps of the transaction process. Therefore...
WARNING SIGN #1: It is taking multiple days to get a deal sheet done and sent to the attorneys.
Assuming this is not the issue and the deal sheets have been sent to both attorneys, the next step is procurement of all documents required for diligence. The important thing to note here is that the asset is the seller's to sell and the seller has two main people working for them at this time: The listing broker + The attorney. Therefore...
WARNING SIGN #2: The listing broker is taking more than 3 business days to get the offering plan + building financials over to the buyer attorney
WARNING SIGN #3: While the offering plan + financials have been received by the buyer attorney, the seller attorney has yet to send over a first draft of the contract of sale. This is a big warning sign if a contract was not received after say 2-3 business days of the deal sheets being sent out. Assuming the seller attorney is around the office and available to work, it should not take this long to get a contract sent over. One reason why one may not be sent over is that the seller or the seller broker has advised the seller attorney NOT to proceed with the current deal unless told otherwise.
There are a number of reasons why a deal may be held up at this stage of the process. These include:
1) seller cold feet over the sales process, moving, or terms of the transaction - usually the price
2) another competing offer in negotiations
3) a change of plans that affects the selling decision (job promotion, a sour relationship trying to work things out, loss of a place the seller had in mind to move to, etc..)
Now, if you are lucky enough to get past all these warning signs then you are on the road to getting the deal done. There are only two things left to worry about - SATISFACTORY COMPLETION OF DILIGENCE + GETTING THE CONTRACT COUNTERSIGNED! Therefore...
WARNING SIGN #4: Buyer signs contract, sends to seller attorney with 10% deposit, but it has been 3-4+ business days since receipt with no sell side execution. Careful here because chances are logistics can play a role in this delay. If you reached this stage, things usually work out just fine as you are past the first 3 major warning signs that a deal may be running away from you. Sometimes the seller, or sellers, are in different parts of country or sometimes the attorney chooses not to receive a fax signature and wants the originals. It should take 1-3 business days max to get a contract countersigned by the seller, so I am using 3-4+ days as a warning sign here. If it takes that long, hopefully the seller attorney is in communication with buyer attorney as to the reasons for the delay.
In the end, COMMUNICATION BETWEEN ATTORNEYS is absolutely crucial during this process. I always advise my buyer and seller clients to have their attorneys keep the other attorney 'in the loop' so to speak if timing starts to stray a bit from what we here in Manhattan consider normal. In a perfect world it should take 1 week to get a deal fully OKd by the attorney and fully executed once all docs are received. But since its not a perfect world, we must expand this to 1-2 weeks as what is considered normal from start to finish. Use the above breakdown of this process as a general guide and remember how important communication is during this phase of the process!!
A: Crazy stuff is going on in Equity markets and the US Treasury market right now as bonds are selling off in a fierce way. Sure, one can look at where we are and the bigger picture and say the infamous line, "but rates are still at historic lows.". But you can't just ignore the shock that comes with surging lending rates combined with equity selloffs. This is what happens when market's start to normalize after years of central bank engineering. While the 'end game' of all this is yet to reveal itself, this brief preview is quite sobering. It leaves me wondering, "where is the money going??"
While Manhattan continues to churn out deals at a high level, US Treasuries are starting to normalize and price in a world with out Fed manipulation -- and yes, the Fed is still buying $85Bln in Treasuries a month. Talk about unintended consequences finally kicking in!
Take a look at this 10YR chart comparing the S&P 500 (red) versus 10YR US Treasury yields (blue):
Typically, treasury yields rise as equity markets rise and confidence rises for broader economy growth/corporate earnings/higher inflation, etc.. Conversely, when equity market's selloff usually that money runs and hides into two main areas of safety: US Dollars & US Treasuries (sending yields lower). The chart above shows how since 2010 the gap between equity trends & treasury yields have been widening as a result of Fed's efforts to keep rates artificially low as banks continue to recapitalize and businesses/consumers refinance. This chart really puts the wizadry of the fed into context and is worrying when thinking about where rates might be today without all the intervention; and if the market is in the process of normalizing itself right now.
This is one of those situations where the trifecta of treasury bonds & equities & commodities are all selling off at the same time -- putting an added crunch on general investor sentiment that can feed upon itself if it continues.
It's hard to pin this selloff on anything other than the selloff in the treasury market and perhaps, the disruption of the yen carry trade & China's recent clampdown on their shadow banking system; both intervention led shocks as well. There are no free lunches and the party never goes on forever. It seems the US dollar is the only hiding place right now.
As for Manhattan, expect a minor hit to buy side confidence from recent events, but nothing near the level of shock that we saw back in 2008/2009. We are far far from those 'fear' times and the only real question is whether today's market forces ultimately define the top of this 4+ year reflation we have enjoyed since early 2009. I have said repeatedly in the past 2-4 months that "I can't think of a better time for sellers to list" -- as the UrbanDigs realtime system shows production at the highest levels since 2008.
We still continue to see bidding wars for desired property, especially below 14th street, and we continue to see the leverage pendulum swung to the sell side. But Manhattan is a very fast paced market and I'll be watching the UD daily production ticker to see if deal volume starts to slow. Should the trend of equity selloffs and surging rates continue, say to the tune of another 7% to 10% or so, expect a 'media effect' to kick in and buyers to add pause to their recent aggressive bidding strategies. Something Manhattan has not been used to recently. Stay tuned!
A: What we have been discussing here on UD for months is now starting to hit the mainstream media in a big way, with articles like "In a Sellers Market, Every Minute Counts" starting to come out. Perhaps a sign that the craziness has run its course? Who knows. When I look at deal volume I see that we are at the strongest levels of the year and blowing away production from past years. Hard to believe that in terms of contract activity, Manhattan is actually getting stronger! But it is. Today I not only want to reflect on this "first half surge" in Manhattan deal vol & decline in supply as I often do, but I also want to add in a view on Manhattan Price Action using the Streeteasy Condo Index as well. I don't like to look at median or average sale price trends because that is more a function of what types of properties are closing/filed and when; and less a barometer of 'price action' for the broader Manhattan housing market over time. Lets dig in.
TREND #1: Manhattan Deal Volume continues to Surge
There are a few reasons I haven't been writing much lately. One is because we are in the final stages of development for our new site, which turned out to be a complete re-engineering of our Manhattan market report system. The 2nd is because honestly, I'm tired of talking about how strong the market is! There is nothing new to report.
Inventory is still tight, although we are starting to see signs of an uptick in new supply -- Deal volume is through the roof, blowing away what we are used to seeing even in this "active" time of the year. I don't want to sound like a broken record every few days but in general, there continues to be a lack of quality product that is priced correctly on the open market -- in historically strong parts of Manhattan like West Village, Soho, Tribeca, etc., this translates into continued bidding wars for the 'best new stuff' that hits the market and plenty of "contracts out + backup" responses from listing agents.
Sellers are starting to change their approach in pricing strategy, to test how high a price the market might be able to absorb for their property. I'm starting to see some crazy pricing out there, but hey, if the seller chooses to take this approach then they have every right to do so. In the end, the market will dictate value.
Manhattan booked 1,486 new deals in May, that is +2.6% compared to a very strong prior month and +14.4% from May of 2012.
Here is Manhattan Monthly Contract Activity Since 2009, clearly showing how strong 2013 has been thus far:
TREND #2: Manhattan Supply continues to be Very Tight
The broader conclusion for general Manhattan supply is that it has been declining progressively since mid 2009 or so. Manhattan saw 4+ years of declining supply as "less stuff" was coming onto the active marketplace each month compared to past years. The chart below confirms this as the monthly supply bars take a downward trajectory over time.
However, the last two months saw "more stuff" come to market than what we saw the prior year -- which basically tells us that when factoring in seasonality, new supply is actually "ticking up" over the last few months. It's no where near the point where buyers have options again and more leverage in negotiations --for that we will need to see a macro or micro reason for buyers to pause, get less aggressive with bids, and perhaps go to the sidelines. Today's market is nothing like that and real-time deal volume trends continue to rise, although likely topping out for this active season.
Here is Manhattan Monthly New Supply Since 2009, showing the longer term decline & the recent tick up on a year-over-year basis:
TREND #3: Manhattan Price Action (SE Index) continues to Rise
The SE Index is a repeat sale regression algo that focuses on same unit transactions over time in an attempt to narrow down market price action. It's a barometer of Manhattan Price trends. By doing it this way, it removes the variables and flaws that come with grouping "all" property sales into 1 bucket and then simply looking at the median #. What I'm trying to say is that its the best tool available for the specific purpose of tracking Manhattan price action. Only thing is, it will be at a lag to what's happening in the field as there is a difference between when the deal was booked (the "contract execution date") and when the deal closed.
To show you this, I highlighted what I call the "Peak" period in yellow (mid-fall 2007) and what the UrbanDigs system shows as the "Bottom/Trough" period in orange (early 2009).
*Click here for UrbanDigs Chart showing Pending Sales bottoming in early 2009
With the latest April reading just released, the progressive reflation since 2009 becomes clear and the index puts us back to mid-2007 levels. We still have 2-3+ months of strong deals in the pipeline that are yet to (a) close, and (b) be counted in this index. Based on what the UD real-time system is telling me combined with what I am seeing in the field, I would expect the SE Index trend to continue to rise for another few months before topping out.
Hot products continue to be those with views, full renovations in prime areas, and unique features like outdoor space. I look forward to tracking Days on Market trends and Listing Discount trends in the new UD system soon; two metrics that should be added to this conversation to quantify Manhattan's frenzy first half of 2013, but are not completely engineered yet. In time.