Manhattan Deal Volume Rises / Inventory Still Tight

A: What worries me about tight inventory is whether the market can sustain months of solid deal volume as a declining trend of monthly new supply continues. But as of now the market is very active even as Manhattan supply is 7.4% lower than this time last year. Lets show you the latest #s including 101 new deals signed in the last two days alone!

Here is a quick look at the Manhattan Market Ticker (real-time listing updates table for subscribers) showing you daily production across all REBNY member firms and their agents shared exclusive listings:


*last check on the ticker was Tuesday, February 7th

We can quickly see that:

BLACK BOX (shows new deal volume)
- 101 new deals were signed in the last two days
- Weekly pace is at 260, putting us on par with the strongest months of the year
- Monthly pace has risen from mid-high 600s to 824 over the last 10 days or so

This is the tool that will let you see, in real-time, market tick ups and downs. Its the quickest and easiest way to quantify current market direction.

RED BOX (shows new supply to hit the market)
- Weekly pace of 400 new units hitting the market
- Monthly pace of 1,557 new units hitting the market

NOTE ON 7-DAY & 30-DAY MOVING WINDOWS: At all times, fresh data is coming in the front end while stale/obsolete data is going out the tail end. The result is 7-day snapshot and 30-day snapshot of inventory trends that update 7x a day.

Focusing on supply for a moment, we can see 140+ new units to hit the market in the last few days, but we are still on a weekly and monthly pace to see around 1500-1600 new units come to market. For comparison, we can quickly go to the Monthly New Supply Bar Charts to see how past February's production levels have been - while the month to month trend is great information to know we should always compare the current month to the same period 1,2,3, and 4 years prior to filter out seasonality.

FEBRUARY NEW SUPPLY HISTORY (2008-present)

February 2008 --> 1,658 new units come to market
February 2009 --> 2,042 new units come to market
February 2010 --> 1,958 new units come to market
February 2011 --> 1,454 new units come to market
February 2012 --> on pace for 1,550 new units to come to market

So this may be the first month that we see a rise in new supply compared to the same month exactly 1 year prior! We have seen 16 consecutive months of year over year monthly declines in new supply -- in other words, over the last 16+ months we have simply not seen the level of new supply that we have seen in 2009 and 2010. This has led to relatively tight inventory levels across the Manhattan market today.

Buyers are chasing for well priced, desirable product that hits the market and the #s above in the market ticker are showing that.

Back to new deals signed for a moment, of the 101 deals signed in the last two days here is a quick breakdown of the types of apartments (price point) that are entering contract:

Wednesday, February 15th

Less Than $1M - 31 newly signed deals
$1M-$2M - 16 newly signed deals
$2M-$5M - 3 newly signed deals
More Than $5M - 3 new deals

Thursday, February 16th

Less Than $1M - 28 newly signed deals
$1M-$2M - 12 newly signed deals
$2M-$5M - 6 newly signed deals
More Than $5M - 2 new deals

So 86% of deals signed in the last few days had a last asking price under $2,000,000. This why the UrbanDigs Manhattan Pending Sales charts for the "Under $1M" and "$1M-$2M" are starting to see a rise while the same charts for the "$2M-$5M" and "$5M+" price points are still flat over the last few months. We are yet to really see the higher price points kick into high gear.

I can tell you that early to mid 2011 saw the $5M+ market go berserk, ultimately powering a very strong Q3-2011 report from the major brokerages at a lag. I can also tell you that the $2M-$5M price point saw a nice little rise from mid-October to mid-December of 2011; and has since been holding flat.

We won't know where deals signed this week and this month traded for until the transaction a) closes and b) is filed by the city register - likely in 3-5 months from now. That means these deals discussed today will most likely be included in the upcoming Q2-2012 Manhattan sales report that is released July 1st or 2nd.

To give you an idea of the where the Top 5 highest deals are happening, here they are in order of highest last asking price:

1. 190 Riverside Drive, Unit 11C
2. 60 Riverside Blvd, Unit PH3802
3. 60 Riverside Blvd, Unit PH3602
4. 120 East 87, Unit P26AB
5. 400 East 67, Unit 25C

I'll try to build a system that shows us these kinds of breakdowns of newly signed deals and where the action is when we go live with our new Manhattan comps system sometime in April. Cheers!

3-MTH Demand Check For Manhattan N'hoods

A: The last check was December 17th, 2011 and before that it was October 17th, 2011. Lets see which neighborhoods are leading the way this time.

Notable Neighborhood Moves since mid-November:

-- Tribeca saw demand surge from 13.6% to 43.2% over the last 3 months
-- East Harlem saw a slowdown in demand after a late 2011 rise
-- Midtown East sustained its recent rise of about 17% in demand
-- Gramercy/Flatiron market continued to slow down since early November with a 16.7% decline in pending sales over the last 3 months

Here are all the Manhattan neighborhood trends we track:

3-MONTH PENDING SALES TRENDS

Tribeca: +43.2%
Soho/Noho/West Village: +24.7%
Fidi/Civic Center: +18.8%
Midtown East: +18.7%
Chelsea/Midtown South: +10.6%
Midtown West/Clinton: +7.3%
East Harlem: +4.8%
LES/East Village/Union Square: +3.9%
Upper East Side: +3.3%
Upper West Side: +0.9%
Murray Hill/Kips Bay: -12.3%
Battery Park City: -13.3%
Gramercy/Flatiron: -16.7%
Inwood/Wash. Heights: -18.9%
Harlem/Morningside Heights: -23.9%
Harlem/Hamilton Heights: -28.2%

I'll continue to do these 3-MTH DEMAND checks every few months and mix in supply trends every once in a while. If there are other types of trends you would like to see, ask away in the comments section and Ill publish a link if our system has the functionality to meet your requests.

The market to me is actively picking up over the last 3 weeks. Weekly deal volume continues to be over 200, but the currently 30-day pace is still yet to break and hold the 700 level. When it comes to tracking the monthly pace of demand I often refer to the Real-time Listing Updates table (a.k.a market ticker, subscription required) to show us which way the market is ticking right now. Right now the 30-day pace of new deals signed is around 680 - up from high 500's in January but still below levels seen over the last two Februarys. Knowing where that 30-day deal volume number is and where its coming from tells us as accurately as possible how active the marketplace is right now - use this table for interpreting the 30-day pace of new deals signed:



Subscribers can also quickly check historical months of new deal volume by clicking on the "Broker Y-o-Y Updates" tab in our Charts section. Exciting new tools are on its way - hoping to go live by end of April...Cheers!

Manhattan "Ticking Up" - A Check on the Market Ticker

A: Manhattan is definitely seeing a pickup in activity as the weekly pace of new deal volume continues to rise. Since it takes a few weeks to go from "Offer Accepted" to "Contract Signed", many buyers out there may find themselves in 'wait & see' mode for desired properties to see if higher offers turn into 'done deals'. Typically, an accepted offer and their attorney have a good 5-7 business days to review all diligence documents and execute a contract; add in a few days for logistics to get the contracts fully executed. Only then will the broker change a listing to Contract Signed so that the UD ticker can track it. Lets take a quick look at that ticker that tallies up daily deal volume so we can see which way the market is trending right now.

The Real-Time Listing Updates table (a.k.a., the Manhattan Market Ticker) takes a direct RLS feed that shares every exclusive listing status update for all REBNY member firms. We engineered the tool to only capture new status changes for all exclusive listings in the Manhattan market. Here is the latest snapshot:



Focus on the CONTRACTS SIGNED row (blue rectangle) that shows us:

1) Daily # of New Deals Signed --> 41 (red box - still 1 more update to come)
2) Yesterday's # of New Deals Signed --> 41
3) 7-Day Moving Window of New Deals Signed --> 239
4) 30-Day Moving Window of New Deals Signed --> 685

So far we saw 41 new deals signed today -- and as part of my daily spot checking you can see a snapshot below of some of todays deals. It's empowering to so easily be able to accurately follow what kind of deals and how many are going to contract every day in the entire market. But the real bonus is that ensures that the UrbanDigs system is tracking the market accurately:



A few conclusions:

-- Daily deal volume has ticked up noticeably over the last few weeks

-- The 7-Day weekly # reflects this at 239 deals signed and puts us on pace to almost break the 1,000 monthly deals signed level.

-- The last 2 February's saw an average of 847 new deals signed

-- The current 30-Day pace is 685 new deals signed but the weekly pace suggests that this will tick up if daily/weekly volume sustains itself

-- February is the 5th Most Active month for new deals signed behind May, June, April & March (last 4 years)

For a visual, here is a broad 3-Month chart showing Manhattan Active Supply (green line) vs Pending Sales (red line):



As the market ticker sees the 30-Day Contracts Signed # rise into the 700s and 800s and higher, the UrbanDigs pending sales measure should follow suit. Buyers and sellers in the field should be experiencing what the ticker is telling us because that ticker IS the market.

I've had a few clients already see desired properties go to higher bidders. Since there is a lag between offer accepted and contract execution for the buyer's attorney to conduct due diligence, backup offers are left wondering where that higher offer may be relative to their own bid? Is it 3% higher? 5% higher?

Buyers that are lower down on the offer todem pole have a painful 3-5 month wait for price discovery on the 'lost' deal should it ultimately go to contract; to get that confirmation on what bid the Manhattan market was able to produce for their top pick. Usually buyers won't wait that long if another desired property pops onto the market. That is why well priced, quality Manhattan property (especially those apartments in great locations w/ low CCs) will see multiple offers when we are in our most active months of the year. Put a motivated buyer through 1 or 2 lost deals, and they tend to act more aggressively when that 3rd one comes to market. A herd like mentality can take hold real quick in a market like this, especially when supply has been tightening over the last 15 months or so.

Buyers should tweak their aggressiveness a notch or two for highly desired property if the 30-day pace of new deals signed continues to rise, as I expect it will over the next few months. Sellers can certainly test the market as general market activity rises, but be careful not to overdo it or ignore strong offers that may not be near inflated asking prices! The best offers come in the first few weeks of the listing, but sometimes the seller is simply not ready to hit that bid. Motivated sellers should use the active season to price right and try to create a sense of urgency where multiple offers will come in within the first few weeks. Thats the way to maximize profit potential and now we have the tools to tell you when the market is picking up - which it is.

Overprice too much and you may miss the active season and be left with a 4-month old stale listing with multiple price cuts right as we get into the slower summer months. Its all a matter of price and the sellers need to sell! In the end the market will dictate value, not the broker or the seller!

The Bigs Talk Housing / Calc Risk: "The Housing Bottom is Here"

A: Bill over at Calculated Risk is a must read for anyone addicted to the financial/connected blogosphere. This comes about a week after Barry Ritholtz discussed his latest thoughts on housing. And now we got Manhattan appraisal giant Jonathan Miller's take on Bill's 'housing bottom' call yesterday. Lots of mixed views here so lets discuss some broader housing trends today and take a break from micro-analyzing Manhattan; a market that has been in a world of its own over the last three years.

Lets go in time order here...first Ritholtz discussed housing with Blodget on Yahoo Finance's Daily Ticker as the "housing bottom" bandwagon starts to grow:

Barry Ritholtz of The Big Picture:

"No evidence of a bottom, prices continue to fall, volumes are anemic..despite record low interest rates...the data is pretty explicit, year over year prices are lower and we are just about back to fair value if u look at things like median income or % of GDP, but if this is the bottom than this would be the first time that a major boom & bust hasn't careened past fair value into deeply oversold conditions..you don't just mean revert back to fair value."

Then we saw Bill from Calculated Risk make his call yesterday with the following important notes to consider.

Bill McBride of CR:

There have been some recent articles arguing the "housing bottom is nowhere in sight". That isn't my view.

First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.

For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a "bottom" for housing, we need to be clear on what we mean. For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.

And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices . Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales.

And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.

Finally, we got Jonathan Miller with his reaction to Bill's call.

Jonathan Miller of Matrix:

To be clear, Bill's forecast is based on prices of the key housing indices i.e. Case Shiller and CoreLogic without seasonal or inflation adjustments. He is very clear about the definition of a housing bottom which is key to the argument - in fact, there are two housing bottoms.

He provides a logical argument but I think he's missing a key ingredient in the logic - how will the market be impacted by distressed properties and how they will impact the price trend:

-- 2M additional foreclosures in 2012-2013 per RealtyTrac
-- Falling inventory is masking significant shadow inventory built-up during the credit crunch. Inventory is declining to more manageable levels, not because there are fewer homes to sell, but because sellers are holding back until conditions improve - big difference.

In other words, the call of a bottom is missing a huge element front the equation - supply. The forecast of a housing bottom could certainly be right in the short term, and housing prices could bottom in March temporarily, but there is a lot of excess supply to be dealt with and I suspect that prices will begin to slide as REO activity begins to slowly enter the market. It simply has to - there is too much of it.

All great stuff. My gut is to talk about one psychological element that is not so easy to track but that we all know means everything when it comes to housing: BUYER CONFIDENCE!

Lets face it, not even record low mortgage rates of 3.87% & a 20% rise in equities over the last six months can stimulate buyers to rush into new home purchases!! What does that tell you?

It tells me that record low rates, engineered by our Fed to combat extreme debt deflationary forces, are indicative of broader economic conditions that are still strongly tilted to the negative. Lets face it:

a) Consumers don't look at housing as an asset class the same. The damage was done from the bust cycle and it will take years before faith in housing on a mass level returns to the marketplace. I'm not talking Manhattan here, think nationwide markets.

b) Consumer are already debt-laden and continuing to deleverage and repair their own balance sheets. Put simply, the consumer is in repair mode and not in a "leverage to the hilt" mode. Some may want to, but banks won't let you..which brings us to....

c) Banks don't want to lend to a consumer with deteriorating credit in a high unemployment environment when they are still recapitalizing themselves! Why do you think Excess Reserves of Depository Institutions are in excess of $1.5 Trillion right now? Banks aren't lending they are hoarding cash and riding the fed engineered reflationary wave to slowly recapitalize so that one day they will be able to sustainably lend -- hopefully that day will be when consumer credit quality is on the rise and our economy is sustainably producing more than 250K jobs a month. A much better environment for our fractional reserve banking system to start behaving like its meant to. In the meantime, the M1 Money Multiplier is still way down. Banks exist to create credit and multiply deposits - $10,000 of deposited money is meant to be multiplied by the banks to a $100,000 of new credit - this process is stalled because banks are not lending and money is not circulating!

You can't force borrowers to borrow and you cant force banks to lend! The Fed can flood the system with liquidity but they can't control where that money ends up! Crazy market moves will happen when you force investors to take on risk and chase higher yields - hence the term "unintended consequences".

Right now, Greece's bond markets are screeching default with 1YR yields soaring to over 528%! 528%!!! Can you even imagine? Something is going to happen there and all the EU bigs are praying that this will be a non-event from being strung along for so many years; wall street reacts much worse to surprise events, not something that has been in the headlines for years and everybody preparing for the inevitable. Its inevitable that Greek defaults - the question is what kind of structure the default will take and if it triggers a credit event on CDS. The worry is a contagion across EU, hitting Portugal, Spain, and Italy next.

We will see no sustained uptrend in broader housing conditions if we have another round of equity weakness ahead of us as EU conditions play out. The current environment is still too uncertain that not even a 20% rise in equity indexes over the last 6 months PLUS record low mortgage rates of 3.87% can stimulate new loan demand. 10YR Treasury yields are still below 2%, confirming this uncertainty. Low rates are great, but they are low for a reason. The housing market boomed with rates way way higher than they are today so we should actually look forward to the day that rates rise because that likely means the foundation for a sustainable economic recovery may be in place.

I'll take 5.5% mortgage rates and an improving a) economy, b) consumer balance sheet, c) bank lending over 3.87% rates and uncertainty that we see right now any day of the week and twice on Sunday! The bottom may be in but a true reversal in real prices I think is still a few years away.

January Manhattan Market Update

A: With January in the books lets take a quick peek at how the month ended. Also, I am definitely seeing an 'uptick' in the ticker (Real-Time Listing Updates table for subscribers) as the last week or so has seen an average of 25-30 new deals signed a day - up from say 15-20 new deals signed a day. Although 1 week is not enough time to call a new trend, its the latest information we have on in the field production for the Manhattan marketplace. It looks like our active season is finally starting to kick into a higher gear.

First some charts.

MONTHLY CONTRACT SIGNED TOTALS FOR MANHATTAN



Our system shows that Manhattan REBNY brokers put 615 new deals into contract in January, 2012. This production level is:

-- down 5% from January 2011
-- down 12% from December 2011

Right now the 30-day pace of NEW DEALS SIGNED is in the mid 600s, up from mid/high 500s for much of January; this is what tells me the market is starting to pick up as the real-time ticker captures REBNY brokers updating ACTV listings to a CONTRACT SIGNED (CSGN) state. By looking at the monthly bar chart above you can see that the last two February's saw deal volume in the mid-800's - so we still have some more work to do to get us on par with those past levels. Lets move on to supply trends.


MONTHLY NEW ACTIVE LISTING TOTALS FOR MANHATTAN



Our system shows that Manhattan REBNY brokers added 1,539 new listings to the marketplace in January, 2012. This production level is:

-- down 8.8% from January of 2011
-- up 139% from December of 2011

This is why you should always compare a month's production to the exact same period in prior years - one may look at a month to month rise of 139% in new supply in an otherwise tight market as a big positive! However, that interpretation is misleading because historically December is the weakest month for new supply while January is one of the strongest months for new supply.

As discussed yesterday:

JANUARY NEW LISTING SUPPLY HISTORY

January 2008 --> 1,918 new listings hit the market
January 2009 --> 2,031 new listings hit the market
January 2010 --> 1,829 new listings hit the market
January 2011 --> 1,688 new listings hit the market
January 2012 --> 1,539 new listings hit the market

One can easily see by this data visual that the pace of supply over the last 4 years has sustainably declined! This trend has been the norm for about a year and a half now. This is the now the 16th consecutive month of year over year declines in new supply to hit the marketplace -- in other words, we are simply not seeing the levels of new supply come to market that we saw in 2009 and 2010!

This is one major reason why inventory remains tight, buyers are seeing frustration with the lack of quality/well priced products and sellers are trying to take advantage of these conditions by testing the marketplace with slightly higher asking prices. We will start to track listing price trends in a month or two but I can tell you from what I see so far that the trend is up slightly! This tells me sellers are a bit more euphoric in their ability to procure strong bids in today's marketplace. Buyers are adapting and from the last week or so, seem to be signing deals anyway. We will have to wait 3-5 months for these deals to close and get filed with ACRIS before learning price discovery and where those bids are coming in!

Ill keep my eyes on the data in the meantime!

A Quick Manhattan Market Update

A: As January finishes out lets take a look at what the Real-time ticker is telling us and how the first month of the year performed.

First, a quick look at the Manhattan Market Ticker which counts:

- daily new deals signed across the Manhattan market
- daily new active listings across the Manhattan market

...and shows us a weekly and monthly pace to easily see market tick ups and downs. If the market were to start surging or shut down, this ticker will be the first tool to identify it.



I want to point out that the 47 deals signed yesterday (red box) is the highest daily deal volume that I have seen so far in 2012; hopefully a delayed start to the season. However, 1 day 'does not a trend make' so we should look to the 30-Day pace (blue box) to more broadly measure how the market is performing right now. We count 591 new deals signed over the last 30 days; relatively sluggish compared past January's.

Here is how I would interpret what those 30-Day CONTRACT SIGNED #s are telling us about real-time market conditions (read the end of this post for more details):

1) anything below 550 is a very slow market (post-Lehman was in the low 300s)
2) between 550-650 is a slow market
3) between 650-800 is normal market
4) between 800-900 is normal/active market
5) between 900-1,000 is an active market
6) anything above 1,000 is a very active market

We are in the #2 range right now and ticking higher over the last week.

There is a better way to visualize this so lets take a look at monthly deal volume for Manhattan markets going back to January 2009:

This is the easiest way to see a) how the month-to-month trend is doing and at the same time, b) measure the year-over-year performance. In real estate we tend to look at how this January performed relative to past January's to filter out seasonality. The above chart tells us:

1. We are trending down from last month where we booked 702 new deals signed...and,

2. We are trending down 7%-8% or so from January 2011 and January 2010's production levels. January 2009 registered 317 deals signed and marked the height of fear in the marketplace.

Tomorrow the January bar will go live on this chart in our Monthly Charts section.

Now that we looked at pace of new demand, lets consider the pace of new supply. By looking at both trends we can come up with some relatively easy but accurate interpretations on current conditions; such as...:

SITUATION # 1 - If the pace of demand is relatively sluggish & the pace of supply surges, the market is under stress and leverage can quickly shift to the buyer. If these conditions worsen and the trend sustains itself for say 3-4+ months then its very likely deals in the marketplace are getting done at a new lower price level; as sellers who must sell are first hesitant, then forced to hit lower bids.

or..

SITUATION # 2 - If the pace of demand is relatively sluggish & the pace of supply declines, the market is not nearly as stressed as situation #1 because less supply is muting the decline in demand. Leverage likely remains balanced between buyer & seller with less options on the market for buyers to choose from. Market will continuously show pockets of strength and weakness based on the quality of the property and the need for the seller to liquidate (pricing).

We can see from the Market Ticker above that the market produced a pace of 1,513 new active listings (orange box) over the last 30 days. Here is how that compares to the last 4 January's:

JANUARY NEW LISTING SUPPLY HISTORY

January 2008 --> 1,918 new listings hit the market
January 2009 --> 2,031 new listings hit the market
January 2010 --> 1,829 new listings hit the market
January 2011 --> 1,688 new listings hit the market
January 2012 --> on pace for 1,513 new listings, down 10.3% or so from last January

With new monthly supply continuing to decline and total inventory tight, we fit into situation #2 - "Leverage likely remains balanced between buyer & seller with less options on the market for buyers to choose from".

By Q2 I will be able to delve deeper into price action across the markets once development on new sales tools are finished. In the meantime, we should see a sustainable rise in new deal volume over the next 4 months as MARCH through JUNE are by far our seasonally most active months for new deal volume...time will tell!

Talking Comps Analysis / The SE Condo Index

A: I find myself getting into more and more talks about comps analysis lately and just wanted to put some thoughts into an article. My main point will continue to be: perform a comparable market analysis using the least amount of adjustable variables as possible! The more variables that you introduce that require adjustments, the more you will degrade the ultimate analysis. The simple solution to this is to stay in building, but the ideal solution is to stay within the same line of the target apartment. However, in the real world, data is not always available and exceptions must be made. Lets discuss. (originally published October 28th, 2011)

One fallacy that just rubs me the wrong way is when brokers start to justify higher property expectations using sold comps from a different building when there are perfectly good comps to use in the same building. The reasoning for this is usually always the same, "the in-building comps are too old, I never use a comp that is older than 3-5 months old". To that I say Hogwash! Let me explain.

#1 - First off, when trying to find out where the market is today relative to a closed deal do NOT go by the sale date of the comparable sale! Rather you should focus on when the sold comparable was SIGNED INTO CONTRACT to see how the market has changed since! Sure the deal may have closed 90 days ago, but for all you know the deal was signed into contract 7 months ago and had a delayed closing!

Here is an example:

-- Unit is signed into contract April 2011
-- Unit closes August 2011 after a delayed co-op board review and closing

Market conditions at the time of contract execution is what matters most; not the market conditions when the deal ultimately closes.

#2 - By leaving the building and using an outside building's sold comparable for an analysis, you are introducing the following variables that are impossible to quantify:

a) building service level
b) building financials
c) banks willingness to lend to building based on bldg's unique characteristics
d) building amenities
e) building policies & restrictions
f) building type (yes, I had brokers compare an ACTV co-op to a SOLD condo to argue for a higher bid from my client)
g) school zone

etc..How any one buyer values changes in Building features noted above is highly subjective! So, do yourself a favor and focus on sales in the same building as the target unit where these variables are constant!

#3 - By leaving the building and using a different unit altogether, you are introducing the following variables:

a) different layout
b) different size
c) different carrying costs
d) different exposure / views
e) different levels of natural sunlight

etc..

Think of the "Im using a recent sale in another building" argument now? Rather than keep all those variables constant by staying in-building and adjusting for a) floor, b) time, and c) renovations, you would have to adjust for 11-12 additional variables that quite frankly nobody has any means to quantify anyway? In Manhattan, every building is its own little unique marketplace.

Do not degrade a comps analysis and make more work for yourself simply because a highly relevant sale is 'deemed' too old to look at.

In today's world, we have different companies spending vast amounts of money to sanitize data and build all sorts of applications so that brokers & consumers have incredibly useful tools to help service their clients. We at UrbanDigs like to consider ourselves one of these technology companies, Streeteasy is the father and started it all, RentJuice is making ground in the landlord management business, Buyfolio built an amazing broker streamlining tool, and NabeWise is full of interesting neighborhood information. But the tool I am referring to for this discussion is Streeteasy's Repeat Sales Condo Index for Manhattan.

By only using repeat unit sales and a bunch of 'magic dust', as SE calls it, we have a tool that allows us to track Manhattan price action fairly accurately - by far, its the best tool out there for doing time adjustments on any comparable market analysis. To me, the index fits very nicely into how this market has behaved in the years up to peak, and in the years after peak. Sure there are outliers and individual sales that buck the trend, but in general, its a trustworthy tool to get a good idea of how today's market compares to a point in time in the recent past.

Here is how I do time adjustments when putting together a Comps Report for a client:

--TARGET UNIT 17A ASKING $1,500,000
--SAME LINE COMP UNIT 20A (3 floors higher and in similar condition) SOLD FOR $1,375,000 & DEAL SIGNED ON OCT-2009
*Many brokers would ignore this in building same-line, same layout, same views, same renovated comparable sale simply because its 2 years old - I would argue against that because its very likely the closest match to the target unit!

Then I go to SE's Condo Index and compare today's # with where the index was when the comparable unit was signed into contract on OCT-2009 (story from August 2011 so #s are from that time):



Then its just some simple math as I point out on the above image:

STEP 1: Subtract 1,855 - 1,760 = 95
STEP 2: Divide 95 / 1,760 = 0.0539
STEP 3: Convert 0.0539 into percentage 5.4%

This is not trigonometry! Its simple math that any broker can do. So according to the SE Repeat Condo Index, the market today is roughly 5.4% higher than it was back in late 2009 - and that kind of jives with most brokers' experience in the field over the last two years or so as we saw a progressive reflation from early 2009 lows.

Simply apply the 5.4% to the comparable sales price you are analyzing: $1,375,000 * 0.054 and you come with a positive time adjustment of $74,250 - added together equals $1,449,250. That leaves you with 1 last adjustment for being two floors higher. Two floors is likely not a drastic difference in light/view so lets say $15,000 per floor, or a floor adjustment of $30,000 and you got your fair market price opinion done!

$1,449,250 - $30,000 (floor adjustment) = $1,419,250

I would expect bids to come in around the $1.42m range for this target apartment that is on the market asking $1,500,000 and I didnt have to worry about adjusting for a different building, a different layout, a different apartment size, different views/sunlight, different carrying costs, different bldg amenities, etc! Its a clean analysis using the most recent bid for the closest match to the target property that we have data for; without exposing the analysis to variables that otherwise would degrade the analysis!

CONCLUSIONS: Just because a past sold comparable is more than 6 months old doesn't make it useless! In fact, its significantly more useful than switching apartment lines or worse, switching buildings to justify a deal price. If you have to use a different line in the same building, fine, but then the job is to find relevant apartment types to compare; i.e., 2BR/2BTH vs other 2BR/2BTH sales in the bldg in different lines. We have tools at our disposal today to help us do these reports and to adjust for time, that we did not have years ago; so I urge you to USE THEM!! Like anything new, it will take some time to get comfortable with a new method over what you are used to but in the end I strongly believe the service you provide will benefit. Only go outside the building when there is no data to analyze, as these types of analysis (townhouses, walkups, etc) are the most challenging ones to produce.

Cheers!

Manhattan Neighborhood Supply Trends

A: As we get into the final days of January, lets take a quick look at how supply trends have been faring across Manhattan. In this post I will show you the "% CHG" in Active Supply trends for all Manhattan neighborhoods over the last three months & the last 12 months. The 3-mth trend will tell us how recent supply trends feel 'in the field' right now as buyers and their brokers seek out new product to see. The 12-mth trend will give us a broader view of the neighborhood's supply trends and tell us where we are today relative to the same time last year. In general, so far there has not been the usual surge in supply that we got used to for the month of January in this marketplace. Lets discuss.

The data doesn't lie so lets get right to what the new supply (active inventory) #s are telling us. Remember, our "Active Inventory" trends count all active exclusive listings by REBNY agents that are shared through the Rebny Listing Service:

1) are brand new to the market
2) have been re-activated from a prior "off-mkt" listing state
3) have been updated by the listing agent once in the last 30 days
4) have been "Active" on the market for less than 2 years

NEIGHBORHOOD SUPPLY TRENDS: 3-MTH & 1-YEAR % CHG
*sorted by 1YR % CHG

Tribeca: 3-MTH -7.6%, 1-YEAR +23.5%
East Harlem: 3-MTH -8.6%, 1-YEAR -2.8%
Upper West Side: 3-MTH -13.2%, 1-YEAR -3.8%
LES/East Village/Union Square: 3-MTH -18.3%, 1-YEAR -4.7%
Upper East Side: 3-MTH -7.4%, 1-YEAR -4.9%
Midtown West/Clinton: 3-MTH -12%, 1-YEAR -6.6%
Midtown East: 3-MTH -13.2%, 1-YEAR -7.2%
Murray Hill/Kips Bay: 3-MTH -11%, 1-YEAR -8%
Fidi/Civic Center: 3-MTH -17.4%, 1-YEAR -8.8%
Battery Park City: 3-MTH -5.6%, 1-YEAR -9.3%
Chelsea/Midtown South: 3-MTH -10%, 1-YEAR -10.8%
Gramercy/Flatiron: 3-MTH -25.7%, 1-YEAR -13.6%
Soho/Noho/West Village: 3-MTH -22.3%, 1-YEAR -14.5%
Harlem/Morningside Heights: 3-MTH -14.1%, 1-YEAR -18.5%
Inwood/Wash. Heights: 3-MTH -9.7%, 1-YEAR -21.9%
Harlem/Hamilton Heights: 3-MTH -12.6%, 1-YEAR -31.1%

This should visually tell the whole picture of the last 12 months of Manhattan supply trends! Sellers, we need more listings!!!

General Conclusions: With the exception of Tribeca that showed a noticeable year-over-year rise in supply (10.8% rise in co-ops, 27.2% rise in condos), every single neighborhood experienced a drop in supply from this time last year. This is consistent with discussions over the course of 2011 regarding 'Monthly New Supply' trends and the conclusion that "we are simply not seeing the levels of new supply come to market that we saw in 2009 and 2010".

Typically this is the time of year when 'new stuff' starts to come onto the marketplace. Right now we are on pace to show a monthly total of 1,195 new listings for this January. For some perspective, the last four January's showed the following new supply hit the market:

January 2008: 1,918 listings came to market
January 2009: 2,031 listings came to market
January 2010: 1,829 listings came to market
January 2011: 1,688 listings came to market
January 2012: ???

Again, the real-time ticker shows us on a monthly pace for 1,195 new listings to hit the market. I would expect this # to rise as we close out January, but I'm questioning if we are seeing enough new supply to break the 1,688 level that we booked for last January. Time will tell.

One might make the predictive statement that with less supply coming to the marketplace, it will be more difficult to see a rise in new deal volume. Frustrated buyers waiting for new supply may decide to put their search on hold until market dynamics change and more supply starts to come on. It's too early to analyze new deal volume right now because its very possible that 100s of deals are currently "in the attorney process" right now; which is impossible to track since brokers very rarely use the 'Accepted Offer / Contract Out' listing status.

This is the major reason why the uptick in new deal volume tends to start in February - first the stuff comes on, then the buyers bid, then the attorney's get going, then the deal gets signed and only then do we capture it. I'll start to dig into this years bonus season production as we get closer to mid February.

How to Interpret The Trend: The Anatomy of a Chart

A: Interpreting real-time Manhattan charts could at times be very confusing, leaving us to wonder what the ultimate market signal is that we may be missing. Between positive and negative correlations and seasonality, are the charts telling us that the market is weakening, strengthening or simply 'bouncing around'? Enter Ana Maria Sencovici, agent at Douglas Elliman and publisher of The Apple Peeled, who had the great idea to discuss "How to Interpret The Trend: The Anatomy of a Chart" here on UrbanDigs. I knew a long worded discussion with numbered points might be difficult for some to digest, so it was Ana's idea to visualize a basic Manhattan chart and simply circle different trends with an explanation of the market signals it may be telling us. A thousand thanks Ana for the help in putting this discussion & visual together!

Lets take a simple look at Manhattan Pending Sales vs Active Supply trends since January of 2008, and see how we can break down different trends over the last 4 years:



The basic trend types as outlined in the above image:

#1 The Positive Correlation - occurs when both supply and demand trends rise or fall together.

When they are rising together its a sign of a pickup in general market activity and usually a moderately strong market signal. We usually see a positive correlation in the first 4-5 months of the calendar year as new supply comes to market and buyers step up deal signings.

When they fall together its a sign of broader market sluggishness as both the pace of supply & demand decline. When sellers lose confidence that they can secure a strong big in the current marketplace, they have a tendency to remove their listing from the market. Those that must sell for whatever reason will make up the bulk of supply as those testing the market fade away.

#2 The Negative Correlation - occurs when both supply & demand trends are in opposing directions. Generally indicates an ongoing shift in the marketplace either to the upside or downside:

Positive Market Signal: when supply falls but pending sales rises
Negative Market Signal: when supply rises but pending sales falls

#3 Off-Market Seasonality - occurs when supply falls sharply but the pace of demand stays relatively constant.

Might indicate a slight leverage advantage to the seller as supply tightens up, but more than likely it is a general market pause as sellers use a holiday break or slow summer market to "freshen up" a listing. As supply falls, many buyers tend to pause as well until more inventory comes back to market.

#4 Gap Narrows - occurs when one measure outpaces the other and effectively "closes the gap" between the two. Could indicate either a positive or negative market signal:

Positive Market Signal: when the rise in pending sales outpaces the rise in new supply and may eventually cross if supply falls enough
Negative Market Signal: when the rise in supply outpaces the rise in pending sales OR the fall in pending sales outpaces a fall in supply. Turns into a more negative signal as the lines cross if pending sales falls enough

There you have it! I'll hope this generates some questions, especially if my conclusions need editing? Would love some opinions as interpreting the Manhattan trends is what this site is all about!!

Bonus Bummer: Another Test for the Manhattan Market

A: Wall street bonuses are starting to creep in and talk is that comp is down between 20%-60% or so, a huge range. Job losses in credit at the big banks are concerning as fixed income got whacked. All the worries about regulation post credit crisis and how the 'securitization revenue game is finally over' seems to becoming reality for 2011 bonuses. Articles talk how bonuses this year are expected to be at their lowest levels since 2008 levels. Translating to the Manhattan markets, how will this affect the depth of the buyer pool and new deal volume; especially in the $2M+ segments of the market? Time will tell and I'll be tracking it. We should note that since 2011 saw such a surge in high end deals over $5M between March and July, I think we have our work cut out for us to break those levels when we ultimately compare market performance on a year over year basis. Off the bat, I would expect Q3-2012 to have a hard time beating Q3-2011! So expect poor year over year numbers down the road. This is simply another test for the Manhattan marketplace, especially the high end, as we head into our 'active' selling season.

I discussed thoughts on this year's bonus season back in September and here are the bullet points that I am hearing from my contacts today:

#1: Overall Comp down between 20% and 60%
#2: Retention bonuses very hard to come by right now compared to years past
#3: If 2010 was 2/3 cash, 1/3 deferred then 2011 looks to be 1/3 cash, 2/3 deferred - in other words, cash component of comp is down again
#4: Deferred bonuses from years past are vesting into a down stock market for banks - what compensation was worth in 2010 is worth noticeably less today
#5: Fixed income job losses at big banks - talk about how all the jobs derived from the 'profit machine' from the securitization process seem to disappearing

This has a tendency to impact confidence among those wall streeters looking to buy or sell, upgrade or downgrade, as they wait for their compensation package to come in. I'm even hearing whispers of situations where the "bonus is that you get to keep your job".

From my end the chatter seems consistent so I welcome any outside opinions on the topic.

Here are the recent articles discussing the 2011 Wall Street Bonus Season:

WSJ.com: "Bank Pay to Be Lowest since 2008" -

"As banks prepare to report fourth-quarter results and make final bonus decisions for 2011, total compensation is likely to be the lowest since 2008, when the financial crisis destroyed some firms and left many survivors on government life support.

At Goldman Sachs Group Inc., many of the roughly 400 partners can expect to see their 2011 pay cut at least in half from 2010, according to people familiar with the situation. Pay for some employees in the New York company's fixed-income trading business will shrink by 60%, with some workers getting no bonus, these people said.

Morgan Stanley is expected to shrink bonuses for some investment bankers and traders by 30% to 40% from 2010, said people familiar with the matter. Pay worries have been mounting up and down Wall Street for months amid lower trading revenue, languid deal-making, new regulations and anxiety about the global economy. Other pressures include weak financial-company stock prices and sour public sentiment that culminated in the Occupy Wall Street encampment in New York."

BusinessInsider.com: "Morgan Stanley Cash Bonuses Will Be Capped At $125k" -

Responding to a difficult environment for Wall Street, Morgan Stanley plans to tell employees this week that bonuses will drop sharply, with cash payouts capped at $125,000, according to people familiar with the matter.

Some top executives will receive nothing now, deferring their 2011 payouts until the end of this year.

The New York-based bank, run by Chief Executive James Gorman, will defer the portion of any bonus past $125,000 until December 2012 and December 2013, according to one of the people familiar with the matter. Mr. Gorman and the other nine members of Morgan Stanley's operating committee, the firm's ruling body, will defer their entire bonuses for the year, this person said, collecting them later.

NYMAG.com: "Wall Street Bonuses Will Be Way Down" -

"Companies definitely have to realize the party as they know it is over," explained an analyst. Another said, "Obviously this is not a good year for Wall Street compensation and an awful lot of the pressure is going to fall on managing directors," while one warned, "We do not expect a robust recovery in 2012." All of the doomsday forecasting goes along with estimates of a 27 to 30 percent fall in compensation overall, with employees at Goldman Sachs and Morgan Stanley possibly seeing their pay for the year halved.

The smaller numbers are owed to "lower trading revenue, languid deal-making, new regulations and anxiety about the global economy," and come amid layoffs industry-wide.

It is what it is and Manhattan will do what its going to do, regardless of discussing reality on a site like this. The question really becomes, "where are bids coming in today in all segments of the market and are sellers hitting those bids?"...this is the question that we typically have to wait 2-3 months to find out as deals go to contract ultimately close and become public record.

As of now, here is a quick look at Manhattan Pending Sales (green) vs Active Supply (red):


2011's active season lasted until mid June and the high end stayed hot until early August - how will this year compare?

My thinking is that we won't be able to beat out 2011's active season in part due to the topic being discussed. Here are the #s we have to beat along with how I interpret deal volume:

2011 MANHATTAN MONTHLY DEAL VOLUME
January 2011 saw 647 new deals signed - slow market
February 2011 saw 844 new deals signed - normal/active market
March 2011 saw 1,048 new deals signed - very active market
April 2011 saw 1,006 new deals signed - very active market
May 2011 saw 951 new deals signed - active market
June 2011 saw 988 new deals signed - active market

In terms of monthly new deals signed, interpretations should be as follows:

1) anything below 550 is a very slow market (post-Lehman was in the low 300s)
2) between 550-650 is a slow market
3) between 650-800 is normal market
4) between 800-900 is normal/active market
5) between 900-1,000 is an active market
6) anything above 1,000 is a very active market

Mid month right now the 30-day pace of new deals signed is a weak 581. I'm expecting this # to rise noticeable as the last two weeks of January play out. Time will tell and I'll continue to monitor new deal volume/supply and sales trends as 2012's active season unfolds.