Treasuries Signaling Economic Downturn, Not a US Default

Posted by urbandigs

Sun Jul 31st, 2011 10:52 AM

A: The markets will always be all about confidence. Short term confidence and investors perception of confidence in risk assets. How investors perceive short term news and events, may vary. Which is why we have the markets themselves to give us the signals to interpret. Credit spreads will tell us about confidence in the banking system. Stocks will tell us about confidence in future earnings. Bond yields will tell us about confidence on future default risk. Gold will tell us about confidence in fiat currencies and global central bank policies. Right now, the talk of the day is confidence in the US govt's ability to pay back its debts and implement structural reform to control the national debt and entitlement programs. The ultimate fear is a mass selloff in US Treasuries leading to a spike in interest rates. But right now, US Treasuries are pricing in a likely US economic slowdown and not a US gov't default.

10 year US Treasury yields are at the lowest levels since last November, take a look at the chart on the right courtesy of Bloomberg.com. tenyr.jpgThat chart screams of 'risk off' money that is looking for safety due to the expectation of another economic downturn.

While the headlines in mass media swarm around the US debt ceiling, many missed how bad the recent Q2 GDP reading was & the huge downward revisions to GDP readings going back to 2007 - apparently the downturn was worse than we previously thought. Bloomberg reports, "U.S. Economy: Growth Trails Forecasts as Consumers Retrench":

The U.S. economy grew less than forecast in the second quarter, after almost stalling at the start of the year, as consumers retrenched.

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase.

Economic growth in the first quarter was revised down from a 1.9 percent prior estimate, reflecting fewer inventories and more imports, the Commerce Department's report showed. Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated, and the recovery lost momentum throughout 2010. The world's largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop.
FLASHBACK to July 24th, 2009, "Out of Sight - Out of Mind: The Way The Markets Like It": "As the truth comes out later, who cares what happened in the past because the markets are forward-looking!" - do you ever wonder why we experience so many more downward revisions of past data than we do upward revisions of past data? Do you ever wonder why we tweaked the methodology of how we count unemployment and inflation? The answer is because the truth to past ways of measuring these things would scare the heck out of markets and economists. Crazy.

Right now, money is leaving risk assets and looking for safety in an environment ripe with uncertainty. Its all about perceived levels of uncertainty. Even if our government reaches a deal on the US debt ceiling, we can still lose our AAA rating and investors perception of our treasuries as uber safe securities, may wane. As of right now, thats not really happening outside of short term movements at the very short end of the curve (think 3-month and 6-month treasury securities) - look at the chart below to see how short end yields have risen in the past week:

treasury_table.jpg

The big fear I have is quite simple: WHAT HAPPENS IF MONEY EXITS RISK BASED ASSETS AT THE SAME TIME INVESTORS LOSE FAITH IN US TREASURIES?

What if equities, high yield bonds and treasury bonds all selloff at the same time? Is that even possible? Oh yes, I think it is. Where will money go for safety? The quick answer is gold. But the kicker may be a huge emergency plan by our Fed to implement QE3 that would surely be a massive treasury and asset security buying campaign to the tune of trillions in a last ditch effort to both keep rates low and stimulate the economy. That could be what makes gold go parabolic. I dont know, just a hunch looking at potential outcomes given our current situation. Lets see how markets react in coming weeks and what signals they are telling us.

For now, it looks like investors are pricing in for a future economic downturn, albeit not one anywhere as severe as the recession we experienced in 2008-2009. This could be the whiplash back down as a fed and govt induced reflation from huge stimulus and asset guarantees wanes. The party cant last forever when its juiced by artificial stimulus.


Soho/Noho/Village Demand Slows; Tribeca Holds Firm

Posted by urbandigs

Wed Jul 27th, 2011 09:37 AM

A: It's interesting how different parts of the Manhattan housing market behave differently from each other. One area can stay hot, while another area starts to slow. Today I want to show you how the Soho/Noho/Village submarket is performing relative to its Tribeca neighbor.

PENDING SALES: Tribeca vs Soho/Noho/Village

soho_no_tribeca.jpg

In the last 12 months, pending sales % change is as follows:

TRIBECA --> Up 20%
SOHO/NOHO/VILLAGE --> Down 18.8%

In the last quarter, pending sales % change is as follows:

TRIBECA --> Unchanged
SOHO/NOHO/VILLAGE --> Down 18%

In the last 30 days, pending sales % change is as follows:

TRIBECA --> Down 9.5%
SOHO/NOHO/VILLAGE --> Down 20.2%

So, even though Tribeca has outperformed its neighbor Soho/Noho/Village submarket over the past year, both markets are down over the past 30 days. In general, the pace of new demand has slowed across Manhattan over the past 4 weeks.

So far to me, this is a highly seasonal market trend - I see nothing that tells me prices are falling with the slowdown in the recent pace of new demand for Manhattan property.

Buyers and sellers should look at this real time data in the following way: at all times there are fish (buyers) in the pond for a fisherman (sellers) to try and catch. Sometimes there are large pools of fish available making the chances of getting a few to bite rise. Other times there are only a few fish here and there, lowering the chances for a bite. When there is less fish, you may need to use more lure and expect more time for a bite. Since the UrbanDigs.com tracking platform is measuring the pace of demand for Manhattan property in real time, I can tell you that there seems to be less fish biting today than there was a few months ago. Therefore, sellers might need to take on a more aggressive pricing strategy to lure new buyers or expect a longer time on market for a new fish to bite!


Manhattan Pending Sales Starts To Slow

Posted by urbandigs

Wed Jul 20th, 2011 10:34 AM

A: I encourage all brokers to read these updates on the current state of the Manhattan real estate market. Today, lets see where we are at over the past month or so and how the pace of demand for Manhattan property has performed relative to the very strong past few months. Naturally, we should expect to see the pace of demand tick down during the months of July & August, and that seems to be the case now.

FIRST SIGNAL CAME FROM THE REAL TIME MARKET TICKER

A few weeks ago I noticed the 30-day pace of new contracts signed in the Manhattan marketplace ticked down to from the low 1000s to the mid/high 800s. If there is a market shutdown or surge, this market ticker will be the first tool on UD.com to capture it and tell you!

Remember that this real time ticker is a direct connection to the REBNY Listing Service (RLS) and updates every 2 hours as brokers update the status of exclusive properties on the market. It's as real time as you can get. I like to view the 30-day # because a daily or weekly total is not telling of a change in a trend. And we are after changes in the trend here at UrbanDigs.com.

Here is the ticker as it looks at 10:05 am:

July20_ticker.jpg

The 30-day pace of new contracts signed is in the low 800s. If you follow these kind of real time market stats, you will know where we came from and which way the market is ticking - i.e., right now we are ticking down from the low 1,000s in late June.

SECOND SIGNAL - MANHATTAN PENDING SALES

The second signal I saw was in the recent tick down in our Pending Sales metric.

Pending Sales: To be counted in our PENDING SALES Inventory, the listing must first be measured in an ACTIVE state and then be changed to CONTRACT SIGNED state by the listing broker. In addition, the listing broker must maintain the CONTRACT SIGNED state at least once in the last 90 days. If a listing closes via our daily ACRIS sales feed, it is removed from the Pending Sales measure. All 'in contract' listings that do not close within the first 180 days are no longer counted as a pending sale.

Therefore, pending sales is a real time measure of new demand and updates daily. As new data comes in the front end, stale data and sold data goes out the tail end - so its always updating to ensure the highest accuracy for current market conditions.

Here is a quick 1-MONTH % Change Snapshot of Manhattan Pending Sales By price point:

ALL MANHATTAN - Down 8.6% over the last 4 weeks
<$1M PRICE POINT - Down 10.2% over the last 4 weeks
$1M-$2M PRICE POINT - Down 6% over last 4 weeks
$2M-$5M PRICE POINT - Down 9.4% over the last 4 weeks
$5M+ PRICE POINT - Down 1.3% over the last 4 weeks

The $1M-$2M and the $5M+ segments of the Manhattan marketplace are outperforming the broader market trend in the last 4 weeks. The lower end of the market has been performing the worst out of all price points.

Sellers should quickly revisit pricing strategy to ensure they don't get left behind a summer slowdown that may be occurring right now as I type this. Its all about price. If you have been on market for 3+ months and thought you were priced right yet didnt get any acceptable bids, re-think your price! If you want to sell, don't blame your agent, blame the price!

Buyers might be able to tweak their bidding strategy a bit if general pace of demand is ticking down. It might not seem as active out there as it was a few months ago, given the data I see. Still, to me there seems to be a lack of well priced quality product out there to choose from.

Finally, I'll leave you with a chart showing you how Manhattan Pending Sales is performing in the low end versus the high end of the market:

pending_1m-5m.jpg

This chart goes back to JAN 2008 and really paints a picture of how Manhattan was exposed and reacted to the credit crisis before and after Lehman's failure. In short, the reflation began in mid 2009 and started in the lower end - notice the green line shoot up in mid 2009? The higher end really got going in late 2010 and early 2011 and has since outperformed the broader market - see the quick facts table I just wrote about above.

There you have it!


Sean Egan: "The EU Has 3%-3.5% Capital - Thats Scary"

Posted by urbandigs

Mon Jul 18th, 2011 10:55 AM

A: Before getting into what Sean Egan said on CNBC this morning, lets understand that this guy founded one of the rating's agencies (Egan-Jones) that is not compensated by the sellers of securities instruments they are rating. Rather, Egan-Jones is paid for 'ratings review' by the institutional investors, or the buyers, of those securities. This company put a negative watch on the US govt's debt on March 1st, 2011, and cut the AAA credit rating of US govt debt this past weekend. So its interesting to here this guy's views on other important issues that are rattling markets lately; mainly the issues in Europe.

The talk was mostly about who bails out who if the ECB cant be the lender of last resort, which would make us the next in line to take on 'lender of last resort' responsibilities. And if we can't, then who...? China? Well, lets not even go there. Lets talk more about how the fed is lender of last resort to Europe, and how that would work....or, is it working this way already?

egan_jones.jpg

Fast forward to Sean Egan on CNBC.com:

KERNAN: "you think that the fed is ultimately the lender of last resort to europe. how does that even work?"

EGAN: "..it's working right now. in a couple of different ways. one is a swap line. okay. i broaden it from the fed to the u.s. government because you have the imf support, swap lines and then you have some back stopping. cds. really the u.s. government is the only one that can move quickly and enforce to solve this problem. the EU has 3% or 3.5% capital, okay. that's scary. lehman brothers was at that level. ECB can get additional capital but not quickly. they get it from the central banks. but it takes time to replenish the capital and if you take a reasonable hair cut on their back stopping all the deposits of these, what is it three or four countries buying the debt. buying the debt of italy and other countries. normal hair cuts you look at the capital and say it probably isn't enough.

CARUSO-CABRERA: "..is there anything -- so many plans. let's get them down to 90%, gdp ratio. numerous plans have been put out most of them politically untenable. anything the European union could do right now to stop this?

EGAN: "...yes. but they don't have the political will to do it. what would it be. backstop the ECB. in other words, get about another 100 billion euros of additional capital. it probably isn't enough. it would help. the ECB says we'll backstop the deposits of all the periphery countries. we don't think thats the right way to go, by the way, because there's no market discipline if they do that, but that would help. basically to stop this problem u-need to have a currency print being entity guaranteeing it."
Watch the video! So the way to stop the problem is to have a currency printing entity there to backstop and guarantee all the debt and deposits. Crazy. Unfortunately, everyone is tied to this problem so its not just an overseas issue that could easily creep into our markets too - and lets be honest, we have similar structural problems of our own.

Some of the action in the middle of the curve (think 1yr and 2yr debt markets) in Greece and Ireland is completely insane right now. Greek 2yr debt yields hit 36%! Ireland 2yr debt yield hits 23%! That is the markets way of telling us what really is going on under the surface of some of these countries.

Egan goes on to describe the US debt to GDP ratio as one on par with Portugal. Oy, that can't be the best analogy for our government's balance sheet.

The core of all this is that central banks have backstopped and guaranteed everything from the great credit crisis of 2008-2009, and have acquired tons of mis-priced assets off the books of the major banks. Assets are toxic when the bid is far far away from the ask & there is a need to sell or re-price the asset - think of a seller in Manhattan pricing a large alcove studio apartment at $2,000,000 when the bids are in the $400,000 range. Is the apt toxic? No, the price is. At $400,000, or below, the asset seems ok; credit Barry Ritholtz for that response to 'toxic assets'.

What worries me is how the balance sheets of these central banks must really look like when assets are marked to market and if that may be the cause of issues in the years to come as endgame to this vicious deflationary cycle.


The US Debt Ceiling

Posted by urbandigs

Sun Jul 17th, 2011 08:16 AM

A: Take a look at this historical graph on the US Debt Ceiling and tell me, what do you think Congress will do?

Courtesy of the Washington Post:

debt-ceiling.jpg

Sometimes all you need is a picture of some data! Clearly, the US government has a serious spending problem that needs to be addressed immediately.


UrbanDigs Launches New Payment & PDF Branding Systems

Posted by urbandigs

Fri Jul 15th, 2011 09:07 AM

A: Im very excited that today is the first of many new upgrades to come to the real-time UrbanDigs Manhattan tracking platform. First off, we got rid of paypal as our online subscription merchant and implemented a new embedded subscription process that is much easier and friendlier for users. No more paypal, Finally! New subscribers will find the sign-up process to be a simple 1-2-3 procedure: create account --> enter billing info --> and you're done! Second, we built a new customizable white label platform so that existing users can personalize all UrbanDigs charts and create branded reports. Let me get right into it.

NEW SUBSCRIPTION PROCESS - NO MORE PAYPAL!

STEP 1
: Create an UrbanDigs account for Free - click here to start

STEP 2
: Enter Billing Information - Full access to all UrbanDigs tools is $20 per month - no contracts, cancel at any time. Here is a screenshot of the new embedded payment system:

newrecharge.jpg

STEP 3: Hit Subscribe Button & You're Done!

You will be auto-logged in and directed to your MY ACCOUNT page that includes all your account information, billing information, and the new broker profile page that allows you to customize the UrbanDigs platform to create branded reports. Lets get into that now.

CREATE PERSONALIZED BRANDED PDF REPORTS


This is the first step on the road to finishing this mission. The end goal is to create more charts, and a comps analysis system for everyone connected to the Manhattan housing industry. Naturally, brokers will be the first mass audience that is likely to adopt the new tools as they seek to enhance the service they provide to buyers & sellers. Clients should be very excited as these tools will keep them ahead of the curve and let any broker become an instant market expert with quantifiable data right at their fingertips. If your agent isn't providing you with the latest market data, how are you supposed to know the state of the current marketplace? Guess? Not in this market!

Subscriber's new MY ACCOUNT page will look like the screenshot below (shown is the 'BROKER PROFILE' tab):

pdftab.gif

I used Douglas Heddings of Heddings Property Group for this example as he and his team are frequent users of the UD.com system. Looking at the image above, you will notice that there are two sections for UD.com users to fill out:

BROKERAGE FIRM DETAILS: Lets you select your firm banner and update office address
BROKER PDF DISPLAY DETAILS: Lets you upload your headshot, and your contact details for display on all reports

Once you input this information, simply hit the UPDATE button and you are all set. Every chart on UD.com will have a red 'PDF' button that looks like this:

pdf_button.jpg

When pressed, the PDF tool begins and you will see a popup a box that asks you:

1) Prepared For - enter a client's name or whomever your creating the report for
2) Email - enter an email address if you want to email the report; leave blank if you just want to print the report
3) Comments - allows users to add their own comments and voice to the charts selected to be delivered to the recipient

The ultimate report will look something like this:

heddings.jpg
This is just the beginning. We realize that best way for us to get our information out to consumers in the Manhattan marketplace, is through the brokerage community. So we are now in development of a brand new reporting platform that will put all real time Manhattan data in the palm of your agent's hand! I dont want to get into detail yet but I promise you more announcements will come in the next few months as we roll out new features. Enjoy!


'Perceived Default'? / US Debt Rating On Review

Posted by urbandigs

Wed Jul 13th, 2011 06:34 PM

A: We might see some volatility in markets tomorrow as Moody's has placed the US on review for possible downgrade to its AAA credit rating. Given the past performance of these ratings agencies, or lack thereof I should say, this really isn't news. But it might make markets act a bit hairy. What you need to know is that bond markets will do what they want to do when a situation becomes unavoidable - just look at Greece, Ireland, and recently Italy & Spain. Government yields for 10YR Greek bonds are at 17% right now. Even though bailout after bailout continues to roll out of the ECB and IMF, the markets are taking matters into their own hands. The US will not default on their debt obligations like some EU countries might, but the damage could still come on a 'perceived default' by investors that results in our treasury markets taking matters into their own hands. That is the game of chicken that is going on right now between policy makers and bond markets.

Interesting times indeed. Bloomberg reports, "Moody's Places U.S. on Review for Downgrade As Debt Talks Stall":

Moody's Investors Service put the U.S. under review for a credit rating downgrade as talks to raise the government's $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to a default.

The Aaa ratings of financial institutions directly linked to the U.S. government, including Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, were also put on review for cuts, Moody's said in a statement today.

The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody's said. The rating would likely be reduced to the Aa range and there is no assurance that Moody's would return its top rating even if a default is quickly cured.

Treasury Secretary Timothy F. Geithner said he has taken steps to prevent a federal default until Aug. 2, using accounting measures that involve two retirement funds. The U.S. reached its borrowing limit on May 16.
chart.pngThis is part of a global endgame to the crisis that began in 2007. Its reaching sovereign debt markets and the fear of seeing "rates surge" is turning into reality for Greece, Ireland, Spain & Italy. Take a look at Greek 10YR Bond Yields on the chart to the right. Craziness.

Meanwhile gold, the ultimate barometer for measuring faith in global fiat currencies, soared to a record high today - if your still wondering if we are past the Great Credit Crisis of 2008-2009 just look to the price of gold for your answer. If all was fine and dandy in the world gold would not be trading just under $1,600 an ounce.

I am very confident that the US will never, ever default on our debt obligations because we can simply come to an agreement on our debt ceiling OR print our way out of the mess we put ourselves in (remember, we borrow in dollars and we print dollars). But that policy action has consequences and should buyers of our debt perceive a potential loss of confidence in US treasury bonds, the secular bull market in treasuries could reverse in a very big way. What is possible is a sharp reaction in our bond markets caused by perception shifts, much like what has happened in some EU bond markets. If that were to happen the fed's response would be to announce a tremendous US Bond Buying program, likely to the tune of trillions, in a desperate attempt to stabilize long term yields and keep rates low.

Up to now the fed's reflation policy has resulted in asset inflation for high risk assets as investors scramble to find yield. But what if the fed can't control everything? We know the fed wants and is keeping rates low by focusing on the short end of the curve. But ask yourself, can the fed really control the longer end of the curve if perceived risk for US debt rises? No way. That's the risk, not any actual default. What would life be like if US 10YR Treasury yields were 7% or 8%? Seems impossible with those same yields below 3% right now.

You see, when markets get jittery and credit blows out, money flocks to the safety of two asset classes:

1) US Treasuries, and
2) US Dollars

Equities and high yield security instruments are sold, dollars are raised and those exposed to massive leverage are caught swimming with their shorts down exacerbating the down trend. Gold is also attracting interest as a safe haven in the past few years and has proven to rise even when the US Dollar rises (late 2008 and early 2009) - going against the 'gold is a dollar hedge' play. So now what happens if uncertainty hits markets right as there is a mass exodus out of US Treasuries due to the nature of the uncertainty itself? Is that what causes gold to go parabolic? Is that end game? Will the fed be able to stabilize our bond markets if a worst case scenario hits?

This is your food for thought for today!


UES & UWS Market Check: Slowdown Begins?

Posted by urbandigs

Sun Jul 10th, 2011 03:44 PM

A: Once you get around holidays, in this case July 4th holiday, you should expect to see the pace of demand slow a bit. And it looks like we have over the past week or two. The 30-day new contracts signed ticker is in the high 800s, down from the low 1,000s a few weeks ago, and some submarkets are showing the beginning signs of a 'summer cool down'. This does not mean prices are falling; rather, this is a real-time measure of the pace of new demand coming in. With a very active start to 2011 so far, it doesn't take much to see a retraction in the trend. Lets check in on the UES and UWS lower end markets for this discussion.

Over the past week, Manhattan pending sales is down about 2.5%. But since we have the ability to check in on specific segments of the Manhattan marketplace, lets take a peek at how some of the bigger submarkets have been performing - i.e., the Upper East Side & Upper West Side markets.

We know the high end has been getting lots of press lately, so for today I will produce pending sales charts for the '<$1M' market and the '$1-$2M' market. Lets see how these price points have been performing over the past 3+ years so we can see where we are now and where we came from:

UPPER EAST SIDE PENDING SALES: Less Than $1M vs $1M-$2M & ALL Bathrooms

Green Line = Less Than $1M market
Red LIne = $1M-$2M market

ues_vs_uws_manhattan1.jpg

Conclusions: These two price points in the Upper East Side had a nice start to 2011 and peaked in mid-June. They started to cool down a bit since then. Its interesting how we did not reach the peak levels seen from last years active season or the height of the reflation in mid 2009 when the lower end started to improve first. Remember that 'pending sales' is the pool of listings that are IN CONTRACT and awaiting closing. There are only 3 ways an IN CONTRACT listing can get removed from a 'pending sale' state. They are"

1) The deal closes, verified by our real time ACRIS feed
2) The deal falls apart, and the listing changes back to an ACTIVE state
3) The deal takes longer than 180 days to close, at which point it is no longer counted as a 'pending' sales - this rule was put in place to make the pending sales measure more sensitive to real time changes that are occuring in the marketplace today


Now, on to the Upper West Side.

UPPER WEST SIDE PENDING SALES: Less Than $1M vs $1M-$2M & ALL Bathrooms

Green Line = Less Than $1M market
Red LIne = $1M-$2M market

uws_manhattan1.jpg

Conclusions: Similar to the UES, it seems the pace of demand for these UWS price points peaked in early June. Also similar is how the 2011 peak did not surpass last years activity or the heights reached in mid 2009 when we saw a delayed seasonality effect. This Manhattan submarket saw nice action for the first 6 months of 2011, but it seems we are starting to cool down a bit now.

I'll check in on other Manhattan submarkets mid week. Subscribers (subscribe now) always have full access to all real-time tools and can customize charts on the fly based on:

a) CHART TYPE - Active, Pending, or Off-Market trends
b) NEIGHBORHOOD - We track 16 of the most popular Manhattan Neighborhoods
c) BATHROOMS - We use bathrooms to break down apt size (instead of bedrooms) to minimize "over-inflation" of the data in RLS; think of how many 2BR apartments only have 1 bathroom.
d) PRICE RANGE - We current offer 4 price ranges: <$1M, $1-$2M, $2-$5M, and $5M+. The reason we limited this was to avoid getting too granular with real time information that produces a chart with a very small sample size. Charts with too little data are simply not worth interpreting. The larger the sample size you have to analyze, the better the representation of that submarket you will have.

We will be engineering a 5th input into our Chart UI (user interface) in about 3-4 weeks - PROPERTY TYPE. This new input will allow you to further refine the charts to show Co-op, Condo, Townhouse or ALL property types - so that you can interpret how these classes of properties are performing relative to each other.

More tools to come!


Manhattan Round-table: State of the Market

Posted by urbandigs

Thu Jul 7th, 2011 07:48 AM

A: Lets check in with some of Manhattan real estate's elite producers and managers to see what they are seeing in the field now that Q2 came to an end. Consider this a Manhattan round-table on the current state of the market.

First, another quick look at Manhattan PENDING SALES vs $5M+ PENDING SALES - just to show you how Manhattan's higher end has compared to the broader market in terms of pace of demand:

roundtable_pending.jpg

Our system lets you narrow charts down to neighborhood, price point, and # of bathrooms so its impossible for me to cover every section of the market in onde discussion - for full access to all these real-time tools, please subscribe here.

managers-agents-manhattan-real-estate1.jpg

RAPHAEL DENIRO (The DeNiro Group @ Douglas Elliman)

"We're seeing a typical seasonal slowdown but nothing too dramatic. The $5M and up market is very healthy. We noticed a bit of hesitation out there when the DJIA was down 6 weeks in a row but Equities markets seem to have stabilized which is critical to the overall psychology of Manhattan RE"
My comment: The 'bit of hesitation' Raphael refers to was the ripple effect of a possible Greek debt default. As is the case since 2009, a second bailout plan was passed with the hope to buy time. Does it solve the underlying issue in the EU? No. Expect more volatility in equity markets once the PIIGS (Portugal, Ireland, Italy, Greece, Spain) debt issues resurface. You can only kick the can down the road for so long. If/When equities do react sustainably to underlying debt issues that linger out there, expect a negative wealth effect to impact our markets at a lag. For now, its just a concern.

I agree with the action in Manhattan's higher end segments, they have performed wonderfully for the past 6-8 months or so. The data continues to show that Manhattan had a very active 2011 start so far.

NIKKI FIELD (The Field Team @ Sotheby's International)
"Q2 continued to be all about the International Buyer. In particular, the world's Emerging Elite are at our shores. China and India are now surpassing our European and Russian customers in volume purchases, however their price points tend to be lower as they are sampling the residential inventory buffet. Many new skills sets are needed to best represent these culturally diverse purchasers. The Chinese tend to approach their negotiations as an on-going dialogue with dramatic direction reversals while the Indian buyers exercise restraint and patience and wait until the seller capitulates. Whatever the origination, these global investors recognize the Manhattan market as a safe and opportune target.

Real time Data: Our Team signed 11 new deals this quarter, 6 were purchased with non-dollar currencies. We have 9 deals in play today and only 3 are US buyers. Summer 2011 is proving to be a new foreign invasion."
My comment: I love Nikki's in depth comments on her team's in the field observations. This is not the first time I am hearing stories of foreign buyers splurging on Manhattan property, especially Asian investors. Very interesting to see the majority of the Field Team's deals are foreigners. The depth of wealth that is interested in Manhattan property never ceases to amaze me. While Manhattan is not immune to market/macro forces, you simply cannot compare the behavior of this marketplace to other big US cities that are still searching for a bounce in activity and a bottom in home prices.

FREDERICK PETERS ( Frederick Peters @ Warburg Realty)
"The second quarter rolled in like a lion and rolled out more like a lamb. We saw prices at all time highs for some larger properties in April and May, but as summer began my agents saw the pace of co-op transactions slow across the boards as economic realities once again made many New Yorkers apprehensive about the future. Foreign buyers meanwhile are keeping the condo market strong. "
My comment: Fred is a manager and leader at Warburg and has access to all the firms' recent production. It would be silly to ignore what he is saying about the high end market right now given the data on recent high end executed contracts that he has. With that said, we have further confirmation on 'foreigners buying Manhattan property' and how bids were coming in for 'larger properties'.

DEANNA KORY ( Deanna Kory Team @ Corcoran)
"The market slowed a bit in Q2 in certain segments. Since I deal more UWS and UES, I can say that high end did really well if a great and unique apartment. Large above the trees CENTRAL PARK WEST Apartments sold high and Park Avenue was steady in the 7 plus room category. Overall, 2 bedrooms continue to sell remarkably well. We did see some slowing in the classic 7-8 room UWS sales unless priced so they felt like a "value". I sold a classic 8 corner unit @ the white house for $9,910,000. It was a record for an 8 in that Building. "
My comment: Getting record prices for larger units is something I have heard from a few colleagues lately. Submarkets with tight inventory but high price points, like Tribeca & W Village, are surprising us with how bids are coming in for well priced high in desirable product that hits the market. There is money out there, thats for sure.

JACKY TEPLITZKY ( Managing Director of The Teplitzky Team @ Douglas Elliman)
"The market is very volatile but steady. Prices are stable. There is less volume of buyers but the ones that are active are serious buyers. Sellers are being more realistic and are willing to price correctly if you give them all the facts. This is a good time to get price reductions as sellers are concern about being stuck during summer months. Sellers that want to "try" pricing higher will suffer as the buyers are very savvy about what a correct price is. Properties in bad condition will take longer to sell.

There is a shortage of apartments above 5M. That segment of the market is strong. Foreigners are buying for investment and pied-a-terre. Brazil, India and Far East leading the market here in NYC. "
My comment: Another great quote from a consistent leader in sales volume in our industry. What I love best about this quote is what I underlined, "sellers are being more realistic and willing to price correctly IF you give them all the facts"! Love it. This is why I built the UrbanDigs.com real time data platform that is customizable to every segment of the Manhattan marketplace. Show sellers what is happening in their neighborhood & price point! Help them price correctly! We also have further confirmation on the action in the high end and the lack of well priced quality product. You cant just take an average cookie cutter 2,500 sft apt with so so views and price at $5M and expect a strong bid. Its those unique apartments that have that something extra-ordinary that buyers right now are bidding up for! That's the segment of Manhattan real estate that has been on fire lately!

And there you have it, real-time observations by some of our industry's finest combined with actual data to quantify whats really happening out there.

WHAT ARE YOU SEEING???


Manhattan Total Sales Volume & Absorption Rate

Posted by urbandigs

Fri Jul 1st, 2011 11:27 AM

A: Some more charts for you on the Manhattan housing market.

MANHATTAN TOTAL SALES VOLUME (in millions of dollars)

manhattn_sales_vol_dollars.jpg

I love this chart. Since dollar volume of sales is tied to actual sales, this chart is also set to a 90-day lag. Once we are confident that a month has most of its recorded sales filed with the city, we will publish the production on UD.com. Any chart tied to Manhattan sales (dollar volume, absorption rate, listing discount, etc.) should be at a lag or risk painting an incomplete picture until enough time has passed for all sales to be filed and measured.

The chart shows dollar volume trends, by month, and really shows you the destruction of our market post-Lehman and the reflation we saw to present day. As the March 2011 bar gets published, the trend is down 12% from the same period in 2010 but up 10% from the month of February.

MANHATTAN ABSORPTION RATE (in # of months)

Absorption rate is the pace at which current supply can be absorbed given the most recent measure of sales volume. What some need to understand is that 'supply' can be measured in a few ways:

1) 'Units' of Supply --> includes any unit of inventory that was on the market and has not yet sold (including pending sales)

2) 'Active' supply --> includes units of inventory currently ACTIVE on the marketplace (not including pending sales)

We chose to utilize method #1 and followed this formula; which includes pending units in the supply figure because they were not absorbed (sold) yet.

Most brokers define a level of Absorption Rate that when broken, signifies either a "buyers" or "sellers" market - lets call it 6 months. So anything over 6 months indicates a "buyers market" and anything below indicates a "sellers market". Typically those measures utilize method #2 - so expect our dividing line to be higher (maybe 10 or 11) as 'supply' includes pending sales that are awaiting closing.

absorpti_rate.jpg

Our development team has plans to extend Absorption Rate, and build Days on Market stats, for neighborhoods and submarkets as well in the near future. Right now, this subscriber feature only measures the entire Manhattan marketplace.


Manhattan Q2 In The Books

Posted by urbandigs

Fri Jul 1st, 2011 07:54 AM

A: So the big firms are out with their Q2 reports and the main trends are: median prices up y-o-y, sales volume down y-o-y but up from last quarter, new development prices down y-o-y. Since the UrbanDigs.com platform was designed to track real-time inventory shifts in order to give you the latest information on the current state of the market, we have not yet finished work on actual sales tools. I consider this site to be about 60% complete, and by the end of this year we should have all the sales/reporting tools fully engineered and published for comparing to other firms' quarterly reports.

First, lets just review the news. Bloomberg reports "Manhattan Apartment Sales Decline":

Manhattan apartment sales and prices fell in the second quarter from a year earlier, as the absence of a federal tax credit created less urgency to complete deals.

Purchases of condominiums and co-ops declined 3.8 percent from a year earlier to 2,650, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. The median price of co-ops and condos that changed hands in the borough dropped 5.5 percent to $850,000.

Five reports issued today on the Manhattan apartment market showed mixed results for sales and values in the second quarter. Corcoran Group said purchases of condos and co-ops declined 14 percent from a year earlier to 3,180. The median price of units that changed hands climbed 6 percent to $830,000.

StreetEasy.com, a service that compiles broker listings, said the median price increased 7.8 percent to $810,000, while completed deals fell 12 percent. Brokerage Brown Harris Stevens and its sister firm, Halstead Property LLC, reported a median price of $835,000, a 1 percent drop from 2010.
As is normally the case, multiple reports show varying conclusions on the Manhattan marketplace. The reason for this is a combination of things:

1) Data Quality - Differences in scrubbing the data used for the reports
2) Data Completeness - Differences in access to ACRIS sales and cleaning/standardizing this dataset for maximum accuracy
3) Data Latency - Exposure to the lag of city filings for closed sales
4) Measurement Techniques - Differences in algorithms/rules used to define different metrics; for example, the UD.com platform utilizes rules on frequency the listing was updated by the exclusive agent when deciding whether the unit should be captured & measured. Stale listings that are no longer updated by the exclusive agent are not counted.

Trust me, this is no easy gig sorting and cleaning all the data to ensure the highest degree of accuracy in the final reports that the media, brokers and their consumers use to interpret the state of the Manhattan marketplace.

With June in the books, let me first show you where the pace of new signed deals came in and how it compares to both a year prior and last month:

q2_brkr_updates.jpg
*each bar represents the monthly production of new contracts signed

Now lets take a peek at Manhattan Pending Sales (green line) vs ACRIS Daily Sales pace (red line):

q2_2011_manhattan.jpg
I highlighted Q1 in yellow and Q2 in orange. Notice how the red line stops just short of the start of Q2, that is because our ACRIS sales line chart is set to a 90-day lag to account for the delay in city filings for newly closed deals.

You must understand that the Q2 report released today utilizes sales that are filed in Q2 but closed in Q1 + does not count those Q2 closings that have not yet been filed by the city register. The best way for me to explain this further is to show you yesterday's ACRIS sales filings that likely never made it into this Q2 report because the data was available as of this morning:

ACRIS Filings For June 30th, 2011 (available today):

1 sale from 2006 was filed
2 sales from 2010 were filed
1 sale from March, 2011 was filed
3 sales from April, 2011 were filed
10 sales from May, 2011 were filed
51 sales from June, 2011 filed


So, we have 64 sales that closed in Q2 that became public information late yesterday/this morning and most likely are not included in today's released reports. On Monday there will be another 50-60 Q2 sales that roll in; and so on. I would go as far to say that Q2 sales won't be completely in until around mid August or so. It doesn't mean the reports are wrong, it just means they are a reflection of past market activity.

That is the key point. If your wondering why real-time market signals here on UD.com diverge from what the publicized reports are telling you, it is because the firms quarterly reports are mostly based on these lagging closed sales while the charts I am talking about are based on real-time inventory shifts in the Manhattan marketplace; two different things!

I do see that median prices are on the rise and that likely is a result of the mix of apartments that have been closing these past few months -- UD.com has been showing in real time that more higher end units have been going into contract and closing and the future pipeline looking ahead remains solid.

FINAL NOTE: Since sales filings are lagging, any metric tied to closed sales will be lagging too. This means measures of absorption rate, price per square foot trends, median/avg price trends, and listing discount trends are all exposed to the same rear-view mirror lag. Something to keep in mind.