2016, the year of normalization… After five straight years of progressive reflation in Manhattan residential real estate (2010-2015), buyers finally saw the leverage pendulum swing their way. Of course, just how much leverage a buyer gained still heavily depends on the price point. What’s happening at the high end is drastically different than what’s happening at the lower end. Lets discuss before the firms Q4 market reports are released.
Here are the 5 themes you need to know about Manhattan’s 2016:
Buyers gain leverage as market dynamics normalize
2013 through 2015 were painful times for buyers; especially 2014 and very early 2015 which saw 7 our of 10 deals go into bidding wars. We think the last year and a half of the reflation cycle Manhattan experienced was especially “euphoric”, as it bounced back from the dark days of 2009. The overall cycle lasted 5 years and, as is typically the case, peaked with a ‘frenzy’ phase favoring sellers. Usually peaks are short lived, a quick rise to the top followed by a quick fall. This time around it seemed as if sellers enjoyed extremely favorable conditions for 12-15 months, leaving buyers frustrated with few options and fierce competition. I recall our buyer clients simply asking for 1-on-1 negotiations with sellers, but 2014-mid 2015, there few were to be found.
Deal volume for 2016 was sluggish – compared to this time last year, we have 15% more inventory, 12% less in contract, and it is taking 24% longer to sell. Combined together, this fits the narrative that buyers in 2016 gained more leverage than they have had in years.
There is value out there and buyers can finally negotiate again, especially in the higher end sectors.
Manhattan peaked in early/mid 2015 – trough in early 2016
Real-time metrics (Supply, Pending Sales, Deal Volume, Days on Market, etc) all confirm that sellers enjoyed the highest deal volume activity and leverage from late 2014 into mid-2015. We are comfortable calling this period the “peak” of this latest 5-year cycle.
In our view, the fall from peak prices troughed in early 2016. That was the gloomiest part of this latest down cycle, but since then the market has normalized and ‘weakly rebounded’ to where we are today.
The high-end got hit harder than the low-end
Anyone following the Manhattan markets over the last several years knows that the high end ($10M+) experienced more rapid growth versus lower end sectors. However, that came to an end in early 2015 as the high end fell off a cliff. Lower priced sectors, buttressed by a larger pool and slower moving coops, held out longer. See our timelines below to get an idea of what Manhattan price point sectors experienced over the last 24 months:
From Peak to Trough | UD Estimation of % Change since (*estimates only)
Luxury Sector ($10M+) – Peak late 2014/early 2015, trough early 2016 | -20%
High End ($5M-$10M) – Peak early 2015, trough early 2016 | -15%
Mid End ($2M-$5M) – Peak mid-2015, trough spring 2016 | -8% to -10%
Lower End (Less than $2M) – Peak fall 2015, trough spring 2016 | -3% to -5%
Upcoming Q4-2016 and Q1-2017 Reports May be Grim
Consider this a warning. Not because we at UD are prescient, but rather due entirely to statistical dynamics. Manhattan real estate is a seasonal marketplace, so we look at Year over Year (YoY) numbers to filter out the seasonal noise and tell us how today’s market is doing. If you recall, market reports in Q1 2016 contained a surge in new development condo closings, which artificially (and temporarily) skewed average sales prices 25% to 30% higher. Well, what goes in must come out… The chart below shows you monthly new dev closings, with the surge clearly visible from Q4 2015 to Q1 2016.
Our concern is that when Q4 2016 (to be released in a week by major firms) and Q1 2017 (released April 1st, 2017) market reports come out, they will not have the new development closing steroids that this past Q1 had. Without the juice, we expect YoY declines ahead that consumers may mis-interpret. There is a 4-6 month difference between what the quarterly sales figures tell us and whats happening today with real-time metrics. One should never assume the two are in sync with each other on a timescale.
Buyers especially need to understand that the hit already happened although the quarterly reports are yet to fully capture it.
YoY Median numbers will show the declines this Qtr – YoY Avg numbers will be hit in Q1-2017
Expect Median Sales figures to show YoY declines first this quarter as Average sales stats are more exposed to outliers and high end condo closings that are still waning down. We expect Average sales stats to show a YoY tumble when next quarter’s reports are released in April. Its quite possible that the market in 2017 starts stronger than the very weak beginning of 2016 that we experienced, so agents need to inform buyer & seller consumers alike about the disconnect between future Quarterly Sales reports and Current conditions that exist at that time and can be tracked in the UrbanDigs Chart Room.
From the UD Team, we wish all everyone a Safe, Healthy & Happy Holidays & New Year!