Inventory Flatlining...But Should We Celebrate?

Posted by urbandigs

Mon Jun 2nd, 2008 10:57 AM

A: You know, I get into a lot of conversations with investors who ask me how the Manhattan market is doing, expecting a change every week or so. Manhattan real estate is certainly a fast paced market, but it is still housing, and housing is an illiquid asset! Therefore, the market fundamentals will not change on a dime like say a stock would should a company issue a profit warning and change the entire dynamic on the equity's valuation. Market psychology CAN change on a dime though! So, when I take a look at the new chart system here on, I notice a clear flattening of the inventory trend after a 47% rise since mid December. So what does this all mean?

First off, for anyone new to this blog, let me warn you that content is based on what the writer's (Jeff, Christine, and yours truly) are thinking about on that particular day. For me, its usually something macro, so don't expect a 'on the front lines' report everyday!

Second, the navigation tab for this blog's tools is right above the most recent post! Here is a visual showing you where you can go to TALK REAL ESTATE and observe CHARTS. Soon you will have a contractor directory as well. This is where all new tools will be added to the blog in the future.


Moving on. Here is a 3-Month chart showing you the result of sluggish demand during the normally active wall street bonus season. Notice how inventory rose during the months of FEB-APRIL, and seemed to flat line after a 47% rise since early December just above 7,500 total listings:


Here are the noteworthy percentage changes over the near term for Manhattan inventory:

1-MONTH --> Up 11.1%
3-MONTH --> Up 35.2%
6-MONTH --> Up 47%

The pace of change has certainly stalled. Last year, inventory went from about 6,100 in JAN to about 5,100 in JUNE, reflecting the strong sales volume. In 2006, the reverse occurred and the market was similar to what we saw over the past 5 months. In 2006, inventory went from about 6,200 in JAN to about 7,600 in JUNE. We seemed to have reached the same level this year, as we did in 2006 at the same time. However, this year, we started JAN at a total inventory level of 5,300 or so; some 900 listings fewer than two years prior showing the more aggressive rise of inventory this time around.

But, lets talk more about what is going on now. The height of the credit crisis, in terms of fear, occurred during the months of Jan, Feb, and March; with the failure of Bear Stearns in March capping the rise in fear. The headline shock of these turbulent months definitely played a role in declining confidence for buyers here in Manhattan. I think this is clear in the inventory trends for these months; resulting from sluggish demand. But the rate of acceleration has all but stopped right around this level of 7,700 total active listings or so. A good sign? Sure! However, we must take into account where we came from and what time of year it was!

Inventory started to rise from a low around 4,600 listings or so, and the surge came at a time when Manhattan sales volume is supposed to be very strong! The effect of confidence at work. Anyone who believes that it is NOT all about the buyers, should rethink how strong a decline confidence is as a force in a local housing market. Heading into the generally slower summer months, we must wonder if sales volume will pick up causing a retrenchment in total supply or if this is just a layover until the next round of rising inventory. The jury is still out on this and cause for a celebration should probably be put on hold. I mean, inventory rose about 3,100 listings in the past 6 months; so how could a 4-week stall be viewed as such a positive? That's like being happy when you buy a stock at $100, and it falls to $60 and stops! Well, you need that stock to come way back up! It's all relative. Show me a decline to about 6,000 listings or so, and I'll start to get excited that buyer confidence is rising!