Expect YoY Gains in Q3 Report - Missing The Slow Summer

Posted by urbandigs

Mon Sep 27th, 2010 09:52 AM

A: Many experts prefer to look at year-over-year sales reports to account for seasonality. Therefore, please recall that it was the Q3-2009 market reports that basically defined the most difficult period Manhattan real estate went through following the failure of Lehman. Due to the lagging nature of quarterly reports, the Q3-2009 report captured the distressed deals signed when fear was highest in early 2009; think of those that signed deals in March-May which closed in the period July-September for inclusion in that Q3-2009 report. Since then, the progressive improvement ultimately topped itself off with a very active 2010 bonus season; so expect this year's Q3 report to show nice YoY average and median sales price gains. I would also expect to see continued Qtr-Qtr improvements as the higher end price points saw great sales volume earlier this year that have since closed. Discussing where the market is now and where we just came from, paints a different story.

Flashback to May, "Showing You Why The Q3 Report Will Reveal Improvement":

The two main reasons why the Q3-2010 report will be one to look forward to is:

1) Year-over-Year Comparison to Q3-2009 - It was the 3rd quarter report of 2009 that defined the downturn, a few months after the real trough in our market, as public record finally caught the sales that were signed into contract earlier last year. We are now heading into these defining reports, making y-o-y trends easier to beat.

2) Public Record Yet To Catch The Full Improvement - Due to the lagging nature of these reports, as time passes we will see how this market behaved for months that already passed. I can tell you that JAN-MARCH 2010 were very strong as tight inventory and strong demand caused some competition amongst buyers. The result was a sharp decline in days on market trends and listing discount measurements; as seen in the chart in my post, "Misinterpreting 'Bidding War' Statements From Brokers". With time, quarterly reports will gradual catch up with the progressive improvement right as we head into the two y-o-y reports that defined the downturn this market experienced.
The chart referenced in that post is below and shows you the Quarterly Average Sales Price Trends from 3 top Manhattan brokerages:

*Note: This chart has not been updated to include possible backward revisions done by these firms' reports.

You can see that its the Q3-2009 reports that for the most part, defined the downturn we saw in our markets. So, beating those levels should be easy given the reflation from very distressed levels that was experienced across all price points.

For those that want to know whats going on right now, its best to measure the pace of sales for the past 3-4 months to get a sense of current market conditions. When we look at pending sales trends, we see a steady decline starting around mid-May and seemingly bottoming around end of August. The decline fully retraces the surge we saw earlier this year. So for many brokers out there, it was a very active bonus season followed by a very slow summer in terms of new deals signed! Here is a chart showing the past 9 months of Pending Sales:


PENDING METHODOLOGY --> Includes all listings that go from an ACTIVE state to a CSGN state; excludes all listings that have been in contract for longer than 6 months (avg time to close is about 3-4 months), and excludes all listings that are set to CSGN but have not been updated in the past 90 days by the listing broker.

The reason we designed our methodology the way we did is so that delayed closings, stale and obsolete data do not dilute the sensitivity of the pending sales measurement to capturing any real time market shifts. Don't expect the upcoming reports to show you the most recent few months. Rather, the slowdown in pending sales and closings will probably come out in the Q4-2010 or Q1-2011 reports.