Expect YoY Gains in Q3 Report - Missing The Slow Summer
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:The chart referenced in that post is below and shows you the Quarterly Average Sales Price Trends from 3 top Manhattan brokerages:
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.
*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.
Posted by ues buyer
Mon Sep 27th, 2010 10:44 AM
It is interesting how you did your methodology. We are looking to buy in upper east up to two million range for some time now. When we go to streeteasy and do a search for contracts signed in that market (must have address, only show listings in contract), there are 112 listings
http://streeteasy.com/nyc/sales/ues-manhattan/status:pending|price:1000000-2000000|has_address:1?page=12&sort_by=listed_desc
However, there are a bunch of in-contract listings there from 2006-2008.
http://streeteasy.com/nyc/sale/11093-coop-781-fifth-avenue-lenox-hill-new-york
http://streeteasy.com/nyc/sale/20318-coop-930-fifth-avenue-upper-east-side-new-york
And some that sold already
http://streeteasy.com/nyc/sale/54431-condo-1474-third-avenue-upper-east-side-new-york
How does your system handle listings that sold, but for whatever reason streeteasy has still listed in contract? Why does this happen?
Posted by Noah
Mon Sep 27th, 2010 11:39 AM
First off, your seeing for yourself that the data is a mess. Second, after a year of data mining I can tell you that SE did a fantastic job with it for their site. As is this case with many things, it could always be improved upon.
The main reasons are that there are flaws in the sharing processes between rolex, olr, brokersnyc, etc..Also there are little things in the system that can be mis-interpreted. One of these is the listing expiration datafield that is not made public. Say you have a new 6-month exclusive, when the broker enters it the system captures the expiration date 180 days out. Now lets say after 5 months, the listing goes to contract and expires during course of pending closing. The listing will automatically will trigger a PERM OFF MKT status change, even though the broker likely got listing agreement renewed for the closing; but did not enter it back in.
Many little things like this. That is why you may see a listing in contract go to off mkt..its really in contract. We had to discover and acct for all the little nuances of the sharing systems and listings db. A gargantan task to say the least. Very few know of how challenging it is to make this data as close to perfect as possible - it will never be 100% perfect. These include property shark, SE, Jonathan Miller, realplus, olr, us at urbandigs, matt daimler at buyfolio, etc..
I didnt even talk about the listing discrepencies when trying to sync up listings DB + ACRIS db..Ugh, what a nightmare - SE did a great job on this.
As far as the last question. Our systems are designed to track 4 listing states: ACTIVE, OFF MKT, CSGN and SOLD & CLOSED. ACRIS handles all sold listings and is our verify point. In other words, it is king of the castle in terms of switching a listing from ACTIVE or CSGN, to closed. And yes, many brokers simply leave a listing set to ACTIVE, even when its in contract. Once it is recorded and caputred, our system sets status automatically to CLOSED. From there, our flow algo only allows it to re-enter a new ACTIVE state first - as how can you go from sold/closed to in contract or off mkt when you have not been on market again? The flow algo governance, is what we believe to be the nicest innovation of our new platform
Rolex feed handles the other stuff. As far as our UES pending sales in your 1-2m price point, its closer to 70 or so - but again, we have rules in to remove the data that we consider poisonous when designing a system to reflect current market conditions and to be sensitive to real time market shifts...
Posted by Noah
Tue Sep 28th, 2010 09:12 AM
stupid spam...sorry guys
Posted by anonymous
Tue Sep 28th, 2010 09:52 AM
Noah,
I have spent an enormous amount of time defining real market trends from a statistics standpoint (SAS programming etc.) and I have two issues with your current analysis.
1) A lot of the dip experienced in Q3-09 was solely due to available financing. If you add, and it becomes a relatively complicated function, an additional variable to benchmark and normalize available leverage at a minimum, The actual bottom of the market is Q4-09.
2) Having worked on Wall Street for too long, I am not a believer in the grossly overstated bonus correlation. Now that the banking compensation model has changed radically via FinReg and the holding company issues of comp, how are the pundits going to prognosticate?
Posted by Noah
Tue Sep 28th, 2010 10:05 AM
Hey Anon - thx for the comment and you bring up awesome points. The outside factors that come into play in the Manhattan market and drive both supply and demand.
With that said, there is no way for us to measure with any certainty or reliability, how available financing may or may not be affecting the markets. Certainly it did and it is affecting the market, but there is no index or feed from the source banks that would allow me to measure how easy or difficult it is to secure financing at any given point in time. Rather, its up to us to do that research and prognosticate how it may be affecting demand in this market.
Your second point is understandable but I think I take the other side. There also is no way to quantify how much bonus money reaches active buyers out there and how much of that money will ultimately be used for a purchase of Manhattan property. Just cant measure it, so we are left looking at total size of payouts; which most go to top 10% of the recipients out there. Once you start adding in elements that you dont trust, you start to jeopardize the integrity of what you are trying to measure with reliable data sources.
Yes the model has changed, but for most part, there are plenty of very hard working wall streeters (not execs, fixed income and other guys that had nothing to do with the crisis other than being at the firm that needed help) that get modest salaries and big bonuses. This has both an affect on confidence and a buyer's sense of affordability. When these checks are paid out, after taxes, these guys have more weapons to put to work for property if they dont already own. I sold apts to 4 wall streeters in the 1-3m range earlier this year and all of them planned their purchase around their bonus checks that helped their post closing liquidity. To me, its an animal that is changing to a new environment, but still exists out there.
Moving on. How do you measure Manhattan real estate? For one, what data is verifiable? What forces affect that data? What does the data tell us? Does it show supply vs demand? To me, its all about supply vs demand. Are buyers signing contracts? The pace? Are listings sitting? Are listings coming off market? And there is only one place to accurately and reliably measure this --> the REBNY broker sharing system. The difficult part was adapting to the flaws and removing the poisonous data to come up with as high quality an existing resale tracking platform as possible. The flaw? Shadow, untraceable inventory that we all know exists but for which there are no records for. Nothing we can do about that. Outside of that, the sharing system has plenty of good data in it, that allows you track the movement of inventory from one state to another. Then its a matter of recorded sales and where the deals are closing at, which is not real time and subject to lags due to closing processes.
To me, you must leave outside market forces like availabilty/difficulty of financing and macro forces separate and build opinions on how these changing things MIGHT, and I stress might, be affecting the stuff that we can accurately measure --> the movement of inventory. Thx again for your comment.
Posted by ???
Wed Sep 29th, 2010 10:00 AM
Looks like inventory has ballooned no?
Posted by anonymous
Wed Sep 29th, 2010 10:22 AM
No. It's seasonality and it's as normal as a sunrise. September = new inventory and buyers shop. October = trickle new inventory and buyers buy. November = trickle new inventory and buyers buy. December = lull on both sides waiting for New Year.
Posted by Noah
Wed Sep 29th, 2010 10:35 AM
If you look at the post a few below this, I showed you another chart from the soon to be released system that shows you the neg correlation between active vs off mkt trends..in short, its seasonality. Listings are coming back on market from a prior off mkt state, right around Labor Day, and you see off mkt trends go down and the same move up in active. So you can see the movement of inventory from off mkt to active. Cant wait to finish this guys..so close. working on final items and unfortunately we are going to launch with a payment system using paypal, where users have to redirect to subscribe. Otherwise, my costs will rise another 5k and launch would be pushed back another few weeks to integrate an in house SSL enabled payment solution
Posted by ??
Wed Sep 29th, 2010 11:54 AM
"No. It's seasonality and it's as normal as a sunrise. September = new inventory and buyers shop. October = trickle new inventory and buyers buy. November = trickle new inventory and buyers buy. December = lull on both sides waiting for New Year." THANKS SO MUCH! WAS CURIOUS ABOUT HOW IT ROLLS AROUND HERE. GOOD TO KNOW THAT OCT/NOV ARE BIG BUYING MONTHS AS WE ARE ONE OF THE MANY LISTING!
Posted by Noah
Wed Sep 29th, 2010 12:01 PM
well there are always buyers out there..good thing is, activity def ticked up in past few weeks as is normal after labor day. July and Aug were dead. But as is usually the case, its very individual and all about pricing.
If you are getting no traffic in past 3 weeks, I would rethink your pricing strategy a bit. good luck
Posted by ??
Wed Sep 29th, 2010 02:47 PM
Thanks Noah! We are getting lots of traffic fingers crossed. In the 3rd day of the listing we received an offer that was with a contingency and we told the bidder we rather not do a contingency at this time. It was contingent upon them selling their own apartment. So I think we're priced pretty right, even our broker thinks so. We're realistic as to where our product is trading right now. But we also don't want to fire sale. If we get our price without a contingency of any sort then we're good to go. Otherwise, we'll take it off and keep it til a better time. We are super fortunate that we can afford to keep it even though we've bought something else. We just needed something larger with a growing family! Thanks so much!