May in the Books...Manhattan Still 'Very Active'
A: I finally got connected yesterday after closing on a vacation home in Southbury, CT. I was able to enjoy 9 days of internet freedom but now it's back to work. Lets get up to speed on what the Manhattan housing market has been doing. This post is longer than usual but I encourage all brokers to read this, especially those that subscribe to UD real time Manhattan tools.
The last discussion was on May 30th and touched on the topic of seasonality that Manhattan tends to experience; that is with no major macro issues affecting us, active markets to start the year and generally slower summers. Before I get into the latest data, I want to direct you to Warburg Realty's wonderful President Fred Peters, and his most recent blog post, "Fred's View of Manhattan Real Estate":
When I was first paying attention to real estate, in the late 70s and early 80s, there was little for sale, not because the market was so tight (interest rates were, after all, at 18%-an inhibitor if there ever was one!), but because there just wasn't that much inventory. There were few condos. Most of Broadway was still low rise rentals, much of West End was still rental, and most of the postwar units east of Third Avenue were rentals as well. There was no such thing as Tribeca and SoHo was for artists. In those days our business was highly seasonal.Fred is an amazing source of wisdom, experience and knowledge when it comes to Manhattan real estate. I love the direction he is taking his firm. When it comes to how the markets changed in 30 years, he IS the 'expert'; so I listen. I tend to get very analytical when it comes to tracking Manhattan real estate, and my views are more consistent with a 'trader mentality'. With that said, let me explain how I interpret the tools I built here on UrbanDigs and what I consider the signs that indicate a strong and weak market.
Everything changed with the massive amount of co-op conversion and construction which took place between the late 1970s and 1986. Over the arc of that decade, owning became more of an aspirational New York City desire.
This had a big effect on seasonality. Increasingly, as smaller apartments entered the sales mix, the seasonality curve flattened. It didn't disappear, but it flattened. If you are buying a one or two bedroom, you probably don't care that much whether you are buying it in January or July. You are not spending the summer in the Hamptons. So while there is a dip in purchasing after June 15th or June 30th, there are other factors which more significantly dictate how busy a summer is likely to be. t is always slow between December 15th and January 10th, similarly between August 15th and Labor Day. But other than that, economic factors dictate overall market activity much more than weather patterns or vacation times.
1. The Monthly Pace of New Deals Signed
This is my 2nd favorite chart to watch, but I'm writing about it first for this post. I prefer to prioritize the pace of demand over the pace of supply. The reason? Well, in an ideal world we would be able to track in real time where the 'bids' are coming in. In other words, all those contracts that are being signed today and are awaiting closing, where did the bid meet the ask? Are prices rising or falling? That data is not publicly available outside of the parties involved in the transaction. So we are forced to wait 2-4 months for the closing + 2-4 weeks for ACRIS to file the sales record. When we get price discovery, its a rear view mirror unit of information that really represented the market as it was 3-5 months ago.
For me, that is not acceptable. Therefore, I prioritize "new deal volume" as the most real time indicator of current market conditions. In other words, how many deals are being signed! Lets take a look at this now:
As you can see, May's data came in a few days ago at 951 new deals signed. This is down from last month and also down from the same month exactly one year ago. This monthly production bar chart is my 2nd favorite tool to follow on UD to get a sense of how the Manhattan market is doing. Here is a quick guide to what # signals what interpretation:
1,000+ - Very Active. If new deal pace is over 1,000 per month, the market is on fire! Once you get to this pace of new deal volume, it tends to get more difficult with time to sustain. Usually we only see 1-3 months in a calendar year with 1,000+ new deals sign per month and that tends to come in the March-May period
900-1,000 - Active. If we are seeing between 900 and 1,000 new deals signed, the market is quite active. This is where we seem to be right now, down a tad from the last few months. If we get closer to that 1,000 level, you know the market is getting very active.
800-900 - Above Normal. This pace is more active than normal and tends to occur and tends to occur in February's to start the active season and June's to end the active season.
650-800 - Transition months/Normal Market. I would not call this pace 'very active' but I would also not call this pace 'slow'. Its right in the middle.
550-650 - Slow. If monthly new deal volume falls into this range, the market likely feels slow and brokers usually start to chat about difficulty in getting strong bids to come in.
Less than 550 - Very Slow. When Lehman failed we saw the pace of new monthly deals fall to a low of 317 and 484 in January & February of 2009 respectively. That kind of pace signals a completely dead market and a market that likely is seeing a price adjustment. Always look for sustainability. If you see 3+ months of under 600 new deals signed, something bad is going on in real time and chances are buyers are tweaking their bids due to a fall in confidence/affordability. The question always remains, will sellers hit that bid?
I always use this general guide when interpreting UD monthly contracts signed bar charts.
2. The Real-Time Market Ticker
My favorite tools by far is the Real-Time Manhattan market ticker. I guess its the trader in me. Every day new contracts are signed and I wanted to build a tool that tracks this 'broad market' performance. Its as real time as you can get. Lets take a quick peak at how the market has changed since the slower Memorial Day holiday:
As you can see in the boxed out area, in the past two days alone we saw over 100 new deals signed! Now, since two days or even 1 week is not a trend make, I focus on that right most #; the 30-day moving window pace. The ticker is showing that in the last 30 days (figure May 8th through June 7th), we have seen 992 new deals signed. If you re-read the guide I posted above, that fits into the 'Very Strong' category and is about to breach that 1,000 mark. In other words, buyers continue to step up and sign deals for Manhattan property at a very strong pace!
I watch this ticker every day. While the daily production is quite interesting, I focus on the 7-day and 30-day #s. When you see the 7-day # fall to below 200 and the 30-day # fall below 900, you will know the market is starting to slow. So far, since March this has not happened and before that the market was on an uptrend to levels we see today. As of now, there is no summer slowdown yet!
3. Pending Sales Line Charts
Finally, I like to look at the bigger picture via the Manhattan pending sales line charts. Pending sales is not monthly production like the bar charts. Rather, pending sales measures the pool of listings in the Manhattan marketplace that are 'in contract' and are awaiting their closing. It is a more accurate, yet slightly less real-time measure of Manhattan demand. It will follow the trend that the real time ticker and bar charts are telling us. If the market were to slow drastically, it would show up in all three of the tools discussed in this post.
Let's look back 3+ years and you will see how this market has performed before the crisis hit and how we did after:
I marked Lehman's failure with a vertical red line, for easy referencing. I love this tool because it is a very accurate representation of demand in this marketplace. It also shows seasonality nicely in terms of new deal volume. So far the 2011 active season is just a tad below last year's peak levels - and all this is happening with less product on the market! That is why this market never ceases to amaze me. With less new product coming to market every month, buyers are still stepping up to buy. Inventory levels are flat compared to 1 year ago, but Off-Market trends are way way down. If you think about it, new product that comes to market is either going to contract or staying on waiting for a buyer - less product is being removed from the market. This is another sign of strength as sellers tend to remove their property when the market is dead or bids too low. Not the case in today's market.
I know its a lot to digest, but nobody becomes an expert overnight. Continue to use these real time tools and you will get more and more comfortable with the interface and the interpretations. It's all about staying ahead of the curve with the best data available on the market today. When the market does adjust, at least these tools will show us in real time. Always remember, the data doesn't lie!