Equity Markets Jittery Again -- Manhattan Deal Vol Stays High
A: A tale of two markets as equity markets get jittery over the same old concerns while Manhattan continues to enjoy peak levels of new deal volume -- weekly pace of newly signed contracts is hovering between 320-350, as the past two days alone (mon+tue production) saw 130+ new deals across Manhattan get signed! Today we booked another 40+. Its common for the pace of new deal volume to lag equity markets by at least a few months - just think back to 2007-2008, as Manhattan held on until Lehman failed in Sep 2008. But today's Manhattan real estate sector is a very active one and the data suggests a notable shift in leverage to the seller over the last 4-6+ weeks or so. I'm especially curious to see how current conditions may affect future lending rates if bank pipelines get too backed up, or how appraisals come in for deals where bidding wars resulted in offers well over ask. Expect today's market conditions to ultimately be reflected in the Q3-2012 market report released October 1st. For now, lets look at what equity markets are worried about again and how we can tell if/when it starts to impact Manhattan RE.
Major equity indexes traded down over 1% today before rallying back as worries over Greek and the EU once again 'mean something' - concerns over Spain are also worth pointing out. Stock markets are psychotic like that as things matter until they don't...until they matter again - its the markets way of self-cleansing itself of bad debts and mis-valuations and it almost always first shows up in bond markets (corporates, government, asset-backed securities, etc.)!
An example of this would be how the Greece 1YR Govt Bond Yield is at 1,143%!! - a sure sign of the turbulence that likely lies ahead for Greece. At all times, equity markets are trying to discount the potential future impact on corporate earnings and in essence is barometer of investor confidence and their taste for risk assets over the near-medium term.
But what I want to point out is just how far we have come since 2009, and how we are at the height of that up move right now -- this leaves contrarians worried over future risk/reward after climbing a big wall of worry and the optimists who want to continue to ride the euphoric wave.
The EU problems are yet to full out crash our markets -- and now it seems like there will be another round of tests of the markets durability to these known sovereign debt concerns. For this to get Manhattan messy, equity markets need to see some kind of substantial selloff strong enough to impact buy side confidence and bids. One technical indicator of rising sell side momentum is watching to see if the S&P500 crosses its 200-day moving average. Looks like we need another 7%-8% selloff to reach that 200-day moving avg and if we close below it, the markets may be in for a deeper down move than many might otherwise suspect.
Below is a chart showing the S&P500 since May 2009, along with the 200-day moving average in red. The last time these concerns surfaced was August of last year and markets dipped below their 200-day moving average and nose-dived 12%-13% over a matter of weeks (shown on chart below) - since then, its been a gradual reflation back to over 1,400. Take a look:
Manhattan real estate deals take weeks to go from verbal agreement on terms to fully executed contract of sale; when it gets counted as 'pending' on UrbanDigs.com. Here is the latest snapshot of the Daily Market Ticker:
The ticker lets us track:
-- 2 doses of daily updates; both today's deal production and yesterday's #s
-- a weekly pace of deal volume
-- a monthly pace of deal volume
Looking at the monthly pace allows us to see the broader trend and as you can see, Manhattan produced over 1,300+ new deals over the last 30 days! Daily deal volume continues to be very strong during the week, reaching the 40s, 50s, and 60s and sustaining these levels for weeks now. If the market were to feel an impact to a stock market selloff, this ticker will be the first to show it as future deal volume dies down dragging with it the weekly and monthly #s.
So far that has not happened. In the meantime, lets keep our eyes on equity markets to see if EU worries start to 'matter' again as we finish off a very active start to 2012!.
Posted by Mph
Fri May 11th, 2012 10:20 AM
Hey Noah thought you might be interested in the below. On another note, any thoughts on Williamsburg as a value play?
http://blogs.reuters.com/felix-salmon/2012/05/09/rent-vs-buy-manhattan-edition/
Posted by urbanmg
Thu May 17th, 2012 04:50 PM
the unknown is where deals are being done in order to get done. The range is wide: some bidding wars over ask and some discounts 10% below ask where sellers are spooked and simply want out - there is no one, prevailing trend. The coop process means a long wait to learn the actual pricing.
Posted by dontgetit
Mon May 21st, 2012 12:22 PM
Noah -- I just don't get it. The banks (except C) aren't that far above their '09 lows. On the Street, everyone knows a big round of layoffs is coming. Taxes are ruinously high. City and state finances have temporarily improved but are headed back over a cliff. Aside from tech (which is definitely growing fast), other big city industries are flat to down. Yet rents (which aren't supported by foreign demand) are near, if not at, all-time highs. Prices in the Village and Tribeca are setting records, while prime UES and UWS are close to if not at the '07 highs.
The demand is real. It can't be denied. I just wish someone would explain where it's coming from.
Posted by wls
Wed May 23rd, 2012 12:08 PM
dontgetit, I agree with you. Noah, please weigh in!
Posted by urbandigs
Wed May 23rd, 2012 01:07 PM
sorry guys -- saw same thread on SE yesterday and answered there after work and meant to re-post here..but got bsy and forgot..my bad. Here are my thoughts:
So yea, the demand is definitely real as the #s dont lie. We are still seeing a pace of 1,200+ deals signed a month, with less "stuff" coming to market each month. Q3 report will probably be the one to show it.
Its getting to the point where "nice" apartments, not "great" apartments are getting a nice bid. Tells me there are slim pickings out there, yet properties are trading. Odd feeling. My buyers know very early that we cant take a chance not bidding on a quality apt that is remotely priced right these days. Thats the thing, what if we are seeing pent up demand from lower volume levels the past few years? And now they are all more confident, see Manhattan as more stable, and see the renting alternatives.
My buyers are all over the place in terms of employment ranging from investment professionals, to controller, to university professors, to pharmaceutical/biotech, associates at law firms, pr/marketing executives, etc..I cant speak for my colleagues on this but one thing I do know is that the depth of the Manhattan buyer pool never ceases to amaze me..it seems Im not the only one with a thread like this. Cant we admit that interest in Manhattan property spreads from family to younger generations as money is passed down, to older generations/retirees, to foreign investors/families, and to all the independent Manhattan buyers who just worked there asses off for years to at one time own a piece of this city
When I hear fundamentals talk I ask myself, is this market trading on fundamentals or buyer confidence? Or both? I would think buyer confidence and interest in rare well priced quality property is quite high right now -- and we dont have all those 1000s of new dev units about to hit the market the last time buyers felt this confidence in '07.
Im not saying the fundamentals dont count, they do, but until something crazy happens that causes markets to 'rattle' the world by crashing 20-30%+, confidence has a more direct role in whether or not Manhattan real estate sees rising or declining volume. And we have been rising, and less stuff is being listed for sale -- so what does that tell us? Why would sellers not want to flood the market with inventory if the market is so strong right now?
Clearly the past 3+ months of market activity is not trading on buyers views on deteriorating wall street jobs/bonuses fundamentals. They are not focused on rising re taxes because comparable rental rates are soaring and they can use the tax shelter..to a point of course, the markets will equalize the value of an apt whose monthly carry rose far above the broader market.
Manhattan is a market like all others, except it trades differently. Like most local re markets. Right now is probably the pinnacle of the move but until either bids disappear for whatever reason or a flood of units come to market, I think we will continue to see deal vol high as buyers race each other for most desirable and well priced product to come onto the market. Then it'll be summer, and we will slow down and the frenzy will be over.
Posted by wls
Wed May 23rd, 2012 02:35 PM
as always, thank you for the informative post