Manhattan's Road to Recovery Was Years in the Making

Posted by urbandigs

Tue Dec 4th, 2012 02:33 PM

A: Sorry for the lack of content lately as my team and I are swamped working on the next phase of UrbanDigs Manhattan real estate data tools. Discussions will be light for the next few months as development continues with a planned launch for early 2013. In the meantime, I wanted to briefly discuss the long road Manhattan has taken to get to where we are now. In short, its taken years to get the market as tight as we see it today.

First lets take a peek at how stock markets have performed over the last 3 years since the height of the crisis. We all know wall street is connected to Manhattan real estate; especially when it comes to buyer confidence in our markets.

Putting aside for a moment all the engineering of the markets by the Fed and Govt, stock prices have been on a steady and sustained rise for 3 years now and we continue to linger near the highs over this time period. For the average investor, fear is simply not a part of the markets right now -- sure there are worries about slowing global growth and EU, etc.. But our markets see a real impact only when equities experience a sustained sell-off, complete with the media effect and all that ultimately sends buyers to the sideline and bids pricing in future downside risks.

Take a look, courtesy of Yahoo Finance:


As local housing markets across the country continue to search for a bottom or only slightly recover, Manhattan real estate has reflated nicely to get to where we are now. Price trends are noticeably higher since that bottom and inventory trends since Jan 2009 are as follows:

Manhattan Supply since Jan 2009 is down 32%
Manhattan Pending Sales since Jan 2009 is up 167%

I don't need to sell the fact that the Manhattan marketplace is different from other dense urban markets. Different in terms of the perceived value/stability of property and the depth of the buyer pool bidding for that property, yes. Immune from market forces, no. Manhattan did get hit, but that process was fast & furious lasting from late 2008 to early/mid 2009 before starting a comeback that lasted 3 years to get to where we are today.

Let me show you.

Here is Manhattan Monthly Contract Activity since 2009 - chart here:


This chart shows you how much deal volume has risen over the last 3 years since the height of the crisis resulted in barely any contract activity. Here is a quick look at how November fared relative to past years:

November 2012 -- 874 new deals signed
November 2011 -- 792 new deals signed
November 2010 -- 801 new deals signed
November 2009 -- 910 new deals signed

This is broad market deal volume and its clear that there are no shortages of bids right now in Manhattan as buyers sift through tight inventory conditions to find desired property.

Here is Manhattan Monthly New Supply since 2009 - chart here:


This chart shows you how over the last few years less "stuff" has been coming onto the marketplace. It continues month after month after month. Here is quick look at how November fared relative to past years:

November 2012 -- 965 new listings come to market
November 2011 -- 1,045 new listings come to market
November 2010 -- 1,131 new listings come to market
November 2009 -- 1,254 new listings come to market

That's the general theme here with Manhattan supply over the last 3 years. On a monthly basis, we are seeing less and less property being listed for sale. Over time, this trend pressures overall supply and the quality of property that is on the market at any given time.

Add it all up and the market you see today has been years in the making. Confidence has improved slowly but steadily and even those expecting Armageddon in 2009 have started to believe in the resiliency of Manhattan property -- of course, steadily rising rents for 3 years also impacts this thought process.

I see quality, well priced property moving to contract rather quickly and leverage for such properties is clearly favoring the sell side. Properties that are lacking desired features (open city views, location, outdoor space, etc) continue to be all about pricing -- if you price wrong the market will seem quite slow even with this strong data hitting you in the face. Strong deal volume represents an opportunity for realistic sellers to use that leverage in their favor. The sure-fire way to not take advantage of current conditions is to drastically overprice such that no buyer is interested.

Few notes on what Im seeing in the field to sum up this discussion:

-- cash bids are not getting the 'pull' that they used to. Im seeing reasonable cash bids 2%-3% below the seller's bottom line not having any impact on the seller's decision. The seller is simply passing due to supposedly 'other offers' that seem to be coming in

-- low ball bids are just not working. Im getting no responses for buyers that wish to submit a low ball bid that is known to be below what we deem as fair market value for the target unit. Buyers should know that a low ball bid can easily backfire on you. Since the seller and the seller broker know more information than the buyer regarding received offers and current interest, a buyer's low ball bid can be quickly and easily rejected leaving the buyer wondering "what happened?". If the seller already said no to something higher, how was the buyer supposed to know and even if they did would it have made a difference? The low ball strategy works best in situations that pressure sellers and favor buyers -- not like what I see today from the data. If u want to bid low, do so knowing that you might get little or no response from the seller leaving the ball still in the buyers court.

-- quality inventory that is close to being priced right is moving fast. Know when to adjust your bidding strategy when the right property reveals itself. Of course, still do your comps analysis and a fair market opinion for the target unit, but up the aggressiveness up a few notches when the time is right. In the end, who cares if it took 4 moves to get to the # or 2.

Cheers all!