Originally Published October 23, 2006 -- was requested to put this back up, so try to put yourself back into time & place...
First a couple of quick stats from the UrbanDigs' real-time system that tracks Manhattan inventory trends (subscription req'd for links):
-- Manhattan saw 1,537 new listings come to market in September
a) This is down 16% from last September's total new supply
b) This is up 50% from the prior month
-- Manhattan Active Supply came in at 5,646 on Oct 1
a) This is down 13% from the end of Q2
b) This is down 22% from exactly one year ago
NEW CONTRACT ACTIVITY
-- Manhattan saw 750 new deals signed into contract in September
a) This is up 31% from last September's total deal volume
b) This is down 20% from the prior month
-- Manhattan Pending Sales came in at 2,536 on Oct 1
a) This is down 19% from the end of Q2
b) This is up 38.5% from exactly one year ago
CONCLUSIONS: Over the last 3 months, Manhattan supply is down 5% while Manhattan pending sales is down 20%. Clearly the market is not as active as it was back in April, May or June yet we continue to outperform on a year over year basis. In other words, considering what we are used to for this time of year the Manhattan market continues to be very tight in regards to inventory and quite active in regards to new deal volume. Over the last 30 days, the market has seen an uptick in new supply of 11% or so which is consistent with seasonality post Labor Day.
Now lets move on to price action and what the firms Q3 reports showed. I like to look at median price trends over average price trends due to the lowered impact of outliers on the general trend.
MEDIAN MANHATTAN Q3 PRICE TRENDS
The #s change from firm to firm but generally speaking it looks like median price trends have been rising month to month, but are down slightly from levels seen last year. This is largely due to the "type" of apartments that have been closing since Q3 of 2011, compared to this year. The easiest way to show you this is by looking at a chart from UrbanDigs breaking up pending sales by price point - (chart link):
Notice how the high end saw a surge in deal volume in mid 2011 which ultimately impacted Q3-Q4 #s last year. Whereas, this year we saw a broader rise in pending sales powered mostly by the lower end, especially the $2M and under price points which is now showing up in the reports. This is impacting YoY comparisons, especially for Average Price trends which are more exposed to the high end outliers.
Which takes me to the Warburg Q3 market report published by Fred Peters:
"First, a word about the deals themselves. The conventional wisdom about summer sales did prevail when it comes to dollar value. While the market was extremely active in August, most of those deals were not big deals. Those big deal buyers actually ARE at the beach. But all summer long we have seen acceleration in the market for $2 million and under.In my opinion, both median and average price action measures have their own unique flaws; mainly exposed to what types of properties close & when plus the impact of higher end deals that affect average price trends. If we looked at median price trends compared on a year over year basis, we would conclude that today's Manhattan RE market is down a few basis points over the course of the last 12 months.
Equally interesting, and more unexpected, is the acute lack of inventory throughout the sales marketplace."
Yet if you ask any buyer out there today who is struggling to find quality inventory that is also priced right, they would say "no way are prices down over last year". Just the fact that we have 22% less product to choose from puts more pressure on buyers to find that perfect value play.
This is why I like to look at the Streeteasy Condo Index, which is a repeat unit based regression analysis index that attempts to track Manhattan price action without the variables of mixing low end & high end, walkups & f/s building sales, simplexes & lofts. Rather, the index focuses only on how a same unit sale has changed over time and keeping as many variables as possible constant. This, in my humble opinion, is our best measure when trying to answer, "How is the Manhattan market trading today versus a year ago, or 3 months ago" -- which is what we are all after anyway.
SE Condo Index today --> 1,996
vs 3 months ago --> +2.8%
vs 6 months ago --> +5.6%
vs 1 year ago --> +5%
vs 3 years ago --> +10.2%
In Manhattan, every building is its own unique marketplace. I can't stress this enough. I personally do not focus on median or average price trends and would rather look at the SE condo index when trying to interpret market changes over time. In the field, when a target unit is identified either for a buyer or a seller I would prefer to analyze in-building sales trends for comparable units to see what someone bid for a highly relevant comparable apartment in recent months. If the data is lacking and recency is not to our benefit, Id rather do a time adjustment for 1yr than look at a 'less relevant, but more recent' sale to the target unit that would require a # of adjustments -- that's when the SE condo index comes into play to determine how today's market has changed from say 1 year ago and allowing me to focus on the more relevant, yet older comparable sale.
I still expect the pipeline of pending sales to produce a strong Q4 report, and lets not forget that there are probably 700-1,000 sales that closed in Q3, but have not yet been filed by the City Register -- see "A Glimpse into the ACRIS Sales Lag" for more on this topic. Those lagging sales will also populate the Q4 report that comes out in January.
Corcoran Market Report Q3_2012
Elliman Market Report Q3_2012
Halstead Market Report Q3_2012
First, lets take a quick peek at the UrbanDigs Daily Manhattan Market Ticker which shows us daily, weekly and monthly production for the Manhattan marketplace:
...by looking at the ticker above, I can see that:
-- Manhattan has produced 778 new contracts signed over the last 30 days
-- Manhattan has produced 209 new contracts signed over the last 7 days
-- Manhattan has seen 1,506 new listings come to market over the last 30 days
You can see how these trends rank amongst past months performance by clicking here for Monthly Contract Activity and here for Monthly New Supply.
Here is a chart showing you Manhattan Monthly Contract Activity since 2008 -- it's in bar chart form so you compare production in the same month going back 4 years to factor out seasonality:
This chart clearly shows a downtick in deal volume since May (when the market was in frenzy mode), but also shows how we continue to outperform September production levels from years past. The current pace of monthly demand right now is in the high 700s (as seen on the market ticker at the top of the post). This compares to past September contract activity in the following ways:
SEPTEMBER 2008 --> 567 new deals signed
SEPTEMBER 2009 --> 761 new deals signed
SEPTEMBER 2010 --> 583 new deals signed
SEPTEMBER 2011 --> 571 new deals signed
SEPTEMBER 2012 --> on pace for high 700s
Today's market strength and shift in leverage to the sell side has been in the works over the course of the last 3+ years -- it is not something that just happened 6 months ago! The data is what it is and the data doesn't lie. Shortage of supply coupled with progressively rising demand has left today's buyers of quality property without much leverage in negotiations. If your new to the market and you want to bid low and get a steal for a premium Manhattan property, I wish you good luck! Unless the building/unit is lacking in desirable features, 'it ain't happening!'. When a quality product does come to market and is priced right, dozens of other willing and able buyers are stepping up to the plate.
In terms of price action we have to wait for deals signed into to contract to not only close, but to also be filed with the city register. So we have to wait 60 or 90 days to allow time for these sales to file in before making any conclusions; otherwise we would be analyzing an incomplete picture with future sales data yet to file in.
Manhattan's rising price action began back in March or so but has taken time to see in the data. With the most recent # published this morning, take a look at the Streeteasy Condo Index which is beginning to reflect market strength seen back in May/June:
When I discussed how this was shaping up to be the "Hottest Year Since '07" back in August, it was from analyzing the real time data from UrbanDigs combined with what I was seeing in the field with our buyer clients. The SE Condo Index is slowly confirming these price action trends and we still have 2-3+ months of 'pending sales' yet to be reflected in the index. In short, expect strong quarterly reports when Q3 is released in a week or so and expect the SE condo index to continue its march higher for a bit more (although the move may be nearing its end) until it catches up to today's market. I would say the SE index currently reflects where the market was back in May/June -- this is the lag that we must deal with when analyzing price action and why today's marketplace may not be performing at the same level suggested by this information.
One thing is for sure, sellers will have strong comparable sales deals to price off of as aggressive bids for property ultimately close and become public record. Time will tell if the market can continue to produce bids to maintain the uptrend that is now maturing.
In my opinion, this is the most important aspect of a buyer brokers job these days. Understanding how to analyze past comparable sales, apply adjustments for time/views/reno/etc.., interpret current market & submarket conditions, and come up with a fair market opinion trading range for a target property to me, is the meat and potatoes of the buyers broker process. Lets get right into it.
The biggest mistake brokers make when doing a comps analysis is --> CHANGING THE VARIABLES!
AS YOU INTRODUCE MORE VARIABLES, YOU DEGRADE THE QUALITY OF THE COMPARABLE SALES ANALYSISThe key to a quality comparable sales analysis is to resist the temptation to focus on recency at the expense of relevance. What I mean is, if you have a highly relevant same-unit comparable sale that closed 14 months ago and disregarding it to focus instead on a smaller, lower floor sale that closed 3 months ago. Here are some other common mistakes:
Situation #1: Do a comparable sales analysis for a co-op, by comparing it to a different condo sale!
The Problem: How do you know how to quantify the premium that condos take in over co-ops in the open marketplace? I certainly don't know. Then you got two different buildings which means two different apartment layouts, exposures, etc. This is like comparing apples to chocolate; its not even the same kind of food and the analysis will be completely degraded!
Situation #2: Keep property type the same but look outside the building where the target unit is, and use a comparable sale from another building. Usually this is done when attempting to justify a higher price. The in-building comps say one thing, the seller or broker wants more, so you ignore relevant sales and look outside the building for better ones.
The Problem: How do you quantify the differences between the two buildings and how any one buyer will perceive and bid up one difference over another? When comparing two buildings you will notice:
a) varying service levels in the bldgs
b) varying amenities in the bldgs (storage, gym, roofdecks, sublet policy, pet policy, board purchase requirements, etc.)
c) varying building financials, reserve funds and assessment history
d) varying levels of MCI (major capital improvements)
e) varying apartment lines, economies of scale in running each building
f) at times, varying school district zones
How do you adjust for these things?? The answer is you can't! Nobody knows on a quantitative level how one buyer values one building's characteristics over another. There are no ways to measure and adjust for these things. You can't use the argument that "its a recent sale and worthy" and then ignore all the other variables. That is why you should always STAY IN THE SAME BUILDING and keep those above noted variables fixed as much as you can!
Situation #3: Analyzing a different apartment line or size in same building when you have more relevant sales to focus on.
The Problem: When you change an apartment line or size, you must adjust for it. Size is easy enough assuming its a condo and you have the stated SFT. It gets trickier for co-ops where the total size is either missing completely or estimated by the listing agent. Using a different apartment line is a bit tougher. One line may enjoy open S/W views, arguably one of the most desirable views in the city without specifying a need for river or park views. Another line may have direct North views, indirect sunlight reflecting off the neighboring building with views of mechanicals on rooftops. So even changing the line (while keeping the property type the same) may have an affect on your comps analysis.
THE SOLUTION --> Make every attempt to keep the variables constant! Same unit sales are always preferred, which by default would mean, same line sales in the same building are the next best option. Only stretch to smaller or larger units in-building if you have to; knowing full well that studios tend to trade for less per sft than 1brs, and 1brs tend to trade for less per sft than 2brs, etc.. -- in short, larger units do not have as much supply as studios and 1brs and the demand that chases them values them as such.
Moving on. Unless you have an unchanged same unit trade to analyze you will have to make a few adjustments; lets assume you don't have a same unit comp. Every single analysis between two different apartments will be exposed to the following variables:
1) Time - how is the market today and how has the market changed since the contract was signed for the selected COMPARABLE-A? I always use a 3% +/- range when adjusting for time as this is an imperfect science. The key is not to be scared to play around with an older, yet highly relevant sale since we now have a way to track Manhattan real estate price action.
The Streeteasy Repeat Sales Condo INDEX is a wonderful tool to use when trying to figure out how to adjust for time! There are very good reasons why Streeteasy ONLY used:
a) condo sales
b) repeat sales only
As Streeteasy states in the Condo Index Methodology: "A repeat sales transaction-based index allows for an "apples to apples" approach and is more like a stock market index as it tracks price changes of the same properties (or in the case of the stock market, the same stock) over time. Since this approach compares literally the same properties, errors or biases created by variables like location, size, age, and quality, are minimized."
YES! This is 100% consistent with the comps analysis approach I am trying to discuss today. I would rather analyze a same line comp that is 2 years old than go outside the building and expose the analysis to multiple variables by using a non-relevant sale that occurred a month ago.
2) Renovations - how has the COMPARABLE-A been renovated compared to the target apartment we are trying to come up with a fair market value range for? This is a imperfect science and the best we can do is utilize all information/photos we have available and estimate what it might cost to put the target apartment in the same condition.
I have seen classic 6's get a $500,000 renovation and a $250,000 renovation and I couldn't tell the difference with the cheaper work; both apartments looked amazingly renovated with high quality materials and labor.
Similar to valuing apartments with very large terraces, there is a law of diminishing returns when an apartment sees a very expensive renovation relative to its total size. If you have two 1,700sft classic 6's, one does a $500,000 reno while the other gets a $250,000 reno, the apartment with the cheaper work will likely recoup a higher percentage of their 'all-in cost' than the higher one. There is no chart on this, its what I find from working in this market and seeing how buyers bid up for renovations. Chances are there are elements of the $500,000 renovation that don't match what the new buyer will pay a premium for; the law of diminishing returns. Of course this changes as the size of the apartment increases.
3) Floor Difference - using a floor multiplier, how much higher does a 15th floor unit trade over say a same line unit on the 4th floor? The key here is balancing a) the gap between floors and, b) drastic difference in views to come up with the right multiplier. Usually between $10,000 - $25,000 a floor is used for this adjustment. I would read the link provided above for a more detailed look at how to value higher floor units versus a lower floor unit.
4) Size Difference - if there is a size difference but you deem the COMP-A close enough to use for your analysis, then use the PPSF of the sold unit and adjust for size to get it on par with the target apartment.
TARGET-Apt 2BR/2BTH: 1,150sft asking $1,300,000
COMP-A 2BR/2BTH: 1,240sft sold for $1,325,000 or $1,069/sft
90sft difference X $1,069 = negative $96,210 adjustment for size
5) Other Adjustments - think special features like terraces or fireplaces. This gets a bit trickier depending on the quality and utility of the special feature.
Now think about doing the above five adjustments & adjusting further because you decide to use a different building, with different amenities, for a unit with a different layout, exposure and views! That is crazy! Yet I heard it all before. The broker likes to use the condo comp for a coop analysis because the condo comp sold only 3 weeks ago and is the most recent reflection of today's market. Ok, except that is really not true. Yes, the sale may have been recorded a few weeks ago but its highly likely the deal was signed 2-3+ months ago. Even these should go through a minor time adjustment. Why expose a comps analysis to 10+ variables that can't be adjusted for when you can keep all other variables mostly constant and simply adjust for time using SE's repeat sales condo index?
Its quite important that I conclude this discussion on the following note. Nobody has any right to deny a seller the right to "test the market" and wait for their price! Doing a comps analysis starts out with science and real data and ends with art and adjustments. The more you do using this format, the better you will get at it over time. The goal is always to minimize the number of adjustments and to stay in the same building as the target apartment - preferably the same line, same configuration, and as close in proximity to the floor that the target unit is on.
But sometimes, what the comps tell you and what the seller's bottom line is are two different things. Frustrating, yes. But the seller has every right to test the market for themselves, especially if they went above and beyond improving the unit while they owned it. In the end, time will tell if the market can produce a bid high enough for the seller to accept. In the end, the market (the bid) dictates value, not the broker or the seller.
Finally, brokers are not appraisers! Yet our job is that much more difficult because we do not have an executed contract of sale with a contract price on it when asked "how much is this apartment worth in today's market?". You get three appraisers into a unit with no contract price and I guarantee that you'll get back 3 different values on what the place is worth! Knowing where the bid comes in is everything! Since we don't know, it's best to use the above approach discussed and learn with time how to apply each adjustment for time, floor, renovation, size, and special features. Data availability is your worst enemy here; specifically, those buildings with so few sales that you are forced to analyze outside buildings as comparables.
TUTORIAL #2: Tracking Hyper-Local Neighborhood Trends in Manhattan
**to unlock all UrbanDigs Manhattan charts, please subscribe now**
I want to be clear I am talking about general market price trends here for all of Manhattan by analyzing same unit repeat condo sales. There are a bunch of ways we can further slice and dice Manhattan up, whether its:
a) by prop type, coop versus condo price trends
b) by price point
c) by neighborhood
d) by bldg service level or age
e) by quality tier (think rooftop PH condos in Tribeca w/ Hudson river views, etc)
The fact is that in Manhattan every building is its own local marketplace and that is where you should focus when a target unit needs to be priced out. So for this discussion lets just keep it simple and focus on the recent uptick in broader market price trends for Manhattan.
Below is a chart showing the SE Manhattan Condo Index from 2005 to July 2012 (using the downloaded data), with a little formatting to the range on the left side vertical axis so the market changes are a bit easier to visualize:
Lets recap the major trend changes this price action index for Manhattan experienced since 2005:
2005 Pre-Euphoria --> This is when sales offices for a host of new dev's started to open up. Inventory was very tight back in these days and I recall buyers' rising excitement over new projects that weren't even close to completion as they wanted in on first level pre-construction prices. Most sales offices would only release batches of units which often sold out in weeks and then was followed by higher prices as sponsors filed new amendments to take advantage of the rising demand for new dev supply. Tight inventory, rising demand.
The Peak --> Supply builds as 100s of sales offices are kicking into high gear. I put the peak of the Manhattan marketplace at deals signed into contract between early and fall 2007. The brewing credit crisis was yet to have any meaningful impact on bids. Growing inventory, high demand.
The Credit Crisis --> All bets are off as buyer confidence plunges and so do bids. Buyers start to price in 'future downside risks' in their bids and deal volume plunges as sellers fear the worst. The best deals were had in the early months of 2009. Rapidly rising supply, plunging demand.
Stabilization --> We see a progressive reflation starting in the lower price points and moving to higher end price points as we go through 2010 and 2011. Buyers start to realize the 'end of the world' isn't happening from Armageddon fears in 2009. After a quick pop off the bottom, Manhattan prices tend to stabilize in a trading range for much of 2010 and early 2011, before the high end sees a big uptick in activity in mid 2011. Supply starts to decline, demand starts to return.
The Recent Up-Trend --> The last 5-6 months saw very strong contract activity with the peak occurring around May. These deals are starting to close and the Index is beginning to reflect the rise in "price action". I still expect this trend to continue as the pipeline of pending sales remains high. Inventory is very tight, demand continues to be relatively strong compared to years past.
It makes me so excited to see the UrbanDigs real-time tools accurately predict future price action trend changes by tracking inventory shifts in this fast paced craziness we call Manhattan real estate. In the end, nobody knows where those bids are on a mass level until the City Register files the closing; and that could take anywhere between 2 weeks to 5+ months. In the meantime, we are all screaming for this information so that we can properly advise our clients and manage both buy side and sell side expectations on market changes that may be occurring in real-time. No easy task.
But this uptrend that started 3yrs ago and went into overdrive over the last 5 months, was easy to interpret using UrbanDigs tools. Now comes the price discovery part -- expect more to come.
Lets get right into the data and put the pieces together on where Manhattan is right now and where we came from. I am a big fan of keeping it simple, so lets look at what Manhattan is producing on a monthly basis over the last 3 years; both new contracts signed and new supply coming to market.
MANHATTAN MONTHLY NEW DEAL VOLUME SINCE 2009 (contract activity)
Conclusions: I chose 2009 as the start point for this monthly bar chart to show you just how far Manhattan has come since the height of the credit crisis and how long the market has sustained recent high levels of new deal volume. As a seasonal marketplace, the months of March through June typically sees the highest levels of deal volume throughout the calendar year -- but this year, the months of March through July have blown past prior years production! Most of these deals (either still pending sales or closed but not filed by the City Register yet) will eventually get filed, become public record, and populate the quarterly reports. Since I am a buyer's broker working on the front lines of Manhattan real estate I can tell you that today's marketplace, while still active, is not as "frenzy-ish" as it was 2-4 months ago -- but overall, this is the strongest 6 months of action I have seen since 2007! The chart shows this month-to-month "tick-down", but we must acknowledge that compared to the same period in years past we are still solidly outperforming; and August so far looks to continue that trend.
Let's move on to monthly supply trends since 2009.
MANHATTAN MONTHLY NEW SUPPLY SINCE 2009 (listings new to market + back on market)
Conclusions: If it were a few months of declining monthly supply that would be one thing, but what we have seen since 2009 is entirely different. Try to wrap your head around this as you view the above chart:
OF THE 43 MONTHS OF NEW SUPPLY DATA SHOWN ABOVE SINCE JAN 2009, 35 MONTHS SAW YEAR OVER YEAR DECLINES.Since September 2010, Manhattan only had 1 month where we saw more supply come to market from the prior year same period. In other words, there has been a sustained trend of "less stuff" coming to market for 3+ years now!
Today's tight inventory is not a recent thing, and rather has been a work in progress for years. This impacts the psychology of buyers that have been waiting, watching Manhattan real estate since the 'sh*t hit the fan' in 2009. To me, these buyers have been thinking along these lines:
-- 2009, "no way I am buying Manhattan real estate until it falls 50%..."
-- 2010, "I don't buy into this rally, it can't last..."
-- 2011, "wtf!, where are all these bids coming from! I'll wait until things change and I have more options..."
-- 2012, "that's it, I'm starting to believe this market is the real deal..."
I've had a number of old buyer clients finally pull the trigger and buy in recent months -- taking years to rebuild confidence. Sellers are you listening? This is not a market to try to time a new listing. If you know you are going to list your property for sale, I would get it up while deal volume remains at very high levels and inventory trends reach their lowest point since January of 2008!! Take a look:
MANHATTAN SUPPLY SINCE 2008 (actively updated inventory)
I've been singing this tune since April and while it gets boring writing about the same thing, the data is what it is -- and in regards to real-time inventory trends, its strong! A few thoughts as we go forward and future reports reveal just how hot the market got:
-- When the Q3 report comes out October 1st, will the market continue to see bids and deal volume at levels seen earlier in 2012? The media effect of a very strong market is yet to be determined.
-- With inventory so tight I would think brokers have excellent ammunition when pitching new sellers. But I am wondering how this might affect pricing strategy? Will sellers be tempted to price too high as strong reports come out and strong bids for comparable properties ultimately close and give us price discovery? Can the market sustainably absorb listings if sellers keep lifting asking prices and anchoring themselves to recent strong data?
-- Will we see stalled development projects come back to life as future Manhattan reports are digested and the #s behind these projects start to make more sense? I am especially curious to see where "new projects" trends go from here, I would think only up. Will this ultimately change the trend in declining supply that we are so used to? Will the market be able to absorb higher asking prices if price trends do rise noticeably?
-- Finally, whats with the narrowing wall street compensation fears, EU sovereign default fears and U.S. "fiscal cliff" fears? So far all have been a non-event as the data confirms sustained market strength for Manhattan real estate. In regards to wall street comp, I think that is a force that will gradually impact Manhattan for years rather than a 1-time sharp impact that many expected. So far, the depth of wealth interested in Manhattan property has proven to be too big a force for narrowing of wall street compensation and its impact on high end sales. In regards to an overseas event or US fiscal fears, it only matters when our equity markets start to care about them again. Who knows when that will be. As long as equity markets are juiced by the fed/govt, bids will come in for Manhattan property. Its only when we see a 15%-20%+ sustained correction in stock prices that we see deal volume in Manhattan come to a noticeable halt as buyers sit back and sellers try to cash in before any impact. So far we haven't seen a downturn turn into anything really worrisome; but time will tell how long that trend continues!
Notable Neighborhood Moves since the last check on April 24th:
-- Battery Park City continues to see rising demand, +38% over past 3-months
-- Chelsea cools down big time seeing demand go from +91% to -1.9% over past 3 months
-- Gramercy sees 3-month demand slide from +59.1% to -19.5% from the last nhood check in late April
-- Midtown East sees demand stable, still +13.6% over the last 3-months
-- SoHo/NoHo/W Village & Tribeca markets continue to see rising demand over the last 3-months
-- Harlem/Morningside Heights was the only submarket to see a rise in supply (+10.3%), over the last 3-months
Here are all the Manhattan neighborhood trends we track; I added supply trends after each neighborhood's 3-month pending sales #:
3-MONTH PENDING SALES TRENDS -- SUPPLY TREND
Battery Park City: +38.1% -- supply down 21.5% over this time
Inwood/Wash. Heights: +21.1% -- supply down 22.1% over this time
Harlem/Hamilton Heights: +16.3% -- supply down 17.5% over this time
Midtown East: +13.6% -- supply down 12.8% over this time
Harlem/Morningside Heights: +11.6% -- supply up 10.3% over this time
Soho/Noho/West Village: +8.9% -- supply down 21.5% over this time
Tribeca: +8.3% -- supply down 32% over this time
Murray Hill/Kips Bay: +7.1% -- supply down 16.7% over this time
Midtown West/Clinton: +4.8% -- supply down 14.3% over this time
Fidi/Civic Center: +4.4% -- supply down 10.4% over this time
--- BASELINE PENDING SALES ALL MANHATTAN = +2.1% ---
Upper West Side: Pending Sales Flat -- supply down 27% over this time
Upper East Side: -0.2% -- supply down 21.1% over this time
Chelsea/Midtown South: -1.9% -- supply down 25.1% over this time
East Harlem: -2.7% -- supply down 32% over this time
LES/East Village/Union Square: -6.7% -- supply down 5.7% over this time
Gramercy/Flatiron: -19.5% -- supply down 21.3% over this time
These 3-month neighborhood performance discussions easily tell us where the market is today, in real-time, and where we came from three months ago. In general, its clear that both contract activity & active supply is down in most neighborhoods across Manhattan compared to early May. This jives with general data trends as well discussed last week. The main questions & answers go something like this:
Q: Is the market still active out there?
A: Yes, but not nearly as active as it was in May and it seems peak activity for 2012 has already occurred. Typically we see deal volume slow for the summer and supply to fall further as sellers who didn't procure acceptable bids take their listing off the market. The next bump in demand tends to occur in October, as listings come back on market after the Labor Day holiday.
Q: Where are the bids? Is there a correlation between deal volume & price action?
A: Generally yes. While real estate is an illiquid asset class, generally speaking, sellers will have an advantage when deal volume is high while buyers will have more leverage when deal volume is lower and there is less buy side competition. Factor in supply trends & macro economic conditions that may affect buy side confidence and we can start to get an idea of the trend in price action. Based on UD data and what I have seen in the field, I would expect price action to rise for the next 3-4 months as pending sales in the pipeline ultimately close and get counted in the reports. The SE Condo Index already is starting to show this.
The median sales #'s should be in the beginning phases of telling us just how strong the Manhattan market was between April & July. We already know that deal volume was off the charts during these months, and continues to be much stronger than what it normally is for the month of August. The real-time market ticker continues to see 30-day deal volume over 1,000+; signaling an active marketplace.
In terms of price points, over the last 3 months Manhattan Pending Sales trends are as follows:
PENDING SALES ALL MANHATTAN = +2.1%
PENDING SALES <$1M = +5.3%
PENDING SALES $1M-$2M = -4.7%
PENDING SALES $2M-$5M = +5.4%
PENDING SALES $5M+ = -11.3%
So we can clearly conclude that the luxury price point across Manhattan has seen demand dry up over the last 3 months, while the most action has been occurring in the <$1M & $2M-$5M segments of the market.
Seller's should be ecstatic that Manhattan continues to see above average levels of contract activity for this time of year, even if today's market is slower than three months ago. The broad decline in active supply across most neighborhoods continues to put pressure on serious buyers whose rental alternatives are seeing rates at 2007 record levels.
As for macro economic worries, sure they still exist but unless we see US equities take a sustained tumble of 15% or more, I don't see any major impact on buyers' confidence towards Manhattan property. If the market were to be in the process of shifting, we would see daily deal volume plummet as bids for property either come in too low, or don't come in at all. So far this has not happened so lets continue to let the data speak for itself.
Manhattan produced 952 "new contracts signed" in the month of July. This is:
- down 12.7% from June
- up 33.5% from July of 2011
With July finished, we should note that the last 5 months in Manhattan produced the following # of "new contracts signed":
July --> 952 new deals signed
June --> 1,091 new deals signed
May --> 1,298 new deals signed (highest on UD record)
April --> 1,164 new deals signed
March --> 1,213 new deals signed
That is a lot of deals over a 5-month stretch and most of these are still waiting to be captured and counted in the market reports we follow so closely. This is why I am confident the Q3 & Q4, as well as the SE Condo Index, is yet to fully reflect just how active the first half of Manhattan has been.
All of this is happening with less inventory coming to market every month.
For the month of July, Manhattan managed to bring 1,140 "new units/back on market units" to the marketplace. This is:
- down 13.5% from June
- down 2.3% from last July
Here is an interesting stat:
If we look at Monthly new inventory that Manhattan produces, only once in the last 22 months did we see a year-over-year rise in "new supply" to come to market!This tells you that the current tight inventory levels have been a story in the making since late 2010! This did not happen overnight! Serious buyers who have been watching the market since then have not seen a sustained rise in supply at all. You can imagine how this impacts the mentality of a serious buyer when they do in fact find a property they love in their price point. That has been the story of this marketplace for the last 5 months as both new buyers + those who have been waiting/monitoring, came out with a frenzy between mid-April and early-June.
Add it all up and your basic Manhattan ACTIVE SUPPLY (blue line) vs PENDING SALES (red line) trends over the last 2 years looks like this (chart below does not require subscription):
This shows you where we are right now in terms of supply & demand, and where we came from. We would expect the torrid pace seen a few months ago to slow down as we get into the heat of summer (happens every year!), and that is what seems to be happening now; noting that current deal vol is still higher than what we typically see for this time of year.
Finally, lets discuss Manhattan price action. It takes time for real-time inventory trends to translate into changes in price action. For example, even though the bottom of the market after Lehman failed was very early 2009, most reports put the 'bottom' closer to the end of 2009. This is due to the lag between when the deal was signed and when it closed. In the field, we know that: WHEN THE DEAL WAS SIGNED TRULY REFLECTS THE MARKETPLACE AT THAT TIME - NOT MARKET CONDITIONS WHEN THE DEAL CLOSES.
If you view how market conditions were at the time of the property's actual closing, you are interpreting the wrong market conditions! It should always be 'how was the market?' when the deal was signed into contract!
I think Manhattan already experienced its peak in terms of price action back in May and early June. Those were the times when multiple offer situations were happening everywhere and buyers were submitting "gap up" bids to get desired property. While the market is active right now, I don't see these kinds of situations nearly as much.
The Streeteasy Condo Index is the only tangible tool I see out there to accurately track Manhattan price action -- subject to the delay of deals closing.
Streeteasy Condo Index RIGHT NOW --> 1.941
Streeteasy Condo Index in JANUARY --> 1.890
Streeteasy Condo Index JUNE 2011 --> 1.900
Streeteasy Condo Index NOV 2009 (stated bottom) --> 1.790
So, this index is saying that today's marketplace is roughly up 8.4% since the bottom in late 2009, and slowly ticking up since January. I expect this to continue for another 4-5 months as past deals close and populate future #s in this index. Just understand that what's going on in the field at that time may be very different than what the future reports are telling us on what already happened in the past! That's where UD reports come in.
First, lets get updated on whats happening in real-time in the field of Manhattan real estate by looking at the 30-Day Market Ticker. The ticker captures daily market production by analyzing every REBNY member's apartment status updates for all the exclusive listings in Manhattan. The tool is engineered to only display 'unique status changes' so that we can accurately count:
ACTIVE - the # of new listings to come to market daily
CONTRACTS SIGNED - the # of active listings to enter into contract
OFF-MKT - the # of active listings that have been removed from the marketplace
I can see by the ticker above that Manhattan has produced 964 new contracts signed over the last 30 days. The last time I reported on the daily ticker, this same 30-day deal volume pace was at 1,296 on May 24th. The market ticker is the one tool that will allow you to pick up on market tick-ups and tick-downs as they occur in real-time. The monthly pace of deal volume seems to be down around 25% from the peak 2 months ago.
Now that we know the month-to-month trend is down, lets take a peek at the year-over-year trend to filter out seasonality and answer the question, "how have past July's performed in Manhattan?". By comparing any month to the exact same month in years past, we can get a sense of whether or not this year's production levels are relatively strong or relatively weak. The ticker above tells us that so far the month of July is on pace to produce "964 new contracts signed" - so this is our starting point.
Below is a chart showing you Monthly Contracts Signed production for Manhattan since 2008 - I circled the month of 'JULY' so we can focus on production in this month for years past:
By knowing the real time 30-day pace of deal volume as we head into the last week of July, we can easily tell that Manhattan is still producing at a very high level considering the time of year it is. All of the activity over the last 3-4 months should have a solid impact on Q3 and Q4 results, as signed deals ultimately close and become public record.
As for looking ahead, equity markets are still worried about the Eurozone as the sovereign debt crisis spreads from Greece to Italy & Spain. Government bond yields in Spain are starting to soar and it's only a matter of time until the markets take matters into their own hands and write a new playbook on what happens next. Another bailout coming? At some point the bond markets wont react at all and equities will follow suit.
That has been my concern throughout this whole Eurozone debacle. It's like we have been pushing the soda machine from side to side for 3+ years and at some point, it's gonna fall!
What worries me now is what US Treasuries might be signaling with a 10YR yield at 1.4%?
*chart below courtesy of CNN Money
This signals a risk-off marketplace where money is looking for safety. The two places money will flock into are a) US Dollars and, b) US Treasuries. And that is exactly what is happening again now.
It's just another sign of how fragile things are overseas as slowing global economies on top of EU sovereign debt concerns elevate uncertainty. We should keep our eyes on this and sellers should be aware that the 'frenzy'market they heard about a few months ago is no longer in play today -- yes, we are still active but compared to May we are about 25% slower. If you have been on the market for 90 days or more and you failed to receive acceptable bids or sustainable foot traffic, my advice is to adjust your asking price accordingly. In the end, the market dictates the right price!
In terms of major shifts in price action for property, I don't think Manhattan will see much of a negative impact until equities really start to roll over. I'm talking 15%-20%+ corrections and the media effect that comes with it. Should this occur, the UrbanDigs Daily Market ticker will be the first place to pick up on any warning signs that the market may be experiencing a shift. But as of now, all seems quite fine and we still have 4-5+ months of very strong deal volume in the pipeline waiting to close & get counted in the reports. Expect improving #s in the upcoming quarterly reports regardless of what wall street decides to do in the near future.
Lets get right to it. To keep things simple, lets take a look at Supply (inventory) versus Demand (pending sales) trends for the Manhattan market as a whole over the last 4 years. The main point for this selected time range is to show you how the market has performed since 'all bids disappeared' in early 2009, and how far we have come over the last 4 years.
I added #s to the chart below that will correspond to a few comments on each 'active' season since 2009.
ADD-ON (3:46pm) - I would define the Manhattan "Active" season as the first 6 months of the calendar year. Typically our markets are most 'active' in terms of new deal volume between the months of February through July:
1. The 2009 Active Season: Non-existent. The chart will clearly show surging supply & pending sales nearing its bottom after a devastating plunge in late 2008. Early 2009 was the height of fear post-Lehman and the period of time where the best deals were signed by those buyers brave & lucky enough to get deals signed. Deal volume hit its lows in January 2009 which saw 317 deals signed. Sellers signing contracts during this time had to deal with bids which were pricing in future downside risks that hadn't occurred yet. So called "fear trades" took place mostly between Jan - March, and there is evidence of deals for classic 7s and 8s trading some 35%-40% below peak during this time. Deal volume started to come back in April & May, and finally popped in June when it became clear the world would not end. Early 2009 is considered to be the trough for Manhattan's exposure to the credit crisis.
2. The 2010 Active Season: Strong but short-lived. Both supply & pending sales had sustainable up-trends in 2010, which was welcome considering how many thought Manhattan would take years to recover from the credit crisis. Some good deals were still to be had during this time as many prospective buyers still hadn't regained full certainty that rough times were behind us. Nevertheless, sellers were happy to hit bids in early 2010 at noticeably higher levels than only 1 year prior when 'Armageddon' fears were taking over. This bonus season didn't last too long, seeing a slowdown begin in mid-May.
3. The 2011 Active Season: Strong. This was a great year for the higher end price points as the $2M+ market finally saw lending markets open up and regained confidence by these buyers to pull the trigger. The market remained quite active for a bit longer than we did in 2010, as we started to slow in July -- a few months later than in 2010.
4. The 2012 Active Season: Very Strong. The chart clearly shows supply levels falling while pending sales trends consistently rise. The last four months in particular have seen the market produce more than 1,150+ new deals signed. May saw the highest # of deals signed since UrbanDigs started keeping records in 2008. What makes this active season so different is how this very high level of deal volume is occurring at a time when supply is progressively declining. I wondered a few months ago how the market can keep up this pace of activity with dwindling inventory? I have seen buyers compete in 7 multiple offer situations so far this year, only two of which we won. Downtown markets have been especially hot and the general theme is that there is a lack of quality product that is priced correctly to trade in today's market. Right now I see signs of topping out and tI would guess that the best part of 2012 already happened in terms of deal volume and bidding frenzies. Typically the market slows considerably once we get into July & August and I expect no difference this time around.
I think the chart above speaks for itself and paints a very clear picture of what the Manhattan market has experienced since the dark days of early 2009. It's been quite a run!
As for how June ended up, here is a Monthly Deal Volume chart for Manhattan that shows just how strong the last 4 months have been compared to past years production (2012 in light purple):
JUNE 2012 --> produced 1,091 new deals signed
JUNE 2011 --> produced 988 new deals signed
JUNE 2010 --> produced 866 new deals signed
JUNE 2009 --> produced 1,148 new deals signed
It is ironic that June 2009 was the only year that outperformed this past month. The main reason for this is that deal volume in the months of Jan-May in 2009 was so anemic, that buyers finally jumped back into the market in June 2009 to start the 3+ year reflation to where we are today.
As for daily/weekly trends, the real-time market ticker is showing a slowdown from the highs in activity we saw back in May. This is both expected and normal for this time of year. Sellers will have to deal with a marketplace that simply has less fish biting at the lure. Buyers may have less buy-side competition to battle against, but they still find inventory levels quite low with few high quality options that are priced correctly.
There you have it, the mid-year Manhattan market report after what turned out to be a very strong start to 2012!