Entry-level apartment sales continued to surge as buyers took advantage of record low mortgage rates.
New development market share expanded to 7.3%, the second highest share since Lehman (2Q 11 has an 8.9% share)
The sharp decline in inventory outpaced the decline in sales. As a result the absorption rate (number of months to sell all inventory at the current pace of sales) accelerated to 12.2 months from 15.7 months in the same period a year ago – the market was more efficient.
Price indicators slipped modestly – pulled down by the surge in lower priced sales in response to record low mortgage rates.
West Queens saw the largest gain in market share over the past year, followed by South Queens.
Here’s an excerpt from the report:
There was a 16.2% decline in the number of
sales in the first quarter to 2,176, down from
2,598 in the prior year quarter despite the surge
in co-op sale market share. Co-ops represented
28.7% of all sales in the first quarter compared
to a 13.2% share of condo sales and a 58.1%
share of 1-3 family homes. The increase in coop
market share was largely caused by the
sharp drop in mortgage rates last fall. The entrylevel
market is more immediately responsive to
changes in mortgage rates. Listing inventory fell faster, declining 35% to 8,851 from 13,609 in the
prior year quarter. The result of declining sales
and more rapidly declining inventory resulted in a
sharp drop in the monthly absorption rate. In the
first quarter, the number of months to absorb all
active inventory at the current pace of sales was
12.2 months, more than 3 months more efficient
than the 15.7 month rate in the prior year quarter…
Posted by Jonathan J. Miller -Monday, April 16, 2012, 6:00 AM Comments Off
[click to expand]
One of the big issues in following the rental market over the past couple of years has been the disparity between the rental rate of the lease and the actual rent paid by the tenant. Here’s the difference:
Face Rent the formal or gross rent amount on the lease before any concessions offered by the landlord (i.e. free rent, paid commissions, etc.)
Net Effective Rent the face rent less the concessions offered by the landlord (i.e. free rent, paid commissions, etc.)
In periods with high rates of landlord concessions, the face rent trends much higher than what tenants are actually paying (net effective rent). This was clearly the case in 2009 and 2010.
The disparity really bothered me so I figured out a way to track this information and Douglas Elliman’s rental division helped me capture it on a very large sample size of the market. To date we’re the only source of this metric, but to the consumer’s benefit, it now doesn’t matter a whole lot anymore (sigh).
Back in 2009, 2010, landlords were routinely paying concessions of 2-3 months of free rent in 2/3 of all leases. Now it’s about 1 month of free rent in about 1 out of 10 leases. In other words, it’s a nominal phenomenon (good name for a rock band). The chart above shows that the two trends have come together.
But when the rental market weakens (in a few years when credit eases), the lines will begin to diverge again and we’ll still be tracking it.
Posted by Jonathan J. Miller -Monday, April 16, 2012, 12:01 AM Comments Off
[click to expand]
I’ll be speaking with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.” on Monday morning at 9am. We released our rental market report last week and we’ll be speaking about the relationship between the sales and rental market and the disparity between current peak and the last peak: credit policy between those two periods were polar opposites:
4Q 2006: Manhattan Rental Market sets a 20-year (the length of my data series) record high. Credit standards were essentially non-existent by that time in the housing boom causing prices to rise so rapidly that the lack affordability ultimately pushed buyers into the rental market.
1Q 2012: Current credit standards for mortgage lending are so tight that many potential buyers are forced to rent, competing with the existing rental pool and forcing rents to rise – they are currently just 5% short of the 4Q 2006 record.
The reprieve from foreclosures a la robo-signing mortgage services/49 state AG agreement is probably over and we expect a ramp in market share. Currently non-distressed and distressed sales have a 50/50 share but should go back to 2/3, 1/3 over the next year. Still, the housing stock for typical distressed sales are much smaller on average so its not appropriate to rely on a “throw it all in one bucket” view of the market because of the shift in the mix. Non-distressed price indicators are are showing modest increases.
Here’s an excerpt from the report:
The Miami housing market continued to be
largely two different market segments: distressed
sales, defined as short sales and foreclosures,
and non-distressed sales. The “robo-signing”
scandal in late 2010 and the recent settlement
agreement between the major loan servicers
and the government has kept a large supply of
distressed properties from entering the market over the past year-and-a-half. However, we
anticipate an increase in distressed sales activity
over the next few years. While distressed and
non-distressed sales are not separate types
of housing, distressed condos and 1-family
property sales averaged 26.3% and 31.1% more
square feet, respectively than their distressed
sale counterparts in the first quarter.
Rents continue to rise, but rather than being a leading indicator of an improving economy and sales market they are a reflection of an irrationally tight mortgage lending environment. Drivers of tight credit, namely low rates, rising foreclosures, more regulations and sliding housing prices are keeping underwriting standards above historical norms and as a result, driving more volume into the rental market driving rents higher. This is a national phenomenon, not just a Manhattan situation.
Here’s an excerpt from the report:
Year-over-year prices continued to
show strong gains as landlord concessions
declined. Median net effective rent was
$3,064 for the first quarter, 9.1% higher
than $2,808 in the prior year quarter.
Use of concessions fell to 11.1% winthin
all new rentals from 36.8% in the same
period last year. Rental price per square
foot increased to $52.57 in the first quarter,
reaching its highest level since the third
quarter of 2008, just as the credit crunch
began.
The market was a mixed bag this quarter. Weak but trying to stabilize. Overall prices trended lower but the luxury market posted strong gains over the same period last year. Inventory edged higher but was offset by sales rising enough to keep the monthly absorption rate unchanged. We expect inventory to expand over the next few years as foreclosures enter the market after last year’s robo-signing scandal held them off the market.
Here’s an excerpt from the report:
There were 1,277 sales in the first quarter, 1.8%
more than 1,254 sales in the same period last
year. The market share for 1-family properties
expanded to 59.1% from 57.5% over the same
period. Condo market share edged up to 14.7%
of all sales from 14.4% in the prior year quarter.
Co-ops and 2-4-family properties declined over
the same period to a 5.6% and 20.5% market
share, respectively. In the 1-family market, the
Northeast and South-Central regions showed
large gains in market share of sales over the
past year, while the remaining four regions
experienced declines in market share.
Posted by Jonathan J. Miller -Saturday, April 7, 2012, 6:04 PM Comments Off
Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the annual pace of sales activity. (The definition of absorption in my market report series reflects the quarterly pace – nearly the same)
I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The “blue” line for average changes very little year to year but the scale of the chart does frequently.
Side by side Manhattan regional comparison:
March 2011 v. March 2012
[click images to expand]
Thoughts on the year-over-year comparisons
Manhattan Most price segments below $3M remained faster than 10-year average pace of sales and accelerating. $5M to $10M accelerated while $10M+ slowed
East Side Below $3M gained speed while $10M+ condos slowed.
West Side Similar to overall Manhattan
Downtown Below $3M gained speed while $3M+ slowed.
Note: This chart series does not include shadow inventory (properties ready for market but not yet listed for sale) so this anlaysis understates the rate of condo absorption. The Uptown (Northern Manhattan) data set is too thin for a reliable presentation.
Posted by Jonathan J. Miller -Thursday, April 5, 2012, 2:02 PM Comments Off
[click to open press release]
One of my issues with existing national price indices (I have many) has been that they reflect what happened after the fact. That in and of it self is not a bad thing at all. The problem concerns their use by the consumer and media. They rely on them and often have no idea of the severity of the trend lag (as much as 6 months). This lag is interpreted as the current market and then they proceed to mischaracterize or misunderstand what’s actually happening in housing right now.
Trulia Price and Rent Monitors – March 2012 Download
The Trulia Price and Rent Monitors rely on the latest asking price or rent rather than the original to better track the direction of the market. Prices on MOM, QOQ and YOY on based on a 3 month moving average. Here’s the nitty gritty. Love the “technical” and “non-technical” FAQ notes detailing how it works. Jed is very clear that this is not a way to “game” the existing indices like Case Shiller and predict them in advance of their release (aka accurately predict what a 4-6 month old index result will be tomorrow) which serves an entirely different purpose I suppose.
I thought it was particularly interesting that some speculative and depressed markets are showing the most upside swing – i.e. Detroit, Miami, Phoenix. CA still weak throughout. The NYC metro results are consistent with what we are seeing throughout the region, prices down 3.3% YOY and rents are up 6.2% YOY.
From the press release, the Trulia Price Monitor for March 2012 shows:
Asking prices up 1.4% quarter-over-quarter, seasonally adjusted. This is the first clear indication of a national home-price turnaround. Unadjusted for seasonality, prices were up 2.4%.
Asking prices up 0.9% in March and 0.6% in February, month-over-month, after bottoming in January 2012.
Strong year-on-year increases in asking prices throughout Florida, and year-on-year price declines throughout California.
The Trulia Rent Monitor for March 2012 shows:
Rents up 5.0% year-over-year.
Rent increases in nearly all large metros, especially metros with faster job growth.
Note: I have been on the Trulia Industry Advisory Board since its inception in 2006.
Why US Housing Indices Make Terrible Investment Benchmarks [Matrix]
Asking Prices on the Rise as Housing Recovery Expands [Trulia]
Trulia Price and Rent Monitors – March 2012 [Trulia]
Posted by Jonathan J. Miller -Wednesday, April 4, 2012, 10:45 PM Comments Off
Had a quick couple of clips in this one covering the Manhattan housing market. Inventory restrained, pent-up demand for Q2 to be released, credit remains tight, etc. Always great to speak with Suzanne Pratt at NBR.
Posted by Jonathan J. Miller -Tuesday, April 3, 2012, 12:57 PM 2 Comments
[click to expand]
The Elliman report for the 1Q 2012 Manhattan Market that I author was released today and there was a lot of commentary thrown around that I thought I’d apply actual data to. They relate to the topic of “bidding wars” and some sort of upward price skew cause by the closing of the $88M sale this quarter (contract signed in December).
More “bidding wars” What’s being projected as market conditions The chart above is my attempt to quantify this phenomenon. When a property is sold above the list price at the time of contract, then it’s reasonable to assume there was intense competition between buyers that drove the property over list aka “bidding war”. I doubt there are many buyers on earth who would pay over list price unless there is more to the story.
What’s our take on the story? We estimate that 8.4% of all sales in the quarter were sold above list price and therefore were subject to a “bidding war.” However it’s probably a bit higher than that since 11% of the sale sold for list price. There might have been a bidding war up to the list price and the buyer with the best terms (i.e. cash) won the bid. However I would not characterize the market as rampant with bidding war activity right now. It’s been steadily rising since 2Q 2009 but still remains about half the levels seen just before the credit crunch began in 2008.
The $88M sale skewed the overall numbers higher What’s being said about the record sale’s impact to the market results The record sale at 15 Central Park West closed for $88M during 1Q 2012 and there was concern that this simply skewed the numbers and overstated the results.
What’s our take on the story? This is not the case. When removing the $88M sale from the mix, the median sales price of $775k remains unchanged. That’s because median sales price slices from the top and bottom until it meets in the middle. There were 10 sales that sold for $775,000 this quarter and therefore the removal of this high sale had no impact on the middle. Average sales price was skewed 2.7% higher than it would otherwise would have been. Still not a big deal and it would be inappropriate to remove the $88M from the data set – otherwise the $48M and $36M sale in the year ago quarter would also need to be purged.
Had a fun interview with Tom and Sara this morning on the always MUST watch/listen Bloomberg Surveillance. We talked housing, rentals, vacancy and inventory. An added bonus was the addition of Adam Davidson – co-founder and co-host of Planet Money... Read More
