About last week...

From where I’m sitting…

The sun was shining brightly across Manhattan real estate over the summer months.  The city was clearly coming back and many wanted back in… all at once. Cash buyers were plentiful and for those with less liquid fortune or those who preferred a more leveraged path, money was cheap. Underwriting was more conservative, but for those who qualified, the total cash flow associated with apartment ownership in Manhattan was as attractive as ever. But now as pent-up demand has been significantly relieved and market dynamics begin to equalize, is a new weather pattern in the forecast? Inflationary pressure may be less transitory and more persistent in the coming months than previously suggested. Buyers will be watching the stock market, among other things, carefully. More pocket listings may publicly hit the supply side before the music stops. To top it off, many prospective buyers are reporting “buyer fatigue” with the entire process. But hold on. We may be seeing rainy days ahead for sellers and clearing skies for buyers.

Last Week

A closer look at last week’s summaries has me thinking about what’s on the horizon. A few overall observations worth mentioning… total Manhattan supply is basically moving sideways week over week; no noteworthy movement up or down. Demand defined as pending sales fell 3 percent from the previous week. You could compare demand to a tire with a slow leak, slowly deflating over the past few weeks. New active listings have been generally down week over week since Labor Day, down another 8 percent last week. Contracts signed, another metric that receives much attention in the press and various broker reports, were consistently coming in over the 400 mark per week during the frenetic spring and summer months. Contracts signed last week in Manhattan totaled 327. Lastly, as succinctly noted and illustrated by UrbanDigs, negotiability bottomed out in June and has been slowly ticking upwards since. Whether an ever more favorable negotiability landscape is in the cards for the near future remains to be seen, but signs of subsiding demand are being noted - especially in the $2M - $4M category. $4M and up even more so. And note, the titillating trophy sales north of $20M make for great cocktail party yarn, but thinly traded mega sales do not make a market. Upon truly close inspection, one will see many of these realized sales are signing off on discounts and concessions north of 25 percent. Not what the headlines would have you believe, but remember what you read about in the industry rags and real estate sections of your favorite newspaper is similar to looking in a rear view mirror; what you’re seeing is already behind you.

And all the talk and press about the impact of the pandemic on buyer preferences. Yes, we can attribute some of the movement - both temporary and permanent - to a flight to lower density destinations. And the tax thing… the flight to Texas and Florida (but they’re not covering the number of persons returning to the city and those arriving for the first time). But in the final analysis, we shouldn’t discount the impact of first-time homebuyers responding to the availability of cheap money. Did we really see such a “crazy” market this past year or did we see buyers trying to take advantage of an “affordability window” that was quickly compromised by what was certainly low pre-pandemic supply levels followed by even lower supply during the early phases of the pandemic. Remember, the already attractive 5% 30-year fixed rates available a mere 3 years ago were cut in half by 2021. With fixed lending instruments below 3 percent, we were headed into a mad money market, pandemic or no pandemic.

What Else

The buyers driving the Manhattan real estate market are still local. It’s a game of musical chairs with local buyers finding common ground with local sellers as individuals and households adjust their “must haves” and “nice to haves” when it comes to a home. A noteworthy number of moves take place within the same building, mine included. Buyers and sellers still have COVID-19 related concerns; some more than others. Money is still cheap. Troops are inbound to fill the jobs for the ever-expanding tech giants which now call Manhattan home, but it remains to be seen what kind of impact that will ultimately have on the sales market. I find many young professionals assign more weight to mobility and the freedom to invest across different investment vehicles rather than purchase real property, thus the tightening rental market which is now back to pre-pandemic performance levels. A client working at Google recently told me the average tenure for an employee is 3 to 4 years. I googled it. It’s actually closer to 2 years with other industry big mentions coming in with even shorter stays.

Another Barometer 

Everyone is talking about expansion among the ranks of licensed real estate agents. That holds true for New York City, too. Encouraged by the markets robustness (depending on the sub-market, some real and some not so much) over the last 18 months and what is arguably a relatively low barrier to entry when compared to other licensed professions, many workers - both the unemployed and members of the “Great Resignation” - are entering the ranks of the brokerage community. The National Association of Realtors membership count supports the observation with year-over-year growth hovering between 8 and 9 percent over the last several months alone. Probably the largest growth the NAR has since 2006 just ahead of the 2007 peak. I bet if we drill down some more, we’d see a strong correlation between rising agent count - albeit with a short lag time - and rising realized prices (closed sales). When everyone is charging in, it may be an opportune time for some agents (including those with less reserves in terms of savings) to identify the exits. Record breaking headcount among brokerages often precede downturns in markets. After all, markets cycle up and down. Over the long haul, markets like New York City have historically trended up in terms of appreciation, but nevertheless cycle up and down under a narrower review period.

So have we really been experiencing unprecedented demand or are we seeing relatively flat demand over time (adjusted for the pandemic). More specifically, is the market really hot or are we actually seeing 20+ months worth of pent-up demand transacting over the course of 2 or 3 quarters. Remember, too, many buyers and sellers were on the fence in terms of getting into the market months before March of 2020 when the real estate markets basically came to a halt as the country locked down in an effort to manage the COVID-19 outbreak. Now as we head in the final stretch of 2021, is the end of the crowded (buyer) line coming into view?

Looking Forward 

No absolutes here, but certainly food for thought as one weighs mobility versus ownership and renting versus buying. Ultimately, the individual litmus test is as unique as the short and long-term priorities of each and every buyer. All things considered, I don’t want to discourage any buyers from getting into today’s market. Just don’t confuse recent sales velocity with price performance. Buyers are beginning to leave money on the table, unnecessarily succumbing to false senses of urgency and failing to realize all of the discounts that sellers would likely be amenable to if asked. This is where experience outperforms tech. 

That Zillow Thing

One last observation about the value of experience. We’ve heard that expression referring to the quality of data when working with computer programs… “garbage in, garbage out.” Whether you're trying to understand the nuances of a micro-market or assign weight to pricing, no amount of property technology will yield more accurate results than experienced boots on the ground. Zillow announced today that they are quitting the home-flipping game and abandoning the iBuyer program. Perhaps the trademarked Zestimate programming didn’t provide solid footing for the valuation process. The proposition of buying low and selling high or higher can’t be replaced with a buy at some valuation and sell lower model. Recent reporting noted troubled waters and cited supply chain and labor supply issues among other things, but perhaps the weightier issues were lack of local knowledge and accurate valuations. Zillow looks forward to “creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.” What promotes a pain-free transaction is transparency and in-person service and support. Neither of which inherently and readily come from a proptech platform, alone.