New York's the Same, the World is Better, What's Going On?

I am no Wall Street guru, but I follow the market pretty closely these days, as well as economic indicators throughout the world. Here is what we've got going:   .

1) Interest rates made a rather large move (.25% not really a large move, but for bond traders it's a large move)

 2) Several large retailers - and today Cisco, which is like the GE of pure tech plays - have reported lower than expected 2nd quarter results (whose expectations? it's sort of an average taken across many investment firms' analysts' projections).

 3) Walmart also missed on revenues, though not earnings (earnings are the actual income reported after all expenses have been removed), and cut its own projections for the rest of the year.

 However, other things are not all bad! For instance:

 1) July unemployment nationwide FELL to 7.4%, the lowest since 2007 - that's a YEAR before the crap hit the fan in 2008. Remember that before the credit crunch caused by the failures of Bear Stearns, Lehman Brothers and Washington Mutual, among many others. Many people forget that the downturn began in late 2004, when the first of the subprime mortgage crisis started to be felt.

 2) Europe, which caused an echo credit crunch on these shores as analysts scrambled to discern which of our multinational banks held how many Greek, Spanish, Irish, Cypriot, etc. bonds, has suddenly peaked its head out of the recession pit, according to the official statistics office of the European Union. China, too, has seen a slight rebound that is pulling materials and mining stocks up ever so slightly.

All that, plus lighter volume (which exaggerates price swings in an individual stock) made for a 200-point drop in the market today.

I watch the stock market because it seems to have more correlation to the real estate market in Manhattan (and increasingly, Brooklyn) than the markets in the rest of the country (which is why NYC's prices kept going up until almost the moment Bear Stearns went down). But it's hard to say what's the new normal here: the Dow made new highs nearly every week until April, had a correction in May, resumed upwards in June, and now in August (traditionally not a great month for the market) it's heading down again, mostly lazily but today in a more precipitous fashion. What will happen in September? What indeed? It's a soap opera that doesn't end.

My personal experience tells me that buyers are less likely to buy in New York when the market goes down. This might be because the buyer is actually employed in the financial industry, or it may be sympathetic concern, as most people in New York are at least cognizant of the market's moves, even if they aren't invested.

Dearth of buyers can lead to price drops, but only if there is a glut of properties relative to the number of buyers on the market. A quick glance at the live listings infographic provided by Urbandigs.com shows that active inventory (ie, properties currently listed for sale) has dropped nearly 20% in the past 3 months. In addition, properties in contract, after a huge 43% pop four to six months ago, has declined by 6% in the past three months. Finally, properties that have gone off market have increased over 15% in the past three months.

So, to summarize, fewer properties are on the market, at a rate that exceeds the drop in contracts signed. This means the inventory seems to be right-sizing itself. So, for the moment, prices in New York should remain unchanged.

We'll see how that works out when interest rates really begin to rise.

Sellers Reappear, Buyers Can Take a Breath.

Nice article on DNAinfo.com says more condos are now on the market after a few months where lack of inventory was causing bidding wars. This is good, because, according to the article, Manhattan condo prices are already back to and surpassing their peak value in 2007.

This article illustrates what I consider to be Phase 3 of the housing market.  In Phase 1, lack of buyers caused prices to fall. Sellers who had to sell at that time did so for much less than they could have just a few months before. But the sellers who didn't have to held onto their properties.  Sure, there was inconvenience for more than a few. Some had outgrown their space, while others needed to relocate for jobs or personal reasons. The ones who could hold on in their spaces did, while others managed to find renters to cover their expenses while they moved on with their lives. The result: eventually the equilibrium between available buyers and available sellers returned, but at a lower price point (econ 101, as some of you may recognize).

Phase 2: The buyers return. In this case, an easing of lending criteria (not by much, but you no longer had to be Bruce Wayne in order to qualify for a mortgage), an overall sense of more security that people weren't going to lose their jobs, and the resumption of the march upward in Manhattan (and Brooklyn) rents made them interested in buying again. People started looking around.... and didn't find all that much on the market. In the course of about 3 months over fall 2012-winter 2013, the lingering properties were swooped off the market.  That lead to a shortage in apartments, which means prices go up!  So, yes, there were stories of bidding wars earlier this year.

Now we are hearing signs of Phase 3. Phase 3 is - you guessed it - when the sellers return to the market. Not just any sellers, but what I would call "optional" sellers. These are people who would like to get rid of their apartment but have a little flexibility in when to do it. The owner who's renting after relocating to another city, or someone with a pied a terre that they don't use as much but can afford to keep. Or even the growing family who's a bit cramped but making do. 

Suddenly, selling seems more convenient to them now, and they are starting to put their properties on the market. The result: buyers have more to choose from, and a little more time to look. Prices probably won't drop, though. The market isn't loose enough for that. The bargain hunter days are pretty much over. Sellers may not all get the delight of having multiple sellers willing to jump through hoops for their property, but you can only sell to one person anyway. So price well (ask your real estate agent for help with that), and you'll still feel the love.

Is there a Phase 4? Yes, but it's not pretty.  It's the crazy market that existed 2003-2005 and again briefly 2006-2007 before the weakness finally caught up to NYC. Bidding wars, lack of contingency clauses, and lots of heartbreak. It's painful to be a broker during those times, even if I'm the listing agent, because I meet a lot of nice people and a lot of them end up heartbroken because they lost out on a bid. So I'm hoping Phase 3 - where buyers meet sellers in a healthy market - is here to stay for a while.