Our latest Absorption Report came out late last week, and while it’s not Halloween Spooky, it’s worth noting what is going on.
First, to make sure that you know what I’m talking about.
This is a metric that I feel is the most useful to gauge the current market.
We take the number of sales in each neighborhood by size and type (Condo/Coop/Townhouse) and then average the number of sales over a six-month period.
Then by taking the current inventory on the market (assuming a snapshot in time, where no new inventory would come to market), and dividing by the average number of sales, we can get a number of months to sell off all existing inventory- the Absorption Rate.
An 8% increase in Months of Inventory
Again, this doesn’t mean
an increase in inventory, or a slowdown in sales, necessarily.
It’s the combination of this, as a ratio.
If more property came to market and the number of sales per month average stayed the same, the Absorption Rate would go up.
If fewer properties came on the market, and the number of sales average remained consistent, the Rate would go down.
In this case, some neighborhoods are seeing more inventory come on, and some are seeing a lower number of sales.
Most neighborhoods are seeing a combination of these two.
The absorption rate across Manhattan has gone up 8% Year over Year, to 5.5 months of inventory.
This is a far cry from the 9 months of inventory that is thought to be the indicator of a healthy market.
Yes, despite the lack of inventory, it feels like a buyers’ market.
An absorption rate of 4.2 months is the lowest level across the city in Upper Manhattan.
Embedded in this is the likelihood that as pricing has gotten out of control on the West Side (see below), buyers are seeking out and finding value uptown.
As long as pricing doesn’t run away uptown, this pace of sales uptown is likely to continue.
I’m a combination of skeptical, wary, and curious
The East Side
On the East Side – the absorption rate is up month-over-month, slightly down YOY, while inventory is just about the same.
Going into more depth:
Co-up inventory is UP,
and absorption is better, though, by about 10% year over year.
We can say, then, that pricing appears to be getting in line.
There is still thought to be a big hangover in inventory along Park Avenue, though, with fifty-eight 8- and 9-room co-op apartments on the Upper East Side, not just Park Avenue.
Given the length of time that it generally takes to sell these units when they are not in mint condition, this does seem like a lot of inventory is specific sectors.
Condominiums 3-bedrooms and larger are still selling more slowly as well.
The West Side
The Upper West Side is seeing a bit of a slowdown itself, despite still being the second most active neighborhood.
What is most interesting is that there is 50% more inventory in 2-bedroom units year over year, from 90 to 146!
That is a big jump!
Many two-bedroom units on the West Side are
SITTING on the market, seeing multiple price drops- this is slightly
concerning, but often it is just the simple matter of starting out at too aggressive a price.
How are Buyers Reacting?
Buyers are a combination of feelings right now, most of them not positive.
This has been the result of working with lots and lots of buyers and hearing this first hand.
Obviously, not everyone feels identical, and not everyone worries about these items at the top of their list.
Ultimately, buyers choose to buy for a variety of reasons, timing being more important than market conditions.
That being said, many buyers seem
skeptical of a stock market that has been running at record highs again and again, with a bull market that has been going for many years.
Some react by wanting to take money off the table now and buy real estate at reasonable valuations.
Some are worried and want to wait.
Another feeling is some wariness about pricing- and not wanting to be the buyer who purchases right before the housing market dips a little bit. I think this may be a stronger concern than the first.
Lastly, I do think buyers are curious to see what happens next.
There are a lot of distractions right now in the news, and if buyers are given an opportunity to see where mortgage rates will go with a New Fed Head, they will wait.
The lack of definitive direction in the marketplace and economy works against the housing market strengthening.
A Summary
All of this jibes with what I’m seeing and hearing in the marketplace.
It seems that pricing remains the biggest issue in getting deals done, but it’s also in addition to buyers watching the market, broadly, with concern.
These are big impediments.
In the near-term, Sellers and buyers still have a large gap between them, with the expectation that seller expectations will have to lower to increase the pace of sales.
As sellers consider pricing when going to market in the New Year, and more and more new sales data comes out in the coming weeks, we shall see if sellers come to grip with reality, or if this impasse remains into 2018.