We examine the Manhattan real estate market for the third quarter. While it is apparent prices rose, recent headlines regarding the stock market and the economy may have some thinking this may change shortly. We don’t expect this to be the case.
The quarter, which spans the summer, is an important one. The beautiful weather and rush to move before the start of the new school season are on buyers’ minds. Although the past is not necessarily a prelude to the future, we cull the essential data to predict where the heady borough’s real estate market is heading.
The amount of inventory fell during the third quarter. This is an important indicator since lower supply will boost prices, assuming constant demand. After all, this is merely supply and demand. The Elliman Report shows the borough’s listing inventory was down 3% from a year ago, and 1.3% from the second quarter to 5,654 listings. Another source, the Corcoran Report, stated inventory levels fell 13% from a year ago and 16% from last quarter, to 4,832 homes.
The decline in inventory is due to largely due to faster sales growth. We attribute this to a healthy economy, with job growth continuing. The number of sales rose 9.8% year-over-year to 3,654, per Elliman. The absorption rate, or the number of months it takes to sell the entire inventory at the current sales pace, fell to 4.6 months from 5.3 months a year ago. In the first quarter of 2009, it was 26.2 months.
This was a broad-based decline across different types of properties. Lofts, co-ops, luxury, and new development, all had falling inventory compared to a year ago, per Elliman. Only condos showed a slight uptick. Corcoran showed a similar picture, although condo inventory was down, and new development properties were up.
It is also interesting to examine inventory levels by the number of bedrooms, which Corcoran shows. After all, this is an important consideration for homebuyers. Slicing it this way, studios, one-bedroom, two-bedroom, and three or more bedrooms all had sharp declines. The absorption rate was around four months (8.3 months for 3+ bedrooms), all down significantly from a year ago. Six to nine months is considered a normal market that is in equilibrium.
Corcoran also compares the market share of sales to inventory yields. Interestingly, one-bedroom units were 38% of third-quarter sales, but only 31% of the inventory. This indicates a tight situation. Three bedrooms accounted for 16% of sales but 28% of the listings.
All told, the signs are bullish heading into the fourth quarter. Although the onset of cold weather typically makes it a less active period, inventories are lean, indicating a lack of forthcoming price discounts.
Which led to price gains
Not surprisingly, the tight inventory conditions have led to higher prices. Both sources show a similar advance in the median price of around 10% from the third quarter of 2014, to nearly $1 million. We use the median price since it is a more meaningful figure than the mean, in which high-priced property sales skew the results upward.
Breaking down the data the same as we did previously, by type and number of bedrooms, all showed a year-over-year increase in the median price.
The market showed sharp gains a few years ago as the economy finally improved. The pent-up demand led to buyers scooping up distressed properties. The current environment reflects a healthy market. Although we have only examined Manhattan, we expect the situation is similar in Brooklyn, which has become a hot area, and certain areas of Queens.
We do not expect this to abate anytime soon. There will likely not be much inventory added this quarter as we head into the winter and holiday season. Those traversing the Manhattan real estate market will likely find few bargains. However, armed with this knowledge will make the process smoother.