One of the most confusing — and contradictory — aspects of the current real estate market is the dropping supply of available apartments, which seems inexplicable in the face of slow sales and plummeting prices.
Yet inventory has been declining since the spring, when it peaked at over 11,000 listings. While the subsequent drop seems to signal a market turnaround, market analysts told The Real Deal that the current level of inventory has more to do with sellers taking their listings on and off the market.
This fall’s real estate market was “very reactionary,” said Sofia Kim, vice president of research at the real estate listings Web site StreetEasy. “People were putting their places on the market out of fear.”
Now, many sellers are taking their listings off the market when they can’t sell them at the desired price, deciding to wait — and in some cases, collect rental income — instead. Meanwhile, as new condos come online, their developers are waiting to market them until previous rounds of units have been sold.
“There were a lot of people who opted not to list their apartments this spring, and to wait until the market improves,” said Jonathan Miller, president of appraisal firm Miller Samuel and the preparer of Prudential Douglas Elliman’s closely watched Manhattan market reports.
At the end of June, there were some 9,873 listings on the market for condos, co-ops and townhouses in Manhattan, according to Miller’s data. That’s an increase of 7.2 percent from the 9,214 listings of June a year ago, but a 5.7 percent drop from last month, when there were 10,471 listings on the market.
According to Miller, inventory has been dropping since March, when it peaked with 11,028 listings.
A second-quarter market report by StreetEasy found a similar pattern, concluding that Manhattan inventory peaked in mid-May, with 11,723 listings, and has declined since then.
In part, the shrinking inventory is due to the much-touted springtime increase in sales activity. StreetEasy, for example, found that 2,477 listings went into contract in the second quarter, an 82.4 percent increase from 1,358 the prior quarter.
“There was a huge surge in signed contracts,” Kim said, though she noted: “When you’re comparing it to what was really a bleak quarter, any increase is going to appear really dramatic.”
For his part, Miller said the uptick in transactions doesn’t fully account for the shrinking inventory, since the number of sales is far lower than last year at this time.
“There was such a dearth of activity in the first quarter that we did see this surge of activity,” Miller said. “But that didn’t really explain it. Sales are still off 50 percent from this time last year.”
Miller attributed the inventory decrease to several factors. First, because of low prices, many homeowners have decided to postpone listing their apartments or take them off the market.
Lawrence Rich, a vice president at Prudential Douglas Elliman, encountered the latter problem recently when he represented a buyer looking for a resale condo on the Upper East Side.
At one Park Avenue apartment, the client put in an all-cash offer at the asking price of $10 million, but the seller took the unit off the market and decided to rent it instead, for the hefty sum of $32,000 a month.
At another apartment, the client put in an offer of $8 million, but this seller, too, took the home off the market, then put it back on a week later for $14 million, $4 million more than the original asking price.
Rich said these well-to-do sellers likely were not under pressure to unload their apartments immediately, and felt they could get higher sale prices by holding out.
“Certain people in that area might not have to sell,” Rich said. “They have other options, and maybe they figured after two years, the market will be better.”
StreetEasy’s report found that an average of 363 new listings appeared on the market each week in the second quarter, down from 409 per week in the previous quarter. Meanwhile, a weekly average of 175 listings were “absorbed” in the second quarter, meaning they were sold or taken off the market, up from 142 per week in the first quarter.
So if inventory is falling, and given the law of supply and demand, why did the median price of a Manhattan apartment drop 14.3 percent in the second quarter, down to $835,700 from $975,000 in the previous quarter — and down 18.5 percent from the same period last year?
One factor is the rapidly growing “shadow inventory” of available new condos. Because developers rarely put all their units on the market at once, there are always more new condos available than inventory figures suggest, Miller explained.
While the number of shadow inventory units was fairly constant in the past, it’s now growing rapidly.
“It was always a constant, but now it’s a very significant phenomenon,” he said.
When The Real Deal first reported on shadow inventory in December, Miller estimated that there were roughly 2,000 new condos that were not yet on the market. Since then, he estimated that figure has mushroomed to somewhere between 6,000 and 8,000 units. That’s because developers have been unable to sell the units they already have on the market, so they’re delaying putting new ones up for sale.
“The methodology was, release blocks of units at a time as the initial units sell off,” Miller said. “As sales slow, the blocks back up as more buildings keep coming on the market.”
Despite the recent inventory drop, buyers can still take comfort in the fact that there are many more Manhattan apartments available than in the past.
“I’ve never shown this many apartments in such a short time,” Rich said, noting that he recently showed one buyer 56 apartments in four days, and she still didn’t buy one. “In previous years, you didn’t have an opportunity to do this. The apartments didn’t last very long.”
