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Condo Inventory At Low Tide In Sea of Bad Analogies

With all the focus on low inventory and restart of the new development market, I thought I’d present these two metrics along side of each other. Apologies in advance to Curbed readers for cramming too much into the chart but I think it helps tell the story of how we got here and where we are going.

Boom slowing, pre-credit crunch [2005 to 2007]: The new development boom was a few years behind the housing market since developers need a few years to get their projects going. By mid 2006, the national housing market was peaking and the Manhattan re-sale market was slowing down. Condo inventory surged with help from a new development market that enjoyed more than half of all closings in 2006 (most probably went to contract a year or more earlier).

Credit Crunch Begins, Lehman Collapses [Summer-2007 to Fall 2008]: New development construction loans dried up in the summer of 2007 and credit began to contract sharply for end loan borrowers. The market share of new development plummeted from a peak of 57.9 percent in mid 2006 to 21.6 percent in the summer of 2007, establishing the rough benchmark where new development market share would stabilize a few years later. The Lehman bankruptcy in the fall of 2008 was the punctuation mark on the beginning of irrational mortgage lending standards as a reaction to virtually no lending standards during the boom.

Housing Market Stalls, Begins to Stabilize [Fall 2008 to Fall 2009]: New development dominates market share in early 2009 as re-sales stall. Re-sale prices fall 30% from price peak in early 2008. Borrowers faced with walking away from down payment or closing new development purchases made 12-18 months prior. Most opted to close. New development shadow inventory mushrooms to about 6,500 units.

Re-sale and New Development Prices and Sales Stabilize [Fall 2009 to Now]: Overall housing market begins to see more activity pick up in second half of 2009. New development has remained in tight zone of stability for nearly 3 years with the most irrationally tight lending standards in decades. The new development pipeline ran dry in 2009 (two years after credit crunch began) and market begins to work off much of the shadow inventory as some units are repriced, repositioned or repurposed to rental as that market booms. Condo inventory continues to trend lower.

Future? There are a lot of mixed signals and inconsistencies with the regional housing market, but it’s generally faring better than many other US regional markets.

· Credit should remain irrationally tight for several more years

· Shortage of new development in next few years may push new lenders to provide construction financing to meet demand

· Economy may take a number of years to see meaningful gains in unemployment

· Continued emphasis on super luxury new development and luxury rental development

· Yankees win World Series, Knicks win NBA Championship, Rangers win Stanley Cup and Jets win Superbowl (just making sure you are reading the fine print).

· Lots more distressed sales activity to enter the regional housing market (limited Manhattan exposure but keeps credit tight)

· Inventory expected to remain tight as sellers withhold market entry due to economic uncertainty

· Matrix [matrix.millersamuel.com]

· Three Cents Worth archive [Curbed]

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