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Bad Data, Bad Analysis, Inept Real Estate Broker and Misinformed Seller are All to Blame. August 11, 2009

Posted by John Watch in News Feed.
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The following commentary is in repsone to a recent Crain’s New York Business article titled “Shadow units cast pall” by Amanda Fung. The article discussed a glut of “shadow inventory” in New York City, particularly in Williamsbug and Manhattan. Sources claimed that Manhattan had more than 10,000 unsold condos. Based on my findings, the data and information being presented in the article proved to be misleading, if not out right false. Here is the response. Remember, real estate is three things: Cyclical, Seasonal and Emotional.


I had the opportunity to read your article regarding Shadow Inventory in the Crain’s Online Publication.  My initial reaction was there are always two sides to every story. But as I reviewed the data that was being quoted, I became concerned with some of the facts and data provided to you.  My focus of concern is the condominium market and discussions related to Shadow Inventory, and more importantly data provided by the real estate sources referenced. 

In the 25 years that I have been valuing and analyzing real estate, the term “Shadow Inventory” has never been presented before.  What I gather is that this is a buzz word used to discuss inventory that has been built, is under construction or just coming on the market.  This has never been called Shadow Inventory, but pending inventory

Because the property data being presented in the article contradicts reports I have prepared and published, I started to review the information by outside sources that was provided to you in more detail.  The 18 month supply issue baffles me because I simply cannot determine where this comes from.  Also, the “glut” of Williamsburg has me confused.  Analysis of construction activity, public records and sales activity clearly indicate that Manhattan alone absorbs about 9,000 new condo units a year.  For 2009, sales activity and public records indicate an annualized absorption of about 6,000 units.  This would be 3,000 off the peak, so again how does 3,000 fewer units sales compute to 10,000 unsold units.  Also, the 7,000 plus units coming on line in 2010 will be absorbed into the market based on Historical Sales and building Activity.

Yes, there has been a decline in sales activity since the peak of 2007, but new construction has not exceeded demand in population growth and affordable housing.  The key word is affordable.  The fact that a developer lists a property too high relative to the market does not indicate a collapse, but a misinformed seller.

Your article is an amazing coincidence for me, because hours before I read it, I completed an in-depth analysis of Williamsburg/Greenpoint condo market for a client.  What I discovered was not a “glut” of housing, but incorrectly priced housing.  My clients project was listed by a real estate agent with unit values $100,000 above the market and incorrectly stated square footage.  My firm has been arguing this point for years, it is all about the property data.  Based on the recommendations provided, the client relisted the units at the prevailing price per square foot rate for walk-up condo units of $550 psf.  He has already received four inquiries, with one being a serious buyer.  He did not receive a single call on the building in the past three months.  My analysis does not indicate that this community is in a “bust stage”. 

Bad data, bad analysis, inept Real Estate Broker and misinformed seller are all to blame.  What is most disturbing is bad data and bad analysis. 

The following is a summary of my analysis that was provided to the client:

Since 2000, the following construction activity has occurred in the City based on the 2009/10 New York City Department of Finance Records:

Single Family Homes       9,012 new units

Two Family                         25,974 new units

Three Family                      6,157 new units

Tax Class I condos            719 new units

Tax Class II condos           26,699 new units

“454 sales have occurred in Williamsburg/Greenpoint market in the past year.  There are 192 sales classified as walk-up condominium projects with an average sppsf of $570.86 and Median of $569.17.  Given the location of your property, I recommend listing at $550 psf for 1 Bedroom Units and be prepared to accept 10% less.  Development around your complex will draw buyers, but there is a correlation to subway proximity and value.  Hence the 10% lower acceptance.  The number of new units coming on the market is meeting the demand of residents from the Lower Eastside, notably NYU students who cannot afford to rent or buy in Manhattan.  Over the past 10 years, NYU has acquired many housing units south of 23rd which has driven up housing costs.  After 9/11 Williamsburg/Greenpoint experienced a revitalization effort that has brought a new wave of construction and demand for the area.  Current market conditions mean that you have to price correctly, the prior listings could have potentially hurt your efforts, creating a distress situation perception in the market.”

Amanda, some questions about the data provided to you!

According to your article, Jonathan Miller states that there are 10,445 unsold condo units in Manhattan, plus another 7,000 coming on-line.  He calls these shadow units.  According to the New York City Department of Finance, for Manhattan there are:

Class I Condos:                  198  total units

Class II Condos:                 100,173 total units

Public records show a total of 26,699 units were constructed since 2000.  This represents over 25% of all condominium units.  Mr. Miller is stating that 10% of all condos are vacant or unsold?  And by unsold, does that mean there is a current owner who wants to sell or can’t sell?

Based on Mr. Millers comments, 10% of all condo’s are on the market in Manhattan, with another 7% coming on.  This just does not factor correctly and here is why:

Since 2003 there has been no more than 10,000 valid sale transfers per year of condominium units in Manhattan. (See table below).  Mr. Miller states that there are 10,445 unsold units in inventory which appears to be a normalized number, so what is the point.  This isn’t of much significance given the history of sales for condominium units.  As a matter of fact, all units constructed since 2000 have been absorbed into the market within a very finite time (less than 6 months).  Following is more information to support our data points:

Since August of 2008 there have been 10,076 condo sales in Manhattan.  This represents 10% of all properties.  When only usable sales are considered, (indicated square footage over 200, valid sale price over $10,000), the number is reduced to 5,407 sales or 5.4% of all condo properties with an indicated Average Sales Price of $1,805,328 and Median of $1,089,527.  The variance is rather significant.  Analysis of 2009 Sales Only shows 1,764 valid sales with a Average sale price of $1,656,783 and Median of $1,025,000.  Perhaps the use of the Average and Median Sale price is confusing some, because the Sale Price Per Square Foot provides a totally different view of the market.

Average Sales Price Per Square Foot      

  • $1,229 (7/2008 to 7/20009)          
  • $1,180 (’09 Only)

Median Sales Price Per Square Foot       

  • $1,145 (7/2008 to 7/2009)          
  • $1,070 (’09 Only)

Square Footage has a significant impact on the values, with less than a 7% variance between Mean and Median, and property values from 2008 to 2009 are only down 4%, not the 30% levels being reported by some.  And we cannot just rely on the Average and Median Sale Price alone.

Further Analysis by Sales per Year since 2003 indicates the following (Click To View)

Bad Data Big Text 174 

 Total Sales are all recorded instruments with the New York City Department of Finance and County Clerk (http://www.nyc.gov/html/dof/html/home/home.shtml )

Useable Sales are defined as sales greater than $10,000, greater than $100 per square foot and having a valid square footage greater than 200 feet (minimum required for living space).

Usable sales historically represent about 60% of all sales.  Since July of 2008, this figure has dropped to 54% and for all sales in 2009 it is at 46%.  2009 is projected to have the lowest useable sales on record since 2003.

CURRENT value indicators clearly show that on a rate per square foot basis the Manhattan Condominium Market is off in value by less than 4%.  (all data used in this analysis is obtained from the NYC Department of Finance and is 100% verifiable).

You have quoted many individuals and their opinions in the article, but they appear to be lacking the data like the statistics being presented above.  It concerns me when I believe reporters receive information from sources that appear to have a hidden agenda.  The developments coming on line can easily be absorbed into the market. 

Again I will state, Bad data, bad analysis, inept Real Estate Broker and misinformed seller are all to blame for listing properties to high.  Analysis of actual data and using accepted and appropriate statistical analysis yields results that are explainable and defensible.  Quoting individuals without verification from noted and verifiable sources impinges the creditability of the article.

John Watch, President & CEO



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1. jonesknowshomes - August 11, 2009

Great article, information and analysis… Wonderful to read another professional taking and supporting a position that is not all “doom and gloom”.

2. John Watch - August 12, 2009

Thamks for the input. The sope of our comments is to encourage discussion regarding such issues. We all need to communicate in an effective manner so that correct data is presented for analysis and discussion.

3. fred - August 13, 2009

How does your analysis address the long run relationship between average income and average closing prices? At some point it all comes back to what folks can afford and the problem with using recent absorption figures to project the next few years is we aren’t going back to the easy mortgage era, which was the impetus for land appreciation. Once land trades down, and my guess is it may take a while, the construction depreciates faster. From a lender’s perspective, that means you discount harder and faster to monetize. Historical data doesn’t help us to understand how the individual seller will react to a flood of discounted properties? Just as there was a rushed mentality that got prices psf to the high water mark in 2007, the same rush to the exits will have some effect I imagine on the way down.

John Watch - August 13, 2009

Fred, you bring up some interesting points. I must say that you are the first person to talk about land values. I agree with your statements, especially the component of land value. Land is a finite resource and in NYC and other major metro areas the cost of land over time continues to increase, not decrease. It is simply a function of what is available to be developed. In NYC, there is basically no land left for development, other than assembling properties and tearing them down to build new. Local zoning laws have a lot to do with what can be developed.

In regards to income, there is a direct correlation to sale prices and income levels. Again NYC defies some of the standards on this given the high population of foreign investment and college students. To sum it up, real estate prices are affected by many components; but if we do not take the data (all of the data) and analyze it with transparency than these real estate bust and bumps will keep continuing.

As a follow up to the original post, bad data and bad analysis caused problems for the developer in marketing the property. Since we provided the developer with a complete history of sales activity and our recommendations on how an appraiser would value the property, the developer has now received 8 inquiries in 72 hours and it looks like he will get two sales.

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