Three Cents Worth: Rental And Sales Absorb Our Problems

[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller isn't willing to stand for conventional wisdom.]

In the spirit of Curbed's Renters Week I took a look at the ebb and flow of absorption in the Manhattan residential sales and rental markets. Absorption for this purpose is defined as the number of months to sell all active inventory at the current pace of sales/rentals. I like the absorption metric because it shows the relationship between supply and demand. Sales are defined co-ops/condos, while rentals are all types of properties (sorry, it's the aggregate data I have access to). While I've got more than a decade of sales inventory data, I can't go back as far for rental inventory, hence the 2008 start date.

The chart represents non-seasonally adjusted year-over-year percentage change in the absorption rate for both rentals (green) and sales (blue). I inverted the chart (Curbed readers have previously demanded this) so that "up" means "better".

The story in this chart begins in the beginning of 2008 at the height of prices in the purchase market. The absorption rate began to expand as market activity cooled. In fact, rentals and sales activity essentially fell off a cliff shortly after Lehman as the housing market stalled.
The second half of the housing market showed a significant improvement, closely following the rebound in the stock market. By mid-2010, with the Federal homeowner tax credit stimulus ending and mortgage underwriting tightening, the purchase market stopped improving while the rental market continued to improve.

In the latest quarter, both rentals and sales hovered around balanced conditions. Since I don't see mortgage lending easing in the near future, I suspect rentals will return to being more robust than sales over the next year.

This seems to sweep aside the notion that rents and sales activity move in opposite directions, at least in Manhattan. From this macro vantage point, conventional wisdom needs a revision.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]