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Three Cents Worth: Manhattan Rentals Are Quicker Picker Upper

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller ponders absorbency.]

I'm probably dating myself with the title reference to an old Bounty Paper Towel commercial tag line, but who cares, this is Curbed and they'll absorb all spills. Since everyone seems to be talking about the strength of the rental market, I thought I'd take a look at the absorption rates of the sales and rental markets over the past 5 years. I could go back more than 10-years with the sales market but my rental listing data is currently only compiled back to 2007.

I have a lot of text descriptions in the chart (sorry) so I'll keep this overview short. I compared the absorption rate of both markets over the five year period and they each tell a different story. I defined the absorption rate as the number of months to sell or rent all active listings at the current pace of sales or rentals. When the absorption rate falls, it means the pace of the market is accelerating because it is able to use the inventory in a shorter period of time. I averaged each trend (dotted lines) over the 5-year window to provide some sort of context for the sale and rental markets. The center of the window neatly marks the pre- and post-credit crunch housing markets.

Sales (blue line)?The pace of absorption has been remarkably stable and just below the 5-year average since late 2009. As a result of the average market pace, overall prices have remained stable. In fact, the five-year average absorption rate average is consistent with the 9.4 month 10-year average. While there are bidding wars going on and a trifecta of 10k square foot record sales reported last week, these are more exceptions than representative of the market as a whole.

Rents (magenta line)?While the absorption rate has been very stable since the second half of 2010, it has also been unusually low (fast) which explains the rental market frenzy of late. Listings are rapidly absorbed and as a result, rental prices are pushing people to rethink entering the purchase market as affordability falls.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]