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Three Cents Worth: Manhattan Shadow Inventory Gets Active

[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller brings shadow inventory into the light.]

Now that the Spring Market is behind us and our market reports come out next week, I thought I'd take a look back at inventory trends since the lack of it has been a common complaint in our housing market.

So let's talk about the four main classifications of residential housing inventory:

Shadow Inventory (Re-sales): For the most part, nearly every housing metro market in the country is seeing falling inventory levels far outpacing the increase in sales ?the math doesn't work. Inventory has to be falling for other reasons. Part of it is due to mortgage servicers holding back foreclosure inventory from the robo-signing fallout, but that's not a major issue in Manhattan. The phenomenon of "shadow re-sale inventory" is likely caused from many homeowners don't have enough equity to trade up to their next home. It's a pervasive problem in the US and the Manhattan market is likely experiencing this like everyone else (no metrics available, just a hunch). Nationally, 1 out of 4 homeowners are underwater on their mortgage.

Shadow Inventory (New Development): Over the past several years, the Manhattan housing market has continued to push forward and in the process has gradually eroded the surplus non-listed new development condo stock to the point where it is essentially a non-issue. At one point shadow inventory was estimated at 6,500 units, but through the process of repurposing some of the units to rental or hotel, repositioning (dropping prices) or simply selling, the levels don't appear to be significant anymore. Tracking shadow inventory with any frequency is a full time job and I already have one.

The chart above addresses "active" inventory trends in Manhattan.

Active Inventory (New Development): The amount of active (formally listed for sale) new development inventory has been declining since the market peak in mid-2008. The construction pipeline was turned off in the summer of 2007 so by mid 2009, not much new product was coming onto the market. The chart shows a steady decline after peaking in 2008, the amount of active new development inventory has fallen 51.7% since the 3Q 08 peak.

Active Inventory (Re-sales):Re-sale inventory has been trending lower over the past year and is down 30.1 percent from it's 1Q09 peak. I believe that the decline is a result of the increase in shadow re-sale inventory.

With credit remaining tight, foreign buyers looking for a safer haven than their many troubled or bubbled economies and the fact that Manhattan jobs lost in the recession having been fully recaptured (only 40% nationally) I don't see an end to tight inventory in the near future.
· Matrix []
· Three Cents Worth archive [Curbed]