Manhattan’s real estate landscape is constantly in flux. For buyers and sellers, timing and strategy are crucial, but many market participants rely too heavily on lagging indicators like prices, which reflect the market as it was months ago. This can cause them to overlook current market sentiment, which sheds light on where the market is heading.
Why Sentiment Matters
Sentiment metrics reveal the underlying confidence or caution among buyers and sellers. As the saying goes, forewarned is forearmed: understanding sentiment means decisions can be proactive instead of reactive. Tracking sentiment is critical to understanding the market as a whole.
When used alongside price trends, sentiment data gives buyers and sellers a distinct edge by offering predictive insight into the market’s direction.
Two powerful sentiment metrics, Listing Climate, and Market Pulse, offer foresight to help guide strategic, proactive decisions in Manhattan’s real estate market.
Understanding Price Trends
A standard metric for assessing Manhattan real estate value is Price Per Square Foot (PPSF) for resale condos. Theoretically, PPSF should reflect supply, demand, and economic shifts over time, allowing us to understand property values at a given moment. However, PPSF trends only provide a snapshot of market conditions at a specific point in time and lack the foresight for strategic planning due to its lagging nature. For example, recorded sales prices for a given month often reflect contracts signed two months prior. This lag can leave sellers using “rearview mirror pricing,” risking misaligned expectations and potentially missing opportunities. The chart below shows the median monthly resale condo PPSF from January 2008 to September 2024.
It’s easy to see the tops and bottoms in hindsight, yet market forces made the environment feel either euphoric or terrifying at the time. To take a more forward-looking approach to hopefully see around market corners, incorporate market sentiment.
Understanding Market Sentiment
Market sentiment offers insight into the attitudes and behaviors shaping today’s market. Two key sentiment indicators, Climate Index and Market Pulse, provide this added depth and add a predictive layer.
Climate Index
The Climate Index looks at the ratio of successful to unsuccessful listings to tell sellers how easy or tough it is to sell. When more listings succeed than fail, the Climate Index rises, meaning selling is easier and prices can stay higher. When it drops, as it did from May to June 2022, it means selling is harder, and sellers need to price lower to get buyers interested.
Market Pulse
Market Pulse shows if the market is strong or weak by comparing the relationship between supply and demand. Positive numbers mean it’s strong, negative numbers mean it’s weak. From May to October 2024, it rose, suggesting a quiet recovery was underway.
Using Climate and Pulse together allows market participants to understand how today’s conditions affect their goals. Together with pricing and inventory data, these sentiment indicators offer a well-rounded view of the market’s direction to make smarter decisions.
Sentiment Leads Price
Changes in Pulse lead changes in price by about six months. For instance, during Manhattan’s post-pandemic recovery, the Pulse rose from -10 to +15, which was an early indicator that prices would soon follow suit. This phenomenon allows buyers and sellers to anticipate near-term market conditions before they materialize.
The Climate Index also demonstrates predictive power, though it is weaker than the Pulse. Taken together with PPSF data, Climate and Pulse provide a framework for more insightful views of the market.
Price + Sentiment
If PPSF trends can offer a glimpse at current prices and sentiment can hint at where prices may be headed, analyzing price and sentiment together should provide an advantage. For example, when a participant understands PPSF and looks to Pulse and Climate for guidance, the following movements offer insights:
- Rising Pulse: Prices could increase in the coming months. Sellers know they are listing into strength, while buyers may want to act quickly before prices climb.
- Declining Pulse: Prices could soften in the coming months. Existing sellers can adjust prices now to get ahead of the market, and buyers might negotiate better terms as sellers become more eager.
- Rising Climate: Sellers know the market is moving toward them. Buyers know they have more competition.
- Falling Climate: Sellers know the market is moving away from them and can take action. Buyers know sellers may be more open to negotiation.
Overlaying changes in PPSF with Pulse shows the relationship between sentiment and price shifts.
Examples
Significant shifts in sentiment indicators often anticipate subsequent changes in PPSF:
- Early 2009 Decline — January 2009: Pulse and Climate declined sharply year-over-year. The sentiment signaled a challenging environment for sellers and foreshadowed weakening prices.
- Six Months Later (July 2009): PPSF confirmed the negative sentiment, showing a year-over-year decline of approximately -15%.
- Late 2023 Market Rebound — October 2023: Positive shifts in Pulse and Climate offered an early signal of a stabilizing market.
- Six Months Later (April 2024): PPSF moved from a slightly negative year-over-year rate to positive territory.
Advice for Sellers
Sentiment metrics can help time listings for optimal absorption. A rising Pulse hints at price gains in the coming months, making it an ideal time to list into strength. Conversely, if the Pulse is falling, consider listing sooner or at a more market-friendly price to avoid penalizing price cuts. A low Climate Index signals a challenging market for sellers, suggesting it may be time to offer incentives or adjust pricing proactively.
Advice for Buyers
Sentiment metrics can help set expectations on negotiation and near-term price risk. Falling sentiment could mean softening prices and more negotiable sellers while rising sentiment could mean today’s prices are tomorrow’s deal.
Read the full article here
