Summer Switch

My friend Noah Rosenblatt, who runs the site Urban Digs (an absolute must read for all you real estate statistics geeks out there: www.urbandigs.com), recently wrote about the impending summer slowdown which takes place every year. It inspired me to think, as I do every year, about whether our business really is seasonal any more in a significant way, and what the implications of that may be. In my opinion, the issue is clarified by a little history.

When I was first paying attention to real estate, in the late 70s and early 80s, there was little for sale, not because the market was so tight (interest rates were, after all, at 18%-an inhibitor if there ever was one!), but because there just wasn’t that much inventory. There were few condos. Most of Broadway was still low rise rentals, much of West End was still rental, and most of the postwar units east of Third Avenue were rentals as well. There was no such thing as Tribeca and SoHo was for artists. In those days our business was highly seasonal. The apartments which one bought were mostly 6 rooms or larger, and the families which mostly bought them went away in the summer. If you wanted a one bedroom (or, more often than not, a two bedroom), you rented it. There simply were not that many available for sale. So the market was seasonal because, with some exceptions, there was only one sort of apartment for sale and, with some exceptions, the same sort of people were buying them.

Everything changed with the massive amount of co-op conversion and construction which took place between the late 1970s and 1986. Over the arc of that decade, owning became more of an aspirational New York City desire. Whether you wanted two rooms or 12, owning became more and more the preferred mode for those who could afford it. This had a big effect on seasonality. Increasingly, as smaller apartments entered the sales mix, the seasonality curve flattened. It didn’t disappear, but it flattened. If you are buying a one or two bedroom, you probably don’t care that much whether you are buying it in January or July. You are not spending the summer in the Hamptons. And increasingly we live in a world of two income couples; most of THEM are not spending the whole summer in the Hamptons either.

So while there is a dip in purchasing after June 15th or June 30th, there are other factors which more significantly dictate how busy a summer is likely to be. Last summer, for example, the market slowed down in early May but experienced a spurt of activity in late July and August. It then slowed again in September, even as the stock market was rising. And the late fall was active last year AND the year before, especially November and December. It is always slow between December 15th and January 10th, similarly between August 15th and Labor Day. But other than that, economic factors dictate overall market activity much more than weather patterns or vacation times.

This year it remains to be seen what the summer will bring. Contrary factors are pushing the market in different directions. On the one hand, there is the shortage of inventory. With the exception of the postwar smaller apartment market, good property is in demand and there is not much of it. So that fact drives both competitive bidding and escalating prices. At the same time, the threat of fiscal crisis which hangs over the EU, the slowdown of the Chinese manufacturing economy, and lingeringly slow job growth across America are casting a pall over economic expectations for the balance of the year. This anxiety is also making itself felt amongst buyers, confounding some of them as they contemplate the scarce inventory and aggressive pricing. But whatever happens, seasonality will be only a factor, not the determinant.