Elegran Leverage Indicator: Is NYC a Buyer’s or Seller’s Market?

Identifying today as a “Buyer’s Market” or a “Seller’s Market” is important because it signals which party to the transaction holds the leverage. More importantly, it indicates which party should be rewarded for their patience and which should be rewarded for acting quickly.

The most digestible way that we’ve seen this topic explained is through the lens of urgency. The market moniker corresponds to whoever’s urgency is decreased by current conditions. It is labeled a “Buyer’s market” when the Buyer’s urgency decreases and, conversely, a “Seller’s market” when the Seller’s urgency decreases.

A prerequisite for comprehension of this topic and the forthcoming explanation is the assumption that both the Buyer and Seller have made the decision to transact. Another assumption is that three (3) inputs are sufficient: price, demand and supply.

BUYER’S MARKET

If prices are decreasing, the Buyer’s urgency decreases. Why? Because prices are moving in their favor and the slower they are to reserve a residence, the better the price should be.

If demand is decreasing, the Buyer’s urgency also decreases. Why? Less competition translates into more effective availability and, subsequently, lower prices.

If supply is increasing, the Buyer’s urgency decreases as well, because more inventory means less effective competition and, subsequently, lower prices. However, to keep this input consistent with the other two, i.e., decreasing, we take the additive inverse, making the change negative, or decreasing.***

SELLER’S MARKET

If prices are increasing, the Seller’s urgency decreases. Why? Because prices are moving in their favor and the slower they are to accept an offer, the higher that offer should be.

If demand is increasing, the Seller’s urgency also decreases. Why? More competition translates into shrinking effective inventory and higher offers.

If supply is decreasing, the Seller’s urgency decreases as well, because less supply means more effective competition and, subsequently, higher offers. Again, to keep this input consistent with the other two, i.e., increasing, we take the additive inverse, making the change positive (the additive inverse of a negative number is a positive number), or increasing.***

ELEGRAN LEVERAGE INDICATOR

We have created a method to indicate which party currently maintains the leverage; i.e, we have created an index that identifies whether the market is a “Buyer’s market” or a “Seller’s market”, both historically and currently. This indicator will be updated monthly.

As noted above, a Buyer’s market is described by “decreasing” — decreasing price (described by price/sf), decreasing demand (described by signed contracts) and “decreasing” supply (artificially and purposely manipulated from increasing to decreasing).

Conversely, a Seller’s market is described by “increasing” — increasing price, increasing demand and “increasing” supply (again, artificially and purposely manipulated from decreasing to increasing).

Elegran’s Leverage Indicator tracks the monthly aggregate of the percentage total change in the three (3) inputs described. We would expect then, that a decreasing trend in the aggregate number indicates a Buyer’s market and an increasing trend indicates a Seller’s market. Furthermore, the intersection of two (2) mathematically determined linear trendlines with opposing slopes (i.e., positive slope and negative slope or vice versa) marks the transition from a Seller’s market to Buyer’s market (or vice versa).

Please refer to the “Elegran Leverage Indicator” for Manhattan below:

Between Sep — Oct, 2020 and Mar-2022, Manhattan was in the grip of a strong Seller’s market. We make that determination from the steep positive slope of the linear trendline, indicating rapidly rising percentage total change in the aggregate of the three (3) inputs: price, demand and (the additive inverse of) supply. Having all participated in and followed the post-COVID market with great attention, we can theorize (and the numbers would prove our intuition correct) that the aggregate was dominated by the record-setting one-two punch of demand, first stemming from COVID pent-up demand and followed immediately by future demand being pulled forward due to rapidly rising mortgage rates.

The graph also indicates that, in March, Manhattan transitioned from a strong Seller’s market, to what appears to be an even stronger Buyer’s market, this time due to even higher mortgage rates — transitioning from motivator to deterrent — and a slumping stock market which coupled to turn off the demand spigot, a decrease compounded by seasonally low summer demand.

The “Elegran Leverage Indicator” for Brooklyn is below:

WHY IS THIS IMPORTANT?

Again, knowing whether the current market is defined as a “Buyer’s market” or a “Seller’s market” affords you and your Clients the insight of who has the leverage. Currently, the Buyer maintains that leverage, and should be rewarded for their patience.

But knowing that we are in a Buyer’s market does not only afford us unilateral information, It also informs us that Sellers should be rewarded for their urgency, i.e., rewarded for pricing correctly and transacting quickly.

• ** Taking the additive inverse of supply serves to amplify rather than mute the aggregate of inputs, rendering the trends more discernible.

**Data courtesy of UrbanDigs