A long standing marketing technique for the seller of any product is to create a sense of urgency so the buyer will make a decision, hopefully a purchase. This applies to all goods and services and real estate is no exception.

One of the more daunting tasks in the New York housing market is to be able to track inventory levels of residential housing units, specifically co-ops and condos. This post was inspired by comments made by The Boston Real Estate Blog’s John Keith on one of my earlier posts.

Re-sale listings are not too big of a challenge to keep track of…simply count them. However, new development listings are more difficult, if not impractical to keep a running total without significant manual labor. Why?

Whether the project is a newly constructed building or conversion of an older building, developers don’t make all the units available at the same time. In other words, a 150 unit building entering the market might only allow 25-50 units at any one time to be available for sale. Buyers are limited to the units made available. These units get picked up in the inventory count each month but the remainder do not, thereby undercounting total potential inventory.

This is kind of twisted in its logic since the goal is to sell out the building so why wouldn’t the developer make them all available for sale? …because consumers want to feel that they are getting something unique or special.

A project I was familiar with saved the penthouses for last because they were so special to the building. The logic was to market the building one way and then when the units were nearly gone, to shift the marketing effort specifically towards the penthouses. It worked.

In some developments, it might be a concern that the “hot” units, a particular line or style of unit, sell so quickly with little interest in other unit types, that the remainder of the units might be seen as duds.

_Slightly off track_
I find it humorous that big department stores have holiday sales, inventory overstocks, etc. all the time. Can they really be that bad at projecting how many products they are going to sell during the year? Do they really have to clear inventory to make way for new products so “we’re selling them at cost!”

No way. Its part of the marketing strategy. Some people will only buy something if its on sale and some people could care less whether it is on sale or they don’t plan their shopping around that fact – they go for the convenience. Its not all about saving money (well, that is a big factor) but its knowing that they got to buy something that someone else didn’t have access to or the “inside track.”

Some buyers want to buy something that not everyone can get…ie an “exclusive” offer. Powerful stuff that rational, sane, logical people understand but still buy the product anyway.

The same goes for real estate marketing. One segment wants to feel like they got something thats “exclusive or rare” and some could care less. Logic doesn’t always apply, its about the experience. Thats part of what is being purchased and thats ok.

_back on topic_
So what does this mean for housing inventory stats?

It means that the total count is lower than it should be. However, since this technique has been done for as long as I can remember, inventory numbers should still show reliable trends. In other words, the count would be considered a constant in the equation.

This “warehousing” technique is used by developers in tight housing markets although its probably more effective in weaker housing markets.

In a stronger housing market, developers emphasized urgency by creating regular price increases so theirs was an incentive for the purchasers to buy early. That won’t work today.

11 Responses to “Listing Inventory In The Shadows Of Marketing”

  1. robbie c says:

    There’s a problem with your conclusion that the inventory data “still show reliable trends.” Although warehousing has been done for many years, it is a technique used mostly by new developments. The inventory mix in New York used to be mostly single co-op units for sale; now it is mostly new condo developments. Thus, warehousing — and the undercounting it engenders in inventory numbers — is much more significant today than it was 5 years ago.

  2. Madame X says:

    If the number of condo units being built is spiking up in recent years, leading to new condos being a larger percentage of overall housing stock, then even if the percentage of new condos being warehoused is a constant, wouldn’t those held-back inventory units be increasing as a percentage of overall units available? Meaning data is more skewed now than a few years ago?

  3. Jonathan J. Miller says:

    Robbie and Madame X. I see your point so I really needed to be more clear. As near as I can tell, new development comprises about 22% of all listings and thats probably not much higher than it was 5 years ago as a percentage since re-sale inventory was lower as well. Thats why I don’t think the reliability has changed all that much.

  4. BC says:

    The condos currently under construction are all filed both with the AG and the Buildings Department, so they should be easier to track.

    Developers hold back units for all sorts of reasons, but in a rising market, you release a few as your seed units, and encourage people to buy now before prices rise. Generally its a low floor, a few middle floors, and maybe a high but not PH-high floor. It gives you a pretty good cross section of offerings and allows you to gauge market response. Depending on how you’ve designed the building, it allows you to reconfigure — within reason — your remaining units, or perhaps market that ‘2BR’ as a ‘1BR + den’ for the single woman with out of town visitors. It also helps you revise marketing. If you thought you’d get mostly single women and young, childless couples, but you end up with divorcees and empty-nesters, then you’ll change your marketing profile for the remaining units, perhpas adjusting your amenity mix or finishes.

    In a stabilizing/stagnant market, you don’t want to flood the market with units, and so you may choose a specific unit type to offer and figure that the remainders will either be sold alongside them, or held back for rentals.

    Much of the pricing strategy depends on when the developer sees their first returns. With a 90% LTC, it may take until the penthouse floors are sold for the developer to actually see their ‘profit’. Consequently, the rest of the building is paying for the construction of those final, exclusive units. If those are the most valuable, the developer will want to retain the units that offer the most pricing flexibility, and thus the best ability to charge a price well out of line to other units. Of course, I know a few developers who mis-timed the end of the market, and are stuck with poorly designed penthouses that are not generating any interest.

    On the other hand, quite a few developers in the Miami and DC markets (and in places like TriBeCa before that), built as the market exploded, which meant that they made their money very, very early. In that case, or as in the case of a conversion, the profits are locked in, and the final units may be unattractive, facing a shaft or neighboring building. These will be heavily discounted for an investment buyer so that the developer can close out the job.

    In general, you save the PH for last so that you can leverage the successful sell-out of the lower floors to command a high premium for the PH. If you’ve already made your returns, then you might be wiling to fire sale the remainders.

  5. Chewing on this nugget: “new development comprises about 22% of all listings and thats probably not much higher than it was 5 years ago as a percentage since re-sale inventory was lower as well”.

    But I can’t reconcile that with my impression (no big deal to give that up) or your data (harder). The Miller Samuel 10 year report shows sales since 2000 of Manhattan coops and condos of 8,799, 7,858, 9,094, 8,488, 8,180 and 7,577. I assume 2006 will be like 2005’s number of 7,577.

    If those numbers include new development sales, it seems to me that new developments in the last three years are a much higher percentage of total sales than the prior three years.

    I know you were talking about inventory, rather than sales, but even inventory is hard to fathom here.

    Your monthly inventory chart for new and exclusive listings since December 2001 shows a listing inventory range of roughly 4,000 – 6,000 until inventory consistently exceeds 6,000 units this past February on its way to the September 7,800 figure.

    Again, it is my impression that new development listings have been much higher since 2004 that in 2002 and 2003, and therefore are taking up a much higher percentage of closed sales since 2004. But you think 22% of inventory, consistently.

    What am I missing here? Or have I just garbled the sales and inventory data….

  6. Brad R says:


    I have a similar problem in Charleston. My inventory numbers on condo/townhomes are off because the marketing agents will not list all of the active condos when they are available. For example there is a 315 unit condo conversion and the realtor only has 5 units as active in the MLS right now. This really skews the inventory numbers in the market and it is impossilbe for me to track all these scenarios.

    Thanks, brad

  7. Clearly the tic upward in new developments under construction would skew the unreleased inventory numbers upward a little as well. Does it matter? Is it inventory if it isn’t built yet? When I sell in new construction it may take several months to a year to close the deal. It seems that the equally significant numbers are related to sales volume. The sold and closed deals from new developments today, reflect a significant delay in buyer activity from as much as a year ago. Likewise, I’ve a number of new development deals in contract for next year that represents buyer activity from the second half of 2006. It means that there is hidden buyer activity too. Since it’s ultimately a supply and demand question, to be relevant, doesn’t the inventory question need to be considered in relationship to absorption? How is it possible to really understand it at all with so much elasticity in the timing of that relationship? Suffice it to say Johnathan, that the post raised more questions for me than it answered; but I’d agree with you that, “…this technique has been done for as long as I can remember, inventory numbers should still show reliable trends. In other words, the count would be considered a constant in the equation.” At least I can take comfort in the fact that the inconsistencies are consistent.

  8. A Downtown Broker says:

    Once a developer is in the black, whatever the mix, prices will climb – even if simply to tell customers to submit offers, that invariable tend to be high offers (or higher than the previous asking price) – you can achieve this in any market as long as your initial marketing mix creates a feeling of something being exclusive – once you have that and have sold a unit or two – even at low numbers – you simply make your money back on the remaining property.

  9. Bored says:

    Just one problem with your scenario. Purchasers of new development condo’s are given an offering plan with a Schedule A listing all the units in the building so therefore a purchaser before he or she signs the contract is aware of all the units the developer may have sold or will be selling and if they want to wait for a higher floor, larger unit, better exposures or whatever, they are free to do so.

  10. Jonathan J. Miller says:

    Bored – the Schedule A doesn’t tell the purchaser what has been sold. It simply provides all the units submitted in the offering to the AG. That doesn’t correlate with what is actually released to the brokerage community for sale at a specific time and it doesn’t provide what the price paid was either.

  11. Anna says:

    Too true! Did you see SocketSite’s “Complete Inventory Index” for San Francisco a couple months back? Paints a completely different picture of the market – maybe they could put one together for NY…