Gregory J. Heym
Executive Vice President, Chief Economist
BY Catey Hill
The end may be near.
And this is good news.
This year may mark the end of the massive decline in home values in the U.S, according to a new study by Moody's Economy.com.
The study, reported Reuters, made several sobering findings:
Many U.S. housing markets have endured price drops of more than 50 percent from their apex. According to Mark Zandi, Moody's chief economist, more than 60 percent of the country's metropolitan areas will have undergone double-digit declines in home prices. Total single-family home sales dropped 40 percent and housing starts dropped 70 percent.
But the report from Moody's Economy.com, titled "Housing in Crisis: When Will Metro Markets Recover?," has some good news. It states that nationally, the housing market will likely bottom out in the fourth quarter of 2009.
"Despite the darkening national economic outlook and the weak conditions in the housing market, some positive signs give hope that a bottom in the housing market is coming into view," the report said. "More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability."
There is a catch: the report assumes strong action by the government, without which, the recession will continue to pull down the housing market.
What about New York City?
New York City, especially Manhattan, is in a slightly different position than much of the rest of the country.
"Over the last couple of years while much of the country had a debilitating downturn, New York was relatively immune," said Spencer Rascoff, COO of Zillow.com. "But the party's over for New York."
Manhattan home prices actually increased from the third to the fourth quarter of 2008, according to several of the city's biggest real estate agencies. The median sale price of a Manhattan apartment rose 8% from a year ago, to $895,000, according to Halstead and Brown Harris Stevens, CNN reported. Prudential Douglas Elliman estimated the rise at 5.9% and Corcoran Group estimated it at 3%.
So when will New York's real estate market bottom out?
The Case-Shiller Home Price Index report predicted that prices would fall more than 20% in the next four years. That hints at the fact that while the rest of the country may bottom out this year, it might take New York a bit longer. A report by Goldman Sachs projected that prices would drop more than 40 percent.
There are already signs of cracks in the New York real estate market - even in Manhattan. The number of closings for Manhattan homes dropped 34% from last quarter, according to a study by Streeteasy.com. This was the sharpest decline since 2005, when Streeteasy.com started keeping records.
"What we are seeing is a lack of confidence among buyers due to the state of the economy and so much of what is happening on Wall Street, the credit crunch and even the Madoff scandal," said Sofia Kim, Vice President of Research from Streeteasy.com, a leading real estate website providing data across a variety of brokerages.
However, some experts think New York could partially dodge massive home value losses.
"We didn't have the rampant speculation that many places had," Jonathan Miller, President of Miller Samuel, a real estate apprasial firm, told CNN.
We also didn't have as much of the rampant overbuilding that other parts of the country, namely the Sun Belt, had, according to CNN. Plus, the trend towards urban living may help New York stay relatively immune.
"Our findings indicate that upper-middle and high-income households have increasingly chosen to reside in the city," City Comptroller William Thompson told CNN, "suggesting that our city may be more resilient to this economic downturn than in 1990 when companies and families were fleeing New York."
But the bottom line: Wall Street is reeling, layoffs are still coming - and this does not bode well for the real estate market of New York.
So when will we hit bottom? Only time will tell. But New York's real estate market - like many other things in New York - just might not take the same route as the rest of the country takes.
Thursday, February 05, 2009