Looking Ahead: NYC Housing Seems Fine

Posted by urbandigs

Mon Nov 27th, 2006 09:24 AM

A: I always like to LOOK AHEAD and use all the available data to formulate an investment strategy. Sometimes I'm right and sometimes I'm wrong. But I'm always learning and I never bet the ranch on any of my gambles. What's happening right now and what signals are being displayed are leading me to think that housing, especially in NYC, will be just fine. With the fed on a PAUSE campaign for at least the forseeable future, with bond yields still predicting a coming recession via an inverted yield curve, and with equities surging to near record highs, what does it all mean?


Housing actually has a few things going for it these days that might pull the national market out of the woods. Those who will get hurt are those who made poor financial decisions in the first place; these include:

  • Buyers with complex (i.e. neg. amortization loans) and resetting loans

  • Buyers who bought too much house relative to their income

  • Buyers new to the flipping game seeking a quick profit and now stuck with unoccupied units

  • I have to be honest. I thought inflation would become more of a threat, the fed would have to raise rates again in the future, and the slowing economy as a result would keep stocks from running up too far too fast. What I didn't count on is the price of oil plunging to $58 from $76 and staying there, equities surging as a result, the job market and wage market being as strong as it is (a sign of a strong economy), and inflation actually showing signs of declining.

    While we are still not out of the woods yet, I have to admit it is very encouraging news. The equity markets (although now showing signs of correcting a bit) are clearly betting on a soft landing as corporate earnings continue to come in strong and inflation seems at bay. The bond markets are clearly betting on lower interest rates in our near future, which would mean a rate easing campaign by the fed at some point. But who's right?


    But what I do know is that both of these fundamentals are joining forces to help form a floor in the housing market for New York City. If stocks continue to surge then the wealth creation will result in great bonuses for many wall streeters come early next year and for those who invested a majority of their assets in equities. The paper gains could easily be used for real estate purchases or at least psychologically create a minor sense of urgency during the months of January - February.

    If the bond market is right in predicting a coming recession, then the fed will lower interest rates effectively making housing more affordable down the road. If you go along with the bets of the stock market and the bond market, than NYC housing in particular will continue to see a high level of demand.

    You just can't compare NYC real estate to other markets like Miami or Phoenix because we just don't have the inventory glut that these cities currently have. In fact, good products in New York City are still pretty hard to find while rental costs have surged to 6 year highs. Its a question of affordability and New York City has plenty of high income residents looking for a place to live.

    I'm beginning to think that the current slowdown will ONLY affect NYC for another year or so before a new bull run begins. Sure I could be wrong because anything can happen between now and 12 months from now, but with the data I'm seeing, this bust cycle will probably be similar to past bust cycles New York City real estate has experience: SHORT LIVED.

    For those waiting for the market to crash, don't hold your breath. After all, the crash might very well be that apartment that was reduced 3 times from $750,000 to $675,000 whose ultimate sales price is $650,000. Take the same apartment in early 2005 and a bidding war would have gotten the seller closer to $725,000. Thats a 10% decline last time I checked!

    UrbanDigs Says: If your looking to buy and specifically trying to find a bottom and time the market, keep VERY CLOSE eyes on the market over the course of 2007 and early 2008. Hindsight might very well prove that the bottom of Manhattan real estate is somewhere between the end of 2007 and early 2008 with a flat market for a year or so after that. Is there a rush to buy, certainly not. But that doesn't mean a good deal won't present itself over the next 12-18 months. Whenever you consider a huge crash for the NYC market, just take a look at the 4-5-6 trains at 8AM & 5PM on any given weekday; look at Grand Central, Times Square, and Penn Station. This city's population is growing and the fact that the 2nd Avenue Subway is actually about to start work proves that a billion dollar investment in infrasturcture is not just wanted, but NECESSARY to keep up with growth. With this much demand, in this type of city, with so much money being made, and so little rentals to choose from, how can the bust cycle turn out to be a flat out crash?

    If I had to predict a timeline right now for you, it would be something like this:


    Of course, these stats won't come out until 3 months later anyway. So, my prediction of a slight decline in housing prices for right now, won't be confirmed or disproved until February-March of 2007, at which time most people will take that data as representative of the CURRENT MARKET at that time! That's the wrong way to think!

    See CNN's MONEY article titled, "Home Prices Down 1.2% in Third Quarter".

    - If inflation proves worse than expected and/or the US dollar continues its rapid decline, then we might be in for higher interest rates which would obviously skew everything I just predicted above. This is why timing the market is so tough, as no one really knows what will happen down the road. Should interest rates rise or stay at current levels for the next 2 years, then extend that FLAT MARKET prediction out another year or so or possibly add in another few -1% for housing prices as there will be no external stimulus from monetary policy to boost the demand for housing.

    I'm still trying to time my own re-entry into the market and will certainly keep all of you apprised of what I see as I good time to re-enter.

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