Goldman: NYC Prices Have a Ways to Go
“New York apartment prices are very high relative to the observable fundamentals. Using three alternative yardsticks—price/rent, price/income, and affordability—we find that prices would need to decline by 35%-44% to return to the valuation levels seen in the 1995-1999 period, before the start of the recent boom.” — Goldman Sachs via Curbed
slopefarm—don’t let this site get you down. I would agree with you that it is probably aggravating the problem rather than helping you at this point, which means that you either have to 1) stop posting (which I hope you don’t do) or 2) adjust your outlook on why you post here and take everyone else’s negativity and madness for what it is—insanity that has no bearing on your life.
In the mean time, do you have an email that you can divulge without revealing your identity on line? I would give you mine but posting it here would basically be like shouting out my name and address.
cjmorris–you have (I hope) hit the nail on the head with your last line. I sincerely hope that this is a prediction that proves accurate. It would certainly make “worthwhile” the expected price drops if it meant that more families could afford to stay in Brooklyn.
wasder — I don’t harbor any such view of you. Just trying to bring that discussion to a head by eliminating from suspicion some who haven’t been so active lately.
You benefit from having not had to do a major reno or from having had any other major shenanigans go on with your deal. I waded into a major swamp, first with some highly unethical sellers, and then with a difficult major reno. I am definitely carrying around more baggage. I thought I could purge a bit on this site, especially by giving advice in situations that are akin to some of those that I encountered. But this site may now be perpetuating the problem rather than helping me unload it.
It boggles my mind why people are still in disbelief that housing in NYC could fall up to 50%? First people denied that housing could fall at all in NYC due to land scarcity, foreign buyers, “it’s a financial capital,†etc. Not that housing has fallen a bit, people now denying that housing can fall more than 15-20%.
A while back I showed a chart (it’s posted on iTulip.com) illustrating how housing bubbles start in urban centers and spread outward to the suburbs and finally exurbs. Witness farmland going for record amounts just a short-time ago.
After the bubble burst, it then deflates in reverse. That means NYC is now just starting the housing correction that has been in progress going on 3-4 years in other areas. On the plus side this means prices will stabilize here first.
Fact is residential housing cost in NYC appreciated at a far greater pace than the media income in the area over the past decade. Relaxed credit standards, speculation as well as the common belief that housing was “smarter” than renting contributed to the outsized gains in residential housing.
Now with the credit being withdrawn, speculation absence, and the social mood reverting back to renting, housing will go down significantly. Unfortunately the increasing number of salary cuts and layoffs will only make the decrease more pronounced.
But this won’t lead to a repeat of the 60s and 70s when the exodus to the suburbs caused a decrease in housing prices (which occurred mostly in urban centers). The decline happening now is for a totally different reason.
The social attitude towards suburbs is also vastly different today and price decreases in the suburbs will be just as severe if not worse. Back then the suburbs were viewed as the “safe” Promised Land. No more.
The upside is that lower NYC prices will allow families and first-time buyers to stay rather than flee to lower cost areas and continue to enjoy the benefits living in areas such as Brooklyn.
slopefarm–i am around for sure, second baby proving so far to not be as challenging as expected. and yes I bet once your refi is done you will chill a bit. my most anxious and active days on brownstoner coincided with the deciding to buy period. now that I am in my house and set up the edge is gone and I can jump in and out of this crazy conversation without too much aggravation. hope your refi happens quickly and relatively painlessly. we should grab a beer some time.
Also, shocked SHOCKED that you could even conceive of me with multiple personalities!
Wasder,
Glad to know you are still out there. Yes, would love to raise a glass. I know you’ve got your hands full at the moment. Wish I could let go of this obsession a little more. Maybe once we close on our refi I’ll calm down a bit.
One factoid that I have wondered about in this whole mess is the yearly rent to purchase price ratio. The article says that historically speaking NYC housing has sold at 10-12 times the annual renting before spiking during the recent boom. Does anyone have any thoughts about whether this could be expected to return to previous levels? Working it out loosely for myself I have concluded that my purchase price for my house is about 15x annual rent so I guess I can do the math on devaluation if the old ratio returns.
“People who bought for the FIRST TIME in 2005-on may have problems”
The only reason they’d have a problem is if they need to sell, which is probably a minute fraction of people.
People who bought for the FIRST TIME in 2005-on may have problems, but anyone else who bought was profiting from increases on the property they sold in or to buy the new one. These people will be fine as long as they put that profit into the new purchase.
Immigration has been doing just fine in NY. I went to a conference on this recently, and there has been no drop in the influx of people moving to NYC. In fact, NYC has been very solid in this regard. This need so be factored in.