"Real Wave of Pain Just Beginning"?
In one of the grimmest articles we’ve read to date on the US housing market, the Market Oracle scoffs at Treasury Secretary Hank Paulson for saying on Friday that “the housing market is at or near the bottom and that the subprime mortgage situation is not a “serious problem.” Which begs the question, How serious…
In one of the grimmest articles we’ve read to date on the US housing market, the Market Oracle scoffs at Treasury Secretary Hank Paulson for saying on Friday that “the housing market is at or near the bottom and that the subprime mortgage situation is not a “serious problem.” Which begs the question, How serious a problem is it? Deadly, thinks fund manager Kenneth Heebner:
The real wave of pain and foreclosures is just beginning… would expect that housing prices in 2007 will decline 20% in a lot of markets…What you are going to see is the greatest price decline in housing since the Great Depression.
If the doomsday scenario does play out across the country, the $64,000 question will be to what extent is New York City (and Brooklyn) dragged into the mess.
Is It Too Late to Get Out? [Market Oracle]
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“If the American economy suffers a recession, the rest of the world suffers too. There will be no foreigners stepping in to save the day if they’re all in recession.”
Your analysis is off. The rest of the world ie India, China, Brazil and euro are growing while it looks like we are in the recession. The only US companies that are growing are those that do business in those areas.
By the way, check out Local Area Personal Income data from the Bureau of Economic Analysis, released last week for 2005.
That year per capita income in Brooklyn was 83% of the national average (Manhattan at 271% or nearly triple). In 1979, when the whole Northeast was in the pits, Brooklyn was at 85% of the national average in per capita income.
In other words, for every gentrifying neighborhood new Manhattan that has gotten relatively richer, there is a former middle-income white neighborhood further out that has become working class immigrant. (Poverty, while high, is basically unchanged).
Brooklyn was at the national average in 1969, before the onset of the 1970s.
Brooklyn is going to see 10,000 more new condos hit the market in the next five years, at the least. While there may not be a crash in the market, prices and values will have to stabilize based on neighborhood amenities and quality of life. I could see crashes happening in certain neighborhoods, while in others prices might slowly continue to appreciate. For example, the Williamsburg/Greenpoint nabe has a great deal of high-priced condos on the fringes of the neighborhood’s amenities. What happens there? Will people keep going to Bushwick? How about Downtown Brooklyn? Nothing can take away those subways and proximity to Manhattan. Will the BAM thing happen and change the face of the nabe? Could that market continue to rise while all that construction north and east of McCarren Park crashes? What would this mean for Clinton Hill and Bed-Stuy? It will be interesting to watch.
John makes a good point. This guy Heebner is probably shorting the housing market for some hedge fund. I would have to investigate this analyst further to give his dire predictions any credence. Always question who is giving the information when it comes to money matters. In line with another good point by a previous poster is that low unemployment, low inflation, continued growth in GDP, low interest rates and continued population growth are a good conterbalance to any perceived “crash”. More than likely, in my opinion, we will continue to see a softening in prices in weak markets, a leveling off in strong urban markets like LA, San Fran, Miami and NYC, and no doomsday crash. In this global economy many folks are buying property in the US which does act as a firewall to rapidly declining prices. Foreign REIT’s are keeping a close eye on US housing prices ready to step in and buy when low enough, you can bet on it.
Lastly, you cannot underestimate the political effect here as in practically any other conversation in America today, for some folks, the economic news will never be good as long as President Bush is in the White House. Don’t mean to cheer or jeer, only pointing out the obvious political reality.
sylvia, I have nothing to do with using the word “unique” above, but I cannot stand it when people simply do not understand the use of a word (but go on and on about how it is being used incorrectly). “Unique” does not have to mean just “the only one.” It can be used more broadly to mean “distinctive,” or “unusual.” Please, look it up.
Yeah, the article gets pretty unhinged towards the end, dragging in hedge funds , derivatives and securitization into a pretty incoherent rant. It doesn’t illuminate particularly well what would happen if interest rates and/or foreclosures spike. What was most interesting to me on the propertyshark bubble map yesterday was how much more pronounced the spike in foreclosures have been in marginal neighbourhoods (I spelled it that way cos i has POUNDS). I suspect that firefighters etc might do very well out of this. If you’re hoping to buy a brownstone/apartment in a nice area you won’t experience much of a drop, but will find it hard to buy without a larger cash component. My suspicion is that this will increase the disparities between neighbourhoods.
Oh and 10.03, rich Brits know a LOT about Brooklyn. It’s much more similar to London, and more of them are coming over from occupations outside finance. Visit the Gate or Black Sheep for some illustration
New York is different, for now, per Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601109&sid=asLI7aWzN8Jc&refer=home
Yes if housing prices have risen to the point that no one can afford, some of the slack can be taken up by foreign buyers — in selected areas. I remember after the bust hit in the early 1990s, everyone was hoping to sell to the Japanese. Not everyone did.
Anon 10:05: I would need to attend logic class if the original poster of the comment had meant that Paris was unique in terms of its baguettes and London was unique in terms of its doubledecker buses and NYC was unique in terms of its real estate market. But that’s not what they were saying. They were saying that all three of them are unique in terms of their real estate markets, that all three of them have real estate markets that are impervious to national trends. Which is wrong. As is their use of the word “unique.”
Should marketoracle.co.uk really be read as gospel?