Thursday, June 18, 2009

NY Metro Housing Market Stares into the Abyss

Via the Wall Street Journal......

"How much further could home prices tumble in the New York City metro area? Deutsche Bank predicts a decline of 40.6% from the first quarter of 2009.

That’s a slight improvement over the 47.4% decline that the bank’s analysts had forecast in March, and it reflects in part the fact that prices have dropped since then. Still, prices would have to drop another 32% from the first quarter of 2009.

Median prices in the first quarter of 2009 dropped to $446,000 in New York, down 19% from the peak of $552,000 set in the second quarter of 2007. Deutsche Bank forecasts a total peak-to-trough decline of 52.1%."

That would translate into a median home price in the NY metro area (southern NY State, NJ, CT, Long Island) of just $265,000 if their forecast proves right. Think of the implications of a decline in home values of this magnitude - assessments have to be adjusted, tax rates will soar, the percentage of owners underwater will soar, etc. I tend to think that this forecast is a bit overly pessimistic, but the housing crisis that has crushed California, Arizona, and the sunbelt seems to finally knocking on our southern front.

While on the subject of housing I thought it would make sense to go back and add some color to the surprising housing start info that was released earlier in the week.

Again the monthly gains for May housing starts were 17.2% and permits were +4% which surpassed expectations by a pretty wide margin. However, it should be noted that this data set has seen an average revision downward of about 14% in recent months, but the bigger story lies in a subset of the data.

The government estimated that there was a 62% jump in multifamily dwellings (apartments) in May. I'd argue that this is not only not a positive sign for the housing market but is, in fact, a negative indicator for housing. Builders seem to be forecasting with their actions that they think more people are going to lose their homes and so they are shifting their focus to apartment building from single family building. Again, one month doesn't make a trend, I'll have to see what happens in the next few months, but it is worth watching.


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