Jim MacCrate, MAI, CRE, ASA has his own firm, MacCrate Associates, but has worn many hats as a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim. His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime.
In this post, Jim and his accomplished colleague George McCarthy get gloomy.
The chart indicates the long term trends in Nassau County’s housing market based on proprietary data maintained by George McCarthy, MAI at Real Property Advisors and James R. MacCrate at MacCrate Associates, which indicates the long upward trend in prices came to an end in 2005-2006 and the long downward trend has just started.
Trends in Westchester and Suffolk Counties are quite similar with Manhattan to follow Staten Island, Brooklyn and Queens downward. This will create a major dilemma for politicians who have relied on the baby boomers, new construction, increasing home values and mortgage applications to provide the cushion to maintain real property tax rates. New construction is slowing, mortgage applications are down and real property values will continue to decline which will impact real property transfer taxes, recording fees, mortgage taxes, and all associated municipal income generated from the “bubble” created by the Federal Reserve and the lax government regulation for the last five or six years.
The preceding chart does not clearly show the extent of the downturn in the early 1990’s. It is interesting to note that home prices declined between 10% and 25% during the last downturn in the early 1990’s and more than 15% during the mid-1970’s. The current downturn has just started and will escalate as massive layoffs at Citigroup & Merrill and other financial institutions continues into the future. Industry-wide reduction in revenue and bonuses and repercussions in related industries will affect the demand for housing and commercial real estate.
To compound the problem, sales tax revenue will fall as consumers feel the pain and lack the resources to live beyond their means. The baby boomers retiring will begin to flood the market with their homes and move out of high tax states and municipalities, such as New York, Nassau and Suffolk Counties to lower tax areas in the country that favor retirees. It’s usually the oldest & youngest who get pushed out when companies reduce staff, via early retirement and layoffs. There are insufficient high-income wage earners coming into the New York Metropolitan area to acquire the homes the baby boomers want to leave behind. The statistics tend to indicate that it will take many years for the housing market to recover from the scandalous activities of the financial industries, from the local bankers to Wall Street executives who knew quite will what they were doing and are getting off scot free with bonuses when they get fired or their firms collapse, while the little guy who has worked so hard sees their equity evaporate. Where were our political leaders in the State and Washington, D.C? These institutions are not done yet! Bond insurance anyone?
It would also be interesting to see what the Feds, state, city and surrounding counties have been spending their increased revenues on over the last seven years. Have they been necessary services, or beautification, gentrification and pilot projects? Do these projects support long term growth or short term gains for the local politicians? Based on what I see, we have had fraud and waste at all levels because no one was watching the “piggy bank”.
The leaders in our democracy better wake up, because the long term picture for real estate is not rosy to say the least! Only, Mayor Bloomberg has sounded the warning. Who is really going to hurt? Are politicians really going to raise property taxes or reduce police forces to maintain revenue on non-necessary services? In an election year? O and by the way, the recent lowering of interest rates will not help the housing industry in the short run.
Regulations existed to protect the innocent and punish the individuals that were responsible for this mess. But, they all but disappeared beginning in the 1970’s and 1980’s. We will all pay the price, I’m sorry to say. This will not end next year or the next…..we remember the five good years, forget the five bad years; and, now we will have at least four or five bad years for other reasons.
Tags: James MacCrate, Soapbox Blog, Straight from MacCrate