Here we go again.

Deutsche Bank prepared a report on the US housing market that forecasts how much further each market area has to go. The market that seemed to stick out like a sore thumb was New York. This was covered in a Time Magazine story.

home prices in metropolitan New York City (which includes Westchester, northern New Jersey and other nearby areas) to fall 40.6% from the prices that prevailed in March. Ironically, that dire forecast is wrapped in an improving forecast for nationwide home prices.

This study seems to be another “black box” model where we don’t fully understand the methodology even though it was disclosed in the prior report.

Prices would have to drop another 32% from the first quarter of 2009 to return the New York market to levels of affordability not seen since 1998. Deutsche Bank forecasts a total peak-to-trough decline of 52.1%. Rising unemployment and foreclosure activity are offsetting increased affordability. The bottom is considered the historical peak of affordability. In NY’s case, it was 1998.

The forecast brings prices to 1990 levels suggesting that the New York City metro area will overshoot the point of peak affordability (1998) by 8.6%.

I would think that home prices in Las Vegas and Phoenix can fall 50%+ because there an incredible amount of undeveloped land and limited constrain on supply – highly speculative from the get go. Prices can fall to very low levels in Detroit because the economy is under extreme duress and a declining population.

The market area covered was NYC, Long Island, Fairfield and Westchester, Northern NJ and 1 PA county. The 3 big national reports are the data source but FHFA and CSI exclude co-ops and condos, which are a significant portion of NYC housing units and NAR is light on co-op data.

Plus the report doesn’t speak to niche differences like conventional and jumbo mortgage financing constraint on the type of properties that will sell.

Despite my doubts about the reliability of the results, my takeaways are:

  • The New York region is NOT done with price corrections. We have a ways to go.
  • Spring market uptick was seasonal and more rebust due to the release of pentup demand after the dearth of activity Dec-March.

Download Deutsche Bank Report



Tags:


8 Responses to “[New York Has 40% To Go?] Deutsche Bank Residential Real Estate Forecast”

  1. Interesting report and I am not surprised with the conclusions. A rapid rise in gasoline prices would be another important variable.

  2. MortgageMods.org » Blog Archive » Manhattan Real Estate: ‘An Eventual Bargain’ says:

    […] his well-read Matrix blog, NYC appraiser Jonathan Miller says he doubts the reliability of the reports’ results, […]

  3. The report sounds suspect, even reckless. First, any “black box” methodology is questionable at best. Moreover, and you touched on this a few times in your article, grouping New York City along with Westchester, Northern NJ, Long Island and Fairfield, as well as all price points (FHA to Jumbo) in this 150+ mile wide “tri-state” area, wich 20MM people inhabit, is quite frankly, insane. Are we to assume that each of those local markets will be impacted in generally the same way? This has not been the case anywhere else and therefore the prediction is of limited value. For example, in the San Francisco Bay area, suburbs just 25+ miles outside of the city have been hammered with foreclosures and 40+% depreciation, while single family homes located in the city have weathered the storm reasonably well (by CA standards). Lately the high end market has been “frozen” due to the lack of availability of jumbo loans while the low end of the market has seen a major increase in volume due to pent up demand. It’s going to be a long winter but not that long. NYC will not see another 40%+ loss of value while the rest of the nation recovers. Like you said, we aren’t talking about Vegas or Phoenix where supply of land is unlimited and overbuilding has been the result. This is the Big Apple baby, the world’s most resilient market! It’s only a matter of time before it comes roaring back.

  4. Sounds like the 1998 price levels will be revisited in the next year or so.

  5. knight says:

    only an idiot would buy at today’s prices. Yes, NYC could easily see another 40% drop. Just look at the rent-own disparity, it clearly shows that the equilibrium purchase price is still far below today’s offer prices.

  6. Douglas says:

    Prices in Manhattan should just continue to go up and up. We are on an island and there is no place left to build. Everyone in the world wants to live in Manhattan. People are flying in from Europe and Asia everyday to buy a vacation home in Manhattan, and then one or two investment condo’s to rent out. It is a great time to buy. Real Estate in Manhattan is always a great investment. Over time it beats all other investments. People need to live in Manhattan. And they are willing to put all their savings and leverage themselves to the hilt to buy a place here.

  7. Albert says:

    Douglas you’re a moron.

  8. @knight – new york has had a huge rent to own disparity for quite some time (mostly as a result of rent control) – you can see in this NY Times article that in 1981 the city was about 75% renters ; http://www.nytimes.com/1982/03/05/business/about-real-estate-new-york-a-city-of-renters-and-small-households.html?&pagewanted=all Oh, and equilibrium price is determined by the intersection of supply and demand, not the ratio of renters to owners (remember econ 101?) @Albert – any other insightful comments? Are you saying that scarcity of supply of new development opportunities and foreign investment, in Manhattan, aren’t relevant arguments as to why the market won’t see an additional 40% loss of value? I’ll take the under on 40% down from today over the next 12-24 months, even odds. I’m sure a derivatives trade can be easily structured to facilitate this (minimum $100K investment). Any takers? How about you Albert, care to put your money where your mouth is?