Thursday, February 21, 2008
New York housing prices up, despite national slump
LOOKING AHEAD by Wally Dobelis
The good news is that New York housing prices continue to rise despite a weakening national market. The 4th quarter price comparison, 2007 vs. 2006, for Downtown apartments shows an average price increase for the key one-bedroom apartments of 15% ($836K), vs. 7% for Upper East Side and 17% for West Side. For two bedroom apartments the corresponding ratios were 28 ($1,665K), 18 and 33%. Studio price increases were less, those for the hard to average three-plus bedroom apartments varied.
This is in sharp contrast to the double digit housing price drop in many major cities, led by California, which has the largest deflating price market. The price drop forecasts range from15.2% for Miami (it had a huge condominium boom), through San Diego, Las Vegas (highest rate of subprime mortgages), Detroit (job losses in automobile industry), Phoenix (2nd largest market in subprimes), and Los Angeles (12.8%). The NYS forecasts see continued housing price increases, though at a lower rate, for Manhattan (5.2%), Rochester, Glen Falls and Syracuse, and decreases for Long Island, Albany and Buffalo.
While dropping housing prices may present buying opportunities for the thrifty and the investors, the continuing declines will contribute to the subprime crisis, which drives bank distress and the recession threat. A considerable portion of the housing sales in the past two years was produced by conniving mortgage brokers to unqualified buyers by providing financing at 110% of value, requiring no down payment or closing costs, with the contracts sometimes requiring interest payments only. As interest rates rise and housing values fall, the high price –to-value mortgages turn upside down, with the owners paying for more than the property is worth. With no equity in the property, there is nothing to stop such owners from walking away from the contracts.
Housing prices in the 10 largest national markets fell 8.4% through November 2007, yet construction overall, $1,165T (trillion) was up by a fraction of one percent. That is a good hunk of the incredibly high $11T or so of our Gross Domestic Product (GDP).
To put our productivity in context, the next largest GDP countries are Japan at $4.5T, Germany at $2.8T, China and United Kingdom at $2.2T, Italy at $1.8T, Spain and Canada at $1.1T. India is at $806B while Brazil, Mexico, South Korea, Netherlands, Australia, as well as Russia are in the $700B range. Then there is a drop to the $300B range, with Belgium, Switzerland, Turkey, Sweden, Taiwan as well as Saudi Arabia.
This may be good, but we should note that the US indebtedness is $9T, with $600B in interest payments due annually. The world’s largest economy also has the largest current payments imbalance, at $791B. As this number grows annually, the large creditor nations, primarily Japan, China and India, who put their surplus dollars in US Treasuries and our real estate securities, become concerned and attempt to shift some of their reserves elsewhere, into Euros as well as into purchases of US industries. The failing US banks and other financial institutions have received large billion –dollar investments from the “sovereign” funds that have sprung up in creditor nations throughout the world.
With the post-industrial shift of American economy over the decades following World War II, the US indebtedness has grown, showing negative balances in 31 of the past 35 years. Only the Clinton era, with its dot.com boom, showed positive balances. That changed with the collapse of the boom, following arrival of the Bush regime, with its tax cut/deficit planning philosophy, emulating their idol, Reagan. The Bush years are responsible for $2.3 trillion of the $9 trillion debt.
While 9/1 and the Afghanistan and Iraq wars have been blamed for the increase in the deficit, facts prove that the wars are responsible only for about a quarter of the Bush debt. The Congressional Research Service report on The Cost of Iraq, Afghanistan and Other Global War on Terror Operations Since 9/11 shows that, as of the enactment of the FY2007 Supplement of May 25, 2007, Congress has approved a total of about $609 for military operations, base security, reconstruction, foreign aid embassy costs and veterans’ health care. The Congressional Budget Office estimated the next 10 years’ war cost to be between $570B and $1.1T, detention whether troop levels in the period fall to 30,000 or 75,000.
This sad fiscal story combines with Consumer Price Index (CPI) increases of 4.1% for 207 vs. 2.5% for 2006, largest since the 6.1% in 1990. December was up 0.3% vs. 0.8% in November, due to the soaring energy costs. Stripping out energy, the corresponding percentages were .2 and .3%, mostly due to the volatility of food prices.
US has beaten its post-industrial era recessions before, with major waves of changes in economic philosophy, notably the arrival of housewives in the labor force and the two-income family, increases of work hours as labor unions lost their clout, and the exuberant growth of consumer credit. This one will be much harder to beat.
In addition to sources mentioned above, Wally Dobelis thanks ValuExchange (prices based on 2,531 Manhattan apartment sales) as reported by Halstead Property, LLC, the forecasts of HousingPredictor.com, data from The Economist and Prof. Robert Reich.
The good news is that New York housing prices continue to rise despite a weakening national market. The 4th quarter price comparison, 2007 vs. 2006, for Downtown apartments shows an average price increase for the key one-bedroom apartments of 15% ($836K), vs. 7% for Upper East Side and 17% for West Side. For two bedroom apartments the corresponding ratios were 28 ($1,665K), 18 and 33%. Studio price increases were less, those for the hard to average three-plus bedroom apartments varied.
This is in sharp contrast to the double digit housing price drop in many major cities, led by California, which has the largest deflating price market. The price drop forecasts range from15.2% for Miami (it had a huge condominium boom), through San Diego, Las Vegas (highest rate of subprime mortgages), Detroit (job losses in automobile industry), Phoenix (2nd largest market in subprimes), and Los Angeles (12.8%). The NYS forecasts see continued housing price increases, though at a lower rate, for Manhattan (5.2%), Rochester, Glen Falls and Syracuse, and decreases for Long Island, Albany and Buffalo.
While dropping housing prices may present buying opportunities for the thrifty and the investors, the continuing declines will contribute to the subprime crisis, which drives bank distress and the recession threat. A considerable portion of the housing sales in the past two years was produced by conniving mortgage brokers to unqualified buyers by providing financing at 110% of value, requiring no down payment or closing costs, with the contracts sometimes requiring interest payments only. As interest rates rise and housing values fall, the high price –to-value mortgages turn upside down, with the owners paying for more than the property is worth. With no equity in the property, there is nothing to stop such owners from walking away from the contracts.
Housing prices in the 10 largest national markets fell 8.4% through November 2007, yet construction overall, $1,165T (trillion) was up by a fraction of one percent. That is a good hunk of the incredibly high $11T or so of our Gross Domestic Product (GDP).
To put our productivity in context, the next largest GDP countries are Japan at $4.5T, Germany at $2.8T, China and United Kingdom at $2.2T, Italy at $1.8T, Spain and Canada at $1.1T. India is at $806B while Brazil, Mexico, South Korea, Netherlands, Australia, as well as Russia are in the $700B range. Then there is a drop to the $300B range, with Belgium, Switzerland, Turkey, Sweden, Taiwan as well as Saudi Arabia.
This may be good, but we should note that the US indebtedness is $9T, with $600B in interest payments due annually. The world’s largest economy also has the largest current payments imbalance, at $791B. As this number grows annually, the large creditor nations, primarily Japan, China and India, who put their surplus dollars in US Treasuries and our real estate securities, become concerned and attempt to shift some of their reserves elsewhere, into Euros as well as into purchases of US industries. The failing US banks and other financial institutions have received large billion –dollar investments from the “sovereign” funds that have sprung up in creditor nations throughout the world.
With the post-industrial shift of American economy over the decades following World War II, the US indebtedness has grown, showing negative balances in 31 of the past 35 years. Only the Clinton era, with its dot.com boom, showed positive balances. That changed with the collapse of the boom, following arrival of the Bush regime, with its tax cut/deficit planning philosophy, emulating their idol, Reagan. The Bush years are responsible for $2.3 trillion of the $9 trillion debt.
While 9/1 and the Afghanistan and Iraq wars have been blamed for the increase in the deficit, facts prove that the wars are responsible only for about a quarter of the Bush debt. The Congressional Research Service report on The Cost of Iraq, Afghanistan and Other Global War on Terror Operations Since 9/11 shows that, as of the enactment of the FY2007 Supplement of May 25, 2007, Congress has approved a total of about $609 for military operations, base security, reconstruction, foreign aid embassy costs and veterans’ health care. The Congressional Budget Office estimated the next 10 years’ war cost to be between $570B and $1.1T, detention whether troop levels in the period fall to 30,000 or 75,000.
This sad fiscal story combines with Consumer Price Index (CPI) increases of 4.1% for 207 vs. 2.5% for 2006, largest since the 6.1% in 1990. December was up 0.3% vs. 0.8% in November, due to the soaring energy costs. Stripping out energy, the corresponding percentages were .2 and .3%, mostly due to the volatility of food prices.
US has beaten its post-industrial era recessions before, with major waves of changes in economic philosophy, notably the arrival of housewives in the labor force and the two-income family, increases of work hours as labor unions lost their clout, and the exuberant growth of consumer credit. This one will be much harder to beat.
In addition to sources mentioned above, Wally Dobelis thanks ValuExchange (prices based on 2,531 Manhattan apartment sales) as reported by Halstead Property, LLC, the forecasts of HousingPredictor.com, data from The Economist and Prof. Robert Reich.
# posted by Wally Dobelis @ 7:34 AM 
