Will NYC dodge the real estate crash ?

      So far, New York hasn't taken the kind of housing price hits we've seen in Los Angeles. The latest Case-Shiller home price index shows Big Apple area prices down 7.3% in October from a year ago. New York prices are also down just 11.4% from their 2006 peak.

      Here in L.A., we're down 27.6% in October from a year ago and off 32.6% from their 2006 peak, according to Case-Shiller.

      New Yorkers justifying the apparent side-stepping of a full-on real estate crash cite variations on many of the same themes once offered by those who arguing Los Angeles was not in a bubble: undeveloped land is scarce, everyone in the world wants to live there, it's filled with rich people and immigrants who pool their money to buy homes, etc...

                

    

     New York hasn't been immune to down markets in the past, however. Home prices fell 14.5% there between 1998 and 1991.

     New York may not have quite as far to fall as Los Angeles. Home prices in the Big Apple rose to a peak in 2006  126% above prices in 2000, Case-Shiller's base year. In the same period, Los Angeles prices peaked at 174% above 2000 levels.

      But there are signs New York may be overheated. This week, Irvine real estate consultant John Burns put out some interesting stats on building activity. In Los Angeles, the level of building permits is at 19% of its peak level. That shows an over-supplied market correcting itself, as builders back off from construction to let the existing supply move.

      In New York, permits are still at their peak level, according to Burns' analysis. Housing costs in New York City are also at 78% of income levels, compared to Los Angeles's still-heavy but lower 61% level.

      That means the typical person in New York would have to spend 78% of her income to live in the median-priced home.

     Economist Dean Baker of the Center for Economic Policy and Research, who was an early and so far accurate predictor of the current real estate bubble, thinks the crisis on Wall Street will have a heavy local impact. Laid-off financial sector execs have the money to stay in their homes longer than most folks who've been pink-slipped, which may delay the impact of high-end job losses on real estate there, Baker said.

    But he cautioned, "New York's lost a lot of jobs, it's hard for me to see them losing as many jobs as they have and real estate not taking a hit," he said.

--Peter Y. Hong, David Pierson

Comments

[Drew]

"J" -- I think that Laker must have recently lost his job, which is why he has become such a prolific and pessimistic poster here.

[Laker]

J suggested: "...Why don't we just rename this "Laker's Blog"...
"
J, thanks but I'm not there yet. Also unfortunately, i do not have the time to handle a once very busy and great blog like LALAND.

D) Watch out what you say. I can say same thing (Being Idiot) about you, but i don't know you well enough.
Besides, by asking what has fundamentally changed in LA to demand deviating from price to income ratio of 4-5 towards 10-12 makes me an idiot???

Drew, sorry to disappoint you, I did NOT lose my job. In fact, I'm doing very good, and got a nice (modest 8%) increase.
I changed my mind because Peter Viles left LA LAND....LOL
Really, i never changed my mind, just that seeing from first hand the economic problems - fact that i did not even considered when predicting 2001 prices..., gets me to think we will land much lower. Get out of your cubical and see the jobs disappearing in LA. Ask guys like Michael Snyder, or CAL.

[Drew]

Laker, I guess I don't see the current economic problems as being as severe as some other people do. I think a lot of it is people allowing themselves to be whipped into a frenzy.

I certainly don't see the "forever depression" that some people forecast. Economic cycles are like roller coasters -- what goes down goes back up and vice versa. We've had bad recessions before, and they always ended and there was always a strong recovery. I don't see that being any different this time.

Maybe next year will be marginally better than this year for buyers. I'm willing to accept a short-term paper loss on an asset, including a house being used as a primary residence, if there is long-term upside potential. That's why I'm still in the market and am still looking for an appropriately priced property.

Buying a house may not be for everyone, and certainly not now given economic uncertainty, but that doesn't mean it's not the right time for some people. Too many view a home purchase exclusively from an investment standpoint, and ignore the not insubstantial intangible benefits of home ownership.

I forget who it was (Warren Buffet maybe?) who said that the time to buy is not when every one else is doing it, but rather when everyone else is running away.

But I'm sticking to my guns that we have seen the worst of the price drops on residential housing in LA. I may be wrong -- I'm certainly no expert -- but I just don't see another 50% price drop on the horizon.

If there is, well, then won't I look the fool. Check back with me same time next year and we'll see.

[Crash Burn]

SoCalJim,

From someone with socal in your moniker, you are woefully lacking in your knowledge. Just because you may not have a very high opinion of your intelligence, doesn't mean that you can speak for the rest of Los Angeles about our intelligence. Los Angeles and Manhattan might as well be different planets as far as the characteristics of those two cities, but the people living on that island are not any brighter. Witness Wall Street vs. Santa Monica Hedge fund manager Andrew Lahde (http://latimesblogs.latimes.com/money_co/2008/10/the-most-entert.html), and the economics that set prices aren't any different.

There may be a lot of rich people in NYC (like LA), but there are also a whole lot of poor people (like LA). I don't know where you went you were there but obviously you never left your ivory tower. NYC is a sprawling metropolis like Los Angeles extending far beyond Manhattan, and every single person in Los Angeles could find a comparable area to live in that NY metropolis that is the exact same price they pay in LA. The price for food, services, cars, etc. will be shockingly similar in both cities. The fallouts in both will be similar, what went up will come back down. NYC status as a cultural Mecca won’t

[Crash Burn]

"...and guess what. Private investors are a little smarter than the government."

Laker, I know it may be a close call between the geniuses on wall street and the hacks in the Bush administration, but I would have just kept the word "smart" out of that sentence altogether. I think the word you were looking for was “dumb”. No need to thank me.