WSJ - NYC Housing prices expected to fall further

Real Estate REAL ESTATE DECEMBER 31, 2008 New York Housing Prices Expected to Fall Further By JUSTIN LAHART and CONOR DOUGHERTY Although New York has been at the epicenter of the financial crisis, housing prices in the city haven't dropped nearly as fast as cities elsewhere. The same is true of the financial hubs of Boston and Charlotte, N.C. But that doesn't mean these cities are skirting the... [more]

Real Estate REAL ESTATE DECEMBER 31, 2008   New York Housing Prices Expected to Fall Further   By JUSTIN LAHART and CONOR DOUGHERTY Although New York has been at the epicenter of the financial crisis, housing prices in the city haven't dropped nearly as fast as cities elsewhere. The same is true of the financial hubs of Boston and Charlotte, N.C. But that doesn't mean these cities are skirting the worst of the housing bust. Rather, markets where price declines have been slightest may be in worse shape, because prices still have further to fall before enough buyers step in to bring housing activity to normal. Meanwhile, heavy foreclosure activity in hard-hit areas like Phoenix, Las Vegas and San Diego are bringing prices into equilibrium. Those cities may be closer to a turnaround. In October, single-family-home prices in the New York metropolitan area were down 12% from the all-time high they reached in 2006, according to the S&P/Case-Shiller home-price indexes. That is roughly half the decline registered by the 20-city index and well short of Phoenix's 41% drop. A separate index of New York-area condo prices was down just 4% from its peak. Part of the reason New York housing prices have held up is that lot of New Yorkers are holding on to their homes rather than selling for less than the Joneses got last year. Esty Lobovits, a 31-year-old lawyer in Manhattan, has been looking to buy an apartment since the summer but says she isn't willing to pay what she considers to be inflated prices. Many apartments she has viewed are empty or filled only with staged furniture, and brokers are more aggressive, sometimes following up with her broker even if Ms. Lobovits hasn't placed a bid. Although sellers have been open to negotiation, Ms. Lobovits says prices haven't budged as much as she would expect. About two months ago she looked at a one-bedroom, first-floor apartment for about $700,000, roughly $100,000 more than comparable apartments. "I haven't seen any steep lowering of prices," she says. "It's a little surprising to me that [sellers] wouldn't want to be more aggressive." In the language of Wall Street, with asking prices not dropping to levels where bidders like Ms. Lobovits will pick them, the market isn't "clearing." The Federal Reserve Bank of New York noted in its "beige book" survey of regional conditions this month that many would-be buyers have opted to rent out their apartments rather than sell, driving rental prices lower -- particularly in higher-end buildings. While New York is probably an extreme example, its inertia is being repeated in many of the other housing markets that have yet to see sharp declines. Some owners with hefty mortgages can't face selling their house for less than they owe, but also, many don't want to sell at a steep discount to what a house down the street might have fetched two years ago. But in California, housing sales have picked up considerably, as buyers take advantage of foreclosed homes. In October, sales of existing, detached homes was more than double the year-earlier level, according to the California Association of Realtors. In the Los Angeles area, single-family-home prices are 34% below their peak, according to S&P/Case-Shiller, while prices in San Francisco and San Diego are down 36%. "The homes that offer the most for the least are the ones the buyers buy," says Matt Battiata, of Battiata Real Estate Group in Carlsbad, Calif. But as activity has picked up it has led to a decrease in prices -- the opposite from during the boom. "Every sale is lower than the one before it," Mr. Battiata says. "There are parts of California where, if anything, prices may be starting to bottom out a little bit," says Columbia Business School economist Christopher Mayer. "One of the things the wave of foreclosures has done is it forced the market to clear." New York's slower adjustment is a more typical housing-market decline, with a deteriorating economy grinding down values over time. The last time prices in the area fell, starting in 1988, it took three years before they hit their trough, at 15% lower. This time, the price decline may be far more severe. While subprime mortgages didn't play as big a direct role in the New York real-estate market as elsewhere, there were plenty of Wall Streeters who made their living off of packaging those loans into the complex securities and trading them. Even last year, with the housing market fraying, Wall Street pulled in record bonuses. "Right now, people are still living on last year's bonus," says Barclays Capital economist Ethan Harris, who is based in New York. "You can sort of feel the local economy on the edge of a cliff." Write to Justin Lahart at justin.lahart@wsj.com and Conor Dougherty at conor.dougherty@wsj.com   © 2008 Dow Jones & Company, Inc. All Rights Reserved Powered by the mDog.com Mobile Portal [less]