The Great New York City Housing Collapse Is Now Underway

New York real estate brokers are still saying that housing prices will never fall more than 5% in Manhattan. They are full of shit.

The real estate industry that created the national bubble is still alive and well in New York City.  But, the reality is that the crash is on now.  It is in full swing.

The New York real estate brokers who will tell you that the market is holding up.  The folks aren't brilliant (if they were, they wouldn't be selling something other than real estate).  Don't listen to them.  Even their own figures now show a collapsing market. 

According to Corcoran, the number of apartments that went into contract or had accepted offers in October 2008 (577) plunged by 20% compared with September and by 62% compared with October 2007 (1,588).  At the same time, the number of Manhattan listings rose to the highest level in years, rising 20% since August alone and 33% year over year, according to Prudential Douglas Elliman.

Now, both of these firms (the two largest in Manhattan) will make the argument that sales prices remained stable.  That argument doesn't mean anything, especially as they are looking at sales prices from apartments that closed, not that went into contract.  Most of the apartments that closed in October would have gone into contract much earlier in the year, and these figures can be highly skewed by a handful of big closing at new top-of-the-line buildings or conversions in midtown.

The reality is that when supply rises and demand drops, prices either fall or the market fails to clear.  We saw that in the CDO and SIV markets recently where the market went away.  Demand went to zero. 

Now, demand in real estate isn't going to go to zero, but we are already in a period where those who need to sell are looking at much lower prices from the little demand that is there.  And, those who don't need to sell will hold on for years if they can, or months and sell into still lower prices if they cannot.

Hong Kong is New York's best comparable.  Its real estate market is also completely driven by financial markets, but unlike New York, there is a real estate industry that plays to hide the truth.  It is more transparent.  And, it is widely known that the HK market is already off 30% since July.

With the stock market off more than 50%, virtually every commodity market down 50%, the cheap dollar gone, layoffs in New York increasing day by day, and the investment banking bonuses gone (as is the leverage that made those bonus larger than life and more valuable in real estate purchase terms), real estate is going to fall at 50% from its highs, probably further.  The idea that New York could not be hit will prove wrong.  This City will fall further and faster than the rest of the country.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • thedorightman

    November 26, 2008

    But..but..but....they WERE packaged as A paper!
    Wondering what the "Chiller Index" has to say about this NY reversal in pricing?
    Sold the wife, kept the dog....Woof.

  • divorces

    November 25, 2008

    Thats funny, stay single and keep your cash

  • Ben

    November 25, 2008

    I heard from a friend that divorces are way up in NY. Just another casualty.

  • Sam Cass

    November 25, 2008

    "This whole "meltdown" as you refer to it, is actually an opportunity for our nation to "clean house" by identifying and reorganizing without that which is not sustainable to our system in the long term. "

    Couldn't agree more. But still doesn't change the fact that one of the major sources of employment in NYC is taking an enormous hit. I believe it's naive to think this won't impact housing costs. Sure the economy is diversified but financials are still the driver in NYC.

  • sienna

    November 25, 2008

    New York City is also the epicenter of many things, not just the financial market. There is much else going on in NYC, large and small. The result of this current "crisis" will most likely keep things like services, amenities and real estate in NYC more or less the same, just on a smaller level.

    This whole "meltdown" as you refer to it, is actually an opportunity for our nation to "clean house" by identifying and reorganizing without that which is not sustainable to our system in the long term. Yes, at times it will not be comfortable, and at other times actually painful, but it is honest and will lead to a real solution rather than us trying to shove the same round peg in a square hole while not admitting that the shape is wrong, as we have been for a long time now. Separate out the chaff, and the valuable wheat still remains-- only now, the chaff is no longer masquerading as wheat and we can see more clearly and act more accordingly. Who wants to be blinded, sitting atop a pile of useless chaff anyway? Now that's unsustainable!

  • Sam Cass

    November 24, 2008

    It's hard not to agree with this. New York City is the epicenter of this meltdown and to think real estate will hold up is like believing subprime loans packaged into a security could be given an A rating.

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