Monday, March 30, 2009

47% More Pain For NY Real Estate?

Interesting report out of Deutsche Bank over the weekend, presenting hypothetical upcoming current-to-trough declines in real estate prices, based on DB's proprietary Home Price Appreciation (HPA) model outlook for the top 100 Metropolitan Statistical Areas (MSAs). While the full report should be read in its entirety, a good summary is the chart below which demonstrates (in the right most column) the worst-case modelled downside to home prices in the 20 worst U.S. MSAs.

The top 5 MSAs where the pain will be most acute? (no real surprise there):

1. New York-White Plains-Wayne
2. West Palm Beach-Boca Raton-Boynton Beach
3. Miami-Miami Beach-Kendall
4. Fort Lauderdale-Pompano Beach-Deerfield Beach
5. Long Island Nassau-Suffolk

In summary: be very weary of snake oil salesmen telling you home prices have bottomed...

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Anonymous said...

weak. let me guess they used a "model" to forecast this....great...real reliable...

Anonymous said...

I am as bearish as anybody out there on future home price declines but... I am highly skeptical about the use of affordability indexes or rent to own ratios applied to new york city.
for one, they don't take into account rental control and rent stabilization apartments - which distort the true level of current market rents. in addition, how do they deal with subsidized housing rents?
while i expect substantial declines in new york area home prices, i can't see how you can get to a 47% decline, which would bring prices back to 1990 levels and well below an annual inflation based appreciation level (2.5-3%). using an inflation based approach to back out the impact of the bubble, i see a worst case for NYC homes equal to 1998-99 level prices - about a 28-30% decline. even assuming some over-correction, 47% seems overly severe.
as a historical reminder, in the early 1990's, NYC area housing experienced a sharp decline due to crime, job losses, stock market correction, commercial real estate downturn and the collapse of poorly funded coop conversions. in that scenario, prices declined by about 30% and remained at a bottom for about 4 years. in addition, this was a period a comparatively high interest rates - in fact, the low interest rates of 1992-3, combined with the RTC driven clear out of distressed portfolios, was a big catalyst for the recovery. the point being, the combination of events at any particular time is always unique and a straight historical comparison will always miss some factors that are relevant to the current environment. To forecast that NYC prices will return to 1990 levels seems to ignore the many factors that made that time distinctly differnt from the current market and leaves such analysis open to meaningful skepticism.

Anonymous said...

How could SF / Bay Area have NOT made this list?

Anonymous said...

> How could SF / Bay Area have NOT made this list?

because it's forward looking -- SF/Bay area has already popped.

Anonymous said...

Can't find this report on the db research site...what is the title?

Tyler Durden said...

Update: The Outlook for U.S. Home Prices

…and now for something completely different

Unknown said...

Still can't find this report, anyone have suggestions?

Anonymous said...

Alex chill. It'll be out, ZH is usually a week or two ahead of the curve.

Anonymous said...

just read the full report - i still can't see any reason why their numbers come out so high for future NYC area decline - it is in the middle of the pack for all of the indicators except affoardability, which is most likely skewed by the factors (regulated rental market, etc) i indicated above. also, indicates a fair number of MSAs that are at or near their projected floors based on affordability, including a fair number in california such as the LA/long beach, san bernadino, san francisco, merced, stocton, fresno, salinas, MSAs. this would seem to indicate that the bottom has been hit in the largest, and hardest hit, real estate market in the country, which seems to be pretty big news. florida continues to look bad, however, despite substantial declines already. interestly, no comment in the report on why NYC area is at the top of the list. also ther report cites salt lake city as projecting a 28% future decline, even though it has the lowest distressed inventory and unemployment and has seen very little decline in value to date (actually a 1.5% increase in values). the future decline is almost entirely based on affordability - seems very odd.

boxcar willie said...

why? been to williamsburg lately?

there's about to be thousands of new condo units about ready to be occupied...and hardly a buyer in sight...

now just imagine the construction loans on those babies.

anyone who can pay cash can make a juicy deal right the bedford L stop.

like 30-50% off retail.

me, i'm waiting to squat (which may not be too far off)

Anonymous said...

South Florida land cost and older structures are currently 60-70% off from the peak. So another 40% would
take us to 85%+ from the peak. That's
a bit of a stretch. possible yes, but
a stretch. I see another 10%, which takes you to 1995 or so land values
and roughly 75% off the peak.

Anonymous said...

Any links available to the actual report?

Anonymous said...

I think its important to realize here that NYC prices have not yet really been impacted as dramatically as other parts of the country. A 47% decline seems like a huge number but a lot of that decline will be catching up to other markets.

And, from an anecdotal perspective, you have tons of people who've lost their jobs, lots of internship classes (law, advertising, banking) that will be drastically cut back this summer, foreigners who need liquidity but not a third or fourth home and want to sell while the dollar is so hot, and the very fact that so much of New York City is no t really inhabited by New Yorkers, but people from the Midwest and elsewhere who can easily go home.

Finally, the 47% decline is for the entire region, not just Manhattan.

Anonymous said...

Anyone know where this report can be located?

Anonymous said...

SF Bay Area has a long way to go.
We went from mid 200K to mid 700K
in 10 years.
So expect prices to go back to long term trends... med at 300Ks.
near 3-4x incomes and inline with inflation trend

Anonymous said...

I can believe this.

1. The dollar crashes because we can't paper over the balance of payments problem anymore.
2. We have to make the stuff the rest of the world gives us for free.
3. We go from 10% of the population in primary and seconday production (coal, copper, lumber, soybeans, steel, cars, chips, and computers) to 20%.
4. Fifteen million people (and their children, manicurists, pediatricians, schoolteachers, firemen, etc) no longer need to live near a metrocoastal area like Miami, New York, Washington, Seattle, Chicago, Boston, San Francisco, Dallas, Los Angeles, etc.
5. Housing costs stay the same, but land prices converge on Iowa.