NYC Housing is Down But Remains Up

Let me explain it the way I was taught it in graduate school in the mid-1980s.

The sales price reported is the price of houses that sell, not the value of any given house. If many modest dwellings are selling for rising prices, therefore, that can bring the average price of housing units that sell DOWN. And if just a few lux units sell to the rich for falling prices, then the average price of units that sell could be HIGHER.

In a bust, the bottom of the market tends to drop out. Sellers hold out for what their ex-neighbor got last year. But with lenders realizing prices will drop, moderate and middle income buyers can't get financing at those prices, especially if interst rates are higher. So the units don't sell. Falling sales and rising for-sale inventory are the first sign of a bust, not falling prices. And that is what we have.

If the few sales are lux units at higher prices, that makes the price decline seem small, with increases sometimes posted. The rich can still buy, and rich sellers will take their losses and price at market, because they don't have a large mortgage to prevent them from selling at that price (ie. they are not upside-down).

Eventually, some sellers have to sell for what they can get, due to job loss or transfer, divorce, illness, inability to pay upwardly adjusting mortgages, etc. Banks foreclose, and have auctions. That brings down the comps, which brings down what lenders will finance, etc. Eventually, sales will resume when housing is affordable.

During the buyer-seller standoff, for-sale units become vacant while rental vacancy drops, and rents rise. That is also what is going on.

But sooner of later those units are coming to market. Either individual owners or developers will rent the units out to try to cover the mortgage. All over the country, builders are having to shift from condo to rental for units under construction, and some condo conversions are becomming "repartments." Eventually, vacancy will rise and market rate rents will fall.

In 1990 and 1991 we moved twice, getting a substantially larger apartment each time for the same rent. That's a couple of years off.

I don't expect doom. I expect sanity to return.

I think the article is a bit misleading as it does not factor in apartment prices in the other boros or New Jersey.