NYC Real Estate Happy Talk

While the Manhattan real estate market continues upwards...

The 2006 numbers stayed solid throughout the year (even in comparison to 2007’s strong first-quarter numbers), never descending to any depths—despite, one can imagine, the most fervent hopes of media and other analysts tired of the same story line.

The average sales price in the first quarter of 2006 was more than $1.3 million, above the first quarter this year. The median was nearly identical a year ago to the median now—a difference of only $10,000. (What’s $10,000 in Manhattan and its housing market?)

...the rest of the country seems to be running out of credit lines to keep the great consumption train rolling.

In January, revolving credit, made up largely of credit-card debt, was up $52.7 billion, or 6.4% from a year ago. Consumers haven't racked up revolving debt at such a clip since late 2001. And the pace looks set to quicken in February. A large chunk of the $6.8 billion increase expected by economists likely will be in the form of new credit-card debt, as nonrevolving credit probably cooled off with slower auto sales.

The timing of the acceleration in revolving credit suggests consumers are turning to their credit cards as a partial replacement for reduced mortgage equity withdrawal, says Goldman Sachs senior economist Ed McKelvey. According to his calculations, increases in revolving credit have offset about 20% of the decline in cash-out refinancing or increased home-equity lines of credit since late 2005.

As consumer spending falters, so too will the stock market, taking with it a lot of Manhattan financial-sector jobs. With the bubble bursting in the rest of the country, there will be no more home-equity cashouts to fuel consumption, and incomes certainly aren't going to rise enough across the board to make up the difference. Even if the Fed drops interest rates a bit by the end of the summer it will be unlikely to spark another national run-up in real estate now that uncertainty has reared its ugly head. The bubble depended on the belief that housing prices always go up, for which there is now recent evidence to the contrary.

I have yet to see any of the real estate cheerleaders explain how NYC real estate prices will continue to rise once the inevitable nationwide consumer spending slowdown kicks in and the financial markets react accordingly. The fallout will likely look like this:

Three months after the stock market collapse, an army of highly educated, highly paid executives, people used to sitting at the center of corporate power, are scrambling to salvage their careers, professional reputations and affluent styles of life.

Since the Oct. 19 debacle, investment companies and some of New York City's largest banks have moved quickly to trim their payrolls. More than 14,000 layoffs have been announced by the city's banks and securities concerns, and a complete tally would be higher because many have been quietly cutting jobs in a piecemeal way.

The number of unemployed Wall Street professionals, experts say, is reaching a point where thousands must consider changing careers, and thousands may be forced to leave the New York region. [New York Times, "Thousands of Executives Seeking Wall Street Jobs in Bleak Market," January 17, 1988]

The years that followed were not good ones for the local housing market.