View Full Version : No Price Bubble in Region's Housing

October 16th, 2003, 11:02 PM
October 17, 2003


No Price Bubble in Region's Housing, Study Concludes


It's not a bubble, so it won't burst.

That, essentially, is the conclusion of an economic study of the current housing market in the New Jersey, New York and Connecticut region by two professors at Rutgers University. Using the home-price plunge of the late 80's for comparison, they have calculated that price increases for single-family homes in the region in the last five years have not been excessive.

The report, "Housing Bubble or Shelter Safe Haven?" states: "The regional housing market is not about to suffer a collapse. The bursting of the housing bubble in 1988 will remain a subject of history, not a predictor of our housing future." The study was written by James W. Hughes, the dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers, and Joseph J. Seneca, a professor of economics at the Bloustein school.

In the 1980's, Dr. Hughes said in an interview, "We did have an extraordinary ratcheting up of housing prices and then a very severe price setback during the '89-'92 recession."

Between 1983 and 1988, home prices in New Jersey rose by 109 percent, the report found. In Connecticut, they jumped by 120 percent. In New York, because of a stagnant economy upstate, the increase was a more modest 76 percent. Those increases far outpaced the national rate of 37 percent.

"They were not sustainable," Dr. Hughes said. And in the ensuing recession, they retreated 7.8 percent in New Jersey, 18 percent in Connecticut and 4.5 percent in New York.

It would take until 1998 in New Jersey and New York and 2000 in Connecticut for home prices to climb back to their 1988 peak. "What that suggests," Dr. Hughes said, "is that economic wild parties are followed by prolonged hangovers." Those calculations do not account for a 32 percent rise in inflation between 1988 and 1998, meaning that in real dollars, prices in 1998 remained 30 percent below their 1988 peak.

The study goes on to point out that price increases in the last five years have been far more modest than those during the five-year bubble of the 80's. In New Jersey, they increased by 52 percent between 1998 and 2002; in New York, by 53 percent, and in Connecticut by 44 percent. By comparison, housing prices across the nation increased by 38 percent in the same period.

So the current price gains were far less than those in the 1980's, the report found. And the gap between the three states and the nation was considerably smaller. "Therefore," Dr. Hughes said, "it's hard to make a case, at least on a statewide basis, that the price increases of the last five years have been excessive."

The study then addressed the factors that have supported the price rises of the last five years. "No. 1 is that by 1998," Dr. Hughes said, "the financial position of many households was bolstered by stock market gains, whether it was their 401(k)'s or even if they just owned mutual funds. Given that supposed financial security, people were willing to spend more on housing."

At the same time, mortgage interest rates dropped from 8 percent in 2000 to 5.5 percent in 2003 a 45-year low. Then, in March 2000, the stock market plummeted. "And that made housing even more desirable," Dr. Hughes said. "It was seen as the safe port in the economic storm."

The report concludes: "All of the gains in housing-purchasing power as a result of interest-rate reductions in the current market probably have been made. So upward pressure on prices is bound to diminish."

Copyright 2003 The New York Times Company

March 20th, 2004, 01:41 AM
March 21, 2004

Supply Varies, Demand Doesn't


AS though her convoluted deal of nine years ago did not already constitute a broker's symphony juggling all interested parties so that three apartments on the same floor of a Park Avenue co-op building could be sold and converted into one Suzanne Sealy has written a coda.

In a market of constricted inventory, Ms. Sealy of the William B. May brokerage company recently persuaded the owners of that grand 3,400-square-foot apartment to relinquish their dream home, to sell it to a new buyer and then to buy another, somewhat smaller, apartment a few blocks north on Park Avenue.

"I really had to scurry around to find something for them," she said.

Such are the lengths to which brokers in the upscale environs of Manhattan and Brooklyn Heights go these days as listings have dwindled, bringing prices and buyer frustrations to a boil. In the other boroughs and through much of the suburban ring around New York City, however, a more balanced market equation has prevailed over the last year, with inventory warming or cooling from community to community and prices percolating upward.

Over all, despite some dire predictions (and certainly a temporary partial paralysis) after the Sept. 11 attacks two and a half years ago, the New York region's real estate market has continued to simmer, analysts and participants say.

As Jason Bram, a regional economist with the Federal Reserve Bank of New York, put it: "If you had told somebody at the beginning of 2001 that the regional economy would be hit by a national recession, a steep downturn in its key financial sector and the destruction of the World Trade Center, they would have found it unimaginable that the housing market would hold up this well, let alone spiral upward as it seems to be doing now. Yet that's what's happened."

One broad-brush indicator comes from the massive national database of sales compiled by the Office of Federal Housing Enterprise Oversight. According to the federal data, average home prices in New York State rose by 11.6 percent between the fourth quarter of 2002 and the fourth quarter of 2003 (the housing enterprise office does not provide dollar figures). New Jersey saw an even higher increase during the year, 12.1 percent. In Connecticut, the increase was 9.5 percent. All three states surpassed the national increase of 8 percent.

"There has been no easing at all in price patterns," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. "And sustained low interest rates certainly have had the effect of increasing housing purchasing power, even if incomes are stable."

A stable market with healthy price increases is apparent, for instance, in the 14-county swath of northern and central New Jersey surveyed by the Otteau Appraisal Group, based in East Brunswick. As of Jan. 31, there were 18,471 properties listed throughout the 14 counties, just 43 more than the 18,428 listings at the end of January 2003.

Sales, too, held steady. In January of this year, taken alone, 4,795 homes were sold throughout the 14-county area, five more than the 4,790 sold in January 2003.

Yet prices ratcheted up. In Morris County, as of March 1, the median price for all homes sold during the previous 12 months was $413,977, a 9 percent increase over the $379,935 median for homes sold during the year that ended March 1, 2003. In Sussex, the median price for the year that ended March 1 was $250,002, 16 percent higher than the $215,389 price during the previous year.

In the confines of Manhattan, however, the squeeze was on.

With Wall Street's stocks and bonuses on the rebound and more and more people willing but often unable to move up, said Jonathan Miller, president of the Miller Samuel appraisal company, "lack of supply is really the story of the current market." Mr. Miller's company prepares the Douglas Elliman Manhattan Market Report, which surveys the listings of 14 major brokerage firms from the Battery to West 116th Street and East 96th Street.

There were 3,994 apartments listed in the area as of March 1, Mr. Miller said, a 34.5 percent drop from the 6,096 listings available on March 1, 2003. Meanwhile, the median price for all properties sold between Jan. 1 and March 1 of this year was $590,000, up 16.8 percent over the median price of $505,000 for units sold during the comparable period last year.

Particularly striking is the fact that in the third quarter of last year, when Manhattan's median price stood at $575,000, its average price hit a record of $916,959. (The gap stems from the fact that while the median represents the precise midpoint of all sales, the average price includes all sales, with a significant number of high-end Manhattan properties skewing the average upward.)

No doubt the average was tweaked a bit by the highest price ever paid for a Manhattan apartment: the $45 million sale last September of a 12,544-square-foot duplex penthouse with 1,960 square feet of terrace overlooking Central Park at the new Time Warner Center. And farther north than the sales included in the Elliman survey, the $1,150,000 paid recently for a renovated town house on West 137th Street in Harlem is an indication of Manhattan demand.

"Every listing that comes on is selling in a nanosecond," said Barbara Corcoran, chairwoman of the Corcoran Group.

In what seem like flashbacks to the Manhattan market frenzy of the late 90's, Ms. Corcoran said: "Open houses are out of control. Many buildings are putting a limit on the number of people allowed in, and they are making people sign in like a doctor's office. Multiple-bid stories are too exhausting to repeat."

So she did: "There is a three-bedroom postwar on East 73rd and Second Avenue. The listing came out on Tuesday morning March 2. We had nine offers the first day."

"The seller instructed us to tell everyone that they needed to give their highest and best price by noon that Friday," Ms. Corcoran continued. "Seven offers came in by noon that day. The other two bidders came in after the deadline, but the owners refused their bids, even though they were higher."

The apartment, originally listed for $1.22 million, sold for $1.4 million.

Beyond Manhattan
Healthy Markets, Skewed to Sellers

Not quite so striking, though once again indicative of a healthy market, are the figures for other boroughs and suburbs.

In Queens, for example, according to the Long Island Board of Realtors, which covers that borough as well as Nassau and Suffolk Counties, there were 4,184 listings available at the end of January, an 8.4 percent increase from the 3,860 listings available in January 2003. And over the year the median price for a home in Queens rose 6 percent, from $313,000 in January of 2003 to $332,000 in January of this year.

Similar trends were apparent in Nassau, where listings at the end of January stood at 3,556, a 9.7 percent increase over the 3,241 available properties in January of 2003, while the median price rose 13.1 percent to $401,500 this January, compared with $355,000 last year.

In Suffolk, while listings slipped just a bit 2.3 percent from 5,125 in January of last year to 5,003 in January this year, the median price jumped 12.5 percent, from $278,000 to $313,000.

"We're approaching a more stable market," said Jane Salamon, president of the Long Island Board of Realtors, "one that reflects more of a balance between buyers and sellers. It's been skewed more toward sellers."

Even before the traditional spring buying season, business in the region seemed hearty. "For Sale" signs had been planted in snow-carpeted front lawns, here and there, both in suburbanized sections of the city and surrounding counties, some already bearing "Sold" stickers.

In Westchester, inventory has held steady, according to the county's board of realtors, with 2,026 listings at the end of last year, compared with 2,121 in December 2002. That despite rapid sales.

"We're talking about a signed unconditional contract within a week," said Ruth Burger of the Julia B. Fee brokerage in Scarsdale. A four-bedroom colonial on 1.9 acres in the northern Westchester community of Somers, shown on a recent Sunday, immediately received several bids above its $789,000 asking price.

The median price for Westchester homes as of Jan. 1 was $545,000, a 5 percent increase over $520,000 at the end of 2002.

Comprehensive statistics for Connecticut are not available. But in Greenwich, Barbara Webski of the Coldwell Banker brokerage firm said: "The upper market is coming back. We just had an accepted offer in Belle Haven for $14.9 million." And in Norwalk, Maggie Teed, owner of the Real Estate Marketing Group, said, "Anything under $400,000 is gone right away."

High-End Brooklyn
A Severe Scarcity Of Upscale Listings

The dichotomy of high-end fever and more moderately warming market segments plays out, particularly, in Brooklyn.

"This year to last year, that's March 1 to March 1, we're down 36 percent in total listings," said Christopher Thomas, the William B. May company's vice president for Brooklyn. "The larger the living space, the more scarce it is."

Mr. Thomas's company concentrates on the borough's higher-end neighborhoods, like Brooklyn Heights, Cobble Hill, Park Slope, Windsor Terrace, Prospect Lefferts and Boerum Hill.

Sometimes the dearth of listings in those tonier Brooklyn districts is rooted in Manhattan. "Several weeks ago we had a situation where a seller listed a property a small carriage house, private garden and parking in Brooklyn Heights at what all our agents felt was a very optimistic asking price, $995,000," Mr. Thomas said. "He immediately had four offers, three exceeding the asking price."

The seller accepted an offer, then tried to complete a deal he was already negotiating for an apartment in Manhattan. "He went back to the seller in Manhattan and discovered that there were now a half a dozen other offers, all above the asking price," Mr. Thomas said. "In order to purchase that apartment, he had to exceed the above-asking price he had settled for on his carriage house." The man stayed put.

For much of the rest of Brooklyn, however, the story line differs.

Two years ago, the borough's South Shore Multiple Listing Service and Midcounty Multiple Listing Service combined to create the Brooklyn Multiple Listing Service, covering most of the borough. The new service's combined statistics indicate a substantial growth in inventory and a less drastic increase in median price.

During the 12 months that ended March 1, said Gerard Longo, president of Madison Estates & Properties in Marine Park and a director of Brooklyn's expanded listing service, 13,700 properties came on the market, compared with 10,549 the previous year a 30 percent increase. Median prices during the corresponding periods rose less than 1 percent, from $456,000 to $460,000.

"There is more inventory out there, but demand is still vigorous, pushing up prices," Mr. Longo said. "What we see is people not leaving Brooklyn, but trading up in size and staying in the borough."

The Dynamics Of Baby Boomers

That urge to trade up in a recovering economy, particularly among people maturing into their full-family and peak-earning years, say real estate specialists, is largely responsible for the market squeeze in affluent communities, suburban or urban. In a kind of self-perpetuating tangle, the demand of those seeking to trade up pushes up prices so that owners who might consider selling to them end up staying put because they are not sure they can afford to trade up. And in the even more moneyed precincts of places like Manhattan, the inventory is, to begin with, severely constricted.

"Demand is driven by the baby boomers, 40 to 58 years of age," said Dr. Hughes at Rutgers, "although it's a slightly younger boomer population that prevails in suburbia. And they are trading up."

"They are moving to the house where they want to finish raising their children in the community they really want," Dr. Hughes continued. "So single-family trade-ups have been been extraordinarily strong."

And in Manhattan, said Ms. Corcoran of the Corcoran Group: "There's just much more money around now for good real estate. The high end of the market went dead for two to three years, but the Wall Street crowd has now brought the market right back over the top."

At the same time, she said: "People aren't leaving for the suburbs like they used to. Retirees aren't going to Florida. And empty-nesters from the suburbs want to move back to the city."

All of that, Dr. Hughes concurred, "increases the demand side of the equation in the region's walkable activity areas the Manhattan neighborhoods where you can walk to dinner, to the museums, take a short taxi ride to cultural destinations. Same for areas of Brooklyn that have their own high amenity levels, but also are closely tied to the unique attractions of Manhattan."

Another factor contributing to the inventory crunch, said Mr. Miller of the Miller Samuel appraisal company, has been "a real change from buyer patterns of four or five years ago."

"Buyers are not listing their apartments until they find an apartment to purchase," he said. "So it becomes a self-fulfilling prophecy: you're not going to sell until you buy, so there's limited choices to purchase."

In fact, said Ms. Corcoran, "Many sellers are reneging on accepted offers a few days later as the reality hits, `Where the heck am I going to move?' "

Brokers like Ms. Sealy of the Park Avenue triple-apartment combination are left to scurry.

Back in '95, two apartments on the same floor of 1100 Park Avenue, at 89th Street, were already on the market when the owner of the apartment between them died. With all due haste, Ms. Sealy pulled together the heirs to the middle apartment, the woman on one side "she was very tough, held out for full asking" and, by ship-to-shore radio, the owner of the third apartment. "He was floating around the Mediterranean on a yacht," Ms. Sealy said. "The phone bill came through at at least $143."

The total price for the three apartments, back then hard to believe now was $795,000.

Flash forward to last fall: a client asks Ms. Sealy to find him a three-bedroom with a dining room, a maid's room and a library in a white-glove building. Ms. Sealy recalls the triple apartment at 1100 Park Avenue. The daughter of the couple living there has gone off to college.

"I put in a call," Ms. Sealy said. "They said, `O.K., we'll show it one time; he can make an offer then and there.' That was it." The price $3.2 million.

Then, in a market of meager inventory, Ms. Sealy managed to find a smaller three-bedroom for the couple selling the triple, this one farther north on Park Avenue, and brokered a $2.8 million deal.

It, too, was an estate sale.

"There are two ways we get listings these days," Ms. Sealy said, "D&D's death and divorce. So I got two deals out of it, and I was happy as could be."

Copyright 2004 The New York Times Company