Tuesday, November 01, 2005

Blasts from the past on the housing bubble/bust

I found some old articles online that give an interesting perspective on the housing boom/bubble phenomenon:
This one, from CNN Money, dated December 2, 2002, notes that since 2001, housing prices had gone up 6.3% annually (ooh, 6.3%! look out!) and in some hot markets, increases had even been in the double digits from the previous year! (big whoop, lately they seem to be double-digit increases from month to month!) But there is also a nifty chart looking at how a few of those hot markets did in the last crash-- what % prices declined by, and how many years it took for prices to recover. The article goes on to look at several factors that can influence price declines: "population shifts", "local recessions", "fast run-ups in housing values", and "rising interest rates." I'm not sure NYC is likely to lose a lot of population any time soon, and I don't know about a local recession, but we've certainly had the fast run-up in prices and interest rates have been rising... but they said interest rates were starting to rise back then too, and mortgage rates still went down.
There are also links to a series of other articles about the bubble debate back in 2002. All of them sound eerily familiar-- maybe someone just changed the dates and republished them last month!

This article, from City Journal in Spring 1993, says "The city's economic downturn and the declining real estate market raise the strong possibility of a severe fiscal crisis within the next few years. The city cannot count on a Wall Street boom to bring about a recovery as it did in the 1980s." It describes the city's real estate bust at that time as "nothing short of catastrophic. New York City is one of the two or three worst real estate disaster areas in the country, the center of what may be the region’s worst real estate slump in fifty years." The whole article really paints quite a gloom and doom picture of New York. A lot has changed since the early 90s, but some things remain the same: "With its manufacturing base almost totally gone, New York City’s economy is critically dependent on the Manhattan-based financial services industry..." Back then, what they didn't realize was that there was indeed a big stock market boom right around the corner, fueled by the explosion of the internet. But what will the next boom be, and how long will it take to get here? And why did the big slump between '01 and '03 coincide with real estate prices soaring up? Perhaps one reason was that people were investing in real estate instead of stocks. But then when the stock market was doing well in '03, real estate prices soared up even more...
Here's another fascinating quote from the City Journal article: "The days when financial services served as a well-paid affirmative action program for presentable, moderately literate Ivy League graduates are ending— as, sadly, are the days when the stock market provided ready employment for legions of semiskilled clerks and runners. The industry that is emerging will be completely computerized, almost entirely without paper transaction records; much less labor- and space-intensive; and with much tighter cost and profit constraints. A long-term recovery in financial services, in short, no more implies a healthy New York City than the recovery of the American automobile industry means a healthy Detroit; just as the automobile industry has done, financial services is becoming less dependent on its traditional geographic base. The financial services industry, which has sustained the city through multiple cycles of contraction and recovery, is unlikely to do so again." This again sounds amazing when you look back at it now. So much more is done electronically now-- but have we seen the rampant unemployment that this article suggests would happen? I don't know about that, but maybe all those warehouses that used to hold paper stock certificates are what's being turned into loft condos now...
I'm no economist, so I don't really feel qualified to comment on all the questions this article inspires now, but I'd love to know what others think...

2 comments:

Anonymous said...

"The days when financial services served as a well-paid affirmative action program for presentable, moderately literate Ivy League graduates are ending..."

Well, I guess they are talking about me. Fortunately, they were totally incorrect. And fortunately, this moderately literate Ivy League Wall Streeter has made quite the small fortune in the Big Apple's real estate boom. Yeh for me. Sounds like that article was written by some grossly jealous, semi-literate, under-paid, chip on th shoulder graduate of an inferior educational institution who's probably still kicking himself for not buying (cause he listened to his own dumb advice).

NYC money said...

I think there's a lot of truth in it, but only supply and demand will tell. I own in NYC, but I don't really care if there is a housing bubble. I kind of think it's a none issue, since you have to move to get all your money back anyway. I do know that more and more companies are thinking about leaving NYC, which really doesn't help matters.