Past is prologue in most aspects of life, especially when it comes to economics. The downturn today might be unique in terms of the actual confluence of events that preceded it, but looking at past examples of how the New York City apartment market reacted downturns in the macroeconomy still gives us a whole lot of very useful perspective.
Fortunately, the Furman Center for Real Estate and Urban Policy has just released an extensive report that focuses on the past two downturns in the market and what we can expect from them. Some of the key figures:
- Between 1974 and 1980, prices declined by 12.4% citywide.
- Between 1980 and 1989, prices increased by 152%.
- From 1989 to 1996, prices dropped by 29.3%.
- From 1996 to 2006, the City’s latest boom, housing prices increased by 124%.
As we can see from these basic, top-line numbers, recent downturns have been nowhere near the size of recent upturns.
These top-line numbers hide incredible neighborhood-to-neighborhood variance. In fact, knowing how one neighborhood does in the previous recession gives you very little predictive power for how that neighborhood will do in this recession. Despite the variance, however, the same general pattern holds: Recessionary periods tend to be shorter and shallower than do expansionary periods.
For practical purposes, that means that if you buy an apartment, and prices continue to depreciate, that apartment will likely lose far less value than it will gain during the next boom time. This statement, of course, doesn’t apply to every apartment in the New York City real estate market, but it will apply to the vast majority of them.
One interesting datum: Despite the low correlation between performance during the past two downturns, performance during the past two upturns is actually quite highly correlated. This means that one of the smartest data sets you can look at as a potential buyer is how the value of the home you are looking at performed in the boom period that just ended. If it shot up towards the end of the boom, it might still have some room to fall, and you might want to pass. But if it performed well throughout, then perhaps you are looking at a solid investment.
Also, it’s important to look at what the city government is doing around you. Especially if you are in a marginal neighborhood, what the city is doing there in terms of investment can be one of the most important factors in determining future values.
Like so many things in life, knowing what happened to your potential New York City apartment before you came along will go a long way towards figuring out what will happen to it.
State of the City’s Housing & Neighborhoods [ Furman Center for Real Estate ]