The implications of the US recession are starting to show itself. Revised numbers show that the economy retracted two quarters ago. The same could be said about the last quarter – if population growth and government deficit spending aren’t considered “economic growth.” While the recent decline in fuel prices offers some hope, the fed has been intervening to save banks from total collapse at a rate that could almost be described as regular during the past several months.
The New York City housing market has been propped up both by a booming luxury market and a weakened US dollar. Its fundamentals are strong, but it is clear that the market is no longer capable of weathering the storm in style, growing its value as that of the national market recedes rapidly.
With the second quarter numbers coming in a few weeks ago, the long-term outlook of the economy is now at the top of everyone’s watch list.
One big worry for those in the New York real estate market is of the recession spreading to Europe, thus sapping the city of one of its major sources of support in recent years. It’s a strong possibility, at least for large swaths of the eurozone. The dollar, however, is likely to either stay at its historic lows against the euro or decline further. Any such further decline would easily mitigate the downward pressure on European demand ushered in by a small European recession.
Another major variable is the depth of the recession. It’s equally tough to predict. In many ways, it depends on how the national government reacts to the issue. With an election coming up, another round of stimulus is not all that unlikely. Though, as gas prices magically fall before the election – those lucky oil companies, small, innocent victims of the market that they are – there may be enough temporary political relief to blunt the political pressure for another round of stimulus.
At any rate, it is probable that the New York City real estate market will reach its bottom sometime in the last six months of 2009. Though some variables are impossible to predict, many analysts are calling for a five to ten percent correction from current price levels.
The luxury market will likely be able to endure in a better fashion, due to its support from foreign buyers.
The mid-range of the market, however, will likely have a difficult time moving its higher-end products. Many condo developers in this market segment have, in recent years, been aiming a bit too high for a recession – using pricing models that called for a sales price of over $950 a square foot. The market will likely correct their mistake, the hard way. An outcome good for buyers, bad for their bottom lines.
How long will downturn last? [The Real Deal]