Bull vs. Bear: the NYC Real Estate Market, Fall 2010 … which camp are you in?

With the Fall sales season upon us, arguments around where the market is heading are heating up, awakening bulls and bears on both sides out of their summer slumber. Here is a brief overview of what we’re hearing from each:

Bullish perspective:

• The worst of the housing downturn is clearly behind us, with clear signs pointing to a real housing recovery in both price and volume over the last few quarters.  Earnings per share have beat expectations across the board and companies are increasingly sitting on cash just waiting to be put to work.  The economy is therefore headed in the right direction, slowly but surely.
• Fewer jobs have been lost in NYC than previously anticipated, and financial firms, specifically, are seeing record profits.
• This will clearly have a positive impact on the health of Wall Street, not to mention its bonuses, which should make for a robust Fall/Spring sales season.  Further, past bonus structures are vesting now, which should help buyers feel more comfortable committing to make a purchase.
• Inventory continues to be low while demand appears to have been stronger than anticipated during the otherwise slow Summer months (based on open house traffic and the overall number of buyer inquiries).  This can only be great news for the months to come.
• Properties have been moving at a healthy clip, with many going into contract in their first month on the market.  Buyers are ready, willing and able to move.
• Interest rates are even lower now than when everyone was looking to buy earlier this year, which should further fuel the market.  All the talk of the expired tax credit for first time home buyers is misplaced in NYC.
• With the rental market as strong as it is, it makes more sense than it has in a long time to buy versus rent; you can’t time the market anyway.

Bearish perspective:

• Many noted economists believe we still have a material chance of heading into a double dip recession, arguing that we need even more stimulus than has already been pumped into the system.
• It took a long time to get ourselves into this economic and housing mess, decades in the making.  Is there any doubt that a serious correction would last more than 2-3 yrs?
• Unemployment has barely budged from its 10% level, with additional underemployment figures well in the double digits.
• The volatility of the stock market is telling us something: that the current supposed recovery is shaky at best. It’s no wonder that buyers are on edge with every slide in the indices – confidence has yet to rebound and without confidence prices will fall.
• Where will the next set of natural buyers come from in the city?  The first wave post downturn consisted of value-hunters, looking for a deep bargain.  The second wave was made up of pent up demand from buyers needing to move for lifecycle reasons.  The third wave came from first-time home-buyers looking to take advantage of attractive FHA terms and low interest rates.  Now what?  Who will be next to fill that demand gap that will somehow support existing prices and drive them even higher?
• … And let’s not forget the shadow inventory lingering on the sidelines.  Only so much of it can turn rental and be absorbed without major pricing impact.  With banks finally starting to offload stagnant inventory, pricing pressure on the rest of the market is soon to follow.
• Lastly, the interest rate picture does not bode well for buyers whichever way rates are headed.  If they’re headed higher, then purchasing power goes down and prices must follow suit, if a market standstill is to be avoided.  If rates go even lower, then the market is telling us that the economic outlook is bleak indeed.  Either way, buyers lose out and sellers must adjust their prices down.

Somewhat predictably, bullish confidence has been bolstered by the last few quarters of NYC market data, while bearish jitteriness has increased in response. Clearly no one side is 100% correct, as crystal balls are nowhere to be found. We look forward to gaining more clarity on the economy as the Fall months unfold and reading the next chapter in the never-boring tale that is the NYC housing market saga.

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