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    New York Metro Housing Market: Not Sharing in Real Estate Pricing Surge

     

    Denise Hunter Gravatt, DBA
    Florida Atlantic University

    Eli Beracha, Ph.D.
    Florida International University

    Ken H. Johnson. Ph.D
    Florida Atlantic University

    9-22-2020

     

    While much of the nation is seeing rising home values, the New York metropolitan area is not participating in this valuation increase. Currently, the New York metro, the country’s largest metropolitan area, has seen its average home price fall over the last quarter at an annualized rate of -1.2%.  Going back one year, housing values in the metro are experiencing a sluggish annualized growth rate of 2.5%.

    Looking back at over 40 years of repeat sales transactions in the New York metro area (Figure 1) reveals additional information about the current status of housing values in the area. 

    Figure 1. New York Metro Housing Housing Price Index

     

    New York Metro Housing Market Graph

     

    Specifically, the average property price in the New York metro is currently 1% above its long-term pricing trend.[i]

    A number of factors including mortgage rates being heavily influenced by the Federal Government actions to prop up the U.S. economy due to COVID-19 (namely the Federal Reserve purchases of government debt to keep rates low), a shortage in available housing both for sale and rent, and population movements are influencing homes values around the country and New York is no exception.

    The long-term pricing trend for New York is one of the highest in the nation allowing New York to historically work out of any short-term housing valuation problems it has experienced in the past. It is unsettling, however, to see valuation be so tepid in the area in the presence of record low mortgage rates which have traditionally led to rapidly rising home values especially in historically high demand areas.

     

    Key Takeaways

    What does all of this mean for home values moving forward in the New York area?  There appear to be two possibilities.

    • There has been a permanent structural break in the demand for living in the area. It could be that weather, taxes, COVID-19 and civil unrest have finally combined to fundamentally change the desire of people to live and work in the New York metropolitan area. Thus, with the inevitable cessation of FED purchases of government debt and the responding influence on the 10-year Treasury yields, rising mortgage rates could deliver a death knell to area housing values resulting in falling property values in the short term and a long-term flattening in the slope of property value appreciation, making it difficult for New York to easily out grow its real estate issues.[ii]
    • Alternatively, a permanent structural break in the demand for living and working in the area has not occurred and, as so many times in the past, New York will bounce bank to remain the cultural and business epicenter of the country.  In the short-term property values should be flat to declining; however, long-term the high demand for living in New York will continue and the area will return to its age-old ways of simply outgrowing its real estate problems rather quickly.

     

    Endnotes

    [i] The data for this analysis primarily comes from the Federal Housing Finance Agency (FHFA) repeat sales index for the New York Metro area.  Repeat sales indices is an established statistical methodology to allow for the measurement of price movements in properties through time.  In this respect, they are highly similar to well know stock indices such as the S&P and DOW.  The resulting quarterly scores are often referred to as Housing Price Index scores or HPI.

    [ii] Since the start of the pandemic, the Federal Reserve has purchased nearly $2 trillion in government debt up and down the yield curve in order to create market liquidity across all of the financial asset markets.  This brings the total amount of FED spending on federal government debt to right at $4.36 trillion according to a recent Reuters article. While the FED is openly admitting to being willing to accept higher inflation targets triggered by lower rates, there is only so much support they can provide before their actions trigger unacceptable levels of inflation, thus it is reasonable to expect the FED to soon slow its actions and mortgage rates will rise.

     

     

     

     

     
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