While the latest S& P Case-Shiller statistics are hardly cause for celebration, neither should they make us contemplate suicide.
I’d love to see a far more robust housing market, but perhaps not only because, as you might suspect, I’d love to be selling more property. (Of course, I would.)
My chief concern is that poor housing numbers explain an important reason for our stubbornly sluggish economic recovery.
But let’s adopt a healthy perspective on the numbers, which are even worse adjusted for inflation than those reported by Case-Shiller: The statistics don’t create a wan economy (though I won’t deny some psychological impact), they merely confirm what we already know, that our economic engine is sputtering.
At the same time, I take comfort in knowing that we’re not Greece, Spain or Portugal, not even Japan.
Moreover, Case-Shiller’s statistics are useful only relative to each other. They lag the U.S. market, consisting of an average of three months long past. They consider only properties that are “used,” thus being skewed by the mass of foreclosed homes that find new owners. And they omit apartments.
The dreaded double dip in the housing market makes sense only in the context of Case-Shiller’s imprecise indices. Unfortunately, no measure of the housing market is without its significant flaws.
Any alarm you may have read about the statistics may well have resulted from predictions. Since economists never are wrong, a situation worse than forecast must be terrible to contemplate indeed. I don’t think so, though I must reiterate my understanding of how damaged is the U.S. housing market.
Taking an optimistic view of the numbers, today’s New York Times quotes a few economists as surmising that the bottom of the housing market actually may be at hand.
For residents of densely populated urban areas such as New York City — where the housing market is poking along at a decent, if far from vigorous, pace — Case-Shiller should be taken with not so much as a scintilla of salt.
In addition to its focus on just single-family houses, one concern that I have mentioned before is Case-Shiller’s embrace of whole regions. In our case, that means counties as disparate as one in Pennsylvania and both on Long Island in its reporting on “New York City.”
Whatever you make of any measure of the housing market, month-to-month and even quarter-to-quarter analysis is pointless. How can you make sense of changes between winter and spring or spring and summer? I defy you to do that. Year-to-year comparisons certainly are more telling than any others.
The Times contends that many Americans are losing interest in the pursuit of the American Dream, choosing to rent rather than buy their homes. Frankly, I think that’s a temporary phenomenon in the wake of our Great Recession. Call it a crisis of injured consumer confidence.
An unhelpful development is that buyers tend to hold out for their expectations of price levels tomorrow, not today, and sellers cling to their hopes of garnering a profit, never mind their fear of having to hand over cash at the closing table to make up for the reduced value of their property. (In Manhattan, I conintually see prices that reflect the expense never to be recouped of owners’ renovations.)
Also, I believe that the strictest lending standards in memory inordinately affect the housing market. Even with historically low interest rates, the height, size and number of hoops through which borrows now must jump is forbidding.
If, like me, you are self-employed, you can all but forget about obtaining a new or another mortgage. If you are retired, where is the income flow that lenders demand? If your credit rating is not elevated, either you won’t receive a mortgage or you’ll pay too much for the privilege of getting one. If you have changed jobs recently, if, if, if. . .
Still, renting is not the easy way out. The rental market has sidled into the vise of greatly increased demand, pushing up the monthly cost of that option. Some experts say rising rent’s contribution to inflation has not been widely recognized.
New York City has not been unaffected either by the Great Recession or problems with the nation’s housing market. Unmployment here is slightly lower than in most other locales, but it remains extraordinarily high.
At the same time, we benefit from the outsize impact that Wall Street and its denizens exert on our economy. We benefit, too, from the concentration of other highly paid professions and, in Manhattan, the limited area of our island.
Yes, Manhattan has suffered and prices have declined from their peak along with sales volume, causing the rental market to tighten up considerably. But Manhattan in particular and the city as a whole have experienced far less severe pain than what the rest of the country has had to withstand.
The wheel always turns. As the popularity of the Atkins diet, SUVs and tax policies illustrate, our appetite for one trend or another keeps changing.
Housing was hot until a few years ago, and now we know that consumers reject its heat. Well, they’ve been burned.
But remember, please, time heals all. With prices having plunged so precipitously, buying doubtless will become an attractive option once again. Don’t panic!
Note: The Case-Shiller news impelled me to write this post, thereby postponing my promised Out and About critique of the properties I visit. Do look for the next installment soon. (I’ve learned my lesson: No more promises.)
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022