New York City’s housing market is poised to lag behind other markets for the next two years even as a national recovery in real estate continues.
That’s the assessment of Capital Economics Ltd. Property Economist Paul Diggle and assistant Michael Pearce, who in a Jan. 28 report said “conditions look less amenable to rising prices in New York City, particularly in Manhattan and Brooklyn.” By contrast, average U.S. prices may gain 5 percent a year, they said.
Housing in the region that includes New York City is 4 percent overvalued relative to rents and 2 percent overvalued relative to incomes, they estimate. Nationally, housing is 6 percent and 21 percent undervalued respectively, they estimate.
The economists compared average home prices in the New York region and nationally with average incomes over the past two decades to determine whether prices now seemed too high or low.
“Data on the level of house prices in Manhattan suggests that the average resident has to fork out seven times their annual income to buy in the borough,” they wrote. “The equivalent national figure is probably less than six.”
A potential crackdown in regulation of the financial services industry poses a threat to Wall Street, which may hurt housing prices for area residents, the authors said. Capital Economics’ U.S. housing department was the top forecaster of U.S. housing prices in the two years ended Feb. 1, 2012, according to Bloomberg Rankings.
“Regulatory uncertainty, not to mention macroeconomic instability emanating from problems in the euro-zone — which we don’t think are over — will constrain profits in the financial services industry and limit wage growth in NYC,” they wrote. “Domestic buyers will also not be helped by tight lending conditions” for larger-than-standard mortgages.
Finally, New York state continues to suffer from one of the largest backlogs of foreclosures in the U.S. About 6.5 percent of mortgaged properties in New York state were in the foreclosure process during the third quarter of last year, the fourth-highest of any state and well above the national rate of 5 percent, according to Capital Economics. The report said a foreclosure in the state typically takes three years to complete, the longest in the country.