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Forecast: New York City Housing Prices To Plummet

Posted In: Bubbles, Employment, Foreclosures, Home Prices, Housing, Unemployment

If you live in the Big Apple, you might have heard about the latest Deutsche Bank forecast on housing prices for your area. And you’re probably hoping they’re wrong. Very wrong. From the Wall Street Journal website this past Tuesday:

How much further could home prices tumble in the New York City metro area? Deutsche Bank predicts a decline of 40.6% from the first quarter of 2009.

That’s a slight improvement over the 47.4% decline that the bank’s analysts had forecast in March, and it reflects in part the fact that prices have dropped since then. Still, prices would have to drop another 32% from the first quarter of 2009 to return the New York market to levels of affordability not seen since 1998.

Affordability measures whether a household at the median family income could purchase a home given median prices and at prevailing interest rates. (Deutsche Bank assumes a 5% mortgage rate, which means that prices could have to fall further if interest rates don’t return to the 5% level that they reached earlier this year.)

Already, affordability in some 74 of the top 100 U.S. housing markets have already returned to their historic highs.

Median prices in the first quarter of 2009 dropped to $446,000 in New York, down 19% from the peak of $552,000 set in the second quarter of 2007. Deutsche Bank forecasts a total peak-to-trough decline of 52.1%.

Some of the top California housing markets are now undervalued based strictly on affordability. But rising job loss and price-cutting foreclosure sales could lead to another 11% price decline in Los Angeles and a 14% decline for Riverside, Calif. San Diego appears closest to the bottom, with just another 8.7% decline before reaching bottom.

Bloomberg’s Brian Louis also picked up on the Deutsche Bank forecast, and added:

U.S. home prices may fall another 14 percent, led by the New York and Orange County, California, metropolitan areas, before reaching a bottom as an increase in unemployment offsets lower prices, Deutsche Bank AG said.

“Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough,” Deutsche Bank analysts led by Karen Weaver, wrote in a report yesterday. “The bottom is getting closer, but we are not there yet.”

Home prices are forecast to fall 41.7 percent from their peak, Weaver said. That’s higher than a forecast she released in March and reflects “the actual declines to date and the expected future impact on home prices from rising foreclosure inventory and unemployment.”

Suzanne!!!