Unlike the rest of the U.S., the region has seen price increases for the past six months. But a bad bonus season could change that
New housing data released by the National Association of Realtors (NAR) suggest the Northeast is weathering the real estate slump better than the rest of the country.
Even as existing home prices in October tumbled in the South and West, prices in the Northeast rose 1.3% compared to a year ago—the sixth straight month of appreciation, according to the NAR, which released its monthly home price report on Nov. 28. Home prices nationwide declined 5.1% in October compared to October, 2006. The South dropped 6.7%; the West, 6.9%; and the Midwest, 1.6%.
The Northeast's gain follows five straight months of higher prices on a year-over-year basis, including a 0.2% rise in September to a 6.4% bump in July. The Northeast, as defined by the Census Bureau, includes Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. It doesn't include the slumping Washington (D.C.) market.
A Complicated Story
NAR's Chief Economist Lawrence Yun said in a phone interview after releasing the data that the Northeast's downturn arrived in the summer of 2006—earlier than in other sections of the country—with its worst drop of 5% happening in October, 2006. "For the Northeast, the worst is already past and the question is how fast the recovery will be," Yun said. "Will it be a strong recovery or weak recovery?"
Yun says he's hopeful other regions will follow the Northeast's lead. But other real estate experts say it's far too soon for homeowners to breathe easy. It's true that the Northeast has, so far, fared better than the South and the West, where Florida, California, Arizona, and Nevada's speculative markets have gotten clobbered by foreclosures, the credit crunch, and weak buyer demand. And it's even doing slightly better than the Midwest, where homes are still relatively moderately priced. But the story is more complicated than that.
While prices remain slightly higher, sales in the Northeast fell 12.6% in October compared to a year ago, according to the NAR. U.S. existing home sales fell 20.7% during the same period. That means that fewer homes are selling—and what is selling is going for a higher price. Such a scenario isn't likely to last long, though, as the Northeast is scarcely invulnerable to economic uncertainties. The full impact of the subprime mortgage mess, including the possibility of more job cuts on Wall Street and other urban financial centers, isn't clear. If bonus season is as bad as some people think it will be, those co-ops on Park Avenue and mansions in the Hamptons won't have as many buyers. If demand falls, so will prices.
At the same time, the Northeast has other attributes that may keep it strong. First, it remains an attractive investment for overseas buyers, especially those who are benefiting from the dollar's weakness against the British pound and euro. Second, the existence of many prestigious centers of higher learning will continue to contribute to a robust local market.
Too Soon to Tell
"You cannot make a pronouncement now that the Northeast has recovered and all is well," says Jonathan Miller, an appraiser and research director at Radar Logic, a New York-based property research firm. "It's early…with rising foreclosure rates, rising inventories of homes, the number of sales transactions dropping significantly, and concern about a recession. So other than a 1.3% increase in existing home sales, what other indicator is there that the Northeast has bottomed out?"
Celia Chen, director of housing economics at Moody's Economy.com, says the Northeast might have to wait a year or more for a recovery and the market is likely to get worse before it improves. New England and the mid-Atlantic states have held up well because of the regions' wealth, a relatively small number of subprime loans, and home prices that didn't rise as much as in other parts of the country, Chen says.
Home sellers in the north have been holding prices steady despite falling demand from buyers. But changing economic conditions and even slower sales could force them to lower expectations, she adds.
"It is looking a little less dark in the Northeast than in the rest of the country," Chen says. "But I don't expect housing activity to pick up substantially in the Northeast in the next six months. There's going to be further correction in terms of sales falling and prices declining. A lot of these markets, such as Boston and New York, are still overpriced, overvalued, and do have excess inventory."
Check out the BusinessWeek.com slide show to see the 10 worst U.S. housing markets.