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[New York Has 40% To Go?] Deutsche Bank Residential Real Estate Forecast

Here we go again.

Deutsche Bank prepared a report on the US housing market that forecasts how much further each market area has to go. The market that seemed to stick out like a sore thumb was New York. This was covered in a Time Magazine [1] story.

home prices in metropolitan New York City (which includes Westchester, northern New Jersey and other nearby areas) to fall 40.6% from the prices that prevailed in March. Ironically, that dire forecast is wrapped in an improving forecast for nationwide home prices.

This study seems to be another “black box” model where we don’t fully understand the methodology even though it was disclosed in the prior report.

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. Deutsche Bank forecasts a total peak-to-trough decline of 52.1%. Rising unemployment and foreclosure activity are offsetting increased affordability. The bottom is considered the historical peak of affordability. In NY’s case, it was 1998.

The forecast brings prices to 1990 levels suggesting that the New York City metro area will overshoot the point of peak affordability (1998) by 8.6%.

I would think that home prices in Las Vegas and Phoenix can fall 50%+ because there an incredible amount of undeveloped land and limited constrain on supply – highly speculative from the get go. Prices can fall to very low levels in Detroit because the economy is under extreme duress and a declining population.

The market area covered was NYC, Long Island, Fairfield and Westchester, Northern NJ and 1 PA county. The 3 big national reports are the data source but FHFA and CSI exclude co-ops and condos, which are a significant portion of NYC housing units and NAR is light on co-op data.

Plus the report doesn’t speak to niche differences like conventional and jumbo mortgage financing constraint on the type of properties that will sell.

Despite my doubts about the reliability of the results, my takeaways are:

Download Deutsche Bank Report [2]