A Tale of Two Coasts 17 comments
-
Font Size:
-
Print
- TweetThis
The CME has housing futures that track the S&P/Case-Shiller home price indices. These futures allow big investors to trade or hedge against real estate prices nationwide. Since last September, the Composite 10-City futures contract that expires in February 2009 has fallen 12.56%, meaning investors have gotten more bearish on the outlook for real estate prices early next year.
There is a big discrepancy between the outlook for Los Angeles and New York, however. As shown, the February '09 contract for median home prices in Los Angeles has fallen nearly 28% over the last seven months, while the contract for New York has barely budged.
The actual change in home prices from their peaks also shows that the West Coast is struggling much more than the Northeast. The Composite 10-City index has fallen 13.36% from its peak, while Los Angeles has fallen 18% and New York has fallen 7%. The current price of the February '09 Composite 10-City contract is forecasting that from current levels, prices will fall by as much as they already have from their peaks. The contracts for Los Angeles are suggesting another 23.35% decline from current levels, while New York is expected to fall just 5%.
Related Articles
|



























This article has 17 comments:
I can tell you as a resident of the New England zone between metro New York and metro Boston that housing prices are within a comfortable range of affordability here, much lower than the metro zones, though not within the ideal range posited by mortgage calculators (think 3.5x income rather than 2.5x). That's still a lot better than outlying areas of metro LA or SF on the mirror side...
LA is just a bell-weather... As is NY... All this article is saying is that comparatively, LA (and therefore most of California) is posed to get hurt more than NY(and therefore the East Coast...)..
I live in a small foothills town in California and own a rental in Sacramento. I've been involved with real-estate for a long time.. I don't know much about the East Coast, well.. except women there wear funny pointy-toed shoes and the guys wear odd-colored green ties with light blue shirts...Explain that to me! ;-) ... but I can tell you that we are due much more pain in California in general. Using LA and NY is not surprising... These areas are where the jobs are, the volume of housing... And particularly housing that has ramped up in recent years...And these areas should experience a greater impact. Don't you find it interesting that NY is expected to suffer less than LA... I do..What's even more interesting is that aside from these two opposites, the majority of the US is not expected to drop as significantly.
So what do you do with this info... (aside from posting inanities..) .. Obviously, reconsider buying property in these areas for awhile; If you intend to buy financials, insurance companies or even mutual funds.... Consider whether their book of business includes exposure in these areas...
Thx jegan ;-)
thx, sean
How's Florida doing these days. ;)
Article should be retitled "tale of two cities", but oops, that was already taken 150 years ago.
Bigger question is, will New York really come out okay, or are they just going to be a late bloomer?
None of this demand shift has anything to do with the bursting of the bubble; it's been under way for a few years already, though the bubble may later be viewed as the last gasp of suburbanism in this cycle. But it does help to explain part of the variability in the severity of the bust. If you're looking for real estate or developer investments, look for beaten-up firms that do most of their business in city cores; just like the people buying that City flat at a small discount, this may be your opportunity to pick up good companies on the cheap. AVB has a good number of urban and pseudourban properties, but I'd look for someone with less exposure to suburbs. I wouldn't touch the guys who build the cookie cutters 40 miles out of town; most of them will end up in bankruptcy. The bust will be longer and deeper for them, and the recovery much slower and weaker than they expect. Likewise, in commercial real estate I'd be looking for smaller operators with downtown properties on the coasts and avoiding the suburban mall/strip-mall operators. Retailers like WMT will do well during the recession, but there's no assurance that nearby smaller retailers or their landlords will participate. And they will miss out on most of the recovery as more people abandon the suburbs and those who remain are able to shop elsewhere. The longer the recession, the more the longer-term trend will work against these companies when it finally ends.
fuel prices are going to have an impact, until demand affects decisions. some will buy transportation that is cheaper to operate, like motorcycles, or electric, or hydrogen, hybrid, mass transit, etc.
the desire to escape the congestion of the city works against the effects of reducing costs. most people are willing to live in the inner city until they can afford to move away. of course, there are exceptions, like some people in nyc who have been brainwashed into believing they are the center of the universe, etc. by and large, though, the demand for freedom and autonomy, lower taxes, lower daily expenses, larger living spaces, will far outweigh the consideration of higher fuel costs.
if anything, your contentions might hold true for smaller cities with lower taxes and better services. that might mean cities in the south.