California New York real estateIf you pore over enough housing data, you soon realize the U.S. has roughly four different real estate markets:

1. Markets that skyrocketed in the bubble, crashed hard (30% or more) and have yet to recover (examples: Miami, Las Vegas).
2. Markets that skyrocketed in the bubble, crashed hard and have rebounded smartly (example: San Francisco (down 46% from peak, up 21% from bottom).
3. Markets that rose and fell more moderately, and are recovering (example: New York).
4. Markets that didn't experience the bubble or the crash and recovery (example: much of small-town America).

So, while the national median home price is $176,900, up from $166,400 in early 2009, the local numbers are far from uniform. Out of 155 metropolitan areas tracked by the National Association of Realtors, 100 rose in the second quarter of this year, 14 by double digits. Yet prices in some markets, such as Las Vegas, are still declining.

Nationally, prices have risen 6% from their April 2009 bottom, but they're still 28% below their July 2006 peak.

Cutting Through the Cacophony


There's a big hurdle in trying to make sense of any housing market: The data come from different sources, and it often mixes different metrics. For instance, by at least one firm's calculations, the average price of a Manhattan apartment is about $1.43 million, up from $1.31 million -- but when measured on a per-square-foot basis, prices are flat.

One way to make sense of the cacophony of conflicting national data is to compare two sample cities such as New York (relatively stable valuations) and Los Angeles (big bubble and crash, sharp recovery).

New York City homes prices fell a relatively modest 15% in 2009, according to Corcoran Group, a New York broker. Other firms pegged the decline at 10% to 11%.

From 2008 to the 2009, the average Manhattan apartment fell about 20%, from $1.03 million in 2008 to $810,000 in the fourth quarter of 2009. On a square-foot basis, Manhattan home prices declined 17.6%, while new developments dropped 22%.

According to the second-quarter Case-Shiller Index of home prices, New York City prices edged up a modest 0.2% year-over-year (this is for the entire city, not just pricey Manhattan).

What Happens Next?


While that 20% decline in a Manhattan apartment may appear steep at first glance, it's moderate compared to the nearly 50% collapse in Los Angeles home prices that occurred from the peak in 2007 to the bottom in early 2009. From under $200,000 in 2000, L.A.-area homes rose to almost $550,000 in 2007, and then fell below $300,000 in January 2009.

Representative of markets that got plummeted but are recovering sharply, L.A. prices have risen a robust 9.2% over the past year, according to the Case-Shiller Index.

The question in both New York and Los Angeles is the same: What happens next? Is the price stabilization temporary, merely a pause in a long decline? Or is the recovery solid, with prices rising from here?

To answer that, we have to look at the economic foundations of each city, the supply of housing in various price segments and the demand from willing buyers.

Take a Closer Look at Jobs


Common sense suggests no housing market can rise if employment in the area is still declining. Thus, the relative price stability in New York might well result from the city's employment recovery, in which it added 48,500 private sector positions in 2010. After losing 35,000 jobs in the financial sector in the wake of the global crisis, financial services employment has actually nudged up by a modest 500 jobs in 2010. The city's unemployment rate held steady at 9.4% in August, slightly lower than the current national average of 9.6%.

The Federal Reserve's recent Beige Book report noted strength in a key New York City industry: tourism. Occupancy rates remained close to 90% in July and August, even as the number of hotel rooms has risen by more than 5% over the past year and room rates are 10% to 15% higher than a year ago.

The report categorized New York real estate prices as "essentially flat in Manhattan and across New York City generally."

California, however, is still mired in a jobs recession, as employers shed another 33,500 positions in August, pushing the state's unemployment rate to a bloated 12.4%.

Los Angeles' signature industry, Hollywood, is suffering a deep drought as well: Fewer films are being made, and many are being shot elsewhere, lured by hefty tax credits in other states and nations. Yet home sales rose to a four-year high in Southern California in mid-2010, and prices have risen dramatically in some Los Angeles ZIP codes.

According to a recent report in the L.A. Business Journal (print only), Los Angeles County home prices rose in August, and brokers are reporting a return to the multiple-offer-mania of the go-go era in desirable neighborhoods. Prices in some ZIP codes in Glendale, Hollywood and Santa Monica have experienced year-over-year increases as high as 40%.

How can a region with 12% unemployment support such strong price and sales increases?

Who the Buyers Are

One source of strength in both New York and Los Angeles is non-U.S. investors who see prime U.S. real estate as a relative bargain. Michael Nourmand, president of Nourmand & Associates Realtors in Beverly Hills reports that Chinese investors have been active in the Beverly Hills area, largely replacing European buyers.

In New York City, foreign governments and agencies are on a buying spree, snapping up multimillion-dollar Manhattan properties.

Another pool of buyers has taken advantage of low-interest, low-down-payment FHA loans. In Southern California, 36% of sales in August came from FHA-insured loans.

But who can afford condos in Manhattan for $1.4 million, and bid up houses in the desirable Silver Lake district of L.A. with multiple offers over $800,000?

The answer may well be that the top 5% of American households that are doing well despite the recession are concentrated in cities such as New York and Los Angeles. As I reported in August, the income and assets of the top 5% -- those households earning $210,000 or more annually -- have risen even as earnings of the bottom 95% have stagnated.

No Guarantees of Future Appreciation

Despite the largely rosy sales and price increases in both New York and Los Angeles, some recent signs indicate that the housing markets in both locales could soften. Sales have slipped sharply in some L.A. neighborhoods: The Sherman Oaks ZIP code 91403 saw sales fall 76%, from 91 properties in July 2009 to only 21 in August 2010.

The "shadow inventory" of distressed homes kept off the market by lenders remains high in many markets, meaning a flood of supply still threatens to overwhelm declining demand.

The larger question might well be: How many of the top 5% slice of U.S. households are still anxious to buy at today's prices? If the answer is "plenty," then $1 million homes in Manhattan and exclusive areas of L.A. will continue holding their value. But if demand for housing in the top tier of households falters for any reason, so too will prices.

Foreign buyers can run hot and cold as well. If the global economy slips or currency valuations suddenly change, non-U.S. buyers with cash may suddenly become scarce.

In today's uncertain world, past performance is no guarantee of future performance, even in seemingly solid markets.

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dhggifg

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September 28 2010 at 10:03 AM Report abuse rate up rate down Reply
piscesbaby36

If the movie industry, which was the last industry left in California is feeling a "drought", that should tell you all you need to know about doing business in Caifornia..The priate sector was chased away by the socialists and the environmentalists over 15 years ago. No jobs no jobs no jobs. the Democrats in the State legislature control all the spending and taxing.. The Governor can do very little really and Schwartzenegger has been a weak governor anyway.. He's not a Christy.. they have 19 billion in debt, total union control of the government with their overbloated benefits, and apparently still a very high housing market.. Who would go there? Maybe if Whitman wins, I lived there under Jerry Brown last time.. He was a disaster back then.. And if they re-elect Barbara Boxer, THEY DESERVE WHAT THEY GET.

September 27 2010 at 9:26 PM Report abuse +1 rate up rate down Reply
llozano

Houses in Los Angeles were over-priced and in some neighborhoods they continue to be over-priced. What has not gone down are the costs of renting or leasing. Conventional wisdom is that now is a good time to buy but the better neighborhoods are still over priced for this market so more people chose to rent rather than buy what they can afford in a less desirable neighborhood.

September 27 2010 at 8:55 PM Report abuse rate up rate down Reply
joejteacher951

well this article really said NOTHING!

September 27 2010 at 7:49 PM Report abuse +2 rate up rate down Reply
jetventuresusa

The banks are still controling the market and the Gov is still bailling them out. Kicking people out of foreclosured homes in a controled manner tha does not flood the market driving the prices even lower. Even on short sales, the bank gets the benifit of a new loan and the profits there of and subsidized between the short sale amount and orig. loan amt. They are actually making money and we are still paying. We allow non US Citizians living elsewhere to purchase homes, business etc pulling dollars out of the US and somewhere down the road controling our future. What about pumping dollars back into the US instead of sending them to other countires around the world via induvuals who live here but support their country of birth. In a taxi I ask the driver; What is the main income resourse for your country. He said Oil and people going to the US to send money home. Create US jobs by looking at our infrastructure i.e. roads, pipe lines, lakes, rives, dam's levee's.....things we need to repair or replace due to age. Adopt US born children. Pump dollars into US kids educations, sports, music programs. No more minority status. Its a level playing field, all men and women are created equally. Stop selling out America. Get rid of the role models for our children that are corrupt, substance abusers,etc, etc, etc. You know the role models we don't want our kids exposed to. If we all think that something little that we do won't make a difference then it won't and nothing will change. But if we all try to do anything to make our life, someone eles's life a litter better, even if its a smile, we have made a difference.

September 27 2010 at 2:58 PM Report abuse -1 rate up rate down Reply
americawakeupnow

Americans are paying the ultimate price for the banking cartel's "relaxing" of the rules for lending, thus creating the housing market bubble and all the subsequet financial misery. As long as our currency is controlled and owned by an independent central world bank (The Federal Reserve), we will continue to have economic problems. Our country needs to be in control of it's own currency, not an independent central world bank that is only interested in controlling and profiting off of our country!!! America Wake Up Now dot net

September 27 2010 at 1:11 PM Report abuse +3 rate up rate down Reply
awdenecke1

How about middle America, where most of us live? The world doesn't revolve around New York and LA, and when it does it usually isn't for the good. How about we bring some stability back into the equation and maybe look at middle America and American values as guiding forces as opposed to the two coasts.

September 27 2010 at 1:02 PM Report abuse +3 rate up rate down Reply
wbearl

What this artical doesn't tell you is that California has been in a housing slump since 1995 when the Military closed down several big bases and laid off the Civilian Employees. California had Bank Failures way back in 95 because of defaulted loans and plunging home prices. California had a 14 year head start on the rest of the country and they still haven't recovered. Just further proof that the Liberal Progressive Government isn't the way to go.

September 27 2010 at 12:12 PM Report abuse +4 rate up rate down Reply
billnyc52

So the way I see it, the rich are getting richer and the middle person is still having trouble paying there mortgage. How can the middle guy buy a house, when the cost of everything is going up, not because of the product, but because the goverment of all states are raising the sales tax on everything. The big guys are still getting there big bush tax cuts, which is putting more money in there pockets, and the middle guy is not getting raises(he is just happy to have a job). I live in New York and everything has gone up in taxes. When you have rich people running the goverment, you will never see any help for the average working person .

September 27 2010 at 9:17 AM Report abuse rate up rate down Reply
2 replies to billnyc52's comment
themanindbox

Im here too buddy, add into the fact that they base this on the foreclosure rate as well, which you as well as i know that the majority of the places that foreclosed are in the Slum. So the cost has come down a little, but i took a 50K pay cut to keep a job i hate and cannot leave as i cannot find another job to pay enough to make it a "cheaper" place to live. If the cost of a house is 400K and i was making 125K per year, but now i make 75K per year, and a house costs me 290K dollars and taxes are through the roof, as well as the cost for anything else... Then really we are all getting less, and not things are more expensive, who ever in our government puts these things together should be thrown out.

September 27 2010 at 10:35 AM Report abuse rate up rate down Reply
Dismayed

Obama's tax and spend fatcat bailouts, giveaways and "stimulus" plans that don't will lead to national insolvency and crushing debt for all of us. Vote the bums out! Try a new deck of cards. AOL is still censoring comments to "Politics News." Are they afraid of the same thing Obama is? That ordinary people will have multiple sources of information and learn the truth?

September 27 2010 at 7:45 AM Report abuse +4 rate up rate down Reply