Robert Shiller: NY prices will fall (from NY Observer)

[Ancalagon the Black]

I'm breaking the rules because of the ridiculously sensationalized title of the article in the Observer.

http://www.observer.com/2008/shiller-new-york-we-re-ancient-rome-right-fall

Shiller on New York: We're Ancient Rome, Right Before the Fall

by Max Abelson | January 15, 2008

Location: You’ve been warning of a national real estate collapse since 2005. Do you feel vindicated by last year’s downturn?

Mr. Shiller: Well, I don’t like to use the word vindicated, but it is unraveling as more or less I expected.

When your S&P/Case-Shiller index of home prices came out last year showing record drops, you said things hadn’t been this bad nationally since the Second World War. Yet the sub-prime mortgage scandal hasn’t much affected Manhattan. Are we immune?

Firstly, you’re definitely not immune, OK? Manhattan is a unique place, and that does mean that it has different dynamics, but it’s not immune, I can guarantee you that … If it gets too expensive in New York, people will leave it, no matter what—they can’t afford to live there. And so it’s just not true that New York will keep appreciating independently of everywhere else, I just don’t believe it. Elementary economics say people will always substitute away when the price gets too high, and so they’re doing that.

What will the bursting of the real estate bubble in New York look and feel like?

It will probably start showing synchrony with the rest of the country, and it will happen very gradually, it will start slowing down. If we’re going into a recession, it won’t be that exceptional, people won’t be that surprised.

Our real estate boom since the 90’s is unrivaled, you’ve said, even by the post-war baby boom. So would it be normal, even desirable, for it to end?

It would be a great thing for New York if prices came down, because more interesting people would move in. Your artists can’t afford to live there anymore … They’ll move out of Brooklyn, they won’t be anywhere nearby.

You’ve suggested the Internet boom was ‘a silly, in fact embarrassing fad.’ But will the New York City real estate obsession ever die?

Did you know that the world financial center [of the 1600’s], Amsterdam, created a second city called New Amsterdam? And it’s the world financial center today. Amsterdam hasn’t gone up! It’s the satellite city, called New York now, that’s replaced it … New York will set up satellites; we’re starting to do that with Greenwich and Stamford and I don’t know where else, and it doesn’t have to stay there. The idea that it’s just going to keep going up, especially with the Internet age, which makes communications more easy, I just don’t think it’s reasonable to think it’s just going to keep getting more and more expensive.

Article continues at link.

[iheartskins]

Well, I'm not ready to short my apartment in Brooklyn just yet...but very interesting nonetheless, and it's certainly something I fear.

The market in New Jersey is very soft, I really hope that it doesn't spread to Manhattan and Brooklyn.

[Ancalagon the Black]

Maybe one day I'll be able to afford a studio apartment. In Queens.

[PeterMP]

I know a realestate lawyer in North Jersey. He's a pretty smart guy. He thought a year ago that home prices there might fall about a 1/3. He hasn't gotten any more optomistic. He owned a couple of homes and used them as rentals. He's sold them.

If things drop that much there, that would have to have an effect on NYC.

[Predicto]

San Francisco could use a dose of this as well.