Tuesday, January 31, 2006

Bloomberg Budgets For Housing Market Crash

Bloomberg presented his preliminary budget earlier today. While there certainly was coverage in the local and nationwide press, one small bit seems to have been overlooked. Thanks to the readers that brought this piece of information to our attention. It seems that Bloomberg had the common sense to arrange the budget to accomodate for the potential shortfall in real estate transaction taxes.

From the NYC website:

MAYOR BLOOMBERG PRESENTS $52.2 BILLION FY 2007 PRELIMINARY BUDGET

New York’s real estate market is expected to slow, however, with a 10% decline in home prices, a 14% decline in home sales over the next few years and a significant decline in real estate transaction taxes that have buoyed the City’s tax revenue in the last few fiscal years.

Bloomberg certainly hasn't been holding back any punches when it comes to real estate. In an environment where real estate economists have been predicting nothing but gains, Bloomberg has joined the ranks of the unconvinced.

Isn't NYC too "special" for it's real estate values to ever fall? This isn't just another Bubble Blogger or Doom and Gloom Economist making predictions of a decline, this is the Mayor expecting a 10% decline in home prices. That's a rather precipitous decline for an asset that "doesn't ever go down.".

Caveat Emptor!
Grim

44 Comments:

Blogger chaoticchild said...

with a 10% decline in home prices, a 14% decline in home sales over the next few years

I wonder how did they come up with the above numbers. The report didn't explain.......

1/31/2006 05:37:00 PM  
Anonymous Anonymous said...

Grim, you sound like a nice guy. don't go down with the ship. sell out and get the phuck out of new jersey. i grew up there. i was living in the past. i finallly woke up and moved west. that state will only get worse and worse until it is full blown communist.

good luck good man.

1/31/2006 05:37:00 PM  
Anonymous NYCGuy said...

There has already been a 10% drop in prices in Manhattan although you wouldn't learn that by reading the paper. This broker's monthly reports show the median manhattan apartment peaked at $831,000 in June and dropped to $749,000 in December. Newspapers, for some unknown reason, report month over month sales, but always report prices as year over year, which fails to show the true picture.

http://tinyurl.com/bjrqo

1/31/2006 05:41:00 PM  
Blogger chicagofinance said...

"chaoticchild said...
with a 10% decline in home prices, a 14% decline in home sales over the next few years

I wonder how did they come up with the above numbers. The report didn't explain....... "

It's just a budget - there's nothing to say that it won't come in a "gosh-darned" bit lower. He is just trying to be as fiscally conservative as he can be in a public forum.

Smart guy, but he has even bigger stones than his smarts. Since he is a billionairre already, he is somewhat impervious to being intimidated.

1/31/2006 06:21:00 PM  
Blogger grim said...

NYC is lucky to have Bloomberg. While every other politician is following the herd, Bloomberg has the foresight to see past the smoke and mirrors and at least plan for the possibility.

grim

1/31/2006 06:56:00 PM  
Blogger Rob Ryley said...

I'm no fan of Bloomberg, but I have to give him credit.

Generally, politicians are the last to know when any particular economic trend has ended.

Example: look at all of the talk in the late 90's about investing Social Security funds in stocks. I knew we were close to a market top then.

Before the numbers show a complete bloodbath in housing, expect there to be a stock market sell off in the face of "good" economic numbers.

Bernake will not know what to do. He is likely to be faced with "inflationary" energy prices, but low wage growth, increasing unemployment, and declining profit margins.

This shouldn't happen in Keynesian economics, but that is what I expect. He will be between a rock and a hard place. I expect him to be faced with something his tools as an academic economist do not prepare him for.

1/31/2006 07:36:00 PM  
Blogger chicagofinance said...

Bernanke is going to err on the side of caution. It wouldn't shock me to see a 5% Fed Funds rate on May 10th. It sure would tee off a lot of people interested in maintaining their real estate gains for the last 5 years.

If you can manage it, stay away from fixed income investments of lower credit quality and longer than 3-4 years in maturity.

1/31/2006 07:48:00 PM  
Blogger Rob Ryley said...

Chicago,

That's another thing I'm looking for--wider credit spreads.

I expect rates on govt. debt to remain relatively low. However, corporate debt, especially junk debt, I expect to increase.

I suspect there is a greater probability for a tiny rate spike for long term govt. debt. But it will be short lived once people dump their higher risk corporate bonds, Mortgage Backed securities, CDO's, etc., and flood into treasuries.

Later in the year, Bernake is going to end up cutting rates, as opposed to hiking them. But I don't think it will do much good.

1/31/2006 08:52:00 PM  
Blogger Richard said...

i'm locking in half my cash after the next rate hike in a 2-year CD and the other half in anticipation for a possible additional 25bps after that. no way bernanke raises more than 2 more times. you heard it from me first.

2/01/2006 06:55:00 PM  
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while you are waiting, stick it here

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2/01/2006 09:44:00 PM  
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after 4/15 the ING interest rate goes back down to an uncompetitive 3.8%. better off sticking your money in emigrantdirect at 4.25%, no minimums/fees.

2/02/2006 01:39:00 AM  
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