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Three Cents Worth: Weaning NYC Off of Real Estate Taxes

[Real estate market savant Jonathan Miller pans out this week, tossing wages into the mix. The graph below plots the annual change in NYC wages (blue line) and Manhattan sales prices (orange) from 1989 to 2005. Follow the squiggly lines and see if you can figure out what will happen next. Click on the image to expand.]

Since the Mayor announced the NYC 2007 budget yesterday, there has been a lot of attention given to the city's view of the housing market. To date, housing has been a primary contributor to the city's strong revenue component and there is a lot at stake for the city. The fiscal year runs from mid-2006 to mid-2007 and projects a 10% decline in housing prices and a 14% decline in the number of sales over the next several years. It is not clear to me how long a period this total decline entails.

I thought it would be timely to trend the change in median sales price and wages year over year since 1989 (the beginning of the big recession) through this year. [A few important caveats: I am tracking Manhattan real estate prices against NYC wages; 2005 wages are not available yet so I used OMB projections; I went for blue and orange, instead of pink and green this week.]

The results indicate that the rate of price appreciation has outpaced wages starting in 1997 but became more significant since 1999. Despite Wall Street bonus income, it would appear likely that more modest wage growth will eventually temper real estate price growth. Basic economics.
· NYC Wages vs. Manhattan Sales Price [MillerSamuel]