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How NYC's resale market bounced back after global economic crisis

How has Manhattan's real estate market been affected by the 2008 recession?

This week, real estate appraiser, Curbed graph guru, blogger, and Housing Notes newsletter writer Jonathan Miller looks at the resale market in the eight years since Lehman collapsed.

Last week marked the eighth anniversary of the bankruptcy of Lehman Brothers, one of the big Wall Street banks. It was a milestone for the U.S. housing market, when the already year-old credit crunch moved front and center with banks and consumers. Throw in a bailout of Fannie and Freddie and the collapse of AIG, and the market simply froze. I wanted to take a year over year look at how the market has behaved through the eyes of the resale market, focusing on their median sales price and inventory.

For these purposes, a resale is defined as a sale that was not part of a new or newly converted condo or co-op. I pushed new development out of the picture to avoid its wacky skew, as contracts signed one or two years ago continue to close, creating odd numbers.

The absurd price growth in late 2009 and 2010 was caused by the market rising from very low levels in the prior year. Resale inventory plummeted in 2009, then expanded in 2010, as sellers removed their inventory from the market when sales stalled.

With mega new development sales banished from this analysis, the remainder of the market (roughly 80 percent) has shown consistent price growth for the past three and half years with the exception of a couple of outlying quarters. In fact, resale growth has averaged six percent per quarter on a year-over-year basis since 1Q 2013.

That’s very robust (and not sustainable) growth when you think about inflation holding generally well below two percent and wage growth not much different than that—a key reason why we are experiencing a housing affordability crisis. Inventory plummeted in 2012 and 2013 from the record sales volume. After a volatile 2014, resale inventory has been rising for the past six quarters. The increase in supply is a reflection of the slow down in demand.

I suspect we’ll see a sharp drop in bidding wars on top of the large decline that occurred in the second quarter as supply expands—a more sustainable condition for the longer term.