For anyone who needs a nudge to buy an $85 million NYC condo, its owners have added several perks which include two Rolls Royces, a yacht and a year of weekly dinners for two at a Michelin 2-star restaurant. One reason might be a softening NYC housing market.
The view from the 45th floor of an $85 million condo on 42nd Street:
Where are we going? To deciding whether the U.S. housing market is moving toward its top.
The Housing Market
While the housing bubble popped during 2007, now average home prices are again rising:
A Price Chronology
We can also take a year by year look to see where housing prices are going.
The following maps of U.S. counties from the NY Fed display the change from a year earlier. When you see red, just think falling prices and for green, they are rising.
During 2007, the change in average home prices was -9.1% while for 2008, the descent was -15.8%:
At -3.6% and then another -3.7%, home prices continued to decline in 2009 and 2010.
The slide continued for 2011 but at a lower rate (-2.6%), while in 2012 we have the recovery with an average increase in home prices of 8.5%.
For 2013 and 2014 the upward climb continues, first at an 11.1% rate and then 5.2%.
And now, 2015 was a year of prices that again went up. The rate, at 6.3%, was slightly higher than during 2014.
Our Bottom Line: A Minsky Moment
Described by economist Hyman Minsky (1919-1996), the stages of a housing crisis can move from a “hedge” to “speculation” to a “Ponzi” phase. In the beginning of the cycle, financial institutions loan money to home buyers who can afford to service debt and pay back principal. However, as their demand boosts home prices and spreads a wealth effect, lower lending standards open markets to more buyers. With speculation intensifying, borrowing standards further plunge as buyers and lenders realize that increasing prices facilitate the resales and refinancing they need to buy unaffordable homes. Once prices stop rising, like a Ponzi scheme, it all collapses in what has been called a Minsky Moment.
Looking back at our graphs and the $85 million condo, we can only guess when the next Minsky Moment will arrive.