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The Horrifying Cost of New York Provincialism

As the real estate market melted down regionally in 2006 and 2007, property owners in New York City, specifically Manhattan, were not only not affected, but saw the value of their holdings increase about 20 percent. Manhattan, it was said, was in a strange zone of protection. For one thing, somewhere between 80 and 90 percent of the owned housing units are in cooperatives, not condominiums, and stringent rules governing co-op ownership basically preclude the purchase of apartments by speculators (apartments must be owner-occupied, cannot be rented, and there is often an onerous “flip tax” to keep people from buying and then selling shortly afterward). And the dollar was so cheap, relative to other currencies, that the market was ballasted by Europeans and Asians who came to snap places up as safe long-term investments. Sure, people would say, if housing prices sink 30 percent nationwide, New York will inevitably decline, but maybe only to the level it had reached in 2006, which was already 40 percent higher than it had been in 2003.

The crash has begun, and because of the particularly parlous effect of the economic crisis on the high-end New York City workforce, it may now be the case that Manhattan will fare worse than the rest of the country. According to the Real Deal, “Manhattan data compiled by the appraisal firm and released yesterday showed that the volume of signed contracts in September and October plummeted roughly 75 percent from the same period last year.” Take tens of thousands of high-dollar earners out of work with the likelihood that there will be negligible bonus money paid out next February, combine that with the declining assets of everyone with holdings in the stock and bond markets, and add in the fact that the dollar is strengthening against other currencies, and you have some idea of the magnitude of the disaster that is about to hit.

The point here is not for anyone to feel sorry for New Yorkers who own apartments. It is, rather, to offer another object lesson in what happened over the past few years as many financial firms and many of the people who ran them insisted on willfully blinding themselves to the macroeconomic impact of the decline in housing prices. Perhaps part of the problem was their parochialism — the fact that they lived and worked in a place where there was not even a hint of a threat to the value of their own homes. Even in this global, interconnected, Blackberried, unsleeping, 24-7-365 economy, they had no personal, tactile, visible experience of what a declining market was or looked like. They did not live and were not located in Nevada or Florida, where the housing crash first took place. They saw numbers on spreadsheets and read stories in newspapers, but such things can turn reality into an abstraction, raising only the question of what might or might not constitute a buying opportunity.

These matters are abstractions no longer.


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