Housing Bubble: Analyst Issues Grim Warning for New York Real Estate Market

Housing BubbleNew York City’s high-end housing bubble may burst sometime soon, according to CNBC Senior Analyst and Contributor Ron Insana, who sees a “dangerous” oversupply and slowing demand for the New York City real estate market.

Data show general poor demand for condo apartments above $3.0 million in the financial capital of the world’s largest economy.

Reports also show that a strong U.S. dollar has spurred foreign buyers to either back away from New York purchases or buy cheaper residences. The U.S. Dollar Index rose to 100 this year, up from 70 in 2008.

“Anything under $3.0 million, we’re seeing go right off the market,” Austin Hoffman, real estate agent with Douglas Elliman, told CNBC. “We’re seeing a lot of price reductions in those higher end properties as listings are not moving as fast.” (Source: “Health of the high-end housing,” CNBC, March 28, 2016.)

In his article, Insana provided 432 Park Avenue, the third tallest building in the U.S. and the tallest residential building in the world, as a striking indicator for the potential housing bubble burst.

The building has 141 apartments for sale, he wrote, with an average selling price of $21.0 million, 10 times the price of an average Manhattan apartment. A representative for the building told Insana that it is 70% sold, though only a few dozen of those sales have closed so far. (Source: “This real estate market is about to crash,” CNBC, March 28, 2016.)

The average apartment price in Manhattan touched a record $1.95 million in the fourth quarter of last year, according to real estate firm Douglas Elliman.

But the 55-year-old expert says that brokers reported a distinct shift as 2016 began: the numbers of contracts signed in January and February fell more than 20% from a year earlier to their lowest levels since 2009, according to real estate analytics firm UrbanDigs.com.

Expensive apartments are sitting idle for roughly 90 days before being sold, the longest time on market since January 2013, according to the StreetEasy Blog, which tracks New York real estate.

A new report out by the National Association of Realtors (NAR) showed on Monday that sales of existing homes in the United States—roughly 90% of all home purchases—fell 7.1% in February from January. (Source: “Pending-Home Sales Jumped 3.5% in February,The Wall Street Journal, March 28, 2016.)

The NAR is forecasting about 5.38 million existing-home sales this year, an increase of 2.4% from 2015.

“It’s ironic that New York City largely escaped the property bust that engulfed the world in 2008, despite being the very epicenter of the mortgage credit crisis,” Insana wrote. “For Manhattan, the after-shock of a national real-estate crash may be worse than the earthquake that rocked the nation itself.” (Source: “This real estate market is about to crash,” CNBC, March 28, 2016.)

Insana was managing director of Insana Capital Partners from its inception in 2006 to its collapse in 2008.

This is the advice Insana gives to retail investors who seek an opportunity in the housing bubble:“If you see steep discounts at the city’s tallest buildings anytime soon, you may still not be able to afford a multi-million dollar apartment, but you can make money shorting those entities most exposed to an edifice that is likely about to get wrecked.” (Source: Ibid.)