When the Center for an Urban Future, an urban policy think tank, released a report last week documenting in great detail the continued misfortunes of the middle class in New York City, many people responded with little more than a faint raising of the eyebrows and a disaffected shrug of the shoulders, as if to say, “Tell me something I don’t already know.”
Indeed. Most people by now are aware that middle-class denizens of New York are at the mercy of two powerfully destructive countervailing forces: Things cost more and more, and their money is slowly worth less and less. The CUF used a cost-of-living index created by comparing the costs of housing and items such as groceries to the national average to show that Manhattan is far and away the most expensive city in the United States, with a cost-of-living index of 224.2. San Francisco, the second most expensive urban area, had an index of 173.6, and Queens, long thought of as the cost-friendly borough for Archie Bunker and his pals, had the fifth highest index score, ahead of Los Angeles/Long Beach.
The punch to the gut, so to speak, isn’t just that things are outrageously expensive in New York, but that they have gotten progressively more so, especially since the recovery from the 2001 dot-com recession. From 2002 to 2007, the prices for milk and home heating oil increased by 60 percent and 125 percent, respectively.
Over the years, no big-ticket New York City item has seen such rampant appreciation as home prices, which increased 77 percent from 2002 to 2007. Just imagine if you paid $500,000 for a home in the early ’00s (putting down a $50,000 10 percent down payment, for instance). By 2007, it would have been worth $885,000. But unlike most other things measured in the report, which are expected to hold their value in the short term, housing prices are fated for a short-term splashdown.
And in this, an opportunity presents itself.
For people who bought property in the basement, whether it was in 2001 or previous recessions in the early 1990s or late 1970s, the rapid escalation in home prices afterward can be the proverbial elevator ride to the penthouse, and propel these lucky opportunists from the lower rungs of the middle class into the upper middle class and beyond.
New York City is a feudal-like town, where property is king, and where ZIP codes, neighborhoods and views have as much say in peoples’ lives as wages earned. The trick is picking the right time to buy, when external forces artificially (and temporarily) push property prices down.
Now might be one of those times. Sure, real estate brokers are saying it’s a buyers’ market, but that doesn’t mean it isn’t true. With the collapse of the Wall Street economy, property prices are poised to head south by an indeterminate amount and for an indefinite period. For people clinging to the rungs of the middle class, it means they can start looking to buy in neighborhoods they used to be priced out of: neighborhoods a little more attractive to middle-class families, with good public schools and shorter commutes to and from work.
Take the Upper West Side as an example. In 1992, the median sales price for co-ops and condos bottomed out at $230,000 (in 1992 dollars); by 2007, that figure had spiked to $895,000 (in 2007 dollars). The mid-’90s housing recession was, then, a great time to buy into a slice of the Zabars-for-lunch, relieve-the-nanny-at-six lifestyle.
The question is whether middle-class New Yorkers will be able to take advantage of the discounted property values. The standard definition of middle class is people making 80 to 120 percent of the middle income in a given area. According to the most recent survey, taken in 2007, the median household income in New York City is $48,631, which puts families earning between $38,905 and $58,937 in the middle class (congrats!). To put middle-class earnings in perspective, a salary of $60,000 in New York is equal to earning $26,092 in Atlanta and making $35,405 in Boston once the variances in cost of living are considered.
With credit markets as tight as they are and homeowners having to make larger down payments, it would take some Lehman-esque creative financing for a middle-class wage earner to secure a mortgage for a $300,000 New York home. But the hope is that when (or if) credit markets loosen, well-qualified middle-class New Yorkers can jump on what bargains there are, and ride them to the next top.
Housing depreciation won’t and can’t be a cure-all for the systemic ailments endured by New York’s middle class, but it can help some people on a case-by-case basis, something that Jonathan Bowles, the director of CUF and an author of its report, admits.
“It is a clear opportunity for people looking to get into the housing market, who couldn’t do it over the past 5 or 10 years,” Mr. Bowles said. “But it’s not like the phone bill is going to fall by 30 percent.”
Joel Kotkin, a research fellow at Chapman University in Orange, Calif., and a co-author of the report, is hoping home prices take a big tumble. “I know it will offend some people in the real estate business,” Mr. Kotkin said, “but a 30 percent drop in real estate prices would be a very healthy thing for New York City over time.”
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