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March 2007

Volatile Dow unlikely to hurt housing

By John Celock

The shakiness of the Dow Jones Industrial Average is not likely to have a significant impact on the housing market nationwide or in New York, according to some real estate experts.

The Dow dropped 416 points on Tuesday and recovered slightly yesterday.

Most experts agree that the downturn could actually help the housing market by decreasing interest rates on mortgages. In addition, they said, investors might see real estate as a safe investment during a time of increased Dow instability.

Most experts do not see a drop in the Dow precipitating a decline in New York City's housing market, either. Jonathan Miller, president and CEO of appraisal firm Miller Samuel, said the potential lowering of mortgage rates will help the New York market.

Miller said that one of the only possible negative effects on New York's housing market he could think of was if the Dow's downturn caused a dip in the financial services sector's employment rate.

"There is a strong correlation between employment and wages in the financial services sector and how they relate to the housing prices in New York," said Miller. Trading on 30-year Treasury notes, a highly stable investment, increased yesterday, raising prices and lowering yields. The lowering of the Treasury yield will decrease mortgage rates and encourage home buying nationally, said Frank Gerage, director of sales for Domain Properties. In addition, Gerage predicted that a continued economic slowdown will force the Federal Reserve to lower interest rates in order to hold off a recession, which would also probably spur an increase in home buying.

"If you have a stock market that is declining and it is on every Internet page and the Times' front page, everyone gets cautious," said Gerage. "But I believe that real estate in the U.S. has replaced the fixed income market in terms of stability."

Gerage noted that the New York housing market will continue to attract significant foreign investment, as the weakened dollar has propelled holders of the Euro, British Pound and Yen to seek commercial and residential properties in Manhattan for investment purposes. If there is an economic slowdown, then, foreign investors will continue to flock to the Manhattan market, perhaps in even greater numbers.

Noariel Roubini, an economics professor at New York University's Stern School of Business, is not as sanguine as Miller and Gerage about the downturn's possible effects on the national housing market. He said that while a decrease in interest rates is likely, they are unlikely spur a significant uptick in home buying.

Roubini said the housing slowdown of the past several years has left a glut of inventory on the market, and an interest rate decrease will not be enough to prompt buyers to buy up existing inventory.