In sync or worlds apart?

New Yorkers love to brag about the unique characteristics that separate the city from the rest of the country: Bagels, thin-crust pizza and fearless subway rats.

Housing is no different. Whether it’s a breakfast nook passing as a studio for rent or $100 million luxury condos, New York residents believe that housing here is distinct from real estate in any other U.S. city.

But recent data from one of the most-watched housing indices suggests that the city’s residential market is not that far off from the national one, where price gains are slowing down.

The Real Deal set out to determine who’s right. And, more importantly, is there a housing downturn in the future for the Big Apple?

The most recent Standard & Poor’s/Case-Shiller composite index showed that U.S. home values in June increased both year-over-year and month-over-month, but the gains were smaller than in May. This slowdown in price appreciation was seen in all metro areas in the 20-city index, including New York’s.

“The rate of change is still positive, prices are still going up,” said Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices. “But the rate at which they are going up is decelerating pretty much across the board.”

Imperfect comparisons

Case-Shiller data shows other similarities between the nation and the New York metro area. Since 2000, the broad national index and its New York metro numbers moved nearly in tandem. For example, national prices peaked in July 2006, while the New York metro area hit its high one month earlier.

However, it is important to note that Case-Shiller measures only the values of single-family homes — not condominiums, co-operatives or new development, which represent the lion’s share of the housing stock in the five boroughs.

Jonathan Miller, president and CEO of Miller Samuel, the real estate appraisal firm located in New York, pointed out that the Case-Shiller index also captures a wide swath of activity under the “New York” umbrella, including home price data in Long Island, southern Connecticut, and as far away as Pennsylvania. These areas bear some similarities to suburbs in the rest of the country, but including them makes it harder to tease out what’s going on in just the urban jungle of New York, Miller said.

In fact, some market watchers say any U.S. index can be inherently flawed. “The ‘national market’ is a broad term. I prefer a plethora of micro markets,” said Doug Heddings, executive vice president of sales at CORE. “Taking Miami and averaging it with Cincinnati is meaningless, because you have to analyze each micro-market by itself.”

One period where it’s easy to see a divergence is the end of the 1980s. From September 1988 to April 1991, national housing prices increased by almost 4 percent, according to Case-Shiller. Yet the New York market — and, perhaps more significantly, the New York City apartment market — took a dive.

“They are not always in sync, and one of the biggest periods when they were out of sync was following the 1987 stock market crash,” said Miller. “There were lots of co-op units coming onto the market, and when the U.S. economy ended up in the 1990-91 recession, New York was hit far harder than the U.S., in terms of lost employment and housing prices.”

Major differences

Stripping out New York’s suburbs and focusing on just the five boroughs reveals that the national housing market and New York City’s are not in lock-step.

Data compiled for The Real Deal by Zillow shows, for instance, that the median home value in the U.S. is one-third of that in New York City, when condos and co-ops are included.

Secondly, while Zillow shows both markets peaking in 2007, with the U.S. topping out two months earlier, only New York City has more than fully recovered from the bubble burst.

Getting even more granular and concentrating on just Manhattan, the differences become starker. Using Miller’s historic data, the median value of a Manhattan home peaked in the second quarter of 2008 at $1.025 million. By then, the Case -Shiller U.S. index had fallen every month for a year and a half.

In fact, at the time it appeared that Manhattan had escaped the downturn hammering the rest of the country.

“I remember in 2007 at [The Real Deal’s] big conference in Lincoln Center, that Robert Shiller got up and said that the subprime crisis affecting the country will come to New York,” said Barry Hersh, a professor at NYU’s Schack Institute of Real Estate. “It caused a stir, because everyone thought the housing crisis wouldn’t be extreme here, because we have more rentals and more co-ops. But we saw that New York is not immune to what happens to the rest of the country.”

Only after Lehman Brothers collapsed on Sept. 15, 2008 did the NYC housing market lose its footing. In the third quarter of 2008, median prices in Manhattan plunged 9.4 percent from the previous quarter, according to Miller. “We were delayed by two years because of Wall Street and bonus compensation and the explosion of new development,” he said. “But we caught up virtually in one day after Lehman collapsed.”

Looking ahead

As history shows, the U.S. and NYC markets don’t always play out the same way. One divergence now is inventory.

“New York City is suffering from [a two-year] shortage of inventory,” said Alan Lightfeldt, a StreetEasy data scientist. That keeps for-sale prices high, and inflates rental prices.

The low inventory is not being helped by developers who are building mainly luxury product in New York, a trend playing out in only a handful of other U.S. cities. So far, the New York market is gobbling up these upscale offerings due to its high proportion of well-paid residents and international buyers.

“The wealthy see the New York market as an investment,” said Sofia Song, head of research and external affairs at Urban Compass. “Properties here are a relatively better bargain in comparison to other international cities.”

It’s also notable that New York’s proportion of renters to owners is inverted compared to the U.S. overall. In New York, two-thirds of residents rent, while only one-third own. Nationwide, only one-third of residents rent, while two-thirds are homeowners.

Still, a slowdown may be better news than one would expect, especially when considering that double-digit annual increases in home values preceded the last housing bubble burst.

“We all want appreciation in the market if you own something,” said Alan Mark, president of the Mark Co., which markets new housing developments across the country. “But at some level it needs to stop. A 12-percent annual increase is just not sustainable.”

Even for high-flying New Yorkers.