In this instance, the current liquidity problem is contained by the end of the year. Employment figures pick up in September. Global growth continues.
2008: The credit crunch is over. Hedge funds and corporations successfully isolate bad assets and cut losses, making up for the hit they took by paying lower taxes for 2007. Since there’s no need for more liquidity, the Fed keeps interest rates level after cutting them in late 2007. The new stability plays well on Wall Street, gains continue, and the wealth effect spreads into the housing market. Bonuses are a little off compared with 2006 but still enough to treat oneself to new digs. The inventory in Manhattan (down 32 percent since June 2006) stays tight, and the outer boroughs successfully absorb a smattering of foreclosures.
Appreciation: 2 percent.
2009: Despite the Bush administration’s attempts to take credit for the quick turnaround, Democrats win the presidency, primarily owing to the war in Iraq. One of the first economic measures taken is to assist subprime debtors through Fannie Mae, Freddie Mac, and various incentives to private agencies. Despite raising some taxes, the new administration preserves Bush’s cuts in capital-gains and carried-interest tax laws. Wall Street breathes a sigh of relief, and money once again flows into hedge funds. Higher borrowing rates are a drag on housing prices, but a strong job market offsets them. Later in the year, the relationship between the bond market and lending rates begins to normalize. As foreclosures taper off, the price of risk goes down. Lenders begin to loosen the standards they tightened two years ago, but with the lessons of 2007 firmly in mind. Renting remains an expensive proposition; ownership is still seen as preferable. More rental buildings go condo.
Appreciation: 4 percent.
2010: Continuing globalization bears fruit in the form of a stable and steadily growing U.S. economy. Salaries outpace inflation. Stocks chug along with low volatility, in a consistent upward spiral tempered by short, manageable corrections. Wall Street bonuses become dependable again. The Fed maintains the federal-funds rate between 5 and 6 percent. The new mayor continues Bloomberg’s policies regarding new construction and institutionalizes homeowner tax rebates. The population of New York has grown to 8.4 million, up 200,000 since 2007, and inventory can barely keep up. A stronger dollar stems the flow of international buyers, but since New York is trendier than ever, domestic demand picks up the slack. Apple-Google introduces a terabyte iPod.
Appreciation: 4 percent.
What will really happen to the New York housing market? The consensus among the experts interviewed for this story is that the third- and fourth-quarter figures of this year will begin to show New York feeling some of what the rest of the country is going through—call it a slow-leaking bubble. A couple of lean years will then be followed by a relatively quick return to normality. Exactly how quick remains a matter of debate, but the longer the view, the more sanguine everyone starts to sound. Inman, a short-term pessimist (“It’s going down. Everyone’s gonna suffer”), sees normalization by 2009; even the doom-and-gloom Roubini is bullish in the long run. Glaeser, who’s extensively researched California’s eighties and nineties boom-bust-boom cycle, offers this: “In a sense, one lesson of California is that those people who waited out the bust did fabulously well.” Given a ten-year horizon, he adds, “I would certainly continue to bet on New York.” People trying to play the market right now may be forgiven a less confident view.