Shiller: New York Housing Market to Crash, Too

You’ve been warning of a national real estate collapse since 2005. Do you feel vindicated?

Mr. Shiller: Well, I don’t like to use the word vindicated, but it is unraveling as more or less I expected.

The sub-prime mortgage scandal hasn’t much affected Manhattan. Are we immune?

Firstly, you’re definitely not immune, OK? Manhattan is a unique place, and that does mean that it has different dynamics, but it’s not immune, I can guarantee you that … If it gets too expensive in New York, people will leave it, no matter what—they can’t afford to live there. And so it’s just not true that New York will keep appreciating independently of everywhere else, I just don’t believe it. Elementary economics say people will always substitute away when the price gets too high, and so they’re doing that.

What will the bursting of the real estate bubble in New York look and feel like?

It will probably start showing synchrony with the rest of the country, and it will happen very gradually, it will start slowing down. If we’re going into a recession, it won’t be that exceptional, people won’t be that surprised

Our real estate boom since the 90’s is unrivaled, you’ve said, even by the post-war baby boom. So would it be normal, even desirable, for it to end?

It would be a great thing for New York if prices came down, because more interesting people would move in. Your artists can’t afford to live there anymore … They’ll move out of Brooklyn, they won’t be anywhere nearby.

In a thesis sure to mortify Manhattanites, Shiller also argues that Manhattan will soon be replaced--that we'll just build another one. He suggests this is already happening in Greenwich and Stamford and cites Bank of America's move to Charlotte as evidence that those who live in rabbit warrens in superstar cities are shocked to find that they prefer having two acres and livestock.

See Also: Shiller: Housing Has Not Yet Begun to Collapse