The New York Times published an article this morning that described the rise in the prices of consumer goods in the New York region during the past year. The article quoted John Catsimatidis, the chief executive of the New York City-based Gristedes supermarket chain, complaining about low profit margins in the food business. He said, “I would be better off getting rid of all of my stores based on the value of the real estate alone.”
Holy schneikes! You can kiss goodbye to the quaint notion that real estate is theoretically as valuable as the activity it supports. Supermarkets fulfill the single most basic human need: food. Now I’m no expert, but if the real estate assets under a chain of supermarkets are more valuable than food the supermarkets distribute, how is the real estate market not overvalued? Put another way, if people are willing to pay more for land than for food, something seems amiss.
In a similarly portentious bit of news, Curbed and Brownstoner are showing a chart from The Wall Street Journal that shows the annual appreciation of housing prices in 10 yuppie-heavy urban ZIP codes where the median income is $40,000 a year. The non-New York nine of the ZIP codes, places from Danvers, Mass., to Philadelphia to Phoenix to Kirkland, Wash., showed a modest average increase of 9.7%: $315,599 in 2003 to $350,007 in 2004. But in Manhattan’s East 80s and 90s, prices jumped an incredible 85.6%: $505,790 in 2003 to $938,560 in 2004. New York’s ZIP code was already the most expensive of the bunch in 2003, and in ’04 it was WAY more expensive than the others. If construction had started on the first phase of the Second Avenue Subway (.pdf), I would agree that the core value of real estate on that part of the Upper East Side really had increased that much more than statistically similar areas across the nation. But that didn’t happen. Could it be that these gains are the result of temporary perception and hype?
All right, that does it. I am convinced. Note the date: January 20, 2005. Startsandfits.com officially acknowledges that we New Yorkers are living in some kind of real estate bubble.
Noel Sheppard has his own rationale on why a bubble exists: Has Greenspan Over-Pumped the Real Estate Bubble?