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Following a 1980s boom, real house prices in the Federal Reserve's Second District between 1990 and 1997 have declined by 29 percent in the New York metro area and by 25 percent in upstate New York relative to the U.S. average.
The sharp disparity between Second District and national house-price trends in the 1990s is examined by authors Matthew Higgins, a senior economist in the Bank's International Research area, and Carol Osler, a senior economist in the Capital Markets area.
The relative drops in the price of houses in the New York metro area and upstate stands in contrast to house prices at their respective 1980s peaks, during which prices in the metro area had risen 56 percent and prices upstate had climbed 20 percent relative to prices nationwide.
Higgins and Osler also find that:
In the New York metro area, weaknesses in the economic "fundamentals" thought to determine house prices--such as real personal income growth and unemployment--accounted for half of the 29 percent fall in prices relative to the nation between 1990 and 1997.
An equal contributor to the New York metro area's relative drop in house prices during this period was a prolonged hangover from the Second District's excessively rapid house-price growth in the 1980s--growth that may have been caused by expectations of further price rises.
Weak economic fundamentals and the post-boom hangover played much smaller roles in explaining upstate New York's 25 percent decline in house prices versus national prices between 1990 and 1997.
In 1998, an upturn in New York metro area house prices versus national prices can be linked to an improvement in the area's relative performance of economic fundamentals.