Price Reduced! 10/22-10/29

There have been an extrodinary number of price reductions this past week, well over 900 dated 9/22 to 9/29. If I waited until the end of day today, there will have been well over 1000 price reductions in Northern NJ this week. The price drops are visible on both the upper and lower ends of the market, I tried to select a few out of this list to illustrate that.

Note to all the prospective buyers in Northern New Jersey. Please practice restraint and have some patience. It makes no sense to jump into this falling market. Your agents will likely not share this information with you, they have a vested interest in you purchasing, information like this would likely scare you off. Heck, it has scared me off.

This industry is based on the buyers not having access to information. So here you are buyers, you have the information, now use your heads and don't turn into the next set of fools.

Let's take a look at some of the notable drops.

MLS ID# 2090635
Mendham, NJ
Listing Link
Org Price: $2995000
New Price: $2400000
Reduction $595000(19.97%)

MLS ID# 2086736
Hardyston, NJ
Listing Link
Org Price: $799000
New Price: $699000
Reduction $100000(12.52%)

MLS ID# 2081881
Montclair, NJ
Listing Link
Org Price: $1990000
New Price: $1750000
Reduction $240000(12.06%)

MLS ID# 2111832
Millburn, NJ
Listing Link
Org Price: $3400000
New Price: $2990000
Reduction $410000(12.06%)

MLS ID# 2205614
Verona, NJ
Listing Link
Org Price: $679000
New Price: $599000
Reduction $80000(11.78%)

MLS ID# 2110202
Hopatcong, NJ
Listing Link
Org Price: $289000
New Price: $255000
Reduction $34000(11.76%)

MLS ID# 2095721
Bernardsville, NJ
Listing Link
Org Price: $3950000
New Price: $3495000
Reduction $455000(11.52%)

MLS ID# 2106915
Denville, NJ
Listing Link
Org Price: $349000
New Price: $309900
Reduction $39100(11.20%)

MLS ID# 2107647
Morris Plains, NJ
Listing Link
Org Price: $589000
New Price: $524900
Reduction $64100(10.88%)

MLS ID# 2202454
Maplewood, NJ
Listing Link
Org Price: $799000
New Price: $729000
Reduction $72000(9.01%)

With that, I'll give you a parting thought. The total dollar amount of this past weeks price reductions was $29,465,506, that represents an average price reduction of5.68%.

Caveat Emptor,
Grim

Bubble-backer changes tune..

A few days ago, I posted up a piece titled "Debunking another real estate puff piece". It was a pretty harsh criticism of a piece by Warren Boroson, especially critical of those he quoted. I sent an email to Mr. Boroson inviting him to the blog, and he did respond to my email with a few questions. I sent a rather lengthy reply to him, but had not yet heard back.

This afternoon, lo and behold, I came across a new piece by Mr. Boroson:

Housing bubble may be deflating just a bit, experts say

I wonder if we have actually gotten through to someone? I'd like to think that we had some role in changing his outlook. The tone of this article is signficantly different from his last piece. Thanks Mr. Boroson, this piece is much more neutral, and does carry some warnings..

Here are some notable paragraphs..

Maybe house prices finally are coming down.

Jean Gascoigne, an agent for 40 years and a broker for 38, reports that she has never seen as many price reductions as she has seen recently.

...

And it isn't just the highest-price houses that are taking a hit, she reports.

...

Might the price stabilization just be seasonal?

"The big offices don't want to admit that prices are leveling off and maybe going south," she said.

...

Some have made good money, he granted. Everything will be fine until the music stops and someone is left standing.

I'd like to send out special thanks to Jean Gascoigne, the broker quoted above, for her honesty in reporting the truth behind the current market.

Caveat Emptor,
Grim

The Ascension of Bernanke

The Ascention of Bernanke Into the Clouds

Very good article on Bernanke and on inflation targeting for those who are interested in economic policy. Bernanke will most certainly play a central role in how the housing bubble will play out, however, I'm not so sure anyone knows whether that role will be positive or negative. Many of us have combed through his speeches looking for clues, but the truth of the matter is, we really don't know what he's going to do when he takes the Fed chair. I really hope everyone got a kick out of the image, hats off to the folks at the Ludwig von Misses Institute.

-Grim

New Home Sales Below Estimates

New Home Sales data is in.

New Residential Sales

The New Home Sales indicator is typically viewed as a more real time indicator of the housing market, due to the fact that new sales are logged when contracts are signed, unlike existing home sales, which tends to lag a few months (looking back in time).

New Home Sales were in at 1222K, under analysts estimates of 1250K. Also interesting is the fact that the September 2005 numbers were approximately 0.1% lower than September 2004.

Some other interesting tidbits, the median home price fell 5.7% this month, to $215,700, and inventory of new homes is at an all time high of 493,000 units. With prices falling, and inventory at an all time high, it's hard to see this boom continuing much longer.

Caveat Emptor,
Grim

Mortgage Rates Up Again

Mortgage Rates up again this week.

Weekly Home Mortgage Rates

I'm starting to sound like a broken record. This weeks jump was rather impressive, up to 6.24% (national average). With bond yields jumping high in the past few days, and the FOMC policy announcement next week there is considerable pressure on rates right now. Perhaps Greenspans Conundrum is finally over.

Caveat Emptor,
Grim

Northern NJ Weekly Inventory Update

All quiet on the Northern front. Increases in the active listings have slowed a bit from last months off-the-charts pace, but are still on the upswing. I haven't gotten a chance to plow through the data to determine the exact reasoning behind it (new listings slowing, sales increasing, or a mix of both). Starting next Wednesday I'll be including changes in the Hudson County MLS listings as well (Listings are in at 1675 today).

GSMLS

(last week)
10/19 - 12854
10/26 - 12858 (Flat)

(last month)
9/26 - 12399
10/26 - 12858 (3.7% Increase)

NJMLS

(last week)
10/19 - 5738
10/26 - 5791 (0.9% Increase)

(last month)
9/26 - 5378
10/26 - 5791 (7.7% Increase)

Caveat Emptor,
Grim

Mortgage industry thinks the party is over

The Mortgage Bankers Association (MBA) has been meeting this week in rain drenched Florida. We're starting to see some news feeds from the meeting, two interesting articles earlier this evening.

Group: Mortgage Lending to Fall in 2006

Mortgage lending in the United States is expected to drop 18.7 percent in 2006 as borrowing costs rise, cutting into the demand for housing and mortgage refinancings that helped drive the real estate boom, a mortgage banking industry trade group said on Tuesday.

The Mortgage Bankers Association, at its annual meeting, said it estimates mortgage lending will drop to $2.26 trillion in 2006 from this year's expected $2.78 trillion.

The expected drop in mortgage lending likely will coincide with fewer home sales and will slow down the pace at which home prices rise, the group said.

Also out of the meeting were some statements about the types of loans generated in the first half of this year. Scary, very scary.

Demand for riskier mortgages up-MBA

Interest-only and option adjustable-rate mortgages have grown popular as lower payment alternatives to traditional ARMS, said Jay Brinkmann, the MBA's vice president of research and economics.

With an IO, the borrower pays only the interest due. In an option ARM -- also called a negative amortization loan -- the borrower can pay less than the interest due, effectively raising the amount of the mortgage.

...

The MBA said ARMs, excluding IOs, fell to 36 percent of new loans in the first half of the year from 46 percent in the last half of 2004. IO loans rose to 23 percent from 17 percent and Alt-A products grew to 11 percent from 8 percent.

...

Later, the share should turn higher when a large number of hybrid ARMS are reset or refinanced, the group said. Some $1 trillion in loans will be available for reset in 2007, said Duncan.

Here is another link with some more detail:

Real estate loan originations up

The vast majority of loans (88 percent) in the first half were for owner occupied homes, but the percentage of loans for non-owner occupied properties was significant (12 percent). This finding is consistent with the 2004 Home Mortgage Disclosure Act data, which revealed that more than 11 percent of 2004 originations were for non-owner-occupied properties.

Caveat Emptor,
Grim

Existing Home Sales

Existing home sales are in..

The spin doctors are busy spinning, but the numbers really are bittersweet, Existing Home Sales did not drop as expected but stayed on par with last months adjusted numbers. Sales are still very strong. Keep in mind that the EHS numbers are lagging indicators, they reflect market activity of approximately 2 months ago.

Existing Home Sales

However, most interestingly, and this is the data point you will not see in the cheerleader pieces is that the median home price dropped this month.

Yes, home prices have dropped slightly (although I hate median numbers, so take it with a grain of salt).

Northeast
August 254,000
September 245,000 (~3% drop)

National
August 220,000
September 212,000 (~3% drop)

So, there you have my spin on the issue. True, we've clocked in at the same rapid pace we saw last month, however, we are also noting a 3% drop in home prices over that period. So is the knife falling? I'll let you make that decision.

Caveat Emptor,
Grim

Who is Tom Barrack and why should you care?

Who is Tom Barrack you say? You haven't heard? Tom is arguably the worlds most successful real estate investor. So why should you care? Because Tom's had it with the U.S. real estate market, and he's cashing out.

I'm Tom Barrack and I'm Getting Out

"I feel totally safe playing polo on a field full of pros," says the bronzed 58-year-old. "But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back."

It's the same with the U.S. real estate market right now: "There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them. Says Barrack: "That's why I'm getting out."

Investors take heed. Barrack may be an amateur at polo, but when it comes to judging markets, he's the ultimate pro.

Caveat Emptor,
Grim

NJ Per Capita Income versus Home Values

It's often helpful to see changes plotted over time in order to understand market trends and movement, and even more importantly, it provides a reference by which to gauge the current market environment.

Local market researcher & economist James Hough was generous enough to provide us with a animated powerpoint slideshow that illustrates the relationship between Per Capita Income to Home Values from 1980 to now. A big thanks to James for providing us this information.

NJ Home Values Since 1980

The data point highlighted in red is the Newark-Union, NJ-PA Metropolitan Statistical Area (MSA). That data point can be used as a proxy for the Northern NJ metro area. This is perhaps the most useful illustration of the change in Per Capita Income and Home Values I've seen yet. It beautifully illustrates the prior RE crunches, as well as the inflation of the current bubble (my words, not his).

Mr. Hough is a regular on this blog, I'm sure he would have no problems fielding any questions about his work.

Caveat Emptor,
Grim

Edit: Mr. Hough updated the final slide in the series to include some additional MSAs for comparison purposes:

Debunking Another Real Estate Puff Piece

Came across an RE puff piece in the Daily Record, thought it might be fun to post up some counterpoint..

Housing bubble hasn't burst in Morris

Apparently, there is no bubble at all, so just shut down your browsers, pick up your checkbooks, and go buy two or three homes..

Dominick Prevete, regional vice president of Weichert, Realtors, believes that the market is getting back to normal.

Dominick, define normal for us. Is that when home prices fall in line with rents? Or is normal when median home prices fall back in line with median wages? Or wait, is it when home prices fall back in line with normal historic appreciation rates? Or is normal when affordability isn't at all time lows?

"It's still a seller's market, and there's strong demand," he said.

On the other hand, there are more homes on the market and more choices for buyers. That means that sellers should expect more modest gains from now on.

Dom, I don't get it, is it a sellers market with strong demand, or has supply built up to the point where prices should fall to compensate? We've been seeing a rather signficant increase in inventory over the past few months, which you seem to agree with. But, if this is the case, it would seem that demand is rapidly falling, i.e. not strong.. So which is it Dom, buyers or sellers?

Overall, Prevete called it a win-win market -- for buyers and sellers.

That's the ticket, you can't be wrong when you take both sides..

Other reasons for optimism that he mentioned:
• Interest rates are still attractive.
• The employment picture in the state is good.
• New loan products are available.

Dear Mr. Prevete,

You, sir, are a moron.

You have optimism over these new "Loan Products"? The new loan products that has the banking industry and the fed shaking in their boots? These new loan products that let underqualified buyers overleverage themselves to purchase overpriced homes that risk significant depreciation? You're optimistic?

"The only risk is that the underlying asset loses value -- and I don't expect home prices to quickly depreciate," he said.

Mr. Prevete, would you and your organization (Weichert Realtors) care to sign a contract that holds yourselves responsible for any depreciation or loss on any sales you broker? If prices don't go down, you've got nothing to lose right? Or is this statement just doubletalk? That you do indeed expect home prices to depreciate, just not quickly.

On to Mr. Blumenkehl, who provided us with these gems:

"God isn't making any more dirt," he said, "but he is having people move to New Jersey and buy houses."

Oh god almighty, is the NAR handing these guys pamplets of stupid things to say? Well Mr. Blumenkehl, it's a good thing we've got plenty of buildable land in the U.S. And if we can't build out, we've got enough room to build up.

His advice to buyers: "Buy. Come on in, the water's fine. The market's good."

My advice to buyers: Is someone with a vested interest in selling you real estate the best person to trust?

Caveat Emptor,
-Grim

Price Reduced!

This weekend I though I would introduce something new to the blog, It is a new weekly column I'm calling "Price Reduced!". What I'd like to do is to go through the price reductions over the past week and pick out a handful of significant price reductions. The list doesn't single out a specific area, type of home, etc. I'll try to post up as many as I can, but it's a tedious and time consuming process. This list took me over an hour to gather up, format, and get the links to.

The purpose of this exercise is to illustrate that prices are indeed falling, and the bubble has burst. Now begins the long ride back down to the bottom.

And now, without further adieu, the list please!

MLS ID# 2088418
Listing link
Org Price: $3950000
New Price: $3295000
Reduction $655000 (16.58%)

MLS ID# 2204048
Listing link
Org Price: $359900
New Price: $309900
Reduction: $50000 (13.89%)

MLS ID# 2206024
Listing link
Org Price: $1500000
New Price: $1300000
Reduction: $200000 (13.33%)

MLS ID# 2112386
Listing link
Org Price: $1150000
New Price: $998900
Reduction: $151100 (13.14%)

MLS ID# 2109773
Listing link
Org Price: $575000
New Price: $499900
Reduction: $75100 (13.06%)

MLS ID# 2094470
Listing link
Org Price: $899000
New Price: $799000
Reduction: $100000 (11.12%)

MLS ID# 2104294
Listing link
Org Price: $499900
New Price: $449900
Reduction: $50000 (10.00%)

Caveat Emptor!
-Grim