If You Can Afford It Here, You Can Afford It Everywhere!

The National Association of Homebuilders (NAHB) & Wells Fargo released the third quarter affordability statistics yesterday. Northern NJ made the top 10, specifically the New York-White Plains-Wayne MSA (Includes Bergen, Hudson, and Passaic Counties).

NAHB Third Quarter Affordability

California once again dominated the HOI rankings for the least affordable major metropolitan areas. Right behind Los Angeles on this list was Santa Ana-Anaheim-Irvine, Calif., followed by San Diego-Carlsbad-San Marcos, Calif. and Stockton. The metro of New York-White Plains-Wayne, N.Y.-N.J. was the only non-California entry on the list of the five least affordable major housing markets.

1) Los Angeles-Long Beach-Glendale, CA
2) Merced, CA
3) Salinas, CA
4) Santa Ana-Anaheim-Irvine, CA
5) Santa Barbara-Santa Maria, CA
6) Modesto, CA
7) Santa Cruz-Watsonville, CA
8) San Diego-Carlsbad-San Marcos, CA
9) Stockton, CA
10) New York-White Plains-Wayne, NY-NJ
---
31) Newark-Union, NJ-PA
41) Edison, NJ
50) Atlantic City, NJ

For more information on the areas that make up these MSA's, please see: MSA Components (Warning, XLS File)

We're even less affordable if we look at our area in comparison with other metro areas (population > 500k):

1) Los Angeles-Long Beach-Glendale, CA
2) Santa Ana-Anaheim-Irvine, CA
3) San Diego-Carlsbad-San Marcos, CA
4) Stockton, CA
5) New York-White Plains-Wayne, NY-NJ

Affordability by Metro (Warning XLS)

Caveat Emptor!
Grim

A Disconcerting Statistic

The New Jersey Association of Realtors released their Third Quarter 2005 Housing Statistics a few days ago. There wasn't too much fanfare about the data here, it's a bit dated already, and says nothing we haven't seen first hand. I actually expected some rah-rah from the cheerleaders about the data, but much to my surprise, there was no cheerleading.

NJ Home Sales Report - Q3 2005

A regular here on the blog, Grim Ghost, pointed out a bit of an anomaly in the data. If you go to Page 16 of the report containing Table 11, you'll see the anomaly loud and clear. My jaw dropped just shy of the floor when I saw it. Why? Because if it's correct, NJ real estate is in for a world of trouble.

The median household income of home buyers for the first half of the year was about $78,000. A pretty high number considering the median household income for the state, however, a number that makes sense considering recent home prices. However, something very disconcerting happened in the third quarter of 2005, the median household income of buyers plummeted to $55,094, more than $20,000.



The implications of this anomaly being correct are incredible. It means a significant number of the homes sold in Q3 were bought by highly unqualified buyers using significant leverage to purchase these homes.

I called Amanda Sacco, the Communications Director for the NJAR this morning. She couldn't say if the number was correct or not, but would contact the NAR for more details. Unfortunately should couldn't get confirmation of the accuracy of that number but instead passed contact information to me.

Now, before we can jump to conclusions about that number (and believe me, it is an incredibly significant number), we need confirmation that it is indeed accurate. But, if that number is accurate, I'm going to have to ask everyone to put their seat backs up, tray tables upright, and heads between their knees because we've lost two engines and the gear isn't coming down.

Caveat Emptor,
Grim

Lower Property Taxes? Not In N.J.

Sorry to everyone that thought we might see some property tax relief in the next few years. Unfortunately, it's starting to look like a very unlikely scenario. Why? Seems our state pension is more than $25,000,000,000.00 in the hole (Yes, that's Billion with a 'B'). And once we hit the big 'B', we're talking about real money.

New Jersey Pensions Need $12.1 Billion to Plug Gap, Report Says

New Jersey should add $12.1 billion to its pension system, raise the minimum retirement age and require public employees and retirees to pay part of their medical expenses to address a shortfall in funds, a report by a governor- appointed task force said.

Raise the minimum retirement age for public employees? It'll never happen.
Require public retirees to pay anything? It'll never happen.
Raise additional funds to cover the shortfall? Easy.

New Jersey faces a $5.1 billion budget deficit in the fiscal year that begins July 1, and polls have shown that state voters want relief from what U.S. Census figures show are the highest local property taxes in the nation. State and local lawmakers have deferred contributions to the pensions for the last four years or sold pension bonds to eliminate shortfalls.
...
Lawmakers from both parties share blame for the shortfall, the report said. New Jersey borrowed $2.8 billion in 1998 under Republican Governor Christine Todd Whitman to eliminate a pension gap and prevent a tax increase. Democrats James McGreevey and Codey deferred pension payments and allowed local governments to delay payments or use pension bonds rather than raise taxes to make up for shortfalls.

Let see, if we are faced with a huge budget deficit, what do we do to take care of the problem? Defer it! Let the next poor schmuck take care of it, because we want the public to love us. Let them hate the guy whose got to mop up this mess. So where did the money go anyway?

The pension system lost nearly 20 percent on its investments in 2001 and 2002, the report said. The investments have earned 26 percent over the last three years.

Fantastic track record guys!

...by contributing $12.1 billion now, as long as investment performance over the next few years meets assumptions.

Oh just wonderful, instead of contributing more money and setting realistic performance targets, we'll just put in the bare minimum and invest it in the highest risk securities hoping for a 50% return in the next few years? Didn't 2001 and 2002 teach you anything? How about investing that money to bring high-tech jobs back to NJ? Nah, it'll go right into the hedge funds.

I really hope there aren't many readers that were hoping for a tax break in the next few years, it won't happen, not with this nonsense going on. It's ok though, because all you rich homeowners living high on equity and Hummers can afford it... right?

Caveat Emptor,
Grim

Where have all the tech jobs gone?

Is a question many of us ask, especially those involved in the high-technology industries in New Jersey. Anecdotally, the last few years have felt like there was a mass exodus of high tech jobs. It seems that it what we felt was true.

Where have all the tech jobs gone?

New Jersey has lost 14 percent of its high-technology jobs since 2000, and the brain-job drain has drilled deep into the state's once-solid pharmaceutical industry, according to a report by the Commission on Science and Technology.
...
But the erosion doesn't stop there. The report said New Jersey has lost high-tech jobs in every category, including life sciences, telecommunications, computers, electronics, Internet service, data processing, architecture and engineering.

But hey, who needs a high paying job anyway? We can all live off our home equity!

Caveat Emptor,
Grim

Thanks to the reader that emailed me the link to this article! If anyone comes across an interesting article please forward it to me.

Weekly Inventory Update 11/23-11/30

Sorry the weekly inventory update was a little late, been a bit busy lately.

GSMLS
(Ber, Ess, Hud, Mor, Pas, Som, Sus, Uni, War)
11/23 - 12693
11/30 - 12624

Added/Sold/Removed
11/23 - 961/670/477
11/30 - 797/517/410

NJMLS
(Ber, Ess, Hud, Pas)
11/23 - 5811
11/30 - 5771

Hudson MLS
11/23 - 1784
11/30 - 1804

Caveat Emptor!
Grim

Personal Savings Rate Negative Again

Personal Savings Rate was negative again, now for the fifth month in a row, at -0.7%.

Consumer spending edges higher in October

The saving rate, the percentage Americans sock away after spending, taxes and interest payments, was minus 0.7 - the fifth straight negative reading. The saving rate has not been positive since March.

Personal Income also came in a notch below estimates.

Personal income also rose in October, by 0.4 percent - slightly less than the 0.5 percent increase forecast by Wall Street

Here is a direct link to the BEA report:

PERSONAL INCOME AND OUTLAYS: OCTOBER 2005

Personal saving -- DPI less personal outlays -- was a negative $61.5 billion in October, compared with a negative $70.9 billion in September. Personal saving as a percentage of disposable personal income was a negative 0.7 percent in October, compared with a negative 0.8 percent in September. Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. For more information, see the FAQs on "Personal Saving" on BEA's Web site.

Keep in mind this is October data.. With consumer spending still rolling along at a brisk pace, I'm sure the November and December data won't be pretty either.

Caveat Emptor,
Grim

Mortgage Rates Tick Up

Mortgage rates tick back up a bit this week. I was expecting a slight drop in rates due to the 10Y yield falling. However, it seems that in the past 2 days the yield did recover, and I'm sure with margins so thin, lenders can't afford to give back gains.

Mortgage Rates for Single-Family Homes

On the mortgage activity front, applications decline again. However, the decline was largely due to another significant drop in refinancing activity.

U.S. mortgage applications fell for a third straight week, dragged down by a decline in home refinancings to a 16-month low even as interest rates dipped, an industry trade group figures showed on Wednesday.

Mortgage applications decrease: MBA

The group's seasonally adjusted index of refinancing applications dropped 6.3 percent to 1,484.3 compared with 1,584.1 in the previous week. The index fell for a sixth straight week, and volume was at its lowest level since the week ended June 25, 2004 when the index reached 1,386.9.

The purchase index however, did increase a bit.

The MBA's seasonally adjusted purchase mortgage index rose 0.8 percent to 476.2 from the previous week's 472.3. The index is considered a timely gauge on U.S. home sales.

Caveat Emptor,
Grim

Englishman In New York

I don't drink coffee I take tea my dear
I like my toast done on one side
And you can hear it in my accent when I talk
I'm an Englishman in New York

Today's interlude comes to us from a Brit living in NYC. While his commentary on the bubble is UK-centric, I think it would be good for readers to get a bit of exposure to this issue, and not just on a national level, but an international one.

House of Cards

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one." - Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

Caveat Emptor!
Grim

N.J. Loses Highest Median Income Honors

Sorry to inform you all, but we are no longer the highest median household income state in the country. According to Census data released yesterday, we've lost the top honors to Connecticut.

N.J. loses median income bragging rights to Conn.

Connecticut, with a median household income of $56,409, supplanted New Jersey as the country's highest wage state in 2003, the most recent year available. New Jersey slid to second, at $56,356, followed by Maryland, Massachusetts and New Hampshire.

The fact that New Jersey had the highest median household income in the country was often used as a rationalization for the bubble prices here. Now, while I may be nit picking over a few dollars, the truth is we can no longer claim that honor when it comes to median income.

Now, granted, those are 2003 dollars and it's 2005, but I'll argue wage growth in NJ has largely been unchanged over that period. I asked the question once before, with the median household income in the mid $50,000 range, who exactly can afford to buy a home in New Jersey?

The median family making $56,000 probably doesn't have $50,000 in savings but let's say they do. They probably have a bit of credit card debt, say $300 a month and a car payment of $300 a month (hey, I'm being generous here). Figure roughly $700 a year in HOI, and about $6000 in taxes..

Plug that into whatever trusty affordability calculator you use and see what you get. I got somewhere around $150,000 as a top end estimate. So, let me ask you, how are these folks stretching to buy homes? Easy. Use an I/O mortgage, Option-ARM mortgage, or some other Neg-Am mortgage. Maybe they borrowed against their 401K for a downpayment, dipping into their savings every month to make ends meet (and hoping for a huge payout in a year or two). Maybe they bought with a 1.25% teaser IO (like one I heard on the radio yesterday, where the buyer can find themselves owing 125% of the original mortgage amount) not realizing what the heck they were doing. Or maybe they thought they could beat the market, using one of these loans as a high leverage play, hoping to get out before the real payments set in.

Caveat Emptor,
Grim

Lowball! 11/22-11/29

Welcome to another edition of Lowball!

Lowball! takes a look at home sales over the past week from a very different perspective. For those new to Lowball!, a lowball offer is when a buyer offers a significantly lower bid than asking in hopes that the seller accepts the offer. We take a list of home sales over the past week and pick out the sales that have the highest percentage difference between asking price and selling price.The reason for Lowball! is to show buyers that the market has changed and buyers now have considerably more leverage than sellers. Just a short time ago, lowball offers would have been laughed at and discarded, however, not any more. The fact that so many under-asking offers are being accepted is clear proof that the market is changing.

The list does not contain all sales, I hand-pick the most interesting sales from the list. These listings might be the highest dollar drops, biggest percentage reductions, or sales in towns that are thought to still be 'hot'. Please note, even with double digit percentage reductions, these homes are still incredibly overpriced. This week I tried to grab listings that were more affordable than many I've posted in the past.

On to the list!

MLS# 2096239 - West Milford
Asking Price $189,000 (Originally Asking $219,000
Selling Price $150,000 (20.6% Lowball, 31.5% off OLP)

MLS# 2110494 - Mountainside
Asking Price $499,000
Selling Price $425,000 (15% Lowball)

MLS# 2100710 - Bayonne
Asking Price $395,000 (Originally Asking $425,000)
Selling Price $340,000 (14.1% Lowball, 20% off OLP)

MLS# 2108573 - Oakland
Asking Price $429,000
Selling Price $375,000 (12.8% Lowball)

MLS# 2087115 - Madison
Asking Price $1,250,000
Selling Price $1,100,000 (12% Lowball)

MLS# 2095044 - Plainfield
Asking Price $269,900
Selling Price $240,000 (11.1% Lowball)

MLS# 2106708 - Raritan
Asking Price $289,900
Selling Price $260,800 (10% Lowball)

MLS# 2093756 - Clifton
Asking Price $399,900
Selling Price $360,000 (10% Lowball)

MLS# 2084434 - Vernon
Asking Price $310,000 (Originally $324,000)
Selling Price $280,000 (9.7% Lowball, 13.6% off OLP)

MLS# 2082433 - New Providence
Asking Price $439,000
Selling Price $399,000 (9.1% Lowball)

MLS# 2069885 - Wayne
Asking Price $1,155,000 (Originally $1,225,800)
Selling Price $1,060,000 (8.2% Lowball, 13.5% off OLP)

And for the reader that requested Morristown. For the other readers that requested, I didn't forget you.

MLS# 2108112 - Morristown
Asking Price $219,900
Selling Price$210,000 (4.5% Lowball)

Caveat Emptor!
Grim

Ka-Ching!

In the spirit of the holiday season I thought I'd post up the lyrics to a Shania Twain song that I think fits the season well..

Ka-Ching
By Shania Twain

We live in a greedy little world--
that teaches every little boy and girl
To earn as much as they can possibly--
then turn around and
Spend it foolishly

We've created us a credit card mess
We spend the money that we don't possess
Our religion is to go and blow it all
So it's shoppin' every Sunday at the mall

All we ever want is more
A lot more than we had before
So take me to the nearest store

Can you hear it ring
It makes you wanna sing
It's such a beautiful thing--Ka-ching!
Lots of diamond rings
The happiness it brings
You'll live like a king
With lots of money and things

When you're broke go and get a loan
Take out another mortgage on your home
Consolidate so you can afford
To go and spend some more when
you get bored

All we ever want is more
A lot more than we had before
So take me to the nearest store

[Repeat Chorus]

Let's swing
Dig deeper in your pocket
Oh, yeah, ha
Come on I know you've got it
Dig deeper in your wallet
Oh

All we ever want is more
A lot more than we had before
So take me to the nearest store

[Repeat Chorus]

Can you hear it ring
It makes you wanna sing
You'll live like a king
With lots of money and things
Ka-ching!

Caveat Emptor!
Grim

P.S. Please don't hold the fact that I listen to country music against me..

October New Home Sales Hit Record

New Home Sales Hit Record Level in Oct.

Sales of new homes soared at a record pace in October in what could be a last hurrah for the booming housing market.

The Commerce Department said that sales of new single-family homes shot up by 13 percent last month, the biggest one-month gain in more than 12 years. The increase pushed sales to an all-time high seasonally adjusted annual rate of 1.42 million units.

The increase confounded analysts who had been predicting that new home sales would decline by 1.8 percent, reflecting continued increases in mortgage rates. It was possible that the unexpected surge reflected a final rush by buyers to get into the market before mortgage rates climb higher.

Link to the Census Bureau Report:
October New Residential Sales

I'll let you folks draw your own conclusions. I expected a much more significant decline, both in sales numbers and median price.

Caveat Emptor,
Grim

New Jersey Ranks 1st In October Forclosure Market Report

National Foreclosures Increase Almost 19% in October

RealtyTrac, the leading online marketplace for foreclosure properties, today released its October 2005 Monthly U.S. Foreclosure MarketReport, which showed 81,382 properties nationwide entered some stage of foreclosure in October, an 18.6 percent increase from the previous month. The report shows an October national foreclosure rate of one foreclosure for every 1,422 U.S. households.
...
New Jersey foreclosure rates were the highest in the country, with one foreclosure for every 422 households, and New Mexico foreclosures ranked third highest, with one property in every 601 in foreclosure.

Caveat Emptor,
Grim

Existing Home Sales Decline

Hot off the wire..

Existing Home Sales Decline in October.

Home Sales in the Northeast Decline 7.4% compared to last month (seasonally adjusted). The unadjusted fall in the Northeast was 10.6% vs last month, and 1.1% versus last year.

Existing Home Sales were expected to come in anywhere from 7.20M to 7.30M, but instead dropped significantly to 7.09M.

Nationally, the months supply increased from 4.6 in September to 4.9 in October, a whopping 14.0% percent from last year.

Existing Home Sales

More to Follow.

Caveat Emptor,
Grim

NJ-Based Merck To Cut Jobs, Close Plants

Big pharma has always been a big breadwinner for the state, but Whitehouse Station based Merck is cutting in a big way. Today, Merck announced cuts of 11% of it's workforce, about 7000 jobs, in addition to closing down 5 plants (I'm still trying to find out more information on locations). This, just on the heels of an 825 person cut announced last month.

Merck to Cut 7,000 Jobs, Close 5 Plants in Restructuring Plan

You can't deny at least some impact to the NJ economy based on cuts of these proportions, and even more disconcerting is the fact that CEO Richard Clark called these actions only the first steps in restructuring.

Caveat Emptor,
Grim