Monday, February 06, 2006

Star-Ledger New Jersey Forecast 2006

The Star Ledger is running a forecast series for '06, some of it interesting some not. Today's edition featured a number of articles on real estate. I picked out a handful of the most interesting pieces, worth a few minutes of your time to skim through. Like always, take everything with a grain of salt and be critical about what you read..

You may pay a price for that non-standard mortgage

The scary news, however, is that some buyers have used these loans to buy more house than they can really afford. They're living with no margin for error. When interest rates rise, the economy slumps or the homeowners finally have to start repaying principal, they may find themselves stretched to the breaking point, unable to pay for the roof over their heads.

In short, said Keith Gumbinger of HSH Associates, a Pompton Plains company that follows the mortgage market, a lot of buyers "jumped into the pool and don't know how to swim."

Smaller homes begin to make a comeback

The large homes are not without their critics.

"To me it has to do with conspicuous consumption," said Anthony Schuman, graduate program director at the New Jersey School of Architecture at the New Jersey Institute of Technology in Newark.

"It has a negative impact on the environment and the quality of the towns the homes are built in. People are building large houses on small lots. And the proportion of the building to the size of the lot has an impact on the neighborhood scale."

"We're finding the beginning of a trend for smaller, more intimate spaces," Skea said. "I think practicality will start to rule."

Mixed-use projects won't combine business, pleasure

North Jerseyans can expect in coming years to see thousands of new homes, plenty of fresh spots to eat and shop, new hotels, an enormous new multiplex and even an indoor ski slope.

But what most of the area's biggest new mixed-use projects won't feature -- at least not anytime soon -- is office space.

House prices returning to earth

Lower sales will mean less pressure on prices. Already in late 2005, there were some hints of slower growth as builders began "rolling out sales incentives" to lure buyers who are resisting high prices for new homes, Seiders said.

A slowdown in price hikes will be good news for young would-be buyers, who have watched in frustration as the prices on even starter houses raced ahead of their incomes.

Even in red-hot market, this coast is still golden

Even in North Jersey's scorching real estate market, the condos along the Hudson River Gold Coast have stood out for their relentless pace of appreciation.

But as the 2006 spring buying season approaches, sellers from Fort Lee to Jersey City appear to be a bit more willing to negotiate. Realtors say condos are taking longer to sell as buyers have become a bit more cautious with mortgage rates trending upward and talk of a housing bubble growing louder.

Caveat Emptor!


Blogger grim said...

Add this one to your required reading list as well..

From Another F'ed Borrower:

To buy or not to buy


2/06/2006 07:03:00 PM  
Blogger Grim Ghost said...

'"The demand for housing in New Jersey far exceeds the available supply," O'Keefe said in a recent speech. "There are -- and will be for the foreseeable future -- far more prospective homebuyers than home sellers, far more would-be tenants than apartments."'

What planet does this guy live on ? Has he seen how many "For Rent" signs there are in many neighborhoods ?

And incidentally, activity along the gold coast has been practically dead for the last few months. Some new buildings (such as One Hudson Park) just aren't selling. One condo complex, which has 9 ultra luxurious units, has only 3 people living there, but 4-5 flippers and one owner.

2/06/2006 07:11:00 PM  
Blogger Grim Ghost said...


"All these changes mean that New Jersey needs about 50,000 new housing units a year, O'Keefe said. But during this decade, the state has built an average 33,000 a year."

Lets look at those numbers, shall we ?

50K new housing units per year = 100K new net people a year (assuming a density of 2/unit, which is probably lower than the median density -- 2.2 or something) = 500,000 over 5 years.

In fact though, census data shows that NJ's population increased by 300K since 2000.

So why should there be a demand for 50K units ? One possibility is that some units are destroyed or rebuilt during this period, but I don't know if O'Keefe was talking about net increases or not. Also, some of it is going to speculators or 2nd home buyers.

However, restrictions on development will definitely start making prices rise again, but probably not until developers seriously start building high density in some of the outlying areas. Probably not for another 10 years.

2/06/2006 09:27:00 PM  
Blogger RentinginNJ said...

O'Keefe said "Those trends include the aging of the baby boomers who are trading up into larger homes; the coming of age of the boomers' children looking for their first homes"

First, baby boomers are nearing retirement and are not looking to take on bigger homes, with bigger mortgages, higher property taxes and bigger heating bills. Many boomers who traded up in recent years did so as an “investment” to fund their retirement (i.e. plan to sell).

O’Keefe also ignores that fact that housing prices can materially impact population trends. While NJ RE has always been priced at a premium to most of the country, there is a limit to what people are willing and able to pay to live here. This shows up in the population statistics. In the mid 1980’s, Northern NJ actually lost population as housing prices skyrocketed. In recent years, population growth in Northern NJ has slowed with many people leaving the state. Hudson County actually lost population in 2004, despite adding a record number of housing units.

2/06/2006 11:54:00 PM  
Blogger NJGal said...

Ooh, don't tell all the condo-heads in Hoboken that their units will take longer to sell, or, god forbid, go for less than asking! They all think they're going to continue to appreciate 10% a year, as if there's an endless supply of buyers just dying to live in Hoboken and JC.

2/07/2006 08:37:00 AM  
Blogger grim said...

I've been monitoring craigslist closely for the past few weeks. A significant amount of "gold coast" real estate is being listed there. I have a feeling the numbers being reported are not accurate simple due to the trend to FSBO.


2/07/2006 08:45:00 AM  
Anonymous Anonymous said...

People are leaving the state. Know 4 people that left in the last 3 months.
Basic math will show you why bubble prices will have to come down.
owning a house is great as it appreciates, but just think if it goes down in price. there are lots of exoenses in owning a house. Maintenance, property taxes and utilities take a big chunk out of your paycheck. So buy a house but make sure you can "Really" AFFORD, NOT USING A RISKY LOAN SOME REALTOR OR MTG OFFICER CREATES SO YOU CAN GET IN AND LOSE SLEEP WORRYING ABOUT YOUR NEXT PAYMENT. IT IS NOT WORTH IT.

2/07/2006 08:48:00 AM  
Blogger grim said...

Hudson County Population

2001 4,061
2002 -3,410
2003 -2,098
2004 -1,288

Seems to be alot of new construction for a declining population..

Hudson County, NJ - Population and Components of Change


2/07/2006 08:54:00 AM  
Blogger Metroplexual said...

RentinginNJ said...

O'Keefe said "Those trends include the aging of the baby boomers who are trading up into larger homes; the coming of age of the boomers' children looking for their first homes"

A seminar I attended in 2004 that featured Seneca and Hughes (and a Woman demographic expert whom I cannot recall the name of), talked about Boomers and said exactly what O'Keefe said about trading up in Sq Ft. Alot of it has to do with having room for kids and grandkids visiting. I have seen the phenomenon called SUV (because bigger is better)housing for boomers.

Alot of the housing they are buying are in age restricted comunities and are considered "luxury".

2/07/2006 11:02:00 AM  
Blogger grim said...

For those watching the homebuilder stocks, Toll really shook the market up this morning when it announced significant reductions in it's 2006 estimates as well as a 21% decline in contracts over a year ago.

The real estate market is shifting very quickly. Certainly much faster than even I would have ventured to guess..


2/07/2006 11:03:00 AM  
Blogger chicagofinance said...

I think that this trainwreck might be uglier than we imagined.

The worst part is that we are ...maybe... in the second inning :(

TOL is off 50% from it's July high. The thing that scares me is that the talking heads on Bloomberg et al. note that TOL represents the LUXURY segment of the market. If the luxury segment is looking soft, what does it say about the rest of the market, which is supposed to be more price sensitive.

Stock market advice? Stay away from consumer cyclicals that only have exposure to the U.S.

2/07/2006 11:14:00 AM  
Blogger grim said...

"It's only when the tide goes out that you learn who's been swimming naked." - Warren Buffet

The Northern New Jersey real estate market is the equivalent of Gunnison Beach (on Sandy Hook).


2/07/2006 11:56:00 AM  
Anonymous Michelle said...

Totally anecdotal -

But I've seen 3 FSBOs that have been on the market for some time recently add "or Rent" to their "For Sale" signs. One very cleverly just blacked out to "F" on a "For Rent" sign.

I sure hope this doesn't mean that these folks are carrying 2 mortgages and their original houses didn't sell and now are having serious cash flow issues.

2/07/2006 03:52:00 PM  
Anonymous Anonymous said...

oh well. The gravy train express has derailed. No mote tapping the equity ATm to stay afloat.
It's getting bad really fast.

2/07/2006 04:44:00 PM  
Blogger RentinginNJ said...

O'Keefe said "Those trends include the aging of the baby boomers who are trading up into larger homes; the coming of age of the boomers' children looking for their first homes"

This is an old argument with a new twist.

"The economic trends, meanwhile, are being reinforced by demographic and political forces. Hordes of young people who make up the giant postwar baby- boom generation are reaching the ages of 35 to 40 and coming into their peak earning years. The wealthiest boomers are now able and eager to buy luxury homes."

Time Magazine - September 21, 1987
"What, No Pool In the Foyer?
Keeping up with the Joneses, 1987 style"

2/07/2006 10:54:00 PM  
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