Thursday, March 30, 2006

Bidding Against A Billionaire?

I certainly can't recommend buying right now, but many readers have been wondering just who has been buying and who has been putting in those bids.

Well it turns out there is a big fish in town. So if I can't convince you to wait on the sidelines, and you get outbid, don't feel so bad, it might have been a billionaire that outbid you.

More tear downs are coming
National developer targets area's single homes


It's spring and the birds are chirping, daffodils are coming up and houses are coming down. Developers have been buying up homes in the Rolling Hill area of Chatham Township and on roads off of Noe Avenue for anywhere between $700,000 to $950,000 just to knock them down and build bigger homes costing twice as much. Tear downs and rebuilds have been the domain of a handful of local builders in the area, that is until Hovnanian Enterprises announced its new Classics Division would be targeting several Morris County towns, including the Chathams and Madison, and Summit in Union County.
...
According to published reports, one of the first homes to be built by this new unit will be in Chatham Township on Longwood Road. Hovnanian recently purchased the split level and has plans to build a six-bedroom, three car garage home of approximately 4,000 square feet, almost double the square footage of the existing home. The new home is expected to cost between $1.5 and $2 million, which is in line with other rebuilds currently on the market. Hovnanian calls the process "replacing obsolete homes with more energy efficient ones in keeping with the character of the neighborhood."

Towns ask whether regulations are needed

Several local developers have been tearing down smaller homes to build bigger ones in Chatham Township, since there is almost no vacant land available for new-home construction in the area, planning board member Tom Browne said. This is occurring in sections of the 200-year-old township that were developed in the 1950s, he said.

One of New Jersey's largest home builders -- K. Hovnanian Homes -- announced recently that it was getting into the act, having created a new division specifically to build larger homes on the footprints of smaller, razed houses.
...
Chatham and Morris townships are two Morris County towns where a division of K. Hovnanian called Classics of K. Hovnanian is in the process of building a taller structure after razing a smaller home. Other towns, including, Summit and Bernardsville, also have been selected by the developers.


Caveat Emptor!
Grim

22 Comments:

Blogger lisoosh said...

"replacing obsolete homes with more energy efficient ones"

MORE ENERGY EFFICIENT! Are they serious? Those monstrosities cost a fortune to heat and cool - thousands a month.

3/30/2006 05:32:00 PM  
Anonymous Anonymous said...

Sounds good to me...the small homes do look like crap.

3/30/2006 06:27:00 PM  
Anonymous Anonymous said...

"Sounds good to me...the small homes do look like crap."


As long as the lot is large enough to support the larger home.

3/30/2006 07:46:00 PM  
Anonymous Anonymous said...

Just one more reason why Summit and the nicer towns will not see a significant dip in prices in the months to come. Knocking down the small homes and building mansions just increases the exclusiveness in these towns and further attracts NY money.

3/30/2006 08:09:00 PM  
Anonymous Anonymous said...

i question the timing of this at this point in the r/e cycle...but there is a bit of truth in the agenda. these homes or most old homes for that matter are so obsolete.

maybe just maybe this r/e cycle is of a secular one and we are about a quarter or half ways into it.

just look at the action in the commodity markets...it cant be all liquidity driven. there is a global boom going on putting enormous pressures on the demand side. also, the shift away from paper assets to hard assets has long been underway: money is flowing back into the real economies of the world.

still renting. i bailed in 8/2004 and waiting...

3/30/2006 08:18:00 PM  
Blogger grim said...

Take it as you like, but it screams out contrarian indicator to me..

grim

3/30/2006 08:19:00 PM  
Anonymous Anonymous said...

Could it be this is more profitable, or more insulated from a declining RE market, than building new developments?

3/30/2006 08:44:00 PM  
Anonymous Anonymous said...

It's sad what's happening to the truly older homes in chatham... and i'm not alluding to '50s spit levels... this is really going to change the face of the town... and eventually steal some of its charm... but this is what happens in a bubble market... neighborhoods change fast.

3/30/2006 08:45:00 PM  
Anonymous Anonymous said...

Here is my two cents.
For all of bloggers who think there will be a correction (read reduction) of prices in the range of 40% or more to bring the housing market to normal sustainable level, don't bet on it. In reality only 20-23% correction spread over two year period is all required. Here is my theory

Assuming a nice 2000 sf colonial in a decent town was worth $360,000 in North Jersey in the not so distant year of 1998. This same house is / was worth $700,000 at the peak of the market (i.e. summer of 2005). Not far fetched scenario.

Assuming we had a normal housing market where real estate appreciates just ahead of inflation and in pace with median wage increases or about 5% a year. In year 2005 same house would be worth $506,556 (using 5% compounded interest rate). Add another two years of appreciation, the same house is worth $558,472 in Year 2007.

Now watch this.

A price reduction of modest 8% from the peak market of 2005 (from the bubble price of $700,000) would make the same house worth $ 636,364 in summer of 2006.

Another more robust reduction of 15 % from the 2006 price (after reality sinks in for in- denial sellers) would make the same house worth $ 563,607 in summer of 2006.

Now compare this $563,607 price to the would have been normal price of $558,472, it is a virtual match.

My opinion the market will stabilize at the end of 2007 based my humble analysis. I am not a financial analyst and not a realtor for that matter, but have an advanced degree in engineering, so (I may say ) know how to add or subtract some (no big deal).

Any comments ?

Grim what do you think ?

Cliffy

3/30/2006 09:27:00 PM  
Anonymous Anonymous said...

I remember reading (pre-bubble) that the historical average appreciation for housing is 1.5% per year.

Comments, anyone?

3/30/2006 09:38:00 PM  
Anonymous Anonymous said...

"Just one more reason why Summit and the nicer towns will not see a significant dip in prices in the months to come".

I wish there was a way I could sell Summit "short" to you...what a trade :)

ps: Someone in an earlier piece wrote about "the millionaire next door"...that is my father NW well over $20m self made. Me I've bounced between zero and $10m twice already...this Summit guy needs to be on the other side of a trade with me.

3/30/2006 09:46:00 PM  
Anonymous Anonymous said...

ps: regarding attracting "NY money" are you serious????
How is NY money different than NJ money...enlighten me.

3/30/2006 09:51:00 PM  
Anonymous Anonymous said...

I agree Gravity Matters. 1 correction though you spelt Englewood wrong...it's Leftywood.
Run by Lefty's not Dem's. Englewood Cliffs on the other hand is very well run by the Dem's and smartly the Cliffs many years ago seceded from Leftywood.

3/31/2006 02:03:00 AM  
Anonymous Anonymous said...

Live in Summit, own a home and posted on this site before the influx of new construction homes sitting on the market.

People do not want to buy a huge house on a street with ugly little 50 splits, even in top tier towns.

Walked through a friend's neighborhood and was told of three more houses recently bought by builders to add to the inventory.

Taxes on these homes are not $18K as previously guessed they are more in the range of $35K, with another increase of 13% this year.

How many people can really afford a $2Million dollar home with those taxes? Even if you can, why pay it? A comparable existing home(more character) on a larger lot will cost you 20-24K in taxes.

In the Ole days, like three years ago, these homes were sold before the ugly brady bunch house was knocked down. Now we have several just sitting-no buyers?

Things will come down and with buiders speculating in so many of these towns that there is a never ending line of millionaires willing to spend their entire earnings to support a "gorgeous" home on an "average" street they are nuts.

Prices are going to drop period. I live here, have seen the way the psyche has changed. It is no longer BUY NOW before you get priced out, it is WAIT AND SEE.

Homeowners who think prices are not already declining are kidding themselves!

3/31/2006 06:30:00 AM  
Anonymous Anonymous said...

If I had to price my own home today, realistically it would be at least 10% lower than last spring, there are simply more choices!

3/31/2006 06:38:00 AM  
Blogger grim said...

"You ain't seen nothing yet"

3/31/2006 06:52:00 AM  
Anonymous Anonymous said...

gravitymatters,

I agree-- lots of delusional homeowners AND builders.

Paradise redefined..... living on a street with nieghbors who paid 250K for their little ranch only four years ago....while you "wait" for the rest of the neighborhood to "catch up to you". All the while seeing lots of new choices popping up, then realizing your mistake two years later and being unable to move becouse you are now "upside down" in your mortgage.....sounds a little more like purgatory.

3/31/2006 07:39:00 AM  
Anonymous Anonymous said...

"If I had to price my own home today, realistically it would be at least 10% lower than last spring, there are simply more choices!"

I think this is the reality of the market today that sellers are still in denials about. 10% off is only enough to give you a chance. 15% to get an offer, I think.

Simmssays...
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com

3/31/2006 09:12:00 AM  
Blogger chicagofinance said...

Shailesh:

When I want to splurge, I upgrade from a venti coffee to latte with a shot of vanilla. :)

3/31/2006 11:16:00 AM  
Anonymous Anonymous said...

Anybody else in the 40% drop crowd want to weigh in on Cliffy's estimates? I'm curious to see where the 40% numbers come from... I mean besides all our dreams.

3/31/2006 11:47:00 AM  
Anonymous Anonymous said...

In ten or fifteen years when most of the boomers have forsaken NJ and have/are gone, who will buy their houses, including the McMansions? I don't think the "undocumented workers" or the "guest workers" wiil be able to afford them, unless the prices go back to 1978 levels. Perhaps the current redistribution of wealth via taxes will help.

3/31/2006 01:17:00 PM  
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5/18/2006 05:37:00 PM  

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