Tuesday, March 28, 2006

Saying Goodbye To The Bubble

From the Wall Street Journal:

The New Rules Of Real Estate

As the spring selling season moves into high gear, the cooling housing market is upending the conventional wisdom that guided buyers and sellers during the housing boom.

The changing dynamics have implications for a wide variety of players in the real-estate market. Some brokers are advising sellers to price their homes in the bottom 25% of comparable properties. People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out. Employees who are relocating are being advised to steer clear of new subdivisions where competition from brand new construction could make reselling soon difficult.

...
Sellers

Say goodbye to the days when sellers could simply look at what their neighbor's house sold for and then list theirs for 10% more. Brokers are advising sellers to make sure their house comes across as a good value relative to other homes on the market.
...
David D'Ausilio, a broker-associate with Re/Max Heritage in Westport, Conn., is counseling his clients to price their homes in the "bottom 25%" of comparable homes and to cut their asking price by 3% to 5% if the listing doesn't generate several showings or written offers within three weeks.
...
First-Time Buyers

As the housing market cools, first-time buyers have the opportunity to be more thoughtful about their purchases and to negotiate for a lower price, a more flexible move-in date, or incentives such as seller-paid closing costs.

Jill Green, a Realtor with Century 21 Award in Carlsbad, Calif., a coastal community north of San Diego, has been making offers that are 1% to 5% below the low end of the seller's price range. "Sellers are entertaining the offers and are taking them," she says.

Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs.

------

Just further examples of the shift in psychology that is currently hitting the market. We're currently coming off the top of the largest bubble ever to hit North Jersey real estate. Buying at this time should still be considered a very risky proposition. A mere 5% below asking is nowhere near the reduction necessary to bring prices back inline with fundamentals. Don't look at the price drops and sales under asking as purchase opportunities, they are not, they are indicators of a rapidly weakening market.

Caveat Emptor!
Grim

(thanks to chicagofinance for the link)

94 Comments:

Anonymous Anonymous said...

I have been saving and am...was ready to buy a house in the next few months. Now, I am really thinking about waiting a bit longer. Yes, it is not my ideal situation to live in a rental, but it is a nice house and affordable. Every home I have recently seen is over priced and very outdated. I now think that if I buy, the value of my home will decrease in the next few years - not increase. Therefore, I have no intention of getting a mortgage that could lead us to owe more than our house is worth in a year. This blog is very informative, honest and I wish the Realtor market conditions would be as forthcoming.

3/28/2006 11:39:00 AM  
Anonymous Anonymous said...

1-5% below list price? Can someone let me know what they are smoking? I'd like to try some too. Into the downslide we go...

3/28/2006 11:46:00 AM  
Blogger grim said...

Real estate industry can't do anything but maintain a rosy outlook. They have no choice.

grim

3/28/2006 11:56:00 AM  
Anonymous Anonymous said...

this is unfolding so much faster than I ever imagined

3/28/2006 11:57:00 AM  
Anonymous Anonymous said...

Thanks for a consistently informative blog.

3/28/2006 12:03:00 PM  
Blogger skep-tic said...

the press is catching on at just the right time. articles like this are going to kill the spring market

3/28/2006 12:04:00 PM  
Anonymous Looking said...

From CNN Money:

The "danger years" for homeowners

10:10am : Delinquencies peak the third and fourth years of mortgages. Will risky terms add to the problem?

http://money.cnn.com/real_estate/index.html

3/28/2006 12:41:00 PM  
Blogger njresident286 said...

All we need is for the press to catch on, and this thing will be in the toilet sooner than later. its such a heard mentality out there

3/28/2006 01:02:00 PM  
Anonymous Anonymous said...

I have been saving and am...was ready to buy a house in the next few months. Now, I am really thinking about waiting a bit longer.

As a former realtor, the best time to buy (in any market) is late July/August, and in this declining market you should benefit even more.


Good Luck

3/28/2006 01:11:00 PM  
Anonymous Anonymous said...

"As a former realtor..."


Have any good stories to share? :)

3/28/2006 01:19:00 PM  
Blogger pesche22 said...

you cant lose by waiting it out in this market.. you aint seen nothing yet. wait till the adjustables kick in

3/28/2006 01:21:00 PM  
Anonymous Anonymous said...

From the WSJ article:

Tim Popadic last summer listed his four-bedroom colonial in Monroe, Conn., for $725,000, $26,000 above his broker's initial estimate, after he accepted a position as an associate pastor with a church in Palm Beach Gardens, Fla. When no offers materialized, he delayed his move and cut his price three times, before accepting a $557,000 offer in October. "At the end of the day, [the broker] was right," he says.

3/28/2006 01:22:00 PM  
Anonymous Anonymous said...

Have any good stories to share? :)

Here's some advise...wait about two years and you will clean house.

This is very much like the '89-'91 market with the exception of a recession, but that may soon follow with the amount of consumer debt and with bad news filtering the airwaves, consumer confidence will soon slip. Though I think this time around the decline will not be as dramatic as 40% - 55% we saw back then, I think on average a 10% - 20% decline will be felt, but then it all depends on location.

I doubt if we will see %40 declines as some on this board are predicting, but I did leave my tarot cards i the car.

3/28/2006 01:36:00 PM  
Blogger chicagofinance said...

The most dramatic declines will be in the places that were considered on the fringe, but were receiving interest because established places were too expensive.

So gentrifying areas and new building, in what was open rural areas near nothing, are in trouble.

Established places tend to hold their value better, as there is a flight to quality.

Condos will ALWAYS get tatooed, because they are the easiest for investors to buy on the way up and quickest to dump on the way down.

3/28/2006 01:45:00 PM  
Blogger chicagofinance said...

By the way, people are really starting to get hacked off about all of this bubble posturing.

Check out this diatribe leveled against me on another board:


"First off, I am embarassed to have attended the same school as you - your uninformed and generally useless postings certainly don't reflect well on UC (or please tell me it was Northwestern you attended, that would put me at ease).

Secondly, ~50 units went into contract in the last 2 weeks in Hoboken. ~32 units closed in the last 2 weeks.So people please stop with the lies.

I cannot speak for areas outside of Hoboken and Jersey City, but within these cities inventory is moving both on the waterfront and off it (even if it isn't "brand new").

My question to you is: When was the last time you gathered MLS data? Do you ever? Or are you basing your "facts" from word of mouth, what you see posted online, or just what you think is right?

Good day, and please don't respond because you'll only dig yourself in a deeper hole and I haven't the time to waste on you."

3/28/2006 01:49:00 PM  
Anonymous Anonymous said...

"Check out this diatribe leveled against me on another board"


Lovely, sounds like a Bitter Realtorâ„¢

3/28/2006 01:54:00 PM  
Blogger delford said...

Anyonymous: Only a 10 to 20% decline, with all the specualtion, and lax lending requirements we have had in this now ending bubble.

At least the last time around, people had to put money down, at least 10%, and in many cases 20% or more. No, I think we will easily see at least a 25% decline and much more depending on the area.

I do not think it will take two years either.

3/28/2006 01:59:00 PM  
Anonymous Anonymous said...

In support of chicagofinance...If the person blasting you is so busy with all the transactions he claims are going on in his area I have to wonder...why is he reading this blog? Why would he care about your opinion, unless you are right? And.. How does he have the free time if he is so busy signing all those contracts? I'd say he is running scared!

3/28/2006 02:15:00 PM  
Blogger RentinginNJ said...

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.

The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

3/28/2006 02:21:00 PM  
Blogger NJGal said...

In further defense of chicagofinance, I follow Hoboken, and that guy can't be serious - there is plenty of inventory to choose from, and bubbletracker is planning to put up a picture of all of the open house signs that were out in Hoboken this weekend. Not as bad as the bubblemeter bench, but pretty bad. So while sales may be happening, inventory is rising and the realtors in Hoboken are scared (probably b/c most have been in the business for 5 years or less). By the way, if that guy is a realtor, chicagofinance, YOU should be embarrassed that he/she had a UC education and decided to be a realtor!

My new favorite argument is the "sure, things are sitting but they're crappy." Wonder how long that one will hold up?

3/28/2006 02:21:00 PM  
Anonymous Anonymous said...

The New Realtors theme. Make it look like they CARE about a buyer!

Boooooyaaaaaa!

SELL SELL SELL SELL!

3/28/2006 02:31:00 PM  
Anonymous Anonymous said...

Do not become a bagholder and buy at a "comical" 5% discount.
It's insulting just hearing these clowns talk. It's not their money or olbigation so why care?

3/28/2006 02:34:00 PM  
Blogger NJGal said...

"The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance."

That looks like a guarantee for one more raise plus maybe even another one after that. Wow.

3/28/2006 02:34:00 PM  
Anonymous Anonymous said...

Good raise the rates until the imbeciles (buying a house with no money down, Int only ARMS)are cooked!

They lived big for a few uears now the good times are over. Time to get back to work!

3/28/2006 02:39:00 PM  
Blogger Richard said...

there is rationale for buying in today's market. if you're looking in a top town and plan on staying at least 5 years, you property should maintain its value. the flight to quality is on and top towns are always more impervious to others. that's not to say they won't go down, but if you have to buy (aka invest), do it in such an area and plan to stay a while.

3/28/2006 02:46:00 PM  
Anonymous Anonymous said...

So called "top towns" will drop also. Don't be fooled in to believing otherwise.

Once this MOMO picks up to the downside, the snowball will pick up speed downhill and everything in its path will be impacted.

DO NOT ACCEPT A 5% DISCOUNT WHEN HOUSE PRICES WENT UP 50-100% LAST 3 - 5 YEARS. do not be a bagholder!

It's your money it' your obligation and it's your life. No one else is gong to care like you do about it.

3/28/2006 02:52:00 PM  
Anonymous Anonymous said...

richard-
What would you think of trading up
within a premium town? Sell our smaller house, take the equity plus more savings to buy a bigger one?

Scary to think it could all be wiped out with a 25% decline.

3/28/2006 02:53:00 PM  
Blogger lisoosh said...

It might just be me but the inventory in Franklin NJ in Somerset County appears to be exploding, up maybe 60% in the past couple of months. This is an area that is heavy in townhouses, starters and new construction.
Grim - do you have reliable numbers on what is going on there?

3/28/2006 02:55:00 PM  
Blogger Metroplexual said...

Slightly OT,

There is a funny piece that Good Morning America did a few days ago on realtor speak. I found the link at

http://therealestatebloggers.com

GMA link
http://abcnews.go.com/GMA/story?id=1759949

The real funny part is how the NAR can't take a joke which is linked frm the REblogger site. I think it shows how on edge they are, now that the party is over.

3/28/2006 02:57:00 PM  
Anonymous Anonymous said...

I agree with Richard. There will ALWAYS be buyers for the "top towns." Folks who feel they have to buy because the family is growing, folks coming out of NY with $, or folks moving into nice towns for the schools. These folks will go straight to the top towns and pay what they need to to get in. Speculators should leave and the no money downers should cause a hiccup, but did these folks really affect the top towns that much anyway?

3/28/2006 02:58:00 PM  
Blogger chicagofinance said...

"By the way, if that guy is a realtor, chicagofinance, YOU should be embarrassed that he/she had a UC education and decided to be a realtor!"


If I am thinking of the right guy, his wife is a realtor.

Regardless, you have to meet some of the people that live in my complex. The most enlightening thing I can say is that they are obsessed with the 9th letter of the alphabet.

3/28/2006 03:15:00 PM  
Anonymous Anonymous said...

Currently live in one of those "top towns' and have seen significant reductions in some higher end homes. Homes on certain name streets will always sell, but they still must have a relative price/value, which I see declining.

The 0% down people exist everywhere, you'de be surprised.
A friend of a friend who bought a home in a neighboring town at $2.8 mil put 20% down yes, but then still relies on a ten year i/o loan to make the monthly payments. They have a $2.2 Million dollar mortgage--CRAZY!!

Truly wealthy people don't have those sorts of mortgages. It's all relative but if the housing decline reverberates into the rest of the economy these huge Wall Street bonus years will go bye bye too. NO ONE IS IMPERVIOUS!

LM

3/28/2006 03:17:00 PM  
Anonymous Anonymous said...

"Top Towns"

Yes I remember clearly in one of those top towns back in ole 1991 when a few houses in a top neighborhood had no landscaping, weeds growing about 2 - 3feet high and a pile of gravel in the front yard. In 1992 the houses were foreclosed on. These were owner occupied. It happens in ALL neighborhoods. Just saw a $19 mil bankruptcy. It's coming folks be prepared for a reality check.

CD

3/28/2006 03:40:00 PM  
Anonymous Anonymous said...

BOOOOYAAAAAA!

AS CRAMERS SAYS IT'S ALL BUSINESS NOTHING PERSONAL.

SELL SELL SELL SELL!!!!!!

3/28/2006 03:42:00 PM  
Blogger grim said...

Unfortunately, I don't have access to tax records that go that far back.

If we did, there would be no questions. It would be very simple to test the premise.

Anyone want to spend a day at the county records office?

grim

3/28/2006 03:44:00 PM  
Anonymous Anonymous said...

RE: "Top Towns"

Here's a recent foreclosure in Short Hills:

MLS 2254564
$1,150,000
http://www.realtor.com/Prop/1056461117

3/28/2006 03:47:00 PM  
Blogger Metroplexual said...

Grim,

I will see if I can find anything on early 90's tax info.

3/28/2006 03:59:00 PM  
Blogger Richard said...

"What would you think of trading up
within a premium town? Sell our smaller house, take the equity plus more savings to buy a bigger one?

anon 2:53, i think your approach is reasonable with the caveat that the upgraded house is in prime location within the top tier town. at the same time the higher priced houses (due to the fact that they are higher) might experience slightly more downward pricing pressures than the lesser priced ones. still overall if you're in a top tier town in the best area you should weather the storm relatively good.

3/28/2006 04:11:00 PM  
Blogger NJGal said...

"The most enlightening thing I can say is that they are obsessed with the 9th letter of the alphabet."

Ha. I think one could safely say that about many of Hoboken's residents:)

3/28/2006 04:13:00 PM  
Blogger Richard said...

i've been heavily looking in the top tier towns. what i can tell you is the quality properties in the prime locations within these towns are selling at equal or slightly more than the last 6-9 months booked sales. in the other not so desirable areas inventory and downward pricing pressures are building.

for those who think you'll be able to buy into a summit in 2 years at 40% off today's prices you're dreaming. if that happens you'll probably have bigger things to worry about than a house purchase.

3/28/2006 04:14:00 PM  
Anonymous Anonymous said...

I haven't posted in a while but the notion that prices 5% down from recent sales prices is what people expect, is comical. Folks this is the NNJ market...with 2 primary employers Big Pharma and Wall Street. (Never mind the builders who will surely go bust) Both are in trouble...did anyone wonder when we had a flat to down year in the all of the markets indices last year and yet the WS bonus' were record? MBS market with the acompanying hedge fund derivative fun stuff is toast...the only area that will probably see deals is M&A since there is no shortage of over-educated dummies willing to over pay for a business....this alone will not save the Wall St. types. I personally am enjoying the show.
Gotta love those Corzine taxes!!! That should really help stimulate NJ's economy :)

3/28/2006 04:24:00 PM  
Blogger delford said...

Richard: A 40% decline in Summit, perhaps high, but I would not rule it out.

I do not know how old you were in the early 90's, so perhaps you do not remember, but I remember it well, and again I will tell you all got hit, and that includes the so called top tier towns. and remember this was at a time when people had to really qualify for a mortgage, and 20% down was the norm ,not the rarity.

No richard, it is going to be ugly, watch the next few months.

3/28/2006 04:34:00 PM  
Anonymous Anonymous said...

A 40% drop in Summit is absolutely impossible and absurd. Suggesting even that possibility affects the credibility of this blog. What will cause people to stop buying in Summit? Where will there be huge job losses that affect the top towns' homeowners? Again, I agree with Richard, if there is a 40% drop in prices in Summit, then we have a much larger problem than affording to buy a house.

3/28/2006 04:44:00 PM  
Anonymous Anonymous said...

PS: A lot of buyers have been realtors and especially mortgage brokers who had big incomes in 01'05' period. Talk about Karma.
ps: the long term average for 30 year money is 9%; if rates were to make there way anywhere near that #
, it could get really really ugly vs. just ugly. (tidbits to think about; documented widespread appraisal fraud, People made long term decisions on a short term phenonom (1% fed funds), HELOC will be an acronym for HELL Lock.

3/28/2006 04:47:00 PM  
Anonymous Anonymous said...

Why is 40% absolutely absurd?

100% up in 5 years is okay but 40% down in 5 years can't be?

Yeah. it can happen. And it may happen. so don't bet the house on it.
Did you bite off a little to much?
You better worry. Imaginary beanstalks grow to the sky.

3/28/2006 04:48:00 PM  
Anonymous Anonymous said...

"for those who think you'll be able to buy into a summit in 2 years at 40% off today's prices you're dreaming. if that happens you'll probably have bigger things to worry about than a house purchase."

So it's feasible for homes to increase 80-90% in value, as they have done in the last 4 years, but it's not feasible that values decline up to 40%?

Please explain.

When I go to Zillow and see all these houses currently listed at $900K, which were bought in the late 90s for $300K, it's obvious a major price decline is in order.

3/28/2006 04:51:00 PM  
Anonymous Anonymous said...

"A 40% drop in Summit is absolutely impossible and absurd. Suggesting even that possibility affects the credibility of this blog. What will cause people to stop buying in Summit?"

Really? LOL...there are no "special places" when the sh.. hits the fan. ps: something else to think about here in NJ with the budget being what it is even in the face of documented apppraisal frauds (3,000 signed petitions to Congress)and property taxes going North in a big way, assesments derived from a short term phenomon.
Debacle is the future for bag holders.

3/28/2006 04:53:00 PM  
Anonymous Anonymous said...

"A 40% drop in Summit is absolutely impossible and absurd."


Yet the 80% and 90% gains in the last 4 years are not absurd?

Do you want to buy some pets.com stock?

3/28/2006 04:55:00 PM  
Anonymous Anonymous said...

But why is it possible? Everyone seems to be accepting as gospel the fact that there will be double digit losses. Is it possible that 100% over 5 years represents is making up for a slower market during the dotcom boom during the 90s?

Not that it's relevant, but I do not own a home. I'm just not as "optimistic" about expecting to buy the homes I see on the market now for almost half-price in a couple years.

3/28/2006 04:56:00 PM  
Blogger delford said...

I had a friend during the last down turn who lived in Scarsdale NJ, certianly up there with Summit.

He sold during the last down turn due to a job transfer, and sold the hous for 30% less than what he paid fo it when he purchased it.

His employer pick up half the loss, thus mitigating it for him, but nevertheless, it happened. Condos in that town were selling for 50% less. No area is immune.

3/28/2006 05:02:00 PM  
Blogger delford said...

I had a friend during the last down turn who lived in Scarsdale NJ, certianly up there with Summit.

He sold during the last down turn due to a job transfer, and sold the hous for 30% less than what he paid fo it when he purchased it.

His employer pick up half the loss, thus mitigating it for him, but nevertheless, it happened. Condos in that town were selling for 50% less. No area is immune.

3/28/2006 05:02:00 PM  
Anonymous Anonymous said...

"But why is it possible?"

Because we're in a speculative real estate bubble, with millions of people who bought into the madness in debt up to their necks.

If you think Summit is great, wasn't it great 4 years ago, when prices were 100% less?

The town hasn't become 'more incredible' in those 4 years, only the prices of the homes.

Have incomes risen 100% in 4 years? Mine sure hasn't.

3/28/2006 05:03:00 PM  
Anonymous Anonymous said...

"Is it possible that 100% over 5 years represents is making up for a slower market during the dotcom boom during the 90s?"

From 98' thru 1st half of 2001...the prices caught up to the long term average. Second 1/2 of 2001 thru 2005...is where things became dicey to say the least. Let's put on our thinking caps...I know for some that is impossible...which isn't fair in a way because not only do they have a brain which does not work properly...but they will pay in real dollars for the malfunction. NEVER in the history of the World, does everybody win.
PS: Maybe a should move to Summit, I'll be safe there LOL...beyond funny!

3/28/2006 05:48:00 PM  
Anonymous Anonymous said...

The hoboken market is a fun one to pick one. Going back to the stats in that flame - 32 apts closed in the last two weeks - If you figure approximately ~1000 new units coming to market this year (low estimate - last time i counted there were supposed to be closer to 2k coming on line but some may not hit in this calender year), that close rate does not even consume the new construction.

Even the higher 25 units contracted / week rate is not so hot given that 20 new units (on average) are being built each week.

3/28/2006 05:55:00 PM  
Anonymous Anonymous said...

Richard and I have had this discussion but I think it bears repeating for the new bloggers.

I currently own a home in Summit and the value according to recent sales in the neighborhood has doubled, yes 100% in four years. It is beyond ridiculous and beyond rational. I can see a 30-40% drop once we see the change in psychology and in a year or two when the whole ecomony suffers from our credit hangover.

We have some older friends who remember the early 90's and have told us these prices are insane. They rememeber it taking some people 6-7 years to recoup their loss.

I look at what 500-700K will buy now and it saddens me to think that a young family making enough to afford a 500K house has to settle for such junk, so then leverages just to buy a decent home. But then again they just aren't biting, as inventory in the first time market is building.

We have seen things come down in huge 200-300K chunks in the upper tier market. I don't have to guess that it may happen, it already is. If things are priced correctly and they are on a nice street yes today you will have a buyer, finding someone during a recession, unemployment rising to take on your 36K in taxes may be more difficult.

I would love to think we are "different", but I remember what you used to get for your money only a few years ago. What was 500 is now a million and what was a million is now 2 million- in four years?

BTW taxes are going up 10% with the passing of a 54 million dollar school board budget. The schools BETTER be good.

Anyone have any thoughts or insights into the Ridgewood Market? Similar towns, Similar demographic? I imagine people on this blog are a little sick of the Summit discussion.

Things are coming down!

3/28/2006 05:59:00 PM  
Anonymous Anonymous said...

Anonymous who can't put on a thinking cap here. Duh Duh. Seriously, are the personal attacks necessary if your argument is so strong. All I am saying is that beyond anecdotal evidence of 89-91 and boooyaaaa, I have not seen that much (in this string at least) which would lead me to believe that people will stop wanting to live in the nicer towns in NJ. Just because you say it is a speculative bubble doesn't make it so.

Now, I will plead ignorance, but wasn't there a concommitant recession and large scale job loss in the NY metro area during the last slump? Is it possible that no such recession in the coming years might mitigate any losses.

No, incomes have not risen 100% over the last 5 years, but maybe a lack of affordable housing is just another premium that is to be paid for living close to NY. I bet 50 years ago a lot of the nice towns in NJ were considered to far out. But now Mendham and Chester are acceptable commutes.

I'd love, LOVE to see homes drop 40% in price in the next couple years. But, do I believe it? Certainly not yet, certainly not yet for the nicer towns and certainly not for certain.

3/28/2006 06:15:00 PM  
Anonymous Anonymous said...

No speculators in places like Summit?

No condo flippers, but we are seeing an enormous amount of builders buying properties, tearing them down to build huge monsterous homes on little lots.
A new construction $2 Million house will be roughly 35K in taxes.

There was a time when these "new construction" homes never went to market and people were swarming to buy. They were sold before ever being built. Take a look on Realtor.com and look at the number on the market today..not budging...no buyers.

Took a walk through the neighborhood of a friend and saw three more being worked on, all builder owned that will come on the market next year.

It used to be you would "hear" about a house about to come on in the first buyer range (400-600k) and be up against 4-8 bids because there were simply no other options to look at.

Things have changed. I have never seen the type of inventory we are seeing now. More Supply = Lower prices period. How much? Who knows

There are some exceptions in this town for the supper high end buyer, but.....

For many these "top towns" are certainly not the only choice, downward pressure in all surrounding areas and we will see price drops here.

3/28/2006 06:15:00 PM  
Anonymous Anonymous said...

As I was writing my last comment, take a looksy at what Grim just posted?
RW

3/28/2006 06:28:00 PM  
Anonymous Anonymous said...

Re: Nicer towns and certainty about being uncertain. Capital is finite (Even post Easy Al Greenspan). Flows of funds can be measured. Demographics/incomes can be measured etc. As Warren Buffett has said numerous times..."it is fairly easy to predict if something is going to happen, the hard part is when" ps: His big bet on housing here in the USA is Clayton Homes which he bought a few years ago, they are the largest mfr. of mobile homes (like you find in trailer parks)in the US...I guess he sees a bright future for the average American.
I agree that people will always want to live in the nicer towns...however will they be able to write the check? ps: Regarding Summit according to dictionary.com means the "highest peak". What a coincedence.

3/28/2006 06:29:00 PM  
Anonymous WillyBoy said...

Have enjoyed reading this blog since mid Nov. 2005. Expect to add something substantive to the discussion, one of these days.

In the meantime, one suggestion to the "anonymous" posters. Why not pick a name and consistently use it. It makes it easier to follow and get a sense of consistency on the posts.

3/28/2006 06:51:00 PM  
Anonymous Anonymous said...

I just got finished speaking to a mortgage specialist who informed me "it is a sellers market at the Jersey Shore"(Lavallette through Spring Lake). I don't know what to think about that comment. I know houses are over priced, but I am not convinced it is still the Seller's market. Anyone have some feedback?

3/28/2006 07:08:00 PM  
Anonymous Anonymous said...

willyboy,

I agree sometimes we just forget to sign our post with initials- some of us may be afraid that a lynch mob of realtors and angry foreclosed upon neighbors may show up at our front door in the next few months blaming us for the fall!

In order to post with a "name" you are linked to your email account, no?

Say grim gets sick of providing us with all this great free information and instead sells our identities to the NAR? I Imagine some of us could start to "disappear". :)

RW

3/28/2006 07:35:00 PM  
Anonymous trroll said...

RW,

You can use OTHER (from Choose an identity) and sing in with any name you want - not email association.

3/28/2006 08:00:00 PM  
Anonymous Anonymous said...

"Anyone have any thoughts or insights into the Ridgewood Market? Similar towns, Similar demographic?"

From what I've seen, Ridgewood is a nicer town than Summit. It reminds me of Montclair or Short Hills.

The high school is very good, and looks like a college. Very impressive.

The downtown area is very nice, and there are many nice parks, inclusing a giant sand-bottom swimming pool/lake for summer.

The commute into NYC is not bad, with the train line right in town.

Taxes are not cheap, but nice towns never are.

3/28/2006 08:41:00 PM  
Anonymous UnRealtor said...

Test post with name...

3/28/2006 08:46:00 PM  
Blogger grim said...

Only one way to describe current market conditions..

Fools Market

3/28/2006 09:08:00 PM  
Blogger Richard said...

the only way prices in summit drop 40% is if interest rates skyrocket to double digits and we see massive job losses in the NYC region. there's an old addage that says history doesn't repeat it rhymes. while comparing today's situation to the early 90's is useful don't expect the exact scenario to unfold. innovative mortgage products, rock bottom interest rates and the continued march towards a globalized economy change things a bit. while i agree with many that this market will see stagnation and/or declines, to think 40% drops in summit in the next 2 years is simply wishful thinking. i guess we'll all see though!

3/28/2006 09:18:00 PM  
Blogger chicagofinance said...

The effect everyone is describing is the result of accelerating housing demand from as far out as 2009 into the last 2 years.

The blame?

The global glut of liquidity coupled with people not being equipped to assess personal financial risk and the improbable return expectations of their purchases.

Hopefully we do no worse than flatline [nominally] for about 5 years, but I really don't see how that is going to be possible.

I think the back end of the yield curve is going to have to sell off. If not, Bernanke is going to force it up.

3/28/2006 09:18:00 PM  
Blogger Richard said...

"No, incomes have not risen 100% over the last 5 years, but maybe a lack of affordable housing is just another premium that is to be paid for living close to NY.

look at london. london got ever more expensive and prices remained out of reach for those wishing to live there. the only people that are there now are the rich and the government supported. NYC will become the same type of place like it was up to the 1950's. people now are pushing farther and farther out but still travel to london to work and play. note we're talking about unique places here. there's only 1 london and 1 nyc, period. while i definitely believe we'll see declines, they won't be catastrophic like some claim.

3/28/2006 09:23:00 PM  
Anonymous Anonymous said...

Let me tell you a bit about the late 80s... greenspan created a credit bubble that spread from the stock market over into the real estate market... and then guess what he did to pop it? hmmm... yes, you in the front row... he inverted the yield curve... bingo!... sound familiar?

3/28/2006 10:25:00 PM  
Anonymous Anonymous said...

My cousin bought a condo in the late 80s in manhattan... a couple years later, he had to sell... he told me recently that he lost more than 30% on it... so, it did happen before... and it could happen again.

3/28/2006 10:40:00 PM  
Blogger Rachel said...

The SAGA continues.. TO BUY-NOT TO BUY!!

How very frustrating this has become. My husband and I started looking at homes in our price range ($315,000) a few months back & boy we're we in for a RUDE AWAKENING!!! We saw some decent ones in Sussex County, but very small and not even worth it. We figured the further out it would be the better home, etc. Now we are basically just standing still and deciding on whether or not to save up for another year to wait and see what happens with NJ Real Estate. This site is very informative and quite ADDICTING :) Thx!!

3/28/2006 10:42:00 PM  
Anonymous UnRealtor said...

Welcome Rachel!

3/28/2006 11:11:00 PM  
Anonymous RW said...

richard,
These towns were just as close to NYC as they were 4 years ago. Summit still had great schools and offered a wonderful lifestyle.

Population has not been increasing exponentially. We know personally three families who all moved south to Raleigh NC and Atlanta for a more affordable life.

The transition to a more global economy only means that jobs will move away from high cost places with expensive labor. There is only 1 London, 1 NYC and 1 New Delhi.

I also beleive NYC is unique and amazing and love the international community- but are there enough people who share this view to continue to sustain these prices?
As we have seen in this blog it as not as though many even have the choice....they simply won't live strapped financially, sacrificing a decent retirement to be close to the city.

3/29/2006 06:58:00 AM  
Blogger grim said...

Welcome Rachel.

Kick off your shoes and relax. No sense jumping in now, every last point of appreciation has been wrung out of the system.

You might just find yourself in a situation you didn't imagine, Priced-In.

jb

3/29/2006 07:06:00 AM  
Blogger delford said...

anoymous: Do not assume higher taxes always means better towns.

That is a mistake many NY'ers make when moving to NJ, and of course realtors do nothing to discourage it.

In the case of Summit and Ridgewood, yes higher taxes equals better town as in schools and general appearacne.

In many other towns, including many in Bergen Co, higher taxes does not mean better schools and services. It means over crowded schools, tons of special needs and foreign language instruction, and large pockes of social economic deprivation. There are some towns in BC, now where newly arived immigrants have purchased way beyond their means,and are now renting out rooms in those houses to make ends meet. You need to do you homework when researching towns. But again high taxes can mean good schools, or lots of socio-economic problems.

3/29/2006 09:51:00 AM  
Blogger pesche22 said...

renting out the rooms thats the key
you aint seen nothing yet.

and the schools are like foreign
institutions

3/29/2006 10:11:00 AM  
Anonymous Anonymous said...

Rachel,

If you can afford a 10% downpayment or more and a fixed rate mortgage and if you intend to occupy it yourself - I would suggest that you continue shopping & buy a house. Don't try & time the real estate market.

The folks who are suggesting that a 40% decline is perfectly logical (as there was an 80% gain in the preceding years) are not estimating the impact of decline of the USD.

Real Estate should be a part of your net worth. It is riskier, in my opinion, to have all your assets in USD's only.

Study up on the NJ highlands act if you are buying in Sussex county. If you like, you can post the MLS #'s of the houses that you like and we on the blog can give you our comments on the same.

CNS

CNS

3/29/2006 10:14:00 AM  
Blogger grim said...

This isn't about trying to time the market, we're not day traders here.

I don't know where the 40% number comes from, that did not come out of my mouth or from my fingers.

My estimates are grounded in macroeconomic fundamentals, any my estimate currently stands at 30-35% decline for North Jersey.

I'll argue that your predictions of massive declines in the value of the USD and hyperinflation is even more speculative than a housing collapse. I'm talking about one class of asset, your talking about the entire world economy.

If you really believe it, I hope you are holding gold and foreign currencies.

Oh, and one last thing. Most readers here don't have the assets to hold a diversified position that includes real estate. Real estate is an all or nothing proposition in this area.

I agree that real estate should be a part of a diversified portfolio, but I absolutely disagree with you about making it part of your portfolio right now.

grim

3/29/2006 10:23:00 AM  
Blogger skep-tic said...

PS- if you want to add real estate to a diversified portfolio, just buy a REIT index fund. no need to buy a $1 million house

3/29/2006 11:04:00 AM  
Anonymous Anonymous said...

Grim,

On balance , it is sound advice, IMO, to buy a house when you need it.

She may have to weather a decline, but the decline will not last forever. The loss will only be notional as I believe single family homes in desirable towns will appreciate in the long term.

If she locks in a fixed rate loan now, she might save even if house prices go down (in the scenario that interest rates rise and she has to pay a higher rate in the future). Also, more stringent loan criteria may exclude some from even obtaining a loan in the future.

Real Estate debt (in moderation) is good debt - especially in an era of runaway deficits.

BTW - I don't consider myself especially well off by any means. I have no foriegn currencies. I used to trade gold stocks earlier, but I have none now.

CNS

3/29/2006 11:10:00 AM  
Anonymous Anonymous said...

"First off, I am embarassed to have attended the same school as you - your uninformed and generally useless postings certainly don't reflect well on UC (or please tell me it was Northwestern you attended, that would put me at ease). "

Chicago - if its any consolation - I went to Columbia, and I agree with you.... ;)

3/29/2006 11:15:00 AM  
Anonymous UnRealtor said...

"Don't try & time the real estate market."

Yes, buy at the absolute bubble peak when all indicators are that the market is declining?

Just say "It's OK to commit financial suicide" -- it's less verbose.

3/29/2006 11:17:00 AM  
Anonymous Anonymous said...

I think we can see 30% easy. IMO, this will NOT be like the last slide of the early 90s. Back then, people were still getting 30 yr fixed w 20% down. Also, housing didnt appreciate as much as it did this time. Also, there were less investment properties being purchased. Also, there were less pieces of garbage being built for quick sale.

If you look at the major financial bubbles in the history of humanity, the thing that stands out to you is the same characteristics are present with all of them - overuse of leverage or speculative money, asset grows way out of line with incomes, less savvy people getting involved for "investment" reasons. Gee - you think any of these things are present with housing now?

For as smart as we think we are, it is funny how humans repeatedly fail to learn from the past. We just doing it all over again.

3/29/2006 11:24:00 AM  
Anonymous UnRealtor said...

"The loss will only be notional as I believe single family homes in desirable towns will appreciate in the long term."

Say she buys at $500K. The house drops to $350K 2 years later, and doesn't return to $500K for another 4 years after that.

So in 6 years, she has built zero equity, and is out the MORTGAGE INTEREST PAID ON $500K for 6 YEARS.

Another option: she buys at $350K in 2 years, her home appreciates to $500K 4 years after that, she has built $150K in equity.

The only way you can be so cavalier with someone throwing away $150K of their personal wealth, is if you're a Bitter Realtorâ„¢.

For shame.

3/29/2006 11:24:00 AM  
Anonymous Anonymous said...

"If you can afford a 10% downpayment or more and a fixed rate mortgage and if you intend to occupy it yourself - I would suggest that you continue shopping & buy a house. Don't try & time the real estate market."

Yes, and if you need a realtor, please call me at 555-......

3/29/2006 11:26:00 AM  
Anonymous Anonymous said...

I am not a realtor. If I was one, I would have let everyone know that in my every post.

Obviously, you guys are much smarter than me, since you are able to project precise home price values into the future.

My point is that the trend of current account deficits will last for a long time. This trend is a higher level trend than the other one (i.e. home prices being forced lower by ARM resets etc etc). More dollars in circulation simply means that real assets will cost more in the future (as they cannot grow at the same rate as fiat currency).

Lastly, I never wish anyone ill (her or anyone else either) - financially or otherwise.

I will leave you all to your love fest here. Good luck.

CNS

3/29/2006 11:49:00 AM  
Anonymous UnRealtor said...

"Obviously, you guys are much smarter than me, since you are able to project precise home price values into the future."

I don't know about anyone "predicting" anything, but to simply ignore all the data which point to the same conclusion, is reckless in the extreme.

The current bubble prices are simply not sustainable, and a considerable price decline is in order.

People can't continue to bury themselves in mortgage debt.

As Grim posted in another thread:

* 43% of first-time home buyers did so with no down payment in 2005

* The median down payment for those first-time buyers was 2%

* ARMs accounted for almost 40% of mortgages originated in 2004 and 2005


This is alarming data, and anyone entering this bubble insanity now, will almost certainly get hurt.

3/29/2006 12:07:00 PM  
Blogger grim said...

CNS,

Counterpoint is welcome here. I hope you don't leave due to the arguments. My question is:

Would the Federal Reserve choose to destroy the U.S. Dollar in an attempt to reinflate the housing bubble? Reinflation of the bubble isn't guaranteed, destruction of the dollar, however, would be virtually certain.

grim

3/29/2006 05:57:00 PM  
Anonymous Anonymous said...

welcome to the Banana Republic(an)

3/29/2006 07:25:00 PM  
Anonymous Anonymous said...

Rachael,

It is very hard not to feel you need a home right now. Stop watching hgtv those shows kill us apt dwellers! If you are considering purchasing this year in spite of indicators of a downturn in the market, please make sure you have 20% not 10% and you will be living there at least 10 years. If that is not the case then speak to a mortgage broker ask them exactly what you will pay on a $ 270,000 mtg with taxes and PMI included per month. Add to that 1% of the total cost of the home for repairs, add to that higher utilities ( it's more expensive to heat a home vs apt)it should be about 1800 Piti 90 pmi 500 taxes 250 repairs for a montly total of 2540 w/o utilities, Save the difference btwn that and your rent for one year, really feel that payment. Then look at home prices with your xtra money.
Im am sure you are feel priced out of this market, but believe me I have been on both sides and the feeling of being priced out does'nt match the hopelessnes of being "priced in" (Grim)
Grim, great phrase!
KL

3/30/2006 09:26:00 AM  
Anonymous UnRealtor said...

"Stop watching hgtv those shows kill us apt dwellers!"


Oh, it's brutal, but I can't stop watching them!

3/30/2006 10:20:00 AM  
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