Friday, April 28, 2006

New Jersey Housing Party Is Over

I just want to thank Record/Herald journalist Prashant Gopal for being one of the few North Jersey journalists to cover the real estate market in a fair and balanced manner. Hats off to Mr. Gopal for his effort.

From the Record/Herald News:

Housing expert says party's over

The once-sizzling New Jersey real estate market is showing signs of going flat, according to an expert who presented his findings Thursday at the Atlantic Builders Convention.

It appears to be shifting from a buyers' market to a sellers' market, with home listings outnumbering home sales by 2-to-1 in the first quarter of this year, said Jeffrey Otteau, who owns the Otteau Appraisal Group in East Brunswick.

The clear message to sellers is that the party is over," Otteau said after the talk to a standing-room only crowd of builders. "The days of increasing asking and selling prices have passed."

In Bergen County, there was a five-month inventory of homes in the first quarter, meaning it would take that long to sell all the homes on the market at the current pace, Otteau's report said. By comparison, there was a three-month inventory in the first quarter of 2005, he said.

But Otteau said a housing crash is highly unlikely in New Jersey because of constraints on new construction, increasing numbers of aging baby boomers looking for second homes and the state's relatively strong economy.

"We aren't looking at a market that is going to crash," he told the builders. "We are absolutely looking at a market that is going to adjust."
...
The average number of Bergen County home sales dropped by 11 percent compared with the first quarter of last year, and the average number of listings increased 84 percent, according to Otteau's report. In Passaic County, where there was a six-month supply on the market in the first quarter, the number of sales dropped 15 percent, and listings were up 65 percent.

Statewide, the average number of sales dropped by 12 percent and the average number of listings jumped by 65 percent in the first quarter, compared with the same period last year, he told the crowd.
...
Appearing on the panel with Otteau was Joseph J. Seneca, a Rutgers economics professor and head of the state Council of Economic Advisers, who said the New Jersey job market is not growing at a robust pace, which could hurt the housing market.
(emphasis added)

Caveat Emptor!
Grim

45 Comments:

Blogger pesche22 said...

were being to negative over here at this blog.

i would dare anyone to go long the
housing stocks. they still have
a way to go.

Centex (ctx,nyse)will not even give
a forecast for 07.

4/28/2006 08:44:00 AM  
Blogger bairen said...

But Otteau said a housing crash is highly unlikely in New Jersey because of constraints on new construction, increasing numbers of aging baby boomers looking for second homes and the state's relatively strong economy.

Owner of the Otteau appraisal group. Nah, he is an impartial observer.

Well paying tech, pharmaceutical, and wall st back office jobs are moving to the South or overseas. NJ is losing population, prop taxes are up and going higher, NJ is one of only 3 states to have a deficit and is one of the highest states for cost of living and doing business, but housing won't go down.

I gotta go. There's a knock on the door. Looks like the tooth fairy and easter bunny are dropping by.

4/28/2006 08:55:00 AM  
Anonymous Anonymous said...

good points about jobs leaving the state but what happens when boomers dont want a second home? or those who have two want to sell their primary residents because they cant rent it or see prices declining? will that cause more of a glut??

4/28/2006 09:01:00 AM  
Anonymous Anonymous said...

The nj housing party has been over since early 2005... people are now just waking up to that reality... whoever bought a home or an investment property to flip, i wish you the best... the next couple of years are going to be rough.

4/28/2006 09:17:00 AM  
Blogger bairen said...

I was being sarcastic. If you bought a townhouse in 2003 or a sfh in 2004 or later in bubble land I would worry since you will be upside down when this bubble bursts. Houses around NJ went down 20-25% and condos, townhouses, and beach houses went down around 40% in the last bust. Why should this time be any better?

And please spare us your "my town is different" arguments. No. It's not. A rising tide lifts all ships, but an ebbing tide leaves them all equally stuck on the bottom.

4/28/2006 09:29:00 AM  
Blogger delford said...

Relatively strong economy?< Restaurant jobs, and home health care attendants, oh yead, that will keep the Bergen Co market hopping.

Boomers looking fro second homes?, I just do nto see it, boomers need to be thinking about saving for retirement.

IMHO we will see prices get back to 2003. late 2002, in very short order.

4/28/2006 09:55:00 AM  
Blogger Shailesh Gala said...

bairen: Price Drop has to be significant to make monthly mortage come down.

You have to factor in Interest rate increase as well. Since interest rates are projected to increase upto 7% from low 5%, you have 2% increase. House prices have to drop at least 20% to keep in pace with Interest rate.

So, even if house price drop 20%, the net monthly mortgage will remain same as interest rate has gone up.

I am hoping that price drop is more then 20% at the least.

4/28/2006 10:35:00 AM  
Blogger grim said...

I think this is a pretty big departure by Otteau. A few months back his report, at least to me, seemed much more positive. He made comments about the spring rally twice, which never materialized. These latest comments seem much more balanced than anything else I've read.

Remember, we're only 8 months passed what I thought was the peak of the bubble.

I don't know some can say we're in the process of a soft landing. We haven't really even begun to fall yet..

grim

4/28/2006 10:42:00 AM  
Anonymous MBoy said...

Yeah, I get a kick out of the soft landing, appreciation will stagnate nonsense.

You have to decline marginally 1st on your way down to the bottom right?

At some point at the downtrend you reach the leveling off point, then you decline. You can't decline without reaching the mid point (or at least busting thru it).

4/28/2006 11:14:00 AM  
Blogger grim said...

My feeling is that the market dynamics will not allow for prices to plateau.

Prices were rising in anticipation of future price increases. It's a positive feedback cycle, driven by psychology.

One prices plateau, the bottom will fall out of the market.

Why?

Demand was high because prices were rapidly appreciating. Potential buyers saw rapid price appreciation and didn't want to miss the boat. Seeing double digit gains pulled many into the market.

A plateau in prices will start causing shifts in psychology. The shift in psychology will push demand even further down.

The feedback cycle begins again, except in the opposite direction.

grim

4/28/2006 11:41:00 AM  
Anonymous Anonymous said...

OT-but ehre is an interesting piece from the West Coast about a group of flippers being disappointed by their experience:

http://www.latimes.com/classified/realestate/news/la-re-remodel23apr23,0,7369110.story?coll=la-home-realestate

4/28/2006 11:45:00 AM  
Blogger chicagofinance said...

grim:

Would there be any value in plotting a graph using the last market cycle peak [somewhere-1989?] and the ensuing years, and then trying to extrapolate this market peak [July-September 2005] and create an indicative plot for the balance of 2006, then forward to 2010 or so?

Not really as a prediction or estimation per se, but rather so that readers could get a sense of the velocity of how this situation may unfold, and visualize it.

4/28/2006 11:49:00 AM  
Anonymous Anonymous said...

grim,good point about feedback cycles. it is already in reverse if you consider nobody is getting olp most towns you have used for "at a glance" have been between 5-10% below ask olp. nevermind your "lowball" segments. 30-40% houses i've looked at in lake mohawk are empty. when i check last sale on empty houses almost all have been bought in last 3 years. i figure by the end of the summer panic will set in. summer has to be the best time to sell a lake house. inventory keeps growing and im just waiting

4/28/2006 11:57:00 AM  
Anonymous Anonymous said...

The majority saying the party is over are mostly in agreement that the housing market wilol not crash.

I DISAGREE WITH THEM.

This housing market is in new territory. never before has affordability been this low, never before has there been such an array of risky gimmicky loans available to the home buyer.

It truly is different this time and do not be a fool paying current prices because many will regret this decision in the future.

4/28/2006 12:17:00 PM  
Anonymous Anonymous said...

Very very Good point shailesh


"You have to factor in Interest rate increase as well. Since interest rates are projected to increase upto 7% from low 5%, you have 2% increase. House prices have to drop at least 20% to keep in pace with Interest rate."

So they need to drop more than 20% to even come down in price since financing cost are up alot.

4/28/2006 12:20:00 PM  
Anonymous Anonymous said...

I am seeing price drops all over. This is typical...a house in North Brunswick MLS616391 went up for sale apprx 2 weeks ago for a crazy price of $499,000. Reduced this week to a still crazy price of $465,00. I am not interested in this house but I drive by it all the time and I am wacthing it as a market yardstick. Still sitting on the sidelines waiting to pounce...which may be awhile!

4/28/2006 12:45:00 PM  
Anonymous Anonymous said...

If this is truely a bubble, than I believe as Grim said @12:41, that there will be no real plateau. Instead, looking at past bubbles, including the granddaddy of all bubbles, the Dutch tulip bubble, I would expect a major drop......

4/28/2006 12:50:00 PM  
Anonymous Anonymous said...

"I am seeing price drops all over. This is typical...a house in North Brunswick MLS616391 went up for sale apprx 2 weeks ago for a crazy price of $499,000. Reduced this week to a still crazy price of $465,00."

Can anyone find ou what was the last sale price for this house?

Thanks.

Just to put things into perspective

4/28/2006 12:53:00 PM  
Anonymous Anonymous said...

I dmeand my Congressman/woman to stop the high prices being forced on buyers of housing. Stop the Big profits of the real estate industry!

4/28/2006 12:54:00 PM  
Anonymous UnRealtor said...

"Can anyone find ou what was the last sale price for this house?"


Visit domania.com, and search for the address.

4/28/2006 01:00:00 PM  
Anonymous UnRealtor said...

"I dmeand my Congressman/woman to stop the high prices being forced on buyers of housing."


No one is "forced" to buy anything, this is a free market economy -- supply vs demand.

Since August 2005, demand has started drying up, and supply has increased. Now watch the prices continue to fall...

4/28/2006 01:01:00 PM  
Anonymous Anonymous said...

This might add noise to the signals, but here's a sample of some building prod. manufacturers and their Q1 results which were mostly positive:

Whirlpool (WHR)
Profit +37%
Revenue +10%

Fedders (FJC)
FY 05 Sales -25.5%
FY 05 Profit -13%
* and they just named a new CEO

Sherwin Williams (SHW)
Sales +14.9%
Earnings +36.5%

Armstrong World (ACKHQ)
Sales +4%
Operating Income +526%

American Standard
Sales +9%
Net Income -33%

I know it's an imperfect sample, but it shows there is some mixed information out there from a group of companies tightly aligned with home building.

JM

4/28/2006 01:05:00 PM  
Anonymous Anonymous said...

JM, have a pal in Florida that has some interesting take on this -- folks are buying all this stuff either to fix up homes and sell or to stay put for the long run and fix up new homes.

The business to watch are those directly tied with buildign of new homes: Lumber, roofing, in-wall plumbing materials etc.

4/28/2006 01:13:00 PM  
Anonymous Anonymous said...

Anon 2:13pm...
If you give me some names, I'll pull a few Q1 numbers.

For that last list I was trying to find publicly traded companies that are almost solely building product manufacturers. Some companies, like GE have too many divisions to get a clear view of just that part.

Let me know...I'm curious and have a personal connection to this business as well...

JM

4/28/2006 01:23:00 PM  
Anonymous Anonymous said...

"Can anyone find ou what was the last sale price for this house?"

Dont know what it went for but it was bought about 4 years back...should be an interesting number. By the way thats recently done brickface not "brick" as the listing says.

Another real POS down the street was listed last summer around $400,00.

4/28/2006 01:47:00 PM  
Blogger grim said...

Can someone with WSJ access email me a link to:

"A Soft Landing or a Crash For the Housing Market?"

grim

4/28/2006 02:27:00 PM  
Anonymous UnRealtor said...

Home Depot:
http://finance.yahoo.com/q/bc?s=HD&t=3m

4/28/2006 02:28:00 PM  
Blogger Skeptic said...

"Can someone with WSJ access email me a link to:

"A Soft Landing or a Crash For the Housing Market?"

grim"

Here you go:

http://www.realestatejournal.com/columnists/housetalk/20060428-fletcher.html

4/28/2006 02:56:00 PM  
Blogger grim said...

Thanks!

4/28/2006 03:02:00 PM  
Anonymous sugee said...

Someone said prices will come down to late 2002 or 2003 prices. I can be happy with that. Market perhaps stayed a plateu from 94 to 99, and some of the sharp increases between 99 and 02 is perhaps reasonable. In 2003, 2bd/2.5 bath,finished basement townhome in my town sold for 199K, and that is fine, even with rate hikes.

Inventory in my town went as high as 99 in November, then came down to 75 by end-Dec, and now is at about 134. Am seeing inventory moving now. But domania publishes sale prices almost after 6 months (properties that I know were closed in June 05, appeared in November/December 05). So I will know actual prices after summer I suppose.

Properties in the 400s are languishing longer, almost 8 months.

4/28/2006 03:09:00 PM  
Anonymous Anonymous said...

the home in No Brunswick was purchased in 1996 for 186,000. Not relevant today. Domaina is very inaccurate. The supply and demand has shifted and a properly priced home will sell quickly. What is priced properly? Below the competition and in great condition or else lower. Remember, pigs get fat hogs get slaughtered.

4/28/2006 03:32:00 PM  
Anonymous Anonymous said...

sugee,

don't forget to include inflation for your potential price of 2003

4/28/2006 03:39:00 PM  
Anonymous Anonymous said...

Markets work, eventually. Leverage on the way up is your best friend...on the way down it is your worst enemy.
Is the use of leverage highest than any point EVER in history, in NNJ residential real estate?
I see 98' prices.

4/28/2006 03:54:00 PM  
Anonymous Anonymous said...

I also see 9% 30 year mortgage rates, within 36 months (the hard part, when). Preceded by either a major hedge fund, bank, insurer blow up.

4/28/2006 03:57:00 PM  
Blogger grim said...

This comment has been removed by a blog administrator.

4/28/2006 04:13:00 PM  
Anonymous Anonymous said...

"It appears to be shifting from a buyers' market to a sellers' market . . . "

Doesn't he mean just the opposite?

4/28/2006 05:27:00 PM  
Anonymous UnRealtor said...

"Domaina is very inaccurate."


I haven't found a single mistake, and have looked up hundreds of homes there.

Sometimes, the sellig price is wrong in the MLS systems, which a realtor typed in, but the domania.com data comes from township records, and is absolutely accurate.

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