Thursday, June 29, 2006

Otteau Report - June 2006

From The Otteau Group (http://www.otteau.com)

MAY SALES TREND HIGHER, BUT STILL LAG LAST YEAR

Following a disappointing April, residential contract-sales activity in New Jersey trended higher in May providing some balance to the housing market. However, while buying activity in May increased 7% from April, it still ran 18% below May 2005 providing further evidence of a structural market change. Some encouragement can be taken in the slowing rise of unsold-inventory which held steady in May at a 7-month-supply of available homes. When segregated by home price, the market is now holding a 6 month supply below $600,000, 10-months between $600,000-$1 million, and 13-months above $1 million.

While there are very real reasons for the current deceleration in the residential market, the extent of that change goes beyond what can be explained by underlying fundamentals alone. Certainly the record high home prices achieved in 2005 when coupled with lagging salary increases, rising interest rates and slower population growth are solid reasons for a market slowdown. More positive indicators are also in play however such as a state economy at virtual full-employment, new home building activity at constrained levels, and mortgage rates which remain low by historical standards. Clearly, the sweeping change that has enveloped the residential market over the past 10 months extends beyond market metrics and is at least partly attributable to fears of a housing price collapse. Apparently the chorus of voices predicting this collapse and the attention they received from the media, have played a role in bringing the market to it’s current state……as always perception becomes reality!

As we look forward to what’s ahead, expect the current situation of fewer sales and higher inventory to continue for the next several years. As a result, some of the increases in home prices which occurred over the past several years will likely be reversed as motivated Sellers trade-off lower prices for quicker sales. Ironically, this is not necessarily good news for home buyers as rising mortgage rates will likely offset any savings derived from lower home prices. In fact, some home buyers will actually lose purchasing power despite a downward drift in home prices. Thus, buyers should consider whether the current combination of affordable mortgage rates, higher inventory levels and negotiable-sellers are reason to buy now rather than wait.


Just a quick word on the "underlying fundamentals". The recent changes can not be attributed to the degredation of underlying fundamentals for one simple reason. Fundamentals were not behind the movement of the market. Unless, of course, by fundamentals you mean easy money, speculators, and the NAR cheerleading squad. Lagging population growth and stagnant wages were the norm throughout the bubble years.

Don't be too scared off by the warning at the end. Do the math for yourself. If you are not sure, ask and someone here will gladly do it for you. Unfortunately, that warning will become the mantra of every New Jersey real estate agent tomorrow morning, mark my words.

Caveat Emptor!
Grim

42 Comments:

Anonymous Anonymous said...

Yeah, see, but freakishly high prices have driven a lot of would-be buyers to stay on the sidelines and save for the time when house prices fall within reach.

A lot of buyers--myself among them--have saved enough money to seriously reduce the amount needed to borrow.

So I wouldn't bank on the offsetting effects of rising interest rates and reduced purchasing power. Market conditions unrelated to interest rates are signalling the temporary demise of the zero-cash-down or 5% down home purchase, or so I think...

-Jamey from Leonia

6/29/2006 04:49:00 PM  
Anonymous Pat said...

"Apparently the chorus of voices predicting this collapse and the attention they received from the media, have played a role in bringing the market to it’s current state……as always perception becomes reality!"


O.K., so now that the market is bad, let's blame bubble blowers.

Professionals have been bubbling since 2001. Ignored.

Now that the market is trending down, it's their fault.

6/29/2006 04:55:00 PM  
Blogger Richard said...

"Apparently the chorus of voices predicting this collapse and the attention they received from the media, have played a role in bringing the market to it’s current state……as always perception becomes reality!

um, really? you think it could more to do with something actually tangible like affordability? idiots.

6/29/2006 05:32:00 PM  
Anonymous Anonymous said...

Jamey -I'm have the same attitude. We are looking to buy in the 500-600k range and only need 100-150k mtg. Rising interest rates won't really effect us as we plan to use a fixed mtg. We are not looking at houses for a few more months until prices (which we do see reducing), fall even more.
That 700k house that is out of our price range now, may fall in our range in a few more months.

6/29/2006 05:58:00 PM  
Blogger skep-tic said...

the glut of inventory at the high end says it all:

PRICES ARE TOO HIGH

6/29/2006 06:33:00 PM  
Blogger grim said...

'The waiting game'

"If it weren't for all the fuss about the so-called housing "bubble," Sylvia said her home would have sold weeks ago.

"In the old days, this [house] would've been gone in a week," said the Brookline mother of two, who agreed to be interviewed on the condition her last name not be used. "Buyers are really nervous."

Despite predictions that home and condominium prices in the Boston-area market will fall, Brookline sellers and real estate agents said the notion is a sham."

6/29/2006 06:34:00 PM  
Blogger grim said...

I love the phrase she used..

"In the old days"

How quickly we forget what the "old days" were like..

grim

6/29/2006 06:35:00 PM  
Anonymous Pat said...

Young'uns ... when I was a child, we walked to school uphill, both ways, barefoot, and..SOLD OUR HOUSES IN TWO WEEKS.

6/29/2006 06:56:00 PM  
Blogger rymingrealtor said...

Was that article confusing? Its bad its good - wont get no worse, what did it exactly say ??
I am confused by this market and whats being written about it, both from a potential buyers point of view and an insiders point of view - I have been busier and closed more sales this year than any other year since I started (2002)


????
KL

6/29/2006 07:18:00 PM  
Anonymous Anonymous said...

KL >>

In the near future I’m going to increase the number of properties I hold by an infinite percentage.

p.s. currently i don't own any property .

6/29/2006 07:34:00 PM  
Blogger RentinginNJ said...

Was that article confusing? Its bad its good - wont get no worse, what did it exactly say ??

Ah, yes. The Otteau Report. As in previous reports, they are trying to walk the fine line of intellectual honesty and not alienating their client base

They did, however, finally concede that prices will probably fall. Since all the increase in home prices occurred over the last several years, this is actually pretty significant:

”As a result, some of the increases in home prices which occurred over the past several years will likely be reversed”

6/29/2006 07:36:00 PM  
Blogger grim said...

KL,

Good to hear that you are still doing well. How about some more information? What price ranges are moving. Are you noticing downward pricing pressures? Lowball?

I'm sure many readers here would like to hear more.

jb

6/29/2006 08:16:00 PM  
Anonymous Anonymous said...

hey Grim.

This is a great web site and you really know this market. I have total respect for your opinions.

But, I have to ask you (I am new here, so bare with me). What do you do for a career? You independently wealthy that you have the time to track this market as well as you do? Just curious because you are really good at it and seem to put alot of time and effort into this site, which I thank you for by the way.

Just wondernig. Feel free to plead the fifth....

6/29/2006 08:31:00 PM  
Anonymous Anonymous said...

"Ironically, this is not necessarily good news for home buyers as rising mortgage rates will likely offset any savings derived from lower home prices. In fact, some home buyers will actually lose purchasing power despite a downward drift in home prices. Thus, buyers should consider whether the current combination of affordable mortgage rates, higher inventory levels and negotiable-sellers are reason to buy now rather than wait."

Yes, do the math yourself. Supply and demand is the fundamental principle. If buyers tend to lose purchasing power as mortgage rates rise, what will that do to demand? And what does the fall in demand do to prices? And what does fall in prices do to purchasing power? Sit tight. Fundamentals will be kind to those who believe in reality.

6/29/2006 08:38:00 PM  
Anonymous UnRealtor said...

Anyone care to reconcile these two sentences?

There are plenty of buyers, but they're just hanging around," [realtor Chobee] Hoy said. "If there is a bubble, and it bursts, I will be totally shocked."

Median prices for single-family homes in Brookline have gone down by $100,000 from last year, according to a report from MLS Property Information Network.

http://tinyurl.com/gnhf2



Why even bother quoting realtors?

6/29/2006 08:44:00 PM  
Anonymous UnRealtor said...

Saw a another house drop out of contract today after two months.

The buyers had to lose their deposit.

Houses dropping out of contract is the latest trend.

6/29/2006 08:47:00 PM  
Blogger rymingrealtor said...

Hey grim

Told you I had client an investor playing this real estate game for a while , buying a negative cash flow .... dont know why - questioned him, gave him my opinion, he still went ahead. Have had several listings, which I dont do dual agency - so while they sold I did not sell them. Also have a lot ( not just me I partner up also ) move up buyers. These have been extremely difficult because everybody is selling to buy, just did have someone lose on there sale so they wouldnt lose there buy.
This seems to me to be a market in transistion.
When I read this blog ( which I do extremely often) I believe prices will go down. But I do find the articles confusing and ambiguise sometimes.
I also attribute the fact that this is my 4th year - each year has been a little better for me, and I have more people calling me that now know me or someone they know has dealt with me. Refferals are the best kind of business , this you get from positive feedback.
Hope I answered some of your questions.
KL

6/29/2006 08:56:00 PM  
Anonymous Anonymous said...

I always wonder why we cannot invest in building new cities about 50-100 miles west(north-west) of New York and build 'super' train networks/roads between them. Not only would that increase spending, but it would also make housing cheaper. Bottom line mortgage payments can be turned to real savings. North-west of New York was just an example but there should be places where building cities would add lot of value.

We surely seem to have the money to rebuild cities that will literally go down the drain when the next hurricane strikes.

6/29/2006 09:03:00 PM  
Anonymous Anonymous said...

hey man, I agree with you about building a city.

But for some reason, america likes to have a welfare class, like those in New Orleans to throw away on instead of some real development as you pointed out.

Always something holding the brother down I guess.

6/29/2006 09:12:00 PM  
Anonymous Anonymous said...

I still am holding out for some kind of price correction. I can buy now, but choose not to. I thought that prices would be less this year. I really do not believe house prices can continue to rise, but am concerned about being unable to buy a decent home for @600k in the east, central section of NJ. Will this market be immune as I have been told from the rising rates?

6/29/2006 09:52:00 PM  
Anonymous Anonymous said...

One thing for sure, with my luck the market will crash and burn the day after i buy a house.

6/29/2006 09:58:00 PM  
Blogger RichInNorthNJ said...

Apparently the chorus of voices predicting this collapse and the attention they received from the media, have played a role in bringing the market to it’s current state……as always perception becomes reality!

Sorry... but this is the most concise way to sum up that statement.

Bullshit!

Yes, perception alone CAN turn the market (hell, look at the stock market today for an example).
But this market turn isn't just people's perception; this is factuality, existence, TRUTH.

Where was the media when the “underlying fundamentals” weren’t there for the exorbitant price increases?
I know! They reported what many thought, real estate is the best slice of heaven so jump on board.
But now this "crisis" is not a crisis but a media created frenzy?

Bullshit.
It's fact, its reality, it's TRUTH.

Don't be too scared off by the warning at the end. Do the math for yourself. If you are not sure, ask and someone here will gladly do it for you. Unfortunately, that warning will become the mantra of every New Jersey real estate agent tomorrow morning, mark my words.

Amen, brother. Amen.

6/29/2006 10:23:00 PM  
Blogger Grim Ghost said...


Saw a another house drop out of contract today after two months.
The buyers had to lose their deposit.


Not necessarily -- they might have a mortgage contigency.

6/29/2006 11:46:00 PM  
Anonymous Anonymous said...

oil 74

What are the chances of a surprise fed meeting before August?

6/30/2006 05:45:00 AM  
Anonymous Anonymous said...

@ghost

The Housing bubble

Prime lending started softening a few weeks ago — double digit percentage declines. This will be hidden in 2Q, since prime lenders had pretty good April/March application numbers. 3Q and 4Q will be tough to spin, if things don’t turn around.

Take my word on it. I’m not a broker– but, I know this stuff. The slowdown is not a subprime problem anymore…


could this be the reason? Can anyone confirm this?

6/30/2006 05:52:00 AM  
Anonymous Anonymous said...

just got an em from
a realtor in ocean.

townhouse reduced from
579 to 519.

thinking of making an
offer of $400K

6/30/2006 06:02:00 AM  
Anonymous Anonymous said...

better check if 519 is comparable with 2005 prices. I've seen few instances where they add 15% to 2005 sales and then reduce.

6/30/2006 06:05:00 AM  
Anonymous Anonymous said...

spoke to a realtor in
bergen yesterday.

Crossword puzzle books
being worked on at will.

He mentioned business is
dead. Not even lookers
and he said open houses
are a waste of time.

Indicated that the buyers have caught on and the offers are so
low that sellers are insulted.

6/30/2006 06:06:00 AM  
Anonymous Anonymous said...

imagine the nerve,buy now
another shill for the industry.

6/30/2006 06:08:00 AM  
Blogger grim said...

Like RentingInNJ said above, the Otteau organization is attempting to walk a very thin line.

They are not unbiased observers, nor can they risk alienating their client base.

The April report was incredibly bearish:

April Otteau Report

I'm wondering if the Otteau organization took some slack for that piece, heck it gave me chills.

Not to disect the Otteau report as if it were the a Fed statement, but you can not overlook this line:

As a result, some of the increases in home prices which occurred over the past several years will likely be reversed as motivated Sellers trade-off lower prices for quicker sales.

Otteau seems to be calling for the reversal of "several years" of price gains. Most surprising indeed.

grim

6/30/2006 06:21:00 AM  
Blogger skep-tic said...

many sellers will choose to wallow in self-pity, but the fact is that even if you only bought 5 years ago, you could probably sell today and still make 70-80%.

many will come to regret their greed in trying to extract that small extra gain

6/30/2006 06:57:00 AM  
Anonymous Anonymous said...

Thats just it, most sellers bought with in the last 2 years hoping to make a quick buck on the resale.

That plan ain't working.

6/30/2006 07:56:00 AM  
Blogger delford said...

Just some rnadom thoughts here on some of the posts.

No area is immune to rising interest rates, no area, that is a fact. The high high end in Bergen Co s absolutely dead. In my own zip code, the market is dead across the board, and what I predicted would happen is happening.

The 600k houses are dropping into the 500's, the 500's are dropping into the high 400's , with 499 seeming to be the hot new asking price, meanwhile the 400's are dropping into the low 400's, and the low 400's are now finally starting to drop into the high 300's. The point of all of this is that simply is that asking prices are dropping, houses with a 300K nandle have not been seen in my area since 2003.

Meanwhile inventory in my area increases with at least one new listing a day, earlier this week we had 4 in one day. Increasing inventory, decreasing asking prices, nothing selling, and we are now into July.

Finally do not worry about insulting sellers, what does that mean any how, and if they are insulted, tell em you are insulted by their high asking price.

6/30/2006 08:31:00 AM  
Anonymous UnRealtor said...

"I always wonder why we cannot invest in building new cities about 50-100 miles west(north-west) of New York and build 'super' train networks/roads between them."


Exactly this has been proposed for the Poconos area. Not sure where things stand now.

6/30/2006 08:53:00 AM  
Anonymous Anonymous said...

unrealtor..the developments in the Poconos that have the 6:00 am express buses directly to NYC are pretty popular.

Some people can hack the commute for a while, others no.

An odd phenomenon recently is that some NNJ/NYkers are actually getting jobs if they can, up there, or setting up businesses.

So, I guess on these remote homesteading projects, the risk is that the settlers go native.

Pat

6/30/2006 09:05:00 AM  
Anonymous Anonymous said...

unrealtor

Americans are spending hundreds of thousands on land, a resource that is plentiful. We should be using that money to buy the world but instead the world is buying up America.

6/30/2006 10:01:00 AM  
Blogger delford said...

As far as the Poconos and the train, do not, I repeat do not hold your breath.

I had realtives who used to live ther, boughtback in the early 80's.

One of the big selling points was the fact the train was cloming, and that was in 1983!!, and of courrse still no train.

He did the commute for a few years to Wall Strre and it killed hime, everntualy ended up back in NJ much closer to work.

Also the NY Times did an article on the Poconos a while back, on the huge amount of foreclosures in the area, as the developers made a huge pitch to lower income people from NY % NJ who ccoule never really afford the homes to begin with.

Also gang violence ete. etc. people refer to it now as the ghetto in the woods.

6/30/2006 10:11:00 AM  
Anonymous UnRealtor said...

Delford, scary stuff, thanks for the update.

6/30/2006 11:02:00 AM  
Anonymous Anonymous said...

unrealtor:
Here. Go get facts from the horse's mouth.

http://www.poconocommuter.com/AboutUs.html

I'm from there, and while I know some crime has come in with the commuters (bringing money, of course attract drugs) I always gotta stick up a little for the underdog that is NEPA.

Pat

6/30/2006 12:28:00 PM  
Blogger rymingrealtor said...

{{{{The 600k houses are dropping into the 500's, the 500's are dropping into the high 400's , with 499 seeming to be the hot new asking price, meanwhile the 400's are dropping into the low 400's, and the low 400's are now finally starting to drop into the high 300's. The point of all of this is that simply is that asking prices are dropping, houses with a 300K nandle have not been seen in my area since 2003.}}}

Delford,

Would you please tell us your area, I would like to check it on the mls.
Thank you
KL

6/30/2006 12:29:00 PM  
Blogger peaknic said...

Well, I've been following this blog for 10 months and I've finally gotten my act together to put my townhouse on the market. Prices in my area (Parsippany) have not gone down at all yet. I priced it 10% below anything else in the development and have gotten 10 walk throughs in the first week and one lowball offer that was another 10% below asking, but I didn't bite. The folks making the offer were from Arizona, where the market has totally tanked, so they are skittish to buy at all and said they'd rather rent then over pay.

I'm planning to rent in the area, so I'm not in any rush. It's one thing to give up 1-2 years of appreciation, which I've already priced in. It's another to give away my place for 100K less than what similar places have recently gone for.

6/30/2006 01:23:00 PM  
Anonymous Anonymous said...

peaknic-
when you say you have given up 1-2 years of gain

-is it 2005 + 2004 gains?

or

- 2006 & 2005 gains?

6/30/2006 02:53:00 PM  

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