Sunday, July 02, 2006

Housing Bubble Looms

From the Asbury Park Press:

Housing bubble looms on horizon
By Al Hassinger

Real estate has been a hot topic. Owners talk about the latest house that sold or is listed in their area or the money a friend made selling property. But as things have cooled, the conversations are about the potential of a real estate bubble.
There are two camps in this debate. The first says there is no bubble and the market will simply cool. That is the soft-landing crowd. This group may be involved in the industry as home builders or real estate agents.

There are also investors who bought houses to "flip." Flippers are gamblers, hoping to get someone to pay more for the same property in a short amount of time because of a perceived scarcity of houses.

Also in the soft-landing camp are people who have used increasingly creative financing to buy larger, more expensive, houses. These are people who bought houses with adjustable rate mortgages with little or no money down. Some of these mortgages are interest only or negative amortization products. These borrowers have to be optimistic because they have little or no equity in their homes. The only thing that keeps their heads above water, equity wise, is a rising market.

The second camp are those who believe there is a bubble. They are more than likely seasoned property owners. They invest for the long term. Real estate investors bought property that had real net income. People bought houses that they could afford on their incomes and, if the monthly costs were too high, they bought smaller houses or put down more money to lower their monthly payments. They also locked in long mortgages, giving them piece of mind knowing what their payment would be for years out and knowing they would be building equity.


Anonymous Anonymous said...

Click on the "Print Article" button...this article has another paragraph.

7/02/2006 10:05:00 AM  
Blogger grim said...

A quick search in showed 1,220 single-family houses listed in the greater Red Bank area at the end of March. Today there are 1,572, and if you include condominiums the number is over 2,000. "For sale" signs are popping up overnight. Think about how bubbles act.

7/02/2006 10:20:00 AM  
Anonymous Anonymous said...

I agree with you Grim.

Literally overnight, they are popping up.

I think we are at 52 week lows on all the HB stocks too.

I am just wondering where the hell the bottom is going to be? Now that is going to be the real question and a very hard one to predict. Any guesses?


7/02/2006 03:09:00 PM  
Anonymous Anonymous said...

And how much is this just media hype & sensationalism especially in the NYC metro region where these 'creative financing', interest only & neg am type loans are pretty rare??

People have the money and are not buying homes 5 times their income. Those who are priced out are just moving to another part of the country.

Remember in this region a good percentage of sales are of co-op & condo apartments where the co-op & condo board does a full review of the buyers finances & credit and must approve the sale.

Plus, rents are rising by the fastest rate since 1999 & 2000. You can't even find anything larger than a studio for less than $1,500 unless you look in Paterson or Newark, or out in central Suffolk county on Long Island

7/02/2006 04:46:00 PM  
Blogger grim said...


You seem to have forgotten to post the statistics/data that back your statement.


7/02/2006 04:52:00 PM  
Anonymous Anonymous said...

Good comeback Grim,

But this blogger brings up some good points. I think nyc (manhattan only) is going to weather the housing storm a little bit better than NJ. There is alot of money that gets sloshed around here. What is unique in nyc is that it is a old money vs. new money system (we are talking REAL money) at work.

The blogger is right. The creative loans in manhattan are rare, and coop boards do that review of buyers. You have to be alot more credit worthy in manhattan as compared to NJ, whereas in NJ if you have a breath, they will give you a loan.

Meaning, people whom are buying apts, although exspensive, can afford it. For now anyway....a down tick in the economy will change things.


7/02/2006 05:49:00 PM  
Blogger grim said...

You folks must have never heard of negative pledge loans..

These loans are designed to 'get around' co-op minimum financing requirements..


7/02/2006 06:24:00 PM  
Blogger grim said...

Dated, but relevant:

Turf; Co-op Buyers Sidestep Rules

IN New York City real estate circles, there is what even proponents call ''a dirty little secret'' that is getting bigger: buyers are taking loans and deceiving strict co-op boards, while using the loans to free their own money for investment.

As real estate and banking experts describe the practice, many would-be buyers are taking out secret bank loans to finance a greater percentage of their apartments than the boards allow. These loans let them skirt co-op board rules that mandate how much money a buyer can borrow.
''Negative pledge loan'' is a banking term. Such financing occurs when an owner finances his co-op in excess of co-op board limitations. It is the answer for an increasing number of affluent apartment buyers, in the view of two dozen mortgage brokers, bankers, real estate agents and lawyers familiar with the practice. This year, it will affect scores of co-op buyers, purchasing hundreds of millions of dollars worth of apartments.

David Clurman, the former Assistant Attorney General of New York who wrote the state's co-op laws, said that negative pledge loans are clearly among the reasons that the prices of the most luxurious apartments are skyrocketing. Without the loans, he said, buyers might have to use their own money and would be less likely to tie up such large sums.
Dolly Lenz, a senior vice president at Sotheby's International Realty, agreed. ''Since the advent of negative pledge financing -- and it hasn't been that long -- co-op prices have been driven up, and there's a definite relationship between the two.'' That the Internal Revenue Service has ruled that negative pledge loans are deductible only makes them more appealing, she said.

7/02/2006 06:28:00 PM  
Anonymous Anonymous said...

Ohh...good point Grim. I didn't think of that one.

I stand corrected. Hold me accountable.



7/02/2006 07:41:00 PM  
Anonymous Anonymous said...

This negative pledge stuff is absolute BS Bull.

Also, I said condos as well as co-ops in NYC (Including the 'other 4 boros' as well as Manhattan) do a full review of the buyers finances, credit report, assets, employment, and references.

Everyone knows that co-op & condo boards are much stricter than banks and require not only 20% - 30% down, your total gross monthly income must be 3-4 times the total PITI (including mortgage + maintenance).

Don't believe me?? Ask any real estate in any of the 5 boros or on Long Island.

I DO NOT believe in any of this bubble nor economic slowdown BS that is being spewed by the media.

NYC has become one of the wealthiest regions in the country where people have more than enough money to pay market rate rents or in the high 700K's for a one bedroom apartment.

Just look at all the condos going up downtown and how most are 80% sold by the time construction is completed.

7/02/2006 08:04:00 PM  
Anonymous Anonymous said...

Not in the most of the condos near the waterfront, or any building east of the turnpike extension. I think 20% or 30% down is the minimum amount required by these developers and condo associations in Jersey City & Hoboken.

Their biggest fear (like that of the co-op boards on the Upper East & Upper West Sides) is the wrong element moving in since they live so close (think Harlem or Journal Square)

7/02/2006 08:07:00 PM  
Blogger chicagofinance said...

Whatever....your schpiel is soooo summer 2005...

7/02/2006 10:43:00 PM  
Blogger grim said...

Can you list off those 20-30% buildings, I'd like to confirm those numbers.


7/03/2006 05:00:00 AM  
Blogger delford said...

anoymous: I am in lower Manhattan, and there are tons of condos for sale, and more in various stages of completion. Bloomberg ahad a n article back in teh begining of the yars discusiing the fact that there will be a glut of these things, yes even in Mnhattan.

I supsect that you are not originally from the area, and have some perverse notin of NYC, and prices can nevr fall etc, guess whatNYC was just as wealthy last time the real estate market fell, and fall it did even in Mnhattan. I am not sure if you are really that naieve, or you just post your silliness to get a rise out of people.

7/03/2006 09:23:00 AM  
Blogger chicagofinance said...

anon troll:


[relevant excerpt]

One New York–specific “dirty little secret,” for example, is the “negative pledge” co-op loan. Co-op boards often restrict the amount of mortgage debt a resident can carry, usually to between zero and 50 percent of the purchase price. As the Website of one mortgage broker makes clear, however, with help, these rules can be ignored: “Negative Pledge financing is offered by a select group of lenders that understand the New York marketplace. They don’t advertise their services, but we know who they are.”

How does a negative-pledge loan work? The lender gets in on the game. The borrower gets two commitment letters—one for the permitted financing, the other for the rest—and the co-op gets a resident secretly leveraged to the hilt. New York co-op boards are the last organizations most people have sympathy for, but this may not be a defense for misleading them.

7/03/2006 11:56:00 AM  
Blogger Roadtripboy said...

This same "anon" has been posting the same song and dance on a number of threads for awhile now. He/she is the $300 jean queen. Personnly, I think he/she is a realtor or someone in the housing industry with a vested interest in seeing this bubble continue.

7/05/2006 12:54:00 AM  

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