Saturday, August 12, 2006

Prices not falling in N.J.

From the NY Times:

Sales Are Down, but Prices Aren’t

AN analysis of housing sales over the first six months of the year shows a much weaker market: volume dipped by 17 percent statewide and the inventory of unsold homes rose by 70 percent.

There are currently enough homes on the market to satisfy overall demand for the next eight months, by the reckoning of Jeffrey Otteau of the Otteau Appraisal Group, a company that advises real estate sales agents and trains them to deal with market conditions.

But prices have not plummeted, and experts do not expect that they will.

Broken down by price category, there is a seven-month supply of homes priced at less than $600,000, an 11-month supply of houses priced at $600,000 to $1 million, and a 16-month supply of dwellings listed for more than $1 million, according to Mr. Otteau’s latest report, which was issued at the end of last month.
...
Even in counties where sales have been consistently buoyant in the last decade, Mr. Otteau’s statistics reflected markets gone limp.

In Bergen County, sales were down 14 percent in the first half of this year from a year earlier, and inventory as of June 30 was up 85 percent; in Essex County, sales were down 14 percent and inventory was up 50 percent; in Hudson County, sales were down 15 percent and inventory was up 73 percent; in Monmouth County, sales were down 16 percent and inventory was up 57 percent; and in Morris County sales were down 18 percent and inventory was up 66 percent.
...
“I remember selling a condo in West Orange in 1986 for $288,000,” said Ken Baris, president of Jordan Baris Inc. Realtors. “Then, when the market really did drop, I sold the same unit again in 1993 — for $150,000.

“That condo today — a three-bedroom, two-and-a-half bath unit at Eagle Ridge — would sell for close to $400,000,” he said. “It gained tremendously in value over these boom years, and while its value might be down a bit from the peak of the home-buying frenzy, there is no crash in the marketplace, or bursting bubble, or anything remotely like that.”

Mr. Baris said there is simply no chance, in his opinion, that the value of the condo he cited might drop as sharply as it did 15 years ago because, he said, “this market just isn’t like that,” for a variety of reasons.
...
“Given that the New Jersey housing market realized an 87 percent increase in home prices from 2000 to 2005, the adjustments now taking place come as no surprise,” said Mr. Otteau, referring to asking prices.

He predicted a “bumpy ride” over the next few years if mortgage interest rates continue to rise, along with energy prices, and buyers and sellers struggle to assess the impact of such increases on home values.

“There is mounting evidence,” he wrote in his report, “that home prices will decline over the short term as motivated sellers make decisions to accept a lower selling price in exchange for a quicker sale.”

29 Comments:

Anonymous Pragmatist said...

Prices aren't falling in NJ because sellers haven't woken up yet and realized that they are no longer going to get 2005 prices for their house.

The houses in my neighborhood that are priced to reflect the reality of this market are still selling relatively quickly. Tear-downs are still selling relatively quickly. But those sellers who are clearly priced for six months ago are finding their houses languishing.

And because of this, the properties are becoming "shopworn", where if they'd priced them right in the first place, they would have sold by now.

The REAL schmucks are the ones turning their little postwar Cape Cods into McMansions with home equity money.

8/12/2006 07:32:00 AM  
Blogger grim said...

Interesting piece out of Delaware.

The fight isn't just to buy a home

The last time interest-only mortgages were common was in the 1920s. Rather than paying down their debt, homeowners invested in the stock market. It crashed in 1929.

Subsequently, real estate prices collapsed during the Great Depression and lenders stopped making interest-only loans for nearly seven decades. Could it happen again?

If history has taught us one thing, it is to learn from our mistakes. Over the last decade we have been stubbornly creating the right mix to invite economic disaster. From the 1999 repeal of the Glass-Steagall Act -- enacted in 1933 to ensure a separation of banking from insurance, commerce and securities -- to the mainstreaming of exotic mortgages.
...
Unfortunately, the exotic mortgages are setting the stage for what I believe to be the next economic tsunami to hit our nation. Delaware is particularly vulnerable because housing prices have risen so fast and so high that without exotic mortgages, homeownership is out of reach for many Delawareans. The sheer risk the lenders are taking in mainstreaming these exotic mortgages poses an economic risk that I fear is beyond comprehension. Only in the past few months have we even commissioned (and completed) a foreclosure study which in all honesty does not capture what I believe to be the real risks.

These exotic mortgages became mainstream only in the recent past two to three years. While I have been talking to first-time homebuyers trying to scare them away from exotic mortgages, it is a message that is not well received. First, I cannot compete with the frequency of messaging that contradicts my message. Second, my message is harder to swallow. I am asking the dreamers of homeownership to exercise patience. In this instant gratification society, the message is lost before I even open my mouth.

8/12/2006 07:41:00 AM  
Blogger grim said...

Found this piece interesting as well. This piece comes to us from Australia..

House boom 'not making lasting wealth'

Australia's recent house price boom is unlikely to have created real long-term wealth for the economy, a report shows.

Falling interest rates accounted for much of the house price appreciation in Sydney and other capital cities that began in the late 1990s and moved into top gear around the turn of the century, Fat Prophets says.

Lower interest rates allowed borrowers to take on larger amounts of debt than would have been possible under a higher interest rate scenario.
...
"The point of all this is that a housing boom in itself does not create real long-term wealth for the economy," Mr Canavan said.

"While certainly many people have done well from the boom, there are just as many others who are now looking at taking on massive debt to satisfy a basic need."
...
"A housing boom only generates lasting wealth when deserved - that is, when population growth and rising average incomes push prices up," Mr Canavan said.

8/12/2006 07:49:00 AM  
Blogger Richard said...

the housing market may of made a transition to a concept similar to leasing cars. you buy the house but you concoct a creative financing arrangement to get you a monthly payment you can afford. you never build equity. in fact if you go 'underwater' like you do on a car you roll over the balance into the new financing arrangement either on an existing or new property. this is what seems to be happening today.

8/12/2006 08:03:00 AM  
Blogger jayb said...

Where is Conress and the Fed in all this? Isn't it govt's job to protect and promote the public good? Why not make these fancy financing tools illegal? If it's obvious to us "layman," surely Bernanke realizes this and can recommend to Congress that they put an end to this craziness.

I didn't even really know about some of these things till I became an agent, and my broker is partnered with a mortgage banker. No income verification mortgage?!?! What the $%#@?!

8/12/2006 08:32:00 AM  
Anonymous Anonymous said...

Grim,

Great piece on Australia. It is important to note that this is a worldwide phenomenon; with the exception of Japan.(what does that tell us) Look at the prices per square foot between 1980 and today in the following countries; London,Milan,Dublin,Madrid,Paris and Stockholm.A frind of mine from Stockholm tells me that the RE industry is on a very shaky foundation. He called it the get in today rates. He said the same mania is occurring. Just get me in.

Richard,
You are 150% correct in your statement.That is what this industry has turned into the last few years. It's all about what is my monthly payment today. There is no consideration what will happen when the teaser rate is gone. They'll find out it is a little more difficult to turn the house in
when judgement day comes.

BC Bob

8/12/2006 08:52:00 AM  
Blogger grim said...

The liquidity glut was (and still is) worldwide.

grim

8/12/2006 08:58:00 AM  
Blogger grim said...

Here is another example, from the IHT:

Real estate boom shatters East Europeans' dreams

Zane Apse, a Latvian born when her country was part of the Soviet Union, says her capitalist dream of home ownership has become a nightmare.

Apse, 25, and her boyfriend, who together bring home less than $1,000 a month, have searched in vain for two years to find a one-bedroom apartment in the capital, Riga. Buying in the city center, where the average unit sells for $100,000, is out of reach, she says, echoing laments from potential homebuyers throughout the European Union's new eastern members.

"I don't want to keep throwing my money away on rent, so what can I do?" said Apse, who sells advertising for a weekly newspaper, as she stared out a coffee shop window. "If you don't have rich parents, it's almost hopeless."

Real estate prices have risen as much as 100 percent in the eight former communist states that joined the EU in 2004, driven by buyers from Western Europe. Many local residents, with less than a quarter the buying power of their neighbors, have been locked out of the market, adding to frustration with EU membership and eroding support for budget cuts needed to adopt the euro.
...
"It was created without their participation and doesn't reflect at all their wealth, which hasn't changed much since EU entry," said Mariusz Sochacki, an economist at the Polish Real Estate Market Researcher in Warsaw. "All they hear all the time is that they should sacrifice for future generations and keep spending discipline, while at the same time EU investors come, buy properties and lift costs to unreachable levels."

The price surge also has triggered investor concerns that the bubble will burst as interest rates rise, saddling banks with bad loans. The boom has been fueled by floating-rate mortgages as low as 4.4 percent, but now central banks are lifting rates across the region.

"This is not sustainable," said Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Riga. "People have the mentality it will go on forever. They are wrong."

8/12/2006 09:00:00 AM  
Anonymous Anonymous said...

Sold during the summer of 05,but because of various family considerations, we still had to buy another house. Granted a much lower priced one, but still a purchase made at the height of appreciation. I will want to sell in about two or three more years to finally retire.
Only wish I could be renting while I'm waiting.
Guess time will tell how much more eqiuity I'll lose.

8/12/2006 09:06:00 AM  
Blogger grim said...

A good friend of mine did the same. I'm planning on writing up a story about his experiences, but we haven't had any time to sit down to put it together.

He sold at the peak of the peak, got an amazing amount of money for his home. He sold FSBO, so there were no commissions to pay out.

He rented his house back from the new owner for a few months while his daughter finished out the school year. The rent payment didn't even cover the mortgage and tax payment of the new owner.

Once that was up, they moved in with family for a month or so. The problem was that their daughter was still in school, so they needed to find a place by the end of summer.

They lowballed like crazy. They were determined not to settle. They are closing on a house at the end of this month. A solid lowball. There was another house they were very interested in, but the owner wouldn't accept their offer, and they wouldn't budge.

After the new offer was accepted, the agent for the other home called them back and asked them if they were still interested, at their original lowball price. Go figure.

If they were able to wait a few more months, I think they would have gotten a little more for their money. But there were other circumstances (school), and the fact that they were in it for the long-term.

Either way, we both agreed, it was mostly a wash. They sold high, made a solid profit, but rolled that into another house. Traded one asset for another, so to speak.

He is a good example of someone that bought/sold, but will be almost entirely unaffected should prices fall.

The buyer of his old house, well, that is another story. The buyer put less than 5 percent down with a big IO loan and a piggyback to make up the difference.

grim

8/12/2006 09:25:00 AM  
Anonymous Anonymous said...

In all bubbles, prices are the last thing to fall.

So, look out below. Because the velocity is not important, its just the destenation.

SAS

8/12/2006 09:38:00 AM  
Anonymous Anonymous said...

Question: What's a reasonable lowball just now, if one is seeking a nice house in a town with good schools? A Montclair, a Maplewood, a Ridgewood ... And please please spare me the booyah stuff.

I ask this because, realtor hype aside, we are not yet in a buyer's market. But it's not a seller's either. So I'm trying to figure what's most likely to land a house, with some patience. 10 percent? 15 percent? Off asking

Thanks

8/12/2006 10:34:00 AM  
Blogger grim said...

Really depends on the property. Some homes are still priced somewhere in the stratosphere, while others are priced more competitively (although still overpriced in my book)

I've noticed a number of properties hitting the market that have significantly undercut all of the competition. Obviously, these properties sold quickly. The overpriced homes continue to sit, continue to see price reductions, continue to be withdrawn and relisted.

I believe we're still solidly in a sellers market. Disregard what you might hear on this from the media. Most will claim buyers market when the inventory hits the 6-7 month range. 6 months worth of overpriced inventory doesn't a buyers market make.

grim

8/12/2006 10:46:00 AM  
Anonymous Anonymous said...

I have been monitoring Middlesex for a while now (say 10 months). The inventory of SFHs has gone up very fast, but the prices have not reduced yet. The best I see is to the levels of early 2005.

People in this area are shocked by the difference these few months have made. Nothing is moving at all. Bunch of houses are under contract but stay there for loooong time.

Central Jersey Observer

8/12/2006 11:20:00 AM  
Anonymous Anonymous said...

Debt junkies will wakeup real soon to deprciating assets while the debt associatyed with it stays the same. Bad formula for financial slavery.

Babababa

Bob

8/12/2006 11:36:00 AM  
Anonymous jay said...

He is a good example of someone that bought/sold, but will be almost entirely unaffected should prices fall.

I really don't understand how he will be unaffected. Are you saying he will be unaffected because he got such a good discount on his new purchase? Or because it's a lower priced house than he sold, and given the same percentage drop will translate to less equity lost?

JAY

8/12/2006 12:06:00 PM  
Blogger chicagofinance said...

"Mr. Baris said there is simply no chance, in his opinion, that the value of the condo he cited might drop as sharply as it did 15 years ago because, he said, “this market just isn’t like that,” for a variety of reasons."


Such as????????????

I can't stand the fact that he gave NO color on that bold statement.

8/12/2006 12:08:00 PM  
Anonymous Anonymous said...

Not all those turning little post-war capes into McMansions are "schmucks." If they bought those capes 7 or more years ago, expansion is potentially much cheaper than buying a new home.

8/12/2006 12:11:00 PM  
Blogger chicagofinance said...

Anonymous said...
Question: What's a reasonable lowball just now, if one is seeking a nice house in a town with good schools?

So I'm trying to figure what's most likely to land a house, with some patience. 10 percent? 15 percent? Off asking
Thanks
8/12/2006 11:34:03 AM


From my big mouthed perspective, I am firmly in the NO-BALL camp. Cross off 2006. I am not trying to be smart, just sensible. Too much uncertainty at this juncture.

8/12/2006 12:19:00 PM  
Anonymous Jay said...

“I remember selling a condo in West Orange in 1986 for $288,000,” said Ken Baris, president of Jordan Baris Inc. Realtors. “Then, when the market really did drop, I sold the same unit again in 1993 — for $150,000.

“That condo today — a three-bedroom, two-and-a-half bath unit at Eagle Ridge — would sell for close to $400,000,” he said.


If you were the buyer in 1986 at $288k you would have realized a 40% gain in 20 years, or 2% p/yr. This is actually a loss after subtracting inflation and interest paid.

The buyer who bought in 1993 realized approx 270% appreciation in 13 years or 20% p/yr. This is 10-times greater appreciation than if you bought at the top of the bubble in 1986.

Always a good time to buy?

JAY

8/12/2006 12:25:00 PM  
Blogger Math, like gravity, is law. said...

Grim said "From the 1999 repeal of the Glass-Steagall Act"

I add via: Gramm, Leach, Bliley. I have been telling anyone with a 1/2 brain this is what created the stock runup which resulted in a subsequent crash...then
30 yr. T-Bill is no longer offered, effect the "flight to quality" resulted in MBS market exploded...average homeowner thinks he's rich, for a few short years.
Today 30 yr T-Bill is back, Fed Funds of 5.25%the party is over.

8/12/2006 12:44:00 PM  
Blogger Math, like gravity, is law. said...

States leave Federal Governement alone for money (Fed is chasing bad guy's Worldwide, costs money), local municipalities jack up valuations and tax homeowners and lefty/corrupt States like NJ spend like drunk monkeys.

8/12/2006 12:48:00 PM  
Blogger Math, like gravity, is law. said...

jayb said...
"Where is Conress and the Fed in all this? Isn't it govt's job to protect and promote the public good? Why not make these fancy financing tools illegal? If it's obvious to us "layman," surely Bernanke realizes this and can recommend to Congress that they put an end to this craziness."


Do you still believe in the tooth fairy?

8/12/2006 12:51:00 PM  
Blogger Math, like gravity, is law. said...

I add via: Gramm, Leach, Bliley. I have been telling anyone with a 1/2 brain this is what created the stock runup


While it was happening, not after the fact.
I sold a small investment banking firm in NYC in early 99' 3 years laster they went bust.

8/12/2006 12:54:00 PM  
Blogger Math, like gravity, is law. said...

later

8/12/2006 12:55:00 PM  
Anonymous Anonymous said...

Here is a property in ellicott city maryland. I know this is not nnj but look at these stats on a MCMANSION!!

Year Built: 2000
Building Square Feet: 4736
Transfer Date: 20050630
Sale Price: 1,235,000

here is their asking price: 1,250,000

with 6% realtor costs (75k)...looks like this guy is cruisin for a brusin...

also, has anyone else noticed how some of these mcmansions of the so-called millionaires are sparsely decorated...they don't look anything like the model homes you can tour for toll, kara, etc.

it is only a matter of time before this happens here...btw, ellicott city, md is #4 on the best places to live my money magazine...not for this guy!!

8/12/2006 01:21:00 PM  
Anonymous Anonymous said...

not my money magazine...by money magazine

8/12/2006 01:23:00 PM  
Anonymous Anonymous said...

Take a look at this story' I bet some are trying this here too:

House doesn't move, but St. Joseph seems to

The Arizona Republic
Aug. 12, 2006 12:00 AM

I live in Page, and the housing market has always been very poor here. We had our four-bedroom house on the market for 14 months recently and it never sold, not even an offer. It's 2,200 square feet, and we were asking $190,000.

When I went to Santa Barbara Mission in California as a tourist, I bought a St. Joseph statue/packet (Real Estate, Aug. 5, SR1), buried it according to directions and said the prayers, with hopes that the house would sell during the last four months we had it on the market.

After we took the house off the market, we wanted to unearth St. Joseph.




We dug all over in the front yard. The statue was gone. So not only did the house not sell, but St. Joseph disappeared.

So our two-year dream of moving from Page to southern Arizona didn't work out. But sometimes dreams don't work out, and you can be happy or sad. I choose to be happy and am OK that we stayed in Page. St. Joseph's disappearance still spooks me a bit, though.

- Dorothy Alexander, Page

8/13/2006 06:21:00 AM  
Blogger thatbigwindow said...

If prices aren't falling, then why do I see price reduced signs everywhere?

8/14/2006 10:40:00 AM  

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