Wednesday, September 06, 2006

"Finally, consider yourself warned."

From SmartMoney:

What Now for Real Estate?

SEPT. 11 TRIGGERED a chain of events that fueled the biggest real estate boom in American history.

To be fair, the foundation was already set. After the technology bubble popped in 2000, investors grew wary of the stock market and started considering real estate as an alternative investment. Then after 9/11, equities became even more volatile. The Federal Reserve aggressively dropped interest rates to historic lows. Lenders loosened lending guidelines. And folks were fearful of travel and stayed home to nest instead.

Indeed, nervous Americans took their travel budgets and money earmarked for the stock market and shifted it into either the purchase of larger homes or renovations, says Celia Chen, director of housing economics for Moody's As a result, real residential investment (both renovations and home purchases) increased as much as 40% over the past five years surpassing levels seen during the last real estate boom of the late 1980s, according to the Economic Policy Institute, a Washington, D.C.-based nonprofit think tank. Those who rode the real estate market were well rewarded. Home prices jumped 47% over the past five years while the S&P 500 increased nearly 19%.

But just as the memories from Sept. 11 are beginning to fade, so is the strength of the real estate boom. The National Association of Realtors reports that in July existing home sales decreased 11% compared with the prior year and existing home prices increased less than 1% during the same time frame. And anyone who isn't well diversified is likely to get hurt.

"Many of the drivers that had supported the housing market during the last five years have retreated," says Chen. "Now we are in the midst of a downturn and will be seeing more softening for at least the next year."
Finally, consider yourself warned. Recall the most important lesson investors learned back in 2000: All cycles come to an end. So it's time for all those novice speculators to reconsider investment properties in places like Miami and Southern California. Those who hang on trying to squeeze every last bit of profit out of the real estate market may get burned just like all those stock market investors did back when the technology bubble burst.


Anonymous Anonymous said...


That article is full of fluff, cliches & vagueness..

Softening for the next year means what exactly???

Real estate is up 47% since 2000 whereas S&P only rose 19% but prices 'only' increased around 1% in the last year (after increasing 47% in the last 5). Doesn't seem so bad to me.

The economy is also doing well. Last I heard, wage compensation is rising at the fastest pace since 2000 with unit labor costs rising by the highest amount since 1990.

If anything, it seems like the danger now is from an overheating economy and inflation from a wage price spiral due to a labor shortage setting up.

Since this is a NJ blog, we are talking about NJ & the NYC metro area where real estate is still doing pretty well. People here are under the belief that the prices you see on Craigslist & in the NY Times are only the 'asking price'. Sure, offer 30% less than that asking price and delude youself into thinking that your offer will be accepted.

Oh and by the way, oil prices are under $70.00 at a three month low, interest rates are stable to falling with 10 year treasury bond well below fed funds, fed reserve has indicated that it is done raising rates, and mortgage rates will be headed back under 6.00%.

Seems like some bullshit scare tactics if you ask me.

9/06/2006 07:47:00 PM  
Anonymous Anonymous said...

{{{"Many of the drivers that had supported the housing market during the last five years have retreated," says Chen. "Now we are in the midst of a downturn and will be seeing more softening for at least the next year."}}}

How have they??? Mortgage rates are only up to about 6.40% on average which is still below the lowest point reached in fall of 1998 when 30 year fixed rate was 6.47%..

Employment & wages are still doing great by anyones standard especially in the NYC metro region which leads the nation in job & income growth.

You still have very favorable demographic trends with many wealthy people from other parts of the country investing in NYC real estate. A large percentage of new buyers in NYC, Hoboken & Jersey City are recent college grads who are purchasing many of the new condos going up in Hudson county and in Chelsea, Tribeca & the Financial District.

9/06/2006 07:53:00 PM  
Anonymous UnRealtor said...

Poster #1, buy now at a 100-year peak because prices can only go up?

Real estate cycles no longer apply?

Can you honestly look at the above graph and not see a problem signaling a drastic correction? (which is already underway)

9/06/2006 08:11:00 PM  
Anonymous UnRealtor said...

Here's a nice price drop:

MLS 2268598

Apr 19, 2006 - $2,295,000

Sep 09, 2006 - $1,850,000

That's a $445,000 price drop (19%).

9/06/2006 08:13:00 PM  
Anonymous Anonymous said...

"Sure, offer 30% less than that asking price and delude youself into thinking that your offer will be accepted."

It is the sellers that are dilluted in thinking that they can still fetch asking prices. If you are on the buy side for the past 6 months you will notice price drops like crazy in hudson and monmouth counties. And the inventory continues to swell.

As for an economic outlook: Unemployment 4 week moving average? 311,250. Gas is @ 70 a barrel, a three month low. That sure isnt saying much when we are still a quarter away from 3 dollars a gallon. And that 70 a barrel WILL climb again.

And you probably voted for Bush, drive and SUV and have your house for sale.



9/06/2006 08:16:00 PM  
Anonymous Anonymous said...

John Kerry owns an SUV, and 8 or 9 houses worth over $40 million in total, of which at least one is probably up for sale.

9/06/2006 08:48:00 PM  
Anonymous Anonymous said...

wow you know a lot about John Kerry

9/06/2006 08:53:00 PM  
Anonymous Anonymous said...

Wait till Hill gets into
office . NJ will be right
up her ally.

We ain't seen nothing yet.

They be dancing in the street.

9/06/2006 08:57:00 PM  
Anonymous Anonymous said...

RE postulate 1:
The number of sellers/realtors posts on this blog glorifying NJ real estate is directly proportional to their anxiety levels.

9/06/2006 09:00:00 PM  
Blogger bubbletuner said...

Anyone who leaves a comment denying the worsening real estate climate in northern NJ is in pure denial or simplying hiding behind a wall of fears-
I've been watching the market in Bergen County for the past 9 months. It is simply remarkable how much things have changed. In one of the most upscale communities of new construction homes in Woodcliff Lake (approximately 1.3-1.5 million dollar range)it is estimated that nearly half of the new homeowners have not sold their prior homes yet. There is an immense fog of fear as these new homeowners move into their new overpriced homes and begin paying 2 mortgages as they continue to try to sell their slightly smaller homes at 2005 peak prices. I've been told by realtors in Woodcliff Lake that "the market has not simply slowed down, it has evaporated"- there are so few home buyers out there willing to pay asking prices; there is a continued stalemate between sellers and buyers which will crumble as trapped sellers as I describe above have no choice but to sell at true market values. And I believe this cycle will come to light in the next few months. I continue to watch and wait with much excitement.

9/06/2006 09:23:00 PM  
Blogger chicagofinance said...

bubbletuner said...
I continue to watch and wait with much excitement.
9/06/2006 10:23:58 PM

b-tune: excitement? fear? traps?

buy a home you want, at a price that is appropriate - yes

use your resources to make shrewd investments at strategic opportunities - yes

sadism - why?

9/06/2006 09:47:00 PM  
Blogger RentinginNJ said...

interest rates are stable to falling with 10 year treasury bond well below fed funds

That's what we call an inverted yield curve. It means that the bond market expects the Fed to lower rates in the future. And why, prêt ell, would the Fed lower rates? That’s right, Recession.

Sure, offer 30% less than that asking price and delude youself into thinking that your offer will be accepted.

Sure, I agree that most sellers aren’t accepting 30% below asking. If they were, sales in NJ wouldn’t have fallen 25% year – over – year while inventory ballooned by 67%. So, while sellers might not be taking lowballs, buyers aren’t paying asking price either. It’s a classic Mexican standoff.

9/06/2006 09:49:00 PM  
Blogger bubbletuner said...

gotta reply to that last one-
yes fortunately I have the resources to jump into the market right now. I have the down payment, I have the credit...but I'm no idiot. And I must say, all my friends who recently graduated from grad school also are waiting out the market cycle. The feeling is that we don't want to put our money down and watch the equity shrink slowly as the natural real estate cycle continues to ebb downward. That is precisely the point- real estate is not the place to make a profit in the next couple of years. Okay, I'm not sure how low it will go (nobody knows), but EVERYONE knows real estate is no place to make money right now. In truth, every finanacial advisor I've visited tells me the same thing. Real estate is cooked. The party is over. It is slowing across the board as its inevitable spiral downward continues to take hold.

9/06/2006 10:02:00 PM  
Anonymous Anonymous said...

seems like a couple of posters have learned nothing from the dot-bomb era. The word is out, nobody wants to buy your stinky over priced house and have the jack-ass label on them. The media has a hold of this one now and every single tube boob knows all too well; its not the time to buy. That story is not bound to change either. why buy now when the same place will be 20-30-40 + percent cheaper next year? Nevermind that the number of people that can afford to buy these homes has all but evaporated. End of 1Q 2007 might be the end of days for the non believers.

9/06/2006 10:17:00 PM  
Anonymous Anonymous said...


I like the way you think.


9/06/2006 10:27:00 PM  
Blogger spla-yer-krunge said...

Ezekiel 25:17.

"The path of the righteous man
is beset on all sides by the inequities
of the selfish and the tyranny of evil men.
Blessed is he who, in the
name of charity and good will,
shepherds the weak through
the valley of darkness,
for he is truly his brother's keeper
and the finder of lost children.
And I will strike down upon thee
with great vengeance and furious anger
those who attempt to poison
and destroy my brothers.
And you will know my name is the Lord
when I lay my vengeance upon you."

9/07/2006 02:17:00 AM  
Anonymous Anonymous said...

spla-yer-krunge: did i miss somethere here? WTF are the bible verses here for? are you saying that you cracked the code and somewhere hidded in it is the real estate collapse ? ;)

9/07/2006 05:20:00 AM  
Anonymous Anonymous said...

Where was my brother's keeper over the last 4 years when I was shut out of buying?

I didn't see any shepherds trying to help this little lamb, just climb over me to get to the top.

O.K., fine...I've turned the other cheek, and am willing to help out anybody I can on the way down, but don't expect me to pay any more than HALF of what houses are going for in my town. Yup, I'm a 1999 fan.


9/07/2006 06:29:00 AM  
Blogger thatbigwindow said...

Poster # 1 needs to step away from the "Rich Dad, Poor Dad" book

9/07/2006 06:47:00 AM  
Anonymous Anonymous said...

Chicago says,

"sadism - why?"

I'm a U of C grad too, and I'm pleasantly surprised that there's another alum out there who doesn't buy into the thoroughly sadistic culture of the old Grey City.

"Sadism--because!" should be the motto of UC. Then again, I was in the English department.

Anyway, your point is well taken, but a little glee is understandable because there has been so damn much arrogance from the underwater homeowning "aristocracy" of late.

Same atmosphere as the end of the stock boom. There was a lady at my church who had a sack full of shirtboards--shirtboards!--with all her "hot stock information" toted up on them in magic marker. She fell amazingly silent in 2001.

Pride goeth before a fall and so forth.

The scary part, really, is that we didn't learn from the stock bust. Will we learn from this one??

9/07/2006 07:30:00 AM  
Anonymous UnRealtor said...

"spla-yer-krunge: did i miss somethere here?"

Yes. Watch Pulp Fiction and you'll get the joke.

It's a quote Samuel L Jackson used in the film.

9/07/2006 08:49:00 AM  
Anonymous Anonymous said...


You know what they call a Quarter Pounder with cheese?


9/07/2006 10:19:00 AM  
Blogger spla-yer-krunge said...

BM, what that stand for, b*wel movement? Jus' kidding. UnRealtor, thou art prescient. Jamey and Pat, you got the spirit. Glory be. :-)

All others: America sleeps. You and I. God, and I, love his chil'ren. His chil'ren are errant, though, and need a spanking.
See and Nader (two opposites in sync). We shall reap what we sow, innocent and guilty alike. Consider thy ways. (I am not religious in the least; that dogma is the source of much of the human burden).
Our profligate ways are responsible for a current acct deficit that feeds a WORLDWIDE asset bubble.

America is good at musical chairs. We let the elite teach us. But, we forgot the key outcome and care not about the damage along the way. And that our efforts only accrue to those elites. Reap what you sow. After it's all over, it'll be hard to realize you've been a fool and wasted your time. But, as Gandalf says, that's your only choice...what to do with the time given you.
Bye for now...

9/07/2006 04:18:00 PM  

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