Friday, February 03, 2006

Weekend Open Discussion

Open Discussion for this weekend.

Observations about your local areas, comments on news stories or the New Jersey housing bubble, Open House reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let's have them.

Let's hear some stories about Bergen county.

Have a nice weekend everyone!

Caveat Emptor!
Grim

Gloomy Price Predictions For New Jersey

From CNN:

Hot home markets to cool down...how will your home fare?

If you've recently gambled that Las Vegas housing prices would continue to rise this year, you may be on the losing side of the bet.

According to the latest housing price forecasts from Fiserv Lending Solutions, a provider of mortgage and consumer lending services, Las Vegas real estate will tumble a whopping 8.2 percent in 2006, the largest predicted fall among the 379 metro areas studied.

Fiserv forecasts a significant stagnation in housing prices for the United States in 2006 -- median home prices overall will inch up only 1.5 percent this year. And many metro areas will experience drops, including some of the largest, and most expensive, ones such as New York (down 2.43 percent), Los Angeles (down 3 percent) and Washington (down 1.9 percent).

Metro Area / Forecast (% Reduction)
New York-Wayne-White Plains, NY-NJ -2.3%
Newark-Union, NJ-PA -0.6%
Ocean City, NJ -2.2%
Trenton-Ewing, NJ -0.5%
Edison, NJ -1.6%
Atlantic City, NJ -2.0%
Nassau-Suffolk, NY -4.5%

Caveat Emptor,
Grim

Thursday, February 02, 2006

The Otteau Report - New Jersey Real Estate 2005 YTD

The Otteau Group released their 2005 Report as well their outlook for the upcoming season:

RESIDENTIAL MARKET REACHES SATURATION POINT

The deceleration in the New Jersey’s residential housing market continued in December as the number of buyers entering into a contract to purchase a home fell by 14% as compared to one year earlier. And although the number of homes being offered for sale actually declined from November by 521 homes statewide, overall inventory finished 2005 with an increase of 12,462 more homes than one year ago. These trends do not come as a surprise, but rather reflect an ongoing slowing of the residential market which began in September.

As indicated in the table at right, statewide contract-sales activity increased 2% for 2005, while the inventory of unsold homes increased by 41%. This imbalance indicates that the strength of the residential market declined by 39% over the past year, as reported in the Market Swing column. This information is also provided on a county basis, which those counties exhibiting the greatest loss of velocity appearing towards the bottom of the chart. The weakest county performance last year was Somerset, with a swing of -80% (note: percentages may appear slightly irregular due to rounding). As a general observation, note that those counties appearing in the bottom half of the list tend to have higher home prices. While this is not absolutely true, as evidenced by Cape May County, it is generally true and provides confirmation that the weakest segment of the housing market continues to be concentrated in the higher price ranges. This trend, which has been prevalent for several years now, is likely to worsen with time and holds the potential to reach a flash-point later in this decade as the anticipated exodus of aging-baby boomers out of their present homes and into a next-phase of their lifestyle builds to a crescendo.

Surprising numbers don't you all think? A 41% increase in inventory statewide? It's hard to believe an imbalance that large wouldn't put significant downward pressure on prices. We haven't even seen the bulk of the spring inventory either, which I'm predicting are going to be rather large.

The Hudson numbers will likely come to a surprise to many, not in that they weren't expected, but because many of us were looking for a confirmation of what we've seen anecdotally.

All data, text, and tables are copyright of the Otteau Group. More information can be found on their website: The Otteau Group

Caveat Emptor!
Grim

A Lovely Four Bedroom - $564,900

WELCOME TO THIS LOVELY 4 BEDROOM, 2 BATH, NEW KITCHEN WITH IMPORTED TILE,NEW HARDWOOD FLOOR ON 1ST LEVEL-2ND FLOOR HALL & SITTING ROOM,COMPLETELY NEW POOL AREA & PROFESSIONAL LANDSCAPING PLUS MORE!!




MLS# 2200703 - Pleasant Hill Road, Randolph, New Jersey
Asking Price $564,900 (Reduced from $599,900)
Days on Market: 118

Certainly is a lovely home. Is the trash on the front lawn and dead grass part of the professional landscaping? I wonder if they imported that siding as well. Think they'll have the screen reinstalled before closing?

Caveat Emptor,
Grim

Fed Governor Bies concerned about risky mortgages

Fed's Bies says concerned on some loan practices

Federal Reserve Board Governor Susan Bies said on Thursday that while most U.S. banks were well-managed, regulators were concerned about heavy commercial real estate exposures and risky mortgage lending practices.

Speaking to a financial services industry conference, Bies outlined guidance U.S. bank regulators have issued on commercial real estate and so-called nontraditional mortgage lending practices.

...

In discussing draft guidance U.S. bank regulators have issued on exotic mortgage products such as interest-only loans, Bies repeated that supervisors were concerned risk-management practices had not kept pace with the risks that these widely available loan products could present.

She also cautioned those risks could be "heightened by a downturn in the housing market."

Bies said that in the past such products were normally offered to higher-income borrowers only, but that they now were being extended to low-income borrowers in the subprime market.

"These borrowers are more likely to experience an unmanageable payment shock at some point during the life of the loan, which means they may be more likely to default on the loan," she warned.

Bies also expressed worry that banks could face difficulties if abnormally low risk-spreads in capital markets increased. "When risk spreads return to more 'normal' levels, banks need to be prepared for the resulting impact on liquidity and pricing," she said.

In summary, the easy money is running out. Unfortunately, the concern and any resultant regulation is much too late. The damage is already done, the risk is out in the marketplace. A perfect example of closing the barn door long after the horses have run out. The proliferation of risky mortages in the marketplace now poses systemic risk to the entire real estate market.

Caveat Emptor,
Grim

Wednesday, February 01, 2006

Lereah changes metaphor - Real estate is now a ship, not a balloon

Chief NAR Economist David Lereah has adopted a new metaphor for the housing market. The real estate market has morphed from a balloon, his prior metaphor, into a large ship. I suppose the balloon metaphor was too similar to the bubble metaphor, thus needing to be replaced with something more benign. I'm surprised he didn't use the words "luxury ship" or "cruise ship", as both would elicit good feelings in most readers. This newest quote appeared earlier today in conjunction with the terrible December pending home sales index figures.

U.S. pending home sales index drops in December

David Lereah, the group's chief economist, said pending sales may edge higher in the coming months based on recent mortgage applications data that showed a spurt of renewed interest among homebuyers in response to a dip in mortgage rates.

"Changes in the overall direction of the housing market are akin to a large ship making course corrections -- it takes some time for the driving factors to materialize as a change in the sales level," Lereah said.

David surely seems to be a master of metaphor.. Or is he?

Turns out the housing market may more like a large ship than Mr. Lereah planned for..



Caveat Emptor,
Grim

Mortgage Applications Resume Decline

MBA: Mortgage applications decrease

U.S. mortgage applications fell for the first time in four weeks due to a decline in home purchase loans, as interest rates increased for the first time since November, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended Jan. 27 decreased 5.1 percent to 626.8 from the previous week's 660.5.

The fall was most pronounced in loans to buy homes. The group's seasonally adjusted purchase mortgage index declined 8 percent to 435.7 from the previous week's 473.7. The index is considered a timely gauge on U.S. home sales.

U.S. mortgage applications down

The Mortgage Bankers Association said that for the week ending Jan. 27 its index of mortgage activity fell to 626.8 from 660.5 in the previous seven-day period.

On an unadjusted basis, the group's index was down 12.1 percent compared with the same week one year earlier.


Caveat Emptor!
Grim

Tuesday, January 31, 2006

Bloomberg Budgets For Housing Market Crash

Bloomberg presented his preliminary budget earlier today. While there certainly was coverage in the local and nationwide press, one small bit seems to have been overlooked. Thanks to the readers that brought this piece of information to our attention. It seems that Bloomberg had the common sense to arrange the budget to accomodate for the potential shortfall in real estate transaction taxes.

From the NYC website:

MAYOR BLOOMBERG PRESENTS $52.2 BILLION FY 2007 PRELIMINARY BUDGET

New York’s real estate market is expected to slow, however, with a 10% decline in home prices, a 14% decline in home sales over the next few years and a significant decline in real estate transaction taxes that have buoyed the City’s tax revenue in the last few fiscal years.

Bloomberg certainly hasn't been holding back any punches when it comes to real estate. In an environment where real estate economists have been predicting nothing but gains, Bloomberg has joined the ranks of the unconvinced.

Isn't NYC too "special" for it's real estate values to ever fall? This isn't just another Bubble Blogger or Doom and Gloom Economist making predictions of a decline, this is the Mayor expecting a 10% decline in home prices. That's a rather precipitous decline for an asset that "doesn't ever go down.".

Caveat Emptor!
Grim

A Quarter Point For The Road

With a wave of his hand and a quarter point increase, Greenspan leaves the helm of the fed. I'm not going to bother with the linguistic puzzle games everyone else is playing.

Fed Ups Key Rate As Greenspan Retires

Fed raises rates again

Federal Reserve raised a key short-term interest rate Tuesday another quarter of a percentage point and said it may have to raise rates further in chairman Alan Greenspan's last meeting after more than 18 years at the helm of the central bank.

Speculation now turns to what new Fed chairman Ben Bernanke, who officially takes over on Feb. 1, will do when the Fed's monetary policy committee meets next on March 28.


Full text of the statement:

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 1/2 percent.

Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Jack Guynn; Donald L. Kohn; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas and San Francisco.

Caveat Emptor!
Grim

New Jersey Economy At Risk

From the Star Ledger:

Economists see shaky fiscal ground

New Jersey's economy is weaker than it looks, according to two Rutgers University economists who testified yesterday before a legislative committee.

While "at the surface level, the state is veryprosperous," a steady decline in high-tech jobs, unless slowed or reversed, could strand the state in aneconomic dead end, according to Joseph Seneca and James Hughes.

"New Jersey's economy is an economy at risk," Seneca said.

Seneca said New Jersey's national share of jobs in pharmaceuticals, computers, telecommunications and other technology-related industries was 5.2 percent in 1990. By 2004, that share had dropped to 4.1 percent. The decline accelerated after 2000, and one consequence is that the state is losing high-paid manufacturing and technical jobs while adding lower-paying jobs in government and the service industry.

...

Philip Kirschner, president of the New Jersey Business and Industry Association, which represents more than 23,000 businesses in the state, said a recent survey by Chief Executive Magazine ranked the state 46th out of 50 states and the District of Columbia as a place to do business -- down from 37th last year. He blamed corporate, income and other tax increases enacted in the past four years.

Caveat Emptor,
Grim

Monday, January 30, 2006

Warren Boroson - Profile Of A Real Estate Cheerleader (Continued)

Readers will immediately recognize the name of real estate shill, Warren Boroson..

If not, please read this older post:

Warren Boroson Background

Warren blessed us with another real estate gem this past week:

Morris' housing market 'vibrant;' prices up 13.5%

I was a bit upset about the bubble references in this piece, so I decided to do a bit more digging on Mr. Boroson's real estate holdings (he is, afterall, a renowned real estate author and investor).

So I searched the Bergen county tax records database, which turned up nothing. Interesting, since his website has him living in Hackensack, NJ. I did some more sleuthing and found this article:

Is it time to cash in on your home?

Who else might want to seize the opportunity to take profits? Anyone with more house than they really need. Warren and Rebecca Boroson bought their Glen Rock, N.J., home 29 years ago for $69,900 and raised their two sons there. But now, says Warren, "our children are grown and out of the house. We had four bedrooms, which is three more to mess up than we needed." Last year the Borosons sold for $579,000 and moved to a high-rise apartment in Hackensack, N.J., with a doorman and a swimming pool.

"We sold mainly to lock in the profit," Warren says. "It was a little faster than we’d planned. But if you’re planning to sell in a few years, you might as well do it now while you’re sure the market is still good."

Warren writes a financial column for the Morris County, N.J., Daily Record that is syndicated nationwide. With an eye on retirement (he’s 69), he invested his cashed-out home equity in a laddered portfolio of bonds.

Are you kidding me? You've got to be kidding me? This shill is one of the biggest real estate cheerleaders in North Jersey, but he himself has since sold his home and now rents an apartment? Is anyone here as outraged as I am about this? He continually writes pieces that read like real estate advertisements, but he himself has realized that the market was overpriced and has "cashed out".

I can't believe his trash is peddled to the public as journalism.

Caveat Emptor!
Grim

Negative Savings Rate Continues

Nine months of zero to negative savings certainly makes a trend.

U.S. Dec. Personal Spending Rises 0.9%; Incomes Increase 0.4%

U.S. personal spending increased more than expected in December as incomes grew, a government report showed, suggesting a pickup in demand at the end of 2005 that may help boost first-quarter growth.

The 0.9 percent increase in purchases, the most in five months, followed a 0.5 percent November gain that was larger than previously reported, the Commerce Department said today in Washington. The report's price gauge tied to spending patterns and excluding food and energy, the Federal Reserve's preferred measure for tracking inflation, rose 0.1 percent in December and was up 1.9 percent for all of 2005.

...

The savings rate has been negative in eight of the last nine months, indicating consumers are dipping into savings to maintain spending. Consumers spent $42 billion more than they earned last year, the biggest dip in savings since record-keeping began in 1929.

Savings Rate at Lowest Level Since 1933

To finance the increased spending, Americans dipped further into their savings, pushing the savings rate for all of 2005 into negative territory at minus 0.5 percent. That was the lowest annual savings rate since a decline of 1.5 percent in 1933, a year in which the country was struggling to cope with the Great Depression.


Personal Savings Rate
Apr -0.2
May 0.0
Jun -0.6
Jul -1.4
Aug -3.4
Sep -0.5
Oct -0.1 (revised)
Nov -0.2 (revised)
Dec -0.7 (preliminary)

Caveat Emptor!
Grim

A Disconcerting Trend - Real Estate Statistics

I came across this piece on Ben's blog this morning. I'm positing it here because I feel it is rather significant. If you've studied any economics you know the theory behind a perfectly competitive markets. If you don't, the model theorizes a type of market where no producer or consumer can influence prices directly. The model has five requirements for this to be possible:

1) Atomicity - A large number of buyers and sellers
2) Homogeneity - Good and services are perfect subsititutes
3) Perfect and complete information - All firms and consumers know the prices set
4) Equal access - All fims have access to information, technologies, resources
5) Free entry - Any firm may enter the market

The real estate market most certainly achieves the first requirement of atomicity. The second requirement is arguable in either direction, but does involve quite a bit of subjective taste. The third and fourth requirements, however, are very important in the real estate industry.

Why?

Because as long as the real estate industry controls the information and do not share it, there exists an information asymmetry in the market that gives a significant advantage to the real estate industry. This asymmetry allows those insiders to manipulate the market. Why? Because the industry has a vested interest in the market.

So why am I bringing this up today? Because of this.

Home sales on a slide across the county

Over the past several years, the News-Press has obtained sales and median price data for the South Coast from the Santa Barbara Association of Realtors. The group recently told the News-Press that it now refuses to make this data available to the newsroom. Other associations of Realtors across the county willingly continue to share sales and price information with the paper.

Is this the beginning of a disconcerting trend to hide data and statistics from the public? If so, the Realtors would be able to spin the market any way they wish. It would only be through anecdotal stories and stale data that we would be able to know the market direction.

Hopefully, intelligent readers will realize that hiding this data from the public only further damages public trust for Realtors and the real estate industry. God knows that the Realtors were not shy with their information in a rapidly appreciating market. So why change now? Well, because the market is falling apart, and it is in their best interest to do everything they can to hide it.

Caveat Emptor!
Grim

Sunday, January 29, 2006

Sunday Morning In New Jersey

A simple idea becomes huge Highlands task

It started as a relatively simple premise. The state's Highlands Act was designed to save green spaces, protect North Jersey's water supply and natural habitats, and stop construction crews from developing the remaining forests and fields of Northwest Jersey.

Now comes the hard part: turning the concept into rules and regulations.

There are many skeptics. They believe the state is moving too quickly on an enormous project that will have long-term consequences. They are concerned about a potential loss of property values and a loss of home rule to a Highlands bureaucracy.

"They are stealing our property values to redirect development. That is criminal," said Hunterdon County farmer Hank Klumpp.

"I don't understand to this day how this is going to be administered," said Montville Township Committeeman Art Daughtry. "There is no money in the bank for this. How are they going to compensate landowners? This is going to end up in the courts for a long time."

Getting away with murder

Kill someone in Essex County and chances are you'll get away with it.

At least that was the outcome in 637 murders over a recent six- year period in the state's deadliest county, a Star-Ledger analysis has found.

From 1998 through 2003, fewer than half the murders in Essex County resulted in a conviction. And even when killers were convicted, only one in four received the legislatively mandated 30-year minimum, largely due to plea bargains, the analysis found.


In Montclair, size matters ... to the planning board

They're going after the post- and-beam version of super-size fries.

Mammoth residences going up in Montclair have planners reaching for the antacids and looking to rein in the size of what are often called McMansions, a case in point being the 10 large-scale houses going up at the site of the old Marlboro Inn.

But what Mellon hears, Christina Mayer sees -- up close. "They're huge," said Mayer, who lives across the street. "It's overwhelming, and I even live in a big house."

Just as mega-size residences are taking shape, though, Montclair's planners -- like those elsewhere in New Jersey -- are rolling out new land-use rules to throw at least some additional hurdles in the way of developers.

34-home proposal derided

A housing development plan that some residents fear will impinge on a historic village in the township is smaller than originally proposed, but still controversial.

The 34 homes now proposed for 2-acre lots is five fewer than a plan discussed earlier in the month by a lawyer for the developer. Robertson Douglas originally had sought to put 43 homes on the property.


Guilty plea: I sent women into slavery at Hudson clubs

A woman from Texas admitted, in court Friday, that she helped smuggle young women and girls from Honduras into this country, then forced them to work as prostitutes and dancers in bars in Union City and Guttenberg.

"Did you know what you were doing was wrong?" Assistant U.S. Attorney Deborah Gannett asked Friday.

Isuala-Meza paused, then said, "Well, at the end, yes, I realized that."


Trump sues, claiming he's undervalued

Donald Trump has filed a multibillion-dollar lawsuit against the author and publisher of "TrumpNation: The Art of Being The Donald," claiming the book knowingly understated the celebrity businessman's wealth.

A lawyer for Trump filed a complaint in Superior Court in Camden on Monday accusing Timothy O'Brien, a New York Times business reporter, of damaging the real estate magnate's reputation. Time Warner Book Group and Warner Books Inc., which published the 288-page book in October, are named as co-defendants.

The lawsuit takes issue with O'Brien's use of three unnamed sources who said Trump "was not remotely close to being a billionaire," and put his net worth between $150 million and $250 million. Trump's suit suggests his fortune is closer to $2.7 billion.

Income Gap Widens In New Jersey

Rich man, poor man: Report shows gap growing in NJ

The income gap between New Jersey's richest and poorest residents widened dramatically over the last two decades, according to a report that also shows the top 5 percent in the Garden State had the greatest percentage increase in income nationwide.

It states that average income of the wealthiest 5 percent of New Jersey residents skyrocketed 132 percent from 1980-82, when it was $115,939, to 2001-03, when it was $268,889.

For the top 20 percent of New Jersey residents, average income rose nearly 79 percent, from $85,802 in 1980-82 to $153,362 in 2000-03. In contrast, average income for the lowest 20 percent rose just 25 percent over that span, from $16,397 to $20,391; for the middle 20 percent, average income rose 42 percent, from $42,145 to $59,929.


...

New Jersey is among the top 10 states in the disparity between lowest- and highest-income groups.

New Jersey ranks No. 9 nationally in the size on the income gap separating the top and bottom 20 percent of residents.

In 1980-82, New Jersey's top 20 percent made 5.4 times more, on average, than the bottom 20 percent. By 2000-03, that ratio had jumped to 7.5.

Income Gap in New York Is Called Nation's Highest

New York continues to have the highest income disparity between rich and poor of any state, according to a new study by two national economic policy groups.

The average income of the richest fifth of New York State families is 8.1 times the average income of the poorest fifth, according to the study, which drew from census data compiled by the Economic Policy Institute and the Center on Budget and Policy Priorities, two liberal research groups based in Washington.

...

New Jersey was ninth in income disparity, with a difference of 7.5 times, and Connecticut was 23rd, with a gap of 6.9 times.

The average income of families in the top 20 percent in New York State was $130,431, compared with $16,076 for the bottom fifth, according to data in the report.

...

Added to that, an increase in investment income helped the rich get richer, the study said.


The Economic Policy Institute (epi.org/epinet.org) is currently not responsive. I'll post a link to the full report as soon as I can access the site.

Caveat Emptor,
Grim