Weekend Open Discussion

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.

For readers that have never commented, there is a small link on the bottom of each new message that reads "# Comments". Go ahead and give that a click, you might be missing out on a world of information you didn't know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past 6 months. The archives can be found at the bottom of the right hand menu and are categorized by month.

As always, anything goes!

Second Extreme Makeover House In NJ

From the NY Times:
A Home Where the Walls Have Ears

"FOR the second "Extreme Makeover: Home Edition" episode in New Jersey in a month, ABC-TV producers found another family with extreme difficulties and another builder willing to go to extreme lengths to provide a new house within seven days — this time, with an extreme helping of high technology."

"At their new home in Bergenfield, the Llanes family will live like the Jetsons. Its features will permit them to talk to wall monitors throughout the home to ask questions that can be looked up on the Internet and receive spoken answers, or to adjust the temperature or run the vacuum with a spoken command. Four family members are blind or nearly so, and they will all be able to operate the household systems."

"Another family member is deaf, and he will be able to operate all household systems by keypad and will have the advantage of vibrating alarms."

"For an edition of the Sunday night "Extreme Makeover" show planned for this summer, the production hired the Academy Award-winning actress Marlee Matlin, who is deaf, as a guest host, and recruited Pinnacle Homes, based in Chatham, to run the construction project."

"Pinnacle brought in a total of 3,000 workers — including its own employees, subcontractors and associated businesses — to demolish the Llanes home at 114 New Bridge Road and then speedily rebuild it with what Pinnacle executives described as "probably the most technology in a single home in the country.""

New Jersey's Economic Crisis

From the Star Ledger:

Conference addresses economic issues of New Jersey

"In the coming years, New Jersey may face an economic crisis as it approaches build-out, a situation in which all the available land in the state has been either preserved or developed."

"That was the opinion of some of the experts who spoke at the Regional Planning Partnership's (RPP) Smart Growth Economy Project conference Thursday."

"Dianne Brake, president of RPP, said the aim of the conference was to bring together different viewpoints to address economic issues confronting the state. She called the conference a first step necessary in order to "make an effective strategic growth plan that reflects all of New Jersey's goals.""

""Despite the budgetary crisis, we must ensure we fund higher education," Landgraf said. He cited the out-migration of high school and college students to other states as a major economic problem for the state."

"Hallacy called cuts to education an "unfortunate aspect of a financial crisis." He said mending New Jersey's economy could take off enough pressure that budget cuts and tax increases would be utilized less frequently."

""New Jersey is an extraordinary place," Landgraf said, "but we have problems from the perspective of growth.""

Lowball! 5/2 - 5/12

Lowball! takes a look at home sales over the past week from a very different perspective. For those new to Lowball!, a lowball offer is when a buyer offers a significantly lower bid than asking in hopes that the seller accepts the offer. We take a list of home sales over the past week and pick out the sales that have the highest percentage difference between asking price and selling price.

The purpose of Lowball! is to show buyers that the market has changed and buyers now have considerably more leverage than sellers. Just a short time ago, Lowball! offers would have been laughed at and discarded, however, not any more. The fact that so many under-asking offers are being accepted is clear proof that the market is changing.The list does not contain all sales, I hand-pick the most interesting sales from the list. These listings might be the highest dollar drops, biggest percentage reductions, or sales in towns that are thought to still be 'hot'. Please note, even with double digit percentage reductions, these homes are still incredibly overpriced.

Changed the format a bit this week to break the data up into useful price ranges.

$1M and Up

MLS# 2102176 - Franklin Lakes, NJ
Original List Price $1,499,000
List Price $1,350,000
Sales Price $1,175,000 (13% Lowball, 21.6% off Original List)

MLS# 2202458 - Upper Saddle River, NJ
List Price $1,299,000
Sales Price $1,140,000 (12.2% Lowball)

MLS# 2095346 - Chatham, NJ
Original List Price $1,695,000
List Price $1,595,000
Sales Price $1,400,000 (12.2% Lowball, 17.4% off Original List)

MLS# 2213151 - Essex Fells, NJ
Original List Price $1,499,000
List Price $1,350,000
Sales Price $1,195,000 (11.5% Lowball, 20.3% off Original List)

MLS# 2242020 - Westfield, NJ
List Price $1,200,000
Sales Price $1,075,000 (10.4% Lowball)

MLS# 2091270 - Essex Fells, NJ
Original List Price $1,950,000
List Price $1,840,000
Sales Price $1,660,000 (9.8% Lowball, 14.9% off Original List)

$750k - $1m

MLS# 2236912 - Sparta, NJ
List Price $1,149,900
Sales Price $996,000 (13.4% Lowball)

MLS# 2254695 - Montville, NJ
Original List Price $1,090,000
List Price $980,000
Sales Price $875,000 (10.7% Lowball, 19.7% off Original List)

MLS# 2246496 - Westfield, NJ
List Price $837,500
Sales Price $750,000 (10.4% Lowball)

MLS# 2258440 - West Orange, NJ
List Price $1,100,000
Sales Price $990,000 (10.0% Lowball)

MLS# 2065205 - Boonton, NJ
Original List Price $1,500,000
List Price $999,000
Sales Price $930,000 (6.9% Lowball, 38% off Original List)

$500k - $750k

MLS# 2107061 - Clark, NJ
List Price $729,900
Sales Price $662,500 (9.2% Lowball)

MLS# 2235618 - West Paterson, NJ
List Price $649,000
Sales Price $590,000 (9.1% Lowball)

MLS# 2243747 - Florham Park, NJ
Original List Price $699,900
List Price $670,000
Sales Price $615,000 (8.2% Lowball, 12.1% off Original List)

MLS# 2236567 - Rutherford, NJ
List Price $675,000
Sales Price $620,000 (8.1% Lowball)

MLS# 2234467 - Westfield, NJ
List Price $579,785
Sales Price $535,000 (7.8% Lowball)

MLS# 2235154 - Weehawken, NJ
List Price $585,000
Sales Price $535,000 (6.8% Lowball)

$250k - $500k

MLS# 2208103 - Newark, NJ
Original List Price $349,900
List Price $309,900
Sales Price $255,000 (17.7% Lowball, 27.1% off Original List)

MLS# 2261406 - Clifton, NJ
List Price $499,900
Sales Price $420,000 (16% Lowball)

MLS# 2232460 - Cranford, NJ
Original List Price $424,900
List Price $399,000
Sales Price $350,000 (12.3% Lowball, 17.6% off Original List)

MLS# 2205845 - Montclair, NJ
List Price $499,900
Sales Price $445,000 (11% Lowball)

MLS# 2105816 - Passaic, NJ
Original List Price $569,000
List Price $515,000
Sales Price $462,000 (10.3% Lowball, 18.8% off Original List)

MLS# 2206749 - Wayne, NJ
Original List Price $464,900
List Price $449,900
Sales Price $405,000 (10% Lowball, 12.9% off Original List)

$250k and Under

MLS# 2250016 - Hopatcong, NJ
List Price $175,000
Sales Price $120,000 (31.4% Lowball)

MLS# 2256965 - Wayne, NJ
List Price $229,000
Sales Price $180,000

MLS# 2101449 - Frankford, NJ
Original List Price $329,000
List Price $279,900
Sales Price $230,000 (17.8% Lowball, 30.1% off Original List)

MLS# 2230084 - Hampton, NJ
Original List Price $229,900
List Price $219,000
Sales Price $185,000 (15.5% Lowball, 19.5% off Original List)

MLS# 2200574 - Liberty, NJ
Original List Price $149,900
List Price $144,900
Sales Price $125,000 (13.7% Lowball, 16.6% off Original List)

MLS# 2241167 - Phillipsburg, NJ
List Price $183,000
Sales Price $160,000 (12.6% Lowball)

Caveat Emptor!
Grim

Drowning In Debt

Interesting report from the Center for American Progress:

Drowning in Debt

America’s Middle Class Falls Deeper in Debt as Income Growth Slows and Costs Climb

"America’s middle class is drowning in debt. A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1 percent between 2000 and 2004, even after adjusting for inflation. Debt relative to income rose even more, to 33.9 percent, during this period for middle income families, according to the Federal Reserve Board’s tri-annual Survey of Consumer Finances. Personal bankruptcies among these households are rising steeply."

"The reasons for greater economic distress among middle class households are not hard to pinpoint. Slow income growth between 2001 and 2004, the last year for which complete data is available, has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation. Family budgets have been squeezed."

"A common but misplaced assumption is that the growth in debt among middle-income families – those with incomes roughly between $25,000-to-$70,000 a year - is the result of over-consumption through increased credit card debt. Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years. The cost of a college education, for example, grew by 26.3 percent between 2001 and 2004, after adjusting for inflation."

Northern New Jersey April Residential Sales

I know many of you have been waiting patiently for this data, sorry it took so long, I needed to make sure the numbers I was given were correct. You'll understand why when you see the graphs.

The first graph plots the unadjusted sales data (closed sales) for the counties listed. I haven't included 2000-2002 as I do not yet have April data for those years. Please note the lower bound of the y-axis. It's set to 1000, not to zero. I do this for a reason, it's to emphasize the seasonal nature of the Northern NJ market. Also, there is quite a bit of data on this graph, setting the y-axis to zero makes reading it very difficult

The second graph displays the same sales data (2003-2006) for the first four months of the year. Again, please not the y-axis, this time it does cross at zero.

(Click to enlarge.)

For those who prefer the hard numbers:

January
Average Sales (2003-2005): 2000
2005 Sales: 2013
2006 Sales: 1705
(Down 15.3% Year Over Year)

February
Average Sales (2003-2005): 1583
2005 Sales: 1578
2006 Sales: 1395
(Down 11.6% Year Over Year)

March
Average Sales (2003-2005): 2193
2005 Sales: 2256
2006 Sales: 2033
(Down 9.9% Year Over Year)

April
Average Sales (2003-2005): 2322
2005 Sales: 2383
2006 Sales: 1817
(Down 23.8% Year Over Year)

I'm going to raise the flag now. While this data is from the same source, I don't know what to make of it. I checked the figures for mathematical error twice and found nothing. The change seen here in April is a significant break from the traditional trend. I can't confidently say whether or not this is error or not. We've seen similar breaks in the past, as the data shows.

Caveat Emptor!
Grim

Home Equity Boomers' Salvation or Destruction?

From the AP:
Home Equity May Be Baby Boomers' Salvation

"It's no secret that baby boomers have not been very diligent about saving for retirement, but that doesn't mean they don't have assets. Many live in homes that have appreciated greatly in value in recent years as real estate prices have soared."

"Some financial experts believe that's going to be the boomers' salvation because they will be able to tap that home equity to help fund their retirements."

"Keene, a regional manager in private client services for San Francisco-based Wells Fargo & Co., added that baby boomers will have a number of options to "monetize" their homes, from buying a less-expensive house or condominium for cash and investing the proceeds, to reverse mortgage loans or interfamily deals."

"To be sure, there are mortgage experts who are skeptical of putting too much faith in tapping home equity to fund retirement."

""If somebody has no savings, the chances are they don't own a million dollar house free and clear either," said Michael Moskowitz, the president of the New York mortgage company Equity Now. "I think it's a bit of wishful thinking.""

"He added: "Without retirement planning, without a 401(k) or IRA savings account, people aren't going to be able to enjoy the same standard of living they had before retirement.""

"Chicaferro also cautioned that baby boomers shouldn't count on their homes appreciating as fast in the future as they have in the past decade."

""There's no guarantee that equity in the home is going to double or triple in value, so it's not a prudent thing to sit there and think it will happen," he said."

(This piece seems more like an advertisement than any kind of journalism to me)

Caveat Emptor!
Grim

Long Island Housing Market Declining

Hat tip to Ben Jones at The Housing Bubble for these two links..

From Newsday:
LI housing market takes turn for buyers

"Welcome to the new world of real estate. Doesn't it look familiar?"

"It's been nearly a decade since the housing supply was this high and annual price increases were this low. Residential inventory is increasing at a record annual pace. And the median prices in Suffolk and Nassau counties are exactly the same as they were last June."

"The latest data from the Long Island Multiple Listing Service showed annual median price increases of 4.3 percent in April for both counties, with Nassau at $470,000 and Suffolk at $385,000. Nassau's price remained stable since March, but Suffolk's declined by 3 percent. Residential inventory, meanwhile, rose by 65 percent over the year in Suffolk County and 76 percent in Nassau County - each reaching levels not recorded as far back as the MLS records go, to 1980."

"And the housing supply ratio that shows how long it would take to sell out the inventory at the current pace stands at 10 months in Suffolk County and nearly nine months in Nassau - the highest levels since 1998 and 1997 respectively."

"But as the real estate market's prime selling season moves on, many are suggesting that it has been one of the slowest springs in the past six years. And that slowdown is likely to continue into the summer, experts said, pointing to the Federal Reserve's decision to increase short-term interest rates to 5 percent yesterday."

""Buyers are starting to negotiate and sellers are starting to give," Marten said. "The seller is starting to blink.""

From Long Island Business News:
Island housing is a mixed bag

"The days of eye-popping monthly real estate gains are now the stuff of real estate lore."

"Though Island housing prices remain up year over year, Suffolk battled a moderate price drop in April and Nassau remained stable, according to the latest statistics from the Multiple Listing Service of Long Island."

"That's not the greatest news for sellers, but buyers have plenty of homes to choose from: The region's inventory skyrocketed more than 50 percent in the last year."

"The crushing wave of frenzied buyers competing for homes appears to have receded. But more sellers are still trying to cash in, especially in Nassau."

Hispanic Home Buying Boom?

Not sure what to make of this piece in USA Today:

Analysis finds boom in Hispanics' home buying

"Home buyers with names such as Rodriguez, Garcia and Hernandez bumped Brown, Miller and Davis down the list of most common buyers' names in 2005, reflecting Hispanics' rapid advance into the middle class."

"A DataQuick Information Systems analysis of deeds and county assessment data shows a dramatic rise in the number of Hispanic and Asian home buyers since 2000."

"Smith and Johnson remain the two most popular, but Rodriguez has replaced Brown in third. Four Hispanic names are in the top 10, compared with two in 2000."

"Hispanic surnames made up 14.6% of all home buyers' names, up from 10.3% five years earlier. "The Latino population is really integrating into the middle class — and rapidly," says John Karevoll, analyst at DataQuick, a San Diego real estate information company that scoured public records in 37 states that accounted for 91% of the USA's real estate activity."

"The changes are dramatic elsewhere, too. No Hispanic names appeared in the top five in Illinois in 2000. Now, Garcia is third and Rodriguez fifth. Nevada went from zero to three and New Jersey from one to three. "It's startling how rapid the changes are," says Dowell Myers, a housing demographer at the University of Southern California. "People assume that Latinos are poor and that they're not a factor in homeownership. They're really integrating economically.""

""When we start showing up on the top list of names, that's fabulous," says Frances Martinez Myers, chairman of the National Association of Hispanic Real Estate Professionals. "It speaks to the growing economic clout of the Hispanic community. They are willing to assimilate ... to be part of the country and to pay their way. ""

New Jersey
2000 Rank
1. Smith
2. Johnson
3. Miller
4. Brown
5. Rodriguez

2005 Rank
1. Smith
2. Rodriguez
3. Brown
4. Gonzalez
5. Garcia

Twisting your ARM or breaking it?

No need to panic, we'll be fine... As long as jobs don't decline, or home prices don't decline, or rates don't increase..

From ABC News:

Home Foreclosures Up as Mortgage Rates Climb

"As interest rates increased steadily over the past year and the explosive growth in housing prices declined, many Americans fell behind in their mortgage payments. Now some have defaulted on home loans and could lose their homes due to foreclosures."

"When home prices soared at double-digit rates during the recent red-hot housing market, many Americans stretched themselves financially to purchase a home. The use of lower-interest adjustable-rate mortgages, or ARMs, interest-only mortgages or option-ARMs that allowed home buyers to choose how to pay each month soared during the same period."

"According to the Mortgage Bankers Association of America, ARMs now represent 25 percent of the more than $8.5 trillion in outstanding loans."

"Economists with Moody's Economy.com forecast that the interest rates on $2 trillion of those mortgage loans could be reset in 2006 and 2007."

"And that could become a problem if interest rates continue moving higher."

"Homeowners who negotiated ARMs in 2004 and 2005 could face interest rate increases that boost monthly payments by as much as 50 percent. One in eight of these people is expected to default on their loans — as many as 1 million, according to First American Real Estate Solutions, which compiles national real estate data."

From Reuters:

Fannie CEO frets about adjustable mortgages

"Fannie Mae's chief executive said on Wednesday the U.S. housing market will face significant resetting of adjustable rate mortgages over the next two years and he worries about this sparking foreclosures in some locations."

"Daniel Mudd, president and chief executive officer of the government-sponsored mortgage giant, told Reuters in an interview that Fannie Mae models suggest a couple of reset "spike periods" in the next two years, based on past originations of mortgages with adjustable rates and other features such as low initial "teaser rate" periods."

"It is still unclear what will happen to the housing market when these mortgages reset at higher rates, especially given some of the weakening in certain housing markets, such as vacation areas with a lot of investment buyers."

""If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there's not any incidence of appraisal fraud, it could be just fine," Mudd said. "If in certain geographies, some of those factors are different -- there's some appraisal fraud, or there's an economic downturn or home prices have declined -- it could be a very different scenario."

Northern New Jersey Weekly Inventory Update

GSMLS
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren Counties)
5/3 - 16,111
5/3 - 16,539 (2.7% Weekly Increase)

NJMLS
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Passaic Counties)
5/3 - 7,792
5/10 - 8,101 (4.0% Weekly Increase)

MLSGuide
Single Family Homes, Condo, Coop
(Hudson County)
5/3 - 2,243
5/10 - 2,351 (4.8% Weekly Increase)

Additional Policy Firming May Be Needed

From the Federal Reserve:

FOMC Statement

Release Date: May 10, 2006
For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.

Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6 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, Minneapolis, Dallas, and San Francisco.

Taking Longer To Sell In New Jersey

From the Record/Herald:

It's taking longer to sell a house
by Prashant Gopal

"Last spring, Michael Segal put his Teaneck home on the market for $600,000 -- an asking price selected with the help of his Realtor."

"Buyers showed interest, but Segal said he decided it wasn't time to sell. This spring, the four-bedroom colonial is up for sale again. The asking price: $529,000 ($19,000 above his current's agent's recommendation)."

"What changed? North Jersey's real estate boom, it appears, has gone flat."

"Springtime is here, and "open house" and "for sale" signs are everywhere. But unlike the past few springs, real estate agents are having to work harder to sell homes and convince sellers to be more realistic about asking prices."

""Sellers and the buyers are at a standoff," said James Collins, an agent with Coldwell Banker in the Alpine/Closter office. "The sellers think their home is worth more than what fair market value is. The purchasers are thinking there's a big real estate bubble that's going to burst. So they're ... wanting to wait and see.""

"Jeffrey Otteau, who owns the Otteau Appraisal Group in East Brunswick, recently released data showing that the average number of listings in New Jersey from January through March jumped by 65 percent, compared with the same period last year. Meanwhile, sales in that period were down 12 percent."

"In Bergen County, there was a five-month inventory of homes as of March 31, meaning it would take that long to sell all the homes on the market at the current pace, Otteau's report said. By comparison, there was a three-month inventory at the same time last year. Inventory is also building up in Morris, Passaic, and Hudson counties."

"But some experts say it's unlikely the housing market will soon return to the boom levels of prior years, especially with slow job growth in North Jersey, and high energy prices cutting into buyers' budgets."

"The boom is "over, and we're into a cycle that's going to last three years with high levels of inventory and a slow pace of sales,'' said Otteau."

Mortgage Applications Resume Slide

From CNN/Money:
Applications for home loans slip

"The number of people applying for mortgages fell last week, led by a sharp drop in refinancing applications, an industry group said Wednesday."

"The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended May 5 fell 5.8 percent to 562.1 from the previous week's 596.8."

"The MBA's seasonally adjusted purchase mortgage index fell 3.9 percent to 416.5 from the previous week's 433.3. The index is considered a reliable gauge of U.S. home sales."

"The trade group's seasonally adjusted index of refinancing applications fell 8.8 percent to 1427.4 from 1565.6 in the previous week."

Agents - Tell Us Where Your Commissions Go

I know that agent-bashing is a pretty common sport on this blog. It's obvious that most readers don't hold agents in high regard. One of the reasons for it, I think, is that they believe that the dollar amount of agent commissions is higher than their work warrants.

So agents, here is your chance to let us know what happens to your commission. Where every penny of your commission goes, starting from the sale and ending as dollars in your pocket.

This is going to open the eyes of many readers that are not familiar with the commission structure of most real estate agencies and franchises. While you are free to post under your handle or sign your replies, I'd suggest that you answer anonymously.

A big thank you goes out to those who helped me understand the commission structure as well as compile this survey.

- Are you contracted/employed by a traditional broker or discount broker?

- How many years have you been in the business?

- What real estate company do you currently work for?

- What is your current commission split with your broker?

- What was your split when you started as a new agent?

- Are there franchise fees charged in addition to the broker split?

- Does the broker charge additional fees for company generated leads?

- Are you charged a desk fee?

- Are you charged for office supplies?

- Are you charged for business calls?

- Are there any other miscellaneous fees/expenses?

- How much does your typical ad campaign cost for a home you have listed?

- What percentage of advertising for home sellers does your company cover?

- Who pays for the costs of brochures/flyers/handouts, agent or company?

- Who pays for signs and business cards, agent or company?

- Are you reimbursed for any expenses?

- Does your broker contribute to travel expenses for handling buyers?

- Who pays for your errors and omissions insurance, agent or company?

- Who pays for your local board memberships and license fees?

- Who pays for continuing education if you decide to pursue another designation?

- Are there situations where your commission split is penalized?

- Are there any financial incentives to selling an “in house” listing?

- Are there any financial incentives to sit an Open House?

- Are there any financial incentives to market other services within your company such as mortgage, title, home owners insurance, or selling a product such as a home warranty?

- What does your broker do with their side of the commission split other than paying for operating expenses?

- Is there a mandatory or expected commission charged within your company to home sellers?

Caveat Emptor!
Grim

Freddie Mac Needs A Vocabulary Lesson

The following is an advertisement from Freddie Mac. It appears on the back cover of the current issue of National Review.



savings (noun)
1. A fund of money put by as a reserve.

nest egg (noun)
1. Slang for money saved, often in a savings account, in preparation for retirement or other significant use.

wealth (noun)
1. An abundance of valuable material possessions or resources; riches.
2. The state of being rich; affluence.

debt (noun)
1. The state of owing something.
2. Money or goods or services owed by one person to another.
3. An obligation to pay or do something.

Wealth may include your home, however, homeownership does not necessarily equal wealth. The fact that you may have equity in your home does not mean you are wealthy either, however the unpaid portion of your mortgage most certainly means you are in debt. How can Freddie Mac get away with advertisements like these?

The American Consumer is being duped into believing assuming outrageous levels of mortgage debt is the road to wealth. Freddie seems to be saying that it's OK for you to have half your savings tied up in your home. After all, it's your nest egg and everyone else is doing it too! I can't get over what a dumb ad this is, and I can't believe people are falling for the newspeak. Freddie, we're not buying it.. We're not going to put all our eggs in one basket. The higher we elevate this concept, the harder it's going to fall..

Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.

Soaring Energy Puts Jersey At Risk

From the Star Ledger:
Soaring energy costs puts Jersey at higher risk
BY JAMES W. HUGHES AND JOSEPH J. SENECA

"Sharp surges in energy prices have been associated with three of the last four recessions in the United States. The first of these was the national downturn of 1974-75, which for New Jersey turned out to be the worst recession since the Great Depression. Its severity was linked to a state economy still highly dependent on an aging, inefficient, energy-intensive manufacturing sector. That recession helped precipitate a manufacturing employment hemorrhage that persists to the present day. In the 1970s, manufacturing quickly migrated to lower-cost Sunbelt states."

"Subsequently, the recession of 1980-82 -- the nation's worst recession since the Great Depression -- and the 1990-91 recession also occurred when there were spikes in the price of oil and related energy sources. Only the most recent recession of 2001, caused by the bursting of the information-technology investment and stock market bubbles, was unrelated to energy."

"If an energy cost related recession once again strikes the nation, New Jersey will be particularly hard hit due to several factors. One of the most critical is that higher energy costs will force businesses and people to reduce other costs. New Jersey is already a high-cost place to do business, and a high-cost place to live. This competitive disadvantage has led to population out-migration to more affordable states. Similarly, white-collar corporate America, facing intense global competition and the imperative to control costs, is now directing its high-end investment and expansion largely outside of New Jersey."

"But what are the effects of high-energy prices on individuals and households? Shouldn't New Jersey's high income and wealth provide a better-than-average buffer against soaring energy costs?"

"On the surface, the answer would seem to be yes. According to the Census Bureau's 2004 American Community Survey, New Jersey's median family income continued to rank number one among the 50 states. Our median family income was 38 percent higher than that of the nation. However, New Jersey also ranked number one in median housing costs (for owner occupied units with a mortgage) and our housing costs were 52 percent higher than the national average. Thus, our high-income advantage is largely offset by much higher costs of living."

"Expansions in the United States do not have a natural lifespan the Federal Reserve usually murders them. As soaring energy costs raise the specter of higher inflation, the Federal Reserve is likely to continue to raise interest rates. Thus, the effect of higher energy costs directly on the consumer and the economy, and the secondary impact via higher interest rates, certainly places the national economy at more risk as we move into 2007. If an energy-related recession comes, the impacts will not be pretty in New Jersey."

Are You Sure Spring Is Here?

From the NY Times:

A Chill Is in the Air for Sellers

"Many Americans who planned on real estate as their path to wealth are beginning to find that there are limits to how high is up."

"Blame market forces. As higher interest rates dampen demand in cities and suburbs that only a year ago were battlegrounds for fierce bidding wars among numerous buyers, sellers are grudgingly lowering their prices to drum up interest."

"It is a slow leak, to be sure. The most widely used statistic to measure home values, the median home price, shows that once-hot markets like San Mateo, Calif., and Mercer County, N.J., are now registering year-over-year declines. In general, prices are still climbing, but they are doing so far more slowly in cities like Las Vegas and San Diego, which had been lucrative markets for speculators."

"Prices in most of California and the Boston-to-New York corridor could also fall, said Mark Milner, the company's chief risk officer. Its statistics, which lag the current market by about two months, show homes continuing to appreciate, but at a slower rate."

"After open houses for their four-bedroom, two-story ranch house in Lawrenceville, N.J., brought in no offers, Mary Ellen and Anthony Pierrard are telling potential buyers they are willing to negotiate their $420,000 asking price and are even considering enlisting a real estate agent to help them market their home. That's a far cry from the couple's experience selling two houses on their own in Rockland County, N.Y., a few years ago."

"Robin L. McCarthy, a real estate agent who works in nearby Princeton, N.J., said homes were sitting on the market three to four months, when houses sold in as little as a few days a year ago. Houses that would have been the subject of intense bidding wars now sell for slightly less than asking price."

""Buyers are afraid that real estate prices are going to go down, so they are very careful," Ms. McCarthy said. "They don't want to pay too much.""

State Purchasing Golf Courses Under Green Acres

From the Star Ledger
Green Acres shoots for greens, finds the rough

"New Jersey's glut of golf courses and shortage of developable land has put new pressure on many owners to sell to builders."

"Enter the state."

"In what is shaping up to be an unusual trend, the state's Green Acres land preservation program has bought two golf courses in the past year -- Ponderlodge in Cape May County and Rock View in Sussex County -- and is negotiating for at least four more."

"Green Acres Administrator John Flynn confirmed additional purchases are likely, including one in Monmouth County that could happen this week."

"At Ponderlodge, the state paid $8.45 million for a course that had been coveted by a developer, but many locals are unhappy about plans to make it a refuge for migratory birds."

"Doug Fenichel, a spokesman for K. Hovnanian Homes, which proposed the housing development, said the end result ignores several vital needs."

""We would have provided ratables and would have considered clustering to create open space," he said. "There is a trend of using tax money to preserve open space without any discussion of finding solutions for housing needs and ratables.""

"He said state officials haven't made up their minds about allowing golf to continue on any of the sites."

Fort Monmouth Propositions

From the Star Ledger

Clusters of housing proposed for Fort Monmouth property

"The first glimpse of Fort Monmouth's possible future emerged yesterday with a plan that envisions clusters of housing near three of the towns that border the 89-year-old Army communications research center, which is slated to close in 2011."

"Officials called the study, which was prepared by nine University of Pennsylvania graduate students, a starting point for discussions about what should come to the land after the last soldier leaves."

"The study envisions clusters of housing, retail and office space near the installation's borders with Eatontown, Tinton Falls and Oceanport."

"Although Fort Monmouth covers about 1,100 acres in two parcels on either side of Route 35, the study said that only about 900 of those acres are suitable for development, largely because of protected wetlands on the eastern edge of the main post."

"In all, the proposal called for about 1,400 housing units, including apartments, townhouses and detached single-family houses."

"The proposal focused much of the development on the three "town centers," which would cover just under 200 acres. The rest of the land, the report's authors wrote, could be used for parks and recreation areas."

"The Pentagon once turned closed military installations over to the surrounding communities at little or no cost. But the Department of Defense has now said that it intends to seek "market value" for Fort Monmouth and the other 32 major installations ordered closed last year."

"Tarantolo acknowledged as much yesterday, saying the new redevelopment authority will likely have to be in partnership with developers who will pay to acquire land."

Agents Urged To Get Sellers To Drop Prices

I would like to share a very interesting story told to me by an New Jersey Real Estate Agent this afternoon. It's short, but it'll raise your eyebrows.

Seems that the mood has changed at the weekly sales meeting at this particular agency. Instead of being rewarded and congratulated for sales, agents are being rewarded and congratulated for getting their clients to drop their asking prices. That's right, the biggest price drops are even being rewarded with monetary bonuses. It seems that we're not the only ones looking at those big price reductions, the corporate offices are as well. With good reason, if homes don't sell, they don't get their cut of the commission, and let me tell you, from what I've heard the cut can be very deep, but more on that later.

Seems that Big-RE knows trouble is brewing.

Caveat Emptor!
Grim

Land Value Increases In Japan, First Time In 15 Years

I think that everyone should give this piece some thought. Don't just glance over it. Don't try to rationalize it away by saying "We're not Japan". If there is one place in the world that there is a lack of land (and they aren't making any more of it), it's most certainly Japan. Japan real estate prices declined by double digit percentages and have remained stagnant for 15 years. For the first time in 15 years land values rose.

If the U.S. real estate market mimics the decline and stagnation seen in Japan, it's very likely that many of us may never see prices this high, ever again, in our lifetimes.

From the Asian Times:
Land value finally rises

"In a sign that Japan is emerging from asset deflation, the total value of land in the country rose 1.4% on the year as of January 1, the first increase in 15 years, according to calculations by the Bank of Japan. "

"In March, the Land Ministry released government appraisals of land values, which shows the year-on-year change in nationwide land prices through a simple average of prices changes at reference sites throughout the country. This study revealed that land prices fell 2.8%, a decline for the 15th straight year. "

"While the price for residential land slipped 0.9% even for the weighted average, commercial land prices climbed 4% on the back of solid demand for office space in and around the large cties, causing the overall price of land to rise."

"The rise in land prices is also attributed to more residents moving back to city centers. Using a weighted average, land prices in Tokyo started rising ahead of other regions, gaining 0.5% in 2005. In 2006, prices in Tokyo jumped 5.5%, much more than the rest of the country. "

From Standard and Poors:
Battle Over Japan's Mortgage Market



Caveat Emptor!
Grim

Price Reduced! 4/30 - 5/7

Welcome to another edition of Price Reduced!

For all the newcomers to this blog, Price Reduced! takes a look at a handful of significant price reductions across Northern NJ. The purpose of this exercise is to serve as proof that the Northern New Jersey real estate market has long since been overvalued and has started the long hard decline back to the mean. These listings are in no way an endorsement by myself, nor do I believe they are a bargain or a value. Even reduced, I still believe these homes are still grossly overpriced.

The list is (mostly) straight off the top this week:

MLS# 2107776 - Mahwah, NJ
Previous Price $599,000
Current Price $459,000 (Price Reduced 23.4%)

MLS# 2208645 - Franklin Twp, NJ
Previous Price $749,000
Current Price $595,000 (Price Reduced 20.6%)

MLS# 2248278 - Newark, NJ
Previous Price $1,100,000
Current Price $895,000 (Price Reduced 18.6%)

MLS# 2273453 - Jersey City, NJ
Previous Price $425,000
Current Price $349,900 (Price Reduced 17.7%)

MLS# 2267238 - Elizabeth, NJ
Previous Price $599,900
Current Price $499,999 (Price Reduced 16.7%)

MLS# 2261656 - Millburn, NJ
Previous Price $1,198,500
Current Price $999,850 (Price Reduced 16.6%)

MLS# 2236935 - Franklin Lakes, NJ
Original List Price $749,000
Previous Price $599,000
Current Price $499,900 (Price Reduced 16.5%, 33.3% off Original List)

MLS# 2243227 - Westfield, NJ
Original List Price $1,895,000
Previous Price $1,750,000
Current Price $1,495,000 (Price Reduced 14.6%, 21.1% off Original List)

MLS# 2267767 - Tewksbury, NJ
Previous Price $1,195,000
Current Price $1,025,000 (Price Reduced 14.2%)

MLS# 2256521 - Summit, NJ
Previous Price $1,159,000
Current Price $995,000 (Price Reduced 14.2%)

MLS# 2264614 - Millburn, NJ
Previous Price $2,550,000
Current Price $2,199,000 (Price Reduced 13.8%)

MLS# 2254865 - Boonton, NJ
Previous Price $299,900
Current Price $259,900 (Price Reduced 13.3%)

MLS# 2270199 - Chatham, NJ
Previous Price $1,595,000
Current Price $1,395,000 (Price Reduced 12.5%)

MLS# 2264540 - Clifton, NJ
Previous Price $799,000
Current Price $699,000 (Price Reduced 12.5%)

MLS# 2261477 - South Plainfield, NJ
Previous Price $799,000
Current Price $699,000 (Price Reduced 12.5%)

MLS# 2258403 - Wayne, NJ
Previous Price $1,139,900
Current Price $999,900 (Price Reduced 12.3%)

MLS# 2227166 - Montclair, NJ
Original List Price $3,450,000
Previous Price $2,950,000
Current Price $2,590,000 (Price Reduced 12.2%, 24.9% off Original List)

MLS# 2111828 - Nutley, NJ
Original List Price $799,000
Previous Price $624,900
Current Price $549,900 (Price Reduced 12%, 31.2% off Original List)

If you take the time to look some of these up in Realtor.com, I'd appreciate if you posted the links to the listings in the comments section.

Caveat Emptor!
Grim

Welcome to Jersey - The Eminent Domain State

From the Asbury Park Press:

Eminent domain raw deal for property owners

"New Jersey has 1,000 redevelopment projects planned or under way. The deck is stacked against the residential property owner, the small business owner, and even industry. If our politicians are not serious about reform, we might as well change our license plates to read "The State of Eminent Domain."

Current New Jersey eminent domain law is grounded in the New Jersey Constitution, the Eminent Domain Act of 1971, the Local Redevelopment Housing Law and the Relocation Assistance Act and its regulations. New Jersey needs an immediate Eminent Domain Revision Committee, a bipartisan effort including representatives of the judiciary, academia, property owners and condemning authorities. This panel should conduct a comprehensive review of the laws with an eye toward recommending to both the Legislature and the governor sweeping changes in the laws governing eminent domain.

During oral argument before the U.S. Supreme Court in the Kelo case, Justice Anthony M. Kennedy said, "Blight is in the eye of the beholder."

"Blight" does not exist in the U.S. Constitution, but it appears in the New Jersey Constitution in Article VIII, Section three, which links blight with a public use. The definition of blight was expanded by the Legislature, approved by the courts and is now synonymous with "an area in need of redevelopment." It would not be so easy to seize property if the definition were not so broad.
...
As reported in the Asbury Park Press, a poll of 800 people conducted by Monmouth University/Gannett New Jersey newspapers last September revealed that 81 percent of people aware of eminent domain issues believe private developers benefit more from eminent domain than the municipalities. Looking at the enormous profits the developers stand to gain at the expense of senior citizens and families in Long Branch, the concept of public use remains questionable.

The Supreme Court in the Kelo decision gave us economic benefit as public use when it affirmed New London, Conn.'s authority to take the petitioners' properties. But Justice John Paul Stevens also said, "We emphasize that nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power. Indeed, many states already impose "public use' requirements that are stricter than the federal baseline. The necessity and wisdom of using eminent domain to promote economic development are certainly matters of legitimate public debate.""