Tell Them What You'll Pay

By request, another edition of Tell Them What You'll Pay. There was some confusion the last time we tried to do this, we ended up with a 100 comment long discussion on the example I picked.

I've received a number of emails lately, which all asked the same question. If people are boycotting open houses, and not placing bids, how are sellers supposed to know that their homes are overpriced? It's a good question. Unless the sign in sheets are blank, and their home has been on the market a long time, they probably don't. Very few people in New Jersey are keeping as close a watch on the market as we are, agents included.

Instructions:
1) Open the Realtor.com website. Realtor.com

2) Pick a property that interests you (don't worry, this isn't a binding contract)

3) Cut and paste the property description into a reply here. Include the price, description, MLS number, and link (if you know how). Most importantly, include the price at which you would consider buying the property. No, not $1, not even $10, but the point at which you would give it serious consideration.

Here is an example to give you an idea of what we are all looking for:

--------


Chester, NJ - Asking $599,000
3 Bedroom Victorian, 1 1/2 Baths
MLS ID#: 2283475
I would give this property serious consideration at $475,000-$500,000.

This property has already been reduced from $619,000, not sure if it has been relisted. It was purchased in June of 2004 for $429,000.

--------

Don't worry about the additional details or photo that I posted, If you don't have MLS access, someone who does can follow up with further details about the purchase price, price history, days on market, etc.

Caveat Emptor!
Grim

Boom Going Bust

From the New York Times:

The Houses That Wouldn’t Move

The Balduccis put their 1951 colonial on the market in early May. They held seven open houses, drawing 10 or so potential buyers, but they still had not gotten a single offer as of early August — even after they dropped their asking price to $539,000 from $589,000.

“It’s very depressing,” Ms. Balducci said, adding that at least seven houses in her neighborhood had been on the market for at least as long as theirs. “It’s a little scary for us, too, because we very shortly may be in a position where we have to carry two mortgages.”
...
“A year ago, this house would have sold within two weeks maximum, and they would have easily gotten close to $600,000,” she said. “This really shows you what’s going on right now. It’s like the market just collapsed.”
...
In many cases, buyers and sellers have reached a wary stalemate.

“We’re at a point where sellers don’t want to lower their prices and buyers don’t want to raise their bids,” said Roberta Plutzik Baldwin, a broker at Re/Max Village Square in Upper Montclair, N.J. “Houses that are priced properly are selling, but buyers are now saying, ‘Wait a second, the market is stabilizing, so why should I pay $20,000 more when I could pay less?’ ”
...
“Agents aren’t telling people to get less than a house is worth; they’re just getting the asking prices down to where they should be,” he said. “People are finally starting to understand that even if they could have gotten more for their house last year, it’s not last year.”
...
“It seems like the boom kind of ended with everybody’s talk of the bubble bursting,” he said. “I think all the talk actually made it happen.”
...
According to the New Jersey Multiple Listing Service, the inventory of single-family homes in Bergen, Hudson, Passaic and Essex Counties was up 49 percent in June, to 6,768, compared with 4,538 in June 2005. The median sales price was up 3 percent, to $470,000; each of the previous five years had seen double-digit increases, going to $455,000 in 2005 from $275,000 in 2000.

Marc and Pamela Ross of Fair Lawn, N.J., looked at 25 houses in New Jersey last year, but never made an offer because prices were too high, they said. They resumed their house hunt a few weeks ago when they saw prices start to go down. Recently they were looking at a two-story colonial in Englewood that was listed at $424,900.

“You realize now some of these houses now are in our reach,” Mrs. Ross said, as they toured an open house in Englewood one recent Sunday.

I don't believe we are near the "bottom" of the market, a statement like that is not based in reality. Marc, Pamela, and everyone else looking to purchase right now, I suggest you wait. Ignore the media, ignore the real estate industry, use your head and make an informed decision.

Caveat Emptor!
Grim

Redeveloping Edison

From the New York Times:

Revitalizing a Former Factory Town

THIS town named after a father of invention — Thomas Alva Edison — is facing the challenge of reinventing itself.

Edison has already shown it has the mettle for such a challenge: As manufacturing jobs disappeared here in the last decade, Edison continued to attract new businesses and jobs while maintaining stable residential neighborhoods. Just last month, Money magazine put Edison on its list of the 100 Best Small Cities in America, ranking it No. 28, based on criteria like job opportunities, school performance and crime rate.

Still, there are some large empty spaces here that illustrate as plainly as any billboard the challenges that lie ahead.
...
The most glaring empty hole is along Route 1 where the Ford assembly plant used to stand. The Secaucus-based Hartz Mountain Industries purchased the 102-acre site, took down Ford’s buildings three years ago and this year proposed an intensive mixed-use Town Center development. The plan was denounced by public officials and residents as too dense, and too uninspired in design, despite Hartz Mountain’s earlier efforts to generate public feedback while working on a draft of the plan.
...
Meanwhile, two large sites on Route 27 — a former Revlon plant and a former Frigidaire factory — have also been mostly vacant for many years. The New York Times Company recently announced that it would close its printing operations in Edison and would be subleasing its plant here by 2008.

Developers interested in various sites around Edison have proposed adding large blocks of condominiums to Edison’s housing stock. Local officials — and vocal residents — have generally been critical of adding any housing that might further burden local schools already pushed to full capacity.

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!

Friday Economics Roundtable

Payrolls are in, from Bloomberg:

U.S. July Payrolls Rise 113,000; Unemployment Rate at 4.8%

Employers in the U.S. added fewer jobs than expected in July and the unemployment rate rose for the first time since November, showing the labor market is losing strength as the economy slows.

The 113,000 increase follows a revised 124,000 gain in June, the Labor Department said today in Washington. The unemployment rate rose to 4.8 percent, from 4.6 percent. The annual increase in hourly earnings slowed.

The figures are the final piece of major economic data before Federal Reserve policy makers gather next week to determine whether to lift interest rates for an 18th consecutive time. Today's report helps strengthen the case for the Fed to pause after two years of rate increases, economists said.

Treasuries, of course, rallied on the report..

3mo - 5.08%
2yr - 4.92%
10yr - 4.90%
@ 8:40

Central banks around the world tightened this week. Australia up 25bps to 6%, the BoE (UK) up 25bps to 4.75%, and the ECB (Eurozone) up 25 bps to 3%. The BoE suprised economists and traders worldwide, it was widely expected that they would pause. Economists are suggesting the possibility for further rate hikes for both the Eurozone and Australia later this year.

Exodus of Middle Class Whites

From the Star Ledger:

THE FLEEING MAJORITY

The New Jersey population's white majority has been declining for years, but the pace of decline has accelerated, new U.S. Census figures suggest.

Only Massachusetts and North Dakota have lost white residents at a faster rate this decade, according estimates released today, and the change has both economic and social significance, experts said.

"Jobs are moving, and they're taking middle-class whites with them," said William Frey, a demographer with the Brookings Institution in Washington, D.C. "Jobs and population go hand in hand."

New Jersey's minority population grew nearly 400,000 between 2000 and 2005, the Census' 2005 race and Hispanic-origin population estimates show, while the white population fell more than 94,000.

As a result, whites now make up 63 percent of the state's population -- compared with 67 percent five years ago, 74 percent in 1990 and 79 percent in 1980.

Five New Jersey counties -- Union, Middlesex, Bergen, Passaic and Essex -- are among the 25 in the nation with the largest loss of white population this decade, according to the Census.
...
Demographers have noted that the state recently experienced an uptick in "outmigration," which is when the number of people leaving the state exceeds the number moving in.

The main reasons are the state's relatively flat economy combined with an ever-increasing cost of living, experts say. While New Jersey remains the nation's highest income state, there has been little growth in good-paying jobs, and residents are feeling the burden of high housing costs and taxes more than ever.

The new Census data are "really linked to the outmigration patterns of the state, and it shows that they are predominantly white non-Hispanics who are moving out," said James W. Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University.

A Changing Region

From the New York Times:

In New Data, a Changing Profile of the New York Region

The face of New York City and its suburbs has changed profoundly since the start of the 21st century.

According to census figures released yesterday, Manhattan was the only county in the city and nearby suburbs to register a significant increase of non-Hispanic white residents from April 1, 2000, to July 1, 2005. But the influx of young people priced out of Manhattan also helped produce a gain of whites in Brooklyn in the same period — a tiny number, yet apparently the first such mid-decade increase in years.

Between 2000 and 2005, the number of white residents dropped by 12 percent in the Bronx and 7 percent in Queens, but dipped by only a little more than 1 percent in the city over all. In contrast, the white population declined by 6 percent in Nassau and 3 percent in Westchester. The net loss of white residents was actually greater in Nassau, Westchester and Rockland Counties than in the city.

The latest figures reveal the magnitude of the demographic shifts that are resulting in a more diverse metropolitan area. Hispanic people now constitute a majority in the Bronx. Whites are a minority in Union and Passaic Counties in New Jersey.
...
But the adjacent suburbs, where the population of babies declined, are growing older faster. In Nassau and Bergen Counties, the median age topped 40.
...
William H. Frey, a demographer with the Brookings Institution, agreed that “young professionals, empty-nesters and affluent urbanites are fueling a minitrend of white gains in the core and a Manhattanizaton” of the other boroughs.

“This stands in contrast to the accelerating out-migration of whites from most of the suburbs, including a new white flight from Richmond and Putnam Counties,” he said, adding, “It signals a revival of the core, but continued suburban exodus of whites.”

Bad Idea?

Bad or good idea? Let's hear your opinions on this piece, from the Wall Street Journal Real Estate Journal:

Keep Your Financial Footing at 22 So You Can Buy That House at 32

As soon as you graduate and land a job, you are supposed to move quickly to build up an emergency reserve, buy a house, fund your employer's 401(k) plan and open an individual retirement account. Worthy goals? Certainly. Realistic? I don't think so.

My advice: If you're just out of school, don't worry too much about saving for retirement and buying a house -- and instead strive mightily to stay out of debt.

I am not saying all debt is bad, and I am not arguing that folks in their 20s, if they have the money, shouldn't purchase homes and fund 401(k)s.

But it strikes me that, for most of us, our initial working years are about learning to live within our means, pay the bills on time and stay out of financial trouble. How do you know you are succeeding? If you aren't piling up credit-card debt and taking on big auto loans, you're probably on the right track.
...
Don't expect to live like your parents. It took them 25 or 30 years in the work force to achieve their current standard of living. If you're eating out as often as they do or taking equally extravagant vacations, you're probably spending too much.

By leasing or borrowing, you could likely drive a car that's almost as fancy as your parents'. Moreover, the tab might seem pretty manageable, with a 48-month $20,000 auto loan costing maybe $480 a month.

Problem is, you will be setting yourself up for big insurance bills and you will be lavishing all this money on a depreciating asset. A better strategy: Buy the clunker -- and put the $480 a month toward a house down payment.
...
While carrying a credit-card balance is foolish, don't necessarily rush to pay off student loans. The interest rate may not be that steep, and the interest should be tax-deductible. Instead, if you have spare cash, put enough in your employer's retirement plan to get the full matching contribution and then earmark the rest for a house down payment.

Mooch off Mom and Dad. Moving home for a few years after college may crimp your lifestyle, but it should also bolster your bank balance.

Property Tax Pain

From the Record:

Lyndhurst tax bills stun homeowners

The borough's tax office has been deluged by a torrent of phone calls since homeowners received tax bills reflecting the impact of the municipality's first property revaluation in 17 years.

Some homeowners, like Sam Corkin, braced for a higher property tax bill but said they were still surprised at the size of the increase.

"I had figured taxes would increase by 7½ percent, the way your salary goes up," said Corkin, after receiving his third-quarter tax bill. "You don't expect 33 percent."
...
Borough officials said the spikes are a reflection of increased property values over a 10- to 15-year period, with the average home jumping from $160,000 to $400,000 since the last revaluation.
...
As a result, while many homeowners will see property tax increases, others living on smaller parcels will experience a decline in their taxes under the new rate, he said.

Several homeowners upset by the recent increases may have underestimated their tax burden because of relatively slight increases in taxes in previous years, McGuire said.

But Corkin, who saw the assessment on his two-family home increase from $195,000 to $554,000 and annual property taxes jump from $6,000 to $8,040, said he is not convinced that the reassessment is fair.

"I want answers," said Corkin, a recent retiree. "I've left messages at the mayor's office."

Layoffs Plague Northern New Jersey

From the Record/Herald:

Factory layoffs plague region

Bergen, Passaic and Hudson counties lost a combined 4,700 jobs from June 2005 to June 2006, the federal Bureau of Labor Statistics reported Wednesday.

It was the region's biggest 12-month job loss since the period ended March 2004, and another sign that the employment picture in the Garden State is less promising than the national outlook. The Newark-Union area, which includes Morris County, lost 4,200 jobs in the 12-month period.

The North Jersey job losses are seen in factories and business services such as employment agencies, as well as in construction and mortgage finance, which have been hurt by the housing slowdown.

"The steam has gone out of the recovery," said Martin Kohli, an economist with the BLS in New York. The BLS releases data on jobs in the nation's largest metropolitan areas every quarter.

According to the BLS report, the overall New York metropolitan area, which includes 23 counties in New York, New Jersey and Pennsylvania, saw jobs grow at a rate of 0.9 percent from June 2005 to June 2006, lower than the national growth rate of 1.4 percent. More than 8.5 million people work in the metropolitan area.
...
The job picture has also affected the North Jersey office market. Vacancy rates for offices in northern New Jersey are around 18 percent, according to a recent report from the commercial brokerage firm Cushman & Wakefield.

That rate has shown little improvement since the recession of 2001, because hiring has been so sluggish.
...
Underperforming the U.S. average were Chicago, Los Angeles, Philadelphia, Boston, New York and Detroit. Detroit actually lost jobs in the period.

The Bubble is Real

From the Dallas News:

It hasn't burst, but the bubble is real

When it comes to bubbles, the ironies tend to emerge in hindsight.

Looking back, the book Dow 36,000 marked the top of the bubble hysteria in 2000.

For the housing bubble, the equivalent could be last year's Are You Missing the Real Estate Boom?, re-christened this year as Why the Real Estate Boom Will Not Bust – and How You Can Profit from It.

The biggest argument against labeling the housing bubble for what it is: It hasn't burst. Therefore, any who've suggested its existence must be crying wolf.

The fact is, there's a reason the bubble hasn't burst yet: Bubbles don't burst without a pinprick.

David Rosenberg, Merrill Lynch's chief economist, was the first on Wall Street to call it a bubble, in August 2004.

He predicts the pinprick will be oversupply: "That has inevitably unwound every bubble back to the tulips in the 17th century."
...
It's not enough to say that new and existing home inventories are at a record; that's been the case for a long time now. At 4.3 million units, the combined number of homes for sale is up nearly 40 percent from one year ago.

One year ago, as I wrote about the disturbing build in inventories, readers wrote to reassure me that buoyant sales would work to keep supply in balance.
...
Still convinced it's a matter of "crying wolf"?

"Just remember," Mr. Rosenberg warned, "the wolf showed up at the end of the story."

Good News For The Kids

From the Home News Tribune:

Odds that the bubble would burst? You could bet the house on it

Sorry about that bubble, if you overpaid for your house a year ago, expecting things would turn out OK, what with housing prices increasing by double digits in recent years. Not just creeping into double digits, but reaching percentages into the 20s and 30s and beyond.

I was recently speaking to a group of people in my demographic, and we agreed on two things: Our real estate investment has made us quite wealthy — if only on paper — but we would trade much of that paper wealth if it meant our kids could afford to stay in New Jersey.
...
If housing prices kept pace with the Bureau of Labor Statistics' cost-of-living index (using the formula found at www.aier.org) new homes in South Brunswick should cost $199,444 today — opening the market to sportswriters married to part-time nurses, my three children, and the children of those friends in my demographic.
...
Recent news is encouraging — for the kids.

The National Association of Realtors recently reported a slowdown in sales. The nationwide median price for homes sold in June rose 0.9 percent, but it was the lowest year-to-year monthly gain since May 1995.

The number of homes for sale in Central Jersey is more than 20 percent higher than a year ago.
...
One reason for the relative flood of homes on the market is the thinking that this can't be happening.

"People were expecting, or maybe even anticipating, a double-digit appreciation this year, and now it turns out that extra 10 to 11 percent appreciation that didn't happen is keeping their house from moving," Stuart L. Davis of Davis Realtors in East Brunswick told Home News Tribune reporter Ken Tarbous.

What homeowners are experiencing today is what people who plunged into the stock market in the late 1990s learned: What goes up doesn't keep going up.

For several years there have been numerous stories about the "housing bubble," and they typically began: When will the housing bubble burst? The answer appears to be "Now."

2000 Waterfront Homes for Sayreville

From the Star Ledger:

Sayreville may allow waterfront housing

In its plans to redevelop the former National Lead site in Sayreville, LNR Property Corp. proposed building 2,000 housing units.

But the borough's waterfront redevelopment plan did not envision housing on the 400-acre site along the Raritan River.

That, however, may soon change.

The Sayreville Planning Board voted unanimously last month to support an official amendment of the borough's waterfront redevelopment plan that would allow residential and other previously excluded land uses on the former National Lead site.

The proposed amendment would allow LNR to build age-targeted residential units; research and development facilities; a minor league ballpark and other sports or entertainment venues; child-care facilities; and structured parking space.
...
Planning board member and board of education president Michael Macagnone said he met with LNR before the meeting and is satisfied that the school system will not suffer.

"These are $1 million condos," he said of the proposed units. "People who buy these won't send their kids to public school."
...
The site, which sits west of the Garden State Parkway along the Raritan River, was used by National Lead as a paint-making facility for roughly 20 years. Last year, the borough claimed owner ship of the land, parts of which are contaminated by radioactive titanium ore and spilled sulfuric acid.

Free House - Needs Home

From the Star Ledger:

Historic home may open door to demolition

Four-bedroom, 1,700-square-foot fixer-upper with a history -- Free! Must move to own lot.

Nearly a year after it was trucked a few hundred feet down Changebridge Road in Montville, the 18th-century Albert Zabriskie house has not found a permanent resting place.

Owner Sal Saia was revered in town last summer when he offered to take the Dutch colonial- style home -- which was slated for demolition -- and restore it. The house, built in the late 1700s and named for a once-prominent Montville mill owner, provided a glimpse into the suburban township's agricultural past.

A local historic preservation group and the township helped fi nance the relocation, and a TV crew filmed it for a reality show on cable.

But now, Saia, a retired high school physics teacher and history enthusiast, said the house has become a money pit. He said he must find someone to take it off his hands or he'll have it torn down.

"They can have it for free," said Saia, who is awaiting township approval for his demolition permit. "I'm heart-broken."

Where did the Wall Street bonuses go?

From the NY Daily News:

Hamptons in slump

Those fat Wall Street bonuses haven't found their way to the Hamptons.
The number of homes sold in the recreation zone of the rich and famous fell to 958 during the first half of the year, down 21%, according to a soon to be released report from Hamptons brokerage firm Town & Country Real Estate of the East End.

The slowdown came despite record bonuses paid out to Wall Streeters who bagged $21.5 billion this year, up 15.5%.

"Normally with record bonuses, people buy," Town & Country president Judi Desiderio told the Daily News. "It didn't happen this year."
...
All the talk of the bubble bursting, coupled with rising interest rates, had Wall Streeters sitting on the sidelines waiting for prices to go down. But sellers are continuing to hold firm on price.

Instead of buying homes, the big-money guys decided to take some of their bonus bonanza and plow it into rentals.

"We've seen the best rental market in five years," said Rick Hoffman, regional vice president of Corcoran's East End offices.
...
Hoffman is seeing a glut of homes priced between $1 million to $3 million, with inventory up 60%.

But some say Wall Street execs will start to pounce on deals after Labor Day, as demand builds and interest rates stabilize.

Brokers are hopeful buyers will give in in the fall.

Mortgage Applications At 4 Year Lows

From Marketwatch:

Mortgage applications fall to 4-year low

Mortgage applications are down 29% in the past year, reflecting a severe slowdown in the housing market after four years of strong growth.

Applications for loans to purchase a home fell 3.3% to the lowest level since November 2003. The number of purchase loans is down about 22% in the past year.

The number of applications for loans to refinance a loan rose by 2.3% to a four-week high. The number of refinance loans is down about 39% in the past year.

The share of loans to be used for refinancing rose to 37% from 35.6%; it's the highest share since mid-March.

From Reuters:

Home loan demand sinks to four-year low

U.S. mortgage applications last week sank to their lowest level in over four years, as home purchase loan demand tumbled for the third straight week, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended July 28 decreased 1.2 percent to 527.6 -- its lowest since May 2002 -- from the previous week's 533.8.

It was the third straight week that overall mortgage activity slumped, despite a decline in interest rates during that period.
...
After historically low mortgage rates fueled a five-year housing boom, most analysts agree that the market is cooling off from its record run.

Nearly all recent measures of housing activity have pointed not just to a slowdown, but to a sector that is struggling. Sales are sliding, supply is swelling and price appreciation is abating.

Can New Jersey Compete?

From the Times Trenton:

Summit attendees lament losses in manufacturing jobs

New Jersey is losing manufacturing jobs and, with them, its competitive edge in a global economy.

That was the consensus of participants in a business summit held yesterday at Mercer County Community College's Conference Center.

"There's no question we need to adjust our thinking in how we do business and how we compete," said U.S. Rep. Rush Holt (D-Hopewell Township), who spoke at the summit, "Maximizing Your Business Potential," that drew representatives from more than 60 manufacturers from central New Jersey.

Between 2000 and 2005, according to Holt, New Jersey lost 98,900 high-paying manufacturing jobs.
...
"New Jersey still maintains, in some ways, a leading-edge economy," Holt added. "But we're at risk for losing that edge."

Holt said he has been supporting legislation on the federal level that would improve conditions for businesses. Among other things, Holt said he hopes to make a federal tax credit for research and development permanent and easier for small businesses to use.

"New Jersey has a tradition of research-based industry and we should embrace that," Holt said.

Community of the Future

From the Star Ledger:

Trash or treasure at Meadowlands?

Coming soon to a world-famous garbage dump near you: verdant fairways, trains, and luxury eco- friendly villages with vegetative rooftops, solar panels, maybe even windmills.

That is the vision of Bill Gauger III, whose North Carolina company is behind the $1 billion-plus plan to transform landfills and contaminated property in the Meadowlands into golf courses, a hotel, stores and more than 4,000 housing units.

"We're trying to build the community of the future," Gauger said as he traipsed past reeds and bulldozers in Rutherford recently. If all goes as planned, 600 condominiums and apartments and a rail station will rise from the rubbish early next year.
...
In Rutherford, where 200 senior housing units are planned in addi tion to the 600 condominiums and apartments, residents have raised concerns about how housing den sity will impact schools and services. They are also worried about the levels of mercury in Berry's Creek, which runs through the development footprint.
...
That election echoed the ousting of Lyndhurst Mayor James Guida last year, who had long supported EnCap's plans. Lyndhurst is slated to get two 18-hole golf courses (one partly in Rutherford), a 350-room conference center/hotel, up to 100,000 feet of retail space, 1,780 housing units and a recreational complex.
...
Plans for the first 300 condominiums by DeFazio and Associates International of Dover include green vegetative roofs to reduce heat absorption, water and light conservation fixtures.

Mass Transit Projects Moving Forward

From the Star Ledger:

NJ Transit moves to grease the wheels

An effort to improve rail transportation between New Jersey and Manhattan, including construction of a second tunnel under the Hudson River, was advanced yesterday by two projects approved by NJ Transit's board of governors.

The agency also adopted a $1.5 billion operating budget -- which, thanks to a $22 million boost in state aid, does not include fare increases -- and a $1.3 billion capital budget that calls for replacing NJ Transit's aging bus and rail fleet over the next several years.

The board authorized preliminary engineering work on the $7.2 billion project to add a second two-track train tunnel under the Hudson River, an initiative that took major strides in the past two weeks when the Port Authority of New York and New Jersey pledged $2 billion in funding and the Federal Transit Administration notified Congress it would approve preliminary engineering of the tunnel.

It also authorized a draft environmental impact statement for a project to eliminate a bottleneck along the Northeast Corridor Line by expanding capacity at a century-old bridge over the Hackensack River.
...
During yesterday's board meeting, directors and members of the public hailed Gov. Jon Corzine as a "friend of mass transit" for providing the increased state funding that allowed NJ Transit to hold the line on fare increases.

"Our transportation network is central to our mobility, our economy, and our quality of life," Corzine said in a statement. "We are working to keep transit affordable and encourage transit usage as a means to avoid high gas prices, reduce traffic congestion and cut back on vehicle emissions."
...
"It is an historic, once-in-a-lifetime opportunity to make an important investment in our transportation system," said state Transportation Commissioner Kris Kolluri, chairman of NJ Transit's board.

The project, the estimated cost of which has risen from $6 billion to $7.2 billion, is considered the centerpiece of the Access to the Region's Core program and will include a new rail terminal at 34th Street in Manhattan adjacent to Penn Station.

Double digit declines will take years to work out

Surprising that this piece comes from RealtyTimes, given the very negative outlook. Author Bob Schwartz takes a position not often seen among real estate columnists, calling for a double digit decline in prices.

San Diego Home Sales Figures: Not All That They Seem

Reviewing the recently released real estate sales data for San Diego, the lay person might conclude that the June home appreciation figures were down approximately 1 percent as compared to June 2005. The reality is the decline is probably much closer to three or five times the published figures.
...
year ago one would be hard pressed to find any individual home seller or major new home builder offering incentives. Now, it is just these incentives that also skew the appreciation data. A $500,000 home sale with a $25,000 interest rate buy-down/closing costs package incentive will be recorded as a $500,000 sale. Yet, the $500,000 sale, in reality was only $475,000 or 5 percent below the reported sales data!

So if the $500,000 sale was just 1 percent below the June 2005 median appreciation, you can see that the 'real' difference was 6 percent below last year!
...
Typically the period from late March through September is the strongest for real estate sales. What does both a huge and continuing month over month sales decline and now a home appreciation drop, during this 'hot' time, portend for the market as it enters the weaker Fall/Winter period? Lastly, the bulk of the interest only, 100 percent loans used to prop up our market for the last few years, has two or three year time periods until the re-amortization (at the current prevailing interest rates) of the loan balances. The majority of these interest rate adjustments will occur in 2007 and 2008.

In my opinion, this is no 'return to normal' or 'slight correction' to the San Diego real estate market. By year's end there will be no denying we will experience a double digit appreciation decline. A decline that will take years, not months, to work itself out.

June Pending Home Sales Down 9.6% YOY

From the National Association of Realtors (NAR):

Pending Homes Sales Index Rises

Pending home sales – a leading indicator for the housing sector – have risen for the last two months, according to the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in June, increased 0.4 percent to a reading of 113.9 from an upwardly revised level of 113.5 in June, but is 9.6 percent below June 2005.

The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.
...
Regionally, the PHSI in the South rose 2.5 percent in June to 130.7 but was 4.8 percent below June 2005. The index in the Midwest increased 1.9 percent to 103.3 in June but was 11.9 percent below a year ago. The index in the West was unchanged, holding at 110.1 in June, and was 14.2 percent lower than June 2005. In the Northeast, the index dropped 6.3 percent in June to 99.4 and was 11.6 percent below a year ago.

The PHSI data can be found here:

Pending Home Sales Index (PHSI) (PDF)

Caveat Emptor!
Grim

Can A Negative Savings Rate Be Sustained?

From Bloomberg:

U.S. Personal Spending Rises 0.4%; Inflation Quickens

Consumer spending in the U.S. rose 0.4 percent in June, the smallest gain this year as higher gasoline prices left Americans with less to outlay on other goods. Incomes also increased.

The rise in spending, which accounts for more than two- thirds of the economy, followed a 0.6 percent May gain, the Commerce Department said today in Washington. The Federal Reserve's preferred gauge of inflation increased 2.4 percent from the same month last year, the most since September 2002.
...
The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.2 percent for a third month in June.

In the second quarter, the government's core personal consumption expenditures index rose at an annual rate of 2.9 percent, the fastest since a 3.2 percent pace in the third quarter of 1994, the Commerce Department's July 28 report on gross domestic product showed.
...
Today's report showed that the savings rate rose to minus 1.5 percent from minus 1.6 percent in May. A negative rate suggests consumers are dipping into savings to maintain spending.

Buying In Your 20's

From the Wall Street Journal:

Are Twentysomethings Ready for Commitment To Owning Real Estate?

Wish you were more grounded? Here's a solution: Buy a house.

For people in their 20s, owning real estate is a way to take on more responsibility, get a sense of stability in at least one area of life and maybe even build up some equity, too. But it involves a heavy commitment -- to a mortgage, to a place, to holding a steady job -- all of which can limit lifestyle and career choices. What about that six-month trip around the world, going back to school or joining the Peace Corps? Once a deed is signed, it may not be that easy to skip town on a month's notice.
...
People in their 20s are more inclined to buy real estate now than they were 20 years ago, according to annual statistics from the U.S. Census bureau. In 2005, almost 26% of household heads under 25 years old owned their home, up from 17% in 1985. Homeownership rates for 25 to 29 year olds also increased over the past two decades, though not as sharply.

But don't we have a propensity to change jobs and cities in our twenties? How about college and graduate school? Military deployments? In this phase, it may be hard to count on an income beyond the most immediate job, which could change. Is it worth taking the risk of committing to a mortgage payment budgeted around unpredictable conditions?
...
Phyllis Attebury, a real estate broker who lives in Carmel Valley, Calif., and works with clients on the San Francisco peninsula, says the market is slowing down a little and that buyers should be prepared to keep a house for at least five years to weather market downturns. "In the long haul, real estate has been a saving grace for many. But for a single person who's here, there, and everywhere they should probably just think about renting for a couple of years," she says.
...
Michael Esquivel, 23, a budget analyst who lives in New City, N.Y., is considering buying a house with two of his oldest friends. "But we're young, and any of us could change jobs easily or move out and the other two would be stuck paying the mortgage, which would be horrible," he says. On his own, Mr. Esquivel says he could only afford a shack and would prefer to live at his parent's house and save money to buy a nice house later on.

I'm a renter myself, and I often wonder if owning a home that I could paint orange and cerulean and landscape with agave cacti and olive trees would instill such a serene sense of propriety that I'd be willing to give up being footloose and cosmopolitan. Or maybe I'd be better off renting indefinitely, and spending any extra money on dinners out and trips to Oaxaca and Paris.

It's a tough call between empire and freedom.

Urban Redevelopment Without Eminient Domain

From the Star Ledger:

Newark to rethink blight designation for Mulberry Street

After more than three years of back and forth, the Newark City Council may consider removing the blight designation from a 13.5-acre area surrounding Mulberry Street where developers want to build 2,000 market-rate condominiums.
...
"If they want to negotiate with property owners they should do so on their own without the threat of eminent domain hanging overhead," said Amador. "I'm not against the project. I just want it to be built on its own merits."

The redevelopment area covers nine city blocks, a mix of residential and industrial uses, small shops, parking lots and private homes near McCarter Highway and the federal courthouse.
...
This would be the second time the development, designed to at tract middle- and upper middle- class residents to live downtown, has faced major alterations. The previous city council asked the planning board to investigate whether the area was blighted in 2003 before rescinding the order. They then restarted the process to have the area declared blighted and approved a redevelopment plan for the area in September.
...
George Mytrowitz, a spokesman for the Mulberry Street Coalition, a group of residents and property owners who formed to oppose the use of eminent domain for the project, applauded the latest development.
...
"There is so much property here they can develop without hurting anyone," said Mytrowitz, whose family owns an auto body repair shop on McCarter Highway. "Eminent domain is a very powerful tool once it's on the table. It's a loaded gun pointed at a property owner's head."
...
"We need to bring residents downtown so the city is not a ghost town after 5 p.m., but it has to be done right," he said.

No Relief For High Jersey Taxes

From the Star Ledger:

Leap in pension payments to wallop towns

Adding pressure to New Jersey's mounting property tax bills, local government officials learned yesterday they will have to fit more than a quarter-billion dollars in new pension payments into their next budgets.

Pension contributions are scheduled to total $650 million for the local share of payments into the plans that cover retirement benefits for police officers, firefighters and local government employees.

"It's going to have a horrendous impact on municipal budgeting," said William G. Dressel Jr., executive director of the New Jersey State League of Municipalities. "It brings into play more service reductions, possible deferral of capital improvement projects and/or higher property taxes."
...
Between 1997 and 2004, local governments paid nothing into their pension systems, as booming investment returns and a $2.8 billion deposit of borrowed state money left the system overfunded, by accounting standards.

Since then, the systems have fallen billions of dollars into deficit, and the state has billed local governments $1.3 billion in three an nual installments to begin addressing the funding shortfall.

Governor open to idea of municipal sales taxes

Gov. Jon Corzine said yesterday he may support allowing municipalities to impose their own sales taxes to help control property taxes.

During a wide-ranging news conference about his ambitious property tax reform agenda, the governor also said he may consider letting an independent commission pick which school districts or municipalities are prime candidates for combined services.
...
"If local citizens choose other revenue sources to lessen their property tax burden, then who are we in Trenton to tell them they don't have the right to an alternative course?" he said. He specifically mentioned only the possibility of municipal impact fees, which would help offset the cost of services caused by new development.

Yesterday, the governor added local sales taxes to the mix, pointing out that most states allow the practice. A chart by the national Sales Tax Institute in Chicago indicates 35 states, including Pennsylvania and New York, permit municipalities or counties to impose their own sales taxes.
...
William Dressel, executive director of the New Jersey State League of Municipalities, said his group has long favored giving towns the option of imposing their own sales taxes. One reason property taxes are lower in other states is not just one tax is being relied upon.

Another worry to add to the list

From CBS:

NE Hurricane Could Cripple Economy

This month, the nation's best hurricane experts met for the first time ever with nervous insurance industry reps about a storm lurking beyond the horizon.

"The risk is increasing and it's increasing every year," catastrophe risk analyst Karen Clark told CBS News correspondent Michelle Miller.

That storm a long overdue northeast hurricane which the latest computer models now predict could devastate the region and cripple the U.S. economy.

"It will be the largest financial disaster that this country has ever seen," Clark, the president and CEO of AIR Worldwide, said.

A direct hit on New York's Long Island by a Category 3 or higher hurricane would cost $100 billion.

But the same size storm spinning into central New Jersey would be catastrophic — raking New York and points north with its strongest winds. The result: $200 billion in damages and lost business.

"And much of that disruption will not be covered by insurance," Clark said.
...
A major northeast hurricane is nearly three times more likely this year thanks to favorable weather conditions, including the position of the Bermuda High. Last year it pushed storms southwest. Now it's set to steer hurricanes up the East Coast.

Dean Baker on Bubbles and Recessions

This piece, by Dean Baker of the Center for Economic and Policy Research, comes to us via TomPaine.com:

The Coming Housing Crash

All the economists who missed the stock bubble—this is almost all economists—are just about to be embarrassed again. Several reports released this week provide the strongest evidence yet that the housing bubble may finally be deflating.

Sales of new and existing homes are both down more than 10 percent from their peaks last year. Mortgage applications are down 20 percent. Sale prices have barely risen from the level of last year, and are actually down after adjusting for inflation. Inventories of new and existing homes both stand at record levels, and the vacancy rate for ownership units has also hit a new high.

This is a very different picture from a year ago, when housing was considered the best investment around. At that time, homes in the hottest markets would routinely sell the day they came on the market for more than the asking price. The result of this frenzy was an unprecedented run-up in house prices.
...
But, it was inevitable that the bubble would eventually collapse. The record run-up in housing prices led to record rates of housing construction. With population growth slowing, the country was building homes far more rapidly than the market could absorb them. At some point, excess supply will put downward pressure on prices.
...
The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption.

Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble, just as there was no easy route to recover from the stock crash induced recession of 2001. Greenspan used the housing bubble to recover from that crash, because he saw no other mechanism. Unless Bernanke can find some other bubble to inflate, the recovery may be a long slow process. It took Japan almost 15 years to recover from the crash of its stock and housing bubbles.

The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences.

Q2 Otteau Reports Available

The Otteau Reports are now available for the second quarter:

The Otteau Report

Shortcuts (PDF) & Highlights:

Bergen
Average Offerings/Monthly up to 1944 from 1587.7 in 2005
Average Sales/Monthly down to 945.7 from 1137.7 in 2005
Unsold Inventory up to 6449 from 3491 in 2005
Projected Absortion: 7 months

Essex
Average Offerings/Monthly up to 1005.7 from 904.7 in 2005
Average Sales/Monthly down to 531.3 from 632.3 in 2005
Unsold Inventory up to 2648 from 1768 in 2005
Projected Absortion: 5 months

Hudson
Average Offerings/Monthly at 796
Average Sales/Monthly at 298.7
Unsold Inventory at 2900
Projected Absortion: 10 months

Morris
Average Offerings/Monthly up to 1282.3 from 1127.7 in 2005
Average Sales/Monthly down to 554.7 from 705.7 in 2005
Unsold Inventory up to 3852 from 2323 in 2005
Projected Absortion: 7 months

Passaic
Average Offerings/Monthly up to 658.0 from 563.0 in 2005
Average Sales/Monthly down to 308.0 from 400.0 in 2005
Unsold Inventory up to 2139 from 1255 in 2005
Projected Absortion: 7 months

Union
Average Offerings/Monthly up to 942.7 from 781.0 in 2005
Average Sales/Monthly down to 421.7 from 522.3 in 2005
Unsold Inventory up to 2592 from 1509 in 2005
Projected Absortion: 6 months

All data and graphs copyright of the Otteau Group (http://www.otteau.com).

June Otteau Report

The June Otteau Report has been published, courtesy of Jeffrey Otteau of the Otteau Group (http://www.otteau.com):

JUNE SALES DECLINE AS INVENTORY GROWTH SLOWS

June is an important month for the residential real estate market as it represents the traditional end-point of the Spring selling season and typically sets the high-water mark for home sales in any given year. Thus, the residential market in New Jersey had much at stake as any hopes for a market comeback would fall heavily on the June sales performance.

In June, contract-sales activity ran 9% below May and 24% below June 2005, continuing the pattern set earlier this year and dimming hope for a market comeback any time soon. From an inventory perspective, the number of unsold homes on the market increased by 4% in June adding further to an already saturated market. Year-to-date comparisons indicate a 17% decline in Contract Sales and a 70% increase in Unsold Inventory when compared to last year at this time. Some encouragement can be found in the fact that Unsold Inventory increased by only 4% in both May and June, as compared to a much higher increase in the preceding months of January (+15%), February (+12%), March (+13%), April (+12%), giving some hope that inventory will stop it’s upward spiral. At the same time however, even a modest increase in Unsold Inventory is detrimental to the market given the current high inventory levels.

Looking ahead, the Summer selling season typically brings gentle but steady declines in buying activity followed by more pronounced dips during the Fall and Winter seasons. Add in the effects of rising mortgage rates, record high energy prices, and the erosion of consumer confidence towards the future of the housing market and there’s no reason to expect a rebound any time soon!

From a price perspective, there is mounting evidence that home prices will decline over the short term as motivated sellers make business decisions to accept a lower selling price in exchange for a quicker sale. On the New Construction front, the myriad of sales incentives ranging from discounted pricing on upgrades, mortgage rate buy-downs and other financial incentives are the market equivalent of price reductions which will steer the overall residential market to a lower price point. Given that the New Jersey Housing Market realized an 87% increase in home prices from 2000 – 2005, the adjustments now taking place come as no surprise. Nonetheless, expect a bumpy ride over the next few years as the market struggles to restore an affordability balance in the face of rising mortgage rates and energy prices.

All text and images copyright the Otteau Group.

Home Prices Set To Fall

From The Business Online:

Fears as US house prices to dip for the first time ever

HOUSE prices are set to drop in the US for the first time on record, US investment bank Goldman Sachs warned this weekend.

Prices in several segments of the market have already started to fall, and the overall market will move into the red even in nominal terms next year, fuelling fears that this will trigger a downturn in consumer spending and hit an already slowing US economy.

Jan Hatzius, economist at Goldman Sachs, said: “The risk is rising that nominal US home prices may be headed for an outright decline in 2007. It would be the first decline in national home prices ever recorded, at least in nominal terms.”

In real terms, prices have declined during several periods, including a 9% drop from 1979 to 1984.

In a special analysis of the data, the Goldman economists found that seasonally adjusted US house prices were already falling in dollar terms. The nominal median price of a single-family home has been declining slightly at a 1% annualised rate since the fourth quarter of 2005, the research shows.

The median price of a condo or co-op apartment has been falling more steeply at a 9% annual rate. Hatzius said: “It is not surprising to see relatively greater weakness in the condo and co-op market, which is much more concentrated in overheated coastal parts of the United States”.

Quit your job and live off the equity

From the NY Times:

Men Not Working, and Not Wanting Just Any Job

Alan Beggerow has stopped looking for work. Laid off as a steelworker at 48, he taught math for a while at a community college. But when that ended, he could not find a job that, in his view, was neither demeaning nor underpaid.

So instead of heading to work, Mr. Beggerow, now 53, fills his days with diversions: playing the piano, reading histories and biographies, writing unpublished Western potboilers in the Louis L’Amour style — all activities once relegated to spare time. He often stays up late and sleeps until 11 a.m.

“I have come to realize that my free time is worth a lot to me,” he said. To make ends meet, he has tapped the equity in his home through a $30,000 second mortgage, and he is drawing down the family’s savings, at the rate of $7,500 a year. About $60,000 is left. His wife’s income helps them scrape by. “If things really get tight,” Mr. Beggerow said, “I might have to take a low-wage job, but I don’t want to do that.”
...
“To be honest, I’m kind of looking for the home run,” said Christopher Priga, who is 54 and has not had steady work since he lost a job with a six-figure income as an electrical engineer at Xerox in 2002. “There’s no point in hitting for base hits,” he explained. “I’ve been down the road where I did all the things I was supposed to do, and the end result of that is nil.”

Instead, Mr. Priga supports himself by borrowing against the rising value of his Los Angeles home. Other men fall back on wives or family members.

Slowing Market Worries Developers

From the AP:

Developers nix or delay condo projects

In a city cluttered with condominium construction, Old City 205 aspired to shine as an ultramodern residence for the well-heeled with its zinc and glass facade, loft-style homes and windows that span floor to ceiling.

Too bad no one will get to move in now: The $40 million project in Philadelphia's Old City neighborhood won't break ground after the housing market softened and increasingly picky buyers balked at its price tags from $400,000 for a studio to over $2 million for a three-bedroom penthouse.

Brown Hill Development, the company behind the project, noticed slower traffic and decided it didn't want to be left with unsold units, said partner Greg Hill.

From coast to coast, developers are nixing or delaying condominium projects as home sales decelerate, construction costs soar and lenders start to balk at financing units that might not sell. What's making it worse is the glut of high-priced condos and too few people who can afford them.
...
With housing looking increasingly anemic, it's not surprising that developers are bailing out.
...
McCabe considers the condo market, especially the luxury end, at risk of a crash. Over the next few years, he sees prices falling by double-digit percentages.

San Diego - First to Boom, First to Bust

From Mercury News:

San Diego median home price drops
HOUSING BOOM STARTER FIRST TO SEE MARKET BEGIN TO FALL

San Diego County kicked off California's housing boom six years ago with dramatic price rises and became one of the nation's hottest real estate markets.

Now it has attained a more dubious distinction: It's the first major California real estate market to see its median home price fall below year-ago levels, according to data released Wednesday.

Another once-sizzling market, Los Angeles County, saw home prices in June rise at their slowest year-over-year rate since 2001.

San Diego County's median price for new and existing homes in June was 1 percent lower than a year ago, a stark contrast to the 20 percent-plus annual gains it was posting during the peak of the boom two years ago, according to data released by DataQuick Information Systems, a San Diego-based real estate research firm.

It was the first time the county had suffered a decline in year-over-year prices since July 1996, and means that many people who bought homes since June 2005 have no equity increases.

The question now is whether the county's slump is a harbinger of a deeper decline in prices, or part of a ``soft landing,'' in which prices merely level off in the near future.
...
In many ways, San Diego has been ground zero for a nationwide debate about whether the housing market is in a speculative bubble. It was one of the first regions to see price appreciation soar by double digits beginning in 2000, helping to double values in less than five years.

But over the past year, San Diego has exhibited many classic signs of a topping market: rising inventories of unsold homes, slower sales turnover, a leveling of prices and an exodus of hard-core speculators.

Home Equity Piggy Bank

From Marketwatch:

Many view equity in home as piggy bank

The equity you build up in your home is not a retirement-savings account, although many Americans are tempted to think that it is. But the smartest way to think about home equity, financial planners say, is as a cushion, a spare tire in reserve just in case savings calculations are off or liquid assets run out.

Shelter is a necessity, and so many planners classify the home as a "use asset," a consumer need in the same class as a car or sofa.

"It's a place to live, not a brokerage account," said Sherman L. Doll, a personal financial specialist with Capital Performance Advisors in Walnut Creek, Calif. "But try to convince a Californian of that."
...
recent Securities Industry Association retirement study identified a "wealth effect" that surfaced as homeowners amassed equity in their properties and perceived they had less of a need to save. Factors such as rising interest payments and higher energy prices also pushed Americans to slack off when it came to lining their retirement nest egg, the study concluded.

For many American homeowners, nearly half their net worth is based on the value of their home, the study found. At the same time, the number and percentage of households holding a retirement account such a 401(k) or an individual retirement account have fallen since 2001, and nearly half of American households are not saving at all.
...
"There is value there, but many mistake what that value is. For instance, if a person owns a $500,000 home, they think they have a lot of money saved up," he said. But "the biggest retirement benefit of owning a home is to have it paid off and have the privilege of living there without having to make payments or pay rent."
...
He points to the "liquidification" of real estate value as a problem for many Americans, especially for those who have most of their net worth tied up in their homes.

"If that's all you have, or it's a critical part of retirement income, you shouldn't be spending it before you retire," he said. For some tapping into home equity is akin to "spending retirement savings today," he said.

It's a change from previous generations, when people worked toward paying off the family house so they could hand it down to their children, he said. Future generations would do well to learn from the experience of the boomers and start saving — and early.

Will the last one out of Jersey please turn out the lights

From the Star Ledger:

Taxes driving people out of Jersey

Some see it as an exodus. Others call it a mass migration. But it's really a financial flight.

In interviews with dozens of New Jersey residents, financial advisers and estate planning attorneys, one thing becomes apparent: People are being taxed out of New Jersey.

"I've always felt there's a level of taxation where people say, 'Enough is enough,'" said Curtis Dubay, an economist with the Tax Foundation, a Washington, D.C., nonpartisan tax research group. "If any state has pushed the line, it's New Jersey."

According to the foundation's 2006 State Business Tax Climate Index, New Jersey has the third highest tax load in the nation. For 2007, it's probably going to be worse, Dubay said.

"I have little doubt that New Jersey will be the worst ranked state with regard to taxes," he said.

There's no question people are leaving. And, they have been for some time. Internal Revenue Service data shows each of New Jersey's 21 counties suffered a net population loss in 2004, the most recent year data is available. In that year, nearly 100,000 households left the state, taking with them $1 billion in personal income.

They're leaving for more tax-friendly states such as Florida, Nevada and Delaware, IRS data shows. Here are the stories of five families of different financial means who have either left, or might leave, New Jersey.