Northern New Jersey Real Estate Bubble: 2006-08-20

Saturday, August 26, 2006

The funny thing about bubbles, is that you never know when they’re over.”

From the New York Times:

Read Between All Those For-Sale Signs

REAL bubbles pop. They are fully formed one moment and gone the next. Financial bubbles rarely meet with such a definitive end, which has always been the biggest problem with the metaphor. They let out their air in unpredictable bursts, and it’s usually impossible to figure out whether they have finished deflating or are just starting to.

Still, the latest housing numbers seem like they could be a turning point. A real estate crash might not be the most likely outcome, but it certainly seems legitimate to think about what one would look like.
...
The collapse of most bubbles does not have a single obvious starting point, like a bad corporate earnings report or an interest-rate rise. Instead, the psychology of buyers and sellers shifts, slowly at first and then sometimes in a cascade.

“It’s always mystified people about why these things turn,” said Robert J. Shiller, a Yale economist and author of “Irrational Exuberance,” a history of speculation. “People want something concrete.”

There seem to be three major paths that housing could follow over the next year: a soft landing, the start of a long slump, or a crash. A soft landing is the one predicted — and preferred — by most economists on Wall Street and at the Fed. A long slump is what many past real estate booms turned into. A crash is the outcome that a small group of analysts say is the only possible ending for the biggest housing boom of all.
...
But earlier booms have been followed by modest price declines in some cities that turned into long periods in which increases trailed inflation. After peaking in much of California and the Northeast in the late 1980’s, house values fell during the recession of 1990-91 and then drifted for years, often rising more slowly than the price of milk.

In inflation-adjusted terms, prices in the New York and Washington areas did not return to their late-80’s peak until 2002. In Boston, it didn’t happen until 2000, and in San Francisco, 1999.

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. Also a good place to post suggestions, requests for information, criticism, and praise.

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.

"Real Truth" on Incentives

Thought this would make an interesting topic for discussion:

I don't understand why no one has written an in-depth article about the "real truth" on incentives and how much more they cost the buyer.

Incentives only help the industry, but they hurt the buyer.

1. You'd be better off paying for upgrades, plasma tv's, even cars out of your own pocket on your own terms. You can get a plasma tv finance from most major electronics stores for 0%. why would you want that financed into your mortgage over 30 years?!?!

2. $20k worth of options really ends up costing you $43k over 30 years at 6%. You're better off having the home price reduced by $20k which will save you $23k over the next 30 years.

3. When it comes time to resell your home, you could have more of a profit if they just reduce the price. If you have an inflated home price, thats less profit for you when closing time comes. Live like the stock market, buy low-sell high. You can't short a house, so overpaying is only your fault.

4. The incentives only help the industry, not the buyer. They do that to keep prices "inflated" so other recent home buyers don't get upset and to keep median prices high so that other potential buyers do not see home prices falling. God forbid prices fall, more people might be able to afford them. Why does the industry keep insisting real-estate isn't cyclical, when it is?

5. You can get more for your money (in terms of upgrades) if you shop around. Chances are that $15k countertop is only costing the seller $8k. Now with many retailers and contractors feeling the chill, they'll be desperate to take on new jobs. They'll have to be competitive as well.

I would write one, but I have no motivation. These are the types of articles that should be written on the major media sources. I'm getting tired of the phrase 'yet another sign that the housing market is starting to cool'. You morons, the housing market started to cool at the beginning of the year. Get up to date already.

Last year it was all pep-rally's, the housing craze, etc. Nobody (except us) saw this coming. All of the insiders stood there like deer in the headlights. Times are different, everyone has a trust fund worth 1 million, there is no more land, baby boomers want 4 homes to live in, blah blah blah..

The realtors and developers had no control over their own industry. They milked every drop they could get out of it, and now they need to get creative to try to keep the party going.

-Richie

When the Bubble Bursts

From the LA Times:

When the Bubble Bursts

It's too early to say whether the slowdown will turn into a crash presaging a recession, as happened in the late 1970s and '80s, although the economy's other fundamentals remain healthier now than then. But it's worth bearing in mind which homeowners are most likely to be affected by a possible downturn and which ones can lay off the antacids.

Homeownership in the U.S. is at its highest level in at least 110 years, with nearly 70% of the population in 2003 living in residences they own. That increase over the 65% rate of just a decade ago is widely attributed to not only an aging population but to innovative lending techniques that have enabled more young people to buy instead of rent. Those techniques include zero-down-payment mortgages and "sub-prime" loans to people who in the past would have been considered too risky.

Within this enlarged pool of homeowners, many of whom have a thinner financial cushion, there are two groups: those whose homes are a long-term investment, and those looking for a quick resale. The first group can shrug off anything short of a calamitous drop in prices, even if they sell their homes during the slump. That's because they've benefited from the outsized run-up in prices since 2001, when home values in Southern California rose 11% to 23% annually. Buying a home is typically a good long-term investment for a variety of reasons, but earning stock-market-like growth is not one of them.

Recent home buyers who have counted on big short-term gains have more to worry about. Speculators already have recognized the risk and retreated from the market. But numerous other buyers had been hoping to work their way up to bigger homes and better neighborhoods. A burst bubble could force these people to stay put for several years.
...
Meanwhile, though, there are nuggets of good news for would-be buyers, especially those who have been priced out of this market. With demand for loans dropping, some banks are making it even easier to obtain mortgages. Homes are staying on the market longer, and sellers' expectations are fading. But if you're going to buy a home, you'd better count on keeping it for a while.

Price Reduced! 8/18 - 8/25

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 me, nor do I believe they are a bargain or a value. Even reduced, I still believe these homes are still grossly overpriced.

On to the list!

	Bergen
MLS	Town	Original List	List Price	Reduced
2287392	Fort Lee	$110,000	$95,000	13.6%
2262962	Ridgewood	$799,900	$699,000	12.6%
2285801	Franklin Lakes	$1,995,000	$1,749,000	12.3%
2289938	Mahwah	$1,699,000	$1,499,999	11.7%
2266632	Glen Rock	$649,000	$579,000	10.8%
2267028	Waldwick	$479,900	$429,900	10.4%
2075642	Franklin Lakes	$3,789,000	$3,399,000	10.3%
2273832	Fair Lawn	$489,000	$439,000	10.2%
2208225	Wood-Ridge	$489,000	$439,000	10.2%
2253634	Teaneck	$389,000	$349,900	10.1%

	Essex
MLS	Town	Original List	List Price	Reduced
2273549	West Orange	$149,000	$89,900	39.70%
2253911	North Caldwell	$1,750,000	$1,199,000	31.50%
2268122	West Orange	$699,000	$499,000	28.60%
2285068	Livingston	$1,275,000	$999,000	21.60%
2286310	West Caldwell	$719,000	$570,000	20.70%
2214626	Livingston	$1,550,000	$1,285,000	17.10%
2278542	Roseland	$1,489,900	$1,250,000	16.10%
2271512	Livingston	$1,599,000	$1,350,000	15.60%
2275264	West Caldwell	$945,000	$799,900	15.40%
2263349	Roseland	$789,000	$669,000	15.20%
2266913	Nutley	$699,000	$599,000	14.30%
2262771	South Orange	$885,000	$765,000	13.60%
2282469	South Orange	$749,000	$649,900	13.20%
2246458	West Caldwell	$759,000	$659,000	13.20%
2246469	West Caldwell	$759,000	$659,000	13.20%
2262324	West Orange	$399,900	$350,000	12.50%
2305276	Livingston	$535,000	$470,000	12.10%
2267895	Bloomfield	$419,000	$369,000	11.90%
2301094	Belleville	$169,000	$149,000	11.80%
2305129	Belleville	$260,000	$230,000	11.50%
2255184	Bloomfield	$434,900	$385,000	11.50%
2279566	Verona	$439,000	$389,000	11.40%
2312376	Livingston	$899,000	$799,000	11.10%
2304790	Montclair	$779,000	$699,000	10.30%
2285051	Belleville	$399,900	$359,000	10.20%
2281359	Belleville	$345,000	$310,000	10.10%
2284571	Nutley	$799,000	$719,000	10.00%

	Passaic
MLS	Town	Original List	List Price	Reduced
2261050	Passaic City	$409,000	$329,900	19.30%
2279176	Wayne	$1,400,000	$1,149,999	17.90%
2267782	West Milford	$347,500	$289,000	16.80%
2257195	Wayne	$279,900	$234,900	16.10%
2274861	North Haledon	$549,000	$465,000	15.30%
2262776	West Milford	$529,900	$449,000	15.30%
2249402	West Milford	$498,888	$424,999	14.80%
2296845	Wayne	$699,000	$597,000	14.60%
2279379	West Milford	$875,000	$749,000	14.40%
2112125	Wayne	$579,900	$499,900	13.80%
2272445	Pompton Lakes	$459,900	$399,900	13.00%
2309009	Hawthorne	$390,000	$340,000	12.80%
2241999	Clifton City	$334,900	$295,000	11.90%
2270206	Wayne	$339,000	$299,000	11.80%
2288240	Little Falls	$644,500	$569,000	11.70%
2298614	Hawthorne	$359,900	$319,900	11.10%
2292511	West Milford	$449,900	$399,999	11.10%
2280889	Clifton City*	$560,000	$499,800	10.80%
2292532	West Milford	$279,000	$249,999	10.40%
2295162	Clifton City	$344,700	$309,000	10.40%
2281765	Little Falls	$289,900	$259,900	10.30%
2308996	Clifton City*	$445,000	$399,000	10.30%
2293645	West Milford	$339,900	$305,000	10.30%

	Union
MLS	Town	Original List	List Price	Reduced
2273201	Union	$625,000	$499,900	20.0%
2266196	Springfield	$1,225,000	$995,000	18.8%
2292358	Westfield	$1,100,000	$949,000	13.7%
2263912	Clark	$574,900	$499,000	13.2%
2248541	Scotch Plains	$389,900	$339,900	12.8%
2267736	Fanwood	$479,000	$419,900	12.3%
2270272	Westfield	$649,500	$569,500	12.3%
2257882	Elizabeth City	$335,000	$295,000	11.9%
2279312	Scotch Plains	$634,900	$559,900	11.8%
2262295	Plainfield City	$349,900	$309,900	11.4%
2262411	Clark	$569,567	$509,000	10.6%
2296012	Plainfield City	$669,000	$599,900	10.3%
2271550	Plainfield City	$340,000	$305,000	10.3%
2289754	Hillside	$439,000	$394,000	10.3%
2288259	Elizabeth City	$299,900	$269,900	10.0%

	Somerset
MLS	Town	Original List	List Price	Reduced
2267697	Bernards	$1,150,000	$899,000	21.80%
2260908	Hillsugh	$414,900	$344,900	16.90%
2300614	North Plainfield	$599,000	$499,000	16.70%
2259928	Franklin	$184,900	$155,000	16.20%
2263259	Hillsugh	$272,900	$233,000	14.60%
2300770	Franklin	$329,999	$282,900	14.30%
2293109	Warren	$459,900	$399,900	13.00%
2254157	Warren	$859,900	$749,900	12.80%
2231213	Bernards	$315,000	$275,000	12.70%
2284452	Hillsugh	$319,900	$279,900	12.50%
2288392	Watchung	$1,129,500	$989,500	12.40%
2266499	Franklin	$347,500	$305,500	12.10%
2272155	Bernards	$1,695,000	$1,499,000	11.60%
2259382	Bound Brook	$250,000	$222,000	11.20%
2287921	Franklin	$450,000	$399,900	11.10%
2267202	Hillsugh	$359,900	$319,900	11.10%
2287416	Bridgewater	$364,900	$324,900	11.00%
2275858	Bernards	$829,000	$739,900	10.70%
2258320	Franklin	$529,900	$474,900	10.40%

	Sussex
2205183	Vernon	$575,000	$424,900	26.10%
2269021	Lake Mohawk	$649,000	$499,900	23.00%
2289736	Franklin	$187,900	$149,000	20.70%
2222349	Frankford	$375,000	$299,000	20.30%
2263326	Lafayette	$1,150,000	$950,000	17.40%
2269726	Vernon	$599,900	$499,900	16.70%
2260291	Frankford	$499,900	$419,000	16.20%
2269709	Vernon	$249,900	$210,000	16.00%
2206399	Fredon	$795,000	$675,000	15.10%
2254925	Sparta	$1,169,900	$997,500	14.70%
2258343	Frankford	$469,000	$399,999	14.70%
2294450	Hopatcong	$219,000	$189,000	13.70%
2275226	Byram	$439,000	$385,000	12.30%
2258869	Sparta	$739,000	$650,000	12.00%
2285046	Newton Town*	$339,900	$299,800	11.80%
2257670	Lake Mohawk	$699,000	$619,900	11.30%
2301391	Hopatcong	$359,000	$319,000	11.10%
2282839	Lake Mohawk	$337,000	$299,900	11.00%
2301654	Hardyston	$549,000	$489,000	10.90%
2276313	Lake Mohawk	$749,000	$668,000	10.80%
2269465	Wantage	$369,900	$329,900	10.80%
2309620	Stillwater	$469,000	$419,000	10.70%
2237762	Vernon	$234,500	$209,500	10.70%
2279985	Lake Mohawk	$299,900	$269,900	10.00%
2279978	Sparta	$299,900	$269,900	10.00%

	Warren
2289046	Knowlton	$47,800	$39,900	16.5%
2276585	Phillipsburg Town*	$129,900	$109,900	15.4%
2308912	Harmony	$169,900	$143,900	15.3%
2275329	Franklin	$209,000	$178,000	14.8%
2309089	Harmony	$339,900	$289,900	14.7%
2264867	Allamuchy	$459,900	$393,000	14.5%
2266201	Pohatcong	$320,000	$279,900	12.5%
2274939	Washington	$319,900	$279,900	12.5%
2298200	Lopatcong	$329,900	$289,900	12.1%
2274596	Oxford	$419,000	$369,900	11.7%
2307086	Oxford	$279,900	$249,900	10.7%
2299344	Allamuchy	$389,900	$349,900	10.3%

Caveat Emptor!
Grim

When it sounds too good to be true...

From the New York Times:

Offering Prizes to New-Home Buyers

BUYERS are said to have the upper hand these days in the market for residential real estate, and this is reflected in the elaborate presents and price breaks that consumers are being offered to purchase homes in new developments.

At the Ocean Acres at Barnegat development, where hundreds of single-family homes are being built near Barnegat Bay, several buyers await delivery of new Toyota Yaris hatchbacks, which will arrive in their garages early next year at the time of their closings, courtesy of the developer, Walters Homes.
...
The Kaplan Companies of Highland Park, for one, appears to be going to unusual lengths to persuade prospective buyers that they have nothing to lose by making a purchase. For the next 60 home buyers at its current New Jersey projects — Towne Lake and Harbour Pointe at La Mer, both in Sayreville; the Heights of Hampton; the Woodfield at Mount Olive; the Villages at Cinnaminson Harbour; and the Ambiance at Hackensack — the company is offering a plan intended to provide full protection against the vagaries of the housing market over the next three years.

“We will buy back any home we sell — at the price paid — at any time in the next three years, should the market price of that home fall,” said Jason Kaplan, president of the Kaplan Companies.
...
As always with eyebrow-raising offers, certain conditions apply. For example, there is the matter of setting a price for a customer’s current house. “We will buy at market price, based on comps” — sales prices for comparable homes in the same neighborhood — “factoring in a real estate broker’s commission,” Mr. Kaplan said.

Friday, August 25, 2006

Liar liar

From the New York Times:

When the Truth Goes Begging

FOR those who have a hard time documenting enough of their earning history to qualify for conventional loans, a popular option has become the so-called “stated income” mortgage.

Such mortgages are often sought by self-employed people or contract workers who typically do not receive W-2’s and thus lack the kinds of income documentation that underwriters rely on to process most conventional loans. The loans cost roughly one-half a percentage point to three-quarters of a percentage point more.

As you might guess, stated-income mortgages are also popular among borrowers who are committing fraud, knowingly or not. According to a recent study of 100 stated-income mortgages by the Mortgage Asset Research Institute Inc., an industry consulting company in Reston, Va., 90 percent of those who apply for stated-income loans exaggerate their income by 5 percent or more. Nearly 60 percent exaggerate their income by more than 50 percent.
...
Stated-income loans are, Mr. Larson said, one of the primary ways people obtain loans for which they could otherwise not qualify.
...
But stated-income loans also sometimes involve borrowers who know that if they told the truth about their finances, they could not get a mortgage. That, too, is fraudulent, of course, since buyers entering into mortgage settlement contracts must sign statements testifying to the accuracy of their financial information. It is also risky, mortgage professionals said, since not telling the truth could ruin a borrower’s credit in the long term.
...
In the second half of last year, about 12 percent of all new loans were obtained with reduced or no financial documentation, according to the Mortgage Bankers Association.
...
Otherwise, he said, stated-income mortgages are not for sale. “There’s not really a nice way to say it,” he said. “We have a nickname for them in the industry. They’re called ‘liar loans.’ ”

Builders and Realtors Wary

From the Record:

Builders deal with decline

Builder Charles Panahi is constructing only five luxury homes right now. Last year at this time, he was building 11.

"I'm slowing down because I'm watching the market," said Panahi, who owns Diamond Engineers and Developers Inc. in Closter.

Panahi -- like many builders and Realtors – sees the signs of a weakening market in North Jersey and beyond.

Sales for new homes nationally dropped by 22 percent in July compared with the same month in 2005, the Commerce Department said Thursday. The pace of new home sales fell a staggering 43 percent in the Northeast.
...
Ron Durante, who owns Rocket Building Supply in Waldwick, said higher construction materials costs have cut into builders' margins.

"Builders are hoping the market demand comes back up rather than cutting prices," Durante said.

"I've heard a few people having such high cost bases that they can't afford to cut much without a loss."

Jeff Zilahy, an agent with Liberty Realty in Hoboken, says the numerous condo buildings sprouting up along the Gold Coast are adding to the supply of available dwellings and making it difficult to find enough buyers.
...
This fall, he'll be starting a new job as a public school math teacher but will continue to sell homes part-time.

He left teaching in 2004, near the peak of the housing boom, to become a Realtor.

"I got into real estate to make money," Zilahy said.

"Now, ironically, I'm going back to teaching."

Washington Township Hit By Tax Revaluation

From the Record:

Smaller homes hit harder by revaluation

It seems like reverse logic.

On busy Pascack Road, the owner of a modest home assessed at $192,100 and situated on 0.43 acre received a 52 percent tax increase this year.

A few blocks away on the more scenic Gorga Place, the homeowner of a new-construction home assessed at $417,500 and situated on 1.35 acres is enjoying a 12 percent tax break.

Based on the township's new tax assessments, it pays to own a pricey home.

Some residents faced sticker shock, and others breathed a sigh of relief last month when the township mailed out its tax bills.
...
"Once the tax bills were sent out, people started complaining that they didn't expect them to go up so high," said Mayor Rudy Wenzel, whose own taxes rose roughly $700. "If you have a small house on a good piece of property, you could get hit harder because, technically, you could build a larger home on that lot."

Wenzel said the recent tax revaluation makes him pessimistic about the future. "I see big increases coming up because of education and the high cost of municipal employees. I don't see growing ratables to help us cover it in the next few years. The high cost of living here is sending people to other states."
...
He said there are several reasons someone's home value could increase while someone else's decreases. "Some homes might have been assessed too low last time. One house could have had an addition, which requires higher taxes. Different neighborhoods increase in value at different rates. Someone with a bigger piece of property will have a larger increase than a nicer house on a smaller piece of land."

Politi advised homeowners that "if their property would sell for the amount the house was valued at," then it is correct.

"People have been underpaying in taxes for years. Now the system finally caught up to them. Nobody wants to hear that," he said.

Incentives Mask Market Health

From the New York Times:

Home for Sale, by Anxious Owner

Home sales are falling rapidly, and the number of houses on the market is surging. Yet each new economic report offering evidence of a housing slowdown also shows that the national median home price has continued to rise over the last year.

To understand how this could be happening, consider a three-bedroom house surrounded by oak and redwood trees, not far from the Golden Gate Bridge, in San Rafael, Calif. Reluctant to cut the price from its current listing of $1.54 million, its owners are instead offering a weeklong vacation time-share, every year for life, worth about $10,000, or an equal amount toward lease of a car.
...
In California, the Northeast, South Florida and parts of the Southwest, deal sweeteners like these are playing an increasingly important role in supporting home prices. From large national home builders to individual homeowners, many sellers are offering thousands of dollars in perks, including straight cash, so they do not have to slice deeply into asking prices.

But these discounts are almost entirely missing from the statistics on new-home prices reported by the government and on existing-home prices reported by the National Association of Realtors. As a result, home prices may now be falling, despite what the official numbers show, many economists say.

The use of rebates helps home builders and individual sellers by making the real estate market look healthier than it may truly be and by preventing a snowballing decline in home prices. It also keeps commissions for real estate agents higher than they would otherwise be.
...
On Wednesday, the Realtor group reported that the median price of existing homes was also $230,000 in July, up 0.9 percent from a year earlier.

Mark Zandi, the chief economist of Moody’s Economy.com, estimated that incentives might now be equal to as much as 3 percent of the effective prices of houses across the country, on average. But he and other economists said there was simply no way to know for certain.

“We don’t have any house price indexes that get it right,” said Todd Sinai, an associate professor of real estate at the Wharton School of the University of Pennsylvania.
...
Mr. Zandi, the economist, said he believed that the use of perks was now approaching its peak and that sellers would soon be forced to cut list prices more heavily. He predicted that the home-price data released by the Realtors association would show a year-over-year decline, relative to the same month a year earlier, before the end of this year. If so, that would be the first such drop since 1993. The Realtors have never reported a drop in the annual average of national home prices, a fact frequently cited by real estate analysts.

“The reason the Realtors’ data has never showed an outright decline” before, he said, “might be that they’re not measuring the effective price.”
...
Eventually, buyers will realize “there is no free lunch,” he said. “There is a reason it’s being given away.”

Housing Bubble Horror Story

From the New York Sun:

Housing Bubble Horror: Market Has Makings for a Gory Story

Investment crazes come and go, invariably bloodying the eager buyers who are 100% convinced they've latched on to a sure-fire winner.

The Dutch tulip bulb mania in the 1630s, Britain's South Seas bubble in the early 1700s, the Florida land boom in the 1920s, the stock market frenzy that led to the 1929 crash and the Internet craze of the late 1990s are just several that come to mind.

The latest is the housing boom, which some Wall Street professionals insist has already evolved into a housing bust, as evidenced by shrinking sales, falling home prices, burgeoning inventories and tumbling stock prices for housing-related companies.
...
But Mr. Saut certainly does, noting that real estate has been chiefly responsible for much of the nation's economic and job growth. Taking note of significant year-over-year price breaks in his home base of Florida, which has been slammed with doubledigit declines in 12 of its 20 metropolitan areas, in one instance (Punta Gorda), as high as 97%, he thinks what's happening there is a pretty good prism of what's occurring on the "coasts," as well as in some previous hot real estate markets like Las Vegas, Phoenix and Washington, D.C.

Regrettably, our housing worry-wart says, he expects the "homesick" environment to get worse, amplified by the $2.7 trillion worth of adjustable rate mortgages that will reset at a higher interest rate in 2006 and 2007. These higher rates, he notes, come on top of the fact that 10% of all home owners with mortgages have no equity in their houses, while 15% of the 2005 home buyers owe at least 10% more than their home is worth.
...
The problem, he says, is that the risks of the housing bust are under-appreciated, pointing to (among other things) such follow-up effects as the likelihood of serious loan losses, surging mortgage defaults and a worsening job market.

Mr. Larson notes that a lot of people on Wall Street seem to think the likely end of higher interest rates in the current credit-tightening cycle is a significant plus for the economy as a whole since it should ensure a soft landing. Our housing bear disagrees. On what basis, he asks, is it rational to expect a soft landing in a period that has produced the biggest real estate bubble in history?

Brownie Bubble

I always thought it was apple pie, but maybe that's just a regional thing.

From the Philly Inquirer:

What would a housing recession mean?

Mmmm... smell the brownies?

They're gooey, chocolaty - and they carry the unmistakable whiff of economic trouble.

All across America, that warm, inviting aroma of homes-for-sale is filling the air.

Of course, it's one of the oldest tricks in every real estate broker's book. Stick a plate of brownies in the oven just before the prospective buyers show up, hoping the olfactory rush will make them reach for their checkbooks.

If the data out this week are any kind of indicator, boxes of instant brownie mix should be flying off supermarket shelves for at least the rest of this year. And unless they do the trick, it looks as if the first big housing boom of the new millennium is finally over.
...
There's a term for what this looks like, but until now, few forecasters were willing to utter it. No longer: "We have what could be called a housing recession," Wall Street economist James O'Sullivan told Bloomberg News yesterday.
...
Certainly the passing of the bubble, if that's what it is, will be felt: Housing and all its related activities (construction, sales, financing, etc.) have accounted for something like a third of all the jobs added in the United States since 2001.

Even beyond job creation, rising home prices have stimulated consumer spending. People feel richer when they think their house is gaining value. And thanks to an explosion of easy-credit financing, it's been a snap for consumers to use their homes as cash machines, using home-equity loans to pay for everything from college tuition to holiday gifts.
...
Soaring house prices are much more ephemeral. Yes, the boom brought needed residential investment to cities such as Philadelphia, but it's still unclear how that will produce better long-term growth.
...
Better prepare yourself - but have another brownie first.

Thursday, August 24, 2006

1990 All Over Again

From Marketwatch:

From Financial Sense Online:

Real Estate: About to Get Worse

It’s looking like 1990 all over again…

1990 was the last time homes were unaffordable. The confidence of homebuilders was at a record low (and about to go lower). And the U.S. economy was starting to cool…

Home prices fell hard. Nationwide, new home prices fell from around $200,000 in 1990 to around $175,000 by 1992 (in inflation-adjusted terms).

By 1993, home prices were affordable once again. Home buyers slowly crept back into the market. Prices crept higher, and they didn’t surpass the 1990 highs for over a decade (in inflation-adjusted terms).

Over a dozen years have passed since new home prices bottomed back then… enough time for people to forget real estate is not always a sure thing. Just ask the Japanese how bad it can get… they just lived through 16 straight years of falling home prices.
...
We’re setting up for a repeat of 1990. Back then, new home prices nationwide fell by double-digits, percentage-wise, over two or three years. Speculators got crushed.

Again, the last time around, prices peaked around 1990. It took a decade for new home prices to get back to 1990 levels (in inflation-adjusted terms).

We could see the same today… a fall in prices for a couple years… and then a slow rise again, as people who got burned are slower to touch the fire.

So if you’re looking to buy real estate, but don’t have the money now… there’s no hurry. If we see a repeat of 1990, you may be able to buy cheaper two years from now.

And if you’re overextended in real estate, but you’re holding out for your price, you’re doing the wrong thing. Get out now. The cost of carrying that real estate will eat you alive.

If you’re overextended in real estate, think about this: What if real estate prices fall for two or three years instead of rising as you hope? Then you’ll lose even more money. You’ll have wasted three years paying interest, and then you’ll take a loss on the property.

It’s better to take a small loss now than wait and potentially take a bigger loss in a few years, while paying interest along the way.

"The housing market is deteriorating by the month."

From the New York Times:

New Signs of Cooling in Housing

The housing market is deteriorating by the month.

In the latest and strongest indication that the home buying and selling frenzy is over, the National Association of Realtors reported yesterday that sales of previously owned homes fell to the lowest level in July in more than two years, prices flattened and sellers waited longer and longer to find buyers for their homes. The supply of unsold houses on the market hit a record high.

Economists said the data showed the housing market was following the traditional path of a slowdown: a drop in sales followed by a decline or a plateau in prices. But they remained divided over just how severe and long-lasting the coming slump was likely to be.

“It does feel a little scary right now,” said Celia Chen, director of housing economics at Moody’s Economy.com. “I think these markets will correct. The price gains that they have seen have exceeded what can be supported by the economic and demographic fundamentals.’’
...
“Certainly, the housing market is undergoing a measurable adjustment,” Lawrence Yun, senior economist with the Realtor association, said. “It’s a continuing cooling trend.”

The number of unsold homes on the market reached a record for the second consecutive month. There are now enough homes available that it would take 7.3 months to sell them all if the current selling rate held.

The bloated inventory levels, Mr. Yun said, indicate “a very sudden change which I have never seen before.”
...
July’s data showed that prices fell in most areas of the country. Only in the South are prices still rising: the median home there sold for 3.2 percent more last month than a year earlier. If prices there had not been so strong, the national median home price in July would have declined on a year-over-year basis. That has not happened since April 1995.
...
The sales and price declines were most pronounced on the East and West Coasts, where the housing market had overheated the most. In the Northeast, where median existing-home prices rose last year by 10.7 percent, prices fell 2.1 percent in July from the same month in 2005.

July New Home Sales

New Home Sales data was released by the Census Dept. this morning:

NEW RESIDENTIAL SALES IN JULY 2006

Sales of new one-family houses in July 2006 were at a seasonally adjusted annual rate of 1,072,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3 percent (±11.5%)* below the revised June rate of 1,120,000 and is 21.6 percent (±10.1%) below the July 2005 estimate of 1,367,000.

The median sales price of new houses sold in July 2006 was $230,000; the average sales price was $293,500. The seasonally adjusted estimate of new houses for sale at the end of July was 568,000. This represents a supply of 6.5 months at the current sales rate.

From Bloomberg:

New Home Sales in U.S. Fell to a 1.072 Million Pace in July

New home sales in the U.S. fell last month to the second-slowest pace this year and inventories rose to a record, raising the risk for the economy that the housing market slowdown will become more pronounced.

Purchases of new homes, which account for about 15 percent of the market, dropped 4.3 percent to an annual pace of 1.072 million from 1.12 million in June, the Commerce Department said in Washington. Sales in the Midwest slumped to the lowest level in almost nine years. The median U.S. home price rose 0.3 percent from July 2005, the smallest year-over-year rise since a decline in December 2003.

The weakening housing market has left builders with record inventory and little choice but to reduce prices at a time when profits are declining. Some Federal Reserve policy makers have said a slump in housing is one of their biggest concerns. Refinancing, which provided homeowners with extra cash to spend, may dry up as home values decline.

From Marketwatch:

10:00 AM ET 8/24/06
U.S. JULY NEW HOME SALES BELOW 1.10 MILLION EXPECTED

10:00 AM ET 8/24/06
U.S. NEW HOME INVENTORIES UP 22.4% YEAR-OVER-YEAR

10:00 AM ET 8/24/06
U.S. NEW HOME SALES DOWN 21.6% YEAR-OVER-YEAR

10:00 AM ET 8/24/06
U.S. JULY NEW HOME MEDIAN PRICE 0.3% Y-OY

10:00 AM ET 8/24/06
U.S. JULY NEW HOME INVENTORIES 6.5-MONTHS, 11-YEAR HIGH

10:00 AM ET 8/24/06
U.S. JULY NEW HOME SALES FALL 4.3% TO 1.07 MILLION PACE

Will be updated as new information becomes available.

Caveat Emptor!
Grim

Middlesex Property Taxes Increase

From the Courier News:

Property tax rate going up in Middlesex

Even after $500,000 in state aid to help keep property taxes in check,
borough residents will see a 49-cent increase in the property tax rate this year, Municipal Treasurer and CFO Andrea Corcoran said.

The Borough Council introduced amendments to the budget Tuesday that include a proposed tax rate of $6.34 per $100 of assessed value.
...
The increase in Middlesex in particular is "kinda high," said Joseph Robert Forgash, a Lauri Lane resident. "We're paying $8,000 a year, and we're retired - for a house that I paid $19,500 for in 1962. In two and half years, the taxes will be more than I paid for the house."

The average home in Middlesex is assessed at $92,227 for 2006, and the borough's total worth is assessed at $31,536,817.31, Corcoran said. The tax increase will help to defray increased costs of employee benefits and health insurance, Corcoran said.
...
This year's increase is higher than usual: taxes per $100 were at $5.85 last year, $5.53 in 2004 and $5.40 in 2003, Corcoran said.
...
Bust said most residents don't seem to be hostile about the tax increase and have complained less than they usually do, Corcoran said.

"When the people came in to pay, there wasn't as much complaining as I thought there would be," she said. "I think all in all, it wasn't bad. They took it well."

Can't Touch The Pensions

This one is for everyone that suggested pension changes and cutbacks as a potential solution to the property tax problem. From the APP:

Lawmakers told they can't cut current workers' pensions

Lawmakers looking to lessen property taxes by cutting back on benefits paid to government workers have been told they can't find immediate savings by changing the pension system for current or retired workers.

The Office of Legislative Services, a nonpartisan agency staffed by state workers, told the Joint Legislative Committee on Public Employee Benefits Reform on Wednesday that any law the Legislature passes to diminish retirement benefits for retired or active workers with more than five years in the system would be unconstitutional.

OLS cited a 1997 state law granting workers with five years or more of service a "nonforfeitable" right to the pension they were promised upon employment. Breaking this would violate provisions in the state and federal constitutions that say the state can't break contracts, the opinion said.

Some committee members expected the decision and said they will focus efforts on pension and medical benefits reforms for future hires.

One disputed the finding. Assemblyman Kevin O'Toole, R-Essex, disagreed with testimony by the opinion's author, OLS attorney Peter J. Kelly, that the only exception would be if the state were on the "verge of financial destruction."

O'Toole rejected Kelly's testimony that New Jersey can't argue that changes to the pension system are necessary for the state's solvency and keeping the pension system afloat.

If OLS is correct, O'Toole said, don't expect much from this committee.

Wednesday, August 23, 2006

Will a housing collapse bring down the economy?

From Marketwatch:

Recession will be nasty and deep, economist says

The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.

Writing on his blog on Wednesday, Roubini repeated his call that the U.S. would be in a recession in 2007, arguing that the collapse of housing will bring down the rest of the economy.

This is the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices," Roubini said. The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.

And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.

Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s. His firm focuses largely on global macroeconomics.

While many economists share Roubini's concerns about the imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.

From Nouriel Roubini's Blog:

"The Biggest Slump in US Housing in the Last 40 Years"…or 53 Years?

At this point there no doubt on whether the housing sector is contracting – real residential investment fell at the annualized rate of 6.4% in Q2. The first derivative of the housing market is clear and negative today and looking ahead for the next few quarters. There is not even a debate about the second derivative of the housing market as any estimate out there suggests that the housing sector will contract at a faster rate in Q3 and Q4 than in Q2. Some official estimates that I have seen suggest that real residential housing will contract at 10% - rather than the Q2 6.4% in the next two quarters. My own estimate – based on a reading of the coming data – is that, actually, the contraction is more likely to be of the order of 12-15% annualized rate in the next several quarters. So, the only remaining scary question is about the third derivative of the housing sector and at which point – in terms of quantities and prices – the housing market will bottom out.
...
The evidence on falling home prices is now becoming clearer. Since the end of World War II, there has never been a year on year fall in housing prices. There have been instead several quarters in which housing prices declined. Of course in some regions where there were housing busts prices declined for a while: in Texas during the housing bust of the mid 1980s that led to the S&L crisis; in California in the early 1990s following the recession in that state; in Boston in 1990. Those episodes were all associated with the housing bust that was related to the 1990-1991 recession So, you do not need a persistent year-on-year fall in median housing prices to have a housing bust; such bust can occur even if prices are flattening or falling in some regions, but not nationally. Moreover, such regional bust can be associated with national recession, as in the 1990-91 episode. So, the fact that the latest housing bubble was concentrated on the two coasts (North East all the way to Florida; and West Coast, especially California) does not mean that the coming housing bust in these regions will not have national macro effects. For one thing, the value of the housing stock in those two regions is close to 50% of the total housing stock given the bubble of recent years. Thus, a housing bust in the two coasts can and will have macro effects.
...
So, the simple conclusion from the analysis above is that this is indeed the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices. By itself this slump is enough to trigger a US recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession. And on top of the housing bust, US consumers are facing oil above $70, the delayed effects of rising Fed Fund and long term rates, falling real wages, negative savings, high debt ratios and higher and higher debt servicing ratios. This is the tipping point for the US consumer and the effects will be ugly. Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession.

Northern New Jersey Weekly Inventory Update

GSMLS - http://www.gsmls.com
(Garden State Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren Counties)

8/16 - 18,738
8/23 - 18,720 (0.1% Decrease)

NJMLS - http://www.njmls.com
(New Jersey Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Passaic Counties)

8/16 - 9,228
8/23 - 9,117 (0.4% Decrease)

MLSGuide - http://www.mlsguide.com
Single Family Homes, Condo, Coop
(Hudson County)

8/16 - 2,646
8/23 - 2,676 (1.1% Increase)

July Existing Home Sales

From the AP:

Existing home sales drop in July

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 percent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

The median price of a home sold last month was $230,000. That was up just 0.9 percent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less.

The inventory of unsold homes in July rose to a record high of 3.86 million. That represents a supply of homes still available for 7.3 percent of a month. That is the longest period to exhaust the supply of home since the spring of 1993.

From the National Association of Realtors:

July Existing Home Sales (PDF)

Nationally, home sales declined 11.2% on an adjusted basis, and 12.5% on an unadjusted basis. The Northeast saw a 12.5% adjusted decline, 13.3% unadjusted.

Nationally, the median price rose 0.9% year over year, the average price rose by 0.4%. However, over the same period the Northeast saw a 2.1% decline in the median price and a 1.0% decline in the average price.

July Existing Condo/Coop Sales (PDF)

From Marketwatch:

U.S. July existing home sales plunge to two-year low

Sales of existing homes plunged 4.1% to a seasonally adjusted annualized rate of 6.33 million, the lowest since January 2004, the National Association of Realtors said Tuesday. Economists were expecting a decline to 6.56 million, according to a survey conducted by MarketWatch. The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3- month supply at the July sales rate, the highest since April 1993. The median sales price has risen 0.9% in the past year to $230,000. It matches June for the weakest price growth in 11 years.

From Marketwatch:

10:00 AM ET 8/23/06 U.S. EXISTING HOME SALES DOWN 11.2% YEAR-OVER-YEAR
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOME MEDIAN PRICE UP 0.9% Y-O-Y
10:00 AM ET 8/23/06 U.S.JULY EXISTING HOME ISUPPLY 7.3-MONTHS, 13-YEAR HIGH
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOMES WELL BELOW 6.56 MILLION EXPECTED
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOME SALES DOWN 4.1% TO 6.33 MILLION RATE

"If I don't board the housing train now, I'm going to be left behind."

From the Voice of San Diego:

Real Estate Psych Spike

There are neat charts of data. There are colorful 3-D trend graphs. There are historic accounts and industry predictions. And then there's emotion.

That psychology is what many real estate analysts consider the "x-factor" -- the part of the market that can't be logically graphed and analyzed. It's hard to predict what people will do -- buyers and sellers alike -- especially in a market that finds itself in unparalleled uncertainty.

James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said the psychological and emotional factors involved in real estate have gone in cycles, depending on whether the market was up or down. But the psychology is always there -- for richer, for poorer.

"We used to call recessions 'panics,'" he said. "We didn't have a fancy word to describe them. The switch goes from greed to fear to greed to fear."
...
But it takes more than one person getting greedy or scared to turn the entire market. Herd mentality, even when rooted in economic reality, forms the foundation for most dramatic market shifts.

Hughes said the near-20-percent annual appreciation in home values in some places at the beginning of the decade was a huge motivator in getting people in the market. "There was the thought, 'If I don't board the housing train now, I'm going to be left behind,'" he said.

And now, homebuyers are a lot more cautious about getting on the train, said Alan Gin, professor of economics at the University of San Diego.

"It could conceivably work in the other direction," he said. "Buyers keep hearing this talk about a bubble, about housing prices slowing. Buyers might just decide that they're going to wait, possibly make lowball offers."
...
That media coverage isn't entirely to blame for the frenzy surrounding housing prices, said Hughes of Rutgers University.

"There's a tendency right now to blame the messenger," Hughes said. "The media by itself is not the instigator."
...
But London said with the absence of external shocks like widespread unemployment, a weak economy or a terrorist attack, the market's current ups-and-downs are due almost entirely -- 90 percent, he estimates -- to psychology.

"There's not as much real, substantive factors to stand on, so it's mostly about psychology right now," he said. "But that could change."
...
Hughes, from Rutgers, said sellers need to get past their greed. He gave an example of a common temptation: If someone bought a condo unit 15 years ago for $200,000 and saw it peak at $600,000, that person is often reluctant to sell in a cooling market, even for $500,000.

"It depends on when they bought," he said. "The seller's got to realize after a while, 'I still made $300,000.' They'll gradually accept it."

Real Estate Slump Turns Painful

From the Wall Street Journal (via Moneyweb):

Housing slump proves painful for some owners and builders
'Hard landing' on the coasts jolts those who must sell.

For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. These optimists predicted that home prices, which had more than doubled in parts of the country between 2000 and 2005, would continue to rise, but at a more normal pace of 5% or 6% a year.

It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago. It's too early to say how hard the landing will be, but at a minimum it will be bumpy for many people who need to sell homes. And the economy as a whole, buoyed in recent years by the housing frenzy, could suffer.

The pain that homeowners and home builders are now feeling follows a raging national house party. As Americans soured on the stock market after the tech bubble burst in 2000, they poured money into real estate, spurred on by the lowest interest rates in four decades and looser lending standards. Surging demand created home shortages in California, Florida and the Northeast. Over the five years ending Dec. 31, average U.S. home prices jumped by 58%, according to a federal housing index.

But mortgage rates began rising and surging inventories of homes for sale finally caught up with demand. Though economists had been predicting a slowdown in housing for years, many homeowners and builders were surprised by how fast the market changed. "It's just like somebody flipped a switch," says Lynn Gardner, a real-estate auctioneer who works in Northern Virginia.
...
In much of the country, property markets began cooling rapidly in the second half of last year. Home builders were still turning out houses at a rapid clip, and the surge of new and previously occupied homes on the market convinced buyers there was no need to hurry. Over the past year, the number of previously occupied homes listed for sale nationwide has risen nearly 40%. In some metropolitan areas, including Orlando and Phoenix, the supply has quadrupled.
...
The resulting slump, thus far, is being felt mainly on the East and West coasts and in Florida, where home prices had soared beyond the average working family's ability to pay. In California's San Diego County, the median home-sale price was $487,000 in July, down 1.8% from a year earlier, according to DataQuick Information Systems, a research firm in San Diego. Prices in the Northern Virginia counties of Fairfax and Arlington and in nearby towns, near Washington, averaged $537,731 in July, down 3.9% from a year earlier, according to the Northern Virginia Association of Realtors.

Tom Barrack to the rescue

From the Star Ledger:

Colonizing New Jersey

Colony Capital is coming to the rescue again.

When the development of a sports stadium-shopping mall-hotel resort known as Hawks Town turned shaky in 2004, Los Angeles-based Colony stepped in. With deep pockets and an affinity for complicated deals, it salvaged the elaborate project in Fukuoka, Japan.

Yesterday, Colony looked as if it were preparing a similar megamillion-dollar rescue effort -- this time of Xanadu, the Mills Corp.'s troubled entertainment-retail complex in the Meadowlands.
...
The deal is emblematic of Colony's -- and its founder Thomas Barrack's -- real estate moxy.

Barrack, 59, turned to real estate development after working as an international finance lawyer and a deputy undersecretary in the Department of the Interior under President Ronald Reagan.

A native California resident of Lebanese descent, Barrack has made his biggest mark with his contrarian investment strategy. "Tom can see where the world is going and where markets are going," said Donald Trump, speaking about his friend Barrack in a 2003 edition of the industry magazine Hotels.

"He has a prodigal ability to look into the future and be 100 percent correct," Trump said.

Mr. Barrack is no stranger to this blog, he's been the focus of many articles posted here:

Who is Tom Barrack and why should you care?

"I feel totally safe playing polo on a field full of pros," says the bronzed 58-year-old. "But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back."

It's the same with the U.S. real estate market right now: "There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them. Says Barrack: "That's why I'm getting out."

Investors take heed. Barrack may be an amateur at polo, but when it comes to judging markets, he's the ultimate pro.

Tuesday, August 22, 2006

North Jersey July Home Sales

I'm posting this additional data based on a comment made to me on another forum. Someone accused me of selecting the date ranges I use in such a way as to accentuate the decline we are seeing. The comment made to me is one being made throughout the media, it is that the market is simply returning to normal. The author of the comment implied that the years I selected for my comparison, 2003-2005, do not represent a normal market, and that any kind of "normalization" in the market would be illustrated as a decline (Year-over-year or Multi-year).

In response, I'm going to post a multiyear comparison of July sales for the counties listed, the source is GSMLS. Data prior to 2000 is no longer available, so 2000 is the earliest comparison I can include. Thanks go out to the individual who provided me the July comparison numbers on such short notice.

Overall Total:

(click to enlarge)

By County:

(click to enlarge)

The Numbers:

Year - # Sales
2000 - 3063
2001 - 3271
2002 - 3216
2003 - 3458
2004 - 3688
2005 - 3338
2006 - 2428

Caveat Emptor!
Grim

NAHB (Un)Affordability Index

2006 Q2 HOI spreadsheets were released by the NAHB today:

NAHB-Wells Fargo Housing Opportunity Index (HOI)

Q2 - Northeast Least Affordable

1 - New York-White Plains-Wayne, NY-NJ
2 - Nassau-Suffolk, NY
3 - Barnstable Town, MA
4 - Ocean City, NJ
5 - Providence-New Bedford-Fall River, RI-MA
6 - Newark-Union, NJ-PA
7 - Boston-Quincy, MA
8 - Atlantic City, NJ
9 - Edison, NJ
10 - Bridgeport-Stamford-Norwalk, CT

Q2 - National Least Affordable

1 - Los Angeles-Long Beach-Glendale, CA
11 - New York-White Plains-Wayne, NY-NJ
22 - Nassau-Suffolk, NY
31 - Ocean City, NJ
40 - Newark-Union, NJ-PA
50 - Atlantic City, NJ
52 - Edison, NJ

Caveat Emptor!
Grim

Northern New Jersey July Sales Collapse

Preliminary July sales data for Northern New Jersey is in..

The first graph plots the unadjusted sales data (closed sales) for the counties listed. Please note the lower bound of the graph, it is set to 1000, not to zero. I do this to emphasize the seasonal nature of the Northern NJ market.

(click to enlarge)

The second graph displays the same sales data (2003-2006) for the first four months of the year. Please note that this graph does cross at zero.

(click to enlarge)

The 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)

May
Average Sales (2003-2005): 2615
2005 Sales: 2725
2006 Sales: 2298
(Down 15.7% Year Over Year)

June
Average Sales (2003-2005): 3486
2005 Sales: 3682
2006 Sales: 2911
(Down 20.9% Year Over Year)

July
Average Sales (2003-2005): 3495
2005 Sales: 3338
2006 Sales: 2428
(Down 27.3% Year Over Year)

Data above is GSMLS Sales for Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, and Warren Counties.

Caveat Emptor!
Grim

Liar Loans

From the Wall Street Journal:

'Stated Income' Home Mortgages Raise Red Flags

Martha Aikens was on the verge of losing her home in early 2004. The culprit: a loan that she had been induced to take out a year and a half earlier but was never able to make a single payment on.

Ms. Aikens, a widow in her 70s, sought to refinance the mortgage on her home in Evanston, Ill., near Chicago, in May 2002. To qualify her for a higher-rate loan and get a commission, her mortgage broker grossly inflated her income and falsified her employment information to make the overstated income look plausible, according to a complaint later filed against the broker.
...
In the case of the borrower Ms. Aikens, at the time she went to the broker, 1st Metropolitan Mortgage, she had a monthly income of about $1,400, including $800 from Social Security and $600 from working part time as a housekeeper for a couple down the street. However, her loan application, prepared by the broker, said she made $7,225 a month as a housekeeping supervisor for a large institutional employer, according to the complaint filed on May 16, 2005, against the broker in the Circuit Court of Cook County, Ill.

Ms. Aikens says she had no knowledge that the information was falsified.

A month later, through the broker, Ms. Aikens received a loan of $149,000 with a monthly tab of roughly $1,029 -- almost three-quarters of her entire monthly income. She was never able to make a single payment, says Daniel Lindsey, a supervisory attorney with the Legal Assistance Foundation of Metropolitan Chicago, which represented Ms. Aikens in her case. Her lender, Countrywide, filed a foreclosure action against her in January 2004.
...
"It's just too easy to cheat," says Tom Miller, Iowa's attorney general. He says fraud related to stated-income loans often is initiated by lenders and brokers, leaving unsuspecting consumers in the dark.

Industry experts say loans with reduced documentation now account for about 40% of the entire mortgage pool. In some cases, to compensate for the increased credit risk, lenders charge more for stated-income loans, with rates typically an eighth- to a quarter-point higher than those on a loan with full underwriting requirements.

Loans requiring no income check have been around for many years, and were originally intended to offer convenience, time savings and financial privacy to self-employed borrowers with high credit quality and large down payments. A qualifying borrower may need to submit only his or her business license, a signed letter from his or her accountant confirming a two-year history of the business, and an Internal Revenue Service form verifying the income source -- not the amount.

But greater competition and the desire to simplify and quicken the loan-origination process has led more lenders to extend stated-income loans to borrowers with lower credit scores, higher loan-to-value and debt-to-income ratios than traditionally allowed.

Highlands Development Slowing

From the Daily Record:

Highlands development still up, but showing signs of a slowdown

The number of housing units in Morris County and four of the other counties with land in the Highlands region rose from 2004 to 2005, but not as much as earlier this decade, according to census data released Monday.

Opinions on what forces account for the slowed growth varied among government officials involved in land use issues.

Officials with the New Jersey Highlands Council, which is drafting a master plan for the region, and the counties say the numbers are not detailed enough, and it's still too early to tell the impact the law has had.

"These numbers are countywide, so I cannot surmise if the Highlands Act has had any effect on the number of new housing units," said Christine Marion, a Morris County planner. "I also think that we would have to wait until 2006 until we see more of an effect, since those developments approved in 2004 may not have been built yet."
...
According to the new estimates from the U.S. Census Bureau released Monday, Morris County added about 1,100 new housing units between July 2004 and July 2005 to 182,328. That's less than half the increase that occurred between 2000 and 2001 and represents an increase of .6 percent. Between 2000 and 2004, the annual increase in housing units in the county averaged 1 percent.

Similarly, Sussex, Warren, Somerset and Hunterdon counties all posted housing gains that were smaller in 2005 than they had been through 2004. Warren, which had been the fastest developing county through 2004, ranked 6th in its rate of growth between 2004 and 2005, at 1.2 percent.

Of Highlands counties, only in Passaic was the increase in the number of housing units from 2004 to 2005 higher than earlier this decade.

Monday, August 21, 2006

Newark property taxes to jump 8%

From the Star Ledger:

Newark taxes to go up 8%

Newark residents are facing an 8 percent increase in property taxes, according to a new budget unveiled by Mayor Cory Booker today. Booker said the city is in a fiscal crisis and blamed his predecessor, former Mayor Sharpe James, for years of fiscal mismanagement.

The prior administration borrowed against our future with no regard or plan for repayment, Booker said in an address in the City Council chambers. This irresponsible financial practice was made significantly worse by the prior administration's wasteful spending, failure to collect and develop other sources of revenue, clear mismanagement and bad planning.

If the budget passes, the city's new tax rate would be $2.49 per $100 of assessed property value - an increase of $0.19.

Booker said his administration plans to maintain this tax rate for the 2007 fiscal year and that he plans to cut his salary by 8 percent.

Relisting - Ethical or Deceptive

From the Star Ledger (Print edition):

Practice hides the real deal on homes for sale in Jersey
By Sam Ali

As the white-hot real estate market cools to a simmer and homes get harder to sell, some real estate agents are hiding from prospective buyers the number of days properties have been on the market and how far prices have fallen, a Star-Ledger analysis found.

These agents are canceling listings in databases known as Multiple Listing Services and creating new ones for the same homes. That resets the sales clock and masks price reductions, both important pieces of information for buyers.

The practice, legal but under fire in other states, can be helpful to sellers and their agents, who want properties to seem as attractive as possible. But critics say it is often misleading.

"It's deception," said Michael Lyon, president of Sacramento, Calif.-based Lyon Real Estate and a board member at MetroList Services, one of the largest MLS databases on the West Coast. "Anytime you reset something to make it look newer, better, you're trying to deceive someone."

The Star-Ledger, granted access to MLS data for North Jersey by agents who wanted to draw attention to relisting, found hundreds of examples in Morris, Essex and Union counties during the months of June and July.

It's hard to judge how widespread the practice of relisting is, because MLS data is closely guarded by the real estate industry. Most of the services are overseen by local Realtor associations and usually cover a large city, a county or multiple counties.

Although the public can view abbreviated home listings at Web sites such as Realtor.com, only licensed real estate agents with paid memberships to particular databases have full access to raw data.

The National Association of Realtors, the nation's largest real estate industry trade group, likens the MLS to the private stockroom at a department store. The public only gets to see what licensed agents put on the display racks.

While some brokers and agents frown on the practice, brokerage firms contacted said they didn't feel they were doing anything wrong.

"We believe that this is not a seller disclosure issue or a question of ethics," said Judy Reeves, the chief operating officer at NRT, a unit of the Realogy Corp. that owns and operates Coldwell Banker Residential Brokerage and Burgdorff ERA Realtors.

"The listing agent (the agent employed by the seller) does not represent the buyer in the sale," she said. "Buyers generally make their decisions by comparing a prospective property to the others that are currently on the market."

Similarly, a spokeswoman at RE/MAX said she did not believe anyone was being misled.

"It's a marketing strategy," said Rosali Daniels, a broker at RE/MAX Tri-County in Hamilton Square, speaking on behalf of the firm. "Most agents will watch new listings as they appear in the market place. By reintroducing a property, I am trying to ensure no one missed it the first time out. We do it to call attention to a property."

Both Reeves and Daniels said when homebuyers engage an agent to show them homes, that agent is responsible for retrieving a complete listing history for any property from the MLS database.

Lyons, who employs more than 1,000 agents at his northern California brokerage, said that doesn't always happen. Some systems don't maintain digital archives, he said, and many new agents drawn to the profession by the recent housing boom aren't properly trained.

"It's not some field on the computer screen that's right in front of you," he said. "You have to go digging for it."

The debate over what Realtors disclose to consumers and what they don't comes as Realtors are spending millions of dollars to promote their integrity. The NAR launched a public awareness campaign this year titled "Someone You Can Trust," which cites the group's strict code of ethics and the training its 1.2 million-plus members receive as major factors that distinguish Realtors from others in the business.

Critics argue that the practice of canceling and relisting properties runs afoul of the code, including a pledge to "treat all parties honestly" and provisions that prohibit Realtors from misrepresenting or concealing facts about a property.

"This is counter to what the brokerage community is striving for, which is public trust," said Jonathan Miller of Miller Samuel, a real estate appraisal firm in New York. "If this is a covert attempt to manipulate selling statistics then I don't see how it can be in the public interest that this is being done."

A spokesman for the New Jersey Real Estate Commission, the state agency that regulates the professional conduct of licensed brokers, said there is nothing on its books that addresses the practice in New Jersey.

"Mainly our regulations are aimed at preventing misrepresentation regarding the condition of the property or concealing relevant facts from a potential buyer," said spokesman Jim Gardner.

Those who oppose relisting say price reductions and length of time on the market are relevant facts that ought to be disclosed. And brokers agree these factors often influence the way buyers negotiate.

The seller of a home on the market for only one day, for instance, might not be willing to accept low offers — but the seller of a house unsold for a year might be more receptive.

"Time on the market, price — those pieces are part of the equation in terms of establishing value and motivation," said Lyon.

TARGETING OFFENDERS

Realtors in other parts of the country have been trying to clamp down on relisting.

The Northwest Multiple Listing Service, which covers part of Washington State, recently warned its 1,277 brokerages after seeing a marked increase in the practice.

And in April, the largest multiple listing service in Massachusetts, MLS-PIN, changed the way properties are tracked from listing to sale, making it impossible for agents to change the "days on the market." Marietta Nelson, owner of Marietta Realty in Cape Cod, described relisting as "one of my pet peeves," and said she hopes other MLS databases will follow suit.

"In my local board, it is common practice to mask the true days on market for listings," she said. "A lot of people do it and a lot of people don't see anything wrong with it. But whatever shortsighted gain might accrue to the individual, the wider effect is to mislead other people and corrupt an important database."

MetroList Services, which covers greater Northern California, recently created a compliance department to flag rule violators and is trying to implement other ways to stop what it calls "serial polluters."

"Good brokers work very hard for their reputations and it takes a lot of time to earn a good reputation, and a few bad apples like this can sour the whole tree," said Lyon. "In the long run, it's not good for our industry."

A Housing Crisis Approaches

From Barrons (no link):

The No-Money-Down Disaster
By LON WITTER

According to the Commerce Department's estimates, the national median price of new homes has dropped almost 3% since January. New-home inventories hit a record in April and are only slightly off those all-time highs. Existing-home inventories are 39% higher than they were just one year ago. Meanwhile, sales are down more than 10%.
...
These experts and analysts are basing their predictions on a possible increase in wages, inflation and GDP growth. They are overlooking the fact that by any rational valuation there has been no support for the run-up in housing prices since 2001, when the wealth of the middle class was battered by a bear market. Since then, inflation has been low, and wages practically stagnant. Housing prices, on the other hand, are through the roof.

Extrapolating housing prices from their current level based on wages and inflation is like saying a $100 Internet stock with no cash flow and negative earnings will rise as long as it is able to narrow the loss. The analysis ignores the fact that the stock never should have been trading at $100 in the first place.

By any traditional valuation, housing prices at the end of 2005 were 30% to 50% too high. Others have pointed this out, but few have had the nerve to state the obvious: Even if wages and GDP grow, the national median price of housing will probably fall by close to 30% in the next three years. That's simple reversion to the mean.

A careful look at the reasons for the rise in housing will give a good indication of the impact this drop will have on the stock market. They include, in chronological order: The collapse of the Internet bubble, which chased hot money out of the stock market; rock-bottom interest rates; 50 years of economic history that suggested housing never goes down, and creative financing.

The first three factors might not be enough to cause a crash, except that together they led to the fourth factor. Irresponsible financing causes bubbles. It causes individuals to buy houses they can't afford. It causes speculation to run wild by lowering the bar to entry. Finally, it leads individuals who bought houses years ago at reasonable prices into the speculative borrowing trap. The home-equity credit line has supported American consumer spending, but at a steep price: Families that tapped into their home equity with creative loans are now in the same trap as those who bought homes they couldn't afford at the top of the market.
...
• 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000

• 43% of first-time home buyers in 2005 put no money down

• 15.2% of 2005 buyers owe at least 10% more than their home is worth

• 10% of all home owners with mortgages have no equity in their homes

• $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.
...
If we have the courage to take the right medicine right away, the effect of a market collapse could be very sharp and painful, but relatively short-lived. If, like Japan, we fail to act, the coming decade could be very bleak indeed.

Lowball! Union and Somerset

Welcome to another edition of Lowball!

Lowball! takes a look at home sales from a 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 from the past month and pick out the sales that have the highest percentage difference between list 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.

Here are Union and Somerset for the first half of the month, I'll publish the rest of the counties as time permits.

Union

(click to enlarge)

Somerset

(click to enlarge)

Caveat Emptor!
Grim

Riverside Protest

From the Trentonian:

Tensions high in Riverside: Both sides square off at rally against illegal alien ordinance

Simmering tensions over illegal immigrants were ratcheted up yesterday in this small town on the Delaware River, as a rally protesting the passage of a recent township ordinance drew several hundred people and forced the closure of the town’s main street.

About 200 people gathered in front of the Riverside Township Municipal Building to protest the law passed last month, which imposes penalties on anyone hiring or housing illegal immigrants.

On the other side of the intersection, behind police barriers, several hundred people waved signs and American flags and screamed epithets at the gathering.
...
The ordinance seeks to punish landlords and employers who house or hire illegal immigrants. Local officials estimate that as many as 3,500 illegal immigrants, many from Brazil, live in the town. It is similar to one passed earlier in July in Hazleton, Pa., and comes as other towns around the nation are considering such actions.

Both the Riverside and Hazleton ordinances have been challenged in federal court. The challenge to the Riverside ordinance contends that the town is assuming powers that more rightfully rest with the federal government.

Local residents and township officials have said the law targets illegality, not immigrants.

Sunday, August 20, 2006

Lowball! Passaic, Sussex, and Warren Counties

Welcome to another edition of Lowball!

Lowball! takes a look at home sales from a 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 from the past month and pick out the sales that have the highest percentage difference between list 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.

Here are Passaic, Warren, and Sussex for the first half of the month, I'll publish the rest of the counties as time permits.

Passaic

(click to enlarge)

Sussex

(click to enlarge)

Warren (Included a few extra)