Friday, November 11, 2005

Slowdowns Reported Across The Nation

How many readers have ridden Freefall at Great Adventure? You know the part when you hit the top of the structure, pause, and then hear the signal? That's exactly where the North Jersey market is right now...

It would seem that the froth seen in some metro areas is more nationwide than the experts predicted. We all knew it, and I think they did too, they just wouldn't acknowledge it in the press. While there may have a handful of areas not affected(the fly-over states, etc), believe me when I say we are sitting right on top of a whopper. Many of us have noticed similar trends locally in Northern NJ. Inventory continues to creep upward going into the traditionally slow winter season and price reductions are becoming expected.

The Week In Review:

Housing market cools ... along with weather

Now the Phoenix market has cooled substantially, and there are signs the housing boom is fading in many parts of the country. The question is whether the slowdown is the beginning of a potentially damaging decline in sales activity and prices predicted by some experts, or whether the market will regain momentum again in the spring as it often does.

Housing Market Cooling, Data Say

New data released yesterday show that in the past year, home sales in the Washington region have declined sharply, the inventory of unsold homes is up significantly, and prices have flattened and, in some cases, fallen.

Kauai Median Home Prices Fall $100,000

The median price of Kauai home, which spiked to $750,000 in September, fell back to $652,500 in October.

Toll Bros at risk of housing slowdown

The luxury home builder said it will cut its fiscal 2006 earnings forecast and will build fewer homes next year because of softening demand and tighter building restrictions, raising concerns of a housing slowdown.

Housing forecast: downturn until '07

The Massachusetts housing market will slump over the next two years, with prices falling slightly, then flattening before resuming modest appreciation, according to an economic forecast released yesterday.

Home prices leveling off

Home buyers may have a little more wiggle room these days.

Housing prices are leveling off, the supply of homes is going up, and the demand for new homes is dropping.

The Fading Housing Frenzy

A rapid price decline can bring equal parts pain and pleasure to homeowners. A buyer who used a creative mortgage plan to purchase an expensive house, while paying on the interest only, may find their property not appreciating fast enough to sell before their mortgage rates increase. Many sellers and realtors are already offering discounts, gifts, and other tricks to get deals closed.

Houses languish on market

Sales of existing homes in Metro Detroit fell 7 percent in October and houses languished on the market for an average of 101 days as buyers retrenched in the face of more bad economic news.

Housing slowdown signs pop up

Investors trying to shed their lots offer incentives while builders competing with them slash prices.

In Ballantrae, Pasco County's bestselling neighborhood of new homes in the past year, signs of a real estate boom could be starting to sputter. And that could be good news for house hunters put off by high prices and poor selection for the past couple of years.

Valley's housing frenzy cooling

Metropolitan Phoenix home prices dipped slightly in October, signaling the housing market has likely peaked. The median price of an existing house inched down 1 percent in October to $259,900, according to the Arizona Real Estate Center at Arizona State University's Polytechnic campus. The median Valley home price was $263,000 in September.

New signs of decline in U.S. housing

"Some kind of adjustment has to happen," said Gene Huang, chief economist of FedEx. "Home prices have been growing so fast for so long, outstripping income growth for many years." Over the long term, Huang said, house prices do not rise much more quickly than incomes.

Housing market loses steam

Fewer purchase offers in Oct. hint buyers have upper hand.

Editorial:A rise in foreclosures

Don't look now, but that whistling sound you're hearing is the air leaking out of the housing bubble.

Caveat Emptor,

Thursday, November 10, 2005

Don't Count On Housing Appreciation To Finance Your Retirement

Kevin Lansing, and the San Fran Fed, have some very important words for aging workers approaching retirement..

FRBSF Economic Letter - Spendthrift Nation

In September 2005, the personal saving rate out of disposable income was negative for the fourth consecutive month. A negative saving rate means that U.S. consumers are spending more than 100% of their monthly after-tax income. The recent data are part of a trend of declining personal saving rates observed for two decades. During the 1980s, the personal saving rate averaged 9.0%. During the 1990s, the personal saving rate averaged 5.2%. Since 2000, the personal saving rate has averaged only 1.9%.

This Economic Letter discusses some of the factors that appear to be driving the secular decline in the personal saving rate. These factors include rapid increases in stock market and residential property wealth, which households apparently view as a substitute for the quaint practice of putting aside money each month from their paychecks. Rapidly rising stock and house prices, fueled by an accommodative environment of low interest rates and a proliferation of "exotic" mortgage products (loans with little or no down payment, minimal documentation of income, and payments for interest-only or less) have sustained a boom in household spending and provided collateral for record-setting levels of household debt relative to income.

Going forward, the possibility of cooling asset markets and rising borrowing costs may cause the personal saving rate to revert to levels which are more in line with historical averages. While such a development would act as near-term drag on household spending and GDP growth, an increase in domestic saving would help correct the large imbalance that now exists in the U.S. current account (the combined balances of the international trade account, net foreign income, and unilateral transfers).

Figure 4 suggests that the decades-long decline in the U.S. personal saving rate is largely a behavioral response to long-lived bull markets in stocks and housing together with falling nominal interest rates over the same period. Since 2000, the rate of residential property appreciation has been more than double the growth rate of personal disposable income. In many areas of the country, the ratio of house prices to rents (a valuation measure analogous to the price-earnings ratio for stocks) is at an all-time high, raising concerns about a housing bubble. Reminiscent of the widespread margin purchases by unsophisticated investors during the stock market mania of the late-1990s, today's housing market is characterized by an influx of new buyers, record transaction volume, and a growing number of property acquisitions financed almost entirely with borrowed money.


The decline in the U.S. personal saving rate and the dearth of internal saving raise concerns for the future. In coming decades, a growing fraction of U.S. workers will pass their peak earning years and approach retirement. In preparation, aging workers should be building their nest eggs and paying down debt. Instead, many of today's workers are saving almost nothing and taking on large amounts of adjustable-rate debt with payments programmed to rise with the level of interest rates. Failure to boost saving in the years ahead may lead to some painful adjustments in the future when many of today's workers could face difficulties maintaining their desired lifestyle in retirement.

Kevin J. Lansing
Senior Economist


Caveat Emptor,


Came across this image at Bubble Meter, it's a Freddie Mac Ad that ran in the Washington Post earlier this week..

Frankly, I'm disgusted. I really don't know what to say. Thousands of Americans stand to be cheated out of their retirement because they put their faith in these fools. Has anyone ever seen any investment paperwork that didn't carry the disclaimer:

"Past performance is no guarantee of future results"

Why can the housing industry make these claims so blindly without being held responsible?

Wednesday, November 09, 2005

Will a Bursting Bubble Trouble Bernanke?

Dean Baker and David Rosnick from The Center for Economic and Policy Research (CEPR) have released one of the most compelling papers on the housing bubble yet.

I won't paraphrase or summarize the paper, this is a *must read*.

Will a Bursting Bubble Trouble Bernanke? The Evidence for a Housing Bubble

Caveat Emptor,

Mortgage Rates Ratchet Up Again.

Mortgage rates ratchet up yet again, this week the 30 year moves to a national average of 6.42. The 10Y bond fell today after a rally this week, sending yields back to the 4.6 range. There is plenty of pressure in the bond market to push mortgage rates upwards yet.

Weekly Home Mortgage Rates

While mortgage purchase applications did jump from last week, it's not all that significant, they remain down 3.6% YOY.

Mortgage applications rise

The MBA's purchase mortgage index, regarded as a timely gauge of U.S. home sales, rose 6.4 percent last week to 465.7.
Even though the purchase index rose for the first time in three weeks, home purchase applications remain 3.6 percent below their-year ago level, Jay Brinkmann, MBA's vice president of research and economics, said in a statement accompanying the data. MBA data shows that the 30-year rate stood at 5.69 percent one year ago
The group's index of refinancing applications dropped 3.4 percent to 1,798.8, its third consecutive weekly decline.

Caveat Emptor,

The Illustrated Bubble

The first chart is from the Center for Economic and Policy Research (CEPR).

Is There a Housing Bubble?

The rental index is the Bureau of Labor Statistics (BLS) rent index from 1953 to 1982 and its owners equivalent rent (OER) index from 82 to 2005. (The OER is somewhat cleaner because it strips out the impact of utility price changes -- these are not supposed to be included in the rent proper index either, but it is difficult for BLS to strip out utility costs completely. The OER index began in 1982, prior to 1982, the rental index is the rent proper index.) The home price measure is the BLS ownership component of the CPI prior to 1982 (when the series was discontinued) and the Office of Federal Housing Enterprise Oversight House Price Index from 1982 to 2005. The movement in the two indexes is averaged for the 7 years where they overlap (1975-82). Both the ownership and rental indexes are deflated by the CPI-URS and CPI-UX1, the standard deflators.

The second graph is from an article in Barrons, originally taken from Shillers book.

Caveat Emptor,

Northern NJ Weekly Inventory Update

Weekly Active Inventory Update for 11/2 - 11/9

(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren)
11/2 - 12821
11/9 - 12831 (Flat)

(Bergen, Essex, Hudson, Passaic)
11/2 - 5760
11/9 - 5796 (0.6% Increase)

Hudson MLS
11/2 - 1729
11/9 - 1769 (2.3% Increase)

Numbers represent active listings of SFH, Condo, Coop, and Townhouse. Multifamily numbers are not included.

Caveat Emptor,

Pimco Fourth Quarter Outlook

Pimco released their fourth quarter 2005 Market Outlook:

Slower Growth With Inflation Pressure, But High Uncertainty

Pimco, taking a bearish position of real estate, is forecasting a slowdown, however, they stop short of forecasting a full-blown crash, but instead take the cautious soft landing position.

The direction of the U.S. housing market will be a critical factor in determining Fed policy over the next year. Recent gains in the U.S. property market have not only supported consumer confidence but also produced a surge in housing-related employment and residential investment. The greatest threat to the housing market is a decline in affordability. The last decade's gain in home prices relative to incomes are not sustainable because higher mortgage rates and increased energy prices will reduce what consumers can afford.

Most intersting in this report is their graph of Home Price Appreciation Minus Home Growth.

A beautiful illustration of the last two housing busts. However, it certainly looks quite different this time. I'm really not sure why Pimco took the cautious position, judging from the graph it's quite obvious that should the lending prop fall out from the housing market there is no telling what might happen.

Caveat Emptor,

Donald Trump - Shoeshine Boy

Trump Headlines Real Estate Wealth Expo in Illinois

How do you get rich? Well, if you were to follow Donald Trump's example, one way might be to get someone to pay you $1 million for an hour's work.

That's what the Learning Annex says it paid the ubiquitous real estate tycoon for showing up at the finale of its heavily promoted two-day Real Estate Wealth Expo in Rosemont.

Trump was the headliner at a combination trade show and seminar for property investors and wannabes. On Sunday night, the promise of 60 minutes of Trump wisdom absolutely packed a room at the Donald E. Stephens Convention Center, which has a seating capacity of 7,000.

I'm really not sure I'd call Donald Trump a successful real estate investor by any means.. Now, if Tom Barrack were giving a seminar, I'd go. If Warren Buffett were giving a seminar, I'd go. If Donald Trump were giving a real estate seminar? I'd say it's time to get out of dodge. Trump is no doubt the reincarnation of Joe Kennedy's Shoeshine Boy.

On the Homebuilding Front, Signs of Trouble

Investors certainly ignored a telling market clue: Donald Trump recently boasted in a TV ad that he was being paid more than $1 million to speak at a symposium on how to make money in real estate.That ad, coming as it did on the heels of the biggest bull market in the history of real estate, seemed to some Wall Streeters as an unmistakable sign of a market top.

On to the Brothers Toll.. It seems the market didn't take kindly to even small signs of weakness on the homebuilding front. Most of the homebuilders were pummeled yesterday on the news.

Bell 'Toll-ing' for housing market?

On Tuesday, the high-end-housing builder Toll Bros. Inc. Toll Brothers, Inc. lowered its 2006 home-sales outlook on softening demand triggering a sell-off in the sector. Some investors see that as the straw that breaks the camel's back. See related story.

"I think the homebuilders are finally showing a crack in their armor," said Art Hogan, chief market analyst at Jeffries & Co. Listen to broadband interview.

Perhaps an even more important question is how far the damage will spread in the U.S. economy since many sectors are linked to the health of home-construction industry.

We've sure come a long way since "What bubble?"

Caveat Emptor,

Tuesday, November 08, 2005

Risky Lending Goes Unchecked

A new report from the Fed shows that lenders are not heeding warnings and tightening residential home equity loan requirements.

The October 2005 Senior Loan Officer Opinion Survey
on Bank Lending Practices

The October 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. The survey contained special questions on longer-term changes in terms on mortgage loans to purchase homes. The survey also asked banks about changes in lending standards and terms on home equity lines of credit in light of a supervisory letter issued by federal bank regulators in May 2005.
In response to the special question about changes in terms on mortgage loans to purchase homes, notable net fractions of domestic institutions reported that over the past two years they had eased a number of terms, including the maximum size of primary and second mortgages, spreads of mortgage rates over an appropriate market base rate, and the maximum loan-to-value ratio.
In response to the supervisory letter, most domestic institutions indicated that they had not changed their lending standards or terms on home equity lines of credit. Only five banks reported having tightened price-related terms and only a few banks reported having tightened their non-price-related terms and credit standards on such facilities.

The supervisory letter can be found here:

Interagency Credit Risk Management Guidance for Home Equity Lending

The Federal Reserve and the other federal financial institutions regulatory agencies have issued the attached interagency guidance to promote sound risk management practices at financial institutions with home equity lending programs. While delinquency and loss rates for home equity loans and lines have historically been low, the agencies have observed a rapid growth in home equity lending activity, involving products with higher embedded risk. At the same time, the agencies have noted an easing of underwriting standards. This guidance is intended to highlight the sound risk management practices that an institution should follow to keep pace with the growth and risk in its home equity portfolio.

As mentioned in an earlier post:

U.S. homeowners will turn a record $204 billion of real- estate equity into cash this year by refinancing mortgages at higher balances to take advantage of gains in property values, Freddie Mac said yesterday. Link

Caveat Emptor,

Monday, November 07, 2005

Price Reduced! 11/1 - 11/7

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

With that, the listings please!

Our winner by a longshot this week:

MLS# 2205115 Millburn, N.J.
Prior Asking Price: $1,999,000
Reduced To: $1,199,000 (40% Reduction)
Note: This might have been an error in listing price.

Not too far behind:

Elizabeth, N.J. MLS# 2212184
Prior Asking Price: $285,000
Reduced To: $225,000 (21% Reduction)

South Orange, N.J. MLS# 2096614
Prior Asking Price: $1,314,200
Reduced To: $1,040,175 (20% Reduction)
Listing Link
Why anyone would pay a million for a townhome in SO is beyond me.

Clifton, N.J. MLS# 2083061
Prior Asking Price: $625,000
Reduced To: $499,000 (20% Reduction)
Listing Link

Morris Plains, N.J. MLS# 2077918
Prior Asking Price: $1,200,000
Reduced To: $995,000 (17% Reduction)

Springfield, N.J. MLS# 2097902
Prior Asking Price: $599,000
Reduced To: $499,000 (17% Reduction)
Listing Link

Glen Ridge, N.J. MLS# 2203044
Prior Asking Price: $579,000
Reduced To: $499,000 (14% Reduction)
Listing Link

Livingston, N.J. MLS# 2033421
Prior Asking Price: $2,195,000
Reduced To: $1,900,000 (13% Reduction)
Note: New Construction

Millburn, N.J. MLS# 2094937
Prior Asking Price: $2,295,000
Reduced To: $1,999,000 (13% Reduction)
Listing Link

Upper Saddle River, N.J. MLS# 2069051
Prior Asking Price: $2,090,000
Reduced To: $1,849,900 (11% Reduction)
Listing Link

I'll cut it off there, the list is spectacular this week, over 823 price reductions on the GSMLS alone. The total price reduction over those listings was came to a bit over $60,000,000, and an average reduction of 4%, just spectacular!

Note to prospective buyers, just relax and hang tight, you are not missing anything, you will not be priced out. In fact, the longer you wait, the longer the chances are that you'll be priced in.

Caveat Emptor!

Burst Begins in Massachusetts

It's becoming more and more evident that Massachusetts will go down in history as being the first bubble area to pop. There has been a some significant negative media coverage as well as anecdotal evidence that makes Mass. look like the place the pin pricked first.

Massachusetts Real Estate Market Cooling Down
Figures show tired housing market
Boston area real estate market cools for first time in a decade
Boom or bust, network tracks Boston's real estate
Buyers get choosy...when the selling gets tough

And here is the most compelling info yet..

Will Boston Lead the Housing Bust?

From the Angry Bear blog:

The Angry Bear blog posted up some interesting graphs that show that the declines in the Boston Area have often preceeded larger scope declines. Judging from the sheer number of news stories I've been seeing, I don't doubt that Boston will once again lead the decline.

It seems that Massachussets is showing the first Year-Over-Year (YOY) decline, down 5.2% from a year ago. This is rather significant, as one of the biggest Realtor(tm) tools is to quote YOY appreciation to hide short-term decreases in price. In the next few months we'll hear nothing buy YOY appreciation in Northern NJ, until that figure goes negative. We'll likely see the Realtors come up with a new statistical measure, something like a 3-Year or 5-Year average apprecation. It's only a matter of time until we start seeing YOY declines in Northern NJ, when we do, watch out, homeowners will be rushing for the exits and new buyers will all but disappear.

Caveat Emptor,

Help get the word out!

The word needs to get out, and I need your help to do it.

I hope I'm not going too far with this request, but I'm going to go out on a limb here and ask all the readers to help get the word out. I need your help. I can only pass the link on to so many new people a day. While traffic has steadily increased over the past few weeks, I know there are many more people that need to see this information, but don't know how to find it or how to get to it.

I have made no money off this blog, and will make nothing in the future. There are no paid links, referral ads, or any income generation methods used on this blog. I have removed all ads and links to make my mission perfectly clear. I don't intend do anything that might misconstrue the purpose of this blog. I want to make it perfectly clear that there is no conflict of interest.

Like I mentioned before, I need your help to get the word out. While I'm not asking anyone to stand out on a street corner (although I wouldn't put it passed myself to pull off a stunt like that), what I am asking is to just pass the link around. The more active readers we have, the more casual stopper-bys, the stronger our message.

What I'd like to do is to get some ideas from the readers on how to get the message out. I've thought about handing out flyers outside of real-estate seminars, open houses, on community message boards. I've been called a spammer already (interesting since I don't have anything to gain), and much much worse (those real-estate investment boards get very nasty very quickly). Short of taking out a full-page ad in a newspaper, I'm not sure anything other than word-of-mouth can build a stronger base of readers.

So to all the readers and contributors out there, can you help out and get the word out?

Caveat Emptor,