Saturday, July 15, 2006

Price Reduced 6/23 - 7/15

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

Sine the bulk of the large reductions seem to have been to higher priced properties this week, I'm devoting this week's list to high-end properties and towns. On to the list!

MLS# 2269098 - Millburn, NJ
Previous Price $1,199,000
List Price $849,000 (Price Reduced 29.2%)

MLS# 2285070 - Montclair, NJ
Previous Price $1,349,990
List Pirce $995,000 (Price Reduced 26.3%)

MLS# 2255200 - Delaware Twp, NJ
Original List Price $1,125,000
Previous Price $999,990
List Price $749,900 (Price Reduced 25%, 33.3% off OLP)

MLS# 2285057 - Montclair, NJ
Previous Price $1,299,990
List Price $995,000 (Price Reduced 23.5%)

MLS# 2272553 - West Orange, NJ
Previous Price $759,000
List Price $599,900 (Price Reduced 21%)

MLS# 2290250 - Summit, NJ
Previous Price $1,250,000
List Price $997,500 (Price Reduced 20.2%)

MLS# 2241462 - West Orange, NJ
Previous Price $1,250,000
List Price $999,900 (Price Reduced 20%)

MLS# 2260657 - Franklin Lakes, NJ
Original List Price $1,299,900
Previous Price $1,249,000
List Price $999,999 (Price Reduced 19.9%, 23.1% off OLP)

MLS# 2236725 - Fredon, NJ
Previous Price $1,100,000
List Price $890,000 (Price Reduced 19.1%)

MLS# 2254535 - Ridgewood, NJ
Previous Price $849,000
List Price $699,000 (Price Reduced 17.7%)

MLS# 2237983 - Lake Mohawk, NJ
Previous Price $850,000
List Price $699,900 (Price Reduced 17.7%)

MLS# 2258527 - Harding, NJ
Original List Price $1,460,000
Previous Price $1,275,000
List Price $1,050,000 (Price Reduced 17.6%, 28.1% off OLP)

MLS# 2255569 - Kingwood, NJ
Previous Price $2,895,000
List Price $2,400,000 (Price Reduced 17.1%)

MLS# 2294804 - New Providence, NJ
Previous Price $587,500
List Price $487,500 (Price Reduced 17%)

MLS# 2261570 - Verona, NJ
Previous Price $1,200,000
List Price $999,999 (Price Reduced 16.7%)

MLS# 2268840 - Clifton, NJ
Previous Price $679,900
List Price $569,900 (Price Reduced 16.2%)

MLS# 2246435 - Bernardsville, NJ
Original List Price $1,650,000
Previous Price $1,490,000
List Price $1,250,000 (Price Reduced 16.1%, 24.2% off OLP)

MLS# 2202280 - Weehawken, NJ
Original List Price $3,325,000
Previous Price $2,975,000
List Price $2,498,000 (Price Reduced 16%, 24.9% off OLP)

MLS# 2272959 - Bedminster, NJ
Previous Price $2,395,000
List Price $2,025,000 (Price Reduced 15.4%)

MLS# 2271975 - Kinnelon, NJ
Previous Price $1,750,000
List Price $1,499,999 (Price Reduced 14.3%)

MLS# 2235696 - Washington Twp, NJ
Previous Price $849,000
List Price $729,000 (Price Reduced 14.1%)

MLS# 2276910 - Westfield, NJ
Original List Price $1,250,000
Previous Price $1,160,000
List Price $999,900 (Price Reduced 13.8%, 20% off OLP)

MLS# 2254357 - Watchung, NJ
Previous Price $899,000
List Price $775,000 (Price Reduced 13.8%)

MLS# 2110877 - Harding, NJ
Previous Price $7,900,000
List Price $6,900,000

MLS# 2281454 - Bernardsville, NJ
Previous Price $10,700,000
List Price $9,395,000 (Price Reduced 12.2%)

MLS# 2267390 - Summit, NJ
Previous Price $1,695,000
List Price $1,495,000 (Price Reduced 11.8%)

MLS# 2269817 - Franklin Lakes, NJ
Previous Price $1,449,000
List Price $1,279,000 (Price Reduced 11.7%)

I'm going to give up at this point, I could go on for pages and pages. The list was incredible this time.

6/23 - 7/15
Total Price Reductions: ~4400
Average Price Reduction: 4.3%
Total Dollar Reduction: $105,086,522

Caveat Emptor!

Weekend Open Discussion

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

For readers that have never commented, there is a small link on the bottom of each new message that reads "# Comments". Go ahead and give that a click, you might be missing out on a world of information you didn't know about. While you are there, introduce yourselves to everyone. For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past 6 months. The archives can be found at the bottom of the right hand menu and are categorized by month.

As always, anything goes!

New Jersey's Growth Challenges

A must read piece from the Edward J. Bloustein School of Planning and Public Policy:

New Jersey’s New Economy Growth Challenges (PDF)
By James W. Hughes and Joseph J. Seneca

New Jersey now faces its most uncertain economic future since the Great Depression. Previous economic challenges that arose in the post–World War II period seemingly resolved themselves with minimal public policy direction, and prosperity ultimately reigned in every case. But there have been recent warning signs of a potential gathering economic storm. This is raising formidable challenges that until now have been obscured by the sheer momentum of the state’s affluence. This time, the economy may no longer be able to fully self-adapt successfully, as it has in the past, because the state now faces unprecedented competition for high-quality economic growth. This new reality must stand front and center on the public policy agenda.
However, recent years have seen signs of an erosion of New Jersey’s once-unique advanced economic assets. There have also been subtle but significant shifts in the state’s employment growth patterns signaling that the positive advances of the past two decades are beginning to retreat.

Key parts of the core economy—including the state’s unique concentrations of technology-based economic specializations—have not only stopped growing in the 2000s but, in a number of important areas, have started to contract.

Consequently, in the 2000–2005 period, the state lost 117,600 high-paying advanced services and manufacturing jobs. The private service-providing job growth sectors in the 2000–2005 period were in he below-average-paying sectors of education and health services (+60,800 jobs), leisure and hospitality (+35,900 jobs), and other services (+16,500 jobs). Employment growth in these three low-paying sectors totaled 113,200 jobs.
In 1990, New Jersey accounted for 5.2 percent of the nation’s total high-technology employment base, reflecting a significant concentration in the state. But, by 2005, the state’s share had dropped to 4.0 percent. While this still represents an above average share, the scale of erosion is quite substantial. And it has affected every single high technology sector.

Pharmaceuticals are representative of this pattern. In 1990, New Jersey had 20.2 percent of the nation’s total pharmaceutical jobs, slightly more than one out of five. By 2005, the state’s share had declined to 13.7 percent. In 2004, California overtook New Jersey as the state with the most pharmaceutical jobs. For perspective, in 1990, California had only half the number of pharma jobs as New Jersey.
However, disturbing but clear evidence is mounting that the state’s competitive position in these sectors has eroded. New Jersey needs to pay sustained attention to its economic development policies and its business environment to recapture its former comparative advantages. No less than the future economic well-being of the state is at stake.

Sorry AC, you are not Vegas...

From the Courier Post:

Upscale condos coming to A.C.

Got $4 million? A penthouse suite is yours at Victoria Tower, a high-rise planned along 385 feet of beachfront in an area dubbed North Beach. The project should have its planning board approvals within six months.

Victoria Tower is one of four new upscale condos under construction or an approval away in North Beach, an area of the Southeast Inlet section of the city, a fashionable address generations ago.

The projects join the Bella Condominiums as the leading wave of a residential renaissance in the resort. Representatives of the development companies gathered at the Bella pool area Friday to promote the nearly $1 billion in construction.

Typical of high-end beach resorts, the North Beach condos expect to attract second-home buyers from New York, Philadelphia, South Jersey and Florida, developers said. "We hope to grab the 35- to 45-year-old," said Frank Varallo, director of development for the Northeast for Simdag, the Tampa company that is developing Victoria Tower.
"Our place is a lifestyle enhancement with a concierge desk and a South Beach look. It's not just the casinos but a way of life," said Joyce Skarka, vice president of sales and marketing for Lennar Corp., which has broken ground for the midrise Reflections.

Capping the Mortgage Interest Deduction

What areas would get hit the hardest if the mortgage interest deduction was capped?

From the Charlotte Observer:

Calif., N.Y., N.J. big for realty write-offs

Federal tax benefits for homeownership are among the heftiest and most popular of any in the Internal Revenue Code: an estimated $81 billion for mortgage interest write-offs, $15 billion for local real estate taxes and another $24 billion for capital gains exclusions this year, according to the congressional Joint Committee on Taxation.

But who really gets these tax-code goodies? Who gets to write off the most?

New research offers intriguing insights into where the billions of dollars in annual mortgage interest and real estate tax deductions flow, state by state, congressional district by congressional district. The research was conducted by the National Association of Home Builders, using the latest comprehensive IRS data available -- tax year 2003.
Homeowners in a single congressional district in California -- the 14th District in Silicon Valley -- took more in mortgage interest write-offs than all the residents of six states combined. Homeowners in the 14th claimed $3.2 billion in mortgage interest deductions during the year covered by the study, compared with $2.9 billion by all the residents of Vermont, Wyoming, West Virginia, Alabama and North and South Dakota. The average deduction in the 14th District was $35,000, compared with an average of $9,500 for homeowners nationwide.
Residents of a single congressional district on Long Island wrote off more in real estate property tax deductions than all the homeowners from seven states combined. Owners in New York's 3rd District took $1.25 billion in deductions -- more than the $1.2 billion total claimed during the same period in Hawaii, Wyoming, Arkansas, Delaware, the District of Columbia and North and South Dakota.
The average New Jersey homeowner claimed $6,005 in real estate tax write-offs -- more than five times the average deduction by residents of Hawaii ($1,126). New Yorkers claimed an average $5,181 in property tax deductions, followed by the residents of New Hampshire ($4,830), Illinois ($4,129) and Vermont ($3,845).
Though there are no active legislative threats to the mortgage interest and real estate benefits on Capitol Hill's docket, their sheer size and uneven distribution geographically make them perennially tempting targets for budget balancers seeking to increase federal revenues.
A lower cap would also lessen the current system's huge disparities between the tax benefits received by residents of states with high housing costs and big mortgages -- primarily on the West and East coasts -- compared with the benefits received by residents of lower-cost jurisdictions in the Midwest, the South and Mountain states.

Budget Cuts Slam State Schools

From the Star Ledger:

Rutgers hikes tuition and drops courses due to state aid cuts

Rutgers University will raise tuition 8 percent, eliminate 750 jobs and cut nearly 800 classes this year under the most dire budget in the school's recent history.

The Rutgers Board of Governors unanimously approved yesterday the $1.6 billion spending plan during a somber meeting on the New Brunswick campus. Board members and the university's president blamed the tuition hike and layoffs on a nearly $66 million cut in state funding from Trenton.
Campus officials said the university's 50,000 students will be paying more money for fewer classes and services when they return in the fall. The elimination of hundreds of faculty positions and adjunct professors means courses and course sections will be cut and it may be impossible for some students to graduate on time.

Undergraduate tuition for New Jersey residents will increase by $587 to $7,923 a year. Out-of-state students will pay $16,428, a 10 percent hike. Graduate students will pay $478.50 a credit, a 10 percent increase.
The board also approved increases in student fees, a 5.6 hike in housing costs and a 5 percent increase in dining plan rates. When all the bills are totaled, the average Rutgers in-state undergraduate living on campus will pay $19,000, or $1,201 more than last year.
"Cutting aid to Rutgers and our state's higher education institutions is perhaps one of the most short-sighted public policy decisions made in generations in New Jersey," Baroni said.
As a result, Rutgers officials said they were forced to make $50 million in cuts to every corner of the university's New Brunswick/Piscataway, Newark and Camden campuses. Under the new spending plan, everything from library hours to the printing of the course catalog and Division I sports teams will be cut. The salaries of senior administrators will be frozen.

The 750 campus job cuts will include the layoffs of 250 staff, faculty and teaching assistants and 400 part-time adjunct professors. Another 100 staff positions will be eliminated once employees leave or retire.

Friday, July 14, 2006

NYC Lets Municipal Workers Leave.. But Not Too Far..

From Bloomberg:

New York, Citing Housing Cost, Lets Its Workers Live Elsewhere

Increased housing costs in New York City have led officials to abandon a policy in place for almost 20 years that required most municipal employees to reside in the city, Mayor Michael Bloomberg said.

The policy, rescinded in a new contract with the city's largest municipal union to be announced July 17, was imposed in 1987 as crime and a deteriorating quality of life drove middle- class residents to the suburbs. Now, the city's growing economy and amenities have created unprecedented demand for housing, making the restrictions ``inappropriate,'' Bloomberg said.

``There was a point in time when people had no confidence in this city and they were leaving in droves,'' the mayor said during his weekly appearance on WABC radio. ``Our big problem today is that more people want to live in New York City than we have housing for, and that's true at all levels of housing, from the most affordable to what I guess you could call the least affordable.''
The 120,000 New York City workers represented by District Council 37 of the American Federation of State, Municipal and County Employees earn an average of about $28,000, less than the city's median income of $40,000.

The Furman report said the highest rent a household with $32,000 in income typically can afford is $800 a month. The number of rental units at that price or less decreased by 205,000 in the past three years, the report said.

Between 2002 and 2005, the median share of income spent on rent by New York City tenants increased to 31.2 percent from 28.6 percent, and among unsubsidized, low-income renters, it rose to more than 50 percent from 43.9 percent, the study found.
Prohibitions on workers living outside New York state -- in New Jersey or Connecticut or Pennsylvania -- would remain in effect, the mayor said.

Let's discuss the impact of this policy on the stock and price of rentals in NYC.

Caveat Emptor!

New Jersey Choking

From the Star Ledger:

N.J. economy is choking, say two experts

Two Rutgers University economists plan to issue a report today stating New Jersey has entered an alarming economic decline whose severity is masked by the very affluence that is slowly slipping away.

"New Jersey now faces its most uncertain economic future since the Great Depression," James Hughes and Joseph Seneca write in their 20-page report.
With New Jersey's work force 4million strong and growing, and with unemployment relatively low, Hughes said he isn't predicting a recurrence of the Depression's bread-line nightmare. The threat, he said, lurks in the quality of the jobs that are keeping New Jerseyans busy, and the impact of those jobs on long-term prosperity for the state.

Between 2000 and 2005, New Jersey's economy created thousands of relatively low-paying service jobs and government jobs, while private-sector jobs declined. New Jersey also lost many high-paid technology, knowledge and manufacturing jobs during that period, while such jobs were growing in North Carolina, Virginia, Maryland and Florida.

This is disturbing, Hughes said, because New Jersey is an expensive place to live and work and needs high-paid workers to buy its expensive homes and pay the taxes that finance its rich diet of government services.

"It's not that we are entering another Depression -- the problem is that the future is just as uncertain as it was in the 1930s," Hughes said.

ZIRP Over - Japan Raises 25 bps

From Bloomberg:

BOJ Raises Rates for First Time in Almost Six Years

The Bank of Japan raised interest rates for the first time in almost six years, forecasting sustained growth in the world's second-largest economy and an end to a decade of deflation.

Governor Toshihiko Fukui and his policy-board colleagues increased the benchmark overnight rate between banks to 0.25 percent from almost zero effective immediately, the bank said in a statement in Tokyo today. The decision was unanimous.

By ending the zero-rate policy, the Bank of Japan is seeking to avoid the excesses of the bubble economy that was followed by a collapse in land prices in the 1990s and three recessions. Bonds rose and the yen fell as the central bank said it may keep rates ``very low'' to support an economy driven by the fastest pace of corporate spending in 16 years.

``Zero interest rates in the long run place the wrong incentives and make for an inefficient allocation of scarce resources,'' said Jan Lambregts, head of research at Rabobank Groep in Singapore. The world's central banks were concerned companies would become ``addicted to such low rates.''
``The zero-rate policy was an abnormal condition,'' said Kunio Nakamura, chairman of Matsushita. ``Japanese companies have made efforts to decrease debt in the past 10 years so many companies won't be affected by the rate hike.''

Edison Seeks Control Of Ford Site Redevelopment

From the Star Ledger:

Edison wants leverage on former Ford plant

Looking to control the largest redevelopment site in Edison, the township council has authorized the planning board to study whether the former Ford assembly plant on Route 1 can be designated an area in need of redevelopment.

If the move is approved, the council would become the redevelopment authority, with the final say on any zoning or planning changes for the site.
The redevelopment of the Ford site -- the centerpiece in Edison's plans to revitalize its portion of the Route 1 corridor -- has been delayed by various factors.

Residents and council members sent Hartz back to the drawing board in January, loudly denouncing the vision for the site that the developer revealed.

The plans called for 275 age-restricted condominiums, a 150-room hotel, an office building and a "town square" that would encom pass a movie theater, shops, and restaurants. Bookending the property would be two big-box retail stores. Less than 3 percent of the 98-acre property would be set aside for township use.

Xanadu Fiasco

From the Star Ledger:

Mills Corp. trying to sell stake in Xanadu

The Mills Corp. is trying to sell a substantial stake in the massive re tail and entertainment center known as Xanadu in order to finish construction of the complex at the Meadowlands, state officials said yesterday.

Mills Chairman Laurence Siegel and Chief Operating Officer Mark Ordan told executives with the New Jersey Sports and Exposition Authority of their plans during a crucial, three-hour meeting Wednesday night at the company's New York offices.

The meeting occurred after Carl Goldberg, chairman of the sports authority, the state agency that operates the Meadowlands Sports Complex, demanded Mills explain how it would keep the $1.5 billion project afloat at a time when the company has had difficulty signing tenants for Xanadu. Mills is also struggling through an accounting scandal that has rocked the Virginia-based real estate investment trust, or REIT.

"They said they would be looking for an additional equity provider who could be in the form of a private partner," Goldberg said yesterday. "They constantly need additional money. The estimates are that they are spending $10 million per week on this project."
In the wake of an accounting scandal, Mills announced in February it would explore all "strategic alternatives," including selling its entire portfolio of 42 regional malls and outlet centers. The company, which has seen its stock price drop 60 percent in the past year, then set a June 13 deadline for bids. In the words of one company official who asked to remain anonymous because of the sensitive nature of the information, Ordan and Siegel were "especially disappointed" in the initial bids, and the company has said little about the sale process since.

Thursday, July 13, 2006

Fannie and Freddie Sitting In A Tree...

From the Christian Science Monitor:

No safety net for Fannie and Freddie
By David Reiss

It is received wisdom on Wall Street that the federal government would bail out Fannie Mae and Freddie Mac if they could not pay their debts - even though they are for-profit, privately owned mortgage finance companies. That's because they were specially created by the federal government to encourage homeownership.

This is received wisdom notwithstanding required language on Fannie and Freddie securities that they are "not guaranteed by the United States and do not constitute a debt or obligation of the United States," and it allows Fannie and Freddie to borrow money more cheaply than other private companies because they are perceived as low-risk borrowers.

Fannie and Freddie had been the darlings of Wall Street as they reported growth and profits year after year by borrowing money at low rates and using it to purchase residential mortgages that pay interest at higher rates. But the seemingly remote possibility of a bailout has become more likely as wave after wave of accounting scandals involving the misstatement of earnings sweep over the two companies.

The risk that these scandals pose has been compounded by the fact that Fannie and Freddie's hedging strategies expose them to serious risks: If the interest payments that the two companies owe to their lenders become mismatched with the interest payments they receive from homeowners whose mortgages they own, the companies can become insolvent. While only a handful of policy wonks focus on this arcane issue, the cost to taxpayers of a bailout could be hundreds of billions of dollars, easily dwarfing the cost of the Savings and Loan crisis of the 1980s. Hundreds of billions of dollars: That figure should make taxpayers sit up and take notice.
Moreover, principled commentators on the right and the left, including American Enterprise Institute scholars and Public Citizen's Ralph Nader, agree that the implicit guarantee is no longer justified in today's sophisticated mortgage market. For the former, the guarantee amounts to the privatization of profits and the socialization of losses. For the latter, it is just another example of corporate welfare. And indeed, in today's world, it is both of those things.

600 Age-Restricted Units for North Brunswick

What happened to running out of land?

From the Sentinal:

Lands may be zoned for senior housing

proposal to rezone two areas of South Brunswick into the new Age-Restricted Residential Communities (AARC) zone and one area from commercial to industrial was moved forward by the Township Council Tuesday night.

If approved, the two areas that will become the first of a new zone developed by the township are a patch of land located between Routes 1 and 522, which is zoned residential, and another area on Route 522 near Major Road and Route 1 zoned for a Planned Adult Residential Community (PARC). The council is expected to vote on the introduction of these ordinances during its next meeting July 25.
"The object to make this zone was to make housing affordable to certain segments of our township. If you have a home in Kendall Park and you're now 55 or 60 or older and you sell your house to move into another community today, these houses cost $400,000 to $500,000. Many of our seniors cannot sell their house and move into another house with that cost, so these houses would allow for a much lower cost. I think it provides a housing element to a segment of our society in the township that really needs this," said Gambatese.
The other reason was that by encouraging development in these zones, the township could fulfill some of its affordable housing requirements mandated by the state.

"We owe them 600 units, and the town government has been trying to meet that obligation dictated to us, and this is going to be a critical component of meeting that requirement of the state," said Councilman Charles Carley.

According to Carley, this option was the least painful way of fulfilling the requirements, as age-restricted communities don't burden the school system with an influx of new children.

"It's an old industrial site, and we have a COAH obligation that the state tells us to provide 600 units. This is about as gentle a way we can go about providing the 600 units ... so I want it to move along," said Carley.

A Little Secret About Comps

Surprising story on comps and appreciation up at Seattle Bubble this morning. Hat tip to Tim and S-Crow for providing the information. Seems a common practice might be overstating appreciation via comps. I'll admit, this one never even crossed my mind.

Housing Appreciation: the dirty little secret

We'll it's not really a dirty little secret, but like my mother-in-law says about certain things taboo, "we just don't talk about that." One of the least talked about facets of home price appreciation and what we see on the majority of the purchase transactions we close that were 100% financed, is this little secret: It's simply sellers jacking up the sales price to cover the buyers request for paying closing costs. The cause and effect: artificial appreciation and compounding that spirals house prices upward absent of fundamental economic drivers.

Ok, fine you say. What's the big deal. What's the big deal??? Let's discuss the ramifications of this because it is quite remarkable. A recent home in a transaction we closed (numbers are for example only) was listed for $450,000. It was sold for $458,000. The seller was quite happy with just accepting a full price offer, but here comes a very enthusiastic buyer that is qualified to purchase the home, but like many buyers, is cash poor. So the buyer and seller agree to artificially increase the appreciation of the home via a sales price increase that covers the closing costs for the buyer. While this appears to be somewhat routine, the compounding price appreciation inertia from this sale creates a domino affect that is hard to stop. Think about this. If our firm has closed just 75 of these transactions (and we have) in 2006 alone, just think what the title companies who dominate the market must be closing, in each county. Now think all across the state. Now think all across the country.

(read more)

Caveat Emptor!

400 Luxury Condos for New Brunswick

From the Star Ledger:

Plans for New Brunswick condos gaining traction

Plans for four- to six-story condos and apartments in the parking lot of a Loews theater on Route 1 in New Brunswick are moving closer to reality

The city's planning board has favorably recommended redevelopment plans based on a concept un veiled by Edgewood Properties and the city late last year.

Edgewood, which is owned by Piscataway developer Jack Morris, proposed building about 400 luxury condominiums, 40,000 square feet of retail space and three parking garages on the property, which sits high along the banks of the Raritan River.
Fulton Square, another Edgewood development, is coming to fruition, Bray said.

"They're progressing quickly. The majority of the townhouses are complete," Bray said of the 12-acre housing project that replaced industrial properties near Commercial Avenue with 209 new units. Those units include 57 affordable two- and three-bedroom condominiums and 41 two-story market- rate townhomes.

Montclair Tax Increase

From the Star Ledger:

Township council pares property tax increase

The average Montclair homeowner is looking at a municipal property tax increase of $160.62, Township Manager Joseph Hartnett said just two weeks before the budget's expected adoption.

The increase on a home assessed at $252,000 -- the township average -- is down $35.73 from the projected tax increase of $196.35 just a few weeks ago.

If approved, the package -- combining municipal, school and county governments -- would cost the average Montclair homeowner an extra $646.92 in the coming year.

The 5.49 percent increase in the amount to be raised by taxes for municipal purposes is less than the 6.7 percent increased first proposed. Montclair's council subsequently called department heads to hearings to address how they might cut their budget requests.

Yet resolutions dealing with amendments to the capital budget -- one for $1 million in street and sewer work and one for $50,000 for the cable-access station -- drew "No' votes from Deputy Mayor Gerald Tobin and Ted Mattox, a councilor-at-large.

Wednesday, July 12, 2006

Mortgage Applications Steady

From the Mortgage Bankers Association (MBA):

Mortgage Application Volume Steady in Latest Survey

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 7. The Market Composite Index, a measure of mortgage loan application volume, was 566.8, an increase of 1.0 percent on a seasonally adjusted basis from 561.0 one week earlier. On an unadjusted basis, the Index decreased 29.1 percent compared with the previous week and was down 36.3 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index increased by 2.6 percent to 425.0 from 414.2 the previous week and the Refinance Index decreased by 1.6 percent to 1400.5 from 1423.9 one week earlier. Other seasonally adjusted index activity includes the Conventional Index, which increased 1.2 percent to 837.3 from 827.2 the previous week, and the Government Index, which decreased 1.3 percent to 115.8 from 117.3 the previous week.

The four week moving average for the seasonally-adjusted Market Index is down 0.2 percent to 556.3 from 557.5. The four week moving average is up 0.6 percent to 410.8 from 408.2 for the Purchase Index, while this average is down 1.7 percent to 1411.6 from 1436.4 for the Refinance Index.

The refinance share of mortgage activity decreased to 34.0 percent of total applications from 35.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 28.7 percent of total applications from 29.5 percent the previous week.

Posting this up a bit later than usual. Unfortunately I was busy for most of the day. There was a dramatic decline in the unadjusted data for last week, however realize that it was a holiday/shortened week. But turning a 29.1% decline into a 1% increase? They must have brought out a sledge hammer to make an adjustment like that.

Caveat Emptor!

Northern New Jersey Weekly Inventory Update

(Garden State Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren Counties)

7/5 - 18,360
7/12 - 18,573 (1.2% Increase)

(New Jersey Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Passaic Counties)

7/5 - 9,089
7/12 - 9,187 (1.1% Increase)

MLSGuide -
Single Family Homes, Condo, Coop
(Hudson County)

7/5 - 2,644
7/12 - 2,623 (0.8% Decrease)

Affordability Pressuring Housing

From Marketwatch:

Home-price growth to slow with sales

Economists are predicting slowing home appreciation and slipping home sales for the remainder of 2006 and their key concern is the decline in affordability for many potential homeowners, caused by already high home prices.

"Generally over time, it's mortgage rates that appear to so clearly affect affordability," said Frank Nothaft, Freddie Mac's chief economist, referring to the double-digit interest rates of the 1980s and their effect on homeownership.

Although rates have edged up only slowly over the first half of the year, and the 30-year fixed-rate mortgage is expected to remain below 7% in 2006, high home prices seem to be affecting affordably more during this slowdown, Nothaft said Tuesday during a midyear housing forecast conference call.

Those high prices are working to keep first-time homeowners out of the market, said David Berson, chief economist for Fannie Mae. Inventory has soared during the first half of the year, he added, noting a marked change from recent years.

"There are a lot of homes for sale right now. A lot of those are condos -- the condo inventories have just surged," he said.
In matters of refinancing, homeowners are doing it less and when they do decide to tap into their home equity, it's for different reasons than in the recent past, Nothaft said. Refinancing is motivated now by the need to extract cash and to reset adjustable-rate mortgages -- not obtaining low fixed rates as it was when rates were at their lows in recent years, he added.

Mortgage market volumes are 12% less in 2006 than 2005, and refinancing has dropped by a third, he said. Adjustable-rate mortgages will fall to one in four loans in 2006, he said, after accounting for nearly 40% of the market at their recent peak.
Employment growth should help prime-loan default rates to decline, Nothaft said, although local areas that are in recession are particularly sensitive to high rates of default. A much greater proportion of mortgage defaults now stem from subprime loans, those made at higher rates to borrowers with marginal credit histories.

Corzine's Property Tax Agenda

From the Star Ledger:

Corzine lays out agenda on property tax reform

Gov. Jon Corzine sketched out an ambitious agenda yesterday for the upcoming special legislative session on property tax reform, saying he wants it to take up such hot-button issues as consolidating local government services and changing the formula for state aid to schools.

"If we're serious about property tax reform, then we have to have a serious agenda," Corzine said.
One goal of the special session will be a reassessment of the way the state provides aid to school districts, including the sticky issue of how to create parity between wealthier suburban districts and the 31 predominantly urban areas that the courts have identified as "special needs" districts.

"Nobody thinks we're allocating money to our school systems appropriately," Corzine said in the radio interview.
Ethics reforms also will be integral to property tax relief, Corzine said, including more scrutiny of state money going to municipalities and other local government agencies and whether the aid is based on need or doled out as political patronage.
The thorniest issue of all might be consolidating services provided by the myriad of local government across the state.

New Jersey has 566 municipalities, 616 school districts and 186 fire districts. All of those, plus 21 counties, use property taxes to pay for operations.

As an example of the cost of such duplication, Corzine offered up Bergen County. With 800,000 residents, Bergen has twice as much firefighting equipment in its local fire departments combined than in all of New York city, with 8 million residents, Corzine said.

"You don't have to be a genius or a rocket scientist to understand that all the proliferation of services isn't the most efficient way to pay for delivery of fire, police, education -- all of the services government is about," Corzine said.

Highlands Act Impact

From the Star Ledger:

Minor impact from Highlands Act

It is only a year's worth of data, but a new report shows that residential property sales and tax rates in the Highlands seem only slightly impacted by the new legislation, officials said.

In 2005, residential property sales in the region decreased in line with state trends, while property taxes rose just above state averages, according to the preliminary Highlands Council report.

Opponents have argued that the 2004 Highlands Act's development restrictions might decrease ratable revenues, fueling a spike in property taxes.

"It does seem to indicate that, contrary to some people's fears, the sky is not falling," Highlands Council Chairman John Weingart said.
Thomas Kenyon of the New Jersey Planning Officials association said "it's very hard to draw conclu sions with a one-year survey." He noted that most tax rates are based on present local zoning codes, which don't yet reflect changes required by the Highlands master plan.
James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University, said the 2006 national housing market has slowed, making it difficult to pinpoint the effect of the Highlands Act in the near future.

"We're going to have these broader forces that will probably overwhelm the specific impacts of the Highlands legislation," he said.

Tuesday, July 11, 2006

Ron Paul on the Fed

From Congressman Ron Paul's Website:

Federal Reserve Policy Destroys the Value of Your Savings

For years officials at the Federal Reserve Bank, including Chairman Bernanke himself, have assured us that inflation is under control and not a problem-- even as the price of housing, energy, medical care, school tuition, gold, and other commodities skyrockets.

The Treasury department parrots the Fed line that consumer prices, as measured by the consumer price index (CPI), are under control. But even many mainstream economists now admit that CPI grossly understates true inflation. The most glaring problem is that CPI excludes housing prices, instead tracking rents. Everyone knows the cost of purchasing a home has increased dramatically in the last ten years; in many regions housing prices have more than doubled in just five years. So price inflation certainly is alive and well when to comes to the largest purchase most Americans make.

When the Federal Reserve increases the supply of dollars in circulation, both paper and electronic, prices must rise eventually. What other result it possible? The supply of dollars has risen much faster than the supply of goods and services being chased by those dollars. Fed policy makers have more than doubled the money supply in less than ten years. While Treasury printing presses can print unlimited dollars, there are natural limits to economic growth. This flood of newly minted US currency can only increase consumer prices in the long term.

Mr. Bernanke has stated quite candidly that he will use government printing presses to stimulate the economy as necessary. He is famous for joking that he would endorse dropping money from helicopters if needed to prevent an economic slowdown. This is nothing short of an express policy to destroy our money by inflation. Every new dollar erodes the value of existing dollars based on simple supply and demand. Does anyone really believe the Treasury can make us rich simply by printing more money?
Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.

The Incredible Shrinking NAR Forecast

I have to admit, I do find it entertaining to watch the NAR change their forecast with every press release they issue. Month after month their forecast is revised downward and further downward still. While the overall change has been minor, it's most certainly something I'm going to keep my eye on.

July 11th, 2006

Existing-home sales are expected to decline 6.7 percent to 6.60 million in 2006 from 7.08 million last year. That would still be the third highest level on record. New-home sales should fall 12.8 percent this year to 1.12 million from 1.28 million in 2005. Housing starts are forecast to decline 6.8 percent to 1.93 million this year from 2.07 million in 2005.

The 30-year fixed-rate mortgage is likely to reach 7.0 percent by the end of the year.

June 6th, 2006

Existing-home sales are projected to drop 6.8 percent to 6.60 million this year from the record 7.08 million in 2005. New-home sales are forecast to fall 13.4 percent to 1.11 million from a record 1.28 million in 2005. Housing starts are likely to decline 6.2 percent to 1.94 million in 2006 compared with 2.07 million last year.

May 9th,2006

Existing-home sales are likely to fall 6.4 percent to 6.62 million in 2006 from a record 7.08 million last year. New-home sales are projected to drop 11.6 percent to 1.13 million from last year’s record of 1.28 million. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005.

April 11th, 2006

Existing-home sales are projected to drop 6.0 percent to 6.65 million this year from a record 7.08 million in 2005. New-home sales are likely fall 10.9 percent to 1.14 million from the record 1.28 million last year – both sectors would see the third best year following 2005 and 2004. Housing starts are forecast at 2.00 million in 2006, which is 3.2 percent below the 2.07 million in total starts last year.

March 13, 2006

Existing-home sales are expected to fall 5.7 percent to 6.67 million in 2006 from
the record 7.08 million last year. At the same time, new-home sales are forecast to decline 7.7 percent to 1.18 million from a record 1.28 million in 2005 – each sector would be at the third highest year following the tallies for 2005 and 2004. Housing starts are likely to total 1.98 million this year, down 4.3 percent from 2.06 million in 2005.

February 7th, 2006

Existing-home sales are likely to decline 4.7 percent to 6.74 million this year, down from a record 7.07 million units in 2005, while new-home sales are expected to fall 8.5 percent to 1.17 million from a record 1.28 million in 2005; both sectors
would see their third best year after the totals for 2005 and 2004. Housing starts are seen at 1.87 million units in 2006, down 9.3 percent from 2.06 million last year.

The 30-year fixed-rate mortgage should rise to 6.9 percent by the end of the year.

January 10th, 2006

After setting a fifth consecutive annual record, projected to 7.10 million units for 2005, * existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0 percent to 1.21 million in 2006 – that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units – the highest since setting a record 1972 – with a 6.6 percent slowing to 1.94 million this year.

December 12th, 2005

Existing-home sales, expected to rise 4.7 percent to 7.10 million this year, are likely to decline 3.7 percent in 2006 to 6.84 million. New-home sales, projected to increase 7.0 percent to 1.29 million this year, are forecast to drop 4.8 percent to 1.23 million in 2006 – also the second best on record. Total housing starts for 2005 should grow 5.8 percent to 2.06 million units, the highest since 1972, and then decline 4.8 percent to 1.92 million next year.

October 28th, 2005

Existing-home sales, which should increase 4.8 percent to 7.11 million this
year, are projected to decline 3.5 percent in 2006 to 6.86 million. New-home sales, seen to grow by 8.0 percent to 1.30 million in 2005, are expected to fall 4.5 percent to 1.24 million next year. The figures for 2006 would be the second highest year for each sector.

Total housing starts this year are forecast to be the highest since 1972, rising 5.7 percent to 2.06 million units, before declining 4.6 percent to 1.97 million in 2006.

The 30-year fixed-rate mortgage is projected to rise slowly to 6.7 percent by the end of next year.

Caveat Emptor!

Source: National Association of Realtors

North Jersey Market Slows

From the Star Ledger:

Home sales slowing in North Jersey

The "For Sale" sign has been up for three months. You've had a handful of showings and open houses. But your four-bedroom colonial in your quaint middle-class suburban neighborhood is just not selling.

In America's cooling housing market, it's a story many home sellers in New Jersey can relate to these days.

Housing activity is slowing across the state, and the inventory of unsold homes is expanding.

"You have this standoff between buyers and sellers who tend to be as much as three-quarters of a year behind the market," said Jonathan Miller of Miller Samuel, a real estate appraisal firm in New York. "Sellers have been trained over the past five years to stick with their prices and be firm, and yet now you have buyers on the other side saying they want a deal."

As of June, the supply of homes on the 12-county northern New Jersey market is 69 percent higher than it was in June 2005, climbing from 23,584 homes to 39,829, according to Jeffrey Otteau of East Brunswick-based Otteau Appraisal Group, who also authors a series of widely followed quarterly market reports on the New Jersey real es tate market.

Middlesex County saw the largest year-over-year surge in inven tory, with the supply of homes on the market climbing 99 percent, to 4,739 homes, from June 2005 to June 2006.

The number of months it would take to sell the existing inventory of active listings at the present sales pace stands at seven months, up from three months a year ago, Ot teau said.

Historically, a 5 1/2-month supply of unsold inventory has been considered a "stable" market.

In the late 1980s, when the residential real estate market last hit the skids, that number ranged from nine months to 24 months.
Otteau also believes "the chorus of voices predicting this collapse and the attention they have received from the media" are playing a big role in bringing the housing market to its current state.

"As always, perception becomes reality," he said.

The market currently has a six- month supply of homes priced below $600,000. For homes priced between $600,000 and $1 million, there is a 10-month supply, and for homes priced above $1 million, there is a nearly 13-month supply.

Home-sales volume also is slowing in the state, declining 18 percent through May from one year ago.

Carcinogens at Lennar Site?

From the Star Ledger:

Edison site under scrutiny for toxins

A controversial Edison housing development is facing environmental scrutiny again after the state alerted township officials to possible cancer-causing contaminants at the site.

Township attorney Jeff Lehrer said the state Department of Environmental Protection told Edison health officials about the presence of PAHs -- polycyclic aromatic hy drocarbons -- at the Beechwood at Edison development site, which will include 198 apartments, 87 townhouses and a strip mall.

The site is jointly under construction by Piscataway developer Jack Morris and Florida-based Lennar Corp.
Choi said Morris's company, Edgewood Properties, did not inform Edison about the findings.

"They claimed it was unreliable findings," Choi said. "My position is we must do independent tests to make it clear."

A spokeswoman for Edgewood Properties declined to comment.

Edgewood is also at the center of a state criminal and civil probe into how PCB-contaminated concrete debris was moved from the former Ford factory site on Route 1. Edgewood Properties had more than 80,000 tons of the tainted de bris moved from the Ford site to several residential and commercial development sites in Middlesex, Mercer and Ocean counties.
Beechwood also became a political issue, when it was revealed dur ing the election season that Morris, a major political contributor to Democrats and business partner of Middlesex County power broker John Lynch, had become involved in its development.

"The Beechwood development always smelled funny to me," Choi said.

Next NJ Battle? Property Taxes

From the Star Ledger:

Trenton puts off property tax reform

Just two days after the long battle over the state budget ended, Gov. Jon Corzine and legislative leaders yesterday agreed to wait until the end of the month to start what might turn out to be an even more acrimonious fight: finding ways to reduce property taxes.

The governor plans to address lawmakers in joint session July 28, or soon after, to kick off a special legislative session aimed at cutting New Jersey property taxes, which are the highest in the nation.

"Property tax reform has consistently and repeatedly been at the top of the public agenda. The governor is looking forward to addressing the Legislature on this issue," Corzine spokesman Anthony Coley said.

The start of the special session has been timed to coincide with voting sessions by lawmakers to place a referendum on the November ballot asking voters to dedicate half of the budget's sales tax increase to property tax relief. The sales tax will rise to 7 percent from 6 percent Saturday.
New Jersey property taxes have soared 29 percent over the past four years, but finding ways to reduce them has eluded lawmakers for decades.
The committees will hold two months of hearings with a goal of producing a package of bills that the full Legislature can consider before the end of the year, said Senate President Richard Codey (D-Essex).

The timeline isn't quick enough for Republicans.

Senate Minority Leader Leonard Lance (R-Hunterdon) said delaying a recommendation on a citizens' tax convention until after August guarantees it won't get onto the ballot until November 2007. Any citizens' convention wouldn't happen until 2008, he said, and the convention's reforms would not likely be implemented before 2009.

Hudson Valley Open Houses

From the Journal News:

Mixed response at open houses

While rising interest rates are slowing sales of homes in the Lower Hudson Valley, a sampling of open houses over the weekend shows how hard it is to generalize about buyer interest.

Three brokers met with decidedly mixed success when they opened the doors to potential homehunters Sunday afternoon in Yorktown, Greenburgh and Nanuet. The brokers agreed on one reality — they expect to work harder, and on more weekends, to move their clients' property this year.

All three houses had had their prices lowered in recent months. Real estate statistics portray a market in which buyers have more listings to pick from than a year ago and are taking more time to decide.

In Rockland, the inventory of single-family houses rose by 57.2 percent at the end of the second quarter, to 1,607, the Greater Hudson Valley Multiple Listing Service said yesterday. Sales were flat year over year.

Second-quarter numbers for Westchester and Putnam counties are expected later this month. First-quarter sales of single-family houses in Westchester dropped 14 percent year over year, while inventory rose nearly 34 percent. In Putnam, sales were down 9.6 percent and inventory was up nearly 24 percent.

"It's been a very long time since it's been this quiet," said Andrea O'Brien, an associate broker at Prudential Rand Realty, outside a split-level she was selling on South Deerfield Avenue in Yorktown. Just one couple had stopped by in the first hour of the open house, although four others dropped in during the two hours that followed.
People are popping in and out of the four-bedroom house being offered for $499,000, and Jeffrey expects to stick around a half-hour longer than he planned this day. The house has been on the market for seven months; Jeffrey is the second broker to handle it, and one of the first things he did was encourage the seller to lower the price from $549,000.
Wesel Drive in Nanuet, broker James J. Dunphy has spent most of the afternoon watching the World Cup on the living room television at the four-bedroom house. It's only in the last half-hour that two prospects drop in, a couple and, shortly afterward, a pregnant woman looking by herself.
The house has been on the market since May 24, and the price has been lowered from $529,900 to $519,000.

"Are you negotiable?" the woman, Christina Roche, asked. "Yes," Dunphy responded.

Monday, July 10, 2006

Revolving Debt Up 10%

From Marketwatch:

U.S. May consumer credit rises $4.4 billion, or 2.4%

Consumers took on a bigger-than-expected $4.4 billion more in debt in May, the Federal Reserve said, mostly in revolving debt like credit cards. U.S. borrowers pushed up overall outstanding consumer credit by 2.4%, or $4.4 billion, to $2.173 trillion, the Fed said Monday. Credit cards and other forms of revolving debt jacked up the overall number. U.S. consumers added $6.7 billion in revolving debt in May, up 10% from the prior month to a total of $812 billion. Nonrevolving debt like automobile loans, meanwhile, fell by 2%, or $2.2 billion, to $1.36 trillion

For those interested in a bit more data, the Fed Consumer Credit release can be found here:


Caveat Emptor!

A Look At Commercial RE

From the Wall Street Journal:

Commercial Real Estate Maintains Its Strength Despite a Cooling Housing Market

With America's housing market clearly cooling, will commercial real estate start to swoon?

Hardly. The national office market, which cratered after the tech bust in 2000, has recovered and is the strongest it has been in five years. The shopping-mall market has stayed strong because consumer spending held up better than expected. And hotels had their most profitable year ever in 2005, partly because of strong business travel.

In fact, the commercial markets benefited from the former froth in the residential-property market because the boom in residential construction limited the amount of land that could be used for other purposes. In some markets, the conversion of apartments, hotels and, to a lesser extent, office buildings, into condominiums reduced the risk of oversupply -- one of the biggest hazards in commercial real estate and one that contributed to the sector's crash in the late 1980s.

Despite the widely varying types of commercial properties -- and the fact they are partly driven by different factors -- it isn't uncommon for people to assume if houses aren't selling, commercial markets must be at risk, too. So common that the faulty assumption itself could be self-fulfilling, says Robert White Jr., president of Real Capital Analytics, a New York-based real-estate information firm. "I so worry...that if they get burned on their condo in Miami, they are going to stay away from any other commercial real-estate investments for the next decade. Those markets are completely different."
Yet, with generally improving fundamentals such as reduced vacancy and higher rents and few worries about overbuilding in most markets, the office sector should continue to improve in the near term, if job growth doesn't take a dive. "We're still in that race between increasing interest rates and increasing fundamentals," Stephen Blank, senior resident fellow of finance with the Urban Land Institute, says of the commercial market. "It appears to me that we are going to skate through this."

NJ Transit Becomes Real Estate Developer

From the Jersey Journal:

65-acre redevelopment planned by NJ Transit

Residents are fighting to stave off development in the Mile Square City - but the biggest expansion in the city's history could be coming and local officials may be powerless to stop it.

NJ Transit recently began studying the Hoboken Terminal and the 65 acres that straddle Hoboken and Jersey City in anticipation of upgrading facilities and installing transit-oriented development.

s a government agency, NJ Transit is exempt from city zoning laws, meaning the agency is free to build as it pleases - a nightmare scenario for residents already overwhelmed by high-rise towers.

So far, NJ Transit and local officials appear to be working together to come up with a blueprint.
The 65 acres abutting the Hudson River consists of a train terminal, active storage yard, maintenance facility, train watch facility, electrical substation, train shed, bus lanes, light rail station, PATH station, ferry terminal and parking facility.

Last year, NJ Transit hired LCOR, a real estate development company based in Philadelphia, to conduct a "concept plan" to determine what, if any, operations can be consolidated or moved.

"We want to maximize economic return on this property," Zullo said. "The revenues could be put back directly into this facility and improving transfers between modes. We think, for both Jersey City and Hoboken, there are real economic benefits."
"If they are talking about building 500 and 1,000 units, that is something we should all take a long hard look at," he said. "It's a delicate balancing act. On the one hand, we've been invited to participate in the process and we are going to do that with the redevelopment plan process. We will let NJ Transit and LCOR know what we have in mind."

Trump's Jersey City Development - Second Thoughts

From the Jersey Journal:


The Donald is hedging his bets on a twin-tower condo complex he is building in Downtown Jersey City.

The casino and development mogul told The Jersey Journal he and his main partner in the deal, Hoboken-based Metro Homes, reneged on paying $1.9 million to the city, due June 1, because he's not convinced the project's proposed second tower will become reality.

"I think it's going to be built," Trump said on Friday. "But if the world goes to hell in a handbasket it won't be built - unless you're very foolish."

The first of two towers of what will be Jersey City's Trump Plaza is under construction on Washington Boulevard between Morgan and Bay streets. The first tower - purportedly the tallest residential building in New Jersey at 55 stories - is fully financed and will be a huge success, Trump declared.

But the second tower, planned for 50 stories, "may or may not get built depending on market conditions," Trump said.

"We never really had a starting date on the second tower," he added.

Metro Homes, the majority partner in this venture, did make a $2 million "pre-payment" to Jersey City for Tower I last June, city officials said.
James McCann, the attorney representing Metro Homes, told the City Council at last week's meeting that banks financing the project are jittery about the prospects for selling out the second tower - perhaps thinking the bubble is about to burst in Jersey City's condo market.

Sunday, July 09, 2006

Wall Street Sounds The Alarm

From the LA Times:

Default rate of 'piggyback' loans spurs Wall Street to action

Wall Street is sounding the alarm on one of the most popular ways to buy a house in many high-cost areas around the country — so-called "piggyback" programs that mesh first mortgages with second-lien credit lines or mortgages.

As of July 1, the most influential ratings agency in the mortgage arena, Standard & Poor's Corp., has upped the ante for lenders who fund piggyback deals. The move is likely to raise interest rates and fees for some home purchasers this summer, say mortgage experts, and could reduce the volume and availability of piggyback programs overall.

The reason for the change, according to Standard & Poor's credit analyst Kyle Beauchamp, is that an exhaustive study of piggyback loans found them anywhere from 43% to 50% more likely to go into default than comparable stand-alone first-lien purchase transactions.

Piggyback plans were developed as a creative response to soaring home prices and borrowers' desires to stretch their down-payment cash while avoiding private mortgage insurance premiums. In traditional financings, a borrower with less than a 20% down payment typically must pay for mortgage insurance premiums. In piggyback arrangements, by contrast, the borrower takes out a traditional mortgage for 80% of the property value, but simultaneously obtains a second lien for a portion or all of the balance — and avoids PMI payments.

Banks and other lenders offer a wide variety of piggyback options. For example, an "80-20" piggyback would require zero down payment — an 80% standard first mortgage and a credit line or second mortgage covering the 20% balance. An "80-10-10" would involve a 10% down payment; an "80-15-5," just 5% down.

With their low cash requirements and often-generous credit standards, piggybacks have been wildly popular among home purchasers during the last several years. According to a study by SMR Research Corp., piggybacks quadrupled their market share from 2001 to 2004. In a sample of loans in California markets, according to the SMR study, the percentage of piggybacks exceeded 60% in some cases.
One reason for the higher defaults: Though the interest rate on the first-lien mortgage may be fixed, many of the second liens in piggybacks have been floating-rate home equity credit lines. They are tied to short-term interest-rate movements, especially the prime rate, and are exposed to frequent payment increases as short-term rates rise. The Federal Reserve's steady drumbeat of quarter-point increases over the last year has weighed heavily on buyers who took out piggybacks in 2003 and 2004, when short-term rates were at near-record lows. They have been forced to refinance their loans or find the extra monthly income to pay for the rising costs on their credit lines.

Morris didn't make the cut

From the Daily Record:

Morris cities fail test for families

Not a single Morris County community is among the supposedly 100 best places to bring up a family, as listed in a new book, "Best Places to Raise Your Family," by Bert Sperling and Peter Sander (Wiley, 2006).

Not Mountain Lakes, not Mendham, not Madison, not Morristown, not Chatham.

As for communities that did make the cut, there's Hollywood Park, Texas; Coralville, Iowa; Lake Zurich, Ill.; Hudsonville, Mich.; Kaysville, Utah; Getzville, N.Y.; Irmo, S.C.; Valrico, Fla.

I never heard of them.
In fact, I never heard of maybe half the 100. (Granted, I am not much a traveler. I've always admired Emily Dickinson's remark: She had traveled widely in Amherst.)

As for the top 10, they are (1) Louisville, Colo.; (2) Gathersburg, Md.; (3) Roswell, Ga.; (4) Lakeville, Minn.; (5) Flower Mound, Texas; (6) Fort Collins, Colo.; (7) Cary, N.C.; (8) Sugar Land, Texas; (9) Columbia, Md.; and (10) Noblesville, Ind.
New Jersey as a state didn't do badly. Three Garden State communities made the list: Norwood, in Bergen County; Livingston, in Essex; and Kendall Park, in Middlesex.

Essex County Taxes To Increase

From the Star Ledger:

County taxes will increase for most

Most Essex County homeowners should expect to see a slight bump in their county taxes again this year, while residents in three Essex communities will see a decline.

The local impact of the county's $6.4 million tax increase recently became clear as the county treasurer released the breakdown of how the county's $325 million tax levy will be distributed among its 22 municipalities.

For a half-dozen towns, the increase will be negligible -- Caldwell, Glen Ridge, Montclair, Verona, West Caldwell and West Orange will all see hikes under $25 for the average homeowner. Another eight municipalities, including Newark, will see hikes of under $100.

Others, however, will be hit harder. Belleville, Orange, Nutley and Cedar Grove will each see average increases of over $100, while the posh hamlet of Essex Fells will be hit with the biggest average increase -- $242.

Meanwhile, homeowners in the affluent suburbs of Livingston, Millburn and Roseland will see their county taxes go down this year, due to a complicated formula that uses local real estate values to apportion county taxes.

To many homeowners, the news of yet another increase in their county taxes is maddening, no matter how small the bump might be. Coupled, in many cases, with increases in their local and school taxes, some residents say Essex County is simply becoming too expensive.
But while D'Elia is sighing in relief, DiPaolo said he's thinking about joining her neighbors and hitting the road. Though he lives in a house passed down to him by his father, DiPaolo said there's only so much he can take in tax increases.

"What can you do? You move." he said. "Get out of Essex County and follow everybody north and west."

East Orange Hotel to be Auctioned

From the Star Ledger:

Best view on the block

One of East Orange's tallest and most famous landmarks -- an eyesore that used to be the ritzy 250-room Hotel Suburban -- is on the city's July 26 auction block.

City officials hope investors will renovate the building, which once featured five huge ballrooms and views of the New York City skyline from upper floors, into either market-rate condominiums or a new hotel.

"This auction is quite special because the property for sale is a historic gem that once housed a five-star dining room atop the plush hotel," Mayor Robert Bowser said, referring to the high-class Paris in the Sky.

"The upper floors have a wonderful view of the Manhattan skyline. And the original terrazzo flooring is still there," said William McNeely, Bowser's aide who is coordinating the upcoming auction.
"It's an eyesore, a disappointment for the city," said Joseph Jenkins, the city business administrator.

The minimum bid at the 11 a.m. auction will be $500,000. To participate, potential investors must pay a $100,000 pre-registration fee, representing 20 percent of the minimum bid.

The Hotel Suburban's rich history in once-affluent East Orange began 80 years ago.

"Whoopee House" To Be Auctioned

From the Star Ledger:

A house with a past

It looks far too innocent to be nicknamed the "Whoopee House."

There's no sign of the long wooden bar, home to glass after furtive glass of Prohibition-era moonshine, that burned down in 1997. The bold maroon shutters adorning the building's creamy exterior beckon with wholesome flavor, not mischievous intentions. Its parties are decades past last call.

But the echoes of the "Whoopee House" have been revived in recent weeks, as its owners seek to cast their Holland Township property as a piece of history worth bidding for. The speakeasy-turned-guest cottage will be sold at auction Wednesday -- along with the rest of an 18-acre farm -- in an unlikely meeting of authentic charm with current real estate trends.

With their speed and decisiveness, auctions are becoming popular among Hunterdon sellers who want to shed their property quickly and "sell on their terms," said Bob Dann, vice president of operations with Clinton-based Max Spann Real Estate & Auction Co.

And for brothers Art and Russell Hitch, co-owners of the 310 Shire Road property, those terms meant more than just finding a buyer to take the family farm off their hands -- they meant finding a buyer without development ambitions, and with respect for the property's past.