Saturday, July 29, 2006

Housing Bubble Fears Becoming Reality

From the NY Times:

Many Homes Are on the Market and Sales Numbers Are Declining

WHEN the American economy fell into recession five years ago, it was the strength of the housing market that kept the downturn short and mild. Home sales kept rising throughout the downturn, and then took off when the recession began.

But now home sales are falling and the number of unsold homes is at the highest level ever. Housing starts are starting to fall, but remain at a high level by historical standards. If sales do not pick up this summer, when sales are usually seasonally strong, it could be a sign that prices are going to come under pressure and lead to a much larger decline in housing starts.
The accompanying charts show year-over-year changes in sales of existing single-family homes and apartments, using six-month moving averages to smooth out monthly fluctuations. The latest figures show sales of single-family homes down 4.4 percent, the largest dip since 1995, and apartment sales off 6.6 percent. Statistics on apartment sales are only available back to 1999, but that is the worst showing in that period.

Meanwhile, the number of existing single-family homes on the market is up 33 percent year-over-year, measured the same way. Figures from the National Association of Realtors, going back to 1983, show no comparable increase in homes for sale. The number of condominiums and cooperative apartments for sale is up 61 percent.
The picture is consistent with demand for homes suddenly drying up, while sellers are reluctant to cut prices. Such a standoff could end with buyers returning, but it could also end with prices starting to slip, or with a lot of homes being pulled off the market.
But with sales weakening and the number of available homes rising, those who warned of a housing bubble must be wondering if their fears are finally becoming reality.

Sub-Prime Pipe Bomb

From the Daily Reckoning, by Bill Bonner:

A Farewell to ARMs

In the dream world of the early 21st century, there has never been a better business than the credit business. The credit merchants borrow at institutional rates lower than at any time in their lives and re-lend to a public with an insatiable thirst for debt. The borrowers don’t seem to care about paying back; it’s enough that they can make payments. And the lenders don’t seem to care about not getting paid back; it’s enough that they can pass off more debt, first to the decent credit risks and then to the sub-prime borrowers, until they are doing little more than selling gaudy Cadillacs in the ghetto, with no money down. And there is scarcely a gaudier piece of junk than an adjustable-rate mortgage. In the right hands, ARMs are legitimate bets on the direction of interest rates. But in the wrong ones - and who in America’s suburban ghettos understands yield curves? - they are homemade car bombs…liable to blow up in the wrong place at the wrong time.

And who would want such dangerous ARMs except the fools most likely to blow themselves up? That they are adjustable is their selling point. But like the rest of the fancy merchandise on the market - the I.O., or interest only mortgage, Neg Am, or negative amortization, and even the 50-year mortgage - ARMs are in fact diabolical devices intended to speed marginal buyers on the glittering road to hell. ARMs give the weakest buyer the luxury of pretending to buy what he really can’t afford. He pays a low rate while cash flow is tight and hallucinates that rates will be even lower when he goes to refinance. Any wonder that now, finding themselves both ARMed and endangered, the poor consumers drag into credit counseling, long of face and short of finance? But at least they’re not alone.

Long Island Rude Awakening

From the NY Times:

Taking the Measure of the Market

IN what may be a “rude awakening,” as one real estate agent put it, the number of Long Island homes being put up for sale, combined with those sitting on the market, is climbing skyward, according to a report from the Multiple Listing Service of Long Island last month.

Simultaneously, the prices paid for homes are still increasing, but at a much slower rate than last year, and the number of closed sales has fallen in many Long Island areas compared with June of last year, the listing service reported.

At midyear, there were 75 percent more homes on the market in Nassau County and 65 percent more in Suffolk County than a year earlier. Although median sale prices were 6.6 percent higher in Suffolk County and 6.4 percent in Nassau, median contract prices, which are more current, fell in Nassau last month.

Brokers report far fewer buyers in recent months. They also say sellers have not yet caught up with the trend by curbing their asking prices.
Georgianna Velardi, a broker at Century 21 Petrey Real Estate in Long Beach, said she had recently seen more sellers looking for a way out of high mortgage payments.

A couple in their late 30’s came in to price their three-bedroom ranch. The interest rate on their mortgage had risen to 9.5 percent, from 3.5 percent three years ago. They didn’t have the equity or good credit to qualify for refinancing at a lower rate. To make matters worse, on July 1 the City of Long Beach raised property taxes 25 percent. “They needed to get out because they were so overwhelmed,” Ms. Velardi said.
But back in the primary-home markets of western Suffolk and Nassau, Ms. Marten, the buyer’s broker, said she expected to see even more homes sitting on the market longer, and more foreclosures. “It’s not going to bottom out immediately,” Ms. Marten said. “We’re going to see, I believe, what we saw in 1988: a flattening, a gradual downturn and then down and down until it hits bottom.”

On the other hand, Professor Campbell of Hofstra said he did not expect to see double-digit decreases in percent change of median prices over a string of quarters, or huge numbers of defaults and foreclosures. Instead, there will be “a soft market and a gentle decline in prices over the next year at least, possibly much longer than that.”

Renting Hot In NJ

From the NY Times:

For Rent: The Hottest Form of Housing

IN the eternal dance of developers responding to the rhythms of change, the belle of the ball is always changing.
“Condominium construction and conversion, particularly on the Gold Coast, has been running sort of rampant,” said Jeffrey Dunne, a vice chairman of the tristate investment team of the large property-services firm CB Richard Ellis. “Coincidentally,” he pointed out, “there is a diminished supply of rental buildings.”

Meanwhile, added Jeffrey Wiener, president of Kislak, a Clifton-based broker of rental properties, demand for apartments remains high, because there is always a large group of North Jersey residents who are “renters by choice.” And as interest rates have begun to climb, pricing more people out of the homebuying market, the number of renters inevitably increases, he said.

Now, it seems, rental apartment buildings are emerging from wallflower status and may be headed for a stint as prom queen.

Friday, July 28, 2006

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!

Corzine's Property Tax Proposals

From Bloomberg:

New Jersey's Corzine Offers Proposals to Lower Property Taxes

New Jersey Governor Jon Corzine proposed asset sales, debt reduction and changes to the public- employee pension system as part of a plan to raise money to reduce the state's property taxes, the highest in the nation.

Corzine also proposed the creation of an appointed state comptroller to audit the finances of New Jersey agencies, and a 4 percent cap on increases in property-tax bills. Property taxes now account for almost half the taxes collected in the state, compared to a national average of about 30 percent.
Corzine said he plans to have technology in place by July 2007 that would allow the state's treasury office to replace rebate checks with direct credits on property-tax bills. The governor proposed using $350 million of the dedicated sales-tax revenue for these credits. When combined with existing state funding for rebates, the tax credit program would be more than $1.6 billion, he said in his speech.
One area of reform, Corzine said, will address pension and benefits for public employees. The state has an $18 billion deficit in state-run pension funds for teachers and other public employees, after lawmakers deferred contributions to eliminate budget shortfalls.

Corzine said his administration will be prepared as early as the middle of September to begin negotiations with state employee unions, whose contracts expire next July 1. Topics of negotiations will include raising the minimum retirement age and requiring public employees to pay part of their medical expenses, Corzine said.
Another element of Corzine's reform plan calls for reducing the state's more than $30 billion debt burden, the governor said. New Jersey has $2.3 billion in debt service this year, money that could be put to better use elsewhere, Corzine said. That figure will expand by more than 25 percent in just four years, he said.
Corzine said he has directed his administration over the next three months to prepare a list of assets that could be leased or sold, to raise money for debt reduction. He didn't say what assets could be up for sale or lease, though he has said in recent months that he wouldn't rule out a leasing of the New Jersey Turnpike or other state toll roads.
New Jersey's debt has more than tripled in the past decade, to $30 billion in fiscal 2006 from $8.1 billion in 1996. The state has a credit rating of AA, the third-highest investment grade, from Standard & Poor's, and Aa3, the fourth-highest rank, from Moody's Investors Service.

Winter Comes Early In North Jersey

From the Herald News:

North Jersey feels housing market chill

During the past several years of record-low mortgage interest rates, many homeowners secured disposable income to cover their bills or make purchases by refinancing or taking home-equity loans. That money translated into new cars, new decks and extra lines of credit.

But grim new housing statistics released this week have some North Jersey bankers worried that a housing recession could spread to consumer spending.

"The equity line was very helpful in driving a purchase market," said Tom Cosentino, who oversees mortgages for Greater Community Bank in Totowa. "Now people are coming back saying they spent all that money and didn't realize it would stop."
"It's worrisome," said James Hughes, a Rutgers professor and dean of the Edward J. Bloustein School of Planning and Public Policy who specializes in New Jersey's economy. "It could turn out to be very manageable and put a small dent into economic growth. Or it could be more serious."
Mercedes Pedrick, who oversees mortgages at Spencer Savings Bank in Elmwood Park, said that luxury homes are still getting snapped up, but sales of single-family homes generally have sagged in Passaic and Bergen counties. "They haven't been moving as much," she said.

Local bankers say that new mortgages -- and the refinancing of existing ones -- have dried up, especially over the past several weeks. "It has been quiet, unfortunately," said Steve Hoogerhyde, a lending officer for Clifton Savings Bank in Passaic.

July is usually a busy time for housing sales, as many families postpone transactions until their children are out of school, Hoogerhyde said. But that hasn't been true this year. "It has been slower than you would expect it to be. There's no question about that," he said.
Cosentino is particularly worried about young couples who borrowed heavily to make a down payment, along with those who refinanced to stave off financial hardship. "The property values were used to bail out people who were in credit-card trouble," he said.

Several experts said it was too early to say whether the slowdown in housing could result in job losses. But Hughes said if the slowdown continues, "We'll see construction employment decline."
Pedrick says that prospective homebuyers, especially those in the single-family home market, will continue to sit on the sidelines until the situation stabilizes. "Those people are riding the wave to see how low values will go," she said.

Q2 GDP - Bernanke's Conundrum

GDP for Q2 came in at 2.5%, significantly lower than Q1 and consensus estimates. Core inflation up 2.3% YOY, an 11 year high, core PCE up 2.9%, a 12 year high.

From Bloomberg:

U.S. Second-Quarter Gross Domestic Product Grew at 2.5% Rate

The U.S. economy grew at a 2.5 percent annual pace from April through June, less than expected, as business investment in equipment fell for the first time in three years and consumers reined in spending.

The government's first estimate of the quarter's gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year, the Commerce Department reported today in Washington. A measure of core inflation accelerated.
The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 4.1 percent after a 2.0 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

The GDP price index, a measure of prices tied to the report, held at a 3,3 percent annual rate in the second quarter.

From Marketwatch:

GDP slows to 2.5% in second quarter

Consumer spending weakened in the April through June period, residential investment fell further and business investment eased to the slowest growth in more than two years. Investments in business equipment and software declined for the first time in three years. Inventory accumulation and trade added to gross domestic product in the quarter.
Meanwhile, core consumer prices rose 2.9% annualized, the fastest pace in 12 years, keeping the pressure on the Federal Reserve to stay on top of inflation. Core consumer prices have risen 2.3% in the past year, the fastest growth since 1995.
The GDP price index, which covers all prices in the economy, increased 3.3% for the third straight quarter. Consumer prices including food and energy increased at a 4.1% pace.

Property Tax Proposal Due Today

From the Star Ledger:

Corzine prepares a new fiscal order

Gov. Jon Corzine today will unveil far-reaching proposals to ease New Jerseyans' property taxes and the state's chronic budget problems, including adding hundreds of millions of dollars in aid to suburban schools and possibly selling the New Jersey Turnpike to cut the state's debt.

With the state suffering from annual budget shortfalls and its homeowners struggling to pay tax bills that average nearly $6,000, Corzine has decided a bold, comprehensive plan is needed to address both problems, several Statehouse sources said.

The former Wall Street investment banker's prescriptions for New Jersey's fiscal ills include tighter cost controls at all levels of government and less generous fringe benefits for state workers. He will propose direct state credits on local property tax bills and an incentive fund to encourage towns to share services.

The governor's speech will kick off a special legislative session dedicated to reducing the pain of the property taxes, which pay for local government services and public schools.

Corzine will emphasize connections between the state government's money problems and the burden on local taxpayers, aides said yesterday.

Illegal To House Illegal Immigrants

From the Trentonian:

Town lowers boom on aliens

The southern New Jersey community of Riverside has banned the hiring and housing of undocumented immigrants.

The Township Council unanimously approved the "Illegal Immigration Relief Act,’’ making renting or leasing property to a person who cannot prove he or she is legally in the United States a violation punishable by fines starting at $1,000. Employing such individuals would incur a similar penalty, and could cost employers their local business license.
The ordinance mirrors one passed earlier this month in Hazleton, Pa. Local governments across the country -- from California to Idaho to Florida -- are considering similar actions. This is believed to be the first such ordinance passed in the Garden State.

A town of 8,000 located in Burlington County, about halfway between Camden and Trenton, Riverside Township is unofficially home to between 1,500 and 3,500 illegal immigrants, mostly from Brazil, according to Mayor Charles Hilton.

Municipal leaders say the influx has crowded schools and housing, strained public services and made parking spaces scarce.

Development in the Oranges

From the Star Ledger:

Move gets Organon site closer to redevelopment

The West Orange planning board approved a redevelopment plan for the abandoned Organon pharmaceutical plant Wednesday night that calls for new commercial development or the construction of up to 254 residential units.

The plan, which was finalized just hours before the meeting, allows for an array of commercial uses on the 11-acre site, ranging from medical facilities and research laboratories to private schools and information processing centers. Also mentioned in the plan are self- storage, Internet hosting and other business facilities.

The plan makes it clear that those are the preferred uses of the property. However, it allows for residential development "if and only if it is demonstrated by the redeveloper to the Township's satisfaction that non-residential uses are not possible or feasible." The plan does not describe what steps the redeveloper must take before making that determination.

If the property is developed residentially, the plan allows for up to 254 units in mid-rise buildings or a mix of mid-rise construction and condominiums.

Landmark hotel sold at auction for luxury condos

If investor-developer Airaj Hasan has his way, East Orange's former Hotel Suburban will be transformed into luxury condominium lofts.

Hasan successfully bid $1.4 million yesterday to purchase the once-swanky 11-story upscale hotel-turned-office building-turned eyesore.
Wright, like Hasan, said her plan would have focused on restoring the former hotel, transforming it into market-rate residential condominiums, and spending about $8 million on the South Harrison Street restoration job.

South Harrison Street used to be one of East Orange's premier addresses, a place where many of the city's wealthiest residents lived in buildings with spacious apart ments and doormen.

The Hotel Suburban, a 250-room facility that featured underground parking, two exit-entrances on South Harrison Street, a fancy marquee and a canopy that stretched from the marquee to the street curb, opened on Feb. 28, 1926.

Thursday, July 27, 2006

Thursday Economic and Market Roundtable

Up for discussion today is:

New Home Sales

May: 1,234K
May Revised: 1,166K

June Estimate: 1,164K
June Actual: 1,131K

New home sales fall more than expected in June

Sales of new U.S. homes fell more than expected in June to a seasonally adjusted annual 1.131 million rate and the median home price fell for the second month in a row the government reported on Thursday, as the U.S. housing market showed more signs of cooling.

The 3 percent drop in new home sales was the first decline since February, the Commerce Department said. Compared with a year earlier, new home sales were down 11.1 percent.

Analysts polled by Reuters were expecting new home sales to cool to a 1.160 million annual rate.

Median selling prices dipped to $231,300, but was still above the $226,100 median price in June 2005.

In a further sign of a cooling housing market, the number of homes available at the current sales rate rose to a 6.1 months' supply, the highest level since March. There were 566,000 new homes for sale at the end of the month, a record high.

Homebuilder Earnings

Pulte Homes - Reported yesterday after close
April, May, June Orders down 30%
Cancellation Rate 27.4% vs. 14.8% in the prior year

Beazer Homes - Reported this morning
Orders down 16%
"significant increases in cancellation rates"

Taxes, Taxes, Taxes

From the Daily Record:

Waiting for Corzine: Property tax speech is talk of the town

State senators and assembly members won't be the only ones interested in what Gov. Jon Corzine has to say about property taxes when he addresses them in Trenton tomorrow.

Local educators, new homeowners and senior citizens, especially, all want to know how the governor intends to lower the state's property tax burden.

Corzine is expected to discuss specific ideas to cut property taxes by 20 percent, including, for example, using sales tax revenue.

The governor wants to use the $600 million from a sales tax increase to entice New Jersey's 21 county and 566 municipal governments, 616 school districts and 186 fire districts to consolidate and share services. He has suggested using that $600 million in annual revenue to borrow as much as $7 billion to reward governments that merge and share services.

"I'd like him to discuss overall 'real' tax reform," said Jerry Cantrell, president of the Silver Brigade, a tax-reform organization based in Denville.

"Not the 'relief' we've been getting inundated with," he said.

Help for Corzine

Gov. Jon Corzine should say the following when he addresses the state Legislature tomorrow about property taxes.

"This has gone on long enough. We talk and talk about property tax reform and nothing happens. The public is totally fed up and we should be as well. That means the status quo cannot continue. Yes, that sounds like a cliché, but we as leaders of our state must show the public we are not merely mouthing clichés.

"To substantially cut property taxes, we must begin by looking at what property taxes support -- local government and schools -- and see if that money can be raised more equitably. It is beyond dispute that property taxes are inherently unfair in that they tax the ever-escalating value of property without any regard to income levels of property owners.
"We can begin doing that by adopting the premise that home rule, a relic of the 1800s, belongs in the history books. The only people who care about home rule are the ones doing the ruling.

"As a state, we cannot rely on local officials to voluntarily relinquish their fiefdoms. Towns and school districts are creations of the state. It is time for the state to un-create some of them, or actually, many of them. The state must order small towns and school districts to merge either services or entire governments, thereby eliminating overlap and countless jobs.
"And we must demand that local governments and school boards live in the real world. The days of awarding pay raises of 4 and 5 percent to union bargaining agents and creating high-paying public jobs to help a political buddy must end. If local government units persist in doing that, I will order the state Department of Community Affairs to reject their budgets."

"In short, we must raise taxes for local government more fairly and sharply reduce the cost of that government by consolidating towns, merging services and demanding spending cuts. To do anything less would show us incapable of leading this state."

Another Tunnel?

From the Star Ledger:

$1 billion is earmarked for rail tunnel to Manhattan

A decades-old dream of digging a second rail tunnel under the Hudson River to Midtown Manhattan will gather momentum today when the Port Authority of New York and New Jersey is expected to approve a $1 billion authorization for the megaproject.

Agency officials say the huge outlay is just a beginning -- by year's end they hope to designate another $1 billion to the tunnel as part of the agency's upcoming 10-year capital investment plan.

After years of visionary talk and little action, the Port Authority's anticipated $2 billion commitment represents a massive down payment on long-stalled plans to ease frustrations over rush-hour congestion delays by doubling capacity from the roughly 42,000 commuters each workday morning.

Agency officials hope their commitment ultimately will spur the federal government to fund at least half of the second trans-Hudson rail tunnel's estimated $6 billion price tag.
Gov. Jon Corzine, a long-standing supporter of the additional tunnel, wants construction to begin in 2009. Completion of the tunnel, which will run adjacent to the existing one, is not expected until 2016 -- at the earliest.

Wednesday, July 26, 2006

"I've never seen a soft-landing in 53 years"

From Reuters:

Mortgage lenders grapple with deflating housing bubble

Downward momentum in the U.S. housing market is leading some of America's biggest mortgage lenders to adapt business plans for even softer demand.

The lenders are launching new cost cuts and risk reduction strategies that suggest growing concern that the outlook is worsening for the $9.5 trillion home mortgage industry.

It marks another racheting down of expectations for the big players in a housing market where slowing sales have pushed inventories up 39 percent in the past year and set home prices on the path of decline, some analysts said. Builders of new homes, meantime, reported the lowest confidence about their prospects in June than anytime in the past 14 years.

Lenders are bracing for further declines.

"I've never seen a soft-landing in 53 years, so we have a ways to go before this levels out," Countrywide Chief Executive Officer Angelo Mozilo said on a Tuesday conference call. "I have to prepare the company for the worst that can happen."

At New Century, one of the nation's biggest subprime lenders, Chief Executive Officer Brad Morrice told Reuters the company has tightened some credit requirements as it puts "more thought into loans you want to make or don't want to make."
So far, house prices have not shown an overall decline. But as prices languish or begin to slide, homeowners relying on equity gains to make payments or subsidize other liabilities may begin to default on their loans.

"The housing correction has a long way still to run," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, wrote in a note to clients.
"We are very interested in what the Fed will do because we are testing the elasticity of borrower demand," said Morrice of New Century. "Not that there's a cliff, but with every rate increase you lose a few more borrowers."

Countrywide's Mozilo said. "The only thing that's really holding back the dam now is that we have good employment numbers."

Fed Beige Book

From the Federal Reserve Bank of San Francisco:

July Beige Book

Real Estate and Construction (National)

With only scattered exceptions, Districts reported slower activity in residential real estate markets. For new and existing homes, available reports indicated that the pace of sales declined and that the inventory of available homes and time on the market rose in most major metropolitan areas nationwide. Slower sales activity has translated into more limited price gains, and residential construction activity has fallen in most Districts as well.

The St. Louis and Dallas Districts were exceptions to the general slowdown in residential market activity. In the St. Louis District, the pace of home sales was largely unchanged or up slightly compared with a year earlier, although residential construction slowed there. Housing markets have remained resilient in the Dallas District, where despite signs of cooling, "home demand remains strong" and residential building activity has been "robust."

As home demand has slipped more generally, scattered reports indicated a strengthening in demand for rental units. New York reported that the market for apartment rentals has been tightening in Manhattan, and according to Atlanta slower condominium sales in Florida have prompted owners to convert some units to rental property.

Construction and Real Estate (New York)

Further slackening is noted in the region's housing market since the last report, though Manhattan's rental market has continued to firm. New Jersey homebuilders report that the inventory of new and existing homes on the market increased further in the second quarter, but a bit less rapidly than in the first. A disproportionate part of the inventory accumulation is at the middle to high end of the market ($500,000 and over). Builders are also seeing that homes they have recently sold to investors looking to "flip" the properties are remaining on the market longer, exerting increased competitive pressure. Builders have recently begun to reduce selling prices on some units.

A major appraisal firm reports that sales of Manhattan co-ops and condos were down more than 10 percent from a year earlier in the second quarter, while prices were up roughly 5 percent. Separately, a major real estate firm notes that sales of Manhattan's co-ops and condos slowed sharply in June, following fairly brisk business in May, while selling prices continue to run a bit higher than a year ago. Both contacts note that the inventory of unsold apartments has increased sharply and steadily over the past year, driven largely by new development. In contrast, a major Manhattan real estate agency notes further tightening in the rental market in June and early July: the inventory of available units continues to decline, and rents are up across the board, with gains of more than 10 percent in certain neighborhoods.

Office markets across the New York City area were mixed to stronger in the second quarter. Throughout Manhattan and in Fairfield County (Ct.), office availability rates fell to their lowest levels in roughly five years, while asking rents showed sturdy increases of 6 percent or more from a year earlier. However, vacancy rates rose in Long Island and edged up in Westchester and northern and central New Jersey; asking rents in these areas are little changed from a year ago.

New York Metro Area 43% Overpriced

From CNN/Money:

Most overpriced home markets

After years of local home markets getting more and more overvalued, the trend has reversed, according to an analyis published this week.

Each quarter, Local Market Monitor, which provides research to the real estate industry, assesses 100 markets, comparing selling prices to "equilibrium" values. Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.

The number of overpriced markets in the first quarter, defined as having a median home price more than 15 percent higher than equilibrium, fell by two to 38. In the prior quarter, the number of overvalued markets had climbed to 40 from 37.

Winzer says that 56 of the 100 markets he covers are now fairly priced, up from 54 last quarter.

The median home, however, is still overpriced by an average of more than 14 percent, Winzer judges, and homes in many markets are still way too high. This matters because those markets have much more potential for the kind of steep decline that could be disastrous for homeowners - and the local economy.

City/Actual Price/Equilibrium Price/Difference/Rating

Atlantic City NJ $262.9 $186.6 41% Overpriced
New York-North New Jersey NY $431.0 $300.5 43% Overpriced
Philadelphia PA $247.2 $217.9 13% FairValue
Hartford CT $237.2 $224.2 6% FairValue

"Could it be a 5 percent drop in prices? Could it be 10 percent?"

A bit out of the target area of this blog, but a good piece nonetheless. From the Washington Post:

After 5 Years of Growth, Home Prices Drop

In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year.

In Loudoun County, for example, the median price of homes sold dropped 1.2 percent last month, compared with June 2005, according to Metropolitan Regional Information Systems Inc., the area's multiple listing service. In Fairfax County, prices fell by half a percent in May and a tenth of a percent in June. And in the District, the decrease was 0.8 percent in March and 1.2 percent in May, compared with the same months last year, even though prices in the District in June were higher than the year before. The median is the point at which half of the houses cost less and the rest more.

The declines are small, and certainly not universal. Prices continue to rise in some areas, most notably Prince George's County, where houses are still relatively inexpensive. But the drops are significant because they mark the first time in half a decade that home prices have fallen in a 12-month span, illustrating just how much the real estate landscape has changed after five years of double-digit growth in home prices.
Economists are split. One view is that any declines will be insignificant or temporary because of job growth and the strength of the local economy.

"Could it be a 5 percent drop in prices? Could it be 10 percent? Whatever it is, it will be short-lived, because demand is right there on the sidelines," said David A. Lereah, chief economist of the National Association of Realtors.

But others see a steeper, prolonged downturn in prices because of overbuilding in some areas, speculative buying and a run-up in prices that has outpaced affordability. Prices, they added, have actually declined more than the multiple-listing service statistics indicate because sellers have been offering such incentives as help with closing costs.

Peter Morici, an economist at the University of Maryland, said prices could drop 10 percent by the end of the year, and perhaps by 20 percent "by the time it's all over."
Zandi sees Washington area home prices declining over the next six to 12 months by an average of 10 percent, with the condo market experiencing larger price drops. The good economy, he said, is "not enough to save the market from this housing correction."
The possibility of falling prices seems to have made many home-shoppers hold off on buying, despite rising interest rates. After all, even a minor correction could mean that houses cost tens of thousands less. For home sellers, that means much hand-wringing as they start to slash prices below what neighbors got just a year ago.

Mortgage Applications Fall To 3 Year Low

From Reuters:

US home loan demand eases for 2nd straight week

U.S. mortgage applications fell for a second consecutive week, reflecting a drop in demand for home purchase loans, an industry trade group said on Wednesday, adding evidence of softening in the once robust housing market.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended July 21 decreased 1.3 percent to 533.8 from the previous week's 540.8.
The MBA's seasonally adjusted purchase mortgage index fell 2.4 percent to 389.0. The index, well below its year-ago level of 485.1, is considered a timely gauge of U.S. home sales.

The group's seasonally adjusted index of refinancing applications increased 0.6 percent to 1,385.2. The index stood at 2,320.3 a year ago.

The refinance share of applications increased to 35.6 percent from 35.0 the previous week.

From Marketwatch:

Mortgage applications fall 1.3%

The number of applications for mortgages to buy homes dropped 2.4% last week, matching the three-year low reached four weeks ago, the Mortgage Bankers Association said Wednesday.

Applications for home-purchase loans are down about 20% in the past year.

The total number of applications fell 1.3% on a seasonally adjusted basis last week, the lowest level in four weeks. Applications for mortgage loans are down about 28% in the past 12 months, the bankers group said.

The decline in mortgage applications confirms other indications that the nation's housing market is cooling significantly after providing a major boost to U.S. economic growth over the past four years.
Applications for refinance loans increased 0.6% last week, but they're down about 47% in the past year as interest rates have moved higher.

Still Not A Buyers Market

From the Home News Tribune:

Slow home sales aid buyers

With sales of existing homes falling last month for the eighth time in the past 10 months and home prices nationwide edging up at the slowest pace in more than a decade, Central Jersey homeowners are feeling the trend.

Merry Lee and Wayne Winkler's home at 310 N. Third St. in Highland Park is one of 40 homes for sale in the borough.

The couple — they're in a "nonmarital committed relationship, Law said — expected the three-bedroom, one-bath traditional Colonial to sell quickly, based on the research they had done. They've dropped the asking price from $369,000 to $359,000 since the house was put up for sale on July 5.

"We knew that the market had slowed down a little," said Lee, who has owned the home for 24 years. "Certainly houses in Highland Park were selling in two-to-three weeks six months ago."
The number of homes for sale in Central Jersey is up 20-to-25 percent from a year ago, said Marc W. Laurano of Preferred Properties LLC in Highland Park.
Bill Hanley, president-elect of the New Jersey Association of Realtors and the manager of Weichert Realtors' Metuchen office, said the ratio of homes available changed from 10 buyers for every house a year ago to 20 houses for every buyer this summer. That has lessened the pressure on buyers to make a decision on a purchase, he said.
"A year ago it would have sold in a day," Laurano said. "It's definitely a buyer's market."
Laurano said he has seen asking prices in Central Jersey drop 12-14 percent from a year ago, but Davis said sale prices in the larger Central Jersey area remain stable, at about year-ago levels.

Don't be fooled by the "Buyers Market" call, we're not in a anything resembling a buyers market yet.

Caveat Emptor!

Slowdown At The Jersey Shore

From the Star Ledger:

Beached sales

Long Beach Island, or L.B.I., as it's popularly called, is an 18-mile-long thread of land, at some points no wider than single street block. It has no boardwalk, just gently sloping white sand dunes flecked with beach grass and old bungalows, Cape Cods and multi-million dollar mansions

Back in 1994, shortly after Rick Stevens, a real estate broker, opened his sales office here, he sold a 3-bedroom, 2-bath raised ranch for $165,000. That same inland home sold again for $549,000 in May 2004 and just last month, it went back on the market, with an asking price of $649,000.

But so far, there have been no takers.

Further north, in the picturesque seaside town of Spring Lake, Tom McLoughlin, 62, and his wife Vicki, 60, have been trying to sell their beautiful 1893 Queen Anne-style home for the past 10 months. Last August, the 7-bedroom house, which sits on a half-acre, was listed at $5.3 million. It's now priced at $4.9 million, but buyers are nowhere to be found.
"People are aggressively reducing prices to move their properties," he said. "The mindset has changed. The market has changed because of the supply becoming greater."

Hundreds of Units for Ridgefield

From the Record:

44 acres and a vision

A national real estate development company is moving to buy 44 acres of underused industrial land along Overpeck Creek in a bid to carry out the borough's plan for a waterfront development worth hundreds of millions of dollars.

New York City-based Tarragon Corp. has agreed to buy the 12-acre site of the former J. C. Penney distribution plant for an undisclosed price, said Burt Ross, managing owner of the land. Tarragon is negotiating with owners of the two other properties that make up the boot-shaped parcel along the creek south of Route 46, Ross said.

The land deal could be a pivotal step in Ridgefield's plan to replace the empty factories, fallow land, and contaminated sites along Overpeck Creek with hundreds of housing units, retail stores, a hotel and waterfront parkland. The development, likely years away, would remold the northwestern section of town into a vibrant residential and commercial district and bring in tax dollars, officials say.

Tarragon's purchase of the land also would end the prospect of borough officials taking the three parcels by eminent domain and selling them to a redeveloper of their choosing -- a politically risky move that officials say they want to avoid.

Tuesday, July 25, 2006

FDIC Summer Outlook 2006

From the FDIC:

FDIC Summer Outlook 2006(PDF)

The U.S. mortgage market, which for decades was dominated by fixed-rate mortgages, now includes innovations such as nontraditional mortgages, simultaneous secondlien (or piggyback) mortgages, and no-documentation or low-documentation loans.10 Nontraditional mortgages allow borrowers to defer payment of principal and, sometimes, interest and include interest-only mortgages (IOs) and adjustable-rate mortgages (ARMs) with flexible payment options (also called pay-option ARMs, or POs). Although perceived as fairly new, many of these loan types are a repackaging of existing products, marketed again in the 2000s in response to growing demand. For example, record-high fixed rates in the late 1970s and early 1980s stimulated innovation in the form of various types of ARMs. Some of today’s pay-option ARMs are a reincarnation of negative amortization loans that were popular in the 1980s, but then fell out of favor in the early 1990s when rising interest rates and falling home prices in certain areas left some borrowers owing more than their homes were worth.

Rapid growth also has occurred among some of the higher-risk mortgage alternatives within the nonprime arena. As recently as 2002, IOs and pay-option ARMs represented only 3 percent of total nonprime mortgage originations that were securitized. However, the IO share of credit to nonprime borrowers has soared during the past two years to 30 percent of securitized nonprime mortgages, while the pay-option product jumped to a similar share in less time (see Chart 3). Furthermore, the low- or no-documentation share of subprime lending has grown significantly since 2001, from about 25 percent to just over 40 percent.
The growing popularity of nontraditional products may have moved the mortgage credit cycle into uncharted territory. Industry analysts are uncertain how loans such as IOs and pay-option ARMs might perform in periods of rising rates or in stagnant housing markets. Recent media attention has highlighted the risk of payment shock when interest rates are adjusted, or reset, for IOs and hybrid ARM products. Despite favorable delinquency and default trends thus far, analysts fear that the current rising interest rate environment, combined with cooling home price appreciation, will limit borrowers’ options when they face large monthly payment increases. Homeowners who have not built up sufficient equity to either cover the cost of refinancing or pay down additional debt could face delinquency, particularly within the subprime markets.

Just How Widespread Is Appraisal Inflation?

This commentary on appraisal inflation comes to us from Jonathan Miller at Matrix. For those who are not familiar with Mr. Miller, he is the President/CEO of the Manhattan-based real estate appraisal firm, Miller Samuel.

No Smoking Gun: Appraisal Inflation Is More Widespread Than You Think

Why does the appraisal inflation issue get so little play in the media? Likely because most real estate mortgage industry people close to the issue downplay the problem since there has not been a quantifiable cost to be held accountable to.
Their recommended solution of self-policing is a cop-out and rarely works in any profession. The appraisal industry is one of the most fragmented of all.

This don’t ask, don’t tell attitude has created the appraiser mantra - Get work. Hit number anyway you can. Do it Fast. Get more work. Talk a lot servicing the clients needs. Repeat. If the appraiser doesn’t take this path, then they need to find other types of clients. A whole generation of experienced appraisers have been forced out of the business. Its the era of the appraisal factory. Inexperienced personnel cranking out the reports is the norm of today. Some firms have appraisers that can generate 40-50 reports per week. Think about the time spent coordinating the appointments, travel to and from the property, inspect, visit all comps, confirm data, write up report, review, deliver, follow up on client questions and concerns, field irate calls from clients or borrowers if the appraisal is too low to make the deal, re-work report, re-send new final version…times 40 in a week?
There is virtually no appraisal oversight of appraisers on a state level (which is responsible to administer the federal law) because there is limited funds available for it and to make matters worse, many states take a portion of the revenue from licensing fees and allocate it to other purposes.
The appraisal inflation problem is much more serious than reported yet it can’t be proven by stats since the market has kept rising, hiding the problems. Most of the players connected to the process are generally happy.

The appraiser has no independence in the appraisal process, in any way shape or form. The entire structure of the mortgage appraisal system is seriously flawed. I find it absolutely amazing thats its been able to go on this long without some sort of regulatory concerns raised.

June Existing Home Sales - Sales Down, Prices Flattening

From the National Association of Realtors:

Existing-Home Sales Flattening, Prices Cooling – NAR

Existing-home sales were down modestly in June, and home prices were up slightly from a year ago, according to the National Association of Realtors®.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 1.3 percent to a seasonally adjusted annual rate1 of 6.62 million units in June from an upwardly revised level of 6.71 million May. Last month’s sales were 8.9 percent below the 7.27 million-unit pace in June 2005.

David Lereah, NAR’s chief economist, said the housing market is flattening-out. “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing,” he said. “At the same time, sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago.”

The national median existing-home price2 for all housing types was $231,000 in June, up 0.9 percent from June 2005 when the median was $229,000. The median is a typical market price where half of the homes sold for more and half sold for less.
Total housing inventory levels rose 3.8 percent at the end of June to 3.73 million existing homes available for sale, which represents a 6.8-month supply at the current sales pace. By contrast, in June 2005, there was a tight 4.4-month supply on the market.

From Marketwatch:

Existing home sales fall 1.3% to 6.62 million
Inventories at 9-year high; price gains at a 10-year low

The report shows a continued weakening in the housing market, with inventories up sharply while prices are softening.

The inventory of unsold homes rose to a record 3.725 million, a 6.8 month supply at the June sales rate, the highest since July 1997.

The median price has risen 0.9% in the past year to $231,000. It's the weakest price growth in 10 years.

Sales of existing homes are down 8.9% in the past year.

"I hope we are hitting bottom," said David Lereah, chief economist for the private real estate trade group, which is predicting sales of about 6.60 million this year.
Sales were flat in the West and Midwest. Sales fell 2.3% in the South and fell 3.5% in the Northeast.

Single-family sales fell 0.9% to 5.81 million from 5.86 million. Condo sales fell 5.5% to 805,000.

Median prices of single-family homes are up 1.1% in the past year, while condo prices are down 2.1%.

Sellers should expect lower prices, Lereah said, adding that he wouldn't be surprised to see single-family home prices fall nationally.

Caveat Emptor!

Recession in '07?

From the Globe and Mail:

Merrill economist sees U.S. downturn in May

Grab a red pen and circle May, 2007, on your calendar.

That month is full of foreboding for the U.S. economy, according to Merrill Lynch & Co. Inc. North American economist David Rosenberg, who sees inauspicious portents in the data.

"They all put a big fat bull's eye on May, 2007, as the month that we could see an actual economic turndown," he says in a note to clients.

The economist adds that the outlook is gloomy no matter what action the U.S. Federal Reserve Board takes on interest rates. "It may well be too late and the seeds could well have already been sown for an outright recession next year."
He reminds clients that, at this time in 2000, the Nasdaq composite index was down roughly 30 per cent from its peak and today the home building stocks are down more than 40 per cent from their highs. If the home building group were to mirror the performance of the technology bubble in the last cycle, then the group would have another 30 per cent to fall, Mr. Rosenberg cautions.

The historical record tells us that housing is the "quintessential leading indicator," says the economist, and as a result the impact on other segments of spending is significant.

Monday, July 24, 2006

Appraisal Fraud In The Spotlight

Posting this one up because I think it's important for readers to understand the dynamics behind appraisal fraud. Hat Tip to the Housing Bubble Blog for the link. From the Wall Street Journal (via AZCentral):

New issue for homeowners: Inflated appraisals

As the housing market cools, Americans are confronting a problem that was easy to ignore during the boom: Inflated appraisals of home values.

Critics inside and outside the appraisal business have long warned that many appraisals are unrealistically high. That's partly because generous appraisals help loan officers and mortgage brokers, who often choose the appraiser, complete more deals. If a home is appraised at less than the buyer offered, the deal is likely to fall through.

Inflated appraisals didn't matter much when home prices were rising at double-digit rates, since market values would quickly catch up. Now, however, prices are leveling off in many places and falling in some. Some homeowners are finding that the market value is below what past appraisals led them to believe.
Karen Ammon, who works for an auto-parts marketing company in Bloomfield Hills, Mich., bought her home in 2002 for $141,000. A year later, a lender encouraged her to refinance into a larger loan that would let her pay off credit-card debt. The appraiser chosen by the lender had great news: Her house was now valued at $175,000. She had room to raise her total mortgage borrowings to $165,000.

Now monthly payments on the adjustable-rate loan she received in 2003 are rising in line with the general level of interest rates. So Ms. Ammon wants to refinance into a fixed-rate loan. But when she tried to refinance, she couldn't do so because several appraisers valued her home at around $148,000 - or about $15,000 less than she owes in mortgage debt.
In the 1980s, inflated appraisals were one factor in the loan losses that sank many savings-and-loan institutions that were holding collateral worth less than they believed. Today, most loans are sold to investors and risks are more spread out, making it less likely that poor appraisals would cause lenders to collapse. But many people in the real-estate industry believe the appraisal system is overdue for reform, and investors who buy loans are asking tougher questions about appraisal procedures.
Consumers often play along with dubious appraisals. Danny Wiley, an appraiser in Nashville who is a member of the national Appraisal Standards Board, in May was asked by a lender to appraise a condo in Spring Hill, Tenn. The buyer had offered to pay $139,000, but the contract required the seller to pay $10,000 toward the buyer's closing costs. In effect, Mr. Wiley says, the price had been inflated by $10,000 to allow the seller to provide money to help the buyer cover closing costs.

Mr. Wiley estimated the value at $129,000, the same price at which numerous identical units in the same complex had recently been sold. That should have killed the deal. But Mr. Wiley says the sale later went through, apparently after the lender found another appraiser willing to value the condo at $139,000. Mr. Wiley declines to identify the parties involved in the transaction, citing client confidentiality.

Tighter Lending Standards

This one comes to us from Barry Ritholtz at The Big Picture:

New, More Stringent Rules on Option ARMs and Interest-only Loans

"We got to musing on the extraordinary deliberateness ... while reading a recent "policy report" put out by Ed Hyman's ISI Group. [Bank regulators] who, as it happens, months ago were to issue new regulations to curb the abuses of such mortgage exotica as option ARMs and interest-only loans.

Which bears on our conviction that Mr. Bernanke is wrong on how severe the housing skid is apt to prove and is wrong as well on his relatively benign expectation for its impact on the economy. The folks at ISI say that, despite its tardiness, the new, more stringent rules, chances are, will be issued by the end of the summer. And when they finally see the light of day, contrary to the conventional wisdom on the Street, they'll have an impact, and a substantial one. And that impact will consist of cutting already shaky demand for housing and putting further pressure on home prices.

Unfortunately, any new regulations would come much too late. The horses have left the barn, closing the doors at this point will do no good. The risk is out in the marketplace. Will introducing tighter standards at this part of the cycle only serve to further reduce demand and drive prices lower?

Caveat Emptor!

Lowball 6/25 - 7/24

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

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

As promised, here are the balance of the counties that were not included in the weekend edition of Lowball! (Passaic, Somerset, Sussex, and Warren). I've had some emails requesting that I post Lowball sales in lower price ranges. I'm going to take that approach this week, as well as keep it in mind for future Lowball! postings. In order to keep things brief, I've limited the list to the top lowball sale per town that fit the lower price range (Sub $450k).

On to the list!

MLS# 2229002 - Montague, NJ
Original List Price $184,900
List Price $154,900
Sales Price $83,000 (46.4% Lowball, 55.1% off OLP)

MLS# 2274142 - Hopatcong, NJ
List Price $215,000
Sales Price $156,000 (27.4% Lowball)

MLS# 2267519 - Sandyston, NJ
List Price $149,900
Sales Price $110,000 (26.6% Lowball)

MLS# 2232066 - Hamburg, NJ
List Price $550,000
Sales Price $440,000 (20% Lowball)

MLS# 2264771 - Vernon, NJ
Original List Price $235,000
List Price $211,500
Sales Price $172,315 (18.5% Lowball, 26.7% off OLP)

MLS# 2242260 - Byram, NJ
List Price $150,000
Sales Price $125,000 (16.7% Lowball)

MLS# 2250330 - Knowlton, NJ
Original List Price $225,000
List Price $199,900
Sales Price $167,500 (16.2% Lowball, 25.6% off OLP)

MLS# 2258231 - Warren, NJ
List Price $500,000
Sales Price $420,000 (16% Lowball)

MLS# 2258797 - North Plainfield, NJ
List Price $329,000
Sales Price $280,000 (14.9% Lowball)

MLS# 2258817 - Montgomery, NJ
List Price $339,900
Sales Price $290,000 (14.7% Lowball)

MLS# 2263223 - Harmony, NJ
List Price $264,900
Sales Price $227,000 (14.3% Lowball)

MLS# 2272658 - Ringwood, NJ
List Price $329,900
Sales Price $285,000 (13.6% Lowball)

MLS# 2237324 - Franklin, NJ
Original List Price $225,000
List Price $214,900
Sales Price $187,000 (13% Lowball, 16.9% off OLP)

MLS# 2256404 - Sparta, NJ
List Price $269,900
Sales Price $235,000 (12.9% Lowball)

MLS# 2276985 - Wayne, NJ
List Price $399,900
Sales Price $350,000 (12.5% Lowball)

MLS# 2242806 - Phillipsburg, NJ
Original List Price $249,900
List Price $239,900
Sales Price $210,000 (12.5% Lowball, 16% off OLP)

MLS# 2253490 - Raritan, NJ
List Price $349,000
Sales Price $312,000 (10.6% Lowball)

MLS# 2267094 - Mansfield, NJ
List Price $240,000
Sales Price $215,000 (10.4% Lowball)

MLS# 2211701 - Clifton, NJ
List Price $345,000
Sales Price $310,000 (10.1% Lowball)

MLS# 2072567 - Bridgewater, NJ
List Price $394,900
Sales Price $354,900 (10.1% Lowball)

Caveat Emptor!

New Jersey Fed Up

From the Record:

Record series touched a raw nerve, pro and con

People are angry. Very angry.

Taxpayers are fed up with high property taxes. Cops and teachers are frustrated with being blamed.

Runaway Pay, The Record's six-part series on public-worker compensation, either tapped into taxpayers' emotions or, in the case of public workers, became the target of their anger. More than 250 readers responded to the articles by phone and e-mail. Feedback on the articles was positive by a ratio of more than 2-to-1.

Runaway Pay outlined how the unchecked influence of the police and teachers unions contributes to rising property taxes in New Jersey.
A lot of readers said they had no idea their police and teachers were so well compensated, and for many, the news provided a piece of the property-tax puzzle that was missing.

Teachers and police and their supporters defended the compensation levels, saying that people underestimated the difficulty of their jobs. Others cited school administrators' sweetheart deals, pension abuse and the avarice of elected officials as more of a drain on the public purse than the salaries and benefits or rank-and-file workers.
Governor Corzine, through a spokesman, said, "This report raises serious questions about the impact of skyrocketing public-employee benefit costs on our state budget." The spokesman, Brendan Gilfillan, said Corzine would address the issue of state employee benefits in contract negotiations this fall.

High Taxes May Force Some To Leave

From the APP:

Readers say taxes may force them to leave N.J.

Nearly three-quarters of those participating in an online poll say that high taxes and a shaky economy might force them out of the state.

"Are you considering leaving New Jersey because of high taxes and the state's uncertain economic future?" was the question posed last week on the Web site of the Asbury Park Press,

Of 3,577 taking part, 74 percent said yes, while 26 percent answered no.

Sunday, July 23, 2006

A Look At Mortgage Resets

From the New York Times:

Re-Refinancing, and Putting Off Mortgage

It is the latest twist in the gravity-defying world of the high housing prices and exotic low-rate mortgages: As monthly payments on adjustable-rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning.

They are refinancing with new adjustable-rate mortgages that keep monthly payments low — for now, that is, though their payments will likely rise even higher in the future.

“Some people would say I am a little crazy,” acknowledged R. Lance Perry, 42, of Danville, Calif., one of the new breed of people refinancing their mortgages. But faced with a sharp increase in his monthly payments and a need to take cash out of his home, he refinanced earlier this year to keep his payments the same.

By the time the rate goes up, he figures, his income will have increased enough to cover the higher payments, he will have refinanced again or he will have moved.
Now, the first big wave of the mortgage boom is cresting as more than $400 billion worth of adjustable-rate mortgages, or about 5 percent of all outstanding mortgage debt, will readjust this year for the first time, according to Loan Performance, a research firm. Next year, another $1 trillion in loans will readjust.
But the refinancing also represents a doubling-down on a bet that housing prices will continue to rise on the West and East Coasts and in other hot markets. If the value of the home falls closer to the amount of the loan, that could curb the ability to refinance, and may prompt the homeowner to either invest more in the home or to sell it.
Though they have been around for decades, the use of adjustable-rate mortgages has soared in the last several years, helping fuel the housing boom by letting people borrow more than they might have been able to. For buyers who do not intend to stay in their homes for long, they can cost a lot less than 30-year, fixed-rate mortgages.
“Before you see a distress sign, you have to have distress,” said Susan M. Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. “And the distress will be higher unemployment and declining home values.”

Where Will The Boomers Go?

From the Star Ledger:

Just don't call it a retirement home

After decades in the insurance business, Gene Zielinski was used to crunching numbers.

As he faced turning 60, he did this calculation: If he and wife Becky moved to North Carolina, they could have 50 percent more house for 40 percent less money and 25 percent of the property taxes.

Zielinski is among the oldest Baby Boomers, those turning 60 this year. In New Jersey alone, 50,000 residents will hit that milestone each year for the next two decades. Will there be a giant sucking sound as they pull up stakes to flee the Garden State's high housing costs?
With housing consuming the biggest chunk of household income, a lot of money is riding on where they'll want to live next.

"Baby Boomers are the 800-pound gorilla in the housing market. They always have been," said James H. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

The housing needs of boomers have literally remade the landscape at every stage of their lives so far, he said. The Levittown-style housing tracts were built for their childhoods. When they were ready for their first apartments, New Jersey saw the garden apartment boom of the 1960s. When, as newlyweds, they wanted to buy real estate, the market responded with condominium construction.

Experts say they probably won't move lock step to one kind of retirement housing. Instead, those who do move may chose Southeastern states like Georgia and the Carolinas; age-targeted (but not age-restricted) developments tucked in nooks and crannies of existing Jersey suburbs; or the Hudson River waterfront, with its New York feel. (Think Jersey's boomer-in-chief, Hoboken resident Jon Corzine.)

New Jersey Frenzy Is Over

From the Asbury Park Press:

Feeling the pinch

For now, Stephen and Jaime Dane are living in a summer rental in Avon. Their new four-bedroom home at K. Hovnanian Homes' Manors at Metedeconk development in Jackson is under construction.

"Right now, it is a big hole with some bricks around it," said Stephen Dane, 32.

The Danes put down a deposit in February and expect to move into their home in January. Some may say it was a great time to purchase a new home. The builder, working with its own mortgage company, gave the Danes a $10,000 credit for improvements inside the house and another $10,000 for upgrades outside.

"We have a nice big home," Dane said. "We were happy with the incentives that they gave us."

Once red hot, the market for new homes in New Jersey has begun to cool.

"The frenzy in the real estate market that we have experienced in the last three or four years is no longer in existence," said Tom Critelli, president of Danitom Development, which has offices in Holmdel and Paramus. "We are seeing good traffic, but not necessarily anyone overreacting to having to buy now (and) worrying about the price going up later."
"Last year was the most active year for home building in 18 years," O'Keefe said. There were 38,481 building permits issued in the state in 2005, up from 35,936 in 2004 and 32,984 in 2003.
"I think right now, in a number of markets, buyers are feeling less pressured today," Cooper said.

Bassett Highway Redevelopment

From the Daily Record:

Dover redevelopment up for hearing

New condominiums, retail shops, and recreational or cultural space is planned for the Bassett Highway redevelopment project, which will be the subject of a public hearing at town hall Tuesday evening.

The town planning board unanimously approved the project Thursday, though some members expressed concerns over housing density and development consistency.

The plan calls for the construction of four- to seven-story condominium buildings that would house studios, one-bedroom and two-bedroom units.
However, the town's plan contains density guidelines that are flexible, and it says that as few as 300 units could be built in the new development.

"My concern is that more units means more money for the developer," said Bocchino. "I represent the neighborhood, and the last thing we need is to put 700 units with 1,500 people in there."

Homes On Superfund Sites

From the Star Ledger:

Superfund site and watershed a volatile mix

Two local companies have proposed building 208 townhouses and six multi-purpose recreational fields on the former Rolling Knolls landfill, next to the Great Swamp National Wildlife Refuge in Chatham Township.

The plan does not contain the exact remedy for cleaning up the 187-acre Superfund site, which records show contains household refuse, scrap metal, tires and industrial waste.

But would-be developer John Fetterly, of Environmental Risk Solutions, said he would likely follow U.S. Environmental Protection Agency guidelines, excavating and relocating the waste, then capping it.
Fetterly and his business partner, Andrew Mulvihill of Crystal Springs Builders in Hardyston, submitted the project to Chatham Township for a preliminary concept review on Tuesday, said Township Administrator Thomas Ciccarone. Ciccarone stressed that no application has been filed.
The site, which was used as a municipal landfill from the early 1930s until 1968, was added to the federal Superfund National Priorities List in 2003.