Saturday, August 12, 2006

Passaic County - The Tax Man Cometh

From the Herald News:

County board orders revaluations

The Passaic County Board of Taxation expects to order all municipalities to undergo property revaluations within three years said Richard Mohr, board president.

Ringwood, North Haledon, Little Falls, Totowa and West Paterson will initiate the process, having received letters ordering revaluations last month. The next batch of municipalities will receive notices next summer, he said.

It has been nearly two decades since the last countywide revaluation. In 1985, the taxation board ordered all county municipalities to re-evaluate their tax base, and the process was completed between 1986 and 1992 by all municipalities except Paterson, said Mohr. Paterson is currently undergoing a revaluation and hasn't completed one since 1971.

Homeowners shouldn't assume that their tax bill will increase because their property value will be updated, said Mohr. Taxes increase across the board as municipal, school, open-space or county spending increases -- not as property values rise, he said.

Top 10 Reasons Why Businesses Don't Like N.J.

From the Asbury Park Press:

Stop chasing business away

10. New Jersey has the highest property taxes in the nation.

9. New Jersey has the highest health insurance costs in the nation.

8. Only parts of California and Hawaii have higher housing costs than Central and North Jersey, and rents in New Jersey are the second highest in the nation. That's driving many of New Jersey's best, brightest and wealthiest out of state.

7. Thanks to the recent 16 percent increase in the state sales tax, New Jersey is tied with two other states for the highest rate in the nation. (And now Gov. Corzine is suggesting the Legislature consider allowing local communities to impose their own sales taxes.)

6. Only four states have a higher top income tax rate than New Jersey.

5. New Jersey's energy, insurance and regulatory costs are among the highest in the nation.

4. The political bosses and public employee unions dictate government policy. Corzine's ex-squeeze heads the state's most powerful union, and Corzine pledged at a union rally protesting badly needed benefit givebacks, "I stand with you. I'll fight with you."

3. New Jersey has a well-deserved reputation for political corruption — a reputation that has been enhanced by its last two laughingstock attorneys general.

2. New Jersey's once-vaunted labor pool is no longer the envy of the pharmaceutical and communications worlds.

1. The state's lawmakers have shown themselves to be completely inept at solving problems needed to help the state prosper.

Prices not falling in N.J.

From the NY Times:

Sales Are Down, but Prices Aren’t

AN analysis of housing sales over the first six months of the year shows a much weaker market: volume dipped by 17 percent statewide and the inventory of unsold homes rose by 70 percent.

There are currently enough homes on the market to satisfy overall demand for the next eight months, by the reckoning of Jeffrey Otteau of the Otteau Appraisal Group, a company that advises real estate sales agents and trains them to deal with market conditions.

But prices have not plummeted, and experts do not expect that they will.

Broken down by price category, there is a seven-month supply of homes priced at less than $600,000, an 11-month supply of houses priced at $600,000 to $1 million, and a 16-month supply of dwellings listed for more than $1 million, according to Mr. Otteau’s latest report, which was issued at the end of last month.
Even in counties where sales have been consistently buoyant in the last decade, Mr. Otteau’s statistics reflected markets gone limp.

In Bergen County, sales were down 14 percent in the first half of this year from a year earlier, and inventory as of June 30 was up 85 percent; in Essex County, sales were down 14 percent and inventory was up 50 percent; in Hudson County, sales were down 15 percent and inventory was up 73 percent; in Monmouth County, sales were down 16 percent and inventory was up 57 percent; and in Morris County sales were down 18 percent and inventory was up 66 percent.
“I remember selling a condo in West Orange in 1986 for $288,000,” said Ken Baris, president of Jordan Baris Inc. Realtors. “Then, when the market really did drop, I sold the same unit again in 1993 — for $150,000.

“That condo today — a three-bedroom, two-and-a-half bath unit at Eagle Ridge — would sell for close to $400,000,” he said. “It gained tremendously in value over these boom years, and while its value might be down a bit from the peak of the home-buying frenzy, there is no crash in the marketplace, or bursting bubble, or anything remotely like that.”

Mr. Baris said there is simply no chance, in his opinion, that the value of the condo he cited might drop as sharply as it did 15 years ago because, he said, “this market just isn’t like that,” for a variety of reasons.
“Given that the New Jersey housing market realized an 87 percent increase in home prices from 2000 to 2005, the adjustments now taking place come as no surprise,” said Mr. Otteau, referring to asking prices.

He predicted a “bumpy ride” over the next few years if mortgage interest rates continue to rise, along with energy prices, and buyers and sellers struggle to assess the impact of such increases on home values.

“There is mounting evidence,” he wrote in his report, “that home prices will decline over the short term as motivated sellers make decisions to accept a lower selling price in exchange for a quicker sale.”

Friday, August 11, 2006

Further weakening yet to come

From Businessweek:

Why Housing Looks A Little Rickety

Hopes that the worst of the housing slowdown has already come and gone may be dimming. Mortgage rates stopped marching higher during recent weeks, and home sales, after tumbling this winter, appeared to stabilize this spring. But recent data indicate further weakening is yet to come.

The weekly snapshot of lending activity by the Mortgage Bankers Assn. (MBA) not only includes figures on mortgage applications to buy homes but also on the average size of the loans being sought. Both measures are seen as timely indicators of the housing market and both, after leveling off during the spring, are plunging once again.

Based on monthly averages, mortgage applications are now falling at the fastest pace since 1995. In July they were down 15.1%. The Aug. 9 update showed the weakness continued into August.

Moreover, the deterioration in the pool of interested home buyers is forcing sellers to further lower their price expectations. The average mortgage loan size is now smaller than it was a year ago, off by 0.5% from last July. This suggests further weakness in home prices because "average loan size is a reasonable coincident or slightly leading indicator of home price inflation," Goldman Sachs (GS ) economist Jan Hatzius says in an Aug. 2 research note.

There are other reasons to expect that prices will keep softening. The national vacancy rate of homeowner housing hit a record high of 2.2% in the second quarter. The higher vacancy rate was most likely driven by the rising inventory of new homes for sale. In June, the level of completed new homes on the market swelled by 28.2% from a year ago. Rising inventories and weak pricing are significant reasons why homebuilders have become increasingly pessimistic.

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!

Bye Bye Condos, Hello Apartments

From Forbes:

Condos Cool Off, Apartments Heat Up

Bubble believers had some unfortunately vindicating news yesterday when high-end home builder Toll Brothers unleashed bleak fiscal third-quarter results on a glum market: Signed contracts for new homes fell 47%, a humbling follow-on to a second-quarter drop of 33%.

Home ownership has been relatively strong, but we're seeing the downturn now," says Celia Chen, director of housing research at "We've seen strong demand for housing that was only partly supported by underlying factors. Household growth as well as employment and income growth have only been middling," she says, using a technical term, "yet we saw explosive growth in housing sales. In real terms, it's been stronger than at any time in the past 30 years. Now those forces are retreating, and we are seeing the excesses being worked off."
The rental market is in the sweet spot, says Michael Cohen, research strategist at Boston-based Property & Portfolio Research, an independent real estate research and advisory firm. "Vacancies are at 5.8% across the 54 major markets that we cover," he says. "That's the lowest they've been since the third quarter of 2001."
Cohen believes that trend will start to reverse as sales slow, which will in turn lead to converters returning units they had expected to sell as condos back to the rental market. High land prices, which in many markets have precluded construction of just about any property type other than condos, will also start to ease and facilitate rental development.

Says Cohen: "We think capital and developer attention will be diverting back toward rental, and we are beginning to hear that land costs in tertiary markets are easing." (For those in secondary and primary markets, patience is a virtue.)

Highlands Construction Freeze

From the Star Ledger:

Highlands council prepares to release master plan

Two years ago today, the Highlands Act was signed into law, commencing an uncertain period in which most advocates and objectors had only one common demand: Show us the plan.

They'll probably get their wish in October.

A draft of the Highlands Council's regional master plan, a land-use blueprint for a 1,250-square-mile swath of northern New Jersey, will be presented then, council leaders said this week.
"It's a fraud. ... The people have been screwed," Assembly Minority Leader Alex DeCroce (R-Morris) said. "They, in effect, took hundreds of thousands of acres, removed them from the potential of development and allocated no money to compensate landowners."

A group of farmers and landowners still regularly blast the Highlands Council at its Chester Township meetings, accusing its officials of carrying out a giant land grab.

"I don't think they're voluntarily going to cough up the money that they're obligated to under the law," said Holland Township property owner Jeff Broadhurst, who contends his land has "nothing to do" with aquifers the council wants to protect.

From the Daily Record:

Council: Halt Highlands growth

To protect the remaining open space in the Highlands, the New Jersey Highlands Coalition commemorated Thursday's second anniversary of the law protecting the region to call for a freeze on all major development there.

Both state-issued exemptions from the tough restrictions in that half of the 800,000-acre region designated for preservation and increased building in the rest of the Highlands are paving over vital lands, a number of environmentalists contended at a news conference in Appelt Park. With the New Jersey Highlands Council's master plan adoption still four months away, immediate action is needed to preserve critical land, they said.
"Hundreds of property owners have applied for and received exemptions. The rush to develop in the Highlands is undermining the efforts to protect the Highlands and will lead to the loss of many environmentally important properties while further negatively impacting our water supplies."
"It's not right to do that to people," said Drysdale, who was trying to subdivide his land when the act took effect.

"I'd probably be retired by now if this thing hadn't happened. We're just on hold. I wouldn't wish that on anyone."

Thursday, August 10, 2006

New Jersey - Highest Property Taxes in the U.S.

From the AP:

Barbara Lehman has lived in this central New Jersey community for 30 years, but her time here is nearing an end.

She sent her children through Montgomery's well-regarded schools. And she enjoys the rolling landscape even as housing developments have spread across it in recent years.

But her property taxes have climbed 56 percent since 2000 to a knee-buckling $14,000 a year — a heavy load for a high school French teacher whose salary goes up only about 3 percent a year.

"Oh, it's terrible," Lehman said.

Despite efforts by governors and lawmakers to do something about it, New Jersey has the highest property taxes in America — a burden that is alarming young couples and retirees alike and deepening public cynicism in a state with a long and rich history of graft and self-dealing.

The average property owner in the Garden State pays about $6,000 a year in property taxes, twice the national average.

A recent analysis by The New York Times found property taxes increased two to three times faster than personal income from 2000 to 2004 in the suburbs surrounding New York City. New Jersey's booming Somerset County — where Montgomery is situated — got slammed harder than anywhere else in the region, with property taxes climbing 41 percent there while income increased but 5 percent.
Susan Horowitz and her husband just marked their 30th year in Montgomery, but they are unsure how long they will be staying. Both are retired teachers who have watched their property taxes nearly double since 2000 to about $12,500 per year.

"I look at my pension as paying my property taxes," Horowitz said. "We love living here and as long as we can afford the taxes — because we've paid off our mortgage — we'd like to stay here, but we just don't know."
Some lawmakers are looking into merging school systems and municipalities but are likely to run into resistance from local officeholders if they try to force the issue.

Another reason for high property taxes: State and local government owe billions per year to the state's public employee pension system, which has been riddled by abuses.

Also, by court order, the state must send huge chunks of school aid to struggling urban schools, meaning less money is available for middle-class districts.

The Pain of Rising Rates

From the Wall Street Journal:

Homeowners Start to Feel The Pain of Rising Rates

Luisa Cordova-Holmes was looking to lower her monthly payments when she refinanced her $312,000 mortgage in 2004. Instead, she wound up digging herself into a ditch.

For their new loan, Ms. Cordova-Holmes and her husband chose a so-called option adjustable-rate mortgage, which carried an introductory rate of 2.35% and gave her multiple payment choices each month. "I had a lot of financial obligations," says Ms. Cordova-Holmes, an accountant who lives near Detroit.

Two years later, however, the interest rate on her loan has jumped to 8.75%, her loan balance has climbed to $324,000 and her minimum monthly payment has risen to $2,257. She says the terms of the loan weren't clearly spelled out.

Ms. Cordova-Holmes says she would like to refinance, but can't -- in part because her loan carries a prepayment penalty that would force her to shell out thousands of dollars if she did. Instead, she's trying to sell her home. But with Detroit's economy slumping, she hasn't been able to find a buyer. When she and her husband first put the house on the market last summer, they were asking nearly $400,000. Now they're willing to accept as little as $270,000.

"We're in a very bad situation," she says. "The payments are just killing us."

In recent years, homeowners like Ms. Cordova-Holmes have embraced adjustable-rate mortgages -- and such variations as option ARMs, interest-only mortgages and "piggyback" loans, which, respectively, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price. The growing popularity of these products has helped fuel consumer spending, as well as double-digit home-price gains and rising homeownership rates.

Yet the downside of the lending boom is starting to show. Rising interest rates are taking a toll on family budgets as growth in home prices flattens -- and, in some areas, prices fall.

State to build 100,000 affordable units

From the NY Times:

100,000 Units of Housing Are Planned in New Jersey

Acknowledging that housing in New Jersey is becoming increasingly unaffordable, the Corzine administration says in a report to be made public on Thursday that it plans to build 100,000 homes and apartments over the next 10 years for poor, working-class and middle-class residents.

In the state’s first attempt at outlining a comprehensive housing strategy, the 44-page report evaluates the shortcomings of current housing programs and sets the stage for Gov. Jon S. Corzine to announce the details of a comprehensive housing program — with specific recommendations and price tags — by the end of the year.
Mr. Corzine has frequently said he admires the governing approach of Mr. Bloomberg, and like him says he intends to emphasize the shortage of housing not just for the poorest residents, as housing advocacy groups have historically emphasized, but also for working-class and middle-class people.

And Ms. Levin said, “We need to provide a full range of housing.”
In particular, the report says that the costs to create housing, like land, construction and labor, are increasing far more quickly than expected, at a time when federal financing for housing has been stagnant or decreasing. And given the fact that housing and land are so expensive, “New Jersey has consistently ranked as one of the least affordable states for rental housing.”

Yet New Jersey does not have an effective program to encourage home ownership among moderate-income residents, the report concludes.

Second Home Market Slumps

From the NY Times:

Hot Market for Second Homes Hits Slump

The brand new 6,000-square-foot vacation home, backing on a boat dock on Moriches Bay, has been on the market for more than a year. After plenty of showings, but no offers, the investor who built the house recently cut the price twice, by a total of $600,000, to $4 million.

It has still not been sold. To be sure, the price reductions have created more interest, according to the agent representing the owner, and he now hopes that it will be sold right after Labor Day, a prime season for home transactions in the Hamptons.
It is not just the most expensive vacation homes that are going begging. The once-bustling deal making in a wide variety of popular locations for second homes — areas like Florida, the Jersey Shore and Lake Tahoe, as well as the high-price playground on the East End of Long Island — has slowed markedly in recent months.

As the overall housing market weakens, the interest in buying vacation homes, from the most modest condominiums on up, appears to be falling faster. Unlike most metropolitan areas — where underlying demand and the normal turnover in primary homes as a result of job moves, new households and family changes provide a more solid floor under prices — the second-home market relies on a different set of motivations that tends to exaggerate booms and busts.
In 2004, the latest year for which data is available, Ocean City, N.J., at 73 percent, headed the list of metropolitan areas with high shares of second homes. From 2002 to 2005, home prices in the area, which includes Cape May, rose at an average annual rate of 17 percent, compared with 10 percent for the nation as a whole and 14 percent for New Jersey.

“These have been the most juiced-up markets,” said Mark Zandi, chief economist at

But this spring and summer, median home prices in the Ocean City area have fallen by 10 to 15 percent from a year earlier. Sales have slowed and more houses are sitting on the market, according to Nicholas J. Marotta, president of the Ocean City Board of Realtors.

He blames speculators for rapidly inflating and then depressing the market by trading in condominiums and oceanfront homes that they bought with low-interest loans requiring only small down payments.

What Next For The US?

From MoneyWeek:

After the wealth binge - what next for the US?
By Stephen Roach

The modern-day US economy has just gone through its most extraordinary period of wealth creation on record. First equities, then housing - over the past decade American households have added to net worth as never before. That binge is over. With the property market now cooling and equities settling in for an era of single-digit returns, wealth creation is likely to be subdued, for the foreseeable future. There can be no mistaking the profound implications of this development for the American consumer, the global economy, and world financial markets.
So much for what has happened. It is the prognosis that now matters most. I do not think there is any doubt that the US housing cycle is now turning. The questions pertain more to scope, speed, duration, and depth of the coming adjustments. In an era of financial-market deregulation -especially since deposit ceilings in mortgage lending institutions were eliminated by the early 1980s - residential property cycles have taken on a life of their own. As a result, both the uplegs and the downlegs have lasted far longer than standard business cycles. The data flow has certainly shifted to the downside - namely, mounting inventories of unsold homes, declining mortgage loan applications, rising financing costs, and anecdotal reports from builders and realtors.

A housing downturn will have obvious and important implications for US GDP growth. The direct effects are straightforward: Over the past three years, 2003-05, residential construction activity has boosted real GDP growth by about 0.5 percentage point per year. In data just released for 2Q06, the sector was estimated to have reduced annualized GDP growth by 0.4 percentage point. To the extent the decline in new building activity remains orderly, reductions could continue at the second quarter pace. Relative to the heady gains during the final stages of the boom, that means the contribution of residential construction activity could swing from +0.5% to -0.5% - imparting about a one percentage point drag on overall real GDP growth for at least the next couple of years.
The trick will be to pull this off without a hard landing. Here’s where my newfound optimism comes into play. As long as G-7 finance ministers, the IMF, and the world’s major central banks remain committed to a rebalancing policy agenda, the odds favor more orderly adjustments in the US and global economy. A withdrawal of excess liquidity by bubble-prone central banks is a key element of this rebalancing agenda. The good news is that this process now appears to be getting under way. The bad news is that the authorities may have waited too long to begin the heavy lifting - leaving a still highly unbalanced world all too vulnerable to any number of exogenous shocks. Either way, there is no escaping the endgame. The wealth binge must be brought to an end if an unbalanced global economy is ever going to end up on safer footing. I think that is exactly what is now under way.

Philly area housing boom slowing

From the Philadelphia Inquirer:

Some home buyers are walking away from deals, forfeiting thousands of dollars in deposits. Home builders are offering special discounts and incentives. And the number of existing homes for sale is climbing in the Philadelphia region and around the country.

Just about everywhere, evidence of a sharp slowdown is piling up in the once-booming housing industry.
Some housing experts have said they expect the Philadelphia area to be spared the worst of a housing slump, primarily because the region did not boom as wildly as other areas of the nation earlier this decade and had fewer speculators. Buyers in the Philadelphia area also were, on average, conservative in mortgage choices - which means they avoided interest-only loans when possible, according to trade figures.

But recent data show the market is not immune to national trends. The number of existing houses for sale in the eight-county Philadelphia region climbed almost 40 percent in the first six months of this year, or 11,784 homes, to 41,389 when compared with the same six months in 2005, according to the HomExpert Market Report from Prudential Fox & Roach Realtors.
The number of houses sold in the eight counties fell in the first six months of 2006, with the sharpest plunge in Bucks County.
We've got more homes on the market now than we have in the past 10 years," said Haley De Stefano, a real estate agent with Coldwell Banker in Mullica Hill, Gloucester County.

A few years ago, the mad dash to buy made it harder for real estate agents to show homes, said De Stefano. "Two, three years ago, if I tried to set up appointments to show 10 homes, inevitably eight of them were already under contract," said De Stefano. "Now if I go to set 10 appointments, probably nine of them are available."

Manuel Morales recently cut the price of his Mount Laurel home to $649,000 from $674,000 and offered to contribute $5,000 toward closing costs.

Wednesday, August 09, 2006

Overleveraged Buyers Squeezed

From Newsweek/MSN:

House Broke

When Shawn Howell saw the house in the summer of 2004, he thought he couldn’t lose. The location-close to family and in an upscale subdivision in Louisville, Ky.,—was perfect; the three-bedroom plus loft was just right. The price was a little high at $217,000—especially as Howell's wife, Niki, had just given birth to their second child. But the couple learned they could purchase it with no money down by taking out two adjustable-rate mortgages. The monthly payments would start at a manageable $1,100. And Howell figured the value of their home could only go up in the five years they planned to live there. Instead, two years later, the family have put their home on the market for less than they paid for it—desperate to find a buyer before the bank forecloses on the property. "Looking back, I wouldn't advise anyone to do what we did," says Howell, an Iraq war vet who worked two jobs but still fell short on the monthly payments after they jumped by more than $300. "We just couldn't afford the house anymore."

Across the country, millions of homeowners are finding themselves in a similar situation. Real estate purchases that once seemed like such moneymakers have become financial burdens instead. U.S. homeowners now owe about $9 trillion in mortgage debt. Of that, about $425 billion in adjustable-rate mortgages-initially pegged at historically low rates, but designed to shift with market trends after periods ranging from one to 10 years—will reset sometime this year, according to Freddie Mac, a government-sponsored housing financing company. Another $600 billion in home equity lines of credit (or HELOCs) and second-lien mortgage loans, which became popular when rates were low as a means of paying off credit card debt or financing home improvements, are also being readjusted. Those with fixed-rate mortgages payable over 15 or 30-year periods may be seeing little change, but those who banked on rates remaining near the 4.6 percent lows of 2003, are getting some unpleasant shocks when their mortgage bills arrive in the mail. As their payments rise, many are struggling to keep up. Foreclosures and delinquency rates are rising. And with the markets cooling in many regions—existing home sales across the country have slipped for three months straight and new home sales nationwide have declining as well—there are growing fears of a looming crisis. Howard Dvorkin, president and founder of Consolidated Credit Counseling Services, a nonprofit debt management organization, says up to 10 percent of those now seeking counseling are being squeezed by adjustable-rate mortgages or home equity loans. "And this is just the tip of the iceberg."

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)

8/2 - 18,643
8/9 - 18,605 (0.2% Decrease)

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

8/2 - 9,201
8/9 - 9,228 (0.3% Increase)

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

8/2 - 2,714
8/9 - 2,660 (2% Decrease)

Have an idea for lowering property taxes?

From the Times Trenton:

Lawmakers turn to residents for ideas to lower property taxes

Lawmakers struggling to lower New Jersey's property taxes will turn their attention tonight to residents who may have new ideas on how to lighten the burden.

Gov. Jon Corzine launched the summer's special session on property tax reform July 28 as legislators seek ways to relieve the weight on taxpayers.

Hamilton Republicans Sen. Peter Inverso and Assemblyman Bill Baroni believe the best suggestions will come from those who feel the strain the hardest.

So the two officials will host a town meeting from 7 to 9 tonight at the Hamilton Township Public Library, 1 Municipal Drive, to get ideas from residents.

"This issue is too important to leave just to the politicians," Baroni said. "The answer to this problem is not in the State House alone. I think Hamilton residents could have great waste-cutting ideas."

Property taxes in New Jersey are the highest in the nation -- col lecting $2,099 per capita in 2004. Across the Delaware River in Pennsylvania, $1,010 per capita was col lected and in Delaware, $546 was collected, said Gerald Prante, an economist at the Tax Foundation, a nonprofit policy research group based in Washington, D.C.
"The incentive to move to neighboring states is high right now," Baroni said. "We have to come up with a way to fund education and government without forcing people out of their homes or making them want to leave."

Any ideas for lowering property taxes? Let's hear them. All suggestions made on this thread will be emailed to Inverso and Baroni.

Borrowers Relieved

From Newsday:

Home buyers and borrowers relieved

The Federal Reserve may have helped Hempstead resident Dean Giamundo buy a house.

The Fed's decision to keep its federal funds rate at 5.25 percent yesterday likely will lead to some stability in long-term interest rates as well, experts said. And that's good news for Giamundo, 40, and his wife, Marianna, who have just started looking for a house.

"It's not that it would change my decision, but am I hoping interest rates stay down? Of course," Giamundo said. "At that point, we can afford a little more expensive house."
More immediately, the pause in rate hikes will help consumers with home equity loans and other adjustable products. The cost of a $100,000 home equity loan has doubled in the past 12 months, going from $4,000 a year to $8,000 a year, because of rising interest rates, according to mortgage broker Bob Moulton, with Americana Mortgage Group in Manhasset. Moulton noted that for the past two years, he has gotten calls from customers with adjustable products, wanting to know how each hike would affect them. Yesterday, the calls were different, as customers were happy they'd finally get a break, he noted.

While a pause from the Fed might be good news for those waiting on the sidelines (keep waiting), I doubt the pause will do much of anything to help those with home equity loans or adjustable rate mortages. Payments won't be any lower, and just as many facing substantial payment shocks from ARM resets will still see that same shock.

Keep in mind, the Fed's upward push in short-term rates has had little influence on long-term rates (Greenspan's Conundrum). We have yet to see what trend will develop now that the Fed has paused.

However, inflation pressures still persist. The productivity data released yesterday points to a concerning increase in wage pressures. The pause is likely to be just that, a pause. The FOMC has 3 more meetings scheduled this year.

Caveat Emptor!

A new city for the well-to-do

Great piece piece from Jersey Journal this morning, by Earl Morgan:

Neglecting us, while hoping rich move in

There's this thing I've come to describe as the "entropy attitude."

You know what I'm talking about: Deterioration is natural and inevitable, whether you're talking about the universe or the Jersey City public school system.

It explains everything. Take street crime, for instance. The increase in crime is an inevitable consequence of the inevitable erosion of our institutions.

But sometimes it's not entropy.
There is so much of the already-existing city to preserve and reinvigorate, yet those swaths are left to deteriorate as visions of another "Gold Coast" - and more tax abatements - dance in politicians' heads.

Is it possible that in some circles a consensus has been reached, based on this "entropy attitude," that it's not worth the effort to save the old and battered city most of us live in, and instead our energies should be focused on creating a new city for the well-to-do?

For years, I have used this space to scold officials for lacking vision when it comes to saving and repairing our city.

Perhaps that was a misreading of their true intent. Perhaps they long ago embraced the entropy attitude. Perhaps their vision is of a new city, one that replaces all that is old with that which is new - even when it comes to the voters.

Tuesday, August 08, 2006

Property Taxes Growing Faster Than Incomes

From the Asbury Park Press:

Property taxes go up faster than incomes

Property tax increases greatly outpaced personal income growth in the region's suburbs between 2000 and 2004, a turnaround from the 1990s, according to a report published Monday.

Property tax collections throughout New York, New Jersey and Connecticut rose twice as fast as income during the four-year stretch, and the gap in suburbs was even larger, according to a review of state and federal data by The New York Times.

"People's wealth may be growing if they own a house, but the census data show that their income isn't keeping up with their tax bills," said Gerald Prante, an economist with the Tax Foundation, a Washington-based group that favors lower taxes.

The widest gap in the region was evident in New Jersey's Somerset County, where property taxes jumped 41 percent while income grew only 5 percent.

In Nassau County, Long Island, tax collections rose 29 percent while personal income went up 11 percent. In New York's Westchester County and New Jersey's Bergen County, the property taxes also grew at about three times the rate of income.
Bob Vena, a plumbing contractor in Hazlet, said he does not know how long he will be able to afford the soaring taxes on his home and bungalow, which now total $13,500 yearly.

"Eventually I hope to sell everything and just get out of New Jersey," Vena, 63, said.

Tuesday Economic Roundtable

From the Federal Reserve:

FOMC statement

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

The Federal Open Market Committee (FOMC) meets this afternoon, the policy statement is expected at 2:15pm EST.

From Bloomberg:

Fed Officials Gather as Growth, Prices Send Conflicting Signals

Federal Reserve policy makers walk into their meeting today facing conflicting economic risks as they consider pausing after 17 straight interest-rate increases.

Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee must choose between extending the two-year tightening and exacerbating an economic slowdown or risk falling behind as prices climb.

Economists at most of Wall Street's biggest firms expect the Fed to keep its rate at 5.25 percent, while Goldman Sachs Group Inc. and Mizuho Securities USA Inc. are among a minority anticipating a quarter-point increase. In the event policy makers do take a breather, the statement after the meeting will likely flag they still have more work in front of them.

``Inflation is above where they would like it to be and accelerating,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets, in Greenwich, Connecticut. ``There will be a very clear signal in the statement that a pause does not mean they are done and risks on inflation remain on the upside.''
The Fed may take out some insurance against the prospect of a wrong forecast and burnish Bernanke's inflation-fighting credentials by opting for tighter credit today, said Glenn Haberbush, an economist at Mizuho. The firm is one of the five primary dealers predicting a surprise increase.

``Bernanke is very much viewed as having a dovish policy inclination,'' said Haberbush, who is based in New York. ``If he goes to 5.5 percent, it almost makes for a better scenario. It will allow Bernanke to shed some of those dovish feathers and move to a more moderate policy inclination.''

25% of Jersey Homeowners Can't Afford Repairs

From the Star Ledger:

Dire state of repairs

The wooden front steps on Jane Blake's house in Newark were built this spring by volunteers who installed them above the debris from concrete steps built a dozen years ago by a long-forgotten contractor.

"It wasn't even three years before those concrete steps started to crumble," said Blake, 72, a retired assembler for the Ohaus scale company in Florham Park. "It looked like maybe there was too much sand in the mix. They just fell apart. They were dangerous to walk on, and I used to worry about the postwoman climbing up them every day."

Yet Blake and Sarah Marson, a former Ohaus co-worker who owns the house with her, are still on the hook for the remaining $6,000 of a $12,800 loan that financed both the concrete steps and some replacement windows -- which she said don't keep out the winter drafts. "I can't remember the name of that contractor, but if I could I'd never recommend him to anyone."
According to a study, 12 percent of New Jersey's homeowners, or about a quarter million, can't afford to make repairs on their homes, and that some are losing their homes to foreclosure when they default on loans taken out to make the repairs.

"A lot of people can't take care of their homes, and then you see them pushing a shopping cart down the street," Blake said.

Today, the New Jersey Institute for Social Justice plans to release a 25-page report, "House Rich, Pocket Poor and Under Threat: Home Repair financing and Homeownership Preservation in New Jersey." Ken Zimmerman, institute executive director, who co-authored the study with colleague Yahonnes Cleary, said solving the home repair gap will require money from government grants and private loans, and he doesn't have an estimate of the dollars needed.

Montclair Teardowns

From the Star Ledger:


John Skillin lives across from a century-old Montclair home that once belonged to a West Point graduate named Maj. Blanton C. Welsh, a research scientist whose later study of plant algae resulted in the discovery of a new species that bears his name, Welshite.

Yet the nine-bedroom Dutch Colonial -- hawked in a real estate listing as "truly one of the Fathers of Montclair" -- is destined to fall to a wrecker's claw to make way for five luxury townhouses.

He doesn't want to see it happen. It might not.

The Upper Mountain Avenue property is one of as many as 200 on the verge of "downzoning," an action that would effectively prevent anything more than a two-family there. Yet as in many things, real estate in particular, timing is everything.
Teardowns in Montclair -- most recently one of a circa 1887 house on nearby North Mountain Avenue -- have heightened talk of remedies to head them off.

"Can we establish some kind of moratorium on teardowns?" Mayor Ed Remsen asked Karen Kadus, the director of planning and development, at a recent meeting.
The house, most recently listed at $869,000, was described as built "of the finest material and architectural specifications."

"The restoration is to period and mostly complete," the listing said.

Monday, August 07, 2006

West Orange Seller Takes On Weichert

This one comes to us from Jake Freivald, a homeowner selling his home in West Orange. I thought it was interesting enough to post up, simply because we seldom see the "other side" of the transaction on this blog.

Why Weichert Sucks .com

Because people at Weichert Realtors tried to bully us, and we're sick of it.

John Geaney, the manager of the Upper Montclair office, was coercive and unethical. He tried to blackmail us.

We escalated to Larry Mueller, a VP at corporate. He didn't listen to us, he was belligerent, and he tried to stonewall us.

Jim Weichert, President of Weichert Realtors, ignored us.

Some Background:

We bought a new house in November, 2005, before selling our old one. Risky business, we know, but we have a large family; if we sold the Gregory Ave house first, we might not have been able to find a place that would fit all eight of us.

We initially listed the house for $409,000, in October 2005. We reduced it fairly rapidly to $389,900. All of this took place in 2005. We didn't expect the house to move quickly, if at all, because it was wintertime -- but it was the lowest-priced house in a desirable section of West Orange.
January, R (our realtor) called to see if we'd be able to talk to John Geaney, the manager of her office. We agreed -- why not listen to a market expert? -- and the four of us (me, my wife, John, and R) sat around a table and discussed the market.
In a nutshell, John told us that we should reduce our price by $40,000, but he didn't have a lot to back it up.

After he left, it became clear that he had hit his realtor out of the blue. She said that she knew her markets, and that the current price seemed reasonable to her.

Inheriting Debt

From the Herald News:

A quick fix?

About a year ago, Betty Holley, 76, looked at her bank account and got nervous.

The tiny pension she earned as an Essex County nurse was gone. Her husband's IRA from driving a bus had been used for tax bills. The roof on their Bloomingdale house was crumbling and the kitchen floor was becoming a trip hazard. And their collective list of health ailments was growing.

"We were starting to feel panicky," Holley said. "It was clear we needed to do something."

The Holleys joined the growing ranks of seniors who took out a reverse mortgage, allowing them to obtain cash by borrowing against the equity in their home. Instead of getting a monthly mortgage bill, reverse mortgage recipients receive a check. In recent years, such loans have surged in popularity with older homeowners needing to make emergency home repairs, get out of debt, pay hospital bills or cope with a sudden loss of income.

But with the immediate funds come additional debt – not for the mortgage holders, but their heirs. Many seniors strapped for cash care little about what will happen down the road, while their children just want their parents to live comfortably.
Reverse mortgages do not have to be repaid until the owner dies or moves. Funds can be received in one lump sum, monthly payments, through a line of credit, or in some combination of the three.
The mortgages are issued by banks or other lending institutions, which do not gain control over the home's title. After a recipient dies, heirs will inherit the property along with the incurred debt. Once a reverse mortgage is in place, homeowners can't take out other types of home loans.
Reverse mortgages have been around sine the late 1980s, but their popularity has surged recently. Federally backed loans grew from 7,781 to 48,088 between 2001 and 2005. The number in New Jersey tripled between 2002 and 2005, totaling about 1,600 last year.
Lesley Weiner, a Totowa-based financial planner, thinks reverse mortgages should be entered with caution. "The heirs have to understand them," Weiner said. "The house is really on the line."

Underestimating the Landing

From the Wall Street Journal:

As Data Point to Slowdown, Housing Market May Land Harder Than Economists Predict

Home prices in some parts of the country are falling. Builders are scaling back. Bubble or not, the biggest housing boom in recent U.S. history is coming to an end.

Now here is the big question: How bad will the aftermath be? At this point, most economists expect a "soft landing," a gradual decline that won't derail the nation's economic expansion, now in its fifth year.

But there is a good chance they are being too optimistic. The boom has depended heavily on the upbeat psychology of consumers, builders and lenders. As moods swing, the landing could be very hard indeed.

"We could be underestimating the dark side," says Mark Zandi, chief U.S. economist at Moody's and among the first to seek to quantify the housing boom's broader effects. "Euphoria could turn into abject pessimism very quickly."
Economists, however, have few clues on which to base their predictions. Today's housing boom differs radically from its predecessors. For one, it has been bigger and longer-lived. House prices are still more than twice the level of 1991, when the boom began. Even after the recent decline, June's rate of home sales is 40% above the 20-year average.

Much of the recent increase has been driven by an unprecedented flood of cash into U.S. capital markets. Global demand for U.S. mortgage bonds, competition among big national lenders and the advent of exotic loans have made it easier than ever to borrow money to buy a house -- and to turn rising home values into cash.
But that isn't all. Economists can't quantify some risks, including the biggest: the chance that a sharp drop in house prices -- what economists call a "disorderly downturn" -- would leave many homeowners owing more on their mortgages than their homes are worth. If that led to a wave of foreclosures and losses on riskier mortgage-backed securities, banks and investors could get spooked and cut back on all kinds of lending -- a move that could snuff out economic growth.

"For me, the risk of a disorderly downturn is the greater one," Mr. Hatzius says. "That's a scenario that people would worry about a lot, because typically recessions are the result of a general unwillingness to lend."

Milking the Farmland Assessment

From the Courier News:

Sierra Club wants N.J. to re-examine tax break

It's not how well some people farm their land but how well they farm the government.

So says the Sierra Club in a recently announced campaign to call on Gov. Jon S. Corzine and the Legislature to reassess the state's Farmland Assessment program, which gives property tax breaks to anyone who owns five acres of land and sells $500 a year in agricultural products.

Jeff Tittel, director of the Sierra Club's New Jersey chapter, discussed the issue last week with Courier News editors. He said the Sierra Club has suggested the state reassess its program to possibly increase the amount of land or the amount of revenue a farm must have to qualify for the program.

Tittel explained that large corporations with headquarters on sprawling campuses often abuse the program by growing relatively hassle-free crops such as hay or soybeans around their offices so they qualify for tax breaks.

The same goes for land-banking developers who buy property and do just enough harvesting on the land to qualify for the program. Then, after a few months or years, developers use the land to plant houses instead of crops while they cash out with money from the tax breaks, Tittel said.

"For a lot of people, this becomes a way of getting around property taxes," Tittel said. "But it means everyone else gets hurt."
Tittel said the farmland assessment program and its abusers cost municipalities $300 million a year as New Jersey continues to lose more farmland -- about 10,000 acres a year as a percentage of overall land -- than any state in the nation.

Sunday, August 06, 2006

The Best Of Lowball!

Welcome to a very special edition of Lowball!

In lieu of the normal Lowball! this weekend, we're going to take a trip back through time. I've gone through my database and put together a list biggest and best Lowball! offers.

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.

Some background, these are closed sales on GSMLS from November of last year until approximately mid-July of this year. These are GSMLS only and do not include sales from NJMLS, MLSGuide, Monmounth MLS, discount brokers, or FSBOs. Unfortunately, this is not a complete list, there are a handful of Lowball! datasets that have been lost over the period. This exercise does not take into account properties that have been withdrawn, expired, and relisted (from an OLP perspective).

Hope everyone enjoys these. On to the list!

Properties above $1,000,000:

(click to enlarge)

Properties from $500,000 to $1,000,000:

(click to enlarge)

Properties from $250,000 to $500,000:

(click to enlarge)

Properties below $250,000:

(click to enlarge)

Caveat Emptor!