New Jersey Real Estate Report

Most readers here will know what my answer will be, it’s a number I’ve quoted time and time again on the blog, 30%. It’s what I call the magic number for Northern New Jersey. If you calculate what the a home price should be through income and compare it with historical norms, you get an approximate 30% overvaluation. If you compare the equivalent rent of a home to the purchase price, you find that it’s selling for a 30% premium. Housing prices in Northern NJ have detached from their fundamentals and gone off on their own tangent, and done so by that magic number (and even more in some areas, my calculations were using census and other median data).

Saying Northern New Jersey home prices are poised to fall 30% is certainly going out on a ledge, however, it seems I’m not the only one who has calculated figures in that range.

Most overvalued housing markets

Sixty-five of the nation’s 299 biggest real estate markets are severely overpriced and subject to possible price corrections.

That’s according to the latest (third quarter) Housing Market Analysis conducted by National City Corp, a financial holding company, in conjunction with Global Insight, a financial information provider.

…

National City arrives at its estimates of what the typical house in these markets should cost by examining the town’s population densities, local interest rates, and income levels. It also factors in historical premiums and discounts for each area.

Overvalued Markets
Atlantic City, NJ 59%
Ocean City, NJ 47%
Edison, NJ 31%
Newark, NJ-PA 27%
New York, NY-NJ 27%
Trenton, NJ 20%
Wilmington, DE-MD-NJ 18%
Camden, NJ 18%
Allentown, PA-NJ 13%

For those of you that might not grasp exactly what a 30% reduction in home prices locally will mean. Take a home that is typically selling for $500,000 in this area, I’m sure I know exactly what image pops into everyones head. It’s a 40 year old cape that hasn’t been touched on a postage stamp lot, or even worse. Well, reduce that price by 30% and you’ll get what I think the true value of the home is, $350,000. Still expensive? Sure it is, this isn’t Oklahoma, we pay a premium to live in this area, but then again, we always have, nothing changed recently.

Caveat Emptor,
Grim

I drove past this place a few times when it was under construction. It’s on Valley Road in Clifton, the Paterson side, about a mile or so from the Paterson border.

I knew it was going to be another stucco-slathered McMansion before the first coat of mud was slapped on it’s facade. However, I did think that the home was being built for someone, I didn’t believe that anyone would do this to a home in this section of Clifton to actually try to sell it.

Of course, proved wrong. The home was listed 40 days ago at an astonishing $889,900. I’m sure at this point you are all yelling “where is the link?”, so here it is:

Listing Link

It’s a typical stucco box on a cigarette property, something on the order of 60×450 or so. Good news though, it was reduced to $869,900 a few days ago. A real steal at that price.

Who are they trying to kid?

Caveat Emptor!
Grim

I’ve been getting quite a few emails from readers with info on specific properties around Northern NJ. While I do keep a keen eye on my town, it’s difficult to really get a feel for an area unless you are a long time resident. Anyhow, I received an email about a house that’s been for sale in Clifton for quite some time now and decided that it would incredibly useful if folks would post up homes for sale in their neighborhood that have been sitting for a while.

The home in question is in Clifton near city hall, the home isn’t on Van Houten itself, however the house is situated directly on it. The email piqued my interest because I drive by the house almost every day, and it’s been for sale for quite some time now.

Realtor.com Link

It’s currently listed at $359,900, which has been reduced from $389,900 at just about 90 days on market. Not much of a reduction. But, I know the house has been for sale for longer than 3 months. So I dig deeper and find the older MLS listing. Ahh, now that’s the ticket, the original listing conveniently expired and it was relisted under a new MLS # shortly thereafter.

So what are the stats on the original MLS listing? Well, it adds an additional 183 Days on Market to the already high 90. More in line with what I remembered. However, the that listing was priced at $449,900 when it was placed.

So in reality, this home has been on the market over 275 days with a solid 20% haircut already. However, the MLS data doesn’t really show how significant the reduction has been, nor accurately represents the time on market. (The person who emailed this to me had stated the original listing price was higher, somewhere near 459, but I can’t find that data). So whenever you hear someone quoting DOM or reductions realize that it’s more likely those numbers are understated rather than over.

I’d love to get more local opinion on other markets, so keep the information coming!

Caveat Emptor!
Grim

U.S. November Existing Home Sales Fall 1.7% to 6.97 Mln Rate

Dec. 29 (Bloomberg) — U.S. sales of previously owned homes declined last month to the lowest level since March, adding to evidence the housing market is cooling.

Home sales dropped 1.7 percent to a 6.97 million annual rate from October’s 7.09 million pace, the National Association of Realtors said today in Washington. The number of homes for sale increased to the highest level since April 1986.

Here is a link to the data:

November EHS Data

The largest drop was seen in the Northeast with a -2.7% drop versus last month, and a -4.4% drop versus last year (seasonally adjusted of course). Evidence is starting to pile up all around us. The bubble burst is going to be undeniable in the upcoming year.

Caveat Emptor,
Grim

Home loan applications fall to over 3-1/2-yr low

U.S. mortgage applications fell to a more than 3-1/2-year low last week amid a sharp drop in demand for loan refinancing even as interest rates held steady, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ended December 23 decreased 6.8 percent to 554.1 from the previous week’s 594.6. Volume was at its lowest level since the week ended May 24, 2002, when the index hit 516.9.

The group’s seasonally adjusted index of refinancing applications dropped 11.2 percent to 1,259.1, compared with 1,418.1 the previous week. Volume was at its lowest level since the week ended April 12, 2002, when the index reached 1,246.1.

An adjustment was included in the data to help account for reduced application activity prior to the holiday weekend, the MBA said.

…

The MBA’s seasonally adjusted purchase mortgage index fell 4.5 percent to 432.9 from the previous week’s 453.1, its lowest level since February. The index is considered a timely gauge on U.S. home sales.

—–

I would love to know what the numbers were prior to the special adjustment. That just reaks of manipulation.

Caveat Emptor,
Grim

The housing bubble has surpassed the roaring tech bubble:

Bigger than the Tech Bubble

The dark blue line is consumer and business spending on technology (hardware and software), as a share of GDP. The light purple line is residential investment, as a share of GDP.

In the third quarter of 2005, Americans spent 6.1% of GDP on building new homes or renovating existing ones. That’s a bigger share of the economic pie than tech got at the height of the boom.

To me, this has become a no-brainer. These levels of residential spending are not sustainable, guaranteeing a housing downturn in 2006 (incidentally, as far as I can remember, this is the first time I’ve made this forecast). And the downturn will likely be sharper than most people expect, including a drop in median home prices nationwide.

—–

Even more evidence of a housing bubble, yet the experts continue to deny.

Caveat Emptor,
Grim

Bubble burst quickly, but the pain lingered
By Martin Fackler, NY Times

Fourteen years ago, Yoshihisa Nakashima looked at this sleepy suburb an hour and 20 minutes from downtown Tokyo and saw all the trappings of middle-class Japanese bliss: cherry-tree-lined roads, a cozy community where neighbors greeted one another in the morning and schools within easy walking distance for his two daughters.

So Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan’s property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: The sale price would not cover the $300,000 he still owes the bank.

…

Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion.

Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan’s six largest cities, residential prices dropped 64 percent from 1991 to last year. By most estimates, millions of homebuyers took substantial losses on the largest purchase of their lives.

Their experiences contain many warnings. One is to shun the sorts of temptations that appear in red-hot real estate markets, particularly the use of risky or exotic loans to borrow beyond one’s means. Another is to avoid property that may be hard to unload when the market cools.

…

Like their U.S. counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. When prices dropped, many buyers were financially battered or even wiped out.

“The biggest lesson from Japan is not to fall into the same state of denial that existed here,” said Yukio Noguchi, a finance professor at Waseda University in Tokyo who is perhaps the leading authority on the Japanese bubble.

“During a bubble, people don’t believe that prices will fall,” he said. “This has been proven wrong so many times in the past. But there’s something in human nature that makes us unable to learn from history.”

Caveat Emptor,
Grim

Many of my readers will be familiar with the name Warren Boroson, a local journalist. Warren has written some real gems in the past year, many of which try to entirely discount the fact that there is a speculative bubble in residential real estate. Warren has defended his position so vehemently, one wonders what vested interests he has in it. Warren is at it once again, with his pal Dominick Prevete (regional vp of Weichert) who like clockwork appears in every one of Warrens articles to offer up expert opinion. Warren, why do you continually quote Mr. Prevete in every real estate article you write?

Perhaps I’m being too critical of the duo, the most recent piece at least concedes some possibility there is a bubble, however, the article ends with the usual pro-real estate spin..

Here is the most recent gem:

Real estate shifting to a buyer’s market

So, what do real-estate people think about the suggestion recently made by James Hughes that people not buy a house now — unless they are planning to live in the place for 10 years?

Hughes, a real-estate expert, is dean of the Bloustein School of Policy and Public Planning at Rutgers and believes that house prices are very high.

…

Also commenting on Hughes’ advice, Maureen Doyle, broker-manager of RE/MAX Properties Unlimited in Morristown, said, “I don’t agree. I think we’ll see continual appreciation, but it will be more reasonable. Just not the 7 to 12 percent a year appreciation we’ve seen over the past four or five years.”

Her arguments:
• Interest rates remain relatively low.
• New Jersey doesn’t have much land on which to build new houses.
Doyle concedes that the inventory of houses for sale has increased — up 20 percent in the past year, while sales have increased only 6 percent.

…

Also in disagreement with Hughes: Dominick Prevete, regional vice president of Weichert, Realtors in North Jersey. “Prices won’t decline significantly, but we will return to single-digit appreciation next year,” he predicted.

The big change next year will be: Buyers will have more choices and less competition. There also will be fewer bidding wars.

He also predicted that interest rates will stabilize at a high 6 percent or at 7 percent — still reasonable for most buyers, he said.

Buyers who wait for the bubble to burst will learn that there was no bubble — and they may miss out on good purchases while waiting fruitlessly for prices to decline, he said.

As for sellers, Prevete said they will be more sensitive to marketing plans in view of the greater competition.

——–

Mr. Prevete, the fact that you continue to discount the mere possibility of a speculative bubble in real estate prices locally is incredibly reckless. As an industry insider, you know people are reading your comments and acting on them. However, you continue to make the same irresponsible comments and peddle them out to the press through your pal Warren. Dominick, even the NAR has conceeded the fact that home prices are out of line with fundamentals, yet you continue to disagree. Well Mr. Prevete, you are certainly as entitled to your opinion as I am mine. I will continue to get the word out to New Jersey. Each reckless bubble-inflating quote you make only serves to further motivate me and to show my readers the bias within the media and industry.

What I couldn’t understand about the duo, is why Mr. Boroson continued to write such pieces in the face of overwhelming evidence. So I decided to dig a bit deeper on who exactly Warren Boroson is. Fortunately, he made it quite easy for me:

The Warren Boroson Website

Turns out Warren Boroson is the author of this fine literature:

How to Buy a House with No (or Little) Money Down

and

Pick Stocks Like Warren Buffett

Wonderful, so it turns out that we have just another speculator masquerading as a journalist providing an “unbiased” view to the public. It’s amazing how much sense things make when you become privvy to all the information that surrounds the situation.

Just another example of how the media and real estate industry colluded to create the largest speculative bubble in history.

Caveat Emptor,
Grim

Thanks everyone for bringing this one to my attention:

Lagging growth in N.J. tied to housing costs
by Robert Gebeloff

The high cost of housing is increasingly cutting into in New Jersey’s demographic bottom line.

With more and more residents leaving the state, and the rate of international immigration decreasing slightly, population growth has slowed to crawl, according to Census data released yesterday.

The Garden State grew by just 0.4 percent in 2005, according to population estimates, the second consecutive year of minuscule population growth. In the 1990s, New Jersey typically grew by a modest but steady 1 percent each year.

The slowdown was so stark that New Jersey nearly dropped off of the nation’s population Top 10 list.

While I’m not sure I agree with his hypothesis, the fact of the matter is NJ demographic growth has been anemic. There has been no new influx of buyers driving home prices upwards. Realtors and other media cheerleaders love to use population growth and housing shortage as a justification for high prices. The stratospheric jump in demand that drove prices upwards was not due to population growth or a shortage of housing, but from speculation and easy money. Realtors and media cheerleaders will continue to be unmasked for what they are in the upcoming months.

Caveat Emptor,
Grim

New Home Sales Plummet in November

Sales of new homes plunged in November by the largest amount in nearly 12 years, providing the most dramatic evidence yet that the red hot housing market over the last five years is starting to cool down.

…

Last month’s decline was even bigger than the 8.7 percent drop-off that Wall Street analysts had been expecting. While sales of both new and existing homes are still on track to set records for a fifth straight year in 2005, analysts are forecasting sales will decline in 2006 as the housing boom quiets down.

…

Some of that price moderation was evidenced in the November report, which showed that the median price of a new home sold was $225,200 last month. That was up just 0.3 percent from November 2004, the weakest year-over-year price change in two years. The November median price was down 4.1 percent from the October median sales price of $234,800.

Caveat Emptor!
Grim

I’ve waited a long time to see this in print. I even doubted the fact that the media would ever acknowledge the fact, but they did. This piece ran in the Voice of San Diego two days ago on Dec 21st.

Supply Surplus Symptoms

This increase in inventory, coupled with the drop in home sales, means sellers have had to wait longer to sell their properties, and may have to settle for profits that are substantially less than they expected. Some sellers — albeit a small minority — have even begun to sustain losses on their property.

Sustain losses on property? The unthinkable? But prices never go down? Right? Has anyone else seen the media reports that are already reporting a soft landing? Amazing, the market hasn’t even begun to collapse on itself yet, but we’ve already landed? Already landed? I’ll leave you with a quote..

“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

Chart of Pompous Prognosticators

Caveat Emptor!
Grim

Came across a new blog this morning that I haven’t seen before. I noticed some traffic coming in so I decided to take a peek. Seems like real estate blogging is becoming popular!

The Walk-Through - A Real Estate Blog From The New York Times

I always appreciate links from other blogs and sites. It helps to get the word out by bringing new faces to the blog. In return for the favor I’m going to ask the usual readers to stop by the NY Times blog and take a look.

Caveat Emptor!
Grim

Can this be considered news anymore? Seems the American Consumer has no need to save money anymore.

U.S. Nov. Personal Spending Rises 0.3%; Core Prices Up 0.1%

Because the rise in spending matched the increase in incomes, the savings rate held at a minus 0.2 percent for a second month. A negative rate suggests consumers are dipping into savings to maintain spending.

Why bother saving? You’d be a fool. Save for a home down payment? Don’t need one anymore. Save money for a car? No money down lease! Save money for retirement? Nah, we’ll just sell our house and retire on the gains. Save for college expenses? Let the kids take out their own student loans.

PERSONAL INCOME AND OUTLAYS: NOVEMBER 2005

Personal Savings Rate
April -0.2%
May 0.0%
June -0.6%
July -1.4%
August -3.4%
September -0.5%
October -0.2%
November -0.2%

By the way, past months numbers are being sharply revised downwards. The preliminary for August was something on the order of only -0.7% when it was initially released as a preliminary number. It’s since been revised downward, first to -2.2% and again to -3.4%. So if the last two months numbers are starting to look benign, I’d wait to see whether or not these are significantly revised downward in the future as well.

Eight months most certainly makes a trend.

Caveat Emptor,
Grim

Welcome to another edition of Lowball!

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 reason for 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. This week I tried to grab listings that were more affordable than many I’ve posted in the past.

Since I was away last week, I opened the window to include more listings than the usual weekly list. Let me just say that it’s been a fantastic month for the lowballers in Northern NJ.

MLS# 2104655 - Chatham, NJ
Asking Price $2,350,000
Selling Price $1,800,000 (23.4% Lowball!)

MLS# 2109519 - Franklin Lakes, NJ
Asking Price $1,299,000
Selling Price $999,999 (23.0% Lowball!)

MLS# 2077400 - Bedminster, NJ
Asking Price $1,195,000
Selling Price $937,500 (21.5% Lowball!)

MLS# 2100818 - Paterson, NJ
Asking Price $289,900
Selling Price $230,000 (20.7% Lowball!)

MLS# 2109752 - Hopatcong, NJ
Asking Price $289,900
Selling Price $230,000 (20.7% Lowball!)

MLS# 2043432 - Newton, NJ
Asking Price $250,000
Selling Price $200,000 (20% Lowball!)

MLS# 2095896 - Butler, NJ
Asking Price $209,000
Selling Price $175,000 (16.3% Lowball!)

MLS# 2204182 - Scotch Plains, NJ
Asking Price $399,900
Selling Price $335,000 (16.2% Lowball!)

MLS# 2095318 - Lake Mohawk/Sparta, NJ
Asking Price $329,900
Selling Price $278,000 (15.7% Lowball!)

MLS# 2100851 - Sparta Twp, NJ
Asking Price $1,175,500
Selling Price $999,999 (14.9% Lowball!)

MLS# 2097357 - Ridgewood, NJ
Asking Price $470,000
Selling Price $400,000 (14.9% Lowball!)

MLS# 2111484 - Clark, NJ
Asking Price $800,000
Selling Price $685,000 (14.4% Lowball)

MLS# 2101435 - Randolph, NJ
Asking Price $599,900
Selling Price $515,000 (14.2% Lowball!)

MLS# 2203563 - West Caldwell, NJ
Asking Price $369,000
Selling Price $320,000 (13.3% Lowball!)

MLS# 2071462 - Millburn, NJ
Asking Price $639,000
Selling Price $560,000 (12.4% Lowball!)

MLS# 2109190 - Elizabeth, NJ
Asking Price $479,000
Selling Price $420,000 (12.3% Lowball)

MLS# 2068426 - Bridgewater, NJ
Asking Price $1,199,900
Selling Price $1,060,000 (11.7% Lowball!)

MLS# 2075936 - North Caldwell, NJ
Asking Price $1,375,000
Selling Price $1,215,000 (11.6% Lowball!)

MLS# 2107610 - Franklin Twp, NJ
Asking Price $556,345
Selling Price $499,000 (10.3% Lowball!)

MLS# 2102931 - Florham Park, NJ
Asking Price $589,000
Selling Price $530,000 (10.0% Lowball!)

Caveat Emptor!
Grim

Welcome to another edition of Price Reduced!

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

MLS# 2225267 - Franklin, NJ
Asking Price $379,900
Reduced Price $259,900 (31.6% Reduction)

MLS# 2094887 - Washington, NJ
Asking Price $380,000
Reduced Price $299,999 (21.1% Reduction)

MLS# 2205767 - Roselle, NJ
Asking Price $339,900
Reduced Price $289000 (15.0% Reduction)

MLS# 2075967 - Hopatcong, NJ
Asking Price $1,175,000 (Originally $1,295,000)
Reduced Price $999,999 (14.9% Reduction, 22.8% from OLP)

MLS# 2220194 - Roxbury, NJ
Asking Price $995,000
Reduced Price $880,000 (11.6% Reduction)

MLS# 2213716 - Roseland, NJ
Asking Price $484,900
Reduced Price $429,900 (11.3% Reduction)

MLS# 2107696 - Kinnelon, NJ
Asking Price $2,195,000
Reduced Price $1,950,000 (11.2% Reduction)

MLS# 2209082 - Glen Rock, NJ
Asking Price $459,900
Reduced Price $409,900 (10.9% Reduction)

MLS# 2203247 - Bloomfield, NJ
Asking Price $399,000
Reduced Price $360,000 (10.0% Reduction)

Now, to all the potential buyers reading this blog, I am not posting this information for you to drool over thinking these are great deals. These are not great deals. These are the first price reductions along a very long road downward. If I threw a knife up into the air, would you try to catch it on the way down? No, you’d wait until it hit the ground and then pick it up. The same rule applies here. Alot of people lost alot of money buying on the downside of the stock market after the Nasdaq crash in hopes of a fast recovery. There will be no fast recovery here. Sit tight, grab some popcorn and enjoy the ride.

Caveat Emptor!
Grim