A number of regular readers here suggested an open discussion forum and it does make sense, so here is how I propose to do it.
Each Monday morning I’ll open a new open discussion and topics thread. We can use that for any general discussion (on topic or not) as well as any questions from readers. I’ll keep that topic open for the week, and close it when the next thread is opened.
I receive quite a bit of email each week, some of them actually pose very interesting scenarios. Feel free to continue to email if you wish, but I ask that if you don’t mind posting up your question or scenario, please do so even if you do it anonymously.
If anyone has any ideas for a new topic or some new aspect of North Jersey real estate they would like me to explore, please reply with your ideas.
Let the free-for-all begin!
Grim
Politics Taints Highlands Act
The scandals of the McGreevey administration continue to cloud the public’s perception of the Highlands Act as some residents within the preservation area say it’s an example of dirty Garden State politics.
“New Jersey politics reek of communism,” Linda Ricker, a mother of three from Lebanon, Warren County, said at a Highlands Commission public meeting last week. “The government controls what you do. Are there any answers? Do you care?”
The Highlands Act mandates that 730,000 acres spread almost evenly across seven counties be preserved and that the state control growth within the region. The law seeks to redirect development to certain areas with the purpose of protecting streams and aquifers that provide 65 percent of the state’s water supply.
Considered a well-intentioned law by lawmakers, some within the area, which includes 10 municipalities in Sussex County, are angry that property values of their farmland have plummeted and they no longer have the same controls over their assets.
“I could’ve sold my property but my land was my safety net for my future,” said Ed Klopp, who owns 150 acres in Tewksberry, Hunterdon County. “We don’t know what’s going to happen.”
…
“This is the way for Democratic legislators and a Democratic governor to punish the Republican area,” John Kelsey, of Independence, Warren County, said. “The political bosses pushed it through so they could get land for dirt cheap … and then they will sell it to developers at a profit.”
“This has the potential to be the biggest graft bill ever passed in New Jersey. I hope the U.S. attorney is watching,” he added.
…
Vetrano said incoming Gov. Jon Corzine, who will be inaugurated Jan. 17, needs to make the Highlands Act among his highest priorities, alongside the nearly bankrupt state Transportation Trust Fund and Schools Construction Corp.
Corzine said through a spokesman that his transition team is reviewing a number of issues, including the Highlands Act. The spokesman, Brendan Gillfillian, said Corzine has been a vocal advocate of environmental issues in the U.S. Senate and plans to continue that stance as governor.
…
At issue, Vetrano said, is whether the state will be able to afford paying affected landowners fair-market value, by which he means what their lands were worth before the Highlands Act became law. Highlands Commission Executive Director Adam Zellner said negotiations between the state and landowners will take into account land values before and after the act became law.
But that doesn’t allay the fears of people who expected more value for the land they’ve tended for decades.
“Pay me real estate value for my land and I’ll go away,” Klopp said. “Our property values have been stolen.”
“If I was in their shoes, I think I’d feel the same way,” Vetrano said. He said the Legislature needs to appropriate enough money to adequately reimburse landowners.
My prediction? You’ll see the Highlands Act overturned in the future paving the way for the development of huge tracts of northwestern NJ land. What do you think? How would you feel if you owned that 150 acres of land in Tewksbury and the NJ politicians came in and told you that the land was no longer allowed to be developed (effectively destroying the value)?
Caveat Emptor!
Grim
North Jersey inventory jumped rather dramatically over the weekend.
GSMLS is looking at a 1.75% jump in under 7 days. Looking at activity from 1/1 to 1/9 we had 984 homes added as new and 134 homes back on market. Those figures are from the usual list of counties that I define as Northern NJ. And yes, take a good look at those numbers, over 1000 homes added to the market in 9 days.
NJMLS and Hudson are both showing greater than 1% increases over the same time period.
Unfortunately, it’s going to take a few weeks to get a true read on the trend we’re seeing. But at first glance the trend seems very strong.
-Grim
Landgrab,
I think Summer 07 is the earliest. Think of it this way, if prices drop from now until summer 07 and you buy then, you are OK. But if you can wait and prices stagnate and stay flat, all the while you save money and invest in higher than house appreciation (which maybe be 0%) then you will be ahead for every month you wait.
Obviously it is not easy to predict, and even harder to see the trend when you are living in the moment, but I am basing this all on historic trends. after a downturn, there is usually some stagnation at the bottom for quite some time.
Most of this is moot if you plan on living there for 30 years, but in the end you still would save a lot of money just on your interest payments to the bank.
I think the biggest thing we all should be working for is having a pile of cash when the time comes to buy. I think there will be much stricter regulations, and cash will be king (along with clean credit). if you average priced house now falls from 550k to 450k not only did you “make” 100k buy not buying, but you also had extra time to save money. In my opinion, you can never have to much cash when the time comes to purchase a home. the smaller the mortgage, the less stress you will be under in case of emergencies.
I have heard that for every 100k you borrow you pay 1000 a month, does anyone know if this holds true? I am assuming this is including taxes.
Shanghai Housing Bubble Pops
Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices.
For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.
“The entire industry is scaling back,” said Mu Wijie, a regional manager at Century 21 China, who estimated that 3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn’t stop ringing a year ago, say their incomes have plunged by two-thirds.
…
Internet chat rooms recently were abuzz with a story that a Taiwanese man had jumped from the 33rd floor of an apartment tower about 15 miles northeast of downtown. Many people suspect that he killed himself because he was drowning in debt after his home investments went sour.
-Grim
I guess that’s good news for all the people who bought condos in high-rise buildings. There’s an easy way out, JUMP!
-Richie
Grim – that’s more great stuff (or I guess I should say crappy news for flippers/ARM-holders.
286 – Thanks for the tips. We have a decent chunk sitting around, and yes, the goal is to build more over the course of the year.
I’ll definitely be monitoring this site on a daily basis, that’s for sure.
I’d like to see some discussion/info on long term trends for RE. Seems that we’re coming to the end of a basically uninterrupted 20+ yrs bull market in RE (the early 90’s was a small blip in the overall upward trend). With changing demographics, I don’t see how RE can outpace inflation anymore.
To take an example, one of my in-laws has been able to purchase a great house in a top neighborhood simply by trading up three times since the early 80’s. She and her husband are solidly middle class.
The conditions that made this strategy work are gone. I think the whole concept of the “starter home” may soon be outdated as well. Did this concept even exist a couple of generations ago? We need to look at the very long term history of RE to get a sense of how aberrational the last 20 yrs have been.
As a first time home buyer, I will not buy until I can afford a house I am comfortable staying in for the life of the mortgage. I do not think the trading up strategy based on rising asset prices will be viable in the future.
How about creating a checklist for the steps to take so you are ready when it is time to buy………..ie:
1. Making sure your credit report looks good.
2. Getting Pre-approved for the best possible loan (unless youre lucky enough to be paying all cash).
3. Making sure you are using the best lender (based on your credit score )
4. Using the best realtor…
etc etc
I’d love to see a standing quote log.
1 Person
2 Brief Description of who they are.
3 Sequential quotes and dates
I’m sure Lereah’s log would be hysterical.
It would be great to have this resource, because it is an excellent way to understand the CONTEXT of a quote.
You see a quote from a doom-gloom bear for the last 3 years, and they say “we see some sellers closing at a loss”. So what?
You see a quote from a raging bull for the last 3 years, and they say “we see some sellers closing at a loss”. OMFG!
landgrab
http://www.njactb.org can be helpful for finding sale price info. Just click on records search and you’ll be brought to a site where you can search county records. The advanced search and the excel file are the best choices for obtaining sale prices. Hope this is helpful
Landgrab
In regard to the njactb.org site-I should also add that you don’t need lot and block info to get results. Usually just county, town and address is enough.
Grim,
Nice Blog. Have been following it for a couple of weeks but posting for the first time.
Some food for thought for everyone.
I like all would probably make 20%downpayment and take a 30 yr fixed if i were to buy a home. If all of us agree that 2007 or 2008 may mean higher mortgage rates then here are some numbers that may matter . This is interest paid on mortgage loans over 5 yrs and 30 yrs period at various interest points for a 550 K home and a 450k home.
550k 5yrs 30 yrs
6% 127721 509688
7% 149819 613839
8% 172021 722283
450k
6% 104499 417017
7% 122579 502232
8% 140745 590959
for 30 yrs
As you can see for a 100K drop in price if you end up waiting and the rate goes up by 1% (6 to 7) you are fine but if you wait till it is 8% you are giving back all those 100K gains in extra interest.
So if you plan to own for life i.e 30yrs min keep a eye on both Price and Interest rates.
If You plan to own for less than 30 Yrs say 5 yrs like myself at 8% you probably will end up paying 13k extra which justfies only a part of the extra price and it is well worth the wait to see if the price drops just so that other costs linked to price may come down. For a period between 5 and 30 some such amount will justify a part of the higher cost and you probably need to make a call as to what suites you.
Of course rent vs own is a totally different calculation and i personally would rent even if the price drops by 100k given that even at that price point i need about 37% appreciation over 5 years just to break even.
Here is my calc on that and the assumptions
450K home 7% 30 yrs fixed 20% down and 9000 Property tax 28% tax bracket
5yrs
Own
Down Payment $90,000
Closing Costs $8,000
Total Interest 122,579
Total Property Tax 45,000
Total Maint 12,000
Insurance 6,000
Tax Break -32922.13749
Total Cost 250,657
Selling cost 32400
Loan balance 339,290
Break even 622,347
Appre 38.29923288
Wow. Thanks for calculations.
It really is that bad now.
grim,
Do you have data for each municipality ?
I can map stuff if you would like. and I would like to contribuute more to the blog. I can map by municipality or county.
BTW,
grim I was involved in the delineations of the boundaries of the Highland Preservation Area. It was a very sad thing that happened to those landowners.
The article has some errors in it. A 150 acre parcel can be developed for residential use. (only existing commercial will be allowed) Second they some counties wrong. third it is not evenly spread. It hits some counties more than others. Sussex got barely dented (most of it was preserved already).
Will it be repealed, I don’t think so. Many republicans supported it and the large number of residents in the state get their water from it. Btw much of it is undevelopable (steep slopes and wetlands)and if it were developed it would have to be sewered. Besides it runs counter to the State Plan which seeks to encourage redevelopment.
The main thing that could undermine it is the scientific basis for the rules. Warren and Hunterdon are paying for a study that will examine the scince of it. Also the star ledger a few months back did an analysis showing where the prelgislation boundaries were and after and noticed a pattern of where big development projects were and how the legislated booudaries went around them. Agian the scince is the lynch pin highlands rules dictate lot sizes that will be allowed which trumps local zoning. It was 88 acres for a >50% forested lot and when everyone asked where they got the number they couldn’t say but they instead changed it to 56.5 acres which was halfway between 88 and the 25 acres as a compromise. In other words it is arbitrary. However, it might be that high to compensate for the number of lots that are already there.
Is it good planning? Yes. Is it a taking you bet! I have seen no mechanism to compensate these people, wich may also be its undoing.
The dow hit 11,000 for the first time since 2001.
Quick, everyone sell their homes and buy stocks!!
-Richie
Don’t forget about gold either!
Gold hit 550 an ounce as well, I believe that makes it somewhere near a 25 year high.
bearview:
Interesting.
Please allow me to add one comment on your calculations.
There is not a clear negative correlation that can be extrapolated between interest rates and real estate prices.
We have seen the current market weakness in the face of a rise in short-term interest rates and a rally in long-term fixed income.
I would posit that if we had a move from 6.25% for 30Y-fixed to 8%, then resulting damage would be so catastrophic that your comparison would not even be necessary.
In plain language:
The market is holding together now; the Wall Street bonus money cavalry is on the way; but if we have a spike in interest rates on the long end of the curve, we would have a real estate bear market for the history books.
I don’t really think it will get so bad.
I’d like to see regular posts on number of listings.
I’d also like to see some price tracking to follow the condo/townhouse market separate from the SFH market on the basis that it has attracted more speculators and will be one of the first areas to drop…
FYI The Brunswicks area was overloaded with open houses over the weekend.
Chicago-
I have two friends in Lombard trying to unload a place, and downsize. They keep telling me the rent/buy ratio is close. Any advice I can argue Northern NJ but I don’t know the neigborhoods here well enought.
In towns that are mostly SFH and have very few rentals, the rent/owner calculation can be closer. In towns where there are many rentals, the market tends to be more competitive.
That said, are they properly considering the actual costs?
Rent
versus
Mortgage Payment + Real Estate Taxes + all other taxes + cost off maint/upkeep + homeowner’s insurance + interest lost on down payment (because you can invest this money) – tax savings on mortgage interest (remember ONLY the incremental amount above your standard deduction) + lost time mowing the lawn + whatever else I forgot :)
Chicago-
Tried all of that, where she works getting on a EL is a huge advantage so a place called River Forest was where they were looking.
They would rather live in Oak Park because the neighborhood is much more gay friendly, but that’s quite out of their price range. They wanted to buy a 4-family and rent 3 and I did the whole “you can’t cover costs with this” routine.
Now compared to LI or Northern NJ prices 600K for some of their places with CTA access to the city seem a bargain. ( I live in an small co-op in Fort Lee, home of the 600K townhouse/duplex )
They have had trouble getting mortgage brokers to not hype i/o which they do not want. It’s the first thing they try to spin on them and they can’t seem to get a broker to want to do an A-paper non FB loan. They are going to the banks now since I hope they still do standard boring mortgages.
Since I am not sure everyone here wants to read this if you want to talk off list email is patrick (a) panix . com
Chicago: Enough with the Wall Street bonus money.
The majority of those getting the bib bucks, already own homes, and have for quite some time, some for years.
The others that get bonus money thr numbers range fro 10K to 100K, very nice indeed, but thats before the 40% tax haircut.
Pascack:
Quick question that is completely off-topic (I apologize). Complete coincidence, I was researching the financial condition of the Pascack Valley Hospital in Westwood. The last information I saw was from last February’s Bergen Record. My firm hold muni-bonds from the NJHCF that are tied to Pascack. Were we thinking about dumping all of our positions because S&P downgraded them to junk in 2004 and they deteriorated to mid-B range now. These puppies are shortdated, so we will probably hold for now. Do you know of a good source for local information? All of the disclosures connected to the hosipital are purposely vague, and the last S&P pronouncement is 18 months old.
Sorry about this complete off-topic. E-mail me through the website if you wish.
Grim:
Is there any way to get data on cross holders of real estate in NJ and other geographic areas?
As an example, is it possible that a NJ resident has a second (or third) home in Florida, and when that market collapses in a pile of dust, it could suck some of the life out of the market here by association.
As an example, we’ve seen evidence of owners in CA buying property in TX, AZ, NV etc.
Any thoughts on this?
chicago
CF,
Not that I know of, although I agree that the data would provide significant insight into speculative activity..
Exposure to the risk you bring up is more likely to be felt by the lenders and MBS-holders. The only way to mitigate that risk is through higher risk premiums and thus, higher mortgage rates. So, a large scale regional crash would most certainly feed back via mortgage rate spikes nationwide.
The impact would be much larger than that of individual investors.
However, anecdotal stories of loss have a knack for shifting psychology.
grim
check this out.
http://realtytimes.com/rtmcrloc/New_Jersey~Montgomery_Township