New Jersey Real Estate Report

From the New York Times:

A Gritty Area With Awesome Views

PATERSON — THIS is a city with a reputation for being old, gritty and tired, but it has a natural wonder that is mostly a secret to outsiders: magnificent waterfalls.

Now, Paterson’s energetic mayor and a fired-up developer envision a vibrant neighborhood near these falls. It would create hundreds of condos in restored factory buildings and new low-rise structures, new retail space, a public access cable television studio, a hotel, an amphitheater and a waterfront trail along the Passaic River.

The mayor, Jose Torres, is pushing hard to have the Great Falls of Paterson — the second largest by volume east of the Mississippi, after Niagara, according to the city — declared a national park. And he has set in motion a plan to secure a National Park Service grant to finance the cleanup and stabilization of the historic district around the falls, which was declared a state park in 2004.

Currently, the area immediately around the falls is desolate. It is occupied by the city dog pound, two warehouses, a run-down arena and several burnt-out husks of buildings that once served as textile mills.

But the developer, Dornoch Holdings of Morristown, has seized on the mayor’s view of the place as a natural gem in need of polishing and has produced plans for a large-scale redevelopment to be built in phases over the next five to seven years.

The Great Falls Historic District project would create a total of about 350 market-rate condominium units in restored and newly built structures and an 83,000-square-foot hotel-conference center where there are now faded industrial structures running along McBride Avenue that have spectacular waterfall views.
…
Mr. Fishman said various Columbia mill buildings would be restored to maintain their “historical character,” and turned into a dozen 900-square-foot one-bedroom homes; one three-bedroom home of 1,800 square feet; and 30 condos, each about 1,200 square feet. Some of the units would be intended as artist’s live-work space.

I am actually rather excited about this project, and not just because news on the real estate front this Friday has been slow. I just hope this project gets off the drawing board, it will give a much needed boost to the area. Could this be a first step towards Paterson gentrification?

Caveat Emptor!
Grim

Listings As of 3/31
Total Active Listings: 197
Up To $500,000: 116
$500,001 - $1,000,000: 79
$1,000,001 And Up: 2

Listing Activity Since 3/1
86 Added
16 Back on Market
60 Price Reductions
63 Under Contract
44 Sold
34 Expired
16 Withdrawn
6 Temporarily Withdrawn

February Sales Activity
Up To $500,000: 14
$500,001 - $1,000,000: 3
$1,000,001 And Up: 3
Sales Prices were 5.00% below Original List Prices
(Activity data from GSMLS)

Foreclosure Activity Since 1/1
7 Notice Of Default
(Foreclosure data from RealtyTrac)

From Bloomberg this morning:

`For Sale’ Signs Rise, Home Sellers Cut Prices as Fed Tightens

Maryam Safai’s 5,000-square-foot, five-bedroom colonial in Mahwah, New Jersey, has been on the market for a year, even after three reductions in asking price.

“I’m not going to give in to the market,” says Safai, 44, a dentist. “I’m not selling below our current asking price” of $1.69 million.

Like Safai’s northern New Jersey neighborhood, housing markets around the nation are cooling, mostly as the result of the Federal Reserve’s drive to push up interest rates. That has slowed price increases in most of the country and reduced demand for risky types of financing that caused former Fed Chairman Alan Greenspan to worry about “froth” in the housing market.
…
The trend is most pronounced in affluent neighborhoods in the Northeast, where prices soared the most during the real- estate boom. Median prices for existing homes in the Northeast were up 5.2 percent in February from a year earlier, compared with almost 18 percent in the previous 12-month period, according to the Realtors group.
…
While damping price growth the most at the high end of the market and in the Northeast, rising rates have also reduced demand for riskier forms of financing and begun a shift of power from sellers back to buyers, economists and brokers say.

In a sign that buyers are starting to gain the upper hand, pre-sale home inspections are back in vogue in Montgomery County, Maryland, says Meg Finn, a Long & Foster agent based in Bethesda. Just a year ago, buyers who insisted on inspections jeopardized their chances of getting a house in a bidding war, she says.
…
On a Boston street, lined with a dozen “For Sale” signs, McCormack is trying to sell a three-bedroom house listed at $535,000. She’s holding “commuter hours” open houses on Monday nights to lure would-be buyers on their way home from work.

“When the market was hot, we never would have had to do this,” she says.

Caveat Emptor!
Grim

(Credit goes out to Ben at The Housing Bubble for finding this one)

From the BEA:

News Release: Personal Income and Outlays

Personal income increased $31.5 billion, or 0.3 percent, and disposable personal income (DPI)increased $21.7 billion, or 0.2 percent, in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $13.1 billion, or 0.1 percent. In January, personal income increased $77.1 billion, or 0.7 percent, DPI increased $53.5 billion, or 0.6 percent,and PCE increased $72.1 billion, or 0.8 percent, based on revised estimates.
…
Personal saving — DPI less personal outlays — was a negative $43.8 billion in February,compared with a negative $51.0 billion in January. Personal saving as a percentage of disposable personal income was a negative 0.5 percent in February, the same as in January. Negative personalsaving reflects personal outlays that exceed disposable personal income. Saving from currentincome may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or byusing savings from previous periods. For more information, see the FAQs on “Personal Saving” on BEA’s Web site.

From Bloomberg:

U.S. February Personal Spending Rises 0.1%; Incomes Up 0.3%

Consumer spending rose 0.1 percent in February, the smallest gain since August, as Americans took a breather after splurging a month earlier. A measure of prices favored by Federal Reserve policy makers rose 0.1 percent, as expected.

The increase followed a revised 0.8 percent spending gain in January that was the biggest in six months, the Commerce Department reported today in Washington. Incomes rose 0.3 percent after a 0.7 increase the previous month.

Rising incomes and more jobs are shoring up consumer confidence, which will help spending in coming months, economists said. A healthy consumer and revised figures showing inflation jumped last quarter may keep the pressure on the Fed to raise its main interest rate at least one more time.
…
The savings rate, which measures the difference between income and spending, held at a minus 0.5 percent for a second month. The rate has been negative for nine of the last 11 months. A negative rate suggests consumers are dipping into savings to maintain spending.

Caveat Emptor!
Grim

I certainly can’t recommend buying right now, but many readers have been wondering just who has been buying and who has been putting in those bids.

Well it turns out there is a big fish in town. So if I can’t convince you to wait on the sidelines, and you get outbid, don’t feel so bad, it might have been a billionaire that outbid you.

More tear downs are coming
National developer targets area’s single homes

It’s spring and the birds are chirping, daffodils are coming up and houses are coming down. Developers have been buying up homes in the Rolling Hill area of Chatham Township and on roads off of Noe Avenue for anywhere between $700,000 to $950,000 just to knock them down and build bigger homes costing twice as much. Tear downs and rebuilds have been the domain of a handful of local builders in the area, that is until Hovnanian Enterprises announced its new Classics Division would be targeting several Morris County towns, including the Chathams and Madison, and Summit in Union County.
…
According to published reports, one of the first homes to be built by this new unit will be in Chatham Township on Longwood Road. Hovnanian recently purchased the split level and has plans to build a six-bedroom, three car garage home of approximately 4,000 square feet, almost double the square footage of the existing home. The new home is expected to cost between $1.5 and $2 million, which is in line with other rebuilds currently on the market. Hovnanian calls the process “replacing obsolete homes with more energy efficient ones in keeping with the character of the neighborhood.”

Towns ask whether regulations are needed

Several local developers have been tearing down smaller homes to build bigger ones in Chatham Township, since there is almost no vacant land available for new-home construction in the area, planning board member Tom Browne said. This is occurring in sections of the 200-year-old township that were developed in the 1950s, he said.

One of New Jersey’s largest home builders — K. Hovnanian Homes — announced recently that it was getting into the act, having created a new division specifically to build larger homes on the footprints of smaller, razed houses.
…
Chatham and Morris townships are two Morris County towns where a division of K. Hovnanian called Classics of K. Hovnanian is in the process of building a taller structure after razing a smaller home. Other towns, including, Summit and Bernardsville, also have been selected by the developers.

Caveat Emptor!
Grim

The BLS released their monthly labor report this morning:

REGIONAL AND STATE EMPLOYMENT AND UNEMPLOYMENT: FEBRUARY 2006 (PDF)

The seasonally adjusted unemployment rate rose to 4.7% in February from 4.5% in January. February also saw a year over year rise from a rate of 4.4% in February of 2005. The number of unemployed stands at 208,700 up from 201,800 the month prior. The total number of unemployed stood at 195,800 in February of 2005.

Caveat Emptor!
Grim

Listings As of 3/30
Total Active Listings: 83
Up To $500,000: 8
$500,001 - $1,000,000: 43
$1,000,001 And Up: 32

Listing Activity Since 3/1
27 Added
3 Back on Market
17 Price Reductions
14 Under Contract
12 Sold
11 Expired
11 Withdrawn
2 Temporarily Withdrawn

February Sales Activity
Up To $500,000: 0
$500,001 - $1,000,000: 3
$1,000,001 And Up: 1
Sales Prices were 4.59% below Original List Prices
(Activity data from GSMLS)

Foreclosure Activity Since 1/1
5 NOD
1 NTS
(Foreclosure data from RealtyTrac)

Time again for the Northern New Jersey Weekly Residential Inventory Update. Sorry it was delayed by a day, the data was compiled yesterday but not posted. We broke through 14,000 on GSMLS and will likely break through 7,000 on the NJMLS next week.

GSMLS
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren Counties)
3/22 - 13,779
3/29 - 14,018 (1.7% Weekly Increase)

NJMLS
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Passaic Counties)
3/22 - 6,822
3/29 - 6,932 (1.6% Weekly Increase)

MLSGuide
Single Family Homes, Condo, Coop
(Hudson County)
3/22 - 2,169
3/29 - 2,031
(Not sure if this is a data issue, saw a similar temporary downspike in February)

The Office of the Comptroller of the Currency recently issued a proposal for revising guidance on nontraditional mortgages. The office also requested comments on the proposal from banks, lenders, and financial institutions. The comments period was extended and it’s deadline is today.

Interagency Guidance on Nontraditional Mortgage Products

One response, in particular, piqued my interest. This response was not from a lender or bank, but from a real estate and mortgage broker. This response can be found here:

Mr. Blomquist’s Response(PDF)

I was surprised for two reasons. The first being that the this response was accepted from a layperson, the second being that Michael S. Blomquist seems to be one of the lone voices of reason in the group.

This document is a must read for everyone. While the average homebuyer might be intimidated, please, just take the time to go through it. He makes a very convincing argument, especially considering this person is a real estate and mortgage broker.

While I don’t know who Mr. Blomquist is (a google search turned up very little), I am personally thankful for the time and effort he put in to his response. Mr. Blomquist deserves much thanks from this community.

Here are some highlights from his response:

After years of writing local representatives and banking regulators I am pleased that you have finally decided to address the risk layering and terrible declines in lending standards. I hope we can someday learn to address similar issues before they become a pandemic. Stated income guidelines have always been suspect, but due to recent declines in standards are now best defined as fraudulent. Option ARM loans are ticking time bombs and extremely misleading. The American Dream of homeownership should not have been exploited. Millions of borrowers, investors and the banking industry will be devastated when these loans begin to recast.

Future loan loss projections based on prior loan loss history will not provide accurate forecasts. The historical data does not reflect the existing risk layering, inadequate underwriting criteria, rapid appreciation, historically low rates or proliferation of option arms.
…
I have heard numerous comments from lending executives regarding the healthy track records of option ARMs and negatively amortized loans. I find these statements extremely misleading at best. Obviously, the level of market exposure is unprecedented. Home prices, appreciation, DTI and LTVs have never been higher as reduced or no documentation guidelines have become the underwriting standard. Loans that can have minimum payments which are 40% of traditional payments should have excellent credit ratings, but even under current payment caps that is not the case. In addition, the components of prior option arms or negatively amortized loans are completely different now.
…
I have been a real estate and mortgage broker for 14 years and have witnessed the aftermath of the 1990 real estate bubble/crash and S&L crisis. The size of the 1980’s real estate bubble is miniscule compared to the current bubble. The 1980s bubble was created with more strict guidelines and much higher interest rates, but still resulted in much insolvency. Stated income loans, securitizations and 100% financing was relatively non-existent. Relative to income, home prices were much more affordable then compared to now.
…

Home price and economic stability should be a goal of all agencies. We have been bouncing from bubble to bubble for decades and the global environment has dramatically changed. At some point all of our increased leverage will come back to haunt us. We continue to hide our financial problems: The elimination of the dollar-gold standard, proliferation of securitizations and now the option ARM/non-traditional lending guidelines. This statement may sound too aggressive, but if we analyze the increased use of the option ARM, stated income guidelines, home appreciation, equity extraction, consumer spending and recent GDP growth there is a direct correlation. We continue to find ways to over-leverage our incomes while forecasting the most optimistic future scenarios. The recent stock market bubble is an excellent example. If our government and economic scholars can not exhibit spending restraint or accurate income forecasts how can we expect the average American homeowner to do so.

Caveat Emptor!
Grim

Not local, but certainly relevant. Danielle DiMartino from the Dallas Morning News put together a nice primer on how the mortgage market poses a systemic risk to our entire financial system..

From the Dallas Morning News:

Systemic risk is on the bubble

The mortgage market remains a mystery to virtually every American.

Systemic risk is risk that affects an entire financial market or system, not just specific participants. As such, it’s impossible to escape systemic risk through diversification.

Sound too alarmist? Consider a few facts:

•The collateral backing mortgages is stretched precariously thin – one in 10 homeowners has zero-to-negative home equity.

•Recent estimates put one-quarter of all mortgages underwritten last year in the subprime, or riskiest, category. That’s well above the 13 percent average share for the decade through 2005.

•Even after adjusting the rate downward to account for Hurricane Katrina, mortgage delinquencies ended last year at 4.55 percent, an 18-month high. And subprime delinquencies are pushing 12 percent.

•Despite historically low borrowing costs, households spent a record amount of after-tax income at year-end to pay required principal and interest payments.

•In the next two years, about a quarter of all outstanding mortgages – or more than $2 trillion worth – will reset at higher rates.

•A record 62 percent of commercial banks’ earning assets are mortgage-related.

Let me just add a few more in case those didn’t raise your eyebrows..

• 43% of first-time home buyers did so with no down payment in 2005.

• The median down payment for those first-time buyers was 2% (on a $150,000 home).

• ARMs accounted for almost 40% of mortgages originated in 2004 and 2005.

• $600 Billion in equity was cashed out through refinancing in 2004.

• $834 Billion in equity was cashed out through refinancing in 2005.

Caveat Emptor!
Grim

From Bloomberg:

Fed Raises Rate, Holds Out Prospect of More Increases

The Federal Reserve, beginning a new era under Chairman Ben S. Bernanke, raised the main U.S. interest rate to 4.75 percent and held out the prospect of further increases.

The quarter-point move is the 15th in a row, the longest stretch of increases in more than 25 years. Fed policy makers kept their assessment that energy prices and labor costs pose a risk to inflation.

“Some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance,” the rate-setting Federal Open Market Committee said in its statement after meeting today in Washington. “The run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation.”

The FOMC Statement can be found here:

FOMC March 28th Statement

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.

The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

The vote was unanimous.

Caveat Emptor!
Grim

From the Wall Street Journal:

The New Rules Of Real Estate

As the spring selling season moves into high gear, the cooling housing market is upending the conventional wisdom that guided buyers and sellers during the housing boom.

The changing dynamics have implications for a wide variety of players in the real-estate market. Some brokers are advising sellers to price their homes in the bottom 25% of comparable properties. People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer bail them out. Employees who are relocating are being advised to steer clear of new subdivisions where competition from brand new construction could make reselling soon difficult.
…
Sellers

Say goodbye to the days when sellers could simply look at what their neighbor’s house sold for and then list theirs for 10% more. Brokers are advising sellers to make sure their house comes across as a good value relative to other homes on the market.
…
David D’Ausilio, a broker-associate with Re/Max Heritage in Westport, Conn., is counseling his clients to price their homes in the “bottom 25%” of comparable homes and to cut their asking price by 3% to 5% if the listing doesn’t generate several showings or written offers within three weeks.
…
First-Time Buyers

As the housing market cools, first-time buyers have the opportunity to be more thoughtful about their purchases and to negotiate for a lower price, a more flexible move-in date, or incentives such as seller-paid closing costs.

Jill Green, a Realtor with Century 21 Award in Carlsbad, Calif., a coastal community north of San Diego, has been making offers that are 1% to 5% below the low end of the seller’s price range. “Sellers are entertaining the offers and are taking them,” she says.

Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs.

——

Just further examples of the shift in psychology that is currently hitting the market. We’re currently coming off the top of the largest bubble ever to hit North Jersey real estate. Buying at this time should still be considered a very risky proposition. A mere 5% below asking is nowhere near the reduction necessary to bring prices back inline with fundamentals. Don’t look at the price drops and sales under asking as purchase opportunities, they are not, they are indicators of a rapidly weakening market.

Caveat Emptor!
Grim

(thanks to chicagofinance for the link)

From the Associated Press:

Forecasts: Northeast Due for Big Hurricane

New England could be in for a big one. Meteorologists say conditions — including warmer temperatures in the Atlantic Basin and cooler temperatures in the Pacific Ocean — are ripe for the Northeast coast to be hit by a whopper of a hurricane this season.

“The chances of one happening this year is no greater than it was last year,” Jensenius said.

I’m sure everyone will be waiting on the edge of their seats for the Fed Open Market Committee policy statement at 2:15pm (EST) this afternoon. A quarter point rate increase is widely expected by the market. The big unknown will be what the first statement under the Bernanke watch will read.

To get a feel for how the Fed Funds Rate affects the mortgage market, I’ve included a graph from Bankrate displaying the 30y-fixed, the 5/1 ARM, and the 3/1 ARM.

The graph illustrates Greenspan’s conundrum perfectly. While the short term mortgages moved up in lock-step fashion with the fed moves, the 30y seems almost disconnected. Well, it is disconnected, as the 30y has more in common with longer yield bond market, not the short term. This isn’t to say there has been no effect on the mortgage or housing markets, it’s clear that these rate moves are making the current (un)affordability mortgage products even more unaffordable. Another key part of this graph is the spread between rates among products. Look at how wide the spread was in 2003 compared to now.

While we are on the subject of mortgages, sub-prime lender Aames Financial, announced it would cut 100 jobs in it’s Florida and Parsippany, N.J. locations citing a difficult mortgage market.

Aames Investment to Close Offices, Trim Staff

Cutting costs in reaction to a tough mortgage market, Los Angeles-based sub-prime lender Aames Investment Corp. said Monday that it would close offices in Deerfield, Fla., and Parsippany, N.J., and eliminate 100 jobs in its wholesale lending division, which makes loans through mortgage brokers.

Caveat Emptor,
Grim

At A Glance: Sparta, NJ

Listings As of 3/27
Total Active Listings: 148
Up To $500,000: 68
$500,001 - $1,000,000: 61
$1,000,001 And Up: 19

Listing Activity Since 3/1
64 Added
8 Back on Market
22 Price Reductions
37 Under Contract
13 Sold
23 Expired
4 Withdrawn
3 Temporarily Withdrawn

February Sales Activity
Up To $500,000: 8
$500,001 - $1,000,000: 8
$1,000,001 And Up: 0
Sales Prices were 5.82% below Original List Prices
(All data from GSMLS)