Is that the sound of the market crashing?

From the NY Times today:

That Sound You Hear? The Market Coming Down to Earth

AS clusters of open-house balloons bob across the suburbs of the metropolitan area, from the New Englandy enclaves of Fairfield County, Conn., to the salt-sprayed boroughs of the Jersey Shore, the question remains: whither the housing market?

New Jersey’s inventory swelled, too, up 46 percent in January over the previous year. Westchester had the least growth in the number of houses on the market, 13 percent more at the end of 2005. If you add in co-ops and condominiums, the rise in inventory was 21 percent.

Bill Hanley, president-elect of the New Jersey Association of Realtors and manager of Weichert Realtors in Metuchen, N.J., agreed. “Before we had one home for 10 buyers,” he said. “Now the one buyer can look at 10 homes.”

For sellers, the new market dynamic can lead to frustration. Gary Harman watched in recent years as his neighbors sold Cape Cod-style homes for more than a half-million dollars. At the end of December, he put his house, in East Hanover, N.J., on the market for $539,000. None of the more than 25 people who came to see it made an offer. He has since dropped the price twice, to $519,900. He believes his house stands out because of the abundant custom wood molding he installed himself. “The discouraging part is that when the people go through the house, they don’t even take that into consideration,” he said. “You could have holes in the house and it wouldn’t matter.”

Self-installed custom wood moulding? Surely that doubles the ‘value’ of the home. I guess not since Gary lowered the price to $499,900. The MLS# is 2229112. Bonus points to any reader that can actually find any custom wood moulding in the listing photos.

Caveat Emptor!

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49 Responses to Is that the sound of the market crashing?

  1. Metroplexual says:


    Found some crown molding in photo six around the front door wall with wainscotting and in photo 7 crown molding around the closet door area. IMHO it is too heavy for the proportions of the rooms. BTW, are those whose line is it anyway points?

    This seller is so whiny. You would think he never ever did a days hard work in his life until he put the stupid molding in.

    Bill Hanley, president-elect of the New Jersey Association of Realtors and manager of Weichert Realtors in Metuchen, N.J., agreed. “Before we had one home for 10 buyers,” he said. “Now the one buyer can look at 10 homes.”

    Uh supply and demand? Wait until those resets hit and the market really gets flooded.

  2. Bubble-X says:

    “Before we had one home for 10 buyers,” he said. “Now the one buyer can look at 10 homes.”

    Yeah, and with the inventory coming online that buyer will be able to look at 20 homes. We are looking at a lot of new homes coming onto the market, and a lot of people planning to sell. Nasty.

    By the way, custom moldings only matter in an up market. If an investment (and that’s how people look at houses these days) is not going up, a molding will not make it look better..

  3. Dr. Potts says:

    yo G – did you make or are you making House” REL=”nofollow”> ?? Hit me back.

  4. grim says:


    I owe you a beer.


  5. Sharmin says:

    Wait and see. In the Mount Olive area there are a lot of for sale signs and increasing by days. Either houses are withdrawn from the listing or selling for a lot less. For example see 2111308 with OLP=499000, new LP=429000. I don’t know how much it is sold for? I will keep an eye. When it was listed for 499000 I asked my RE agent to bid for 445000 and he declined. I am glad he declined. Ha Ha.

  6. Richard says:

    ya missed the speculative frenzy gary. sorry. take your lumps and price the property appropriately for today’s market.

  7. Metroplexual says:


    Did you notice the patio furniture in #6. This guy is marginal.

  8. Anonymous says:

    This POS is worth no MORE THAN $350k. gREEDY SLEER IS IN DENIAL!

  9. Anonymous says:

    We didn’t even go out to the many advertised open houses this weekend.

    What’s the point?

    We’re not going to pay the crazy asking prices, even if we like what we see.

    So we’ll just wait until the market gets back to reality.

  10. Anonymous says:

    Nice to see sellers whining.

    They better get use to it.

    Party is over.

    Lower prices here we come.

  11. Anonymous says:

    From the listing description of MLS 2229112 in East Hanover:


  12. grim says:

    We drove by a few open houses today. Mainly around the Peapack Gladstone area. Nothing really worth the time.

    Sorry this weekend was so light, was pretty busy.. Just got back from my first bat mitzvah..


  13. Anonymous says:

    Went ot a few open houses in Monroe and South Brunswick. I looked at the sign in sheet and looked very weak.

  14. Anonymous says:

    Looked at a couple in Branchburg/Bridgewater. Realtor said “Verizon is moving into the old AT&T complex so prices will not drop, as the demand will be still high”

  15. Anonymous says:

    Re: the comment above that the MLS 2229112 is worth not more than 350K.

    I strongly disagree. I am confident that it will be worth more than $500K + inflation in 5+ years.

    There certainly might be lower prices in the immediate future because of an excess supply from homeowners and investors who overleveraged themselves to buy a house. However, a higher level trend is at play – which is the devaluation of the dollar (or the increase in M2/M3 because of the persistent current account deficits).

    Also, for Western & Northern NJ, take a look at the Pinelands preservation act. When that is law, there will be no new land available for development from Eastern Morris County all the way West to PA and South almost to Route 78. Developments already permitted are certainly grandfathered (and there are a good many of them). But sooner or later, there will be a crunch.

    With that, the land value of the lot in MLS 2229112 alone may be well over $500K. (Just as an exercise, try finding the recent (yes Dec 05 to Mar 06) prices for lots of that size in East Hanover or Florham Park or Parsippany.

    Yes, the seller appears to be in denial and sounds whiny. However, don’t get carried away by assuming that the current sentiment will last forever.

    Finally, no, I am not a realtor (or a real estate investor either). (I have followed the commodity markets for some time now though).

  16. Grim Ghost says:

    Also, for Western & Northern NJ, take a look at the Pinelands preservation act. When that is law, there will be no new land available for development from Eastern Morris County all the way West to PA and South almost to Route 78.

    The Pinelands preservation act has been law for 25 years. What on Earth are you talking about ?

  17. Anonymous says:


    I am sorry. My bad – It is the highlands preservation act (not the pinelands preservation act).

    Thanks for the swift correction.

  18. RentinginNJ says:

    The Pinelands Protection Act (already in effect)covers the Pine Barren areas of Southern NJ. Even where development is allowed in this area, prices tend to be much lower than in Northern NJ. I think this law will have little, if any, impact on prices in East Hanover.

  19. Anonymous says:

    The density of population in Southern NJ is lower than that of Northern NJ. If the highlands act takes affect, it will have an impact on the prices of vacant or buildable lots in Northern NJ (and perhaps even on prices of SFD houses on large lots). RentingInNJ – I do realize you have a different opinion. Let us just agree to disagree.

    Also, I have been mildly interested in buying a vacant lot in the towns I mentioned for some time now. There was a 100X140 lot in Lake Hiawatha (considered not as desirable as East Hanover) sometime over the last 2-3 months. I made a mental note to look it up and call the realtor but it was gone just a couple of weeks after I tried to access the listing again.

    Here is my suggestion for those of you who are analyzing prices. Break up the price into land value and house value. Usually, houses sell for below replacement value (unless they are new – in which case they are currently selling for about 160-180% of the replacement value – which is where the froth is). Now estimate the value of the land (using whatever assumptions you are confortable with). Then decide if the price of the house will sustain over the long term.

    I would suggest that you don’t totally exit the Real Estate market and park all of your assets in USD’s. Maybe a balanced approach would be to make a purchase that would tend to hold its value even in a declining market (e.g small houses on a large lot in a desirable town).

  20. Anonymous says:

    Anonymous — you’re wrong. It is definitely not true that

    there will be no new land available for development from Eastern Morris County all the way West to PA and South almost to Route 78.

    1) Eastern Morris County is not affected at all
    2) Many municipalties in many counties are not affected at all. Most of Sussex county is not affected, for instance
    3) Highlands planning areas are not impacted that much.
    4) Even in the Highlands Preservation area, many types of residential development are allowed. THe builders need to get permits from NJDEP mostly related to water quality.

    Finally, development less than 1acre is almost always allowed.

  21. Anonymous says:

    Eastern Morris County is affected. For instance – The entire township of Parsippany falls under the gamut of the Highlands act. I am not sure about East Hanover.

    I do realize that it is swath of land that runs across diagnolly across the top most portion of NJ. So some of your comments about all os Sussex county being excluded from the act are valid.

    Also, I do realize there are preservation zones and planning areas (other zones in which the townships can choose voluntary compliance for portions of the act). However, I would imagine that many townships will adopt uniform laws (especially as state aid may affect some decisions).

    However, we are getting caught up in Environmental law, which is not my strong point.

    If you want to prove me wrong, tell me the sale prices of fully improved lots in the towns that I mentioned. Tell me how often do these lots come up for sale. Tell me which large tracts of land in Northwestern NJ have been recently (late 05 and 06) given a permit to convert to residential development.

    Please note that I am not arguing that land prices will not come down with any slide in the home prices. I am saying that they will tend to preserve their value better, especially in light of the highlands act (and trust me – the highlands act had not caught the attention of the public yet). There will always be a healthy market for SFD homes on good-sized lots in the US.

    While many of the comments on this site are well thought through, some of the ultra low home prices thrown about seem to derive from frivolous thinking (and if at all they are realized – it will be because of a dramatic undershoot because of consumer sentiment and it will last for a short time).

    M3 has almost doubled in the last 5 years (and shows no signs of slowing its growth). The correlation between this growth of money and the rise in house prices is uncanny. In fact, even with 1999 & 2000 home prices, you could buy more ounces of gold (or barrels of oil) than the 2005/2006 list prices (of the same houses) will get you. The growth of fiat money is so large that there is no other asset class that can absorb it except perhaps Residential & Commercial Real Estate.

    Yes, it is certainly possible that sentiment can cause house prices to go down and possibly undershoot their true fair value (which is not a static number but relates to the strength of the currency that it is being measured in). But as long as you ensure that your income is sufficient to make your payment for a few years, I believe NJ housing will rebound in price (at least as measured in USD’s).

    It is sound advice to not buy a condo or a townhome at their current prices. It is also a sound advice to buy only a house that you can afford to make payments on. However, in my view, it is not a good advice to totally exit the Real Estate market. Real Estate debt may yet turn out to be very smart debt, as you might get to pay it back in dollars of much lesser value.

  22. Metroplexual says:

    Also, for Western & Northern NJ, take a look at the Pinelands preservation act. When that is law, there will be no new land available for development from Eastern Morris County all the way West to PA and South almost to Route 78. Developments already permitted are certainly grandfathered (and there are a good many of them). But sooner or later, there will be a crunch…………..

    First of all I have been intimately involved in the highlands act at the local level. The highlands commission is most likely looking to do Transfer of Development Rights for the land owners in the preservation area (we will see when the plan comes out in June or July). IMHO if owners don’t get it I see a lawsuit declaring the legislation a taking. So the amount of new units before the act and after will likely be the same.

    Second, I have done buildout analyses for these areas. We are not done folks, even with 10 acre zones.

  23. grim says:

    If the (hyper)inflation scenario does play out, you are much better off holding other currencies, foreign investments, and hard commodities (metals, gold, silver) during that time, not housing. Diversification is nothing new, and true diversification requires diversification away from dollar denominated assets.

    Although it’s one of the most creative psuedo-economic justifications for purchasing a home, it requires quite a big tinfoil hat and is the stuff revolution is made of. The kind that the U.S. hasn’t seen for many years. The fed hyperinflating the currency is going to have repercussions much deeper reaching than those you outline.

    Why diversify into an illiquid asset?


  24. grim says:

    Oh, and please don’t use the “not making any more land” argument, it’s been debunked many times here. There is more than enough land to sustain development here for many many more years. Don’t forget about the coming shift in population demographics.

    Globalization is lessening the drive towards immigration into this country. Without significantly higher rates of immigration in the near future, it’s possible that the U.S. population will be declining in the future.


  25. grim says:

    Also realize the conundrum the goverment is in with regards to social security. While it would be all fine and dandy to inflate away all our worries, the problem is that the inflation will certainly be reflected in the CPI. These cost of living increases will need to be avoided to keep the government liquid.

    Also keep in mind that the bulk of our population has likely not participating in the housing boom. I have serious doubts that the government and the fed is going to destroy our currency to save a handful of financially inept or reckless “homedebtors”..


  26. Anonymous says:


    I don’t consider myself to be smart – so I will take your observation that “it is one of the most creative psuedo-economic justifications…” as a complement.

    I am merely trying to provide balance. The prices proposed by some of the readers are patently absurd. I wanted to call them out on that.

    All I am saying is this – all houses and all towns are not created equal. If you don’t happen to own a home and can afford a fixed mortgage payment, I was suggesting that they buy a house that can weather a downturn better than others. Land value, ability to divide it into portions & rent it out, ability to get variances from towns to split the lot for building two houses in the future etc etc give one flexibility. Think about these aspects when looking at houses. Don’t necessarily wait for absurd prices (by extrapolating 3% increases for instance) suggested on this board. Even if they come, they may not last long. And there is good chance that the better properties may never be on sale when that happens.

    However, I am not suggesting that people overdo it by buying a series of houses (betting on appreciation only).

    Also, even with inflation at levels lower than this, houses will continue to appreciate in the long term (even if prices remain volatile in the short term). This will remain true as long as there are more dollars in existence than they were yesterday.

    It is not merely co-incidence that M3 has increased by almost the same amount as the increase in the median price of a house. Also, if you are interested, take a look at the retained portfolio of FNMA & FHLMC (They have shrunk quite some over the last 18+ months). Guess where they have gone ? The FCB’s have been buying them. Of late, they seem to prefer agency issues to treasuries.

    I would love to be proven wrong. I would love it if you started a low ball list for vacant lots in NJ (and prominently feature the 20%markdowns like you do for houses).

    Metroplexual – any chance you can direct me to the buildout analyses that you referred to (assuming that it is not proprietary information). Thanks.

  27. grim says:

    Maybe a balanced approach would be to make a purchase that would tend to hold its value even in a declining market (e.g small houses on a large lot in a desirable town).

    Land in this area only has one reason for it’s value. The fact that it can be developed. You can not farm it nor mine it. It’s value lies solely in the fact that you can develop it.

    If you believe zoning will become more restrictive in the future, why pay the premium for a large lot? The only value is if that lot could be subdivided and developed. If not it’s just more grass to mow.


  28. grim says:


    OLP $399,900
    Sold $375,000

    OLP $619,900
    Sold $580,000

    West Milford
    OLP $769,500
    Sold $560,000

    OLP $21,000
    Sold $13,500

    OLP $19,777
    Sold $12,000

    OLP $25,000
    Sold $19,000

    OLP $14,777
    Sold $10,000

    Berkeley Heights
    OLP $399,000
    Sold $325,000

    OLP $315,000
    Sold $250,000

    Unfortunately, it’s much more difficult to determine valuation for land compared to land+structures. So take it at face value but nothing deeper.


  29. Anonymous says:

    It may be difficult to convert land that is currently zoned agriculture to residential. If so, large lots which are already in a residential area may go up in value.

    For instance – in Parsippany township – it is possible to get vaiances in certain sections like Lake Hiawatha, Lake Parsippany etc. Hence you will see all different lot sizes from 40X100 all the way up to 100X150 (and even up). It is increasingly difficult to come across the bigger lots now though. However, other sections of the town (e.g. Canterbury estates) have seen almost no variances issues. Large sections of this part of the town have 100 X 150 or larger lots. It might well be that these lots will be the only ones left for the developers to easily obtain in the future.

    Another tip for home buyers is to buy houses in towns which have lots of office buildings (e.g. Parsippany instead of Nutley or even East Hanover). The property taxes in these towns tend to be between 40 to 50% less for similar houses in other towns, as the office complexes pay the bulk of the town’s property taxes.

    Finally Grim – thanks for the lot listings. I would appreciate it if you have the MLS listings or links as well.

    I usually take the ratio of the sale price to the land assessment price of the lot sold and map it to the land assessment portion of an existing house.

  30. Anonymous says:

    Love this comment:

    “A few years ago, sellers were not making their beds and leaving dishes in the sink, and buyers were still coming and buying,” said Cindy DeRose, a sales agent for Hudson Shores Realtors in Irvington. “It is still a healthy market. But it has cooled down enough that sellers just have to do a little more work, frankly.”

    The realtors are fluffing the buyers with BS about non-existant land, etc. Wondering if they’re fluffing the sellers
    “Did you do your dishes and make your bed”
    “Uh, no”
    “What!! No wonder you haven’t gotten any offers!”

  31. grim says:

    To all the anonomous posters..

    Please sign your comments, even if you post anonymously, so we know who is posting what.


  32. Metroplexual says:


    we shall see about the repeal. The law is popular in many parts of the state. NW Jersey is a playground for the lowlanders and the fact that the land is being locked up from development makes many people happy.

    I have personally met many people affected by the law who are losing everything they planned for. See for many of the farmers up this way, land is like a savings account that they tap for their kids college, wedding, or retirement. It is very sad. The legislation provides no compensation mechanism to landowners, it only specifies the value of the land.

    What will be the laws Achilles heel IMHO is that the TDR Mechanism is not embraced by municipalities. The law is ambitious, and I think unworkable in a home rule state.

    I understand that one town that wants to be a recieving area for TDR is conditioning it on only age restricted housing.

    Yesterday’s Morris Record does a pretty good job of explaining the issues.

  33. Metroplexual says:

    Sussex County Buildout is in this report. It breaks it down by the zoning.

  34. Metroplexual says:

    Anonymous said…
    It may be difficult to convert land that is currently zoned agriculture to residential. If so, large lots which are already in a residential area may go up in value…..

    Actually Ag land zones in most cases are by default residential.

  35. Anon regarding M3:

    Between the actions of the Fed, ECB, BOJ and Government of China, you will see a stark reduction in M3. Obviously unless the Fed changes reserve requirements, there is not a direct impact, but definitely BOJ and China have flooded the market with USD by their incessant buying of dollar denominated debt. Even with higher cost of capital, world banks have found a ready market for buyers interested in being undercompensated for risk taking.

    Banks that are able to maintain profit margins in the face of so much volume has allowed this rampant risk taking in the real estate, mortgages, and other markets.

    These investors will be leaving the scene, and watch what happens!

    The financial media has already been discussing these issues. Look for it.


  36. Anonymous says:

    Regarding prices not going down in East Hanover… my parents bought a house there in ’86 for $380K and my brother bought a house there in ’89 for around $150K. Each sold their house in ’94 for a loss. Not a huge loss, around $10-$30K each, but still a loss. I would not be surprised to see the Capes in that town tumble from $500K to around $350K.


  37. Gary says:

    Everytime someone says, “they’re not making anymore land”, think ‘Japan’. That’ll end that conversation real quick.

  38. Metroplexual says:

    I remember around 1994 looking at a splitlevel 3 Bdrm in Randolph for $160k. I would bet that house is north of $375K today.

  39. RentinginNJ says:

    Metro said…The legislation provides no compensation mechanism to landowners, it only specifies the value of the land.

    This is ultimately a Constitutional issue. It depends if the courts view this as a “regulatory taking” and require compensation under the 5th Amendment. These issues are always complicated and never cut and dry. Basically, the court must decide if the government has “gone too far” in depriving you of the economic value of your property.

    My guess is that this law will be stayed by the courts and tied up for years in litigation.

  40. Metroplexual says:


    Your absolutely correct, and I suspect you are correct about the course it will take. In the meanwhile the highlands plan will be out soon enough and I suspct it will also be the subject of lawsuits. I have already seen where exempt properties are being required to sign a covenant on the deed to restrict use of the land. Which imho is a taking as well.

  41. Richie says:

    Here we go.. the first of the ‘ex-real estate broker’ articles..

    Slowing home market to ripple through job market

    Ahh yes.. just like 2001 all over again..

  42. Anonymous says:

    I was the anon. poster who started the discussion on the highlands act.

    So Gary – help me understand – who here said that “they are not making anymore land” ? Was it me ?

    And while we are talking about Japan, there is a difference between Japan & the US and between the Yen & the USD.


  43. skep-tic says:

    I for one appreciate the contrary view (and the responses).

    with respect to the inflation issue, what’s so bad about just buying TIPS? I know gold has been going nuts for a while now, but it just seems way too speculative for me. As for international stocks, the developed markets seem closely correlated with U.S. equities, so I don’t really see what you gain by holding them. Emerging markets less so, but again you have that huge speculative element. If what you’re worried about is some form of stagflation, it seems to me that TIPS should be ideal.

    thoughts appreciated.

  44. Anonymous says:

    Treasuries (even TIPS) are a very good investment right now. Open a treasurydirect account at the US treasury’s website. The short term treasuries pay almost a full point of interest better than some banks CD’s and savings rates. Also, treasury interest is exempt from state & federal taxes. (Perhaps no one has a vested interest in promoting them – hence they are not as well known).

    Another aspect is their safety in the event of an absolute calamity. Please note that if indeed Real Estate suffers a very sharp decline, a lot of bank portfolios (and money market funds) would be affected as even these “super safe & conservative” investments have a heavy Real Estate exposure (via the asset based bonds that they hold).

    That said, don’t assume that TIPS will protect you against inflation in the long term. The CPI issued by the Fed is very diluted and does not reflect the true rate of inflation. Websites like explain these better.


  45. oohhh

    I’m not liking what I am reading about TIPS.

    First, TIPS are taxable at the Federal level, just not at the state level.

    Also, TIPS may provide inflation protection, but they don’t innoculate the investor from interest rate risk [a real concern on the long-end if the market sells off].

    Additionally, TIPS are effectively purchasing inflation insurance, and given the spread between a UST and the conterpart TIPS, you are paying too much for that insurance.

    TIPS are a good instrument to have in the tool kit, but I don’t know whether I would be lauding at this point.

    Just my $0.02.

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