New Jersey Real Estate Report

The FOMC Minutes are out!

Minutes of the Federal Open Market Committee - May 10, 2006

“The underlying pace of residential activity seemed to moderate in the first quarter. After unseasonably warm weather allowed a high level of single-family housing starts in January and February, starts fell in March to their lowest level in a year. New permit issuance for single-family homes also fell in March, continuing its downward trend. Multifamily starts recovered a bit in March from their low rate in February but remained well within their historical range. Home sales also declined, on net, in recent months. Although sales of existing single-family homes edged up in February and March, the level of sales for the first quarter as a whole was notably below the record high in the second quarter of last year. Sales of new homes also moved up in March, but their average in the first quarter was down substantially from the peak in the third quarter of last year. House price appreciation appeared to have slowed from the elevated rates seen over the past summer. Growth in the average sales price of existing homes in March, versus a year earlier, decelerated sharply, and the average price for new homes in March fell compared to a year earlier. In addition, other indicators, such as months’ supply of both new and existing homes for sale and the index of pending home sales, supported the view that housing markets had cooled in recent months.”

“Although the Committee discussed policy approaches ranging from leaving the stance of policy unchanged at this meeting to increasing the federal funds rate 50 basis points, all members believed that an additional 25 basis point firming of policy was appropriate today to keep inflation from rising and promote sustainable economic expansion. Recent price developments argued for another firming step at today’s meeting. Core inflation recently had been a bit higher than had been expected, and several members remarked that core inflation was now around the upper end of what they viewed as an acceptable range. Moreover, a number of factors were augmenting the upside risks to inflation: the surge in energy and commodity prices, some recent weakness in the foreign exchange value of the dollar, and the possibility that the apparent increase in inflation expectations could, if it persisted, impart momentum to inflation. In addition, the economy appeared to be operating at a relatively high level of resource utilization and had been growing quite strongly, and whether economic growth would moderate to a sustainable pace was not yet clear. At the same time, members also saw downside risks to economic activity. For example, the cumulative effect of past monetary policy actions and the recent rise in longer-term interest rates on housing activity and prices could turn out to be larger than expected. Still, it seemed most likely that, with modest further policy action, including a 25 basis point firming today, growth in activity would moderate gradually over coming quarters, pressures on resources would remain limited, and core inflation would stay close to levels experienced over the past year.”

GSMLS - http://www.gsmls.com
(Garden State Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, Warren Counties)

5/24 - 17,138
5/31 - 17,345 (1.3% Weekly Increase)

NJMLS - http://www.njmls.com
(New Jersey Multiple Listing Service)
Single Family Homes, Condo, Coop
(Bergen, Essex, Hudson, Passaic Counties)

5/24 - 8,465
5/31 - 8,563 (1.2% Weekly Increase)

MLSGuide - http://www.mlsguide.com
Single Family Homes, Condo, Coop
(Hudson County)

5/24 - 2,419
5/31 - 2,406 (0.5% Weekly Decrease)

From Reuters:

US home loan demand falls as interest rates climb
By Julie Haviv

“U.S. mortgage applications fell last week, reflecting a decline in home refinancing loans as interest rates climbed, an industry trade group said on Wednesday.”

“The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended May 26 decreased 1.9 percent to 541.9 from the previous week’s 552.6.”

“Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.66 percent, up 0.05 percentage point from the previous week, and matching a four-year high touched two weeks ago.”

“The MBA’s seasonally adjusted purchase mortgage index fell 0.2 percent to 395.5.”

“The purchase index — considered a timely gauge of U.S. home sales — was also below its year-ago level of 462.7.”

“The group’s seasonally adjusted index of refinancing applications decreased 4.8 percent to 1,409.0. A year earlier the index stood at 2,142.1.”

“Fixed 15-year mortgage rates averaged 6.22 percent, down from 6.23 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.09 percent from 6.02 percent.”

“The ARM share of activity edged up to 30.7 percent of total applications last week from 30.5 percent the previous week. It was the highest ARM share since late January.”

From Bloomberg:

U.S. Economy: Confidence Fell By Most Since September

“Rising energy prices drove U.S. consumer confidence down in May by the most in eight months, pointing to weaker spending and economic growth in the second half of the year.”

“The Conference Board’s confidence index fell to 103.2 from a four-year high of 109.8 in April. The New York-based business group also said the number of people expecting to pay higher prices in the next 12 months rose to the highest since October.”

“The data point to an environment of slower economic growth and rising inflation expectations that confronts Federal Reserve policy makers as they debate whether to raise interest rates next month. The proportion of consumers expecting their incomes to increase in the next six months fell to the lowest in almost three years, today’s survey showed.”

“The share of consumers planning to buy a home in the next six months fell to 2.8 percent in May, the lowest this year, from 3.1 percent. The proportion who said they plan to buy a car fell to 6 percent from 6.8 percent.”

“Optimism about consumers’ present situation fell to 132.5 from 136.2 in the prior month. The gauge of expectations for the next six months fell to 83.7, the lowest since October, from 92.3.”

From the Wall Street Journal:

Slower Home Sales Open Up a Market For Some Investors
By JAMES R. HAGERTY

“The cooling market for real estate brought Michael Termine and Uso Mbanefo together.”

“Mr. Mbanefo, a 43-year-old entrepreneur struggling to launch a clothing-design company, had fallen behind on his mortgage payments. He needed to sell his four-bedroom house here quickly to avoid losing it in a foreclosure. That’s when Mr. Termine, a 32-year-old novice real-estate investor, stepped in.”

“One afternoon in early April, Mr. Termine visited Mr. Mbanefo’s office in a strip mall and offered to pay $400,000 for his house. Mr. Mbanefo showed Mr. Termine fliers for nearby homes offered at $600,000 or more. Mr. Termine pointed out that the inventory of unsold homes here, as in many parts of the country, has nearly doubled over the past year. Even so, Mr. Mbanefo said that he might be able to refinance his home, spruce it up and sell it for $500,000.”

“”I don’t see it at 500,” said Mr. Termine. “I think the magic number to move that house fast is 475.” Before leaving, he reiterated his offer. “I have $400,000 waiting for you, in cash.”"

“The slowdown in housing sales, after five years of frantic buying, has ended the party for many real-estate investors. But the cooler market is welcome news for a subset of investors — those who target homeowners facing foreclosure.”

“One of the best-known buyers of homes from distressed owners is HomeVestors of America Inc., a franchising company based in Dallas that helped found the trade group headed by Mr. Grant. After paying an upfront fee of $49,000, franchisees receive two weeks of training, and can tap into leads generated by the company’s ads. HomeVestors, known for big yellow billboards proclaiming “We Buy Ugly Houses,” has 250 franchisees in 31 states and the District of Columbia, up from 43 at the end of 2000.”

“The company says its franchisees typically offer about 65% of the estimated market value of homes, minus renovation costs. Such a deal, it says, can benefit people who lack the time or inclination to fix up and sell a home themselves.”

From the Daily Record:

Freeholder candidates take stand on housing
BY MICHAEL DAIGLE

“The Housing Alliance of Morris County asked the 13 freeholder candidates on the June 6 primary ballot to explain their positions on affordable housing. Ten replied.”

“”They all showed an understanding of the issues to varying degrees. It was important that the candidates identified that there is a myth about who needs affordable housing. It is needed by students graduating from college, our parents, people we know, care about and need.”said Dan McGuire, executive director of the housing alliance.”

“Randolph Mayor Gary Algeier, a Republican, said there is definitely a need for affordable housing (but) the word crisis is often overused”

“Wharton Mayor Bill Chegwidden, a Republican, said, “The fact that we are legally bound to provide housing gets my goat to start with. The phase affordable housing seems to stir a vision of poor neighbors moving in next to you and bringing down the value of your home.”"

“Denville Mayor Gene Feyl, a Republican said, “The desirability of Morris County’s quality of life and economy clashes with restrictive zoning, Highlands legislation and high-end demand to create a shortage.”He cited the acceleration of already high land values and regressive property taxes as factors.”

“William “Jack” Hartford of Chatham Township, a Democrat, said Morris County is becoming unaffordable for senior citizens, for young people who would like to remain in the towns where they were born, and for public employees and volunteers.”

“Freeholder John Murphy of Morris Township, a Republican, said, “there is clearly a shortage of affordable homes in our area. I do not believe the answer is in instituting a government program that is funded by taxpayers (because they have had enough of increased taxes) but a more collaborative effort with nonprofits, private corporations, municipalities and the county government.”"

“Dana Wefer of Jefferson, a Democrat, said, “the high cost of Morris County housing drives away young people and senior citizens and makes it difficult for businesses to hire employees. They live farther away and add to an already heavy traffic situation. She called for closer county cooperation with non-profits and bi-annual summits on the issue.” The state’s property tax system must be changed so that towns do not discourage the creation of housing for families out of a fear of increasing school costs, she said.”

From the Wall Street Journal:

Overseas Analogies
By JUSTIN LAHART

“Ever since the U.S. housing slowdown became apparent last year, investors have cast a wistful eye toward the United Kingdom, hoping its soft landing will be a prelude to a similar experience on this side of the Atlantic.”

“As in the U.S., Britain’s housing market looked like it was overheating a few years ago — then kept heading up. When the U.K. market stalled last year, the Bank of England took the precaution of cutting its key interest rate, helping to stabilize its housing market. If it happened in the U.K., why couldn’t it happen in the U.S.? In a speech earlier this month to bond investors, none other than Alan Greenspan, former Federal Reserve Chairman, pointed to the potential parallel. But the analogy might not be perfectly apt.”

“Mortgages in the U.K. are closely tied to short-term interest rates, while U.S. mortgages are generally linked to longer-term interest rates. That gives the Bank of England more direct influence over the U.K. housing market, since central banks control short-term interest rates, while market forces drive long-term rates. The Fed could reduce its short-term lending rate and long-term interest rates could keep rising on, say, mounting inflation worries, putting strain on the housing market.”

“Australia’s housing market may have avoided trouble for a similar reason — commodity prices boomed last year, and Australia is above all a commodity producer.”

“Finally, while prices in the U.K. may have gotten even more excessive than in the U.S., U.S. households put themselves more at risk than their U.K. counterparts by borrowing against home equity to fuel spending, notes Goldman Sachs economist Jan Hatzius. British households were burned by this in the early 1990s, he says, and thus were more conservative than Americans this time around.”

“Of course, this doesn’t mean the U.S. housing market is bound for a hard landing. But it does mean investors should be careful about taking too much comfort from analogies abroad.”

From the Suburban News:

Rough reception for new development rules
By ANNA BOGDANOWICZ

“After hearing overwhelming opposition from local residents, including numerous members of the real estate industry, the Planning Board last week unanimously recommended that the Town Council not move forward with a proposed ordinance designed to curb overdevelopment.”

“At a special meeting on May 18, the board also recommended that the council establish a special committee including local officials, residents and professionals with expertise in the area to further research the issue.”

“Though the spread of “McMansions” has been a hot topic in town for years, the residents who attended last week’s meeting said emphatically that the draft ordinance, which included changes to floor-area ratio (FAR), height and accessory structures, was a step in the wrong direction.”

“About 50 residents came to the meeting, including local architects and planners who said the proposed changes would adversely affect everything from homeowners’ rights to property taxes and building design.”

“Some residents argued it was unfair to criticize new construction when there are many large older homes in the community that could be considered McMansions. And others said Foerst’s committee had not adequately defined the issue it was trying to address.”

From the Asbury Park Press:

High-density communities replacing pricey sprawl
BY JOE RIGGS (FYI: Joe Riggs is affiliated with K. Hovnanian)

“Picture this: You’re in a newly built village where you meet your neighbors as you walk down the street to the local hardware store. The home in which you live is one of several styles that accommodate an assortment of people. Your neighbors include a company president and a young woman who works at the beauty salon around the corner.”

“Your children can walk safely to the neighborhood park, located right next to their school. And instead of sitting on a highway for two hours every day, you drive five minutes to the train station. Your neighbor walks to his office.”

“In more and more places, this is the type of development or redevelopment being proposed. It’s what New Jersey needs to help solve its housing issues and address many of its economic woes. But in too many places, neighborhoods like this are bitterly opposed because they require increased density.”

“It’s ironic that density has become a dirty word. Density could be the solution to other dirty words, such as commute, housing prices and sprawl. It’s time to change how we think about density.”

“Wiser use of our land could yield more homes, de-emphasize cars, increase municipal revenues, save more open space and help break this downward spiral.”

“These neighborhoods also tend to have a strong sense of community, and provide an urgent counterpoint to the practice of putting 5 acres under one home.”

“Density, it turns out, isn’t a dirty word after all. Properly used, it’s a blessing and a key to our future.”

From Barrons:

The Big Glut
By ROBIN GOLDWYN BLUMENTHAL

“IT WOULD SEEM TO HAVE IT ALL: four bedrooms, a guest house, a pool and a rock waterfall. But the vacation home in Naples, Fla., hasn’t been drawing much interest from buyers, so the seller recently threw in that most modern of amenities: the $1 million price cut. That’s brought the asking price down a full 25%. “If you want to sell, you’ve got to go back to ‘04 prices,” says Chip Harris of Coldwell Banker Previews International, which is handling the property.”

“The market for second homes could use a second wind. After a long string of double-digit annual price increases, a number of second-home meccas across the country are suddenly suffering from plunging sales volume and burgeoning inventories of unsold homes. Result: Naples-style discounting is starting to spread. It hit the town of Pocasset, on Massachusetts’ Cape Cod, just as retired executive Jack Reen was trying to sell his four-acre, six-bedroom beachfront home. He cut the price several times, for a total of 42% off the listing price, before striking a deal at $3.95 million. Reen takes a philosophical view of the experience, noting that the original price was set at the top of the market. “Calling the tops and bottoms is impossible,” he says.”

“Though the official figures on sales prices have yet to reflect the current round of cuts, interviews with real- estate pros and others strongly suggest that the averages are deteriorating in a number of key markets. Just look at green and hilly Litchfield, Conn., about a two-hour drive from New York City. It was a magnet for Wall Streeters during the past five years, and prices climbed accordingly. But in the past 10 months, prices in the lower end of Litchfield’s market — homes of $300,000 to $600,000 — are down 12%-14%, and volume is falling at the next level up, says Stephen Drezen of the local Portfolio Properties Group.”

“”People don’t believe in the laws of supply and demand anymore,” says Alan Skrainka, chief market strategist at Edward Jones. “We’re not saying it’s a bubble, but we’re saying prices are overstated and will likely correct 20% to 25% over four or five years.”"

“He rejects a notion advanced by housing bulls that shore communities in Florida and California will be protected because of the limited supply of coastline. “Japanese real estate and land prices went down for 15 years and Japan is an island,” Skrainka says.”

“On the East Coast, signs of a glut have been turning up all along the coastline of New Jersey. In an effort to move inventory, brokers in the upscale summer resort of Stone Harbor have been sending out postcards to vacation renters, proclaiming a three-bedroom condo to be “the perfect investment opportunity” at just $739,000. That’s about what many of the would-be buyers might have paid for their first homes.”

“”The market is definitely in a correcting phase,” says Timothy Richards of Ocean City, N.J., who recently retired as a realty broker and began a second career as a developer. He says buyers are waiting to see what happens with mortgage rates. “Whenever financial markets are in transition, we go into a holding pattern,” he adds.”

From the Daily Reckoning:

Homeless
By Eric J. Fry

“Ben Bernanke and Alan Greenspan both agree that the housing boom is over and that it will begin an “orderly” decline. We agree that the housing boom is over and that home prices will begin to decline, but we aren’t so sure about the “orderly” part.”

“”It seems pretty clear now that the U.S. housing market is cooling,” Fed Chairman Ben Bernanke recently remarked. “[But] our assessment at this point … is that this looks to be a very orderly and moderate kind of cooling.” Later the same day, the former Fed chief, Alan Greenspan, observed, “This has been quite an extraordinary (housing) boom. The boom is over. I think we can safely say that with
a strong degree of confidence.”"

“However, the famously inoffensive Greenspan continued, “[there is] no evidence that home prices will collapse.” Conveniently omitted was the phrase, “…but there is
plenty of evidence that that home prices COULD drop significantly.”"

“Home price might indeed dip serenely, like the oars on a lovers’ rowboat…just like Ben Bernanke expects. On the other hand, home prices might become as disorderly as stampeding soccer Hooligans…just like your New York editor expects. No one can say for certain. But your editor’s recent personal experience provides one unnerving
data point…and suggests that the “less orderly” portion of the housing cycle might be fast-approaching.”

“A home is a wonderful thing to own; but it is also a wonderful thing to sell…especially when prices are slumping and buyers are disappearing…and time is of the essence.”

“”Hey, now that I’ve sold my house,” your editor queried a local real estate agent yesterday, “I’ve gotta ask; what’s really happening in the housing market here?”"

“”It’s not good…It’s really not good,” came the reply.”

“”So what type of homes are selling?”"

“”Not much…A few entry-level homes are selling. But nothing over $1 million. If I were you, I’d rent for a while when you’re out in California. This housing market’s
gonna get worse all over the place. So I’d just wait it out.”"

From the Palm Beach Post:

It’s a renter’s market
By Barbara Marshall

“This spring, Michelle Lewis and Rudolph Maragh of West Palm Beach were preparing to buy a condo when they took one last look at the local housing market.”

“And decided to rent.”

“The couple and their two kids leased a 2,000-square-foot, three-bedroom house in the gated West Palm Beach development of Briar Bay for $1,500 per month — about 40 percent less than the monthly mortgage payments on a comparable home.”

“”It was the same price as an apartment, so we might as well get the house,” Lewis, a registered nurse at Columbia Hospital, said of their decision.”

“Welcome to the flip side of the housing boom, where renters can afford brand-new dream homes while landlords struggle to meet their monthly mortgage payments.”

“Deals like these changed Twanya Robinson’s mind about buying a home.”

“”I’m approved for a mortgage of $300,000, but I didn’t think I was getting enough house for the money” at that price, said Robinson, a controller with a downtown West Palm Beach software company and a mother of three.”

“Instead of buying, she rented a new 2,100-square-foot house for $1,650 per month. With four bedrooms, the house in the gated Lakes of Laguna development of West Palm Beach is big enough for her children to have their own rooms. Purchasing the house would have cost $350,000 — or about $2,300 a month after plunking down a $70,000 down payment — more than Robinson can afford.”

“Discussion of the strong rental market makes some real-estate agents uneasy. Several refused to comment publicly, fearing it would further erode sales in an already slow market.”

“Terrence McManus, president of Florida RentFinders, said now that the interest-only periods have ended on many investors’ mortgages, “they’re trying to get income out of their houses any way they can.”"

“McManus said that most of the landlords he works with are renting at a loss.”

“”None of them is cash-flow positive,” he said.”

“The situation is creating sleepless nights for investors, such as Dena Webster of Wellington, who hasn’t been able to sell any of the 14 houses that she purchased at the peak of the boom. Eleven are in Olympia, a Wellington development where houses routinely carry price tags of more than a million dollars, but where rents are in the $1,800 to $3,000 range.”

“”I’m upside-down on every one of them,” Webster said of her properties.”

“”I’m not sleeping,” she sighed.”

“Renters such as Michelle Lewis and Twanya Robinson, on the other hand, are slumbering soundly.”

From The Record/Herald:
Assessing the damage
By MARGARET K. COLLINS

“PEQUANNOCK — Property owners here are finding out that when it comes to what their holdings are worth — and taxed — there’s just no predicting the effect of real-estate market whims.”

“This year, a 60-year-old widow living in the flood plain is likely facing an above-average property tax increase. Across town, a 39-year-old homeowner is looking at a similar whack because his street has seen tear-downs and additions galore. But between them is a Route 23 business owner who has better news coming when his tax bill arrives this summer.”

“They’re just a few of the residents, landlords and merchants affected by a revaluation last year in this eastern Morris County township that adjusted the value of all properties — commercial, residential and vacant — to market levels.”

“The revaluation — the first since 1985 — most notably recorded that just as in North Jersey at large, the housing boom sent residential values soaring in comparison to those of commercial and industrial holdings. That shifted more of the tax burden onto homeowners. With new values on official tax books for 2006, homeowners in general will take a hit, while business owners will get a break.”

“How big or small? That question can’t be answered in dollars until tax rates are finalized. But a Record analysis allows Pequannock landowners to get an idea before they receive their tax bills this summer.”

“Owners of commercial properties will get a break compared with homeowners in the form of smaller increases, and even some tax cuts, because their values haven’t risen as steeply as residential property since the last revaluation. The assessment on the typical commercial property rose 76 percent, while it jumped 145 percent for homes.”

“Lower-end homes will take the biggest hit of all because their assessments went up the most, while those on higher-value homes went up less. Assessments on the most valuable homes generally rose 125 percentto 135 percent, while those on the least valuable homes shot up 160 percent to 180 percent.”

(some humor for this weekend)

From the Daily Record:
Rules of the road: Few driving geniuses in N.J.

Reading about the study ranking New Jersey 48th in the nation for driving knowledge, my first reaction was amusement.

Let them try to navigate a Jersey jughandle, Route 80 in rush hour, or a back road in Mendham Township at night, and see how well they do.
…
An uniformed driver is a bad thing anywhere, but the risk rises in more populated areas. As the nation’s most densely populated state, New Jersey can ill-afford motorists unsure when to use their headlights or how to handle a sharp curve (such as at the nasty exit ramp from Route 287 North onto Route 80 West in Parsippany, scene of numerous rollovers).

I’m going to keep it short and to the point.

Personal attacks, inflammatory comments, and off-topic arguments will not be tolerated. Take these discussions off-line.

Foul language, racist, sexist, or any other defamatory remarks will not be tolerated.

Messages that violate these rules will be deleted.

The housing bubble is an emotionally charged topic, and I understand that our discussions get heated at times. We don’t need to add any more fuel to this fire.

Please help me to keep our discussions on topic and professional.

Caveat Emptor!
Grim