New Jersey Real Estate Report

From Bloomberg:

U.S. May Personal Spending Rises 0.4%; Core Prices Up 0.2%

Consumer spending in the U.S. rose 0.4 percent, the smallest increase in three months, and inflation held above the Federal Reserve’s preferred range.

The rise in spending follows a 0.7 percent April gain, the Commerce Department said in Washington. Over the last three months, the increase in the department’s measure of inflation that’s favored by the Fed matched the biggest in a decade.
…
The report also showed incomes rose 0.4 percent, more than expected, after a 0.7 percent increase that was larger than the government reported last month. The May rise reflected a jump in proprietors’ income, while wages were unchanged from a month earlier.

The report’s price gauge tied to spending patterns and excluding food and energy costs, the Fed’s preferred measure, rose 0.2 percent in May and was up 2.1 percent from the same month last year.
…
The core rate was up at an annual rate of 2.9 percent over the last three months, matching the year-over-year rise in April 2004 as the biggest in a decade. Bernanke is among policy makers who have said a rate of 1 percent to 2 percent is acceptable.
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The savings rate fell to minus 1.7 percent, from minus 1.6 percent in April. A negative rate suggests consumers are dipping into savings to maintain spending.

From the BEA:

PERSONAL INCOME AND OUTLAYS: MAY 2006 (PDF)

Personal income increased $38.3 billion, or 0.4 percent, and disposable personal income (DPI) increased $31.6 billion, or 0.3 percent, in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $40.3 billion, or 0.4 percent. In April, personal income increased $76.2 billion, or 0.7 percent, DPI increased $52.4 billion, or 0.6 percent, and PCE increased $65.3 billion, or 0.7 percent, based on revised estimates.
…
Personal saving — DPI less personal outlays — was a negative $162.9 billion in May, compared with a negative $153.5 billion in April. Personal saving as a percentage of disposable personal income was a negative 1.7 percent in May, compared with a negative 1.6 percent in April. Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income 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 by using savings from previous periods. For more information, see the FAQs on “Personal Saving” on BEA’s Web site.

From the Daily Record:

Highlands funding takes dive this year

The roller coaster ride that is federal funding for Highlands preservation continued downhill Thursday as a U.S. Senate committee endorsed only $1 million to be split among four states this year.

Although the Highlands Conservation Act of 2004 provides for $10 million in funds for land preservation every year, the Senate Appropriations Committee approved only one-tenth of that amount for the coming year.

That runs counter to the Senate’s 2007 budget resolution, passed earlier this year, that endorsed fully funding the law. But it matches the House Appropriations Committee’s action last month, setting aside just $1 million for the Highlands.

Last year, the federal government spent no money on the Highlands.
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There was more bad news for New Jersey: The Senate committee chose not to include $1 million to preserve another portion of the Great Swamp National Wildlife Refuge in Long Hill, which Rep. Rodney P. Frelinghuysen, R-Harding, had gotten the House Appropriations Committee to endorse.

State and local officials have been hoping for federal funds to help preserve thousands of acres of land in the Highlands, particularly in that half of the region where development has been curtailed severely, as state land preservation funding programs are running out of money.

From The Otteau Group (http://www.otteau.com)

MAY SALES TREND HIGHER, BUT STILL LAG LAST YEAR

Following a disappointing April, residential contract-sales activity in New Jersey trended higher in May providing some balance to the housing market. However, while buying activity in May increased 7% from April, it still ran 18% below May 2005 providing further evidence of a structural market change. Some encouragement can be taken in the slowing rise of unsold-inventory which held steady in May at a 7-month-supply of available homes. When segregated by home price, the market is now holding a 6 month supply below $600,000, 10-months between $600,000-$1 million, and 13-months above $1 million.

While there are very real reasons for the current deceleration in the residential market, the extent of that change goes beyond what can be explained by underlying fundamentals alone. Certainly the record high home prices achieved in 2005 when coupled with lagging salary increases, rising interest rates and slower population growth are solid reasons for a market slowdown. More positive indicators are also in play however such as a state economy at virtual full-employment, new home building activity at constrained levels, and mortgage rates which remain low by historical standards. Clearly, the sweeping change that has enveloped the residential market over the past 10 months extends beyond market metrics and is at least partly attributable to fears of a housing price collapse. Apparently the chorus of voices predicting this collapse and the attention they received from the media, have played a role in bringing the market to it’s current state……as always perception becomes reality!

As we look forward to what’s ahead, expect the current situation of fewer sales and higher inventory to continue for the next several years. As a result, some of the increases in home prices which occurred over the past several years will likely be reversed as motivated Sellers trade-off lower prices for quicker sales. Ironically, this is not necessarily good news for home buyers as rising mortgage rates will likely offset any savings derived from lower home prices. In fact, some home buyers will actually lose purchasing power despite a downward drift in home prices. Thus, buyers should consider whether the current combination of affordable mortgage rates, higher inventory levels and negotiable-sellers are reason to buy now rather than wait.

Just a quick word on the “underlying fundamentals”. The recent changes can not be attributed to the degredation of underlying fundamentals for one simple reason. Fundamentals were not behind the movement of the market. Unless, of course, by fundamentals you mean easy money, speculators, and the NAR cheerleading squad. Lagging population growth and stagnant wages were the norm throughout the bubble years.

Don’t be too scared off by the warning at the end. Do the math for yourself. If you are not sure, ask and someone here will gladly do it for you. Unfortunately, that warning will become the mantra of every New Jersey real estate agent tomorrow morning, mark my words.

Caveat Emptor!
Grim

From the Federal Reserve:

FOMC Statement

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

More to come

From Bloomberg:

U.S. First-Quarter Gross Domestic Product Grew at a 5.6% Rate

The U.S. economy expanded at an annual rate of 5.6 percent in the first quarter, propelled by a surge in consumer spending that has since faded as gasoline prices soared.

The gain in gross domestic product, the value of all goods and services produced, is the biggest in more than two years and follows a 1.7 percent pace in the last three months of 2005, the Commerce Department said in Washington. The reading is stronger than the 5.3 percent pace the government reported last month as the trade deficit widened less than previously estimated.
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Business investment, which rose at the fastest pace in almost six years, and government spending also contributed to the improved reading in the first quarter.
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Consumer spending rose 5.1 percent at an annual rate last quarter, the most since the third quarter of 2003.
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A measure of inflation tied to the GDP report rose at an annual rate of 3.1 percent, less than the 3.3 percent that the government estimated last month.

The increase in prices tied to consumer spending and excluding food and energy costs, the measure preferred by Fed policy makers, rose at a 2 percent annual rate, putting it at the top of the 1 percent-to-2 percent range Chairman Ben S. Bernanke and other policy makers have said is acceptable.

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)

6/21 - 18,240
6/28 - 18,526 (1.6% Increase)

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

6/21 - 9,034
6/28 - 9,165 (1.5% Increase)

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

6/21 - 2,540
6/28 - 2,621 (3.2% Increase)

I’ve received a number of emails lately, which all asked the same question. If people are boycotting open houses, and not placing bids, how are sellers supposed to know that their homes are overpriced? It’s a good question. Unless the sign in sheets are blank, and their home has been on the market a long time, they probably don’t. Very few people in New Jersey are keeping as close a watch on the market as we are, agents included.

So here is what we’re going to do. I want you all to go out to realtor.com and find a listing or two that fits what you might be looking for. Once you find it, paste the link up as a reply, along with the price that you would seriously consider buying it for. You can post anonymously if you wish. This is a serious exercise, please don’t post a link to a $4.5m home with a bid of $10.50.

Here is an example, chosen at random:

The property is in Essex Fells, NJ.

Essex Fells MLS ID#: 2236020

The current asking price is $819,900, a reduction from an OLP of $849,900. This home has been on the market approximately 6 months.

Barring any problems with the home inspection, I would purchase this property at $650,000.

I’ll be posting my selections up later in the day, anonymously. However, if this home was in my price range, and what I was looking for, I would most certainly purchase the home at that price, barring any issues with the home inspection, of course.

Caveat Emptor!
Grim

There has been quite a bit of buzz lately about rent increases being passed through to the Core CPI through something called OER (Owners’ Equivalent Rent). The CPI doesn’t take into account housing prices directly, so the stagging increase over the past 5-6 years hasn’t been captured as inflation. The CPI uses the equivalent rental price as the basis for judging changes in house price movements. In a normal environment, home prices and rental prices move in tandem. However in our bubble market, rents have been stagnant for the past few years, while home prices have shot up dramatically. Recently, rents have begun to rise. This jump in rents is starting to push the core CPI higher. You can think of the CPI as having understated housing inflation, simply due to the way housing inflation is measured. Should rents continue to increase, the Core CPI figure is going to remain elevated.

So what are the macroeconomic effects of the rental rates of 1,000,000 apartments increasing 7.25% in the next two years?

From the NY Times:

Despite Protests, Rent Board Sets 7.25% Increase

Rents for New York City’s one million rent-stabilized apartments can increase by as much as 7.25 percent over the next two years, the city’s Rent Guidelines Board voted last night in a raucous meeting that was disrupted for hours by jeering tenants protesting the state’s control of the city’s rent laws.

The board voted, 5 to 4, to allow increases of 7.25 percent on two-year leases and 4.25 percent on one-year leases. For tenants who pay for their own heat, the allowable increases are 6.75 percent and 3.75 percent. The increases, the highest since 2003, apply to leases renewed between Oct. 1, 2006, and Sept. 30, 2007.

Increases such as these may keep the Fed tightening, long after the housing bubble bursts.

Caveat Emptor!
Grim

From Reuters:

Home loan demand drops as rates hit 4-year high

U.S. mortgage applications fell last week as interest rates hit their highest in over four years, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended June 23 decreased 6.7 percent to 529.6 from the previous week’s 567.6.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.86 percent, up 0.13 percentage point from the previous week, its highest level since April 12, 2002 when it reached 6.92 percent.

The MBA’s seasonally adjusted purchase mortgage index fell 6.2 percent to 389.0.

The purchase index, which is considered a timely gauge of U.S. home sales, was substantially below its year-ago level of 477.4.

The group’s seasonally adjusted index of refinancing applications decreased 7.5 percent to 1,356.0. A year earlier the index stood at 2,529.2.

From the News Transcript:

Crowded conditions draw look in Freehold

Hitting landlords with higher fines and providing public education for landlords and tenants are ways the Freehold Borough Rental Property Advisory Committee hopes to address the issue of residential overcrowding.

Instances of residential overcrowding have increased over the last 10 years as the borough has seen an influx of immigrants, but not a corresponding increase in the housing stock.
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According to Newman, between 90 and 95 percent of the landlords in the borough are people who do not live in the community.
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Newman, an attorney, said residential overcrowding can lead to problems that include improper entrances and exits from attics and basements, overuse of kitchens, mold, leaks, electrical hazards, sanitation, risk of germs and fire. He said the code enforcement office receives between 10 and 20 calls per month related to residential overcrowding. He said about 50 percent of the calls end up with a summons being issued.
…
Newman said it might also be possible to report the names of landlords who violate tenancy limits to the IRS and to the state Division of Taxation; the theory being that if they are permitting illegal occupancy, they may also be underreporting their income.

He noted that Morristown officials have been forwarding the identity of owners of overcrowded properties to mortgage companies, since overcrowding is a violation of the mortgage.

From the Jersey Journal:

$11M IN THE HOLE
By RONALD LEIR

One partner in a joint venture designated to build 1,700 apartments at the Peninsula at Bayonne Harbor has bolted, leaving the city with an $11 million deficit in the current fiscal year’s budget.

But state officials are giving Bayonne officials an extra year to come up with the cash, taking the unusual step of allowing the city to operate with a deficit.

News of the setback came Monday night at a special meeting of the Bayonne Local Redevelopment Authority when the BLRA commissioners were due to announce terms of an agreement with D.R. Horton and Trammel Crow Residential to develop a 32.7-acre tract called Bayonne Bay.

Instead, BLRA Executive Director Nancy Kist said that last Thursday Horton e-mailed the BLRA that it was bowing out because of “many significant unresolved issues.”

The BLRA commissioners accepted Kist’s recommendation to approve a redevelopment agreement with Trammel Crow Residential to build 530 “luxury rental” apartments on 7.42 acres under which TCR will pay $18.4 million for the right to develop that property. TCR must give the BLRA an $11.3 million deposit upon signing the agreement and must provide the balance by June 2007, BLRA special counsel Joseph Baumann said.
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Kist said the BLRA will negotiate with the other nine developers who submitted proposals in July 2005 to develop Bayonne Bay to replace Horton, possibly by Aug. 1. Kist said she expected the total purchase price for Bayonne Bay would “come in at well over $100 million.”

From CNN/Money:

Stuck! Homes sit longer on the market

The tell-tale sign of a stagnating real estate market? When homes for sale start lingering - and that’s exactly what real estate brokers and other industry watchers say they’re seeing now.

The National Association of Realtors does not maintain national time-on-market figures. But inventory - the number of homes for sale - spiked 37 percent for the 12 months through April 30, the most recent data available.

All that supply means homes are sitting around longer and that sellers are asking more than buyers are willing to pay — an indication that prices may have to come down.

“Sellers are in denial, and there is a rising disconnect with the buyers,” said Jonathan Miller, a real estate appraiser in New York. “Until sellers get the message, you’ll see a drop in the number of transactions.”
…
All this is evidence that the real estate boom may have run its course in many hot markets. At the very least, sellers will have to set their prices very carefully if they want to move their properties quickly and avoid long months of having their houses spending time-on-market.

If any of you would like to read more from Jonathan Miller, you can visit his site here: Matrix

Caveat Emptor!
Grim

From Reuters:

U.S. house price risk jumped in past year

Homes in about 30 percent of the top 50 U.S. house markets are at risk of losing value, up from about a fifth a year ago, according to an index prepared by mortgage insurer PMI Group Inc.

The average score of PMI’s U.S. Market Risk Index for the top 50 metropolitan statistical areas, or MSAs, leaped 70 points this quarter to 288 from the year-ago period, PMI said in a statement on Tuesday.

This suggests homeowners face a 28.8 percent chance that prices on their houses will drop within two years, PMI said.
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On a quarter-over-quarter basis, the average risk score for the top 50 MSAs increased 1 point, with results increasing in 25 areas and declining in 20, PMI said. Newark, New Jersey, and Miami led increases in the index with 32 point jumps, to 459 and 359, respectively, PMI said.

From the PMI Group:

PMI U.S. Market Risk Index Shows Hot Markets Continue to Cool

The U.S. Market Risk Index shows 13 MSAs continue to have risk scores above 500, meaning they face a 50 percent or greater risk of home price declines in the next two years. The average score for the riskiest markets was 573.

The average score for the top 50 MSAs increased to 288, a 70-point increase from a year ago. The biggest gains this quarter were not among MSAs at the top of the list but those in the middle. Newark, NJ and Miami, FL lead the pack with increases of 32 points each, bringing their Risk Index scores to 459 and 359, respectively.

From the National Association of Realtors:

May Existing Home Sales (PDF)

Nationally, Existing home sales for May fell 1.2% from April, and 6.6% from last May. The Northeast saw a 4.2% monthly decline, and a 5% year over year decline in volume. April sales were revised downward to 6.75m from a 6.76m yearly rate.

Inventory of existing homes increased significantly in May, up 5.5% from April, and up 41% in the last 12 months. Months supply now stands at 6.5 months, up from 6.1 months in April, and up from 4.3 months last May.

From Bloomberg:

U.S. Existing Home Sales Fell 1.2% to 6.67 Mln Rate in May

Sales of previously owned homes in the U.S. fell in May to the lowest since January as higher mortgage rates sapped demand, a private report today showed.

Resales declined 1.2 percent to an annual rate of 6.67 million, from 6.75 million in April, the National Association of Realtors said today in Washington. Sales fell 6.6 percent compared with a year earlier.

Housing will be a drag on the economy this year as buyers are deterred by the highest mortgage rates since 2002, economists say. An unexpected increase in sales of new homes reported by the Commerce Department yesterday bears out Federal Reserve predictions that the cooling will be gradual.

“The general trend is toward weaker housing market activity,” Anthony Chan, chief economist at JPMorgan Private Client Services in Columbus, Ohio, said before the report. “More and more people are being priced out of the housing market, precisely at a time when rates are going up.”

Resales were expected to decline to an annual rate of 6.6 million from April’s originally reported 6.76 million, according to the median estimate of 58 economists in a Bloomberg News survey. Forecasts ranged from 6.43 million to 6.88 million.
…
Before the May report, existing home sales fell in all but four months since May 2005, the Realtors’ reports showed. Existing home sales account for about 85 percent of the housing market and are recorded when a contract is closed.

The supply of homes rose 5.5 percent to 3.6 million, bringing inventories up to 6.5 months’ worth at the end of May.

The median price of an existing home rose 6 percent in May from a year earlier to $230,000, the Realtors group said.

Resales of single-family homes fell 1.5 percent to an annual rate of 5.82 million. Sales of condos and co-ops rose 1.9 percent to an 852,000 rate.

Purchases fell 4.2 percent in the Northeast to 1.13 million and fell 3.8 percent in the Midwest. They rose 0.4 percent in the South and rose 0.7 percent in the West.

Hat Tip to the Jersey Shore Bubble Blog for the link:

From the Philidelphia Inquirer:

Forecast turns bit cloudier
By Alletta Emeno and Alan J. Heavens

Without a doubt, the Jersey Shore real estate market has had a fantastic run for the last eight years. Up and down the coastline, from the top of Ocean County to the tip of Cape May, construction boomed, sales exploded and prices skyrocketed.
…
An Inquirer analysis of 27,709 home sales last year in Atlantic, Cape May and Ocean Counties showed that about 1,000 houses sold for $1 million or more.

And five towns - Stone Harbor and Avalon in Cape May County and Bay Head, Harvey Cedars and Mantoloking in Ocean County - had median home prices of $1 million or more, the analysis showed. (The median is the middle value; half the houses sold for more, half sold for less. In any town, a drop in median price does not mean prices fell for all houses there.)

But this picture of sunny times is turning partly cloudy, observers of the Shore market say, as higher interest rates are beginning to dampen sales, and condo construction, mostly involving investors, adds to a growing surplus of properties.

“Whenever interest rates rise, the second-home market is the first one to take the hit,” said Fred Glick, president of US Loans Mortgage L.L.C. in Philadelphia.
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“It’s the condo and lower end of the Shore market that’s taking a hit,” said Paul Leiser, a broker at Avalon Real Estate. “These are the buyers who depend on lower interest rates to balance two mortgages, and with rising interest rates, they can’t do it.
…
Jay Lamont, the host of “All About Real Estate” on WPEN-AM (950), who has studied and owned real estate in Ocean City for about 40 years, said, “I have never seen anything even close to this debacle. Many legitimate and qualified buyers are waiting for fall, for the lender REO [real-estate-owned] listings and foreclosure sales on failed developer loans.”

Weekly sales reported to the Ocean City MLS are 80 percent to 90 percent lower than they were in spring 2005, with seven or eight sales a week, he said.