New Jersey Real Estate Report

From the New York Times:

Redefining ‘Affordability’ for the 90’s
By THOMAS J. LUECK
Published: January 20, 1991

And for many homeowners, the gains in affordability are at best a mixed blessing. Millions who bought in the late 80’s, believing their homes would prove to be lucrative investments, went further into debt for mortgage loans than has traditionally been considered prudent. Now, caught in a nationwide real estate slump and facing the propspect of selling for little more — or even less — than they paid, many are staying put, cutting back on other expenses and paying housing costs that are a heavy load.

For others, just staying put has become impossible. In New York, New Jersey and Connecticut, foreclosures on homeowners rose more than 30 percent in the first nine months of 1990. Evictions of renters are also on the rise; court records in New Jersey indicate they have risen by over 25 percent since 1986, to 163,994 last year.

“There is no question that people are feeling pinched and house poor,” said Robert Engelstad, vice president for mortgage standards at the Federal National Mortgage Association, or Fannie Mae, the nation’s largest buyer of real estate loans from thrifts, banks and mortgage companies.
…
“People in the 1980’s expected to hold on to a home for two or three years and sell at a profit, so they thought it was O.K. to fall behind on their MasterCard bills in the meantime,” said George Yankowich, a developer in Greenwich, Conn., one of the nation’s wealthiest communities.
…
For home buyers, the rule had traditionally dictated that no more than 28 percent of their income be devoted to mortgage payments, real estate taxes and home insurance premiums. The 28 percent limit was intended to prevent people from going too far into debt. It also stipulated that the totality of a home buyer’s debt obligations, including payments on the home loan, car loans, credit card purchases and other personal debts, should not claim more than 36 percent of income.

But for recent home buyers, particularly in the most expensive urban areas, the guidelines have been stretched widely. A 1990 survey of hundreds of home buyers in 18 large metropolitan areas, to be released later this month by the Chicago Title and Trust Company, found that most were paying more — sometimes much more — than 30 percent of their income for mortgage and real estate tax payments. Deepest in debt, the survey found, were 1990 buyers in the New York area, who are now paying an average of 40.6 percent of their incomes to mortgage lenders and tax collectors.

Some housing news from New York from Inman News:

Buyer’s market emerges in New York

Sales of existing single-family homes in New York fell by double digits between July 2005 and July 2006, while home-price growth slowed to a more normal pace, according to preliminary single-family sales data accumulated by the New York State Association of Realtors.

There were 9,392 sales recorded statewide in July, a decrease of 11.3 percent from the 10,681 homes sold in July 2005, according to the preliminary data. Last month’s sales total was down 7.6 percent from June’s level of 10,166 sales.

Year to date, 54,932 existing single-family homes have sold, down 2.8 percent compared to the 2005 record-setting market total of 56,495 for the same period.

The statewide median selling price rose 3.7 percent in July to $269,700, compared with the $260,000 median recorded in July 2005. The July 2006 median price, however, was down by 3.3 percent compared to the previous month, which recorded a median sales price of $279,000.

From Bloomberg:

U.S. July Personal Spending Rises 0.8%; Core Prices Up 0.1%

Consumer spending in the U.S. rose 0.8 percent last month, the most since January, and a measure of inflation posted the smallest gain of the year.

The rise in spending followed a 0.4 percent June increase, the Commerce Department said today in Washington. The Federal Reserve’s preferred inflation gauge rose a smaller-than-expected 0.1 percent last month.
…
The report’s price gauge tied to spending patterns and excluding food and energy costs increased 2.4 percent from July 2005, a year-over-year gain last exceeded in April 1995.

Fed Chairman Ben S. Bernanke is among policy makers who have said they would be more comfortable with a 1 percent to 2 percent increase in the measure over a 12-month period.
…
Because the increase in spending was larger than the gain in incomes, the savings rate fell to minus 0.9 percent, from minus 0.7 percent in June. The rate has been negative for 16 straight months, indicating consumers are dipping into savings to maintain spending.
…
“The long-awaited housing-market correction is upon us and indications are that it is not going to be quite as orderly as many, including the Fed, are predicting,” said economists Sheryl King and Claudia Lokody in an Aug. 25 report to clients. The slump in housing “has the potential to pull consumer spending to the brink in early 2007.”

A drop in home prices would prevent consumers from tapping into home equity as a source of extra spending money, King and Lokody said. The slump in construction will also ripple through other areas of the economy, dragging down employment, they said.

From Bloomberg:

Housing `Short Sales’ Are Latest Sign of Stress

Housing headlines are dominating the news these days in the same way the Nasdaq did in the late 1990s.

And no wonder. Successive years of sizzling sales and spectacular price appreciation have given way to falling sales and starts, record inventories of unsold homes (new and existing), a plunge in housing affordability and a flattening out of prices on a nationwide basis. The residential real estate market may never match the Nasdaq’s vertiginous 78 percent decline from the 2000 top to the 2002 bottom, but it is captivating potential sellers, late-to-the-party speculative buyers and analysts looking to assess the impact on the overall economy.

The big debate is whether housing will a) stabilize at a lower level; b) slide for an extended period; or c) sink fast and take the economy down with it. Each option carries its own flow chart of possibilities.
…
Greenspan never believed in the intangible aspect of the wealth effect: the idea that a homeowner could feel richer, and spend more from earned income or borrow to finance spending, because the price of an asset had appreciated on paper. For him, it was the actual dollars in consumers’ pockets that mattered. (Maybe that’s why he never grasped the stock market bubble in real time.)

Well MEW and HEE may soon become HEE HAW, for “Home Equity Extraction or House As Wager.” When prices stop rising, as they have in many previously hot areas of the country, the game is up for all but the savviest speculators who know the real estate market in a particular area and can spot undervalued properties.

That endgame is contributing to the practice of “short sales,” according to an Aug. 21 story in the Sacramento (California) Bee. Homeowners who owe the bank more than the house is currently worth try to convince the lender to accept less than the loan value to avoid the costs of foreclosing on the property.

From the New York Times:

Fire in Subdivided Basement Kills Two in a New Jersey Home

ENGLEWOOD, N.J., Aug. 30 — A four-alarm fire tore through a three-story wood house on James Street here on Wednesday, killing two residents who, the authorities said, were living in illegal basement apartments. A tenant in a third basement apartment was critically injured.

The fire started around 3:40 a.m., said Chief Robert Moran of the Englewood Fire Department, and the flames quickly spread to the first and second floors of the house. In all, 14 people were in the house at the time of the fire, and most were members of the family that owns the property, Chief Moran said.
…
Chief Moran said that the basement had been divided into individual units, but that the city’s planning office had no record of permits being issued to the owner, Oscar Cortes, for the work. Deputy Chief Arthur O’Keefe of the Englewood Police Department said charges were likely to be filed against Mr. Cortes for illegal units. Arson investigators said the fire was accidental, but they had not determined how it started.
…
A shortage of low-cost housing has become a growing problem in Bergen County, and illegal conversions are becoming more common, Bergen County officials said. Mayor Michael Wildes of Englewood said that in recent years the growing number of illegal immigrants moving into the city had led landlords to capitalize on the situation.

“It is a tremendous challenge in our nation and in our city where people with economic challenges are forced into these situations,” Mr. Wildes said.

He said that he did not know how many illegal units Englewood had but that the city had been increasing inspections in recent months.

“Any landlord that profits or benefits from situations like this should be prosecuted,” he said.

From the New York Times:

Decline Seen In Home Prices In New Jersey
By ANTHONY DEPALMA, SPECIAL TO THE NEW YORK TIMES
December 14th, 1989

The days of steeply climbing house prices are over, and the 1990’s could begin with prices dropping by as much as 12 percent, according to a report released today by Rutgers University based on three million house sales in New Jersey.

”This really is the end of a housing and economic era in New Jersey and the Northeast region,” said Dr. James W. Hughes, a professor of urban planning who wrote the report with Dr. George Sternlieb.

The study, ”New Jersey Home Prices,” confirms what anyone who has bought or sold a house or apartment this decade already knows: prices have gone out of sight. But the sheer mass of the data gives new insight into how the increases have profoundly changed the market in nearly every one of the 567 municipalities in the state.

The authors said that although their data were drawn just from New Jersey the trends and general conclusions can be applied to the entire New York metropolitan region. Cooling in Mid-1988

Using computers, the authors examined all house and apartment sales in the state from 1965 to mid-1988, a total of three million transactions. They show that although house prices here remained at or below national levels through the beginning of this decade, they soared starting in 1985.

From 1980 to mid-1988, the median sales price rose to $141,900 from $57,500, with many communities, among them Alpine and Saddle River in Bergen County and Mantoloking in Ocean County, exceeding that by hundreds of thousands of dollars.

Since then, however, prices have cooled considerably, with no increases seen. In some cases, there have been declines, a trend that could continue, depending on the economy.
…
The housing bubble burst after Wall Street started laying off stockbrokers in 1987. Companies started to cut back, the high prices made many corporations move employees elsewhere and the demand for housing eased. Houses that had sold in three months were sitting on the market for nine months or longer, and sellers began lowering their expectations.

Professor Sternlieb said house prices had already declined in spots and could drop 4 to 12 percent next year, depending on economic conditions will determine whether prices remain depressed. Adjustment in Attitudes

The realignment could change the way that people think about housing, Professor Hughes said. Instead of stretching to buy as much house as possible and banking on appreciation, buyers may be content with less housing and put more money into savings accounts.

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)

8/23 - 18,720
8/30 - 18,743 (0.1% Increase)

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

8/23 - 9,165
8/30 - 9,170 (0.1% Increase)

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

8/23 - 2,676
8/30 - 2,661 (0.6% Decrease)

From the Bucks County Courier Times:

Will regular guy bail as Wildwood upscales?

They want to upscale Wildwood, which is like a fast-food joint putting out linen and hiring a wine steward.

For nearly a century Wildwood has been the place on the Jersey shore where a working guy could take his family on a week’s summer vacation and not go bust. Now the place has gone condo crazy.

Many of the small, affordable (and dated) motels that lined the seaside are gone. About 30 have been knocked down in three years.

Rising throughout North Wildwood and Wildwood Crest (two of the five municipalities that make up “The Wildwoods”) are beige, vinyl-clad condo rentals that sleep eight, 10 or more for $2,000 a week — and that’s a deal.

A recently demolished site in North Wildwood has a sign that even more condos are “Coming Soon.” These will have “Hardwood floors” and “Granite counter tops” — the dcor opiates of the upper middle class masses.
…
Wildwood Mayor Ernest Troi-ano Jr. said growth has been as-tonishing. As real estate prices in nearby Stone Harbor and Cape May soared, investors flooded into the Wildwoods, sending prices skyward like a gull on an updraft.

“Three or four years ago you could pick up a house in Wildwood for 30 or 40 thousand dollars. Today, that same house is selling for 300 or 400 thousand,” he said.
…
One showed me a project for the “new” boardwalk which he said will have — egad — a Star-bucks, a high-end ice-cream shop and wi-fi cafes for laptop geeks.

“We want the guy who makes $100,000 to $150,000 to come here. It’s beachfront property, it’s premium, and the last I checked, God ain’t makin’ any more of it,” one agent told me.

From the NY Times:

Census Reports Slight Increase in ’05 Incomes

The nation’s median household income rose slightly faster than inflation last year for the first time in six years, the Census Bureau reported yesterday.

The rise, however, had little to do with bigger paychecks — in fact, both men and women earned less in 2005 than 2004. Rather, census officials said, more family members were taking jobs to make ends meet, and some people made more money from investments and other sources beyond wages.
…
While the economy has been strong by most statistical measures for the past several years, its benefits have not translated into improvements in the standard of living for many people. In New York, the proportion of city residents living below the poverty level has not changed in the last five years.
…
The 5.9 percent drop in median household income since 1999 was not shared equally around the country. In Michigan, median household income fell 11.9 percent between 1999 and 2005. In North Carolina, it was 11.2 percent, in Utah 10.4 percent and in Indiana 9.5 percent.

But in some states, the impact was not nearly so great: a drop of 2.5 percent in New York, 2.4 percent in South Dakota and 1.9 percent in New Hampshire. In the District of Columbia and six states — Hawaii, Maine, Maryland, Montana, North Dakota and Virginia — the change was so small that it fell within the survey’s margin of error.

From The Motley Fool:

No Housing Bust Here!

I’m sure others have noticed, as I have, the increasingly desperate pleas from the housing-bubble cheerleaders, especially National Association of Realtors Chief Economist David Lereah. A longtime bubble denier — who, I think, is more interested in protecting his constituency of six-percenters than in offering realistic housing-market commentary — Lereah began asking the Fed to protect his bubble a couple months back. At the same time, he and his associates have tried to spin the situation with the news media, who, hungry for soundbites, are usually all too happy to parrot headlines such as “Existing-Home Sales Down With Softening Prices.”

That’s the title of the latest “no reason for fear” release, which you can find here. You can see, especially in the remarks toward the bottom, the NAR’s devotion to trying to convince Americans that housing is a no-lose “investment.”

That doesn’t quite square with the soundbite available via a Bloomberg story on the numbers. There, Lereah reportedly said, “It’s very important that the Fed understand the fragile state of the housing market. It’s very important that the Fed maintain the status quo, keep rates where they are.”

Translation: “Pleeeez Gawwwd don’t take away their free money! Do that and we’re all sunk!”

If it’s disconcerting that the most prominent housing bulls are, when we’re not looking, begging for economic policies aimed at shoring up their crumbling story, then this might be much worse.

How about if the last shred of the housing bull story turned out to be — how do you say? Untrue?

From Forbes:

End Of The Bubble Bailouts
By A. Gary Shilling

For a quarter-century, Americans’ spending binge has been fueled by a declining savings rate and increased borrowing. The savings rate of American consumers has fallen from 12% in the early 1980s to -1.7% today (see chart below). This means that, on average, consumer spending has risen about a half percentage point more than disposable, or after-tax, income per year for a quarter-century.

The fact that Americans are saving less and less of their after-tax income is only half the profligate consumer story. If someone borrows to buy a car, his savings rate declines because his outlays go up but his disposable income doesn’t. So the downward march in the personal savings rate is closely linked to the upward march in total consumer debt (mortgage, credit card, auto, etc.) in relation to disposable income (see chart below).

Robust consumer spending was fueled first by the soaring stock market of the 1990s and, more recently, by the housing bubble, as house prices departed from their normal close link to the Consumer Price Index (see chart below) and subsequently racked up huge appreciation for homeowners, who continued to save less and spend more. Thanks to accommodative lenders eager to provide refinancings and home equity loans, Americans extracted $719 billion in cash from their houses last year after a $633 billion withdrawal in 2004, according to the Federal Reserve.

But the housing bubble is deflating rapidly. I expect at least a 20% decline in median single-family house prices nationwide, and that number may be way understated. A bursting of the bubble would force many homeowners to curb their outlays in order to close the gaps between their income and spending growth. That would surely precipitate a major recession that would become global, given the dependence of most foreign countries on U.S. consumers to buy the excess goods and services for which they have no other markets.

From NJBiz:

NJ Affordable Homes Portfolio Going Up for Bankruptcy Auction

Properties owned and controlled by bankrupt residential builder NJ Affordable Homes Corp. (NJAH) in Woodbridge will be put up for auction. Chicago real estate auction company Sheldon Good & Company Auctions NorthEast and real estate firm DJM Realty in Melville, N.Y., will handle the sale of the 340 properties from September 29 through October 1 at the Meadowlands Convention Center in Secaucus.

The Securities and Exchange Commission went to court last September to freeze the assets of NJAH and its president Wayne Puff. The SEC alleged Puff and the company sold at least $40 million notes in unregistered offerings in a Ponzi scheme to more than 490 investors across the country. NJAH was liquidated under Chapter 7 of the bankruptcy code. The U.S. Bankruptcy Court District of New Jersey in Newark granted the trustee a motion to sell all 340 properties held by the company.

From PR Newswire:

Good & Company Auctions NorthEast and DJM Realty in Joint Venture to Conduct Largest Residential Real Estate Auction in New Jersey

Sheldon Good & Company Auctions NorthEast, (http://www.sheldongood.com) the nation’s premiere auction and brokerage company, in a joint venture with DJM Realty, a national real estate disposition firm based in Melville, New York, has been retained by Charles M. Forman, the chapter 7 trustee appointed for NJ Affordable Homes Corp. (NJAH) to sell at auction 340 properties owned and controlled by NJAH

The auction venue is being announced for September 29th, 30th and October 1st at the Meadowlands Convention Center in Secaucus, NJ.

Mr. Forman, of the law firm of Forman, Holt & Eliades, LLC, said: “The auction sale of the NJAH portfolio is the most efficient and cost-effective method of generating a substantial pool of funds from which those who were hurt by this massive fraud can be compensated.”

Mr. Forman added: “Private investors, conventional lenders, other parties and the community as a whole have been victimized by the scheme. We believe that the auction method devised by this real estate team will result in the expeditious sale of these properties thereby ultimately benefiting all concerned, including the investors, lenders, tenants and their neighborhoods.”

Jeffrey Hubbard, Executive Managing Director for Sheldon Good & Company Auctions NorthEast, LLC, said: “This will be the largest residential auction thus far to be conducted in New Jersey, and most likely, in the United States. This auction will have something for everyone: the builder, homeowner, developer and investor. The portfolio of properties includes 80 single-family homes, 78 two-family homes, 96 three-family homes, 19 four-family homes, 2 six-family residences, 57 parcels of land, and 8 commercial properties. This extensive portfolio includes property in every county in New Jersey except two. 195 properties are located in the Essex
County area.”

Mr. Hubbard said that all properties would be sold absolute regardless of price, free and clear of liens, subject to the approval of the United States Bankruptcy Court District of New Jersey presiding over NJAH’s bankruptcy case.

Two big pieces of data out today, Consumer Confidence and the FOMC minutes. Consumer confidence came in under consensus estimates earlier this morning, FOMC minutes to be released at two:

Consumer Confidence Plunges in August

Worries about the job market caused consumers’ confidence in the U.S. economy to tumble more than expected in August to its lowest level in nine months
.
The Conference Board, a New York-based research group, said Tuesday its confidence index fell to a reading of 99.6, down from 107.0 in July. The index was lower than analysts’ expectation of 102.5.

The last time the index fell below 100 was in November, which saw a reading of 98.3.

Lynn Franco, director of the Conference Board’s consumer research center, said this month’s drop — the largest one-month decline since Hurricane Katrina ravaged the Gulf Coast a year ago — means expectations of slower growth in the coming months.

“You’ve got a deterioration in business conditions coupled with lackluster job growth,” Franco said.

Americans’ sentiment about the labor market worsened in August, with consumers saying jobs are “plentiful” decreasing to 24.4 percent in August from 28.6 percent in July, and those saying jobs are “hard to get” increasing to 21.1 percent from 19.6 percent.

For those interested in reading the FOMC minutes released this afternoon:

Minutes of the Federal Open Market Committee

From Bloomberg:

Fed Members Saw Pause as `Close Call’; Unsure of Further Moves

Federal Reserve officials saw their decision to suspend a two-year run of interest-rate increases as a “close call” and were unsure whether they would further raise borrowing costs, records of their last meeting showed.

“Many members thought that the decision to keep policy unchanged at this meeting was a close call and noted that additional firming could well be needed,” the Fed said in minutes of the Aug. 8 meeting, released in Washington today. “Members generally saw limited risk in deferring further policy tightening that might prove necessary.”

The records detail how central bankers wrestled with a dilemma: raise rates because of higher inflation fueled by an increase in energy costs, or hold back because of a housing slump that’s weakening the economy’s expansion. Most voting Fed members felt that the current rate stance may prove “consistent with satisfactory economic performance.”

The 9-1 decision, which left the benchmark lending rate at 5.25 percent, was the first of Chairman Ben S. Bernanke’s tenure to feature an opposing vote.

The dissenter, Richmond Fed President Jeffrey Lacker, wanted an 18th quarter-point increase because economic growth was not likely to slow enough to reduce inflation. In his view, “further tightening was needed to bring inflation down more rapidly than would be the case if the policy rate were kept unchanged,” the minutes said.

Caveat Emptor!
Grim

Interesting response to this Star Ledger piece on relisting:

Practice hides the real deal on homes for sale in Jersey

Came across the response early this morning:

The wrong location

– Jeffrey Consentino, Hillsborough Nothing to hide As a full-time professional Realtor with a premier New Jersey residential brokerage company, I take exception to your Aug. 20 article on the sleight of hand prac ticed by a few agents in the state. This slanted report relies on four other states for a comparison. New Jersey probably has the nation’s most comprehensive rules and guidelines encompassing laws and ethics designed to protect the consumer in the purchase of a home. If the time was taken to research and interview the vast majority of Realtors like myself or brokerages like the one where my license hangs, people would learn that this practice is not tolerated because it is a deception. We have a responsibility, and we believe that all parties are to be treated equally.

To quote a Realtor in Cape Cod about a wrong practice by a few in New Jersey and make it front-page news is a disservice to one of the state’s most valuable businesses. If the public perceives it, then it is real, but in this case it isn’t the truth. Buyers and sellers should speak to their Realtors. The right choice has nothing to hide.

From the Otteau Group:

SUMMER MARKET REMAINS COOL
July was another cool month for the housing market as declining buyer-confidence continued to take its toll on home sales. In July, contract-sales activity declined 11% from the June level and was 25% below the year earlier pace in July 2005. That this slowdown comes in the midst of the prime March-to-August selling season when home sales should still be running hot provides compelling evidence of a market transition wherein home buyers have greater control over final selling prices than at any time since 1991, a 15-year span.

From an inventory perspective, the number of homes being offered for sale now stands 67% higher than a year ago. This equates to a 9-month supply as compared to only 4-months last year at this time. It is however encouraging to note that Unsold Inventory increased by only 1.5% in July following a 47% increase over the 1st 6 months of the year, which works out to nearly 8% per month over that period. This moderation, coupled with recent declines in mortgage rates present home buyers with an opportunity window that will likely close once mortgage rates continue their upward climb.

From a price perspective, market conditions continue to exhibit the greatest weakness for luxury priced homes. As shown in the table at right, Unsold Inventory below $600,000 stands at an 8 month supply as compared to 27-months above $2.5 million. This weakness in the luxury market has been developing slowly for several years now and will likely continue for the foreseeable future. As a result, expect the market for more affordably priced homes to be the first to recover.