New Jersey Real Estate Report

From Marketwatch:

Lenders Gone Wild

More than a year after Alan Greenspan warned of the “potential for individual disaster” from a new breed of mortgages that were helping to fuel the housing boom, federal regulators finally are trying to do something about it.

On Friday, in a jointly crafted message on so-called exotic mortgages, multiple government agencies warned banks in strong terms to make sure borrowers can pay back the full amount of what they borrow and that homeowners know that a low monthly payment today could be shockingly high later.

America’s real-estate boom may be over now, but millions of homeowners who thought they were borrowing their way into wealth find themselves instead holding a ticking time bomb, a toxic mortgage with a potential payment far larger than they can afford.

Bank regulators knew more than a year ago that lenders were aggressively marketing interest-only and payment-option adjustable-rate mortgages to consumers who didn’t fully understand what they were buying. In July 2005, several government agencies teamed up to write guidelines intended to set lenders straight.

In the meantime, the runaway writing of these mortgages went on unchecked, and the fact that nobody in government stood in the way highlights the fact that a patchwork of government bureaucracies was ill-equipped to bring the practice under control, lawmakers and regulators say.
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The housing credit bubble led to the growth of exotic loans, which, in a vicious spiral, drove prices even higher, said one observer. In a bubble, “the financing gets progressively worse. At the end, you get nuttiness,” said Dean Baker, an economist for the Center for Economic and Policy Research, a Washington think tank.

Finally, prices got so high that “the only way people could buy houses was by bending the rules,” said Baker, who’s been warning about the real-estate bubble for years.

In the Orwellian parlance of the mortgage industry, loans that ignore the true ability of the borrower to pay for the loan are called “affordability”

From the Economist:

Going down? (Subscription Required)

THREE years ago Rose Hill estates was a dairy farm in Loudoun County. Now it is in the front line of America’s housing slump. The rolling fields are dotted with cut-price McMansions. The asking price for new houses, complete with gourmet kitchens and “extended libraries”, has been slashed by 20%. But business is slow. The pace of home sales in the county has halved since last year while the stock of unsold homes has doubled. “The region is glutted with new houses,” says Lenn Harley, an estate agent. “The market is dead.”

Loudoun County, an exurb of Washington, DC, is an extreme example. But there is no longer any doubt that America’s housing bust is both bigger and more abrupt than many expected. Nationally, new home sales are down 17% from a year ago, and sales of existing homes have slumped 12%. By some measures, prices are now officially falling. New numbers released this week by the National Association of Realtors (NAR) suggest that the median price for existing homes fell by 1.7% in the year to August, the first such national drop since 1993. The median price of new houses fell by 1.3%.

And although August’s figures were less grim than expected, there is clearly more to come. The supply of existing homes for sale is up 60% from a year ago, is at a 13-year high and is still rising. Builders are at their glummest in 15 years. Even the NAR, long the chief cheerleader of the housing boom, now admits that prices will drop further.

Today’s debate is less about the scale of the housing slump than its consequences. Will America be dragged into recession or will lower oil prices help the economy shake off the property bust? Most Wall Street economists put the odds against a recession, but a noisy minority claim it is virtually inevitable.

From the Press of Atlantic City:

Going, going, gone ? Is the real estate boom
By RICHARD DEGENER

Buyers have been scarce lately as the once-booming shore real estate market has cooled, so sellers are resorting to some interesting tactics.

Offering a Ford Mustang with a new condo or a furniture allowance are a few tactics being employed, but another seemingly new one is actually a very old one: It’s the good old-fashioned shore home auction.

They used to hold them in tents, bringing buyers in from the big cities by train. Sometimes shore real-estate developers would hold parades on the boardwalk to drum up customers.

The Pennsylvania-based Traiman Auction Company held its first one in Ocean City in 1925. Its latest one is set for this Sunday at the Wildwood Convention Center, where 13 Wildwood Crest properties will be auctioned, although all sales are subject to the seller’s approval.

Doug Clemens, the chairman and CEO of the company, said auction interest rises when properties aren’t moving.

“They just have an overbuilt situation that has to be corrected in the next couple years. Sellers are looking for alternatives. A tremendous amount of real estate has come on the market and a number of auctions are coming. Ours is the first,” Clemens said.

Builders are complaining about a lack of buyers right now. It could be from too much new construction, but rising interest rates are not helping. Some also argue shore real estate is overpriced.

From the New York Times:

Sweetening the Pot for Home Buyers
By LISA PREVOST

WHAT does it take to sell a house in a slowing real estate market? Lou Aloupis thinks he knows: a 2006 Mercedes E-Class sedan.

A partner in a contracting firm that renovates houses for resale, Mr. Aloupis is trying to sell a remodeled ranch on a dead-end street in Stamford. “Every single thing in that house has been replaced,” he said. Yet the listing has languished since February, and Mr. Aloupis is growing impatient.

He has shaved more than $100,000 from the initial asking price, bringing it down to $679,000. He is offering the property through both a real estate agency and for-sale-by-owner Web sites. He even invited a woman who runs estate sales to display merchandise at the ranch, then distributed sales fliers to her customers. “At the end of the day, nothing came of it,” he said. “Not even a phone call.”

So now he has sweetened the pot: Mr. Aloupis will sign over the lease on his Mercedes for one year to the buyer who closes on the house. He will prepay the lease; the buyer will have only insurance costs to cover.

As for Mr. Aloupis and his partners, Scott Kaluczky and Robert Bove, “we’ll be happy right now if somebody buys the house for $660,000,” he said. “We’ve got too much money tied up in it.”
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One local plastic surgeon is offering free Botox treatments to the agent who sells his home. Such incentives arouse curiosity, Ms. Ballard said. “I’m not a big Botox girl myself,” she said, “but it certainly got my attention.”

Carole Maisano, an agent in the same office, is using a more exotic incentive to drum up agent interest in her 4,400-square-foot contemporary home in Wilton. Ms. Maisano listed the four-bedroom home in April for $1.375 million and has since reduced the price to $1.285 million. Showings dropped off, however, so she is now offering an African safari for two to the agent who brings a sale to closing.

From the Asbury Park Press:

Fort’s impending closure spurs worries
By Joseph Sapia

It is not expected to close for another five years, but filling the void that will be when Fort Monmouth closes was on people’s minds at an economic development summit here Friday.

In addition to losing the 5,000 jobs directly tied to the base, the closing of the base also affects businesses that rely on the fort for survival, said Robert Lucky, chairman of the Fort Monmouth Economic Revitalization Planning Authority.

“I need the help of the public,” said Lucky, a summit speaker. “I need to know how to bring businesses in there (when the fort closes).”

About 170 people attended the event at Branches, which was sponsored by the county to develop strategies for stimulating economic development.

Because of the negative impact of the Fort Monmouth closure, the Sept. 11, 2001, terrorist attacks, more restrictive laws and environmental regulations, county officials have to work to make sure jobs are available, said Anna C. Little, a member of the Monmouth County Board of Freeholders.

“Many of the forces changing the economic landscape in Monmouth County give very little to no warning,” said Little, the summit moderator. “In the case of Fort Monmouth, we are fortunate to have some advance warning.

“As we react to forces already affecting our economy, it makes sense to take the eventual closure of Fort Monmouth into consideration, too, and create a sustainable economic development plan for the county.”

From Bankrate

Avoid costly updating when selling your home
By Steve Linden

Dear Real Estate Adviser,
My husband wants to replace the carpet in the bedrooms and put a hardwood floor in the downstairs living area in the hopes of helping sell our home. Is this worth the money?

As much as I hate to cast doubt on the logic of a fellow homeowning male, you probably should tell him gently that he just might be ever-so-slightly in error, while adding that he is quite wise to be thinking in terms of “home improvement” at this juncture. Or — depending on his sensitivity level — the use of the term “lunkhead” may be substituted. But I kid.

Professional remodelers, however, will tell you that replacing old or damaged flooring with much better flooring might make the place look spiffy, but it is very costly and is not what floats the boat in the minds of potential buyers. On the other hand, minor cosmetic improvements to your home’s facade, such as a new coat of paint, and to your landscape, such as flowers, plants and shrubs, are not awfully costly, and they’re much more apt to increase your house’s marketability and not become a huge losing proposition for you.
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The highest average returns on remodeling costs, according to the latest survey by Remodeling Online, are an upscale siding replacement (103.6 percent), midrange bathroom remodel (102.2 percent), minor kitchen remodel (98.5 percent), midrange siding replacement (95.5 percent) and midrange two-story addition (94.6 percent). By contrast, bedroom and living room remodels, which would include the new flooring your hubby is talking about, returned less than 85 percent of costs. In other words, if you put $5,000 into new carpets and hardwood flooring, it would increase the value of your home by less than $4,250.

From Reuters:

US regulators finalize rules on exotic mortgages
By Al Yoon

Federal banking regulators on Friday finalized rules for underwriting “exotic” mortgages, a move that the biggest U.S. lenders say may stifle the use of loans that make houses more affordable.

The Office of the Comptroller of the Currency, the Federal Reserve and other regulators kept intact a proposal that says banks must qualify borrowers for pay-option and interest-only loans at a “fully-indexed” rate — the highest rate that they could incur over the life of the loan. That will help ensure consumers don’t get loans they can’t repay, regulators said.
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“The regulators have gone out there and restricted some of the marginal players,” said Paul Miller, a mortgage industry analyst at Friedman Billings Ramsey in Arlington, Virginia. “But a lot of the guidance is already being done. Banks haven’t just been just waiting for the regulators.”

From Dow Jones:

Bank Regulators Want More Scrutiny On Exotic Mtges
By Damian Paletta

In an effort to address concerns raised over the rapid growth in exotic mortgage products, federal banking regulators on Friday issued new guidelines that warn lenders to take greater steps in determining whether borrowers could ever pay off the debt.

In some ways, the guidelines were a rebuke to the lending industry, which had asked the agencies for more flexibility and less prescription. Lenders have frequently pointed to relatively low foreclosure and default rates on these loans to date, though both numbers are expected to rise.
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Howard Glaser, a mortgage-industry consultant who was a senior housing official in the Clinton administration, said the guidance would likely have an immediate effect on the lending industry.

“What has been a tidal wave of exotic loan products should slow to a trickle,” he said. “It’s been the Wild West in the lending industry for the past couple of years.”

From the Otteau Group:

AUGUST SALES TREND HIGHER

The residential market rebounded slightly in August as buyers took advantage of softening prices and declining mortgage rates. August contract-sales activity ran 6% higher than July, suggesting the overall market deterioration is beginning to slow. Also noteworthy is that the Unsold Inventory of homes on the market increased by only 1% in August, as compared to a 47% increase over the 1st 6 months of 2006.

Also contributing to the August sales performance are declining mortgage rates and unemployment rates as the Economy continues to create new jobs. According to Freddie Mac’s Primary Mortgage Market Survey® (PMMS®), the 30-year fixed-rate mortgage (FRM) averaged 6.31 percent for the week ending September 28, 2006, down from last week when it averaged 6.40 percent. Rates have declined for 8 of the last 9 weeks and are at their lowest since March 2, 2006, when they averaged 6.24 percent. Last year at this time, the 30-year FRM averaged 5.91 percent.

A closer look at Unsold Inventory indicates an overall supply of 8.5 months, down slightly from 9 months in July. One year ago, Unsold Inventory reflected a 4 month supply. When analyzed by home price, the market continues to show the greatest strength below $600,000 with a 7.5 month supply as compared to 23.6 months above $2.5 million (see table above).

Next months report will be a key indicator of future trends as September marks the one-year anniversary of the current market cycle when home sales began to decline and Unsold Inventory started rising. The results of that analysis will be released at our Fall Market Workshop Series which begins in October.

From the Record:

Employers brace for ‘pay raise’
By KATHLEEN LYNN

When the state’s minimum wage rose from $5.15 an hour to $6.15 a year ago, employers shrugged it off, because most were already paying workers more than $6 an hour.

But when the wage rises again Sunday, to $7.15 an hour, more employers and workers will feel the impact.

“About 200,000 people will get a pay raise,” said David Socolow, commissioner of the state Department of Labor and Workforce Development.

Employers facing higher payroll costs may cut back on hiring or trim their workers’ benefits, employer groups say.

The hardest hit employers will be small companies with thin profit margins, especially in the tourism industry, which relies on seasonal labor, said John Rogers, vice president for human resource issues at the New Jersey Business and Industry Association.
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John Galandak, president of the Commerce and Industry Association of New Jersey, said the new wage law won’t help New Jersey’s image among companies deciding where to locate or expand their operations.

“It’s part of a larger picture,” Galandak said. “New Jersey has this reputation for being less business-friendly. Lots of people feel that the government shouldn’t be involved in legislating wages; let employees and employers negotiate that.”
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When New Jersey’s minimum wage increase was being debated, some employers argued that a higher minimum would hurt New Jersey’s efforts to compete with neighboring states for business.

But New York’s minimum, now $6.75, is scheduled to rise to $7.15 in January. And Pennsylvania recently approved an increase in the wage, which will reach $7.15 on July 1.

John Sarno, head of the Employers Association of New Jersey, said the higher minimum wage has not resulted in wage inflation or job elimination.

From the BEA:

PERSONAL INCOME AND OUTLAYS: AUGUST 2006

Personal income increased $38.4 billion, or 0.3 percent, and disposable personal income (DPI) increased $38.8 billion, or 0.4 percent, in August, according to the Bureau of Economic Analysis.  Personal consumption expenditures (PCE) increased $10.5 billion, or 0.1 percent. In July, personal income increased $57.2 billion, or 0.5 percent, DPI increased $62.0 billion, or 0.6 percent, and PCE increased $75.9 billion, or 0.8 percent, based on revised estimates.
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Personal saving — DPI less personal outlays — was a negative $45.0 billion in August, compared with a negative $70.1 billion in July. Personal saving as a percentage of disposable personal income was a negative 0.5 percent in August, compared with a negative 0.7 percent in July. 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.

From Marketwatch:

Treasurys lose strength after core inflation taps 11-yr high

Treasury prices turned slightly lower early Friday, pushing yields up a bit, after the Commerce Department said core inflation rose to an 11-year high last month. The core personal consumption expenditure price index — the key inflation gauge followed by the Federal Reserve — has gained 2.5% in the past 12 months, the most since January 1995. The news brought back to life concerns that the Federal Reserve may have to keep raising rates. Consumer prices rose 0.2% in August, and core consumer prices, which exclude food and energy, also rose 0.2%. Personal incomes grew 0.3% as expected in August after rising 0.5% in July. Consumer spending increased 0.1% in August after rising 0.8% in July; economists expected a 0.2% rise.

From CNN/Money:

12 Topekas. 1 Beverly Hills. Tough Trade
By Les Christie

Pity the poor, modern-day Jed Clampett, exchanging the simple and inexpensive life of the Ozarks for the glitz, glamor - and prices - of Beverly Hills. A typical middle-class house in the Southern California city now costs more than 10 times what a similar place sells for near Clampett’s old stomping grounds, Fort Smith, Ark.

That’s according to the Coldwell Banker Home Price Comparison Index released Wednesday. The index provides apples-to-apples comparisons of 342 U.S. markets, looking at the cost of a four-bedroom, two-and-a-half bath, 2,200 square foot house with a two-car garage in a nice, middle-class neighborhood.

This year, that home in Beverly Hills costs $1.8 million; in Minot, N.D. it’s just $132,333 - a difference of nearly 14 times from the most expensive to least expensive market.

“Each year the difference between the most and least expensive city is growing,” says Jim Gillespie, Coldwell Banker’s CEO.
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Other states over-represented on the most expensive list were Connecticut, Virginia, Maryland, Massachusetts, New Jersey, Florida and Hawaii. Chicago, where such a house costs about $916,667, is the most expensive inland city.

New Jersey
Ridgewood $1,009,750
Madison $809,000
Westfield $769,375
Warren $745,000
Basking Ridge $660,000
Princeton Junction $621,250
Bridgewater $613,300
Sparta $528,454
Wayne $519,750
Montclair $511,000
Marlboro $508,750
Edison $504,333
Clinton $490,000
Toms River $445,000
Mt. Laurel $359,167
Cherry Hill $289,855

From the Courier Post:

Taxpayers plead for relief at hearing
By LAVINIA DeCASTRO

Ten years ago, John Sullivan moved to Gloucester County to escape Cherry Hill’s ever-climbing property taxes.

But the problem followed him to National Park, where he pays nearly $6,000 a year in taxes, double what he paid when he first moved there.

“I can’t afford to live in this state anymore,” Sullivan told a panel of legislators who came to Collingswood on Thursday to hear property tax reform suggestions from citizens. “I’m ready to put a “for sale’ sign on my house.”
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Many residents said a constitutional convention would take too long.

Instead, some residents said they prefer to support the NJ SMART bill. Under NJ SMART, which stands for save money and reform taxes, half of education funding would come from income taxes instead of property taxes.

“I’d rather see an income tax because if you make a lot of money, you pay more taxes and when you make less money, like when you retire, you pay less,” George Kuetemeyer, of Collingswood.

But some supported a constitutional convention, saying the problem is too complex to solve with a single bill.

“We think that the problem we face today in the state of New Jersey is too serious for Band-Aid, quick-fix solutions,” said Vic Vellace, a Cherry Hill resident and treasurer of the South Jersey Citizens for Property Tax Reform. “If it takes longer to do a convention, but we get results, it’s worth waiting for.”

From the Home News Tribune:

TATTOOS, CLUB FEES TO COST MORE SUNDAY Sales tax to expand
By RICK MALWITZ

As angry taxpayers, they could make for a strange scene at a protest march — customers of Big Brad’s South River Tattoos marching in Trenton alongside well-tanned country-club members and their limo drivers.

Beginning Sunday, the 7 percent New Jersey sales tax will be extended to a wide array of services, including tattoos, tanning salons, nail salons, limousines, storage units, and memberships in country clubs, health clubs and shopping clubs.

“Everyone’s appalled, shocked, when I tell them,” said Brad Aschenbrand, who has been giving tattoos on Main Street in South River for 15 years.

“A guy comes in here for a $100 tattoo, and I’ve got to charge him $7 more. I have a hard time (getting) that first hundred from him,” he said.

Big Brad’s job gives him ample time to talk with his customers, and what he’s been hearing is people are fed up with high taxes in New Jersey. “The hum on the street is people want to leave,” said Aschenbrand.

From Peter Schiff via Goldseek:

Did He Really Say That?
By: Peter Schiff, Euro Pacific Capital, Inc.

Going from the sublime to the ridiculous, this week, in response to the first national year-over-year decline in housing prices since 1995, David Lereah, chief economist for the National Association of Realtors said “We’ve been anticipating a price correction and now it’s here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.”

First of all, when did Lereah ever predict a price decline? Isn’t he the same guy who constantly assured us that real estate prices would never fall? That all that would happen to prices is that they would rise more slowly.

Second, what makes him an economist? Is he really employed to give an honest assessment of the future prospects of the housing market and real estate prices? Lereah is no more an economist than Henry Blodget was an analyst. Despite their titles, both were hired to help salesmen move inventory. For Blodget it was internet stocks, and for Lereah it is houses. Realtors cannot convince as many people to over-pay for houses if their own economist forecasts prices to drop. Why this man still gets taken serious by the media is beyond me. Anything he says should either be printed in the classified section or as part of a legitimate display advertisement for realtors.

Finally, what the hell is he talking about? How can he say that the bleeding has stopped, when its barely just begun? It reminds me of the Monty Python skit where the Black Knight claims his severed limb is “just a flesh wound.” Does it seem feasible that the biggest real estate bubble in U.S. history would bottom out after a mere 1.7% price decline? What signs could he possibly see to confirm that the housing market has bottomed? Let’s see, national home prices fell for the first time in 11 years, with 2006 likely to be the first calendar year in 70 where that occurred. Inventories are at record levels and still rising, sales have fallen for five months in a row and are down 12.6% in the past year, foreclosures are surging, builders are offering additional incentives to sell houses, reporting higher cancellation rates, and repeatedly lowering their earnings estimates. Further, over-stretched homeowners are facing a wave of ARM resets beyond their abilities to pay, the economy is headed for a recession and everyone is still expecting a soft-landing. Yep, it sure looks like a bottom to me.
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The reality for real estate is that the only visible signs are those confirming the formation of a major top. It’s more likely that Mr. Lereah saw Elvis than a bottom in the housing market. My guess is that we are a very long way from a bottom, and by the time its visible, Lereah will be out of a job.

From CNN/Money:

Help! Home for sale
By Les Christie

Home price increases have slowed nationwide and even reversed in many markets. Inventories are up and new home builders are cutting back. More and more sellers are having difficulty selling their properties.

We’ve profiled some of these sellers and that has produced a flood of reader emails from other troubled sellers.
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K. Gordon, Amarillo, Texas: “I bought a brand new house in Amarillo. Unexpectedly, 4 months later I had to move back to south Florida . . . ‘Not to worry,’ I thought. A new, fairly priced house will sell quickly.

14 months and 3 agents later, the house has not sold. I’ve tapped out my credit making payments on that house as well as my current rent.
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Tom Shipp, Seattle: “My partner and I purchased a new home in Seattle, before we listed our current home on the Eastside. Our agents were confident that our current home would sell in 2 weeks and advised that we not make a contingent offer on the new house. . . . [the bid] was quickly accepted.

Ninety plus days, a second mortgage, and a bridge loan later we are still trying to sell our Eastside property! We just made our first double mortgage payment and are feeling desperate and depressed. We are supposedly still in a “hot” market and our property has what the agent’s say are the three mandatory factors for a quick sale; price, location, and condition.”
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Pat Berry, Virginia: “Our house has been on the market in North Springfield [near Washington, DC] since July 15. In that time, only two people suggested any interest by taking time to tour the property. My husband is due to retire on Sept. 30 and at that time, we will be carrying two mortgages on 1 and 1/2 incomes. Needless to say, my fingernails are chewed to the quick.”
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A reader in Central Florida: “We put our house on the market at the beginning of July 2006 for $289,900. Since then we have dropped the price to $267,000 and have only had 2 showings. Our agent keeps telling us that there is a lot of inventory in our neighborhood and that price will be the thing that makes our house stand out. Our problems is that having only owned the home 1 year there is very little equity so dropping the price much lower will result in us actually having to pay to sell our home!”
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Rick Weaver, near Charlotte, North Carolina: “The house has been on the market for 1 year and one month. I have had one offer on the house and they wanted me to sell it to them for $20,000 less than the asking price. This was the first and only offer. All of the realtors I have talked to say that I can ask more than the 133,900 for this house. But I am afraid to ask for more. It’s not selling or even being seen for that matter.”