From the AP via Yahoo News:
Sales of Existing Homes Fall for 6th Month With Annual Price Drop Biggest on Record
Sales of existing homes fell for a sixth straight month in September and the median sales price dropped on an annual basis by the largest amount on record, further documenting a lukewarm housing market.
The National Association of Realtors reported that sales of previously owned homes fell by 1.9 percent in September to a seasonally adjusted sales pace of 6.18 million units, the slowest sales rate since January 2004.
The median price of a single-family home fell to $219,800 last month, a drop of 2.5 percent from the price in September 2005. That was the biggest year-over-year price decline in records going back nearly four decades.
From Bloomberg:
U.S. Economy: Existing Home Sales Drop 1.9%, Prices Decline
Sales of previously owned homes in the U.S. fell last month to the lowest level in almost three years, prompting sellers to reduce prices.
Purchases dropped 1.9 percent from August to an annual rate of 6.3 million, the National Association of Realtors said today in Washington. The median price of an existing single-family home dropped 2.5 percent from September 2005, the biggest year- over-year decline since record-keeping began in 1969.
…
Economists expected sales to slip to a 6.23 million rate, according to the median of 65 forecasts in a Bloomberg News survey. Estimates ranged from 6 million to 6.36 million.Compared with a year earlier, sales were down 14.2 percent, the Realtors group said. Home resales have fallen every month since March.
…
The median sales price of single-family homes and condominiums fell to $220,000 from a year earlier. The 2.2 percent decline from a year ago followed a 2.4 percent slide in August, marking the first back-to-back monthly declines in 11 years. The number of homes for sale fell 2.4 percent from August to 3.75 million, remaining at a 7.3 months’ supply.
From the National Association of Realtors:
Euro May Fall on German Confidence Drop, Fed Inflation Concern
http://www.bloomberg.com/apps/news?pid=20601085&sid=aInM.89O_2Ag&refer=europe
Euro barely changed against U.S. dollar
http://www.iht.com/articles/ap/2006/10/25/business/EU_FIN_MKT_Euro_Dollar.php
Any last minute predictions?
SAS
“gradual slide in coming months”
lol, this reserve nit wit.
SAS
why are my comments awaiting moderation?
Am I that harsh? he he…
SAS
When economists predicted flat markets, prices started going down. Now they r saying gradual slide, is it going to be collapse?…
Two links or more will force a comment into moderation.
jb
This is the question that keeps me up at night. Given that housing liquidity is dried up due to lack of appreciation and stagnant wages, how is the Fed going to inject liquidity into the system in order to avoid a massive default (foreclosures) by home owners? There more defaults, the more illiquidity; a snow ball effect. Also, if the foreclosure process may take 9 to 18 months, we could be in for a really long and tough ride. Unless of course, the Fed already has an alternative way to inject liquidity…. (massive Gov. spending…dole, infrastructure, war!)
-Sapiens
I don’t think the Fed is going to fire up the helicopters simply due to the slowdown in housing.
I believe that we would need to see an unquestionable impact to the GDP and unemployment numbers, in the absence of strong inflation expectations, before they would choose to tread down that path again.
I’m in the camp that believes a hard landing in housing and soft landing in the economy can co-exist (hey, it is different this time).
Or am I just wearing rose-colored glasses?
jb
You may be onto something JB, the unmade mortgage payments while in foreclosure can be spent into the economy……..
Except most of that currency would find its way to China and other countries…..
-Sapiens
Sapiens,
In my opinion, if we ever go into a depression the government may not be able to fund a major recovery as the dollar is no longer tied to gold.
That’s just my paranoid thinking.
Since the topic is the upcoming existing home sales I thought I’d post the September NJMLS data for Bergen County
For Bergen County ONLY, here is the average & median price along with the number of homes sold and number under contract in September for the past 11 years. This is for residential SFH listings; this does NOT include Condos/Co-ops & Twnhs.
Year Avg$ Med$ Sold UnderContract
1995 $265,464 $215,000 579 569*
1996 $252,048 $205,000 578 529
1997 $265,964 $218,000 656 611
1998 $297,774 $230,000 684 591
1999 $340,098 $259,000 608 439
2000 $392,537 $295,000 571 551
2001 $418,217 $325,000 545 423
2002 $494,848 $375,000 583 543
2003 $514,952 $407,000 762 645
2004 $544,765 $460,000 655 621
2005 $663,049 $520,000 684 590
2006 $647,880 $494,000 465 489 as of 10/25/06
And here is the same data including Condos/Co-ops, Townhouses as well as SFH.
Year Avg$ Med$ Sold UnderContract
1995 $241,345 $200,000 721 689*
1996 $235,855 $190,000 705 690
1997 $250,638 $210,000 841 770
1998 $272,553 $218,000 886 755
1999 $299,183 $237,000 842 598
2000 $339,488 $260,000 803 770
2001 $368,705 $297,500 732 587
2002 $428,868 $342,000 828 774
2003 $458,021 $372,000 1039 908
2004 $478,034 $410,000 952 885
2005 $604,673 $490,000 946 832
2006 $581,582 $455,000 675 690 as of 10/25/06
*1995 data may be incomplete as I believe this is the first year this data becomes available.
As you can see, average and median sales price have declined comparatively to September 2005 prices. Sales are at their lowest in the eleven year period and you have to go back to 2002 to find a comparative number of SFHs under contract.
Rich
JB you are a genius!!
There is precedent for what’s going on! The point of defaults is the ensuing illiquidity and consequential lack of debt service. Japan has done everything possible to grow their economy after their RE bubble popped. Banks were not allowed to write off the bad loans and the Japanese strong aversion to shame to file bankruptcy could only mean one thing: stagnation.
See this:
http://www.businessweek.com/magazine/content/03_23/b3836159_mz035.htm
The Japanese that have have not filed for bankruptcy are consuning their saving on debt service and maintaining their life style….
While the Gov. has spent in needless infrastructure….
I am beginning to see clearly, thanks JB!
-Sapiens
This is a paper on the Japanese savings rate:
http://www.econ.umn.edu/macro/2004/japan301.pdf
There is precedent in the U.S. as to what happens after a massive credit expansion, the roaring ’20s… The Great Depression…
SO, it’s either infraestructure with stagnation or war!……
-Sapiens
v,
I see your point, you are not paranoid.
-Sapiens
“It seems that the period of freefall in most housing indicators is coming to an end,”
ok, so builder sentiment goes up one point (within range of error) and housing starts go up (yet permits continue to drop). existing homesales fall for the 6th straight month. builders’ sales/margins continue to shrink. mortgage rates heading UP. where is the indication that we are out of a free fall?
“I’m in the camp that believes a hard landing in housing and soft landing in the economy can co-exist (hey, it is different this time).”
JB,take off the rose colored glasses.
The housing situation doesn’t exist outside of the economy, it is part and parcel of it. While it may not be as big as some would think (since we obviously spend a lot of time thinking about the housing situation) it is sizable.
More important though is that there are tremendous imbalances in other aspects of the economy, primarily international trade, the federal budget, and good old fashioned household budgets. The dollar is way out of wack due to central bank purchases of the dollars that otherwise would be sloshing around looking for a home.
If the dollar had been allowed to depreciate as it should have over the last 3 years we might be able to weather the housing collapse, but as it is, we’re just going to be piling on.
The collapse of housing isn’t necessarily necessarily the first step on the road down the hill, but I have a hard time believing that the road after the next bend looks much like the road we’re on now.
I could not agree more with JB. I think world economy(esp BRIC(Brazil, Russia, china and india)) is going to save US economy from getting into hard landing. I am long on emerging stocks, S&P 500 and short on housing. To the contrary S&P 500 could have a return of around 10%/annum for the next three years.
I wish I had a job like this but I think I will get fired for being a cheater:
“It seems that the period of freefall in most housing indicators is coming to an end, but at the same time we’re doubtful that we’ve actually hit the bottom yet,’’
you can’t be wrong when you say to opposite statements in one sentence.
Kinda like calling a bottom at Lucent at $30 then $18 then $12 then I had enough get me out!
Or copurse then you have the delusional ones holding and watching it drop to $2 and hoping they can recover back to $72. hahaha.
With so many so called wrong way “experts” predicting the worse is over, You gotta believe the real misery is just around the corner.
How does the biggest baddest credit bubble in history get corrected in 9 months?
The landings (soft or hard) for the RE market and the economy are definitely linked.
I think we will have a med-to-hard in RE because of the crazy appreciation and oversupply – and income stagnation. It will likely be the same down as 90’s. The rest of the current economyt cannot prop it up.
As far as the general economy, I think that a the portion related to the RE boom will go into a sub-recession and the question will be whether it will pull the remainder of the ecomony into it. Can the remainder stay exclusive and does the fed have tricks to keep it from crashing that are permanent (not just smoke/mirrors).
My thoughts to put together a chart of our group’s expectations should now be expanded top include economy downturn too…
Trying to figure out who are the morons that are buying.They must live in the stoneage or be a bunch of drones that Goota make the donuts who have to work with no play to pay their exorbitant monthly bills. No time to think about anything but being a Worker DRONE!
Also Am I very wrong on the forth way out of current situation besides war, and stagnation:
INFLATION?
why would not our goverment crank up a printing press ( M3 money supply data are not published anymore- not a warning sign anyone? )
This way we Get rid of the National debt
Yes it will kill INTERNATIONAL dollar value, but at the same time it will make US work force more competitive.
“Bad” affect of these will be : no more dirt cheap chineese stuff. But may be it is the way to moderate wastefull rampaging consuming in the US. Come on every day we throw away perfectly working Stuff because it got to be few years old.
For example: it is cheaper to throw refrigirator away and buy a new one – ridiculos, because the part which is broken cost 1/100 of the whole refrigirator cost…
Importantly, HOUSING AND FOOD – NESSECITIES are produced domestically, so their price will be untied from the price of chineese goods.
Yes it might cause a work crisis and world size recession – but may be we need one – come on growth of chineese GDP at 20+%/year do you really think it is sustainable?
May be it will reduce consuming, waste and people will actually enjoy conversation to their neighbours instead of flying to carribean
for weekend??? That was one of the advantages of homeownership of teh past – you actually get to know your neighboors, but now – how many of you homeowners even now the names of your neighbours??
Time to get up. Gottaaa make the donuts. Feel a Drone-like syndrome taking over your life. Go ahead buy a bloated house using some exotic-risky loan to get into the American Dream. Congrats you are successful you have bought a house you can’t afford. Good luck to you.
A realtor or mtg broker or builder or appraisor is more than happy to talk you into debt slavery.
It’s your choice. But you own the American Dream. GottttAAAAAAA make the Donuts!
Be a good Working Drone.
Babbaba
As far as the general economy, I think that a the portion related to the RE boom will go into a sub-recession and the question will be whether it will pull the remainder of the ecomony into it.
Let’s see -manufaturing declining, the only segment of the economy which provided growth was real estate and luxury items and reailers, finace and medicine. With real estate gone so will be luxury spending and retail. Medicine – it can grow but # of uninsured will increase exponentially with costs.
I just do not see economy holding up.
Top 10 cities: Where to buy now
http://money.cnn.com/popups/2006/biz2/newrules_bestinvest/index.html
I can’t believe these yayhoos pick some of these towns? Florida towns? come on…
But, I did like to see Atlanta & Ft. Collins, CO on there. 2 great towns.
Atlanta has its bad parts, but its still a fun joint.
Ft. Collins, CO. Hands down, a great city, close to Denver. Only things is, that area has a slow down in its job market for the past few years and homes prices may decline a bit. CO had the highest foreclosure rates in the country (I believe?). But, it won’t sink anything like NJ. Why do people still live in NJ?
SAS
The high inflation argument would explain current surge of DJIA – it’s not growh it’s dollar buy’s less
Why do people still live in NJ?
well ater 9/11 my profession Chemist – lost 65% of jobs and recovered none since.
(but a lot of indian and chineese friend are now Leaving US since they have found great paying jobs and their countries).
New Jersey. Texas and California are the last states with somewhat strong chemical manufacturing bases (it is juts too expensive to build new refineries but all new which are build – build in china, singapoor, asia).
So few years of looking elsewhere I got a job offer in NJ -my last job paid 35% less so I tought How bad can NJ be??? Well I have less money left now after I pay my rent , food and car premiums. I drive to work for 35-50 minutes instead 5 before… I think it was very bad decisionbut hey, that how we learn, right??
I will give it two years – may be I wil like it plus new job experience – sharp learning curve is always good.
I know two people who bought as first time buyers in the last year. The first works in RE. He bought a co-op in a top area of the Upper East Side. I don’t think he seriously considered that he might be buying at the peak. Regardless, he believes that NYC is becoming ever more wealthy and that his location is bulletproof. So far, he seems to be right.
The second person I know bought a nice SFH in a top-tier NYC suburb. This guy is a banker and is very financially astute. He can definitely afford the place and views it as an upgrade to his lifestyle. He was previously paying very high rent on the UWS.
Both of these buyers chose top locations and can easily afford their housing costs (the first, I suspect, largely due to family money). If the value of their homes goes down, they may be embarassed, but they will not be crushed financially. The only possible disaster for them is if they lose their jobs.
Are they morons? No. They are just people with a lot of discretionary money who chose to spend it on housing. If they lose money, I’m sure they’ll regret it a little, but overall I think both remain pleased with their purchases.
of course, these guys aren’t your typical 1st time buyers from the last few years. but there may be more of them in this region of the world than some here would like to admit
“The second person I know bought a nice SFH in a top-tier NYC suburb. This guy is a banker and is very financially astute.”
Astute at what? Underreserving for bad loans.
Just because someone makes some bucks doesn’t make them astute. Seen lots of these hotshots lose their a$$ all the time.
“..NYC is becoming ever more wealthy and that his location is bulletproof. So far, he seems to be right.”
hey boy how long you been around. “bullet proof” don’t make me laugh. prices are going down in NYC. Bullet proof! ha!
I agree with you skeptic. Prices may decline somewhat in NYC but there will not be a crash.
There is just too much money in the area. I live in Bronxville in Westchester and am surrounded by wealthy banker households. Even if prices decline, which they might, the most people around here will suffer is embarressment.
Business 2.0 includes NYC as a bubble-proof market along with SF, LA, Boston and Seattle.
“Population: 8.1 million
Median home price: $504,000
New York is a financial and investment banking capital, a media capital and the nation’s foremost center for the creative arts. There are museums and music of all genres and entire neighborhoods filled with artists, writers – and poseurs.
Financing much of that activity is a steady, and often spectacular, flow of funds through New York’s capital markets, a percentage of which sticks to the fingers of the many financial industry professionals that make up the most powerful of the city’s economic engines.”
skep-tic, your friends (and all other real estate investors) will be fine if they can afford their mortgage payments until housing goes up again. It may be 20 years, but real estate will still pay off in the long run.
Of course, I still think they are morons. Who in the business would buy at the top of the market in some of the most expensive areas? A better bet would have been to buy in an “emerging” neighborhood where housing was still relatively cheap.
“A better bet would have been to buy in an “emerging” neighborhood where housing was still relatively cheap.”
From a purely financial point of view you are correct. But you are ignoring quality of life issues. Emerging areas are just that meaning they have not yet emerged and this process can take years. The problem is that until they emerge you have to live in a shitty area. If you have the money like skeptics’ friends and have a family just buy in the best location, even though they are more expensive.
Any emerging neighborhoods in Monmouth, Middlesex or Union Counties you would suggest for a dual-income/no kids couple ?
Bob,
I know that all areas in and around NYC have seen RE go down. I am not suggesting that this is impossible. I am just saying that there’s not much evidence to suggest that the top areas are crashing right now.
These places are not where we are seeing people with payment shock. Yes, inventory is high compared with the last few years and sales have dropped off. People are cutting prices and will continue to do so until the inventory problem is resolved.
But I don’t need to tell you that the buyers for these top areas are not marginal. They are making more money than ever and some of them choose to spend it on housing, even at the peak.
If people like this are buying now, you can be sure that there will others that come out for 10% discounts and so on down the line.
The point is that even though prices are outrageous, there are people who CAN afford it. They may be hotshots about to loss their a$$es as you say, but until a recession comes and they start losing their jobs, many of them will be buying.
Sales of Existing Homes Fall for 6th Month With Annual Price Drop Biggest on Record
http://biz.yahoo.com/ap/061025/economy.html?.v=4
Mmmm, hence my question, how do you get the “inflation” into the economy? You have to put the currency into circulation, other than given it away how do you get the cash into people hands?
-Sapiens
Skep-tic, I agree to a point, at least as far as NYC goes, but disagree about the suburbs.
Someone posted on here about just how many Wall St. people there are – it wasn’t that many. Assume lots of them live in NYC, or Greenwich, or other top towns. That leaves plenty of other “top” areas where there may be some of them, but the fact is, there are way too many “top” towns (at least pricewise) for Wall St. to fill those houses. There is a lot of money in NY, there always has been – but there is, in the end, no underlying reason for prices to be quite as high as they are now.
v, great catch. so, inventory is declining and so are prices. long winter. big hopes for ’07 spring.
JB, don’t know, but Bernanke may have been right after all with his UH1’s quote.
-Sapiens
V,
Lereah sounds like Baghdad Bob on the final days of the Iraqui Regime….
-Sapiens
curiousd,
I’m not sure about the inventory. I’ve a feeling that there will be a big inventory increase in spring.
How can lower sales lead to lower inventory? :)
I have seen an increase in FSBO listings in my area. As far as i understand, FSBO is not covered by “existing sales report”.
“New York is a financial and investment banking capital, a media capital and the nation’s foremost center for the creative arts. There are museums and music of all genres and entire neighborhoods filled with artists, writers – and poseurs.”
Yes, but it was all these things 10 years ago before the insane appreciation.
Mmmm, hence my question, how do you get the “inflation” into the economy? You have to put the currency into circulation, other than given it away how do you get the cash into people hands?
-Sapiens
federal reserve Bonds, Federal Loansc – money in them come from – yea you guessed it – goverment makes them up. Normlly they are backes up by Future Taxes Collectiond but At the moment of issue they are pure NOTHING and people/foregn bank buying them because of trust that US goverment will repay them as it say so. SO start Creating huge loans from teh goverment and give them to US banks instead of foreigh banks – thats how you create inflation. Thats why M1, N2, M3 are very important characteristic of Economy.
For link with inflation check:
http://en.wikipedia.org/wiki/Money_supply
So it is not hard to get money out -and of course the first peopel to get their hands on money have chance to spend them(bankers) in “Uninflated” value, and last people to get them – Salaried Workers will get them devalued.
guys – remember that old RE saying – location location location. And that crazy concept called supply/demand.
In areas where there is more limited supply, and the jobs to support the demand, and the propertu is desirable (quality location) – we will see less (not zero) decline. IE NYC, Westchester)
The other areas – the declines will be directly related to the three variables above….
“Yes, but it was all these things 10 years ago before the insane appreciation.”
Yes it was; but I think those things aleviate insane depreciation vis a vis areas that are not those things but still saw the boom.
skep-tic,
You make some good points as usual. One thing to keep in mind is that even though different price points and different neighborhoods will be affected differently, to some extent they must be tied together. I don’t think it’s possible, for instance, for Summit to only see a 5% decline while Clifton sees a 35% decline. I think the premium people are willing to pay to live in a nicer town is probably fairly constant as a percentage. So if there’s a 40% premium right now to live in the same home in Summit vs Clifton, I don’t think it’s likely that the premium can grow to 80%. Same thing regarding house quality.
So if you read the definitions of repurchase agreement – if Amount of those repurchase agreements are higher that GDP grown you will have inflatuion. So all goverment needs to do is to issue a lot of “Repurchace agreements” like they are doing now
But anyway we are going into macro economics 2.1 instead of housing – Sorry about that, but housing is realted to this – since it is tradable asset.
skep-tic
Agree that the declines have to follow some sort of correlation (%). There will be declines across the board, even for desirable locations.
But there will be some freefalls for the really undesirable, overbuilt stuff (remember the coops of the 90’s)
LCD,
Similar to my post above, prices in the suburbs affect the prices in NYC. Lets say it costs $750k to buy a townhouse in Hoboken, and $1.5M to buy a comparable apt. in Manhattan. If the price in Hoboken drops to $400k, that’s going to give a major incentive to local buyers to choose Hoboken instead of Manhattan.
Manhattan will always be more expensive than the burbs, but if the incentive to move out to the burbs grows due to falling prices, that will affect Manhattan prices.
NJGal,
I agree that there are way too many “top” towns. Basically every house that is not in a ghetto is priced as if it were in a top town right now.
I am not even saying that the true top areas won’t fall. I am just saying that they are falling more slowly than the marginal areas and will probably be the last to see big price cuts.
There are a lot of high income people who would prefer to live in Bronxville, Scarsdale, Rye or Chappaqua who currently can only offord Greenburgh, New Rochelle, Mamaroneck or Mt. Kisco. (Using Westchester because I’m more familiar with it)
If 10% price cuts put those more sought-after towns within reach, many of these people will jump on it. I think this flight to quality insulates top areas somewhat. But again, the definition of “top” area is pretty subjective
From Marketwatch:
Existing-home sales fall for 6th month in a row
Sales of U.S. existing homes fell for the sixth month in a row in September while median sales prices fell for the second straight month, the National Association of Realtors said Wednesday.
Inventories of unsold homes fell for the second straight month, a sign that the market is correcting, said Laurence Yun, a senior economist for the realtors group.
Sales fell 1.9% to a seasonally adjusted annual rate of 6.18 million in September, the lowest sales pace since January 2004. The decrease was slightly larger than the consensus expectation of a drop to 6.23 million, according to a survey conducted by MarketWatch.
…
The median sales price fell 2.2% year-on-year to $220,000. Median prices have been down on a year-over-year basis for two months in a row for the first time in 16 years.
“I am not even saying that the true top areas won’t fall. I am just saying that they are falling more slowly than the marginal areas and will probably be the last to see big price cuts.”
Good point. Maybe it’s not so much that the top towns won’t drop as much, it’s more that the marginal areas are the first to drop. As folks then see the premium for living in a top town has grown, then those prices will correct.
From Marketwatch:
U.S. SEPT. EXISTING-HOME SALES LOWEST SINCE JAN. 2004
U.S. SEPT. SINGLE-FAMILY HOME SALES FALL 1.6% TO 5.42 MLN
U.S. SEPT. EXISTING-HOME INVENTORIES FALL 2.4% TO 3.75MLN
US. EXISTING-HOME MEDIAN PRICES DOWN 2.2% YEAR-OVER-YEAR
U.S. SEPT. EXISTING-HOME SALES DOWN 1.9% TO 6.18MLN PACE
also, the relationship between suburban and city prices is interesting. I think for a long time, the suburbs were seen as a cheaper alternative. I guess on a price per sq ft basis, they still are. but from a lifestyle perspective, both the suburbs and the city are so expensive that there doesn’t seem to be much arbitrage potential there. it’s almost reduced to a matter of personal lifestyle preference. the only really large savings I can see at this point are the schools, but if you have massive property taxes, even this advantage is diminished.
Regionally, existing-home sales in the South rose 0.4 percent to an annual sales rate of 2.52 million in September, but were 9.0 percent below September 2005. The median price in the South was $184,000, down 1.6 percent from a year ago.
Existing-home sales in the Midwest eased 2.8 percent in September to a level of 1.39 million, and were 13.7 percent lower than a year ago. The median price in the Midwest was $169,000, which is 2.3 percent below September 2005.
In the West, existing-home sales declined 3.1 percent to an annual pace of 1.25 million in September, and were 23.8 percent lower than a year earlier. The median price in the West was $332,000, down 4.3 percent from September 2005.
Existing-home sales in the Northeast fell 3.7 percent to a level of 1.03 million in September, and were 13.4 percent below September 2005. The median existing-home price in the Northeast was $259,000, down 5.1 percent from a year earlier.
RE: Sales of Existing Homes Fall for 6th Month With Annual Price Drop Biggest on Record
Why do these media morons cite NAR shills to provide “analysis” for such damaging data? (Data already massaged and filtered by the NAR, by the way.)
And the article talks about claptrap such as a “slowing economy” and “gas prices”.
Hello, a cape cod in a decent neigborhood costs $600K. The problem is prices are way out of line — not gas prices, house prices.
Anybody know what M3 is right now?
Average Condo prices fall YOY
2.2% NE
0.6% MW
3.0% S
7.9% W
Thanks MJ, I’ve been tied up in meetings all morning.
jb
Skep-tic,
I agree with the reasoning:
From LI, still in commuting distance to NYC: Syossett, Plainview, Melville are NOT LLoyd Harbor, Cold Spring Harbor…
Yet they were priced at levels that now will be reserved for the true Upper End
This “middle” ground is the one that will suffer the most in % terms
The bottom (non-guetto, though) always has the rent-equivalent floor
I live in Westchester and the feedback from RE types for top towns like Chappaqua, Pleasantville, etc is that prices have already declined by 10%+ for houses in the 1M-2M range. These McMansion listings are staying a lot longer on the market, and only the sellers that give discounts off peak 2005 prices are selling. In fact, prices have not declined much for your typical starter shacks of
Skep-tic,
re: the suburb-city arbitrage
At NYC Income tax of 5%, middle-upper class combined $300k-$400k income/year
Do you think any one in their right mind would stay within city boundaries after they had a second kid….
mmmmmhhh
let’s see… $20k to support NYC “infrastructure”, plus private school tuition, or $1MM home in desirable suburb
And if this decision are made every day, the ratio City/Commuteable Suburb should hold
Hmm..dont know why my earlier comment got truncated..so here is the continuation:
Typical starter shacks of
Whats going on, is there a wordlimit for posting comments now?
Typical starter shacks of
My own personal obsevation June-October, Long Island:
In Listing Prices, accross all segments, just a 5%-10% reduction observed
In CLOSED DEALS…
Starter Homes, desired locations $300-$400k, off 15%… minimum volume
Mid Range Homes, desired locations $400-$650k, off 20%… some volume
Step Up Homes, desired locations $650-$1M, nothing moving
Luxury Homes, desired locations $1M+, minimum volume, 10-15% off peak
“The median existing-home price in the Northeast was $259,000, down 5.1 percent from a year earlier.”
Sweet. Factor in inflation and that’s at least an 8-9% decrease.
well, an increasing number of people are choosing to raise kids in the city. the suburbs don’t seem to have the overwhelming advantange they once had in this respect. There are a lot of factors — the city is safer, parents work more — but might not cost be one of them?
Yes, that high income couple can get a nice 4 BR house in great town for the cost of a 2-3 BR co-op. Schools are free and there’s no city income tax, but you might have property taxes of $20,000 per yer. Plus, you’ve got to buy a couple of cars, $400 per month for commuter rail passes.
I’m not saying the suburbs still aren’t cheaper, but it’s not clear to me that they’re drastically cheaper.
EconRealist–
what about starter homes in the top towns ($600,000 – 800,000 — insane, I know). they still seem to be in short supply.
waters,
Do you happen to know inventory number change for NorthEast?
what’s a crash?
I consider a 30% correction as healthy for the markets the economy and to homebuyers to correct the excesses that permeate this bloated credit bubble economy.
L.I. Real Case Scenario Says:
October 25th, 2006 at 12:04 pm
My own personal obsevation June-October, Long Island:
Great post keep them eye wide open and give us your feedback.
BOOOOOOOYAAAAAAA
Bob
Anyone have any sick realtor stories they want to share?
or has this bunch of greedy sheisters been humbled?
Calculated Risk shows that NAR changed the way they do the seasonal adjustment for sales for this release– caused them to seriously overstate sales. Sales are actually at 2003 levels– not 2004
Read My Lips 30% home price drop is good for the economy!
The braindead realtors want to make you think the world centers around real estate. It doesn’t schmoes.
Concerning NYC and pricing. Sometimes the easiest answers are the hardest to accept. Let me be trite for a moment, this means saying ‘globalization’. Sorry.
NYC is a function/relation of the GLOBAL economy now. in the last 20 years the global economy and NYC RE have become highly correlated. this impacts a few parts of NNJ, but NYC is 100% plugged into the international market. why else are flats going for $2MM in harlem? there’s only so many bankers.
From London to Paris to Tokyo to Shanghai to L.A… all are have had a major boom in RE since 2000. Iportantly, there is no forecast for the global economy to fall off its record pace (even if that means the BRICs are picking up US slack)… so the major international RE markets will remain fine. So, IMHO, NYC will weather the storm. Middlesex? Who knows?
Over 20% of RE in NYC is being bought by foreigners. Thats not a bad thing. But we must note that to them, the RE prices (in their local currencies) has been flat or hardly appreciating in NYC in 5 years (since the $ tanked).
I know MACRO makes it too easy, but asking questions like why boston is not like NY and/or why NNJ is appreciating along with NYC requires a ‘simple’ answer I think.
curiousd
P.S. Don’t hit me to hard on this one… just an opinion!
curiousd,
interesting idea why NYC might be diff’t than boston. my question would be whether these foreign buyers are “end users” or just investors.
I know one thing.. Goods schools in NYC run a min of 20K per year..The public schools aren’t that great. Not to mention Grocery bills. Milk in the burbs is 3.49 a gallon.. I was paying almost $6 in the city. And I wasn’t going to the high end places either. My electric bills on my 4 brd home are cheaper then my 1 bedroom place in NYC.. We had to run the AC all year because people had the heat up so high without it the temp in the place would be 80. I am saving 1K more a month living in the Burbs. Not to mention to park our 1 car in a lot monthly was $250.
Blow, blow, blow…
and when I mean observation, I mean I just went through it….
Re: greedy sheisters
All I have to say is, the realtor I used better be kissing my feet about the fact that I had no issue reducing listed price right away and in a meaningfull matter… THAT sold my home, nothing he did/could have done did it
And btw, on his own words, “nothing is working, in the office everyone is trying to get into something else”
Are you kiddin about them being “not that great a school” in the NYC public system???
The money you save in MANDATORY private tuition, goes to Property Taxes in the burbs, which is Federal Tax deductible, and your kid may not be shot at!
sapiens,
sorry I did not notice your reply.
In my opinion Mr Liereah is setting himself up for jail time.
Not sure what you are saying LI.. I was talking about sending my kid to private school in NYC being more expensive then the taxes I pay for a public school in the burbs..
I hear they need some dummies to test a new bird virus vaccine. Maybe a few of these scheisters can make a living being a test monkey.
Ultimately is a stage-in-life kind of thing:
Single —> enjoy the city
Family —> must move away
But housing prices in city/burb are “locked” somewhat and make NYC not inmune to popping bubble
The unknown “lock” ratio is based on life-style choices, and those not necesarily change with economics, but with demographics and social preassures
So what cities would it be great to raise your
kids. NYC, Hackensack,Newark,Trenton,Philly,
New Brunswick, how about Linden,Elizabeth,or
Morristown. I believe you would have to
raise your children to use handguns to defend
themselves.
NAR changed their seasonal adjustment. Using the old adjustment, SAAR Sept sales would have been 6.02 million, not 6.18 million.
Using actual sales of 527K, sales are off over 16% from Sep 2005 – the worst YoY comparison of the year.
This is too funny.
Best Wishes.
Calculated Risk | Homepage | 10.25.06 – 11:02 am | #
——————————————————————————–
They are at it again. it is up to people like the GRIMSTER to hold the NAR accountable for their continual BS!
I have alot of friends who were raised in the city. Its a matter of choice..I was raised in both..prefer the burbs.. My sister prefers the city..
Go to:
http://www.mlsli.com/search.cfm
LI + Queens
These morons have decide now to show, right there and then, the number of available listings in the service
37,712 today vs 32,514 June 14th, that’s a 13%+ increase in inventory…. no matter how you dress it up
The aggregate number was not available through public before, just through RE proffesional log-in
So what cities would it be great to raise your
kids. NYC, Hackensack,Newark,Trenton,Philly,
New Brunswick, how about Linden,Elizabeth,or
Morristown. I believe you would have to
raise your children to use handguns to defend
themselves.
Exactly.. Hell where is a good place to raise a child that is near a train station. I’m locked into working in NY and driving in is not an option with all the traffic. So if I live up north or near a train station… i’ll be sending my kids to class full of hoodlums…. Nj Sux!
Lived in nyc for many years. here is my take.
Main driving force is the financial sector & Wall St. Everything trickle downs from that.
Banks have been doing well due to the exspansion of credit (due to loss of maufactoring jobs, credit has replaced a decent wage for most americans). Because of the credit exspansion & the profits of banks, it has attracted much talent to nyc and surrounding areas. As soon as banking and Wall St. takes a hit, say good bye to everything you think nyc is resistant to.
Its not a matter of “if”, but “when”. If this RE fallout gets nasty, it could be the catalyst.
nyc is not immune to anything.
SAS
“As soon as banking and Wall St. takes a hit, say good bye to everything you think nyc is resistant to.”
this is the key. when the economy goes down, so will the top end. we are not there yet
Great Aunt Ethel told me once that people from the city used their fur coats to sleep on in stations.
What David Lereah & Co fail to understand is that the priary job of the Fed is to keep inflation stable and hence protect our economy . As they have said on numerous occations they job is not to manage asset prices on the way up or down.
That being said there is a political factor associated with drop in home prices and fed maybe under a bit of pressure to help stem the damage. This would be easier if core inflation wasn’t running above what bernake has termed acceptable.
As long as core inflation stays above 2% (It was 2.9% annually in the latest report) Bernake maynot be able to do much to help they *Smart RE Investor* who borowed on an hourly resetting optional interest only 100 year mortgage to buy the million dollar cape.
Keep in mind that the Fed has a dual mandate, price stability and full employment.
jb
Hey I want fixed 0% interest mortage for 30 years please…
As far as house prices: in the country average home cost 218k (substruct California, washingtonDC and NOrth east (NYaverage house would cost 280K. So the question is if there is no nationwide bubble why do starter fixer-uppers go for 300-400K???
P.S. Wealthy Foreighners???
Approximatelry 260K people work for Wall Street, in the NYC area, this number is approximately a year old or so, so the number could be higher.
Befor the market crash in 2000, the number was around 300k.
The overwhelming majority fo people who live in NJ, work in NJ.
NAR changed their seasonal adjustment to make September look better:
http://www.siliconinvestor.com/readmsg.aspx?msgid=22941764
http://www.siliconinvestor.com/readmsg.aspx?msgid=22941962
Fed reneagued on Full Employment mandate long ago
They’re mutually exclusive results
They only concentrate on keeping price stability at levels where economic growth would generate acceptable employment levels
That does not include “bail outs” of popping technology stocks or housing for that matter.
Who is to say that falling prices have a politically negative implication?
Spinning “affordability” gets you more votes than “we are all paper rich” I guarantee you that much
No. The Fed policies of easy money to prevent the recessions THAT WE SHOULD HAVE HAD after the Stock crash and 9/11, along with easing credit restrictions, and suspect new financial products, did create the situation where we are.
And believe me, if you think the Fed is gonna act on monetary policy short of monitoring core inflation is nuts.
nice threads going here. the top areas will see less downside due to the wall street machine tied to credit looseness, financial chicanery and globalization of profits. if wall street falls over it’ll take the top towns down along with everything else. right now the location, location, location rule of thumb is absolutely holding sway as places like westfield and summit are seeing far less declines particularly in the starter home range than ‘lessor’ towns.
Skep-tic:
“There are a lot of high income people who would prefer to live in Bronxville, Scarsdale, Rye or Chappaqua who currently can only offord Greenburgh, New Rochelle, Mamaroneck or Mt. Kisco. (Using Westchester because I’m more familiar with it)
If 10% price cuts put those more sought-after towns within reach, many of these people will jump on it. I think this flight to quality insulates top areas somewhat. But again, the definition of “top” area is pretty subjective ”
We are looking in Southern Westchester – Pelham. It’s a nice town, but borders Mt. Vernon and two parkways, and has a good (but not Scarsdale-good) school. To me it’s the kind of town I think you’re talking about – good, but prices should not be “top” town prices. It’s starting to show its wear. I have already seen prices coming down. Many sellers are hanging at 2005 peaks after a few price cuts – but nothing is selling. I have seen a few random homes sell, but things that were in the 8 range are now in the 7 range, with some in the 6 range, and so forth. I would estimate that some of the places I am looking at have at least 10-20% more to drop before I would consider buying them.
It should have said recessions THAT WE SHOULD HAVE HAD after the TECHNOLOGY Stock crash and 9/11
“the top areas will see less downside”
Initially that is probably true, but as this thing plays out, the effects will “filter-up”
Re: Thread on Top Towns
I also think TRUE Top Towns will hold because someone buying above the $1M+ luxury range is not (should not) be doing it on suspect ARMs…
(Most) people at those levels of income are sophisticated enough not to over-stretch / get into liar loans…. so you may not see the rush of “dumping” you are going to have on the “paper” millonaires that went over their true level of affordability, on the basis of “it’ll go up, we’ll refinance”
(i.e. you’re gross family income is $100k, yet you paid $750k for your house)
LI @ 103,
Are you really sure that is the case?
While we would certainly hope that is the case, I’ve not seen any convincing evidence to point in either direction. However, I’m not sure it’s wise to make that kind of assumption without at least some data to back it up.
jb
If I am not mistaken the ARM’s were created for the rich..In ’89 real estate in Sands Point (LI top town) every neighbor of ours was looking to get out. One house went for 1.3 the year before in ’88 one neighbor sold the same exact house less property no waterview for 1.6.
I am just wondering about “TOP” areas argument – so hte people in top areas are all “billionaires” and their fnantial sequirity does notdepent on economy – somethink like “Beverly Hills”??? Because you know if 1000 working people loose their jobs, 50 bankers loose their jobs as well, nobody could pay lawyers, and MD’s…. Or replace unemployed with NO pay raise for 5 years…. -If 1000 people do not get payraise – 20 bankers do not get pay raise, MD’s can not ask for more money – or they can ask but amount of people who just would not pay will increase, same with lawyers and other “SERVICE” people. The credit always dries up at some point – our point will be when chineese people will finally realize that they are financing our crazyness.
And let’s see what happens to Bankers “in mass” than.
RMB you beat me to it. Arms & stated loans have been offered to the sophisticated wealthy buyers for many, many years.
People at all income levels have taken advantage of the increased buying power of exotic loans, except the very top. Why not? There is always something “bigger & better” then what you can afford conventionally regardless of your income level, again except for the very top.
It would be interesting to see what percentage of 1+ Million homes were financed with interest only and option arms since these allow stretching the most.
Re. Top Towns:
At the risk of being repetitive:
Trenton, North Plainfield, New Brunswick, Newark, etc.
All once used to be “top towns”.
Harlem used to be millionaires mansions.
Bronx was a pleasant middle class suburb.
Top towns are transitory and no-one is immune to stupidity and greed, not even bankers.
From the Fed:
FOMC Policy Statement
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.
Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.
Nonetheless, 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.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.
MMMmm…. don’t like this hold attitude of the Fed. They sure are yellow.
SAS
“The overwhelming majority fo people who live in NJ, work in NJ”
True, majority of jobs and income come from NYC.
You take away nyc, all of NJ is a skunked sewer in the meadowlands.
Well, I still like some towns in way south Jersey. ;)
SAS
Weren’t a lot of people predicting them to lower the rates?
I think one of the most interesting points about inflation is that housing prices are not involved in the calculation, but rent prices are (please correct me if I am wrong). So while housing was shooting up, rents were pretty much stagnant. Hence the CPI not rising as much.
Now some anecdotal evidence on my part (postings on here, rentals in my complex) have suggested that rental prices are quickly on the rise, and in my area (madison) maxing out at the rent controlled limit between tenenats. If this continues for the next year or so, won’t this play heavily into the Fed rates?
here is something else that makes sense. Strip out housing, since 2000 health care is up 89% and college tuition costs are up on average 8% per year. most people go to college and most have health care, so how are these 2 stats. not covered in anything?
I hear your points, but I still think (as in opinion, not backed by any data at my disposal) that most of the “bubble” has been fueled by frenzy buying in traditional middle class neighborhoods to the point of bringing the home prices to levels not at the reach of the middle class (let alone allowing upward mobility)
That MAY (my opinion) not have happened as much in the TOP towns because not as many people had the oportunity to “get on” the gravy train at that level, even with “creative” financing
To get to where we are, you had a combination of artificially too low interest rates and very “flexible” credit terms allowing for every-average-joe the opportunity to become a RE mogul.
No doubt the Top towns will feel it too, but my point from the very beginning was that in % terms, neither the entry-level housing, where the rent-equivalent arbitrage will kick in, nor the “de-Luxe” sector will suffer as much, as the middle sector…. Towns that where not the upper class (Syosset?) behaved in RE as if they were.
And yes ARMs have been offered on the top of the economic pyramid forever, where it was believed the understanding of economic consequences was different than now where the situation is one where 50%+ of the loans are written on them BECAUSE OTHERWISE VERY FEW COULD AFFORD THE PRICES.
It’s a vicious circle, a ponzi scheme.
We should have had a moderate correction in 2001, instead we had a run-up…..
NJGal,
Yes, I would include Pelham in that middle category. Has some really nice areas, but overall less prestige than those few top towns in southern Westchester. Another thing that might depress prices there are the taxes– they seem to be very high even for Westchester. I would think you’d be able to get a nice place there in the $600,000s in the near future.
As for whether people in these towns are over-leveraged just like the rest of the populaltion, who knows? I live in Rye (renting) and I can usually tell who the recent buyers are– they are in starter-type homes with a couple of fancy cars in the driveway (usually a volvo SUV for the wife and a bimmer for the husband).
the more long term homeowners tend to have more modest cars (except of course for the people who live in the ridiculous estates, who are in a completely diff’t league).
whether this means that recent buyers simply make a whole lot more money or whether it means they spend frivolously is hard to tell. I am sure there are some who got in with IO loans hoping to ride up the ladder. On the other hand, you don’t see ANY teachers, cops, etc buying here, which apparently used to happen– so I do think as a whole the area is probably wealthier than it used to be.
The top tonws too will fall in NJ, and elsewhere, it happened beofre, and it will happen again.
Lots of people living in top towns, whoa got ther in the lasr few years, using toxic financing, I know quite a few of them.
All towns will fall, some more then others, and teh marginal ones will get slammed, as people who belivee they were forced to buy there, otherwise they would remain dirty loser renters.
In those situations new buyers will no longer have to look in those towns, which will put more downward pressure on prices in those towns. IN bergen high taxed towns will get hammereed more than lower taxed towns, say Oradell (insane taxes) vs. Montvale (more reasonable)
This all happened before int eh ealry 90’s. it going to be worse this time becasue of all the recklessness over the last few years.
from KIPLINGER’S Magazine:
The Invisible Rich
A while back I was leading a personal-finance seminar at a high school, and I posed this question to the teens: “When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?” The answer: “He’s rich.” And a man who drives by in a ten-year-old Chevy? “He’s struggling.”
Elusive realities. Just the answers I was looking for, and they provided a launching pad for a lively discussion of deceptive appearances and realities. By the end of it, these teens had a clearer sense of how little you can determine about wealth from a person’s visible consumption. The BMW, I noted, is probably leased (perhaps for three years, no money down), so we can infer only that the driver earns enough to handle a $1,131 monthly lease payment. We know nothing about his net worth, which may be great … or may be almost nonexistent.
And the man in the old Impala? Maybe he is struggling financially, but there’s another possibility: His income is just as great as that of the dude in the Bimmer, but he’s not saddled with a lease payment — and he’s investing the money in mutual funds that are growing at 10% a year.
http://www.kiplinger.com/magazine/archives/2006/10/kak.html
Should have added the next paragraph:
“The message in all this: The biggest barrier to becoming rich is living like you’re rich before you are. Why? Because all that discretionary spending — the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars — crowds out the saving that will enable you to be rich someday.”
skep-tic,
I agree with your methodology… Let’s look at WHO lives at which towns, let’s look at their average salaries, and then let’s come up with a fair houses estimated average (I like the 4x ratio, although it may even be aggressive):
I start with Long Island/ Nassau/Suffolk border:
COLD SPRING HARBOR
Ph Ds, Doctors, Hedge Fund Professionals, Book Editors, F500-Company Executives
Avg Family Income: $300-$500k…
Home Prices should be $1.2MM-$2MM
PLAINVIEW/SYOSSET
Teachers, some Lawyers, NYC Detectives, Nurses
Avg Family Income $125k-$175k
Home Prices should be $500k-$700k
FARMINGDALE
Some White Collar but also plenty of Retail/Sales/Gvt Workers etc…
Avg Family Income $50k-$100k
Home Prices should be $200k-$400k
With this reasoning:
Cold Spring Harbor to drop 10%
Plainview to drop 20-25%
Farmingdale to drop 15%
Again for all not hard data, just personal views
If in your town you have teachers and (honest) government workers, you cannot have UPPER CLASS RE prices
Everything comes down to reason. Non-bubble activity should be 5M homes moved monthly, 100-120 days housing inventory. We got a long way to go to reach it.
If people is entering this mkt whith 7+ months of inventory available, and still moving 6M monthly (which I don’t believe for a second), prices must come down and fast. Something is not at equilibrium.
hmm Are people really getting this high salaries that 600K starters considered ok??
Just let me know please, becaue may be I am grossly underpaid and need over 3x times raise in my salary..
skep-tic Says:
October 25th, 2006 at 2:48 pm
NJGal,
Yes, I would include Pelham in that middle category. Has some really nice areas, but overall less prestige than those few top towns in southern Westchester. Another thing that might depress prices there are the taxes– they seem to be very high even for Westchester. I would think you’d be able to get a nice place there in the $600,000s in the near future.
Or even a nice place I thought I was getting a ok salary but nowhere near affording 600K house….
Skep-tic, the taxes are outrageous. One house I like(price-dropped 3x, by the way, from 799 to 749 – whoop-dee-do), has 16K taxes. We looked at one multifam with almost 20K in taxes. Pelham essentially has zero tax income from retail and the like.
Now, I tend to look at taxes as compared to my private school tuition should I stay in Hoboken, and Pelham comes out on top. But still – it’s very high, and makes what would be a very manageable mortgage payment for hubby and I very painful.
Funny thing is that I like the town because it’s more mid-road – hubby grew up in very fancy Westchester town that shall remain nameless and hated the extreme snottiness. Neither one of us wants to raise kids in that environment (hard in the Northeast generally, I know, and we have talked of leaving) so we looked for more “normal” towns with good schools. But with middle towns endlessly bragging on how much their houses are worth, are we just moving into the same kind of snotty environment? That’s why I think towns like this are going to come down.
“hmm Are people really getting this high salaries that 600K starters considered ok??”
Ha, good point Al. But yes, that is what it’s looking like more and more – even with nominal drops, that’s where we’d end up, and then assuming stagnation, we’ll have several more years of 600K starter homes! Naturally, the hope is by that time income has caught up, I suppose.
But as I said to skep-tic, I can pay it if rates remain low – after all, a 600K home (with 20% down, by the way) isn’t a terrible mortgage for me when compared to the rent I pay – it’s really the taxes that hurt.
James,
Would it be good to have the data (and past several years data) shown in a graph? I think you did that every month.
007
NJ Gal: I do not think that you will be looking at 600K for starter houses for long. Incomes are not there, and it will be years before they are there if ever.
And as you say throw in doubel digit yearly property taxes with guranteed 7% increases or more a year, and I just do not see it.
did I miss something in one of your posts, as to why you feel that way?
NYC is like NAR of companies. People in NYC help companies sell to one another and raise cash etc. When the economy slows NYC is the one to be hit hard. Because at that time, companies instead of making deals try to protect themselves. I think that is the reason NYC RE goes down later than all other places. But when it goes down, it goes dead because wall st fires the people in matter of seconds. ZI think we can see real slowdown in NYC RE second of next year.
PLease read David Lereah comments. is any lawer in the blog? I think somebody is going to sue NAR for big money cheating buyers.
However, economists with the Realtors said they believed the housing decline could be hitting bottom.
“The worst is behind us as far as a market correction — this is likely the trough for sales,” said David Lereah, the Realtors’ chief economist. “When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market.”
Lots of fake phonies juggling monthly payments.
Hehehehe. Live low live good. and laugh everytime I see a floozey that just leased that expensive car for show.
It’s called “Show & Tell” and it’s an epidemic in our society.
Babababab
HOUSING BUST!
READ MY LIPS NO HOUSING REBOUND IN SPRING 2007…HOUSING BUST SLAPS’EM SILLY!
BLeed’em Dry
Bob
“David Lereah, chief economist for the National Association of Realtors, blames the declines on inflated housing prices. In a recent analysis, Lereah wrote that housing prices simply got too high, cutting into affordability. ‘Sellers need to abandon unreasonable expectations about the value of their homes,’ he wrote.”
“The worst is behind us as far as a market correction — this is likely the trough for sales,” said David Lereah, the Realtors’ chief economist. “When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market.”
WAIT A MINUTE BIG GUY!
THIS IS ON RECORD. ONE DAY THIS THE OTHER DAY THAT.
WHEW! This guy is digging a hole for himself.
Babbaba
BUST!
BOOOOOOOOOOOYAAAAAAAAAAAA
Bob…………
there’s probably more flash than substance in a lot of these towns, but it’s hard to tell.
Some people are legitimately rich, and these people tend to concentrate in a few areas.
Personally, I’d like to think that this wealth is mostly an illusion, but I have no way of knowing.
I certainly don’t see any obvious indications of it so far such as widespread foreclosures, bankruptcies, desperate price cutting by sellers who must sell, etc. These might be right around the corner, but the point is they aren’t happening yet.
“NJ Gal: I do not think that you will be looking at 600K for starter houses for long. Incomes are not there, and it will be years before they are there if ever.
And as you say throw in doubel digit yearly property taxes with guranteed 7% increases or more a year, and I just do not see it.
did I miss something in one of your posts, as to why you feel that way? ”
I hope you’re right – you didn’t miss anything. I am just at the point where while I believe that prices will come down, I am getting a little frustrated. I want to believe that starter homes will be less, but it’s still tough to adjust the mentality. But you’re right – incomes are not there, and property taxes are too outrageous.
NJGal,
re: the snob factor
It’s a big issue in this area. Seems like if you want to live in a nice neighborhood, with good schools, this is the baggage that goes with it. I think if you get further away from the city up into northern Westchester there might be a bit more balance, but nice communities with decent commutes have a high premium. My wife teaches high school in a very wealthy district and the kids are a little out of control with their attitudes. It’s annoying, but the school is amazing and the community is overall very supportive of education. You could probably get the same sort of environment elsewhere minus the snobbery and hyper-competitiveness, but probably not near NYC. Maybe in the south
The snob factor kills me. Hubby’s snotty town WAS in Northern Westchester, sadly. That’s where we’d love to end up but the commute just isn’t great, especially because we want to have kids soon and I cannot picture myself with an hour and a half commute and a baby.
I wonder, though, if some sort of financial “disaster” in the US is what we need to wipe a little of that attitude away – sadly, I don’t think it will matter anymore whether I leave the Northeast or not – everyone seems consumed by consumerism and materialism. Everything is surface nowadays – no one cares anymore how they treat other people, how they help their community, only what size Range Rover they can buy. I know, it’s a generalization, but it just seems to be the prevailing attitude and I somehow doubt it’s going to make the younger generations happy ones.
I wonder, though, if some sort of financial “disaster” in the US is what we need to wipe a little of that attitude away – sadly, I don’t think it will matter anymore whether I leave the Northeast or not – everyone seems consumed by consumerism and materialism. Everything is surface nowadays – no one cares anymore how they treat other people, how they help their community, only what size Range Rover they can buy. I know, it’s a generalization, but it just seems to be the prevailing attitude and I somehow doubt it’s going to make the younger generations happy ones.
Good one, Believe it or not – for finding better people you have to go west -Colorado, Washington state, Utah, New Mexico, Arizona..
People are great there. it’s just there is not many jobs. Why do you think Colorado deflating the bubble first in the country.
Question off topic:
There’s a new home on the market (2 weeks on market) that I put an offer on last week.
Asking price: $399.9K
I offered: $330K
They came back: $392
I laughed and countered at $350K, my max.
They said no.
Yesterday I was talking to my realtor about possibly upping my max price (in general, not specific to this house) to $370K and asked her if that $20K bump up would allow me to look into a more affluent neighborhood, better quality home, etc.
Today she called me and advised that the selling agent left her a message asking if we had given any more thought to the house, and if we’d be willing to negotiate further.
Question: Your opinion. Do you think the selling agent really called her, or is this a move she’s making based on the fact that I had asked her about what moving to $370 would do for my options?
Just an FYI, my realtor works for a reputable company, and has been in the business for 15+ years.
And here we go…
I had to buy because of a family illness.. ect..lina. I would wait another year or two if I did not have the above factor.. My husband and I figure that in the last 3 months our house is already worth 30K less then we paid. Are we kicking ourselves.. We didn’t have a choice so no.. But man do we wish that we could have waited.
lina,
I feel you should pay 400K for troubling the seller and also pay the realtor fees.
I recognize that this may not be the right time to buy (but also might be – that’s a very individual decision), but would like insight to realtor’s and how they work.
Any thoughts on this based on my comment regarding her phone call?
They are only interested in making a sale..
A big apathetic “meh” to the snob factor. Hate to say it, its everwhere. If you’re quiet or shy, you’re a snob. If you pull out paper bags & not plastic or vice versa from your trunk. You can be too blue or white collar or not hometown enough etc. etc. You’re a dirty hippy or riding the organic bandwagon if you buy tomatoes from a fruitstand… they were Amish you scream! But no one listens, they keep on judging… here, there, out yonder, etc. There’s no difference between snobs & trash, they’re the same thing: unhappy & critical of themselves especially but you mostly. Eh, both will be really unhappy in 2007 because their house prices will be dropping like eyebrows since they can’t prop up either anymore on credit bought botox. Don’t let ’em get to ya & good luck!
“Question: Your opinion. Do you think the selling agent really called her, or is this a move she’s making based on the fact that I had asked her about what moving to $370 would do for my options? ”
Does it really matter? In the end you need to decide if that house is worth $370k to you. And you need to know for yourself if you could get a better house for $370k. I wouldn’t trust your agent to be correct even if you trust her not to lie to you.
Lina,
It sounds like you don’t really trust your agent.
jb
waters,
that’s a good point. i guess i’m just being cynical (cautious?) and wondering if that’s where she’s wanting me to go, or if these sellers really ARE anxious to sell….
I don’t trust anyone when we’re talking about money! Especially my money!
RMB,
Just had a similar conversation with a friend today leaving the military & figures higher price beats the alternative of staying in for a market correction. Sorry to hear, that really stinks. Glad you’re not kicking yourselves rather still kicking.
We knew the market was correcting.. The situation came to a head in 2005.. We held out as long as financially possible. It is what it is..
Lina, you don’t really want that house. You’re spending too much time struggling with psychology and who said what to whom on what day. When the deer is in the crosshair, if you are hungry, you will pull the trigger. If you wanted that house, you wouldn’t be worried about such things.
You have the money (you think) that you are willing to spend and watch float away downstream, but you are still seeking the “step up.”
Maybe remember that this is not really a life or death decision, but also that you might lose a lot of money (if you decide to move within the next few years). If you can live with the loss, buy what you want.
Well, at least you are in the right mindset about that.
Just don’t get suckered into the ‘eBay game’ (What’s another $10k? … and another $10k … and another $10k). You’ll blow right by your self-imposed limits and budgets. When the smoke clears you’ll wonder what the hell you were thinking.
You have something you haven’t had in a long time, it’s called bargaining power. We’re heading into what has traditionally been the slowest period for contracts. Contracts will decline until the Jan/Dec timeframe. Closed sales will decline until February.
jb
Grazie… good insights.
The spamming realtor is back:
And:
Click these links below to have craigslist mark this junk as spam so it’s deleted:
Link 1:
http://flag.craigslist.org/?flagCode=15&postingID=225519305
Link 2:
http://flag.craigslist.org/?flagCode=15&postingID=225511248
>>Top towns are transitory and no-one is immune to stupidity and greed, not even bankers.
some are, some aren’t. look up chatham and summit. both were found in the 1700’s. if you give a timeline of infinity then yes transitionary applies.
Lina, suggested reading:
“How I Became a Bagholder and Survived.”
Okay, I’m off the fence.
Even if it seems like a good deal now, there is absolutely no point to buying a house at today’s prices if you’re at all concerned about money. Today’s prices are, for the most part, last year’s prices with slight adjustments. The money on the sidelines will not blink first; it’s gotten enough of the puzzle to figure out the picture. The balance has tilted: The must-sells are more numerous than the hafta-buys.
What can be bought now can be bought later at a lower price. And even if market dynamics and fundamentals didn’t point to price reductions, herd mentality is leading things toward that conclusion. I’ve tried to see both ways about this, but the evidence pointing to a precipitous decline in house prices is incontrovertable.
How far prices decline is a mystery. But I’ve seen some significant drops in my town, and still no buyers. Also, a lot of contracts have fallen through because buyers would rather lose their retainer today to go after lower prices tomorrow.
lina, stick to your original offer and if they dont like it not to worry; the right house at your comfortable max will appear. The current sellers may even come back to you. Remember, just because a realtor may work for a known realtor doesnt make that person any more or less reliable. a 350 offer on a 399 isnt a crazy offer at all. This house from what you see has been on the market for only 2 weeks. the average time on the market for homes is many months. when the place is still sitting around the holiday’s i would expect a call back.
I wouldn’t even bother making an offer on a recently-listed house. The sellers haven’t suffered enough sleepless nights, and are still smug.
Come back after 100 days on market. Or maybe 150 days. Maybe 200.
No rush — new inventory rolling in all the time, prices dropping all the time.
LOL UnRealtor yes this is very true too. They are smug in the begining.
“think we can see real slowdown in NYC RE second of next year”
I think before you see that, you need a big hit in the financial sector, I don’t see that happening anytime soon.
But when it does hit…look out
you people keep focusing exclusively on the financial factor. if one can afford to buy a single family home today and get a fixed rate loan and plan on staying for at least 10 years i see little they have to worry about. condos and townhomes beware.
sas i agree. it’s my firm belief so goes wall street so goes New York and the immediate suburbs. just look up the tax revenue generated for the city via wall street. enormous indeed.
“if one can afford to buy a single family home today and get a fixed rate loan and plan on staying for at least 10 years i see little they have to worry about.”
Kudos to those who can write off zero gains on $600K over ten years.
Compare to some joker who bought in 1996, and sold in 2006 for $300K profit. Then imagine buying in 2006 and selling in 2016 at $0 profit. For most people, myself included, these are life-changing quantities of money.
Since realtors seem to be so confident about 2007 RE market, would they be willing to insure our purchase for free? OK I will pay the application fee but no premiums.
“if one can afford to buy a single family home today and get a fixed rate loan and plan on staying for at least 10 years i see little they have to worry about.”
That would be nice. In fact, if I wind up moving to North Carolina, I will probably take this attitude. There, I can buy a brand new home there that I couldn’t dream of in NJ for a very reasonable price. If the price goes down, I still have a home I love and a very reasonable mortgage.
However, In NJ, that’s just not reality for most first time buyers. To buy here, I will either have to settle for much less that I really want, take on a risky mortgage, be up to my eyeballs in debt, and/or move to a less desirable town.
Can somebody pls help me. I am trying to find a realtor or appraisal company who can give me a real lowball valuation on a single family home in Cresskill. The valuations from normal comps and realtors are too high and do not reflect what is going to happen in the next few months so how does one get a more accurate lowball appraisal when everything around us is inflated?
Pls refer me to somebody who can help me get a lowball valuation .tks
An appraisal is designed to give you valuations in today’s market value (based upon comparable homes recent sales price), not tomorrow’s. You are looking for a prediction, not an appraisal.
A “lowball valuation” isn’t something you are going to get from an appraiser. Calling an appraiser out is going to cost you a couple hundred, and you might not like the result, since an appraiser is going to base values off recent comps. Since the appraiser doesn’t know what you have in mind with his/her appraisal, they aren’t going to sway the numbers based on what you are looking for.
jb
NJGal:
If your are looking Pelham, consider Eastchester which shares a border with Pelham.
I live in the chester heights area and recently bought a move-in ready house here in the low 600s. The schools are good but not Scarsdaleque, the neighborhood is great, and taxes are much lower than Pelham
RentinginNJ, are you still on the fence about heading to North Carolina? I may head down there yet.
At least give San Antonio a look. If I decide to move, that is my destination.
jb
That’s what I decided to do. I’m waiting to see what the sellers come to me with (I told my realtor that I am not willing to put out anything – I was the last one to say $350, so it’s their turn to respond).
When she comes back with their offer, then I’m going to say we’ll only go to $350K. I’ll use the closing date as a negotiating leverage, but given we’re heading into the holidays, there’s no way I’ll go higher for this house at this time.
Doesn’t make any sense.
Anyone know the %’s or $’s of ARMs in NJ out of the below mentioned trillion that will reset in 2007? In terms of predicting future trends, how about any guesstimate numbers, %’s or $’s, for resets in 2008?
Some $1.1 trillion to $1.5 trillion of ARMs will be eligible to reset next year, the Mortgage Bankers Association (MBA) estimated. How those loans play out could have a significant impact on the housing and mortgage debt markets.
Some $600 billion to $700 billion of those loans will likely refinance into various loan products, including fixed rate loans, while $500 billion to $800 billion will reset.
Delinquencies and foreclosures will rise along with homeowner mortgage payments, though MBA is not forecasting levels.
“At least give San Antonio a look. If I decide to move, that is my destination”
Yup, I love Texas too. Such a mixed state. In Texas you have the city life and the country life as well, still affordable Its a nice balance. Colorado is like that too. But, I have a big bias towards these state.
I had a sweetheart who was from Houston back before I was in USMC in the 60s and back in 79 I had a winter romance in Aspen…..ah yes…. those were the days…..
In any case..back to RE.
SAS
Another question for the blog..
What makes some bloggers think life, NJ, RE, and the USA will be ok in 10 years?
I hear alot of this “in 10 years… such and such…”
If you ask me, things can get ugly, and that 10 year timeframe might end up being 15-20 years before ones feels they are “out of the woods”.
SAS
it will take about ten years to edit and undo bush.
In my opinion, the inventory will get a boost in December, as sellers who had taken thier house of the market will compete with each other to hook some want to be bag holders with a depreciation asset.
btw-
There was a good article about Vietnam in the NYT this morning. But, don’t be foold, Vietnam textiles, like textiles in China are mostly state owned. Meaning the govt gets profits.
Remember that next time you buy your NIKEs.
SAS
>>Compare to some joker who bought in 1996, and sold in 2006 for $300K profit. Then imagine buying in 2006 and selling in 2016 at $0 profit. For most people, myself included, these are life-changing quantities of money.
you’re making a prediction. if you have a crystal ball that’s guaranteed 100% accurate please let me know so you can share some stock picks!
tomorrow-
New home sales
Durable goods
Initial claims
http://biz.yahoo.com/c/e.html
Richard, no crystal ball, just using the last 60 years of history as a guide:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
“it will take about ten years to edit and undo bush.”
That’s a relevant comment…
“At least give San Antonio a look.”
I do love Texas. How are jobs in San Antonio? What types of industries?
i know quite there are some financial firms that have moved their back office operations there. san antonio that is.
i know there are some financial firms that have moved their back office operations there. san antonio that is.
i hate when i do that ;^\
i’ve been to san antonio a # of times for pleasure and business. there’s little there in the way of industry, particularly ones that provide well paying jobs.
RentinginNJ, are you still on the fence about heading to North Carolina? I may head down there yet.
I’m ready to go, but my wife isn’t. She really wants to try and make it work in NJ. She loved it there, but she doesn’t want to leave her family behind. I will miss family and friends too, but I feel like we will struggle if we stay up here, even with our good jobs and good incomes.
In any case, we are expecting a baby in March (it’s a girl!). We are going to have the baby up here so we can be around our families. By this time next year, we are going to reevaluate the situation and make a decision.
congratulations boss. the little ones are a blessing.
At least the Chinese are trying to do the right thing-
http://www.accessmylibrary.com/comsite5/bin/pdinventory.pl?pdlanding=1&referid=2930&purchase_type=ITM&item_id=0286-15407854
Beijing’s anti-housing speculation fix receives mixed reviews.
Source: The America’s Intelligence Wire
Publication Date: 29-MAY-06
COPYRIGHT 2006 Financial Times Ltd.
(From CBS Marketwatch (Stories))
Byline: DILIP GANGULY
HONG KONG (MarketWatch) — Policies unveiled by Beijing Monday to curb speculation in the nation’s property market won measured praise from economists but failed to quell doubts they go far enough to head off an evolving asset bubble.
China’s State Council announced Monday it would raise housing down payment requirements, introduce transaction taxes on properties sold within five years and restrict bank loans to property developers in bid to quell speculation and ease growing social…
Intersting article on China-US housing bubble written in Aug 2005.
How China Will Burst America’s Housing Bubble
http://www.robertreich.org/reich/20050803.asp
…
Bubbles form when it’s easy to get capital to invest in something, and when investors assume that somebody else will come along after them and pay even more for it. So as long as mortgage interest rates stay low, the housing bubble is likely to grow. It seems that no matter how much a house costs, buyers assume that a future buyer will come along and pay even more – because that future buyer can get the money just as easily.
But beware this logic. When mortgage rates rise, the psychology will shift. Buyers can no longer assume that future buyers will pay more, because some future buyers won’t be able to. And when the psychology shifts, the bubble bursts.
….
But that’s about the change. We’ve been pressuring them to let their currency rise, and they’re getting the message. We don’t know yet how much they’ll let it rise. But the writing’s on the wall, in Chinese characters. And other Asian nations are following China’s lead.
You don’t have to be a zen master to see this means less Asian money flowing into the United States. Which in turn means long-term interest rates – including mortgage rates – will start to rise. It’s just supply and demand: Less money around, and the cost of borrowing goes up.
As a result, the housing bubble bursts. I can’t give you an exact date. It depends how fast China and the rest of Asia unleash their currencies.
Moral of the story, as told to American policymakers who have been pressuring China to revalue: Be careful what you wish for.
http://www.moneyweek.com/file/3075/housing-boom.html
Bust will follow boom – but when?
This analysis is based on a theory of the property cycle. I have drawn on 300 years of business-cycle history and reached one firm conclusion: housing booms precede recessions…..
Lower interest rates won’t stop the crash
Can anything be done to head off the depression of 2010? In my view, it’s too late for the UK. The Bank of England is caught in a double-bind on monetary policy.
…..
“-Realtors said they believed the housing decline could be hitting bottom.
“The worst is behind us as far as a market correction — this is likely the trough for sales,” said David Lereah, the Realtors’ chief economist
Beware the false bottom…….
Moving out to any other lower-cost area will almost certainly entail taking a pay cut.
The transition will be easiest for those who have saved up a sizable down payment.
That large down payment combined with an overall lower cost of housing will further minimize the monthly housing cost, enabling you to go a bit further on your reduced salary.
jb
And don’t expect to be able to go back to the higher price area… the return trip to a smaller home for more money becomes difficult – especially if home prices rise.
SAS says: NYC isn’t immune from anything….”
Couldn’t agree more. I worked on Wall St. for many years. Now retired and living out of the NorthEast. I still visit NYC and occassionally will visit friends who are still in the (money management)business. Just recently made one such visit this past Sept.
Couldn’t believe the level of complacency that
exists in this fraternity when you mention things like the trade deficit and budget deficit. Overwhelming consensus is “so what,
it’s been that way for years and why shouldn’t it continue like that for years….” Nobody concerned about massive debt loads, overleveraged consumer, etc…
Have anyone of you ever walked into the nerve center of a major money management operation, like a Fidelity, Merill Lnch Asset Mgmt, etc? Let me tell you, you’d be hard pressed to even see anyone older that 35. Many of these folks, smart as they may be, weren’t even born when I first got into the business, let alone when the industry last had a major contraction in the mid 1970’s. I was there I remember it well. There were days when we sat at the trading desk and the phone would not ring for an hour or more. I remember people were selling 2+3 bedroom coops on Park Ave for $50,000 because they could no longer keep up with the maintenance payments. True story. If you think it couldn’t happen again, maybe you’re one of those young folks that wasn’t born when it last happened. :)
JohnSS,
Yup, you are right on.
Remeber, alot of these blocs are the “Greenspan children”. They only know good times.
But once the music stops, better hope their are chairs to sit in.
SAS
JohnSS,
I couldn’t agree with you more. I work in the money management business and am only 37. I work in the distressed debt field so I tend to be cynical about most things in life, especially money. A couple of months ago, credit was starting to tighten and I thought that there was chance (small chance) that things be start to become more sane. After the second pause by the FED, the credit markets started to loosen up again. It is incredible the amount of very suspect deals getting done. We are going to be in for a rough landing sometime in the near future (1 – 3 years out), but in the meantime there is almost nothing trading at “distressed” levels now. Very boring.
Congrats RentinginNJ! Sounds like you have a good strategy in place.
CH914, thanks. Maybe we will take a look in Eastchester – I have a cousin there.
JohnSS..there is, for sure, a polarization of the money right now, that filters out to politics as well as micro decisions. The conservatist versus the bubblicious..or as you might say, the older crowd vs. the younger crowd.
The younger crowd knows making money from the ephemeral…what is said, or publicized, is more important than the analysis. I’m not sure I know who’s right and who’s wrong, but which one is more adaptable? How many in those investment decision-making roles really could tear through the numbers and apply them to best/worse case five-year scenarios, and make the right decision, or know when to bail?
So much of the business seems to have become profit for the investment company versus profit for the investor. Most investors don’t even realize what the beast has become.
My ongoing saga on the bid I put in last week (here’s the refresher):
Asking price: $399.9K
I offered: $330K
They came back: $392
I laughed and countered at $350K, my max.
They said no.
Sellers came back to me with $377K today. I said no, $350 is my max. Let them sweat!
Just A suggestion – if they will come up with 369K “Final” – come back with 340K and say it is your final :)
In the long run we are all dead. Peace of mind today is priceless! I rather rent comfortably and have a peaceful night’s sleep than a purchase an inflated house and worry all night about what would happen if I lose my job and not afford the mortgage.
lina, stick to your price, I bet you will get it,you are the buyer, the ball is finally in your court, good luck.
lina Says:
What a sorry seller !!
You are the only buyer they have and they are haggling with you.
Stick to your price, unless you are really desperate.