New Jersey Real Estate Report

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

DECEMBER SALES END YEAR WITH CONTINUED IMPROVEMENT

In the most positive sign for the New Jersey housing market in more than a year, contract-sales activity in December moved into positive territory for the 1st time since August 2005. In December, contract-sales activity ran 2% higher than December 2005 providing solid evidence that home buyers are beginning to reenter the housing market in response to lower home prices and continued low mortgage interest rates. The December performance follows lesser improvements in year-on-year home sales in October and November, and marks the first time in 16 months that the housing market experienced a higher volume of monthly sales activity than the prior year.

A more sobering view however comes from Unsold Inventory which actually increased in December by 1% or about 800 homes. While this increase is not significant from a statistical perspective, it does send a clear message that greater increases in home sale activity will be needed to reduce current inventory levels and restore balance to the housing market. At the December sales pace, Unsold Inventory represents a 10.6 month supply which far exceeds the balance point at which home prices will rise. By comparison, there was a 7.8 month supply one year ago. Therefore, while recent market improvements may signal the end of the housing decline, it should not yet be interpreted as a return to higher prices. Also keep in mind that these improvements have been fueled primarily by lower home prices suggesting that Right-Pricing! remains the key to successful home marketing.

Fourth Quarter Otteau Reports can be found at the Otteau site:

The Otteau Report

Big thanks to Mr. Jeff Otteau for providing this data to us. Compiling this data and releasing it in such an easy-to-use manner is a tremendous undertaking. Please be sure to thank Jeff and the rest of his organization for their work.

From the Daily Reckoning:

Prepare for a ‘Repricing’ of the U.S. Housing Market

In our opinion the more a financial innovation proves successful, the more successful investors will find ways to make it fatal.

Norman Angell’s book, published at the beginning of the 20th century, argued persuasively that new innovations in politics and markets of the period made war unthinkable. People stopped thinking about it. They stopped worrying. They stopped taking precautions. Never had people been more optimistic and more complacent than they were - right up until WWI began in August of 1914. Then, all the innovations that so delighted Angell - industrialization, technological improvements, nationalization - became the exact same innovations that made it the bloodiest and most expensive war in history.

Coincidentally, that was also when U.S. property prices reached their last epic high. In real terms, they went down in WWI and kept going down for 70 years or more. Only in the last 10 years have they gone back up - returning to their 1914 high only in 2005.

And now, a whole new round of innovations are supposed to make market crashes and depressions obsolete. Perhaps it is true. But we wouldn’t bet on it.

The credit bubble has now been expanding at an extraordinary rate for so long that people have begun to take it for granted. But residential property in the United States is taking a breather, maybe even going down a little. U.S. stocks are taking it easy - flat since the beginning of the year. Oil seems stable around $55. Gold is marking time at $640. Bond yields have been rising for the last two months. Where’s all the money going? Or is this great liquidity bubble finally beginning to lose air?

If not yet…when? We wish we knew. Mr. Trichet warns that investors should prepare for a ‘repricing’ of financial assets. We doubt he knows any more than we do…but we don’t doubt he is right.
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Many homeowners have already lost money; they just don’t know or don’t want to admit it. They presume that by taking a property off the market, they are avoiding a loss.

‘Cut your losses,’ is an old-time rule in the stock market. You thought a stock would go up…and it didn’t. This tells you that you’re wrong. You should realize that you don’t know what you’re doing; sell the position, and ‘let your winnings run.’

But the idea of ever-rising house prices is so deeply rooted that people cannot believe they’ve made a mistake. They cannot believe that their theory is wrong. They cannot believe that there is something going on which they just don’t understand. Instead, they merely assume that their timing was off.

“I was a little late,” they say.

And they think that if they hold onto the position, the time will come when it will be a good investment again.

From the Philly Inquirer:

N.J. Property-Tax Reform

It’s amazing what a lockdown can accomplish.

Democratic leaders put the New Jersey Assembly “under call” Monday, meaning members couldn’t leave the Statehouse or abstain from voting. Speaker Joseph J. Roberts Jr. (D., Camden) was determined to pass property tax reform.

The resulting legislation isn’t the sustainable, systemic relief taxpayers hoped for last July, when Gov. Corzine called a special session. But the Assembly at least made some progress. The Senate spent last week diluting and delaying bills.

The Assembly approved tax credits, pension reforms, a fiscal watchdog, and a commission to encourage town and school mergers.

Three bills now head to the governor’s desk, and a package goes to the Senate for consideration Monday. Senators are running out of excuses for their dallying.

Under the Assembly proposal, households making less than $250,000 a year would see a 10- to 20-percent tax break, to a maximum of $2,000 a year. Tenants also would get relief.

First-year tax-credit funding would come from sales-tax revenue and the current property-tax rebate program. After that, who knows? Long-term funding remains a serious problem.

The Assembly also passed a 4-percent cap on increases in municipal, school, county and fire-district spending. The list of exceptions demanded by interest groups has grown so long that the cap may prove ineffectual. But with a law on the books, the Legislature has something to strengthen over time.

It’s been a bit quiet on the news front early this week, however, we’re in for more than a flurry of economic reports later in the week. So until then, let’s try something new…

Welcome to the Tuesday(?) Open Discussion!

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing bubble, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

This post will remain at the top of the page today, any new posts will be displayed below.

From the Courier Post Online:

Home insurance costs now rising

Richard Considine, who lives on Oceanport Creek in Oceanport, has seen his homeowner’s insurance premium jump 75 percent since 2004.

Harry Conover, who lives about a mile from the ocean in Neptune City, learned recently that his homeowner’s insurance policy will not be renewed.

Bob and Debbie Mura, who live near Silver Bay in Toms River, had a hard time finding insurance after their home insurer went bankrupt. Their new premium is $1,895 a year, not including taxes and fees, an increase of 87 percent.

Concern about homeowner’s insurance in New Jersey is on the rise in the aftermath of powerful Hurricane Katrina, which caused widespread damage in Gulf Coast communities in 2005.

Beginning Feb. 5, Allstate New Jersey Insurance Co. will stop writing insurance for those seeking homeowner, condominium, mobile home and landlord insurance statewide, according to an e-mail from Sheila Breeding, a company spokeswoman. The decision does not affect the 240,000 existing policyholders.

After State Farm, Allstate New Jersey is the second-largest of the 89 insurance companies offering homeowner’s insurance in the state, according to Jim Gardner, a spokesman for the state Department of Banking and Insurance.

Industry officials and government regulators say homeowner’s insurance is still available in the Shore area and elsewhere and deny that costs are spiking.

Last year, rates increased 8 percent to 12 percent in New Jersey and up to about 15 percent in coastal areas Gardner said.

While homeowner’s insurance has gone up sharply in many of the Gulf Coast states, New Jersey has “fared much better . . . in terms of price and availability of homeowners’ insurance coverage,” he said.

But some area residents maintain their premiums have indeed increased sharply, their insurers have dropped them or they’ve had difficulty getting insurance.

“I bet there’s a lot of people out there in my shoes,” said Conover, Monmouth County emergency management coordinator, who is searching for a company willing to insure his home.

“We’re probably going to be able to find homeowner’s insurance through someone, but the rates are going to be astronomical,” he said.

The New Jersey Association of Realtors is concerned that the recent trend of insurers dropping coverage “could have a detrimental impact on the availability and affordability of homeowner’s policies, which could negatively affect the housing market,” according to a Jan. 18 association statement.

From the Asbury Park Press:

Ruling scolds towns for shirking affordable housing
BY DIANNE BRAKE

The Regional Planning Partnership is one of many organizations pleased with last week’s state Supreme Court decision overturning the rules of the Council on Affordable Housing (COAH). Our partnership is a founding member of the New Jersey Regional Coalition, the lead litigant against the COAH rules. We also are a founding member of the Coalition for Affordable Housing and the Environment, another litigant.

We have been a leader in the fight to promote the twin goals of economic growth and environmental protection, both of which are advanced through a sound affordable housing plan.

For this reason, we are particularly pleased the court said that towns cannot simply pass on their entire housing obligation to private developers, nor can they restrict housing only to seniors when it is housing for families that is needed.
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I can testify from my experience on COAH as to how significant the loss of independence and balance has been. In 1991, for example, the court gave COAH the responsibility to create an impact fee rule. Our rule required a town to have its housing plan certified by COAH before it could adopt a fee ordinance. The commissioner at the time, a former mayor, felt such a requirement was onerous to towns. He asked COAH to eliminate that restriction from its rules.

At that time, the commissioner was not on COAH and did not control its proceedings, as it does now. COAH said “no” to the DCA commissioner in the interest of planning and affordable housing.

The first-round rules of 1987 and second-round rules of 1993, both developed by the same academic consultant but adopted by COAH under the original structure, were upheld by the court in countless challenges. The third-round rules, promulgated under Gov. James McGreevey and Commissioner Susan Bass Levin, both former mayors, were influenced unduly by a misguided support for “home rule.”

Affordable housing obligations do not have to be opposed on home rule grounds, as demonstrated in places like Plainsboro, a wealthy suburb in Middlesex County, which has had a successful affordable housing program for more than 15 years.

Instead, it should be seen as a statewide equity issue: Local government is given the power to zone only if they exercise it in pursuit of the general welfare. In a state that has become one of the most racially and economically segregated, we cannot say that limiting affordable housing in the suburbs is in the general welfare.

It is a statewide economic issue: We are losing our work force to housing in Pennsylvania and other places out of state. As the work force seeks affordable housing out of state, many of the jobs are certain to follow.

While the following article isn’t about New Jersey, the same question should be asked. Did we go too far?

From IndyStar.com:

Time to wake up from dream houses

In a sense, though a very qualified sense, Central Indiana has been a victim of its own success when it comes to home mortgage foreclosures.

Historically a leader both in the rate of homeownership and the frequency of reliance upon federally insured loans for buyers of modest income, the region also finds itself among the front-runners on the downside.

As the market-watching firm RealtyTrac reported Thursday, Metropolitan Indianapolis dropped from first place to third place nationally in foreclosure rates last year but had nothing to celebrate. Lenders took back 48,000 homes, up nearly 36 percent over 2005.

Who’s at fault? Who isn’t? Illegal loan scams that have made the headlines in recent months and led to multiple arrests certainly have cut a swath of blight as phantom financing led to abandonment and foreclosure.

However, far greater loss results from widespread activity that defies no law but too often defies good sense.

The decline in well-paying blue-collar jobs has been identified as a key culprit, and anyone can experience an unexpected drop in earning power. However, evidence shows that too many eager consumers are taking the plunge without sufficient earnings and reserves.

Lenders, sellers and builders are encouraging the gamblers by demanding too little in the way of resources and credit-worthiness and by offering a mish-mash of poorly-understood inducements such as adjustable rate mortgages whose eventual cost will outpace incomes. When layoffs or medical bills hit, families lose homes, neighborhoods lose value and taxpayers who back the government loans lose as well.

Joel Epstein, president of the Greater Indianapolis Mortgage Bankers Association, cites a nationwide push “to create a culture of homeownership” which has led to excess as well as success. “Did we as a lending industry and a real estate industry, in trying to get people into houses, maybe go too far in some cases? I would say yes. Were some people given the wrong kinds of loans? Yes. Were some people not ready to be in homes? Yes. Was the economy at fault? Yes.”

From New York Magazine:

All That Glitters Isn’t New York

Last year, DX Street, the online-marketing firm Ben Hordell co-founded, traded its fashionable Soho offices for gold—New Jersey’s so-called Gold Coast, a strip along the Hudson River that runs from Edgewater Cliffs south to Bayonne. The move was strictly business; Hordell loved living in the West Village. But as he ferried between Manhattan and Edgewater and watched towers pop up on the Jersey side like Legos, and saw billboards touting condos “on the water with Manhattan views in the $400,000s,” he started to wonder. “I love the neighborhood, but it’s a space thing. We have a bedroom that’s eight feet by seven. The full-size bed touches three walls,” he grumbles. Soon, says Hordell, a move to Edgewater may not just be a possibility—it may well be his goal.

“That river’s huge, but it’s getting narrower all the time,” says Doug Fenichel of K. Hovnanian Homes, the biggest developer remaking the area. Lennar Homes and Roseland Property are also major players. About fifteen new projects have popped up in the past year and a half. At premium prices, too: $500 to $1,000 per square foot for luxury units in buildings stocked with amenities (plus parking!), about half the going rate for comparable apartments in town. Since the ferry terminal opened in May 2006, Fenichel says he’s “seeing a lot more interest from across the river.” In some projects, like Vista Pointe and Grandview II, the number of city expats is up 20 percent.

No wonder developers are scrambling to make the newcomers feel welcome, offering what they call “Tribeca-style” or “Soho-style” finishes and expanding ground-floor retail so residents can shop on foot. They’re also offering incentives to city brokers—higher commissions, $5,000 American Express gift certificates— to entice them across the river. Halstead’s executive director of development marketing, Stephen Kliegerman, thinks the strategy makes sense but stops short of calling New Jersey buildings competition. “I don’t think they’re luring people away from Manhattan unless they want to be lured,” he says. Indeed, says broker Michele Kleier, being so-close-yet-so-far may actually be a liability. “You’re always going to see those views and be frustrated you’re not in the city,” she says. “It’s like being on a diet and walking past ice-cream stores constantly.”

From the Trentonian:

Politicians tackle tax cut plan today

Of The TRENTON — Plans that aim to give most New Jersey homeowners a 20 percent property tax cut and hold future property tax increases to 4 percent are expected to be considered today by the Assembly, though lawmakers haven’t had much time to review the plan.

Monday will be the first time legislators consider the centerpiece of the half-year effort to cut the nation’s highest property taxes, which are twice the national average.

“We are at the threshold of delivering significant relief in tandem with a system of caps to ensure that taxpayer savings do not get eroded over time,” said Assembly Speaker Joseph Roberts Jr.

The bill is going straight to an Assembly vote without committee hearings most bills receive, a process that angered Republicans who contend the cut is an election-year gimmick by majority Democrats.
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The Assembly is also slated Monday to consider bills that would:

_ Create a state comptroller demanded by Gov. Jon S. Corzine. The Assembly approved the post, but must consider Senate changes that critics said weakened the position.

_ Create a commission to annually ask voters to merge towns. The Assembly also approved this bill, but must consider Senate changes.

_ Strip taxpayer-paid pensions and require jail for corrupt public workers. The Senate has approved this.

_ Bar newly elected and appointed officials and workers such as municipal attorneys from receiving taxpayer-paid pensions. The Senate has also approved this.

_ Impose new rules regarding public notice and revising of contracts for school administrators. The Assembly approved the bill, but must consider Senate changes.

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing bubble, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

This post will remain at the top of the page during the weekend, any new posts will be displayed below.

From the Philly Inquirer:

Editorial | Still out of reach

New Jersey’s latest plan to create affordable housing won’t work, a state appellate court ruled Thursday. It’s unfair, it discriminates against families, and it’s based on flawed data.

“The rules frustrate, rather than further, realistic opportunities for production of affordable housing,” wrote Judge Mary Catherine Cuff for the three-judge panel.

Once again, New Jersey’s Council on Affordable Housing has failed the guiding principles of the landmark “Mount Laurel” rulings - the affordable housing equivalent of Brown v. Board of Education. Families will continue to struggle; the economy may teeter when employers can’t find workers. The state must do better.

Gov. Corzine campaigned to create 100,000 affordable homes in 10 years. Assembly Speaker Joseph J. Roberts Jr. (D., Camden) is committed to housing reform. Now the court is demanding a remedy within six months - on a case brought by both builders and housing advocates. The momentum is right for action.

In 1975, 1983, 1986 and 2002, the New Jersey Supreme Court said all towns - urban, suburban, rural - had a legal obligation to provide housing opportunities to people of any income. After two decades, the theory is lauded nationally; practice has fallen woefully short.

That’s not news to day-care workers, health aides, security guards, janitors, and firefighters, who increasingly find New Jersey housing prices out of reach.

“Affordable” remains a debate about kids unable to live where they grew up, which is why Ethel Lawrence sued Mount Laurel. But it’s also about median home prices soaring past $200,000 in South Jersey; $400,000 up north. It’s about rent consuming half of people’s income and workers commuting long hours because they can’t afford a place near their jobs.

The state’s Council on Affordable Housing was supposed to devise rules for municipalities to build or rehabilitate more affordable homes. In its third try, in 2003, it failed miserably.

Welcome to another edition of Lowball!

Lowball! takes a look at home sales from a different perspective. For those new to Lowball!, a lowball offer is when a buyer offers a significantly lower bid than asking in hopes that the seller accepts the offer. We take a list of home sales from the past month and pick out the sales that have the highest percentage difference between original list price and selling price.

The purpose of Lowball! is to show buyers that the market has changed and buyers now have considerably more leverage than sellers. Just a short time ago, Lowball! offers would have been laughed at and discarded, however, not any more. The fact that so many under-asking offers are being accepted is clear proof that the market is changing.

The first table below contains Lowball sales of 20% or greater off the Original List Price.

The second table contains Lowball sales of $150,000 or greater off the Original List Price.

From the Press of Atlantic City:

Public payroll swells, private sector shrinks, housing prices fall

A huge loss in high-paying private sector jobs in New Jersey could affect home sales along the shore while a corresponding rise in government jobs is also bad for the housing market because it drives up property taxes.

Those conclusions come from Jeffrey Otteau, whose Otteau Valuation Group Inc. tracks housing trends for the real estate market. His latest report, the 2007 Real Estate Forecast, contains some dire news about job trends.

“New Jersey has added 59,700 jobs since December 2000 of which 53,700 have been government jobs,” Otteau said.

The private sector has lost about 120,000 of the higher paying jobs in professional and business services, manufacturing, information and financial employment. From a real estate perspective, Otteau said this job loss equates to 31,000 home sales at $750,000 per house or 23,000 at $1 million per structure.

While the private sector overall added 6,000 jobs between December 2000 and November 2006, most of these are low-paying jobs. They don’t pay for second homes, although Otteau noted entry level housing for first-time home buyers is one of the few bright spots in his forecast.
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The shore is at great risk here because it is the higher paying jobs that account for vacation-home purchases. New Jersey is losing these jobs, which will greatly reduce demand for vacation homes. A large portion of housing demand is second-home buyers,” Otteau said.
He tracked a 9 percent increase in government jobs, from 594,000 in December 2000 to 647,700 in November 2006. The average pay for the jobs is $53,941 per year.

“The concern with the growth of government jobs is the cost of government, which passes through to property taxes. It further reduces housing affordability and holds the potential to drive more jobs out of the state. It sort of becomes a vicious circle,” Otteau said.

There is some good news for the shore. While there is a migration out of northern New Jersey, Otteau said Atlantic County is enjoying “an in-migration” due to the casino industry and southern Ocean County due to a population jump from seniors moving into age-restricted housing developments.

“South Jersey has a better forecast than North Jersey,” Otteau said.

His report also puts the housing market at “near bottom,” but he predicts first-time buyers reentering the market this year and affordable homes leading a recovery.
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Otteau said New Jersey is not attracting businesses to locate here due to the high cost of living. This hurts the housing market. Otteau said another disturbing trend is college students from New Jersey are not coming back to live here.

“That’s a big concern, because that’s the future of the housing market,” Otteau said.

He welcomes initiatives to reduce business and property taxes, but his report also notes high housing costs are part of the problem. He said housing affordability is chasing out jobs.

Housing costs have jumped 87 percent in the past five years while salaries rose 16 percent. The report says first-time buyers are being priced out of the market. Otteau projects somewhat of a correction with a drop in home prices of 3 percent this year.

The report shows contract sales were down statewide 17 percent in 2006 and building permits declined 18 percent. Unsold inventory and foreclosures rose. The state has the second highest housing costs and highest property taxes in the nation.

The forecast calls for fewer trade-ups and more remodeling. New homes will be smaller and rental demand will be stronger. He predicts fewer real estate agents.

The deepest price declines, Otteau predicts, will be luxury homes, urban condominiums, and age-restricted townhouses. He said the vacation home demand has been overestimated.

December New Home Sales to be released at 10:00am EST. Consensus estimates put December New Home Sales at 1.055m, up from November’s 1.047m.

New Home Sales data will be available via the U.S. Census Bureau, and can be found here:

New Residential Sales

From MarketWatch:

New-home sales rise to highest level since April

Sales of new U.S. homes jumped by 4.8% in December to a seasonally adjusted annual rate of 1.12 million, the highest level since April, the Commerce Department reported Friday. Warm weather, low interest rates and aggressive discounting by builders boosted sales far beyond the 1.07 million rate expected by economists. Sales have risen in four of the past five months. Compared with December 2005, December 2006 sales were down 11%. For all of 2006, sales plunged 17.3% to 1.061 million, the largest percentage loss since 1990. In December, the number of unsold new homes on the market fell 0.9% to 537,000. The median sales price of $235,000 in December was down 1.3% compared with a year earlier.

From the AP:

Sales of New Homes Plummet in 2006

Sales of new homes plunged in 2006 by the largest amount in 16 years as the nation’s housing industry suffered through a sharp contraction after five boom years.

The Commerce Department reported that sales of new single-family homes totaled 1.06 million units for all of 2006, down 17.3 percent from the all-time high for sales of 1.28 million units set in 2005.

After setting sales records for five straight years, sales of both new and existing homes suffered sharp declines last year, and that has caused ripple effects throughout the whole economy.

From AOL Sports:

Terrell Owens’ House Can Be Yours for $3.4 Million

Recognize this driveway? It’s the one where Terrell Owens famously did situps after the Philadelphia Eagles sent him home from training camp. And now you can have it for your very own. It’ll cost you just $3.4 million.

That’s the price Realtor.com lists for the five-bedroom, 7.5-bath palace, and according to today’s Philadelphia Inquirer, that price is $500,000 less than Owens paid for it two and a half years ago. When the housing bubble pops, it hurts.

From the Philly Inquirer:

Athletes’ cribs

Somebody can really throw Terrell Owens for a loss by buying his house in Moorestown. The Cowboys wideout put his creekside five-bedroom on the market in October 2005 for $4.4 million. The listing now says the owner is “motivated to sell” and “will consider all offers.” Price is now $3.4 million - a $1 million discount and a full half-mill less than he paid for it in May ‘04. Would a hyperbaric chamber cinch a deal?