From the Record:
N.J.’s economy grows at a crawl
New Jersey’s economy is lagging behind the recent strong performance of New York City, economists for the Federal Reserve Bank of New York said Wednesday.
In a press briefing on the regional economy, the Fed’s experts said New Jersey’s economy grew 0.8 percent over the 12 months ended in November — trailing the 4 percent gain posted by New York City. Although final figures are not out for 2006, New Jersey was on pace to create about 21,000 jobs for the year — half the postwar yearly average and about one-tenth of the job-creation rate in Texas and Florida.
Industries including construction, information, trade, transportation and utilities appear to be performing worse in New Jersey than in New York City, according to Fed economist James Orr. The Fed’s statistics may support the contention of business groups that it’s difficult to expand and create jobs in New Jersey because of the state’s high taxes and tough regulatory climate.
The economists say one reason for New Jersey’s anemic gains may be that the Garden State did not suffer as much in the 2001 recession, and therefore had less room to rebound.
But the economists also said there is some reason for optimism about the New Jersey economy — for example, income tax revenues are up, suggesting a brightening employment picture. They predicted that when the state Department of Labor revises its 2006 employment data, the job situation may look better. New Jersey’s unemployment rate of 4.5 percent matches the national average.
Surprise! BOE hikes 25 bps, from MarketWatch.
Bank of England surprises market with rate hike
The Bank of England on Thursday surprised the markets by raising the cost of borrowing 0.25 percentage points to 5.25%. The FTSE fell sharply as the move rattled investors.
The hike follows two rate increases in the second half of 2006 as the bank tries to keep a peg on inflation.
Economists had been widely expecting the bank’s Monetary Policy Committee to hold off from raising rates until February to coincide with its quarterly inflation report and to give it time to measure the impact of rising wage bills.
But in a statement the bank said the rate hike was necessary to bring inflation back to its 2% target level in the medium term.
“In the United Kingdom, output continues to rise at a firm pace. Domestic demand has grown steadily and credit and broad money growth remain rapid,” the Bank of England said.
“Inflation was 2.7% in November. It is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abate.
Relative to the November inflation report, the risks to inflation now appear more to the upside,” the bank added.
ECB holds at three and a half..
JB,
You’re right , suprise, suprise. The BOE stated that they were concerned about the money supply growth. The dollar will continue to die a slow death, unless the fed follows suit. There are a mine field of suprises. Expect the unexpected.
“on pace to create about 21,000 jobs for the year — half the postwar yearly average and about one-tenth of the job-creation rate in Texas and Florida.”
Just abysmal. Behind Florida and Texas??? We are not creating new jobs/enticing corp’s to move here. Add this to the subprime being bombed,flippers gone and real investors gone. Sell???? To whom????
“Excessive liquidity has pushed the market to a level that’s unsustainable in terms of fundamentals,” said Chen Shide, who manages the equivalent of $212 million at GF Fund Management Co. in Guangzhou, southern China. “You’d better stay away and sit tight for the moment as most stocks are expensive.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=axUFUy2UNHBw&refer=home
No problem, all we need is more credit:
“statistics show that consumers depended on new debt for 90% of their cash flow during 2006”
From MarketWatch:
M/I/ Homes Q4 new contracts 353 vs 901
M/I Homes Q4 deliveries fell 16% to 1,363 units
M/I/ Homes Dec. 31 backlog $533M vs $954M
M/I serves the following markets: Columbus and Cincinnati, Ohio; Tampa, Orlando and West Palm Beach, Florida; Charlotte and Raleigh, North Carolina; Indianapolis, Indiana; Delaware, and the Virginia and Maryland suburbs of Washington, D.C.
10Y yield up to 4.72% this morning. A 2 month high?
jb
Interesting quote from M/I Homes CEO, Robert Schottenstein:
M/I Homes quarterly contracts plunge 61%
M/I Homes Inc. Thursday said new contracts for the quarter ended Dec. 31 fell 61% from a year earlier to 353 homes. The Columbus, Ohio-based home builder said its cancellation rate rose to 63% in the fourth quarter from 27% in the year-ago period, and from 42% in the third quarter. “Conditions in most of our markets remained difficult throughout the fourth quarter,” said Chief Executive Robert Schottenstein in a statement. “For the past six months, we have consistently stated that housing conditions are likely to remain challenging throughout 2007 and we see no reason to deviate from that belief.”
Grim-
Dollar stronger vs yen today. BOJ apparently not raising rates.
http://www.signonsandiego.com/news/business/20070110-1207-usa-economy-housing-panel.html
The U.S. housing market will erode more in the first half of the year before emerging from this cycle’s trough…The view the correction is nearing an end is based on forecasts the Fed will keep interest rates unchanged, or even lower them later this year to stimulate the economy, said panelists here at a Real Estate Connect conference……Susan Wachter, real estate and finance professor at The Wharton School, University of Pennsylvania, said she is more concerned about the risk of inflation than a slowing economy. If the Fed does raise interest rates in the second half, ”then we have the reset problem, then we have the subprime problem, then we have potential regional recessions,” she said.
JB,
10 year; based on the March futures contract approx 2-1/2 month high in yields.
http://charts3.barchart.com/chart.asp?sym=TYH7&data=A&jav=adv&vol=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=
Clot,
Right now the yen is getting hurt in the cross with the yuan, euro and pound. The BOJ meets next week. However, you are right, the tone seems to be softening.
Hat tip to Mr. Jones for the link:
Home Resales, Prices Continue To Drop
Sales of single-family houses in Connecticut continued to decline in November, with the Hartford area recording the biggest drop in sales, according to a report released Wednesday.
The median sales price of houses in most areas of the state also continued to drop in November, according to the report from The Warren Group, which tracks housing data collected from public records. The 2.3 percent decrease statewide followed a2.4 percent decline in October and was the third drop-off in the past four months.
…
“There’s the possibility that things are going to get worse before they get better, although I think, and most analysts believe, it is not going to be that bad in Connecticut, partly because it never got that good,” said Steve Lanza, executive editor of the Connecticut Economy at the University of Connecticut.
Great piece in the Financial Times this morning:
High-risk loans revealing shaky foundations
In the closing days of last year, something came un-stuck in a small but important corner of the US mortgage market, causing pain for investors and resulting in several mortgage lenders shutting their doors.
The problem was that for some home buyers last year, it had become too easy to get a mortgage. In the past couple of years, promotional campaigns have become ubiquitous in the US mortgage market, offering financing to cash-strapped homeowners, often without the need to produce documentation.
For many borrowers stret-ching to afford a home in an overheated housing market, the pitch was simply too good to pass up. Consequently, so-called “subprime” mortgage lending became big business. It helped low credit-quality borrowers buy homes while also feeding insatiable investor demand for exposure to US mortgages, since the loans are often packaged into securities and sold to investors to help lenders reduce risk. More than $500bn of such securities were issued in the US last year.
The problem for investors who bought last year’s crop of high-risk mortgage originations, was that as the US housing market slowed, so too did mortgage applications.
To prop up sagging origination volumes, mortgage lenders relaxed their underwriting standards – lending to ever-riskier borrowers at ever more favourable terms.
In the last few weeks of 2006, the poor credit quality of the 2006 vintage subprime mortgage origination came home to roost.
Delinquencies and foreclosures among high-risk borrowers increased at a dramatic rate, weakening the performance of the mortgage pools.
…
Traders say the problems have kept new investor money at bay, and dram-atically weakened a key derivative index tied tothe performance of 2006 high-risk mortgages, the ABX.
Alex Pritchartt, an ABX trader at UBS, said: “Investors were really shocked in the fourth quarter at the speed of deterioration. So buyers are likely waiting to see the bottom before getting back in.”
The ABX index represents a basket of credit default swaps on high-risk mortgages and home equity loans. On asset-backed securities such as home equity loans, CDS provide a type of insurance against the de-fault of a specific security.
The most heavily traded sub-index, representing loans rated BBB-, has fallen 5 per cent in the past month, as hedge funds have flocked to bet on the downturn and pushed up the cost of insuring against default.
economists are starting to raise their predictions for 4th qtr GDP growth closer to 3%. if you remember not too long ago everyone was saying much worse based upon the 3rd qtr gdp and risks to the economy. seems the economy should surprise again.
Interesting piece by Russ Winter this morning:
http://wallstreetexaminer.com/blogs/winter/?p=301#more-301
I got a ‘pre-foreclosure’ update from RealtyTrac, and I have a question on it.
Here’s the property:
Property ID#: 10566951
Address: 22 Drayton Ln
City, State: Plainsboro, NJ
Zip Code: 08536
Amount: $616,000
The tax records show that the owner is the original owner bought in ’86 at $235K
NOW, How can the amount due to the bank be $616K when the owner bought for 235k?!!
Did they borrow so much in home equity loans?!!
I just don’t get it
Behold, the miracle of cash-out refinancing!
I’ve seen worse, on the order of a $750,000 differential between purchase price and default amount. Keep in mind that some percentage of this debt was used for improvements (remodel and rebuild), so don’t assume it was simply squandered away.
jb
lowball Says:
January 11th, 2007 at 8:46 am
No problem, all we need is more credit:
“statistics show that consumers depended on new debt for 90% of their cash flow during 2006″
Doesn’t it mean: you have no money but spend anyways???
Thanks jb.
That is simply mind-boggling.
To spend more than than the house itself on home improvements… with borrowed money!
I am seeing a lot of such ATM houses on pre-foreclosure.
Anyone who needs a home-equity loan needs to take a mandatory BUI (buying under influence) class!
But then what do I know about borrowing.. I have zero debt and I rent
RentLord,
You’re positively unAmerican. Our whole society is built on debt, so get with the program.
Other reasons for borrowing against home equity might include unexpected medical bills, child’s college tuition, or loss of job, in addition to home improvements. They’re not necessarily all frivolous, but the bottom line is the same: you borrowed more than you can pay back.
Would be interesting to know if that were the case or if the Plainsboro “owner” purchased any other properties in the last two years.
“10Y yield up to 4.72% this morning. A 2 month high?”
maybe chifi has a more clear (or contradicting) theory but i think the big decline in the trade defecit this month (which means less demand for us bonds) is/was a factor. we dont buy enough (for reasons not clear to me) and asia wont need as much $-based products…which kills demand, which decreases prices, and pushes up yields.
too simple i’m sure…but means mortgages might go by year’s end no matter what fed does with short term rates.
curiosd
twice shy,
my answers to the following:
Other reasons for borrowing against home equity might include unexpected medical bills insurance? those bills better be really unexpected
child’s college tuition save up for college or send your kids to community college or send them to canada where its much easier to afford
or loss of job ok, maybe. This where your plan B should kick in
in addition to home improvements.
do improvements only to the extent you saved.
Again.. others may differ
I read in the South Bergenite paper yesterday that they are trying to make personal finance a required course for high school kids
#27.. that’s good to know! but isn’t high school too late?
I am trying to teach my 5yo the concept of money and he just doesn’t get it. He thinks my plastic card is the key to all his toys.
money is so digital/in-tangible now that its hard to teach the concepts of finance to youngsters.
“i think the big decline in the trade defecit this month (which means less demand for us bonds) is/was a factor.”
curious,
The decline in this trade defecit report has nothing to do with our appetite for financing. The narrowing was a result of a weaker dollar, rising exports into the the stronger economies of Europe/Asia and falling oil prices. Our need for foreign sponsorship[buying our debt] continues to grow.
RentLord, let me share surprise discoveries about my 5-yo daughter, although your son might need more time for this, until 6 (general differences in boy/girls until 7 ??).
We drove over to the physical bank when I had a free afternoon. She carried her piggy bank, and seemed a little hesitant. Whenever she does extra work – like feeding the cats – she gets a quarter. Scratch off lottery tix really helped, too. PA ones are the best, because they have the winners indicated on them. [Tix were originally hand therapy exercise because she had a broken arm at birth, and couldn’t use her right arm, but we found she learned sets, subtraction, addition and currency from them. Try giving him a $5 at a ticket machine and let him select different tickets using subtraction.]
So we opened an account for her (uniform gift).
She got her first statement this week. I was amazed when she opened the statement, looked at the numbers, and said, “Hey the number’s wrong, it has period 11 after it. That’s not my right money!” She spotted the interest.
This stuff really works.
“I read in the South Bergenite paper yesterday that they are trying to make personal finance a required course for high school kids”
Where’s the adult school???
Pat, that’s the cutest thing I have ever heard. Good for her!
Pat, she sounds smart!
I think it’s a boy thing, but I would agree with waiting till he’s 6.
My 2yo daughter may catch up by then!
All I want to teach him at this time is that you ‘give’ something to ‘get’ something. And the credit card is ruining that experience. I hate carrying cash around.. but just to teach him I think I should.
Can anybody guide me what should be the lowball price on MLS #: 2284660 (parsippany nj)
From Reuters:
Bies says U.S. lenders should tighten standards
Federal Reserve Governor Susan Bies said on Thursday looser underwriting standards were partly responsible for recent rises in late mortgage payments and that lenders should tighten risk management practices.
Bies was speaking to a risk management conference sponsored by the National Credit Union Administration and was referring to increasing delinquencies among so-called subprime borrowers who are considered higher risks.
Many industry observers believe the poor performance of more recently originated subprime loans is due primarily to looser underwriting standards, including limited or no verification of borrower income and high loan-to-value transactions,” Bies said. She added that lenders need to be “specially diligent” when making such loans.
Bies said a number of factors, including a significant slowing in home price appreciation, meant “some borrowers may be having more difficulty in refinancing to avoid foreclosure.” She said banking supervisors were discussing what could be done to make subprime loans safer but in the meantime, lenders need to reconsider making loans without adequate documentation.
From MarketWatch:
Two more home builders say times are tough
A pair of smaller home builders said a difficult housing market is hitting their bottom lines in another sign a hoped-for turnaround isn’t quite visible.
Full text of Bies’ speech can be found here:
http://www.federalreserve.gov/boarddocs/speeches/2007/20070111/default.htm
jb
curiousd Says:
January 11th, 2007 at 11:21 am
maybe chifi has a more clear (or contradicting) theory
Cure: In my opinion, future expectations of interest rates have risen for a whole host of reasons. If you consider the Ten Year rate as a summation of all one day forward rates for the next 3,653 days [i.e. ten years], the market has changed its collective view and is voicing that interest rates for the next 12-24 months are going to be much higher than previously expected.
Why?
This economy is doing WELL. I hate to say it my friends [especially since I consider myself one of the charter members of the Legion{league?} of Dorks], but if this keeps up we are in for a ……..-don’t hit me- …….soft landing…..
What does this mean? ECONOMIC activity as it relates to Real Estate is going to be better than recently projected and VOLUMES will be higher. However, where PRICES go is a completely separate matter. Note in pundit’s analysis the dearth of projections for prices. Yeah – because no one has a clue.
Please recall as you experience the media’s filter on information – look for PRICE projections. A “recovery” or “bottom” relates mostly to volumes, which is a proxy for economic activity.
If people are calling for a “bottom” in housing “economic activity” now, then reading between the lines, I think we will get “Booyas” 2007 Spring “pricing” massacre for “the Grubbers” ONLY. If you have people who made rational decisions based on a pragmatic review of what they could afford, then the ECONOMY will support them.
Things are shaping up well for the economy for now. I think 2007 is going to be a good year, but there are certainly storm clouds around……
I apologize for being so optimistic.
chicago
C.F., you sound like one of those 1929 Pollyanna types.
Now I’m getting nervous.
Have they lost their minds?
Bill would create $1 million jackpot for voting
Voting in a New Jersey election could prove lucrative under proposed legislation that would annually award a voter $1 million.
A bill proposed by two Middlesex County assemblymen would authorize an annual Dec. 31 lottery drawing, with any registered voter who cast a ballot that year in a primary or general election eligible for the $1 million prize. Those who voted in both elections would have two entries in the drawing.
…
But the bill isn’t attracting much support. It was decried by the Democrat and Republican state party chairmen. A spokesman for Gov. Jon S. Corzine said the state has bigger worries.
“I’m pretty sure most New Jerseyans would rather see significant and sustainable property tax relief,” Corzine spokesman Anthony Coley said.
The proposal calls for the prize to be pay using 20 percent of the unclaimed winnings from the regular state lottery, voluntary donations and investments of the prize fund. In fiscal year 2005, $30.6 million worth of the lottery’s winnings went unclaimed.
BOOOOOOOOOOOOYAAAAAAAAAA
Bob
CF
If you are correct in regards to possible higher interest rates….that would lower the pre-approved amount available to borrowers.
Factor in all the people who have ARMs that are resetting to an higher rate, mortgage companies tighten underwriting guidelines making it even harder for the marginal borrowers, or they are simply going out of business…does not bode well for the RE industry. I guess you could say that home prices will go down so it evens out, but I don’t think so.
Therefore no “soft” landing.
Don’t ignore data that disagrees with your thesis. Markets are dynamic…..static opinions become stale.
Chi,
As long as there are no hiccups in the emerging markets and we [exporters] continue to reap the rewards of a lower dollar. Can Europe/Asia replace the US as the engine of growth?? Their GDP #’s are much stonger, at this time, as compared to ours. Is the suprise rate hike today,BOE, a harbinger for things to come??
Soft landing economy, supportive of housing?? IMO, no. This implosion was not triggered by restrictive monetary policy. This trend, just beginning, has years to play out.
This is so off topic, but…
Has anyone seen the listing for 2357349. This is the funniest thing I’ve ever seen. Talk about showing their hand…. I’ve never seen this before, including the range of offers they will entertain.
CF, appology excepted. and i agree.
i still say 2007 goes slow… but nothing on the radar really shows for an all around blow up.
What a move on the 10Y, just about touching 4.75%.
jb
Things are shaping up well for the economy for now.
Chi,
Does your outlook for NJ differ from your national outlook? I would agree that a strong U.S. economy means housing on a national level will do better (at least in 2007) than some of the more dire projections.
However, since real estate is largely local, how does this bode for NJ? After all, our local economy is stagnant. When North Jersey is separated from South Jersey, one could argue that we (NNJ) are already in a recession. NJ residents already have the highest proportion of their incomes going toward housing costs. Higher interest rates could really pinch these homeowners.
If in reading CF’s opinion of a “soft landing” he refers to the economy for 2007 and not housing, than I would tend to agree as of today.
I also agree with BC Bob that the economy in 2007 will not actully support the housing market. I feel the housing market (in our area) will limp along (volume) with flat or a 5-10% decrease in prices. And I think it will continue this way until median incomes and housing prices equalize or we do have an economic slowdown which would cause the correction to take place sooner (“crash”).
But than again, what do I know, Rich
oil through 52
#40
James Bednar Says:
Have they lost their minds?
Bill would create $1 million jackpot for voting
—————————————–
My suggestion to y’all is:
VOTE EARLY, VOTE OFTEN!!!
I’m not changing my prediction. It’s fun to be bearish here (where it’s safe.) It keeps me a little grounded in other activities.
I WILL NOT BE applying for *2007 Hot Jobs* with:
1. Builder/Developer
2. Subprime Lender
3. Real Estate Agency
4. Fannie
5. Home Depot
Places I might consider:
1. Right-sizing firms specializing in Builders
2. MBS risk/valuation systems developers
3. US Marshall or State Attorney Fraud Unit
4. Democratic Support – Committee Hearings
5. Self-Storage Unit Content Auctioneers
#45 lurkerA
PVRM works in a sellers market but I don’t really see the value in a buyers market. As far as I can see, its just a way to get your MLS listing picked up in a search for $300-$350 as well as $350-$400 (or search range of your choice). Marketing tool indeed.
“Housing market pain not revealed by stats”
http://money.cnn.com/2007/01/11/real_estate/housing_pain_statistics/index.htm?postversion=2007011114
James,
When the 10yr. goes to 5.75%, then maybe the prices will move in the buyers’ favor. I’m still seeing laughable prices.
Gary,
Plenty of laughable prices, there is no doubt about that. I’ve been keeping close tabs on the new listings, the majority are really reaching (reaching for what, I don’t know).
I’m going to look at the listing I mentioned last weekend, current asking price is in the 2004 range (when compared to prior comp sales). If the seller takes 10% off, the price will be squarely at 2001/2002 comps.
jb
jb
Chifi,
Maybe the higher forward rates are due to higher inflation expectations or due to factors such as expected decline in USD resulting in higher interest rates. These could also portend higher rates, not necessarily increased economic activity.
Nice find Pat. The article does dispel the myth about statistics and why they don’t reveal the true picture. I was surprised that OFHEO is using REFI data also. That does not constitute sale, hence stats don’t say reality.
I just checked GSMLS listings and inventory is almost at 28k. Any predictions are where they will be this summer?
Last summer I think they peaked around 33k and this winter’s trough was around 27.5k. If inventory expansion is similar to last summer’s than I would guess we’ll end up around 37k.
From Inman News:
MGIC writing fewer premiums, posting higher losses
Losses are up and profits down at the nation’s largest private mortgage insurer, Mortgage Guaranty Insurance Corp.
MGIC — which insures 1.3 million mortgages valued at $176.5 billion — said today that fourth-quarter earnings were down largely because the slowdown in the housing market cut into the generation of new premiums.
But the company is also facing a rise in the percentage of delinquent A-minus and subprime loans it insures, and disclosed that regulators in New York and Minnesota have investigated its captive reinsurance practices.
Parent company MGIC Investment Corp. reported fourth-quarter earnings dropped 5 percent to $121.5 million, or $1.47 per share, compared to the same quarter last year. At $564.7 million, earnings for the year are down 9.9 percent from 2005.
…
At the same time, fourth-quarter losses were up 9 percent from last year, to $187.3 million. Losses for the year were $613.6 million, an 11 percent increase from 2005. While the percentage of all loans insured by MGIC that were delinquent declined from last year, the percentage of delinquent bulk, A-minus and subprime loans is on the upswing.
The percentage of all loans insured by MGIC delinquent at the end of 2006 stood at 6.13 percent, compared with 6.58 percent at the same time last year, and 6.05 percent at the end of 2004.
The percentage of bulk loans delinquent at the end of the year was 14.87 percent, up from 14.72 percent in 2005 and 14.06 percent at the end of 2004. Bulk loans are part of a negotiated transaction between the lender and the mortgage insurer.
The percentage of delinquent A-minus and subprime loans was 18.94 percent, up from 18.3 percent at the end of 2005 and 16.49 percent in 2004.
Here’s something that could use a little attention in the next two years.
http://www.msnbc.msn.com/id/16562633/site/newsweek/
JB,
Yeah, that’s the only thing that really matters, isn’t? When the prices start splintering, then I’ll believe.
The last few posts by the League of Dorks after ChiFi’s unusually sanguine projection are a microcosm of the whole Grim universe.
ANY piece of positive news, optimism or upward-trending statistic will be met by an iron wall of negative spin, baleful prognostication and reference to media-generated blather. It’s worse than the chorus in a Greek tragedy.
Yep, that 1-yr going to 5.75% is gonna stop the housing market dead in its tracks! That’s the ticket.
This in from the front lines: phones ringing, contracts happening. Are prices near ’05 levels? No way. However, what I’m seeing is far from a disaster of epic proportions.
Dig deep into those rental-bunkers. You may be there awhile.
“Housing market pain not revealed by stats”
there is no way the average seller is selling their house for 1.2% higher than 2005. In fact, almost anyone would be lucky to sell his house for 10% below the 2005 price right now– and of course this doesn’t even take into account inflation.
The truth is that 2006 saw a big swing to the negative for housing in every respect (inventory, transaction volume, and prices).
On the price issue, let’s keep in mind that there has NEVER been a nominal YoY price decrease since the Great Depression. For us to even get close to this given the goosing of the numbers and the overall strength of the economy is pretty amazing.
My belief is that the RE market will continue to be frustrating to both buyers and sellers during 2007, unless there is a credit crisis.
Inflation and demographics are going to bring prices back down to reality, but it will take time. Downsizing baby boomers will cause inventory to stay high for many years, particularly in the suburbs.
Pat, #61
In addition, the Comptroller of the US, {yes, the Comptroller, not a pundit) warned that the nation’s current fiscal path is unsustainable.
“Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.”
“As this long-term fiscal imbalance continues to grow, the retirement of the “baby boom” generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.”
“Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance.”
http://www.financialsense.com/fsu/editorials/martenson/2006/1217.html
It’s either make the hard choices now or pass this down to our children/grandchildren. Some legacy???
Clot,
People are just stating their opinions, just as you state yours. We don’t expect the market to stop dead in it’s tracks, at least I don’t. It’ll be a gradual downslope due to less liquidity in the real estate market. Why so antagonistic to the naysayers? I’m sure some of these dorks you mention could afford a million dollar home if they wanted to. I can, but won’t overextend myself at this time. I’m waiting for more tempered price expectations from sellers. We are getting there, I’m definitely seeing 10% off peak prices and I think we’ll see 20% off peak prices this year. On some new listings, I’ve seen close to 20% off peak prices, just not on a wholesale level. On a real inflation adjusted basis that’ll be over 25% off peak.
Just got in from sandbagging my perimeter. Nice day for it, too. Glad to hear anecdotal evidence of the market’s healthy turn.
Hard Place: inventory steady upward creep to 28k. Should pass it any day. Maybe top out 35K – 36k? We shall see.
clot,
How about this for a rental-bunker:
ML# 711577
Renting at $2500. Asking price $559K.
It’s the same bunker.. do the math
“Are prices near ‘05 levels? No way.”
Clot,
What percent off; 5,10,20% ???
Clotpoll
Maybe so, but inventory continues to rise. Anybody with a half a brain knows that these things take years to play out. If you are a realtor, I’ll assume you are, or related to one…I have this to say…Anybody nitwit can become a realtor…to understand what has occurred in the housing market over the last six years probably isnt on the “front line.” Front line refers to war…throughout most of history the “front line” consisted of the lowest educated and unskilled individuals. The generals / leaders, etc. are never on the front line…Take that back to your realtor’s office before you start to unfold the biggest bubble in our history.
Here’s the question I have – everyone has been making a big deal about dropping inventory, particularly in light of the fact that it crept up during the supposedly slow season last year. But it’s certainly nowhere near the lows it has been, and is very high by any standards. Won’t the spring just make it worse? Even if it’s just the normal spring selling crowd, won’t that increase inventory quite a bit? And no matter how you spin it, there just doesn’t seem enough of a drop in prices to bring back the first time buyers who can’t afford the houses in the first place. I can’t imagine good things for 2007, even if it’s not a monumental, Great Depression style housing crash.
Rent Lord.. Good point …lets break this down from an investment standpoint:
$2,500 per month = $30,000 in potential gross income. Lets deduct $8,500 in real estate taxes, $600 insurance and $500 in maintenance expenses. Lets also consider a reserve for items that may break or need replacement in the future..lets be real conservative $200 per year. (Boiler roof, new drive way etc.)
This is what we have
PGI $30,000
Expenses $9,800
Net Income = $20,200
Anybody familiar with capitalization rates. Lets be super agressive and use 5.0% most apartment properties trade at 6.0% or higher in Northern NJ. This reflects a Value of $404,000…We didnt even account for a mangament or a vacancy and collection loss deduction…Anybody who purchased a house for investment purposes (non-flippers) in the last couple of years (unless they got an amazing deal) is an idiot!!! Time will punish you!
clot: And once again, you ignore the grim reality that the state of NJ faces, but hey real estate will still go up.
For this house to work from an investment standpoint at this time the price should be south of $400,000. I was extremely conservative on my expenses….
I will say one thing……while there are exceptions to every broad reaching statement….for the most part, anyone caught being a “bagholder”, “grubber”, stuck in foreclosure, getting squeezed under THESE economic conditions, pretty much deserves it. I am in the Booya camp here: if you are stuck, you are either [1]greedy, [2]naive, or [3]foolish. OK – return to your regular programming.
chicago
I agree that the much-promoted inventory plateau seems largely seasonal. If you look at the number of transactions, it is clear that most listings didn’t go away because of a sale.
Inventory should bounce up in the next few months as it always does. As for new constructions, completions are still close to their all time high, so there will be a final wave of new inventory as well.
Unless most sellers magically all wake up at once and realize that they will not get their 2005 dream price, inventory should remain high for some time.
Post-2007, demographics really starts to take over
“Lets also consider a reserve for items that may break or need replacement in the future..lets be real conservative $200 per year. (Boiler roof, new drive way etc.)”
Commercial RE,
I agree, a slow unwinding process taking years. We are just in the first year of a multi year decline. There may be spurts of buying along the way, however this charade has turned and the end result [2010-2012 or longer] will be ugly.
One disagreement, you were way too conservative in your repair kitty, $200 year. Unless, someone is Mr/Mrs Fix It, this expense is staggering; roof,sidewalks,landscaping,leaky pipes,water in basement, etc… What about the cost of improvements??? You must have granite counter tops, Sally does.
10 listings in my town that were gone between Thanksgiving and Christmas, have all come back on the market since this past Monday.
Like I said before the new Spring selling season starts right after Little Christmas; forget Super Bowl.
I’ve seen many listings back on the market too this week, all down about thirty thousand dollars. All new MLS numbers, so I guess that makes them fresh again. So I guess they’re only on the market now for a week instead of 8 months.
bergenbubble,
10-10, excellent……….. if these are your foul shooting stats.
Am I part of the League of Dorks?
jb
you’re Head Dork
I’m a proud member.
I think only Clot can bestow that honor upon me.
jb
I helped my buddy save ONE HUNDRED AND EIGHTY THOUSAND DOLLARS with his uber-successful low ball (37%). I’m a proud member too.
THANKS JAMES.
By the way, do you know how many trapped “owners” are wannabe rental Dorks??
Zac –
sounds like a juicy story tell us about it. don’t skimp on details…
Can someone post selling price for MLS 2262998?
I lowballed a bid on this multifamily, but as we were finalizing negotiations someone else came in and I’m assuming paid near asking.
Zac,
I hope your buddy, [and his wife, kids and dog] voted for this blog.
The house was on Grims last edition of lowball, was great seeing it there. It was a bank owned property asking 499. We offered half price (thanks to this blog). They countered at 450, we said no. The listing left the MLS for about a week, came back on at 380. We offered 300, they countered 320. WE said YES, The rest is history. It’s a great 3-story Victorian, just needed a good paint job. Now he’s neighbors with our famous ex-governor Jim Mcgreevy. THis story is really just tooo cool.
like every good N.Jersian; i voted early and often
errrrr…..$180,000….ya think maybe your buddy could spring for a few bucks to buy DorkMaster Jim one of his “Wish List Amazon” books. That and a shower is all a dork would ever need!
“Spending up 4.9% in $614.8M Essex budget
County exec touts fiscal responsibility and upgrade in bond rating ”
http://www.nj.com/news/ledger/essex/index.ssf?/base/news-3/116849454021840.xml&coll=1
How does The Kid get access to any forclosed properties? Are they listed on standard MLS listings?
The Kid
just as way of background, I am not a believer in the “big crash” philosophy of some of you on here. that being said, you have to read the load of BS that the broker who runs urbandigs.com (a NYC RE blog) posted. i know many of you will get a kick out of this.
he writes:
“BUYERS ARE OUT THERE IN FULL FORCE!
If you don’t believe me, fine; I really don’t care. I don’t have to do this. But if I was a buyer or a seller, this is the kind of reporting that I would be MOST interested in; that is, what is happening RIGHT NOW! My advice to you is this:
AS A BUYER – Don’t try to low-ball or wait out a housing downturn if you plan on signing a contract in the next 1-3 months! If you do, you will NOT get the response you hope for as the seller’s broker most definately is reporting the rise in activity to their client. If you choose to wait until March or so you may not find the inventory as attractive as it is today. If all this buyer activity results in what I expect it to, you will later on see sales volume come in very strong during the months of January & February, removing alot of unsold inventory that has built up over the past few months.
AS A SELLER – No one can tell you when to sell your home. That is your call. But, if you have been planning on selling your home in the next 3-6 months, it might be worthwhile to get it ACTIVE NOW and get in on some of this action! You may even be able to price slightly higher than you were original thinking to test out the market, as it is times like these (that is, a surge in buyer demand) where sellers get their price or more a good percentage of the time. Don’t overprice tremendously unless you have a huge terrace, incredible views, or an unbelievable renovation (although the first two are the best reasons for pricing higher as Im not convinced buyers will pay top dollar for a very high end renovation job).”
Zac –
That is a good story. How much was this below current comps?
Glad to hear someone got a good deal, sorry for the previous homeowner.
Did your buddy specifically look for bank owned properties? If so, care to share what resource was used?
It’s a great 3-story Victorian, just needed a good paint job. Now he’s neighbors with our famous ex-governor Jim Mcgreevy. THis story is really just tooo cool.
When I was posting the lowball, I looked up that listing and glanced at the pictures. Being a fan of older and historic homes, that deal gets my stamp of approval.
Especially since McGreevy paid over $1m.
jb
Some lenders list REO properties on their own site, like Countrywide:
http://www.countrywide.com/purchase/f_reo.asp
Other lenders use third party outsourcers to handle REO, like Wells Fargo, etc:
http://www.premierereo.com/consumerSvlt//nav/ConsumerNavL1.jsp/requestPage/consumer/PropertySearch.jsp
jb
Just to clarify, REO stands for Real Estate Owned. REO properties have been foreclosed on and owned by the lender. You are dealing with the bank.
jb
WOW – Thanks James.
Hard Place, similar homes in that neighborhood would go for 6hundred and up, it’s an awesome mix a different styles and era’s. I really didn’t use any plan or resources, just hooked-up with a local realtor there (i’m not from the area ). After she showd me about 50 houses(yep,fifty)and a lot of dialogue I realized, despite what she said to my face’ that she really was not willing to play lowball. I guess why would she, she would just kill all the comps in her own town. SO….. I have a fried down here where I live, about 40 miles south, and asked her if SHE would play lowball with us. And she was more than happy too. So we went back up there toured the bank owned properties first and bid on the one he liked most. And he got it pretty easy actually. That said, I guess anyone could repeat the actions, find a local realtor, have her show you a bunch, find out from her all the bank-owned properties, then get another realtor from a distant town to submit the lowball. And thanks by-the-way to Marianne(*my local realtor), if you’re reading this, and i know you do. You’re the BEST.
Zac,
Great story. However, I’m confused. Real Estate never loses its value, does it??? Especially on the commuter line to NY.
#97 – a starving realtor afraid that he will be cut next from his brokerage…
As a buyer I just do not seee any affordable deals – so I guess realtors/agents are aiming at families with let’s say over 150K/year income…
Any honest realtor will tell you that deals like this are had more often than we think. And thanks to James Bednar, we can read them all here with the much anticipated monthly edition of Lowball. BoooooooYaaa.
Al- find a vacant house, or many vacant houses, and start the lowballs.
Commercial RE Consultant-
Thanks. Always refreshing to be dissed by a member of the “superior” branch of our business (BTW, I grew up in a whole family full of commercial developers, can actually calculate a cap rate and do the odd commercial deal now and then.). Your retort is indicative of the completely dysfunctional state of affairs within the RE industry. It’s oddly similar to the prejudice many light-skinned African-Americans hold against those who are darker. Get off it; we both sell things. Period.
However, I do agree with your assessment of the “generals” in our business. Even though I am one of those generals, I had to open my own company to do it the way I want. I never understood how anyone could teach or lead from behind a desk. Show me anyone in RE who works behind a desk, and I’ll show you someone who can’t sell. So, my report from the front line is based on personal observation. The market may well go further down, but there are sellers there now who have decided to meet the market on today’s terms.
Bubbleburst (73)-
I haven’t for a moment ignored the myriad problems that plague NJ residents. I, too, pay insane property taxes and send two kids to a money-vacuum of a school. And, you will not find me anywhere on record here making simple-minded statements such as “RE only goes up”. My only point is that more people perceive opportunity now than, say, back in November. Wishing things down further won’t necessarily make it so…nor make it so fast enough to be useful. Spouting the same tired bromides at times when things might be changing reeks of confirmation bias. I am totally open- and somewhat sympathetic to- BC Bob’s theory of a long-term unwinding; however, I see very little LOD awareness of the pockets of opportunity that may present themselves on that long road down.
Grim-
Since only I can bestow the title, I dub thee:
Le Roi des Dorques
Everything sounds better in French.
how do you say Lowball in French ???
BC Bob-
Hard to come up with a catch-all percentage down for all types of homes. My take- at least in my little corner of the world- is that SF homes are about 10-12% off the ’05 highs and condoshacks are in freefall (20%+…a Booyah Bob wet dream).
I just calculated 12/06 closed stats in my twp. This is a pretty typical array of closed sales:
http://www.branchblog.com/?p=19
Great – I’m branded a dork by someone named after a golf shot ;)
Zac Says:
January 11th, 2007 at 7:34 pm
how do you say Lowball in French ???
américain
Dem’s da breaks.
Just got back from Rapid City, South Dakota the other day.
There are alot of houses on the market, they have a RE for sure.
But, some of you fellows getting on in age may want to look into that place. Houses are cheap, taxes are damn low.
The winters get damn cold.
SAS
http://www.bloomberg.com/apps/news?pid=20601039&sid=aZuQh0OnCfjA&refer=home
Rapid City, SD? I’d rather live on the moon.
40% off coupon for Footlocker on the Anticost web-site. Cool.
“Rapid City, SD? I’d rather live on the moon”
I would bet you have never been there.
yes?
Its not glamour and glitz, but its peaceful, quiet, friendly, cheap, very low taxes, and has a good health care industry.
Also, close to the Black Hills.
SAS
Black Hills – Would BE my dream retirement area for summer home…..
yup, the black hills area is very peaceful.
Use to go bow hunting there…back in the day…
SAS
Clot, #110,
Thank for the info. Don’t pump up BOOOOYAAAA with that condoshack talk. Can you imagine BOOOYAAAA pumped up on steriods??? BOOOOOOOYOIDS!!
Everyone talking about the 10Y, what does this mean for mortgage rates? How quickly do these changes affect current rates?
Sorry, still learning!!!
Big rise in Japan [today,now] on weaker yen;
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLo1OnOa7RMI&refer=home
crash,
This may help a little;
http://library.hsh.com/?row_id=85
BC Bob # 125,
Great link, thanks!
Re: dreamtheaterr #116:
Does this have a detrimental effect on existing condo prices in these complexes?
Does anyone have any thoughts on this? Does the introduction of affordable housing units usually negatively impact the prices of existing units?
“Does the introduction of affordable housing units usually negatively impact the prices of existing units?”
In my experience..yes it does.
Also, if a WalMart moves into town, kiss your house values goodbye.
I can’t stand WalMart…americans just tighten their own noose everytime they buy from that place.
Better teach your kids Mandarin if they are ever going to be the success you want them to be.
yours truly,
SAS
Though neither the Legion nor the Pollyannas here offer positions all that convincing to me, with mostly cherry-picking, arguments from authority, and post-hoc fallcies, still it is entertaining enough and provides enough grains of fact to eventually winnow out a reasonable picture of the markets here.
As a newcomer who may eventually wish to use some of the proceeds from my home sale mid-2006 to settle here, I rented with the intent of deciding where I ought and more importantly, ought not live.
I find the discussions about the many complexities of the various local towns and cities very helpful, and hope to absorb this picture more thoroughly over the next few months.
Since I work at one of the company’s buildings far downtown right now, my present location not ideal since I have only a bus/subway at 1-1 1/4hr or ferry at 3/4hr to choose from, for the daily commute.
I am one of those for whom Hoboken or Weehawken might be Ok, but the truth is, what I really want is none of a SFH, condo, or apartment. What I really want is an old firehouse.
The problem is, with this kind of property, the RE system seems not to offer much. The commercial sites I have seen are archaic and pretty much have huge inventories of crap, and the ‘normal’ ones do not handle this kind of property. Most of the commercial buildings I see advertised are either pre-ruined or seem ridiculously over-priced.
In the past, I have usually found properties by word-of-mouth and digging. Is that how things work here too?
#128
How different here than in central US, there Walmart in town raises property value, as long as you are not next door.
SAS,
A new Walmart opened up in my town some years ago, right before the RE boom … the boom still happened. It didn’t seem to have any effect. Maybe the boom would have been bigger if the Walmart never opened… I guess we’ll never know.
New In Town,
In my experience, in most area, WalMart brings down residential properties. Now, if you own a plot of land, something of that nature, thats a different story.
You want a real good example of land going up, buy yet, home prices going down.
Look up “lacrosse street in rapid city, South Dakota” that is a very good example.
hope that made sense and helps some.
SAS
…you’ll never see a walmart in the more affluent towns; so if your town has one…
re. my #128 post. I did come across as blanket.
THere are always exceptions.
SAS
Zac,
Yes, I’ve noticed that. I would hate to live in a state that only had affluent towns, then I’d have to move to North Carolina sooner than expected. I am thankful towns like mine exist where I can actually afford a place to live and not have to worry about crime. It’s a nice deal for someone like me :)
BC Bob #125 was GREAT READING!!!
Thanks!
Housing market pain not revealed by stats
New In Town Says:
January 11th, 2007 at 10:01 pm
New: an old ahem “friend” of mine used to live in a converted firehouse in Hoboken on Grand Street between Fourth and Fifth. I think it says “No. 5” on the front. Cool cavernous layout….
BC Bob Says:
January 11th, 2007 at 9:13 pm
“CondoShack” – it sounds like the condo version of RadioShack. I never go into RadioShack unless I need bizarre arcane techie things such such as calculator batteries, maybe a new computer keyboard after I spilled coffee on the old one….
What do they sell at CondoShack?
#137, good link.
Housing market pain not revealed by stats
Home sellers are crying but the data doesn’t seem to reflect their woes.
http://money.cnn.com/2007/01/11/real_estate/housing_pain_statistics/
“What do they sell at CondoShack?”
Debt slavery.
http://www.itsspendingstupid.com/
Sad, but funny.
To put a pessimistic spin on things, this renewed enthusiasm for buying houses – I believe Clot and I have no doubt that it’s real. However, I have a suspicion that it’s just limited pent up demand that couldn’t be filled when prices were 10%-20% higher. Of course, can’t be sure except in hindsight, but this seems like one of the first false bottoms we’ll see on a long trail down.
Two reasons for my view are the impending wave of foreclosure and the drying up of liquidity in the housing market. Given that more than half of the mortgage market now consists of subprime loans, what happens when these borrowers, (i) fail to get loans for home purchases because of tightening underwriting standards (not to mention the fewer number of solvent subprime lenders) and, (ii) for those who did get these loans, default in large numbers? I think the result is that lower-priced homes don’t get sold and subsequently the current owners can’t trade up and secondly, that more housing is available because of both lack of buyers and increasing numbers of REOs.
For a numerical example, the article referenced below (which I think was posted here previously) has some numbers: more than $800B of subprime loans originated last year (which represented more than half of last year’s MBS issuance), and currently 4% of securitized subprime loans are 60 days or more delinquent. Assuming that the delinquency percentage doesn’t go up (unlikely), thats about $32B of loans that’ll probably go REO. The total number that will go REO will be higher, simply because securitization underwriters diligence loan pools and reject obviously bad loans before they go into a standard securitization (eg, the EPD loans). It’s no wonder that the ABCDS market is tough lately.
-P
http://www.moneyweek.com/file/22805/the-us-housing-market-is-different-this-time—its-worse.html
Chi,
Just repeating condoshack, can’t take credit for that one. All the credit goes to BOOOOOOYAAAAA.
New in Town, I want to say that I have seen an old firehouse for sale recently in Jersey City, but being a bit forgetful, I cannot remember if it was a realtor site or craigslist. I want to say Craigslist – good place to start. But I definitely saw one.