January New Home Sales Plunge

From Marketwatch:

New-home sales plunged 16.6% to 937,000 in January

Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday. It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years. Sales are down 20.1% compared with January 2006. The decline in sales was much sharper than expected. The inventory of unsold homes dipped to 536,000 from 537,000, representing a 6.8-month supply at the January sales pace, the most since a 7.2-month supply in October. The median price of a new home was down 2.1% year-over-year at $239,800.

From Bloomberg:

U.S. January New-Home Sales Plunge 16.6%, Most Since 1994

New-home sales in the U.S. fell last month by the most in 13 years, pointing to more weakness in the real-estate market that limited economic growth last year.

The 16.6 percent decrease to an annual rate of 937,000 in January, less than any economist had forecast in a Bloomberg News survey, Commerce Department figures showed today. The pace of sales was the slowest since February 2003. A measure of housing inventory rose to the highest in three months.

The figures show home construction will remain a drag on the economy even with lower borrowing costs and more incentives from builders. More cuts in home prices may be needed to stir buyer interest as builders keep reporting increased rates of canceled orders.

The January decrease in sales was the largest since a 23.8 percent plunge in January 1994. Economists forecast new home sales would fall 3.6 percent to a 1.08 million rate, from a previously reported 1.12 million for December, according to the median of 69 projections in a Bloomberg News survey. Estimates ranged from a 1 million pace to 1.16 million.

The median price of a new home fell 2.1 percent in January, to $239,800 from $244,900 a year earlier. A report yesterday from S&P/Case-Shiller showed U.S. home prices rose 0.4 percent in the fourth quarter of 2006 compared with the same three months a year earlier, the smallest gain since the second quarter of 1993.

Today’s report showed the number of homes for sale at the end of the month fell to 536,000, from 537,000 in December. That left the supply of homes at the current sales rate at 6.8 months’ worth, the highest since October, compared with 5.7 months.

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189 Responses to January New Home Sales Plunge

  1. James Bednar says:

    Everyone seems to be getting in on the prognostication game. From Marketwatch:

    Home Depot: Housing mkt won’t improve until late H2 2007

    jb

  2. James Bednar says:

    Unfortunately, I think we’re going to find this was all too common.. From RespaNews:

    Arizona regulators close mortgage co. for repeat RESPA violations

    Eagle First Mortgage of Arizona is getting its wings clipped by state regulators after an investigation allegedly revealed hundreds of RESPA and state law violations, including paying over $2.4 million in unlawful compensation to mortgage brokers, real estate and title companies, collecting compensation for acting as both real estate broker and mortgage broker in transactions without disclosing the relationship to borrowers, and committing nearly 200 documented disclosure errors.

  3. James Bednar says:

    Some more:

    http://www.eastvalleytribune.com/story/84848

    State regulators have ordered a Mesa-based mortgage company with more than 75 branches Valleywide to close up shop, citing numerous questionable lending practices.

    In an order issued Feb. 14, the Arizona Department of Financial Institutions accused the company of dozens of questionable loan actions, money transactions and hiring practices by Eagle First Mortgage Corp. The company, which is headed by David T. Sanchez, must wind down all existing loans by March 14.

    The company franchised itself out to the point that “there was no control over the branches,” said Felecia Rotellini, superintendent of the state financial institutions department.

    “That’s a recipe for loan officers being tempted to engage in mortgage fraud,” she said.

  4. sas says:

    someone is on the banker’s treadmill….

    SAS

  5. James Bednar says:

    From Reuters:

    U.S. mortgage applications rose last week-MBA

    Mortgage applications for U.S. home purchases and refinancing rose last week when long-term borrowing costs dipped, an industry trade group said on Wednesday.

    The Mortgage Bankers Association’s seasonally adjusted index of mortgage applications increased 3.2 percent to 626.1 in the week ended Feb. 23, up from this year’s low of 606.6 in the prior week.

    Borrowing costs on 30-year fixed-rate mortgages, excluding fees, declined 0.03 percentage point to average 6.16 percent, the lowest since it hit 6.13 percent in the year’s first week, according to the MBA.

    The MBA’s seasonally adjusted purchase index, seen as a timely gauge of home sales, rose 5.2 percent to 401.3 in the latest week, it said.

    The group’s seasonally adjusted refinancing index advanced 1.2 percent to 1,943.5.

    The week’s results are adjusted for the Presidents Day holiday.

    On a four-week moving average, the seasonally adjusted market index is down 0.2 percent to 625.6 and the purchase index is off 0.4 percent to 397.0, the MBA said.

  6. James Bednar says:

    Am I reading this right? Subprime lender Fremont General (FMT) down 32% in pre-market?

    From Reuters:

    Subprime lender Fremont delays results,shares sink

    Fremont General Corp. (FMT.N: Quote, Profile , Research), one of the largest U.S. mortgage lenders for people with poor credit histories, said on Tuesday it will delay releasing fourth-quarter results, and not file its 2006 annual report by the March 1 deadline.

    jb

  7. Hard Place says:

    Banking related commentary …

    http://financial.seekingalpha.com/article/28273

    This is important because not only are banks tightening lending standards, but looks like they’ll have to think about setting aside more capital for loan losses. This further tightens the credit spigot.

  8. BC Bob says:

    JB [6],

    Yes.

  9. James Bednar says:

    For those not familiar, Fremont General is the 5th largest subprime lender according to the MBA.

    Top five are as follows:
    Wells Fargo
    HSBC Household Finance
    New Century
    Countrywide
    Fremont

    jb

  10. James Bednar says:

    Q4 Prel. GDP comes in below consensus estimates of 2.3%. Largest revision to GDP in 9 years according to Marketwatch..

    From Marketwatch:

    GDP revised down to 2.2%

    The U.S. economy grew at a real annual rate of 2.2% in the three months ending in December, not at the 3.5% rate reported last month, the Commerce Department said Wednesday. Real gross domestic product has grown 3.1% over the past four quarters and grew 3.3% in 2006 compared with all of 2005. The economy grew 2% in the third quarter. Core consumer price inflation rose 1.9% annualized in the quarter, revised down from 2.1%. The main source of the revision was lower inventory building. Consumer spending was also lower than originally reported. Imports grew faster.

  11. Richard says:

    i’ll go with 1160 new home sales.

  12. James Bednar says:

    From the BEA:

    GROSS DOMESTIC PRODUCT: FOURTH QUARTER 2006 (PRELIMINARY) (PDF)

    Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.2 percent in the fourth quarter of 2006, according to preliminary estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.

  13. SG says:

    Shanghai Index up 4% today. Will US Markets bounce back from yesterday ??

  14. SG says:

    Ranking the States for the New Economy
    A new study guides entrepreneurs seeking the right place to run a business by examining how states are faring in a changing economy

    by Jeffrey Gangemi

    Topping the list in 1999 and 2002, Massachusetts’ lead over other states in 2007 has increased—with a concentration of software, hardware, and biotech firms supported by universities such as MIT, Harvard, and others. The state had the fourth-highest increase in per capita income, according to the study.

    New Jersey and Maryland, states that ranked fifth and sixth, respectively, in 2002, rose in the new rankings, placing second and third overall.

    http://www.businessweek.com/smallbiz/content/feb2007/sb20070227_818588.htm?chan=smallbiz_smallbiz+index+page_today%27s+top+stories

    NJ is 2nd on the list. Not Bad. I was surprised that Delaware was 7th, ahead of Newyork, which was 10th.

  15. James Bednar says:

    Oh bother. From Marketwatch:

    Fed ready to act if financial crisis erupts: Geithner
    8:55 AM ET, Feb 28, 2007 – 4 minutes ago

  16. Al says:

    Richard Says:
    February 28th, 2007 at 8:33 am
    i’ll go with 1160 new home sales.

    Hey Richard,

    DO nto worry – I think we will see a huge infcrease in sales for existing housing in March/April…. Not January.

    That is from my last week personal experience.
    Not statistical data – but as I posted earlier every house I was interested in had an offer on it last week…. The cheapest starter homes seems to be selling or at least getting lot’s of offers. Thats why I am planning on rentig for few years, saving as much as we can, and either:

    1. Moving out of NJ (depends on the current job/replacement job out of state))

    2. Or buying next level home – not a starter ones – starter homes in NJ are grossly overpriced, if you compare them to the next level housing.

    Only 30-40K difference between 1920 little cape cod and nice colonial/newer bi-levels.
    Taxes are almost the same.
    Why would anybody buy those cape cods at ridiculous prices, instead of saving for couple of years, and buying a house which will suite your family for long time – thats beyond me.

    In my opinion those cape cods have less space than average two bedroom apartments, come with taxes and maintenance. And about 10% transaction costs…..

    Without appreciation, like it was in the last 5 years, a lot of people will be stuck in those houses for a long time – untill next bubble.

  17. BC Bob says:

    “Merrill Cuts Investment Bank Ratings on Earnings View”

    “We see a broad deterioration in customer-risk appetites, which generally leads to a moderation in profitability,” Moszkowski wrote. “It would seem likely that sequential earnings-per-share trends following the first quarter are likely to be down for at least the next two quarters.”

    “We remain highly optimistic on long-term growth prospects for the group as a whole,” Moszkowski wrote. Goldman, the No. 1 securities firm, is “better positioned for the current setting than most, given less-significant exposure to mortgage businesses” and a greater exposure to commodities, he wrote.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aU1Xk7OTHnCs&refer=home

  18. James Bednar says:

    From Marketwatch:

    House panel to examine predatory lending in subprime market

    Reacting to increased foreclosures of mortgages in the subprime market, a subcommittee of the House Financial Services Committee will hold a hearing next Tuesday to examine possible predatory lending practices, Rep. Carolyn Maloney, D-N.Y., announced Wednesday. “The trend of increased foreclosures is certainly troubling, and it is important to understand the potential root causes,” said Rep. Maloney in a press release. “Clearly, not all subprime or exotic lending is destructive, but abusive practices do exist and congressional oversight is needed.” Witnesses have not been announced. Subprime lending refers to loans to borrowers who cannot qualify for the best terms.

  19. Pat says:

    I have one for you folks. Morality and the mortgage broker. Love to see this one in front of Congress or profiled month-to-month in the Ledger.

    I know a couple. Married a few years, one SSDI XVI qualified/born low function (real nice guy who gets the carts at the supermarket but is not allowed to drive). Wife is lower-income w/ full time job plus part-time job/also with some social issues (bad credit/trashed her credit).

    She tells me they bought a house and are closing this week..had to close by the end of the month (I don’t know if the new guidance standards recommended in NJ impacted this, or not).

    It’s a median-priced place for central NJ.
    Payments will be a stretch, and they’ve NO CLUE as to the change in payments coming up. They called a mortgage broker, who sold them a
    no money down, adjustable 8-something. No co-signers were required.

    Should this type of lending be permitted? Can this couple be held responsible?

    It makes me want to hate. How does that broker sleep at night?

  20. gary says:

    I’m calling the bottom of the housing market. I called the top in October 2005 and now I’m calling the bottom as of March 2007. House prices will now appreciate at 5% annually over the next seven years and the next bull run will begin in 2014. House sales will be brisk starting this spring and desirable houses will be sold within 1 to 2 weeks with possible multiple bids on some and within a few thousand dollars of asking price.

    A non-dormered cape in Fairlawn in mid 2007 will go for an average price of 450K with $9,000 per year in property taxes. These observations are based on speaking with a number of realtors in recent weeks along with a number of visits to various open houses as well as talking to other potential buyers. Northern New Jersey appears to be an anomoly and it’s my conclusion is exempt from the rest of the national market dynamics.

    A newer center hall colonial in Raleigh-Durham, NC; Bucks County, PA; Atlanta, Georgia or San Antonio, Texas can be bought anywhere in the 300K to 400K range. That same house in Northern New Jersey: 800K plus. This is called an exception to the norm. Be prepared to pay better than 50% of your monthly net to live in Northern New Jersey or circle a date on the calendar when you are going to call the interstate moving company.

  21. Al says:

    He sleeps good – he made 5K off them,

    paid himself a nice bonuses,

    all at the expense of people buying these mortgage backed sequirities.

  22. Al says:

    Be prepared to pay better than 50% of your monthly net to live in Northern New Jersey or circle a date on the calendar when you are going to call the interstate moving company

    Actually the circling is already done – we have a date in mind past which we will be either in the position to buy a house we like without a stretch, or out of NJ.

  23. SG says:

    New Idea for the Turnpike: Let the Pension Fund Run It

    TRENTON, Feb. 27 — With legislators lining up against the possibility of leasing the New Jersey Turnpike to a private company, New Jersey lawmakers are now considering another option: having the state pension fund run the Turnpike Authority’s operation.

    http://www.nytimes.com/2007/02/28/nyregion/28pension.html

  24. Al says:

    Stock Market is in red again…..

  25. gary says:

    Al,

    Yup, it is what it is.

  26. James Bednar says:

    Chicago PMI came in weaker than estimates at 47.9 (50 expected), this is a fall from a 48.8 in January..

  27. SG says:

    A vision of social interaction, 52 stories tall in Jersey City

    By JANET FRANKSTON LORIN
    ASSOCIATED PRESS

    JERSEY CITY — In his design for a 52-story tower across the Hudson River from Manhattan, internationally acclaimed architect Rem Koolhaas wants to inspire social interaction, life and energy.

    The building’s design — three rectangular slabs stacked perpendicular to each other — allows for a mix of uses: condos, a hotel, artist lofts and studios, gallery and retail space.

    “I am putting together familiar elements in an unfamiliar way,” he said in an interview after presenting renderings and models of the project at the Jersey City Museum.

    “We are creating something slightly more memorable and slightly more energetic,” he said. “What New Jersey lacks is some visible evidence of a new beginning.”

    The $400 million project, with public spaces on three levels of the structure, will anchor an arts district a few blocks from the water in a booming area.

    It will be among the tallest residential projects in New Jersey and will sit diagonally across the street from another high-rise condo with a famous name, Trump Plaza: Jersey City.

    The new building will replace a brick 130-year-old former tobacco factory, now being demolished, which was the subject of years of legal dispute. The city wanted to create an arts district in the area, and the owner of the warehouse sued, saying Jersey City was restricting what could be developed on the site.

    The parties settled last summer, allowing developers to move forward with plans for lux- ury housing as well as the cul- tural elements.

    The settlement required 117 affordable housing units and 120 less-expensive spaces for artists studios and lofts. Another condition included hiring a world-class architect, said Bill Matsikoudis, the city’s corporation counsel.

    Koolhaas has also designed the Seattle Public Library, the Prada store in New York, the Casa da Musica concert hall in Porto, Portugal, and the China Central Television Headquarters, under construction in Beijing.

    Monday’s announcement culminated negotiations to build a signature project in Jersey City, Matsikoudis said.

    “It’s a piece art in and of itself, a 600-foot tall sculpture,” he said.

    The building must still undergo final design and other approvals from the city, a process expected to take 12 to 14 months; construction should be complete by 2010 or 2011.

    Developers with the Athena Group of New York said about 300 condo units are expected to sell for between $500,000 and $1 million. They haven’t yet secured an operator for the hotel.

    http://www.northjersey.com/page.php?qstr=eXJpcnk3ZjczN2Y3dnFlZUVFeXk1MjMmZmdiZWw3Zjd2cWVlRUV5eTcwODQ2NjgmeXJpcnk3ZjcxN2Y3dnFlZUVFeXkz

  28. SG says:

    The Rem Koolhaas design really looks cool. See the picture at,

    http://www.geocities.com/skgala/002.jpg

  29. Richard says:

    >>in the position to buy a house we like without a stretch, or out of NJ.

    pretty much everyone stretches the first couple of years after buying their first house. always been that way.

  30. Tom in Northvale says:

    My wife and I are seriously thinking of leaving NJ.
    We’re both nearing retirement, the baby is 36 with a condo in E. Rutherford she bought in 2000, and I’m just working for pension credit and health insurance.
    We own a couple of rentals, single family, in Northvale-Norwood, and it’s just too expensive to bother with.
    Our homes are paid for except a single >85k mtge, and our Catskill home will be done this year.

    I have lived my whole life in NJ, and I can say it’s a good place to be “from”.

  31. RentinginNJ says:

    Gary,

    What are the drivers behind your prediction of a new permanently high plateau for NJ real estate? What makes NJ different? Why will people here be willing to pay 50% of their income for housing and not in other areas of the country?

  32. RentL0rd says:

    new home sales down 16.6% in Jan
    in north east down ~18%

    Is this along with the stock dip yesterday the catalyst we are looking for?!

  33. Richard says:

    937k new home sales. i was way off. i figured some correlation of existing to new. have to dig into the numbers.

  34. Richard says:

    >>Is this along with the stock dip yesterday the catalyst we are looking for?!

    not in the NNJ area. new homes make up a very small % of this market.

  35. HEHEHE says:

    What’s the deal with the commerce department? I understand “preliminary numbers” have some leeway but jeez!!

  36. James Bednar says:

    937k new home sales. i was way off. i figured some correlation of existing to new. have to dig into the numbers.

    Look west.

    jb

  37. gary says:

    RentinginNJ,

    I’m making the prediction based on what I observe. Everybody’s just got to have that “house” in Upper Bergen, Western Essex or by the beach at any cost. I don’t know why, it just is.

    And you’ve just asked the same questions I’ve been asking myself for the last 7 years. If you find those answers, please let me know.

  38. James Bednar says:

    Richard,

    Keep in mind the time differential between the two releases.. EHS is measuring closed sales, NHS is measuring contracts. If you are looking for a correlation you’ll need to adjust for this differential first. Even then I don’t think they’ll correlate strongly.

    jb

  39. RentinginNJ says:

    i figured some correlation of existing to new. have to dig into the numbers.

    I’ve noticed an inverse correlation. If one comes in strong the other tends to come in weaker. I would guess it’s a matter of two asset classes competing for the same pool of buyers. Looks like existing homes won this month.

  40. RentL0rd says:

    Bernanke on now..
    “this is the calm before the storm”
    (not necessarily about RE)

  41. MJ says:

    “The Rem Koolhaas design really looks cool”

    I disagree. This is just mediocrity that is given monumental proportion.

  42. James Bednar says:

    Testimony of Chairman Ben S. Bernanke
    Long-term fiscal challenges and the economy
    Before the Committee on the Budget, U.S. House of Representatives
    February 28, 2007

    http://www.federalreserve.gov/boarddocs/testimony/2007/20070228/default.htm

  43. RentinginNJ says:

    pretty much everyone stretches the first couple of years after buying their first house. always been that way.

    True. And I would be willing to stretch for a home I really like. I will not, however, stretch to pay for a run down starter cape that’s the same size as my apartment.

  44. James Bednar says:

    The “calm before the storm” statement is going to be pulled out of context and headlined across the wires.

    jb

  45. what bubble? says:

    i have a question…isn’t it true that at some point in time new home sales are just going to be very very low as there is less land to build on near urban or even suburban areas. i mean at some point new home building will be irrelevant as a force in the marketplace…no? isn’t this just common sense.

    the point being that new home building has been at breakneck speeds the past 5 years or so, so isn’t it just common sense (and not necessarily a sign of trouble, as evidence by the rise in existing home sales) that new home sales will slow down?

    what am i missing?

  46. Al says:

    RentinginNJ Says:
    February 28th, 2007 at 10:23 am
    pretty much everyone stretches the first couple of years after buying their first house. always been that way.

    True. And I would be willing to stretch for a home I really like. I will not, however, stretch to pay for a run down starter cape that’s the same size as my apartment.

    Agree here 100% – I am ready to stretch.

    However right now it would mean that I would finance seller’s moving up to more expensive house as they have buoght the house before the run-up. If salaries would increase 80% in 5 years the increase prices would be perfectly explainable.
    However with salaries at most up 20%, anybody buying right now is paying for seller’s living large/buying a bigger house

    That in my world would make you a sucker.

    If current cape cod owner failed to save money, why should I pay for it???

  47. James Bednar says:

    i have a question…isn’t it true that at some point in time new home sales are just going to be very very low as there is less land to build on near urban or even suburban areas. i mean at some point new home building will be irrelevant as a force in the marketplace…no? isn’t this just common sense.

    The elusive “buildout”? We won’t see it in our lifetimes. Even if we were to approach it (nationwide), you would most certainly see the industry transition to infill and redevelopment long before that point.

    It’s as easy as tearing down a warehouse and putting up a 600 foot building (see above). Perhaps if we see dramatic innovations in hi-rise construction, we might even see midrises being torn down.

    The answer is up.

    jb

  48. what bubble? says:

    but the new home sales numbers currently do not take into account condo sales…do they?

  49. James Bednar says:

    Ok, I think I misunderstood what you were saying.

    jb

  50. James Bednar says:

    As far as I understand it, NHS includes townhouses (with some exceptions), but not condos.

    jb

  51. BklynHawk says:

    whatbubble-

    #46. yes and no. In certain areas of the country, take the NE for example, we have run out of land in a lot of areas. that’s why you see so many reclamation projects.

    South and west, this isn’t really a factor in the slowdown, but it depends on the city/market.

    The other factor would be the size of houses has increased significantly the last ten years. A piece of land that someone would have built two houses on will only hold one house now (except around here where people build up to the property line and kill the yard and spacing).

    Overall, outside of the NE, I don’t think this is why there is a major correction in the market. Read all the reports coming out of Denver, Arizona, Nevada…lots of new, empty houses, no shortage of land.
    JM

  52. January new home sales plunged 16.6 percent
    Western, Northeast regions show biggest declines

    Updated: 8 minutes ago
    WASHINGTON – Sales of new U.S. homes fell 16.6 percent in January and prices were little changed as the number of new homes on the market decreased slightly, according to a government report on Wednesday showing some weakness in the unsteady housing sector.

    The monthly decline was the sharpest in 13 years, since a 23.8 percent drop-off in January 1994.

    New single-family home sales fell to an annualized rate of 937,000 units from an upwardly revised rate of 1.123 million units in December, the Commerce Department said.

    Analysts polled by Reuters were expecting January sales to dip to 1.080 million from the previously reported rate of 1.120 million units in December.

    In January, the median sales price of a new home rose $400 to $239,800 from $239,400 in December.

    At the current sales pace, the supply of new homes available for sale rose to 6.8 months’ worth from the 5.7 months’ worth in December, which represents a 19.3 percent increase. There were a total of 536,000 new homes available for sale at the end of January, down 0.2 percent from December.

    The Commerce Department’s data comes a day after a Realtor trade group reported a stronger-than-expected month of existing home sales. The sales pace of previously owned homes rose 3.0 percent in January, the biggest jump in two years, the National Association of Realtors said.

    Home resales, which represent 85 percent of the housing market, climbed to a 6.46 million-unit annual rate.

    Across the regions, the West saw the sharpest decline in new home sales with a 37.4 percent drop. In the Northeast, new home sales fell 18.7 percent while they decreased 8.1 percent in the Midwest and 9.7 percent in the South.

    http://www.msnbc.msn.com/id/17380621/

  53. Kass correctly argues that many prime loans made during the housing run-up were made on the very same risky ground that the sub-prime loans are now collapsing under.

    Watch this video: http://www.paperdinero.com/BNN.aspx?id=90

  54. Richard says:

    >>I’m making the prediction based on what I observe. Everybody’s just got to have that “house” in Upper Bergen, Western Essex or by the beach at any cost. I don’t know why, it just is.

    peer pressure is unbelievable in this part of the country. keeping up with your peers makes people do stupid things. it takes a strong will to separate yourself from the sheeple.

  55. bergenbubbleburst says:

    #20 Gary, The realtors told you this, and you belive it, based on what? What a few people appear to be doing now, before the Spring amrket gets under way.

    The decline has just started> ia m calling for 25% or mroe off 2005 peaks, and I belive we will see that number in 08/09.

    People just have to be patient, as difficult as that might be.

  56. James Bednar says:

    A surprising lack of bottom calling today.

    jb

  57. Beans says:

    We have found that builders and developers seem far more likely to reduce prices recently. In the areas we are looking we are seeing price reductions of 100K and more over the past 2 months. Virtually no price reductions for existing homes that also may be sitting. As much as I dislike new construction (I am wary of the quality and the style is not usually my style), it seems that paying for a 5 br new colonial makes more sense than paying just as much for a much smaller 3/4 br that needs new kitchen and bathrooms (same price). Builders aren’t as emotionally tied to their houses and just need to make a deal.

  58. Rich In NNJ says:

    BBB,

    Prices din’t peak in 2005 in Bergen County, prices peaked around July – August 2006.

    Rich

  59. RentL0rd says:

    jb, this site is slow to load and I got 500 errors a few times. Are you seeing a sudden rush of visitors?

  60. Mike says:

    I don’t get it… what factor leads all the economists to believe that the housing market will improve in 6 months? Wouldn’t it just keep getting worse as more and more ARM’s reset? The rates aren’t going down…

  61. BC Bob says:

    Richard,

    When you dig thru your #’s, you’ll discover the biggest plunge in new home sales since 9/94. Hard to comprehend what the #’s would be if cancellations were part of the this equation. In conjunction with this median prices fell 2.1%. Would someone like to dig and come up with a real #, after you calculate the free car, vacations, mortgage payments, etc..??

    Oh wait, new home sales don’t matter in NNJ. Why then all the hoopla yesterday, when existing home sales were flat in the northeast??

    The down trend in housing is firmly entrenched. This will go a lot further/longer that you can imagine. By the way, it will not matter if you are male, female, single, married, kids or not. This bust will not discriminate.

  62. Pat says:

    The discussion of smart growth and the upward trend is interesting, as well as the opinions on the architecture for a mixed use building.

    I can’t quite feel anything when I look at the Rem Koolhaas design. Maybe my standards are too high and “cool” is the only way to go when you’re trying to build for so many different end users.

    When you visit countries and their cities, should the architecture reflect a community, a time and the history of the place? When you drive into certain cities, you think of what has happened to the people there. Must it all look like the view from a descending spaceship in a post-modern movie?

    Giant lego buildings of our age appeal to that little boy’s need to make things look like that building. Then the kid kicks and smashes it down cause that’s fun. I agree, MJ- that building looks like one that will be disposable and imploded in due time.

    True architects build buildings that are more than just (a)symmetry, geometry or legos. When you look at them, you want to keep looking at them and experience something inside..not kick them down for fun.

    For example, whether you agree or disagree with the premise of this building or what it stands for, juxtaposed against the concept of religion, would you want to see it kicked down?

    http://www.greatbuildings.com/buildings/Air_Force_Academy_Chapel.html

  63. James Bednar says:

    I don’t get it… what factor leads all the economists to believe that the housing market will improve in 6 months?

    Consider the source – Distinguish between spokespeople and economists. They are not the same animal by any stretch of the terms. This applies to people like David Lereah. While these people like to call themselves economists, they are primarily nothing more than paid spokespeople. How these folks dress and appear on camera is a good indicator. Economists typically don’t match, look bad on camera, and might occasionally wear a bowtie that doesn’t match.

    Where you sit is where you stand – What master does this talking head serve? Even more important, what are they trying to sell you. This applies to economists employed by industries who are in business to sell you something. David Seiders of the NAHB is a good example of this category. Although David often appears very suave and polished, so he also appears in the above category. Economists associated with most investment banks fit into this category (IMHO).

    Self-fulfilling prophecies – Fear that negative views by leading officials will feed back into consumer sentiment, making an already bad situation worse. This applies to most every government employed official, but also extends into banking and industry leaders. For a good example of this, google “Kahn”, “recession” and “banana” (no, really).

    jb

  64. BC Bob says:

    “I don’t get it… what factor leads all the economists to believe that the housing market will improve in 6 months?”

    Mike [61],

    Their job??

  65. rth36 says:

    Prices din’t peak in 2005 in Bergen County, prices peaked around July – August 2006.

    Rich

    thank you rich!! I don’t know why people keep using 2005 as the reference point or the peak. there was a considerable decel in home price appreciation in 06…appreciation nonetheless.

    I guess a lot of people here called the top in September 2005 or someone led them to believe that.

  66. er5t6 says:

    Prices din’t peak in 2005 in Bergen County, prices peaked around July – August 2006.

    Rich

    thank you rich!! I don’t know why people keep using 2005 as the reference point or the peak. there was a considerable decel in home price appreciation in 06…appreciation nonetheless.

    I guess a lot of people here called the top in September 2005 or someone led them to believe that.

  67. chicagofinance says:

    Clotpoll Says:
    February 27th, 2007 at 11:54 pm
    ChiFi (283)-
    Thanks for the insight. Just one question, though: don’t companies that have a large, ongoing buyback in place plot their strategies well in advance (like the MSFT Dutch tender)?

    clot: do you see how strict it is for company executives to buy and sell stock? It is the same for agents of the company (internal or external). The working assumption of the SEC is asymmetric information. As a result, you will often have very organized, deliberate, auditable, and transparent activity on the part of corporations that buy back their stock. If not, there are plenty of watchdogs and radicals (i.e. lawyers) willing to step in and scream “market manipulation”. There are blackouts (e.g., stay away from earnings announcements, release of previously undisclosed non-public information, market instability-2/27/2007).

    As I said previously, of course there are examples of sloppy, skin-by-the-teeth, “shrewd” corporation that take “advantage(?)” of market conditions. However, as I also noted, if they are willing to be sloppy with something so fraught with obvious potential liability, what does it say about its accounting practices? what does it say about its operational practices? a long term loser? You tell me.

  68. James Bednar says:

    jb, this site is slow to load and I got 500 errors a few times. Are you seeing a sudden rush of visitors?

    Bad choice of hosting vendor.

    jb

  69. James Bednar says:

    From the Daily Record:

    Morristown development OK’d for Spring St.

    The town council Tuesday night narrowly approved a redevelopment plan for Spring Street. The vote was 4-3.

    Voting for the plan were Councilmen John Cryan, Richard Tighe, Anthony Cattano and Jim Smith. Councilwoman Raline Smith-Reid, Michelle Harris-King and Timothy Jackson voted no.

    According to project architect Allen R. Kopelson, the Spring Street Redevelopment Project calls for between 175 and 225 residential units and as much as 60,000 square feet of retail space in three buildings. One side of the buildings, facing the Water and Center streets intersection, will have as few as five levels, and they’ll gradually get up to eight levels as you drive down Spring Street, towards the intersection with Morris Avenue, he said.

  70. RentinginNJ says:

    “I don’t get it… what factor leads all the economists to believe that the housing market will improve in 6 months?”

    Economists also follow the herd. If they are going to be wrong, they want to be wrong with the herd. This way when they are wrong, they aren’t singled out and, as a group, can claim that no one saw it coming.

  71. chicagofinance says:

    James Bednar Says:
    February 28th, 2007 at 10:58 am
    A surprising lack of bottom calling today.
    jb

    grim: except for gary (#20), and for the love of G-d, I hope he was kidding. I think he was, but I can’t tell exactly.

  72. chicagofinance says:

    James Bednar Says:
    February 28th, 2007 at 11:25 am
    jb, this site is slow to load and I got 500 errors a few times. Are you seeing a sudden rush of visitors?
    Bad choice of hosting vendor.
    jb

    “Bad choice of hosting vendor.”
    computer glitch?
    must use the same vendor as the Down Jones :P

  73. chicagofinance says:

    must use the same vendor as the Down Jones :P

    “Down Jones” ?
    Freudian Slip

  74. rmb says:

    I disagree #59.. I would say prices peaked in September 05 for BC.. When we started looking in 9/05 Open houses used to be packed and but no one was buying. Alot of the houses we looked at then are still on the market. And if they sold between December-Feb they sold at at least 20K off the original asking. Only 2 I remember we visited got asking and we saw over 60 houses.I started seeing price reductions in the spring market of 06. The house we purchased went on the market in 9/5 for 120K less then we paid for it in Summer 06. They started reducing thier price in December.

  75. chicagofinance says:

    BTW – did I amke the call this morning on 10:30AM. I think there was some short covering, then more selling overwhelmed it, and finally we settled in for the day.

  76. Rich In NNJ says:

    ChiFi(#72),

    “except for gary (#20), and for the love of G-d, I hope he was kidding. I think he was, but I can’t tell exactly.”

    He must be, he got the peak wrong as well.

  77. chicagofinance says:

    rmb Says:
    February 28th, 2007 at 11:38 am
    I disagree #59.. I would say prices peaked in September 05

    grim: go pull the link when you made this call in “real time”.

    Nice Stones!

  78. Rich In NNJ says:

    rmb(#76),

    Inventory started to build and sales dropped off around Sept-Oct 2005, but prices continued to climb.
    Others not as informed as you, continued to pay high prices. My stats show Aug 2006 (these units probably went under contract May/June) as the price peak.

    Rich

  79. Clotpoll says:

    Pat (19)-

    That mortgage agreement may be a voidable contract. People of diminished mental capacity should not be entering into contracts of any sort. However, there may be someone of sound mind as a party to the mortgage agreement. Were you able to do a little sleuthing?

    Perhaps an attorney can chime in here?

  80. rmb says:

    They climbed but they didn’t sell..

  81. James Bednar says:

    My call on volume and inventory was spot-on, but I was wrong on price movements. Do I get anything for being two thirds right?

    Coincidentally, that call was my first blog post.

    http://njrereport.com/index.php/2005/09/21/northern-nj-hits-top/

  82. SG says:

    Now Economist takes Jab at Stock market performances:

    Investors are becoming more worried about the state of America’s mortgage market—particularly “subprime” lending to less creditworthy borrowers—and the fast-proliferating derivatives linked to it;

    http://www.economist.com/daily/news/displaystory.cfm?story_id=8767375&top_story=1

    Is it time to get Contrarian Now? All Analysts are after sub-prime guys now.

  83. SG says:

    This is based on Anecdotal evidences.

    I think the top in Sep 2005, came in farther suburban counties like Somerset, Monmoth, Morris. The top in Bergen, Essex, Hudson came sometime in early 2006. The top in Newyork city came in June 2006, based on Shiller/Case index.

  84. rmb says:

    I didn’t think I was saying I was the first to make the call. I was just stating what I saw.

  85. Rich In NNJ says:

    rmb / JB,

    In saying peak you mean a market turn due to inventory rise and sales drop, ok I’ll agree.

    In terms of prices, I disagree. So does the data.

    Once again, this is using Bergen County data.

    Rich

  86. gary says:

    I was close to calling the top in Oct. 2005 give or take a few months. It’s debatable, let’s say late 2005 or early 2006… roughly.

    But my point is, my gut is telling me that psychology is a bigger factor here than anywhere else in the country. It’s beyond data because the data doesn’t seem to behave here like the rest of the nation. Again, I don’t know why. It’s very competitive in North Jersey, people just “gotta” have it. I ask the question “why” all the time.

    It’s not pure x’s and o’s here. It’s a different dynamic and I think after a breather, we’re going to see a normal progression on appreciation.

    I’d like to be proven wrong but I’m simply calling it as I see it. Cash is king and here in NJ, a lot of cash is needed. If you’re not willing to stretch to keep up, you’re done.

    By all means, prove me wrong but I think it really is different here.

  87. Rich In NNJ says:

    JB,

    I read your post to quickly!

    You get major points on those two calls!

    Rich

  88. James Bednar says:

    Rich,

    You are talking peaks in median/average pricing, correct? Not direct sales comparisons?

    jb

  89. RentL0rd says:

    jb #83 – thanks for that first post. can you frame it? ;-)

    Except for the anonymous smut posts.. viewing that post/comments at work can put one at risk!

  90. Clotpoll says:

    Gary-

    Can I borrow your crystal ball?

    I think there’s a little something to what you’re getting at…NJ is somewhat sui generis, as new construction accounts for so little of our housing activity. Following that, resale inventory has traditionally sold for higher vs new construction, and days-on-market for resales runs less than in parts of the country where new construction dominates.

    However, our basic across-the-board affordability crunch is not going to go away, and future buyers are not just going to be able to surmount it with the 47 cents an hour more that they are now making. It is certainly no solace that many potential NJ homeowners are now “voting with their feet”. I only see this trend intensifying.

    Unless this state takes an unsparing look at entitlements, government efficiency and preservation/growth of future funding streams, we will continue to circle the drain. The NJ RE market isn’t softening for many of the same reasons as elsewhere in the US…its softening is a direct symptom of governmental dysfunction on every level.

    An inefficient welfare state that’s actively engaged in redistribution of wealth, while at the same time squandering its assets, cannot sustain ANY viable real estate market. The concepts are mutually exclusive. Period.

  91. bergenbubbleburst says:

    #59 Rich IN NNJ: i saw activity peak in my town in August of 05, and came to that conclusion based on what some houses sold for,a nd what the saem hosues now are asking, of course not that scientific, but it was a guide.

    You have much better access to numbers, and so I will defer to you.

    Do you believe prices in Oradell and River Edge also peaked in July/August 2006?

  92. James Bednar says:

    If we are looking only at GSMLS data, September ’05 is clearly when we broke trend.

    http://www.njrereport.com/images/jan07c.gif

    Keep in mind this is GSMLS data only, and doesn’t include NJMLS, MLSGuide or Monmouth/Ocean MLS.

    jb

  93. rmb says:

    Out of the 546 house that sold in the areas we were looking in in the period of 1/01/06-06/30/06
    52 sold for asking or above. the rest sold for below with an average of 30K below and I would say half we price reduced looking at my MLS screen.

  94. Rich In NNJ says:

    gary,

    You sound as if you need an anti-depressant more than you need someone to tell you it’s not different here.

    But in any case, it’s no different here then suburbs of San Francisco or Chicago. Yes, prices here will always be higher in these areas due to desirability, but that doesn’t mean economic fundamentals do not apply.

    And back to your statement about Oct ’05. Once again, inventory up, sales down… Sept ’06 prices start to drop.
    Right now Feb sales prices for SFH are 7% lower than Feb ’06 and Condo, Co-op and Townhouses are almost 9% lower.

    Rich

  95. RentinginNJ says:

    Is it time to get Contrarian Now? All Analysts are after sub-prime guys now.

    You have to give props to the Economist. They have been beating this drum for a while now.

  96. James Bednar says:

    Seems like the press just isn’t interested in the NHS data today. Surprisingly little coverage based on the numbers.

    jb

  97. Rich In NNJ says:

    JB,

    Yes, median/avergage pricing.

    And I agree with your assesment of breaking trend in Sept ’05 in terms of sales.

    rmb,

    I’m using the 10,612 units sold in 2005 and the 8,631 sold in 2006 in Bergen County as my data points. What “area” are you using by the way?

    Rich

  98. bergenbubbleburst says:

    Rich Would you say prices in Oradell and River Edge also peaked in July/August of? 2006

  99. Rich In NNJ says:

    BBB,

    It’ll take some time but I’ll look into it. But I think the area is too small to get an trend out of it.

    Why River Edge and Oradell only? Why not Hillsdale, Westwood, Rivervale, Township of Washington, etc?

    Rich

  100. Rich In NNJ says:

    BBB,

    But to give you a quick answer, yes.

    Rich

  101. gary says:

    The crystal ball just appears to be a lot clearer. Like Ray Liotta narrating in Goodfellas, “Had a little fire in the place? Eff you, pay me.” In another words, you want that nice house with the nice lawn in Upper Wherever, come up with the cash. That’s the way it is here.

  102. rmb says:

    Haworth
    Harrington Park
    Rivervale
    Montvale
    Closter
    Saddle River
    Upper Saddle River
    Allendale
    Woodcliff Lake
    Westwood
    Park Ridge
    River Edge
    Oradell

    Again I am talking about what was Sold from 1/06-6/06..

  103. bergenbubbleburst says:

    #88 Gary: We purchased in 87, alot od the same talk then as now, and this was the go-go 80″s, prices will not go dwon, BC is close to NYC, buy now or be closed out forever, and so on.

    So like many we ppurchased, and to make a lomg story short sold it over 10 years later, at a small loss.

    People say its different this time, and I agree it is scarier, because even back then, there was much less recklessness in the real estate market than the nonsense going on in the last few years.

    And back then getting a mtg was like root canal, it was painful, and you actually had to qualify for the payments, not to mention you had to have a 10 to 20% down payment.

    You seem to be at a despair stage, and you are more vulnerable to do soemthing stupid now, all I can say is dont.

    Somebody said it before,and I agree, never underestimate the stupidity and I would add arrogance of people.

  104. bergenbubbleburst says:

    #101: I would appreciate whatever information you might be able to provide me.

    I need Oradell and River Edge because of family reasons. thnks again in advance for your help.

  105. Otis Wildflower says:

    http://www.nytimes.com/2007/02/28/business/28leonhardt.html

    “A Recession That Arrived on Cats’ Paws”

    “Wall Street was caught off guard when the Commerce Department reported yesterday morning that orders for durable goods — big items like home computers and factory machines — plunged almost 8 percent last month. That’s a big number, but it really shouldn’t have come as too much of a surprise. In two of the last three months, the manufacturing sector has shrunk, according to surveys by the Institute for Supply Management that have been out for weeks.”

    Surprised? Folks hain’t been payin’ attention.

  106. gary says:

    bergenbubbleburst,

    I hear you loud and clear. You know what’s so disheartening? We’ve owned our current house for 6 years now and put 20% down when we bought it. Take that money plus the equity built from this insane run up over the last 5 or 6 years and if we sold and bought tomorrow, we’d be back in the same house again based on normal economic fundamentals used when things were sane.

    Believe me, we’re not going to make a move. But isn’t that the sickest thing you’ve ever heard? With this equity, you’d think we’d be ready to trade up. No, that’s not the case. So, the only thing I can conclude is that this is the way it is now.

    This thing is so distorted that it doesn’t make sense; hence, it’s an exception.

  107. chicagofinance says:

    gary Says:
    February 28th, 2007 at 12:01 pm
    But my point is, my gut is telling me that psychology is a bigger factor here than anywhere else in the country.

    I’d like to be proven wrong but I’m simply calling it as I see it. Cash is king and here in NJ, a lot of cash is needed. If you’re not willing to stretch to keep up, you’re done.

    By all means, prove me wrong but I think it really is different here.

    gary: no offense man…but such talk on these threads is verboten

    where is the cash….here….look at the recent trajectory, and watch what happens if this thing falls off the tracks….yesterday was just a reminder of the potential….we will revisit in July
    http://finance.yahoo.com/q/bc?s=KCE&t=1y&l=on&z=m&q=l&c=

  108. UnRealtor says:

    “I think it really is different here”

    Housing up 100% in 5 years.

    Salaries up 0% in 5 years.

    The only thing different, is people’s willingness to enter Debt Slavery, because they certainly cannot afford to actually “buy” these ridiculously-priced homes.

  109. BC Bob says:

    “But isn’t that the sickest thing you’ve ever heard? With this equity, you’d think we’d be ready to trade up.”

    Gary [108],

    Are you saying that your home appreciated X amount but you are not able to trade up since these houses appreciated the same amount?? I don’t understand your point. Doesn’t a rising tide lifts all boats?? The counteraction will be the same.

    The only way to take advantage of this insanity is to sell and either rent, wait it out, or move elswhere. You can’t expect to make it on your end and get a bargain on a trade up, if done simultaneously.

  110. gary says:

    chicagofinance,

    After the hell I went through before I bought my current house, my feelings haven’t changed. I sympathize with everyone on this board. What I see though, is an apparent reality based on voodoo fundamentals. I don’t know why, it’s just the way it is. Any house that my wife and I saw in the last couple of years (and last week) that had any desirability, was listing for better than 700K.

    You do the math. What normal working family has a buck fifty to put down and the capacity to dish out $4,500 a month just in housing alone?

    Until it changes….. this is what it is.

  111. BC Bob says:

    “You do the math. What normal working family has a buck fifty to put down and the capacity to dish out $4,500 a month just in housing alone?”

    Gary,

    You’re preaching to the choir. Isn’t this the premise of our argument??

  112. chicagofinance says:

    “I sympathize with everyone on this board.”

    I think you intend to sound empathetic, but it comes across as patronizing. I certainly don’t need anyone’s pity.

  113. Pat says:

    CF, little g Gary is not big G Gary. Little gary still hasn’t had his standard LOD indoctrination scheduled.

    Clotpoll (81), thanks. The wife IS of sound mind (technically). She functions at 110% in some skills, but she doesn’t grasp very basic concepts in the common sense arena, has little social self-awareness, and blankly stares when you tell her a joke.

    Man…that sounds terrible, but I’m worried about the burden of this on their families.

  114. chaoticchild says:

    Anything good from yesterday’s Schiller Bloomberg radio interview???

    CC

  115. RentinginNJ says:

    Did ‘800-lb. gorillas’ sit on property tax reform?
    Democrats say contributions by powerful special interest groups didn’t affect their votes

    Star Ledger http://tinyurl.com/2dmn39

    Hours before they were scheduled to consider a controversial package of bills aimed at reining in local property taxes on Dec. 14, top Democrats in the state Assembly hosted the state’s lobbyists at a breakfast — for $1,000 a head.

    The “Breakfast Reception Honoring the Assembly Democratic Caucus” raised funds for this November’s legislative election campaigns, including at least $12,000 from state worker unions [emphasis added] and thousands more from other groups concerned about cost-cutting provisions in property tax reform bills.

    That evening, the Assembly adjourned without taking action on the most substantial of the reform measures.

    Lobbying reports released yesterday show groups with the biggest stake in property tax reform spent more than $1.9 million last year to influence lawmakers. At the same time, key legislators extracted nearly $569,000 in campaign contributions from the same groups.

    Labor unions, teachers, contractors, school officials, mayors, business groups — the “800-pound gorillas” that Gov. Jon Corzine exhorted lawmakers to resist in their drive for tax reform — kept the heat on throughout the long special session.

    Lobbying expenditures by two prominent unions — the New Jersey Education Association, representing teachers, and the Communications Workers of America, representing state workers — topped $675,000 last year, state Election Law Enforcement Commission reports show. That was double what the two groups spent pressing their issues in Trenton in 2005, according to ELEC records.

    The two unions, which staged a noisy Statehouse rally of 7,000 protesters in December, also added $335,000 in campaign contributions to the cost of the effort. That pushed their total expenditures to more than $1 million last year.

    The union leaders said the efforts were needed to preserve their benefits. They maintain they did not get everything they wanted.

  116. SG says:

    UnRealtor:
    Housing up 100% in 5 years.
    Salaries up 0% in 5 years.

    I do agree with many folks here that it is difficult to buy a house in NJ. But we are not paying as much as percentage of our income as folks had to pay in 1980’s.

    See the Green line in second chart at following link,

    http://www.geocities.com/skgala/newark.htm

    This line represents affordability. Today we are much higher compared to 90’s, but still are below what folks had to pay in 80’s. I think 1996-2000 period was golden as far as Home affordability was concerned. I don’t think we will fallback to such levels anytime soon.

    Between 89-92, Interest rate fell down from almost 10% to 7%. This time around, Interest rates are not going to fall from 6% to 3%.

    I think gains of 2004 & 2005, will be wiped out, but I fail to see home prices falling back further below than that.

    I definitely wouldn’t call this as buying point, as you don’t want to catch the falling knife.

  117. hobokenite says:

    So what’s going on with ABX BBB- today?

  118. Pat says:

    SG, doesn’t your theory assume that someone can find a house for $244 that compares to a house in ’75 that was $30k?

    Where is this house, per the index, that costs $244?

  119. RentinginNJ says:

    Housing prices were very expensive in the 1980’s.

    However, the chart ignores the down payment. The opportunity to make a substantial in 1980’s was much greater than it is today. According to the chart, a 1981 home would require about 6 months income for a 20% down payment versus almost 12 months today. So, you were likely financing less.

    High interest rates also made it easier to save for your down payment. You could earn 10% or more in a savings account and north of 12% in a T-Bill.

    Inflation expectations were also higher. This meant one of 2 things. Either your salary would grow quickly, reducing the debt burden or interest rates would drop, allowing you to refinance. For example, nominal per capita income jumped 11% between 1980 – 1981.

    Property taxes were also less in the 1980’s “allowing” more income to go toward the mortgage without increasing the payment burden versus today.

  120. James Bednar says:

    Good points..

    jb

  121. SG says:

    Pat – The price is considered 1000 times of HPI. I could equally consider price of 2000 times for whole period. That would make price in 75 to be 60K and in 2006 to be 488K.

    The price would only effect the actual percentage number, but the ratio would remain same. The percentage would be half for both 1975 & 2006. Hence ignore the percentage number, look at it from referential point.

    I will see if I can post the numbers by multiplying by 2000, but I don’t see there will be significant difference in finding.

  122. lisoosh says:

    Pat Says:
    February 28th, 2007 at 2:07 pm
    SG, doesn’t your theory assume that someone can find a house for $244 that compares to a house in ‘75 that was $30k?

    Where is this house, per the index, that costs $244?

    Good point Pat.

    SG – are these national numbers? New Jersey was a very different place 30 years ago, much more rural so the New York commuter effect was probably less. Do you have numbers that pertain more to the Northeast and to Jersey in particular to give a better picture of affordability in this area?

  123. lisoosh says:

    SG – this quote from the thread below is an indicator of the differential:

    While our median income is 27 percent higher than the national median, our housing costs are 52 percent higher.

  124. SG says:

    Well, here is another attempt.

    See the attached link for affordability chart.

    http://www.geocities.com/skgala/newark_msa_affordability.htm

    This time, I am assuming the house that costs 2000 times the Home Price Index (HPI). The mortgage per year is calculated for loan that is 80% the cost of the house.

    The point seems still valid that though Housing has become more unaffordable, it was definitely much more difficult to buy in 80’s, compared to today.

    Tell me if I am missing anything. The point of this analysis is not to say its good time to buy, but provide object analysis of housing affordability.

  125. Pat says:

    Lisoosh..I think you make a valid point about relying on indexes to make assumptions about conditions.

    It’s like the issue with less paper towels on the roll for the same money. Correct me if I’m off here. Maybe I’m just remembering false memories. Coming from a big family, I had several older siblings and several aunts & uncles buy middle of the road houses in NNJ in the seventies. I don’t think anybody had to buy a $60k house in ’75. More like $30.

    Something that cost $60k in ’75 would be A LOT now. My oldest brother bought a really “nice” new Brady Bunch split in 71 or 72 in Plainfield. It had real paneling in the basement and everything ;). Another brother bought a big old Dutch Cape in Cranford.

    My sister bought a crappy POS half double in 1970 in Edison for like NOTHING. I think it was literally free.

    Just thinking we should be wary of indexes versus reality. Logically, I cannot accept that we pay less of share of income for housing now than back then. Maybe I’m just rationalizing.

  126. SG says:

    lisoosh: The Home Price Index (HPI) are for NNJ/NY MSA and Personal Income numbers are for New Jersey. The interest rate numbers are national.

    Regarding house with value of 244K not being available, in my latest chart, I am adding multiplier of 2000, which makes house value of today at $488,000. There are definitely moderate single family homes available at that price today. Of course not the CHC’s.

  127. James Bednar says:

    SG,

    Can you graph that up for me using median household income instead of per capita?

    jb

  128. SG says:

    Pat: OFHEO calculates Index based on the same house sales price over the period of time. Its the best index we have so far, at least better than no index.

    Also you have to consider the fact that houses in city center cost more, and houses in outskirts cost less. The areas such as Plainfield & Edison, were most likely outskirts in 70’s, versus today they are not called outskirts.

    Anyone on this board, have any experience in buying during early 80’s (i.e. 1980 to 1987). Tell your experience? It would help to know, What was normal Income & Housing cost.

  129. SG says:

    JB: I couldn’t find source for median income. If you find a source let me know.

    I will send you the excel spreadsheet anyway. It would be nice to make sure that there are no mistakes.

  130. gary says:

    I’m truely sympathetic to everyone’s plight and frustration over the inability to purchase something that resembles a home. I didn’t really want to buy the current house we live in but after going through bidding wars on back to back occasions, we were lucky to land what we did through a private deal.

    We didn’t get a price break, we were just happy not to have to compete with multiple buyers.

    We stood in lines at open houses and had realtors tell us to enter our highest bid on the way out the door and were then told they’d choose the “winner” that same evening.

    We had a realtor walk away from us in mid sentence the second they found out we weren’t going to bid above asking on another home.

    My cousin and his wife had to be interviewed by the sellers of a home before accepting their bid; and my cousin-in-law was 7 months pregnant.

    How and why would I want to patronize anyone over this fiasco? Why would anyone take my opinion or my experiences personal? I’m simply stating what I’ve observed and experienced and using this to draw a conclusion.

    The competition in North Jersey for “that” house in “that” town is, for whatever reason, a die-at-all-cost endeavor for more people than not.

  131. mboy says:

    “True. And I would be willing to stretch for a home I really like. I will not, however, stretch to pay for a run down starter cape that’s the same size as my apartment.”

    Amen to that. Even $300k for a 1940 cape that was 12k new is a joke!

  132. BC Bob says:

    For those not familiar with Ken Heebner. He has stated that a significant decline in housing is coming. He feels some ares will decline by 50%. If you want to dig, there was an article posted, sometime in the past, on this site.

    “Kenneth Heebner, the manager of the top performing real estate fund over the past 10 years, said the economic damage from high-risk mortgage defaults is only going to get worse.”

    “We have a trillion dollars of subprime mortgages and we’re going to have huge defaults,” Heebner, 66, said in a telephone interview today from his office in Boston. “If you’re looking at the housing market, it’s not the darkest before dawn, it’s the darkest before pitch black,” Heebner said.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aAKAB.JEeTX4&refer=home

  133. RentinginNJ says:

    The mortgage per year is calculated for loan that is 80% the cost of the house.

    A 20% down payment was much more reasonable in the 80’s than it is today. While not perfect, I would use something like 6 months income as a down payment. This would better reflect the growing gap between income and prices, even though lower interest rates moderate the effect on the monthly payment.

    I couldn’t find source for median income. If you find a source let me know

    I don’t think its out there going back that far. I looked. Per capita is probably the best you can do.

    I am adding multiplier of 2000

    I would take median home price from the NAR and scale it back annually using the OFHEO index.

  134. Clotpoll says:

    Gary (132)-

    True dat. However, I think things will get better. As several have stated here today, fundamentals DO count, and they’re going to come into play in NJ…albeit at a more high-flying level than elsewhere.

    The lending industry appears poised to stop the madness. Once the buyer flow is crimped, something close to rational market behavior will begin to prevail. There is no new paradigm that will permanently allow chronic debtors to achieve long-term equity. That kind of wrong thinking is a house of cards & the house is about to come down.

    Even in the “blue-ribbon” towns.

  135. Clotpoll says:

    BC (143)-

    Scary. Will read this fast. Ken Heebner is God.

  136. James Bednar says:

    SG,

    Lets run those same numbers over using the Case-Shiller numbers. The OFHEO HPI data has a number of fundamental flaws that skew the picture (conforming mortgages only, appraisal-based refinancings included, etc).

    jb

  137. bairen says:

    north jersey is grossly overriced. The benefits of living in NNJ are not worth it. With the spread of satellite tv and radio, internet, and the big retail chains destroying the mom and pop stores there’s not much difference between NNJ and North Carolina or other areas of non bubble and in the US other then in NC you would most likely make 90% of your NNJ/NYC pay but your house would be half the price and much nicer then your Jersey house. Plus you would probably have a much shorter commute and have time to enjoy your life.

  138. James Bednar says:

    Heebner can use the “grim” pseudonym anytime.. Especially with a quote like this.

    “We have a trillion dollars of subprime mortgages and we’re going to have huge defaults,” Heebner, 66, said in a telephone interview today from his office in Boston. “If you’re looking at the housing market, it’s not the darkest before dawn, it’s the darkest before pitch black,” Heebner said.

  139. lisoosh says:

    A friend in Houston considered moving up here. Calculated that to enjoy the same lifestyle he had at $50K he would need to make at least $120k annually, and that was in 1998.

    Needless to say, he stayed put.

  140. bairen says:

    500k in NNJ gets you a cape on a tiny lot in need of 50k minimum in repairs to make it up to date. 500k in Austin buys you a 5,000 sq ft home on an acre in a great comunity.

  141. bairen says:

    Any data on where the property backing these sub prime loans are? Are they in bubble states mostly or are they spread proportionally around the US?

  142. Steve says:

    By way of comparison (burbs of Seattle):

    I recall my family in the early 80s buying a nice new 4-bdrm house, great property, not huge (2000 sq ft)in a top neighborhood, for only about 2.25x income…can’t recall interest rate (11%?), but P&I + taxes monthly were about $1000/mo on a 90k purchase. Neighbors had about 3800 sq ft new house, around $110k I’m guessing income of around $60k, 1.88x income.

    Equivalent neighborhood here in Jersey, Summit/Basking Ridge/Saddle River, I have to believe the income ratios today to buy a similar house are much, much higher …and taxes too?? I shudder to think.

    Around ’86-87, my friend’s family bought a 4000 sq ft / 3 car garage, brand new house w/ view and 1+acre also in same neighborhood for $250k on income of around $200k. Airline pilots salary today is not that much different; that house today would be approx $1 mil, so in this case the ratio went from 1.25x to 5x.

    We can thank those no-doc, 0-down, I/O, negAM loans…

  143. bairen says:

    Buffett’s annual letter to shareholders gets released tomorrow after the market closes.

    Wonder what he’ll say about the housing bubble and trade and budget deficits.

  144. gary says:

    Clotpoll #136,

    We’ll see. Believe me, I hope I’m wrong, for my sake and everybody’s sake.

  145. SG says:

    James Bednar Says:
    February 28th, 2007 at 4:05 pm

    SG,

    Lets run those same numbers over using the Case-Shiller numbers. The OFHEO HPI data has a number of fundamental flaws that skew the picture (conforming mortgages only, appraisal-based refinancings included, etc).

    Unfortunately, Shiller/Case data goes back only to 1987. That would not give true picture as we were discussing period from 80’s to 87.

    I added comparision between Shiller/Case data to OFHEO HPI data. For most part they have been following same values, except in 2006. This may be due to the fact that I took only December 2006 numbers, and Shiller reports monthly Vs OFHEO’s quarterly.

    Looking at this, I would imagine, the affordability chart may increase in last few years, but I don’t suspect huge change though. May be few percentage point.

    http://www.geocities.com/skgala/newark_msa_affordability.htm

  146. chicagofinance says:

    bairen Says:
    February 28th, 2007 at 4:05 pm
    north jersey is grossly overriced

    bairen: well, what should be planted then??

  147. James Bednar says:

    From Reuters:

    Subprime turmoil may take toll on CDO managers

    The shakeout in the subprime mortgage market is now putting the squeeze on the newest managers of debt backed by the riskiest of those loans.

    So far, bond structures known as collateralized debt obligations have provided sufficient insulation from subprime loans, which are made to high-risk borrowers.

    But mortgage lender bankruptcies, rising delinquency rates and defaults as a consequence of loose lending standards may stall growth of CDOs this year, and scores of new managers may have difficulty completing new sales.

    “‘Subprime’ is really a kind word for a deadbeat, and we’re seeing the repercussions,” says Jeffrey Gundlach, chief investment officer at the Los Angeles-based TCW Group, the biggest manager of CDOs with $35 billion under management. “We could see a lot of CDO managers and the Johnny-come-latelys fall by the wayside.”

  148. bairen says:

    typo. overPriced.

    What should be planted in NNJ? How about more common sense and basic financial literacy for the masses? Now that would be a crop worth harvesting. Too much to ask?

    PS: you can never have too much rice. nutritious and delicious.

  149. BC Bob says:

    “What should be planted in NNJ? How about more common sense and basic financial literacy for the masses? Now that would be a crop worth harvesting”

    Bairen,

    I agree. However, I forecast one problem. The year it’s planted, there will be a drought in NNJ.

  150. d2b says:

    lisoosh #141:
    My company promoted a person and offered him relocation, higher base salary, and $700 per month for 1 year to move from Dallas to NJ. He was planning on staying in the Trenton or Allentown area. He had a 4bed/3bath home on a golf course that was appraised in June 2005 for $180k. Dallas didn’t see the price gains that we saw up here.

    He decided to stay in Dallas.

  151. Theo says:

    That’s funny, about five years ago our company moved a bunch of jobs from NJ to Dallas and very few people went. Now all those jobs in Dallas are going to India.

  152. sas says:

    So….

    Who says China doesn’t matter?

    SAS

  153. sas says:

    and…..

    How did the Fed lose control of the money supply?

    SAS

  154. Roger says:

    SG, et al. Great discussion. Imagine if all economic charts were posted online with the ability to comment on their meaning/lack thereof, and the developers responded with improvements…sort of like a Wikichart. Does such a thing exist? Should it?

  155. James Bednar says:

    All of this data should be wiki’d.

    jb

  156. James Bednar says:

    Uh oh, spigot tightening further?

    From Reuters:

    Subprime guidance to be issued Thursday

    U.S. banking regulators plan to issue guidance on the subprime mortgage market as early as Thursday afternoon, two sources familiar with the matter told Reuters on Wednesday.

    The guidance will be issued by agencies including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The guidance is likely to allow the public to comment for at least 60 days on controversial mortgages provided to consumers with poor credit histories, the sources said, speaking on condition of anonymity.

  157. James Bednar says:

    Fremont’s beating might not be over just yet..

    Fitch Downgrades Fremont General’s IDR To ‘B+’; Rating Watch Negative

    Fitch Ratings has downgraded Fremont General Corp.’s (NYSE:FMT) long-term Issuer Default Rating (IDR) to ‘B+’ from ‘BB-‘, the long-term senior debt to ‘B’ from ‘B+’, and the Individual rating to ‘D’ from ‘C/D’. Fitch has also downgraded the Preferred Stock rating of Fremont General Financing I to ‘CCC+’ from ‘B-‘. Concurrent with this rating action, Fitch has placed FMT and Fremont Investment & Loan (FIL) on Rating Watch Negative. Previously, the Rating Outlook for FMT and subsidiaries had been Negative. A complete list of rating actions follows at the end of this release.

    Fitch believes that FMT faces a difficult subprime residential mortgage market. Financial reporting delays notwithstanding, operating performance may continue to deteriorate over the next 12-18 months. Fitch will continue to monitor capital and liquidity, principally at FMT, the holding company for FIL. In addition to risks associated with operating performance, debt at the holding company level is currently mainly being serviced by cash flows from residual interests in mortgage-backed securities (MBS) backed by FIL-originated subprime residential real estate loan collateral. Recent vintages of Fremont MBS have underperformed, and as a consequence, cash flows from underlying residuals may decline. At Sept. 30, 2006, FMT had available cash on hand and some contingent funding, including cash dividends from FIL, to offset any potential cash shortfalls from the residuals.

  158. BC Bob says:

    SAS [156],

    The current account deficit requires almost $3 billion a day. In Dec, our net inflows from foreigners were only $15 billion. Yikes, only $75 billion short. The world has been telling us that they will be diversifying out of the dollar. Anybody listening??

    How do you get out of this mess?? Only one way, sacrifice the dollar. There is a major imbalance between incomes and debt service. If asset valuations decline, there is a herculean problem. The only choice for the fed is to print and get $ into consumer hands. It is the lesser of two evils, at least in their minds. Kind of like buying the best house in a totally s*itty neighborhood. So the fed prints and and keeps their buying activities[repos] secret. In the meantime, through their constant verbal barrage, they tell us they are vigilant in fighting inflation. What about monetary inflation??

  159. sas says:

    yup BC,

    tax, borrow, or print.

    SAS

  160. Jay says:

    If the fed raised interest rates, that would attract foreign money again, but squash the market

  161. BC Bob says:

    Jay,

    The fed is cornered….and it’s not Ben’s fault.

  162. sas says:

    Fed raises rates, risk putting into a hard recession.

    lower rates, dollar drops… and you think RE & crude is exspensive now.

    Personally, I would like the rates to rise at next meeting. If they lower, better run to Canada ;)

    SAS

  163. njrebear says:

    Shangied again? down ~3%

    nikkei down 1.1%

  164. lily says:

    Anybody noticed that Harding has very low tax?
    How is the school there?

  165. njrebear says:

    WMC… more changes coming.

    http://forum.brokeroutpost.com/loans/forum/2/98342.htm

    Stated wage earner… about to be gone
    80/20’s… sayanora
    60% of their workforce… start working on your resume
    Multiple branches… closed

    And so the sub-prime bubble continues to burst

  166. BklynHawk says:

    JB-

    I strongly agree. We really need a Wiki for this blog. Lots of great info/data that could be better organized.

    John

  167. AntiTrump says:

    gary:

    I think you are wrong about your call that market has hit bottom.

    I remember that I really never understood or believed the dot.com mania. Me and some friends in wall-street who are old-timers would shake our heads in disbelief at the prices some of these stocks were trading at and how they kept going up and up.

    Anyway in January of 2000, I finally gave in to peer pressure and threw some money into tech stocks a few months before the market peak. I really thought that I was being an old-fashioned investor and in the *New World* valuations didn’t matter, and it was only about P/E etc. I just thought that my style of investing was not relevant anymore. Anyway few months later, we all know what happened and I lost about 50% of what I put into tech stocks. The lesson I learned was to do my research and stick to my position no matter what the market is doing. I know that many on this board are now beginning to accept that we may have hit the bottom.

    Not me. I stick to my guns and dig in my heels. I am positioning my investments for a US and possibly global recession this year.

  168. BC Bob says:

    Anti,

    Gotcha.

    We may be in a recession [US] now. You don’t really know until approx six months in. That being said, based on the data, we are presently in a housing and auto recession. No doubt in my mind we will be in a full scale recession by the 4th quarter. The economy is simply treading water with exports and govt/service related jobs. The HEW is drying up as quick as the subprime is imploding. How much of our GDP was sustained by the house atm??

    I mentioned back in December, that those who had big profits, in stocks, may want to scale back or at least buy cheap protection. Guess what?? That protection is not cheap anymore.

  169. hobokenite says:

    AntiTrump:
    “I know that many on this board are now beginning to accept that we may have hit the bottom.”

    What makes you say that? I’m of the opinion that it’s just started.

    Bottom of the 2nd. Maybe top of the 3rd.

  170. njrebear says:

    http://images.bloomberg.com/r06/homepage/HP_NKY.png

    I have never watched foreign indexes closely. It looks like the Nikkei hasn’t changed in the last 1 hour of trading. Is this normal?

  171. Pat says:

    “I know that many on this board are now beginning to accept that we may have hit the bottom.”

    Your pulling my chain, right? Poll time. Whenever I see “many” I want the poll.

    How many think we’ve hit bottom with new home sales down 20% YOY with the mild winter we’ve had? That’s 20%, folks. Even if the lag in existing home sales only takes six months, come on. Bottom? Where’s that graph with the historical lag in existing?

  172. Pat says:

    hobokenite..yeah, that’s what I meant to say. You just typed faster. I’m old.

  173. James Bednar says:

    Ok, these HTTP 500 errors are driving me crazy.

    Anyone suggest a new web host company?

    jb

  174. SG says:

    I am finding lot of 500 error using IE7.

    The Firefox seems to work absolutely fine.

    New hosting: midphase.com

    I have few sites with them.

  175. Pat says:

    http://www.swivel.com/graphs/show/1001967

    That’s all I could find in support of my “Not at the Bottom” stance, due to my search freezing issue.

    We really do need a wiki so I can find the right graphs.

  176. James Bednar says:

    This guy gives a bad name to cyclists, not to mention owes the girl an apology.

    Bike-riding doctor sues roller-blading 11-year-old
    http://dailyrecord.com/apps/pbcs.dll/article?AID=/20070228/UPDATES01/702280420

    A bicycling doctor has sued his then-11-year-old rollerblading neighbor for pain and suffering after they collided on their Chester Township street in 2003.

    Their trial is under way in Morristown this week.

    Lauren Ellis was rollerblading down her street on a fall afternoon when she collided with an adult neighbor, a prominent fertility doctor, who was bicycling.

    Dr. Alexander Dlugi, now 54, sued the child, claiming she was negligent and caused the collision by reacting unreasonably when he approached her from behind on Sugar Maple Row, shouted “watch out” and rang his bicycle bell.

  177. James Bednar says:

    I’m going to work on getting the wiki up and running later this week.

    jb

  178. RentinginNJ says:

    Yup. It figures. Another cyclist mooching off the system!

    In all seriousness, the girl should have countersued. She probably would have been successful.

  179. RentinginNJ says:

    From CNBC…

    Asian markets were mostly lower in the afternoon session Thursday with both Japan and China extending losses.

    The Nikkei 225 Average were sharply lower, extending losses from the previous session’s sell-off, as investors continued to unload exporters such as Kyocera and Toyota Motor due to concern about U.S. economic growth. Investors were taking a cautious tack after U.S. stocks on Wednesday failed to make a strong rebound from the previous session’s rout.

    Japan’s Topix Index slumped in the previous session, falling to a two-year low. The decline wiped out 20.2 trillion yen ($170.6 billion) in shareholder value among stocks listed on the first section of the Tokyo Stock Exchange.

    China’s Shanghai Composite Index fell more than 3% at one point in the session, hit by renewed selling in financial blue chips after the companies’ Hong Kong-listed H shares performed poorly. It has since pared down some of the losses. Industrial & Commercial Bank of China, the most heavily weighted stock in the index, tumbled after its H shares dropped in Hong Kong the previous session. Hong Kong stocks were down with China Mobile leading the decliners among blue chips.

  180. RentL0rd says:

    jb, yahoo hosting sucks.

    I would atleast switch to dreamhost – they are one of the best discount hosting providers (I don’t have the link to the survey.. will pass it when I get it – it was on digg recently).

    SG, 500 errors are from the server, you may have just been lucky when you used FF and not got them.

    Also, jb, did you get my email on mediaWiki plugin? (sent a few days ago)

  181. lisoosh says:

    That lawsuit is the stupidist thing I have heard in a long time, it should have been thrown out. That doctor should be forced to pay all court costs, what a waste of the taxpayers money.

  182. RoadTripBoy says:

    A grown man on a bike suing an 11 year old girl on rollerblades??? Now I’ve heard everything.

    A bike is a vehicle and as such must obey the same rules as cars. Does a person on rollerblades constitute a “vehicle”? I would argue that she is still a pedestrian and therefore had the right of way, from a legal point of view.

    From a human point of view what sort of ass rides his bike that close/fast to a child on rollerblades??? there’s no question that as the adult (though I’m making a big assumption in calling him that) he was the negligent party.

    Geesshhh!

  183. Pat says:

    SG..here’s a relative’s anecdote for you. Railroad mgmt., wife at the time was a nurse. So pretty average folks.

    “We bought a house in …Roselle, which borders Cranford, Linden, Roselle park, and South Elizabeth. We were close to the Park and a block from Cranford..2 blocks from … who lived in Cranford.
    We bought the house in 1969 or 1970 and paid $23,500 for it. we sold it in 1980 to a Relocation company for about $48,000…”

  184. Clotpoll says:

    Grim-

    I’m also Firefox user. Never a problem…not once.

  185. bergenbubbleburst says:

    Bottom of the housing market? no its finally getting started, although it took longer Tna I would have thought, the actual decline and deteioration acrtoss the board has been swift.

    All who thibk this is the bottom, all ci an say is watch and learn grasshopper

Comments are closed.