New Jersey Real Estate Report

From Forbes:

Fed Expects Long Housing Slump

Gentle Ben is not the only central banker who is worried about housing. Based on the latest minutes of the policy-making Federal Open Market Committee, it seems that the entire panel thinks America’s real estate slump is going to persist for a while.

Minutes of the May 9 FOMC meeting, released Wednesday, encouraged investors to think that the central bank would not raise interest rates despite growing inflationary pressures in the U.S economy. Market sentiment has been shifting between predictions of a rate cut to bail out the housing sector and put some life into a flagging economy, and fears that inflation would force the central bankers to resume their campaign of interest rate increases, which was halted a year ago.
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Despite a weaker than expected housing market and a sluggish economy, officials remained focused on the “risk that inflation would fail to moderate as expected,” according to the minutes. “Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”

The committee expects core inflation to dip over the next two years, but the members were not incredibly confident that it was locked in a downward trend. While core inflation readings were “favorable” in March, with core personal consumption expenditure (PCE) prices, excluding energy, remaining unchanged, it followed multiple months of high inflation. “Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,” the minutes said.

With inflation worries fixed at center stage, it now seems highly unlikely that the FOMC will lower the federal funds rate from the current 5.25% this year, unless there is a major downturn in the economy — which the Fed does not anticipate.
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However, the economy’s rebound remains tied to the lumbering housing market. The subprime implosion has aggravated an already weak market by increasing the number of foreclosures, adding to a balloning inventory glut and prompting lenders to tighten credit standards.

“Recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected,” the minutes said.

From CBS:

Home Foreclosures On The Rise At The Jersey Shore

A cooling real estate market has lead to a tremendous amount of home foreclosures at the Jersey shore.

From April ‘06 to April ‘07, foreclosures nationwide jumped 65-percent.

Home foreclosures at the Jersey shore are up 110-percent over last year.

“I think it’s very similar to the dot.com boom,” Steve Brasslett, CEO of Ivy League mortgage said.

Brasslett said buyers who wanted to sell quick are in over their heads for several reasons.

“Every deal was a record breaker and then the market became saturated. Eventually it dropped and the door closed. Investors couldn’t sell homes for what they bought them for, so they were unable and had no intention of making mortgage payments,” said Brasslett.

A unit at Flagship Condos in Ocean City went back to the bank Wednesday at a Cape May County sheriff’s sale.

“The bank didn’t want to buy it back, but they have taken it back through foreclosure action,” foreclosure specialist, Adam Palmisciano said.

Mortgage brokers say homes of all shapes, sizes and prices are going into foreclosure. A brand new two-story home in Ocean City is up for foreclosure because more than half a million dollars was owed to the bank.

Brokers said homes were appreciating much more in the early 2000’s up to the summer of 2005 than they are today.

“By as much as 20 percent, that’s outrageous. It’s going back to moderate pace of appreciation by 4, 5 or 6 percent,” Brasslett said.

Adjustable rate mortgages offered by lenders also put buyers in a pinch because they offer payments they could afford at the time, but not since they have risen.

From Bloomberg:

Subprime Fiasco Exposes Manipulation by Mortgage Brokerages

Taher Afghani was working for discount retailer Target Corp. near San Francisco when friends told him about the riches to be made in California’s Mortgage Alley.

It was 2004, and the U.S. real estate market was on fire. Down in Southern California, a hub for lenders specializing in loans to people with weak, or subprime, credit, Afghani’s pals were making a fortune pushing risky mortgages on homebuyers. After tagging along with a buddy on a company trip to Los Cabos, Mexico, Afghani quit Target, headed south and began hustling loans at Costa Mesa-based Secured Funding Corp.

“I had never seen so much money thrown around in one weekend,” Afghani, 27, says of the Cabo getaway. “It was crazy. All these kids, literally 18 to 26, were loaded — the best clothes, the cars, the girls, everything.” Soon Afghani, who’d made $58,000 a year managing a Target distribution center, was pulling down $120,000.
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Afghani says sales pitches typically focused on what a borrower could do with all of that money rather than on fees buried in paperwork or annual interest rates as high as 10.5 percent at the time, at least 2 percentage points more than the rates that banks charge people with good credit.

“Even with explanations, most borrowers didn’t really understand what types of loans they were getting,” says Maureen McCormack, another former Secured Funding employee. “They just cared about the monthly payment.”

The sales job was made easier with exotic mortgages such as so- called no-doc loans, which enable borrowers to get loans without having to supply evidence of income or savings, and option ARMs, adjustable-rate mortgages that let people pick how big a payment they will make from month to month. The loans offer upfront teaser rates at the cost of tacking the deferred payments onto the balance of the loan.

“Heavy sales pressure has been part of the most-egregious lenders for a while,” says Kurt Eggert, a professor at Chapman University School of Law in Orange, California, who has studied the role of aggressive sales tactics in subprime lending and sued lenders on behalf of elderly borrowers caught up in home equity scams.
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Secured Funding’s success was fueled by sales leads generated by millions of pieces of direct mail and Internet trolling, Afghani and other former salesmen say. Typical of the direct mail was a credit card offer. When potential customers called to activate the card, they were instead hooked up with a Secured Funding account executive such as Afghani.

Afghani describes chaotic office scenes that recall “Boiler Room,” a 2000 movie about stock brokers at a Long Island wire house. To spur sales, Secured Funding broke its salesmen into color-coded teams.

“If you weren’t turning those calls into applications, they would drag you out and make your life miserable,” he says. “The turnover was unbelievable,” says Afghani, who says he watched eight people pass through the neighboring desk in seven months. “If you didn’t cut it right off the bat, you were just fired.”
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Afghani says he and fellow brokers dispensed with details about rates and fees and instead talked up how borrowers could use home equity loans to pay down other debts. “It was easier than financing a car,” Afghani says of getting a mortgage.

From the Wall Street Journal:

‘Subprime’ Aftermath: Losing the Family Home
Mortgages Bolstered Detroit’s Middle Class — Until Money Ran Out
By MARK WHITEHOUSE
May 30, 2007; Page A1

For decades, the 5100 block of West Outer Drive in Detroit has been a model of middle-class home ownership, part of an urban enclave of well-kept Colonial residences and manicured lawns. But on a recent spring day, locals saw something disturbing: dandelions growing wild on several properties.

“When I see dandelions, I worry,” says Sylvia Hollifield, an instructor at Michigan State University who has lived on the block for more than 20 years.

Ms. Hollifield’s concern is well-founded. Her neighbors are losing interest in their lawns because they’re losing their homes — a result of the recent boom in “subprime” mortgage lending. Over the past several years, seven of the 26 households on the 5100 block have taken out subprime loans, typically aimed at folks with poor or patchy credit.
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In 2006 alone, subprime investors from all over the world injected more than a billion dollars into 22 ZIP Codes in Detroit, where home values were falling, unemployment was rising and the foreclosure rate was already the nation’s highest, according to an analysis of data from First American LoanPerformance. Fourteen ZIP Codes in Memphis, Tenn., attracted an estimated $460 million. Seventeen ZIP Codes in Newark, N.J., pulled in about $1.5 billion. In all of those ZIP Codes, subprime mortgages comprised more than half of all home loans made.

The figures show the extent to which the new world of mortgage finance has made the American dream of homeownership accessible to folks in previously underserved communities. By some estimates, subprime lending has accounted for as much as half of the past decade’s rise in the U.S. homeownership rate to 69% from 65%. But as the experience of West Outer Drive illustrates, the flood of cash has also encouraged people to get into financially precarious positions, often precisely at the time when they were least able to afford it. In doing so, it may have temporarily alleviated — but ultimately worsened — some of the nation’s most acute economic problems.

“The market was feeding an addict at its neediest point,” says Diane Swonk, who spent 19 years analyzing consumer credit in the Midwest and now serves as chief economist at Chicago-based financial-services firm Mesirow Financial. “Individuals will resist reductions in their standard of living with everything in their power, including mortgaging their futures.”

From Bloomberg:

U.S. MBA’s Mortgage Applications Index Fell 7.3% Last Week

Mortgage applications in the U.S. last week fell by the most in four months as higher borrowing costs discouraged filings for home purchases and refinancing.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan fell 7.3 percent, the most since the week ended Jan. 19, to 636.4. The group’s gauge of purchase applications fell 2.5 percent and a measure of refinancing dropped 13 percent.

The highest mortgage rates in seven months may have discouraged refinancing and kept buyers on the sidelines as they waited for home prices to fall. The report, along with figures showing a rise in mortgage defaults among subprime borrowers, suggests housing will continue to weigh on economic growth.

“We’ll probably have another leg down in terms of the ripple effects on the economy from housing,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “There’s still an awful lot of inventory, and that’s going to apply downward pressure on prices.”
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The mortgage bankers’ purchase index fell to 427 last week from 438.1 the previous week.
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Prices are responding to lower demand and an excess supply of unsold homes. House prices dropped 1.4 percent last quarter compared with the same period last year, the first decline in almost 16 years, according to a report yesterday by S&P/Case- Shiller.

Still, lower prices haven’t been enough to jumpstart home sales. Combined sales of new and existing homes last month fell to 6.971 million, a four-year low.

From the Herald News:

Middle class workers earning less than previous generation

At age 18, Joe Rocco proudly followed his father in hoisting steel beams and digging foundations. Construction was the ticket to a good salary, benefits and a comfortable lifestyle, his father told him.

And for a while, it was. Rocco bought a five-bedroom house in Whippany and cars that included a 1969 Firebird. But the good life didn’t last. A combination of divorce and the drying up of well-paying construction jobs in recent years forced Rocco to shed the house, then the cars. He finally moved back in with his father in Little Falls and took a job folding T-shirts.

Rocco once earned $27 an hour plus overtime. Now, he earns $10 hourly.

“How can you take care of everything for $10?” asked Rocco, now 44, as he stuffed green sweatshirts into boxes on Tuesday at Falls Screen Printing in Little Falls. “My phone bill is over $130 a month. I have a 12-year-old daughter to take care of. It’s not enough.”

The cornerstone American creed that each generation can do better than the previous one is no longer a safe assumption, according to an analysis of Census income data. Earnings for individuals, specifically men, have fallen dramatically between 1974 and 2004.

Average salaries for men in their 30s went from about $40,000 in 1974, to $35,000 in 2004 in income-adjusted dollars, a drop of about 12 percent.

For some, like Joe Rocco and his father, Rudy, the gap is greater.

Average household incomes grew between 1974 and 2004, primarily because more women took jobs. But the rate of that growth slowed since the 1990s, causing researchers to wonder about the health of the American middle class.

“This really challenges the national attitude in ways that we haven’t had to deal with before,” said John E. Morton of the Economic Mobility Project, a bipartisan coalition of researchers.

From MarketWatch:

U.S. home prices fall for first time in 15 years

U.S. home prices fell 1.4% in the first quarter compared with a year earlier, the first year-over-year decline since 1991, according to the S&P/Case-Shiller home price index released Tuesday. A year ago, home prices were rising at an 11.5% pace. The 10-city price index fell 1.9% year-on-year through March, while the 20-city index dropped 1.4%. Thirteen of 20 cities have seen falling prices in the past year, led by Detroit and San Diego. Home prices rose 10% in Seattle. The national decline “is reaffirmation of the pullback in the U.S. residential real estate market,” said Robert Shiller, chief economist for MacroMarkets LLC, and co-inventor of the index.

From Bloomberg:

S&P/Case-Shiller Home Prices Fell 1.4% in March, Index Shows

Declines in home prices in 20 U.S. metropolitan areas accelerated in the 12 months ended in March as the supply of homes exceeded demand, a private survey showed.

Home values dropped 1.4 percent from March 2006, after declining 0.8 percent in the year ended February, according to a report today by S&P/Case-Shiller.
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Nationally, home prices also fell 1.4 percent in the first quarter from the same period last year, the fist decline since 1991.

The March index covering transactions in 20 metropolitan areas, showed home prices dropped 0.3 percent from a month earlier, following a 0.4 percent decline in February. The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month to month.
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S&P/Case-Shiller’s 10-city composite index, which has a longer history, decreased 1.9 percent in March from a year earlier.

From Bloomberg:

To the Barricades! Property Taxes Spur Revolts

When it comes to property taxes in the U.S., often you are blessed and cursed.

In a rising market, the local assessor will raise his estimate of your home’s worth, which usually results in a higher real-estate tax bill. Your property taxes, particularly in a high-growth area, then pay for new schools, fire and police stations and other public services.

Yet the price of growth can be burdensome when property taxes outpace the rate of consumer inflation or income growth. Anyone who lives in New Jersey, Florida, Illinois — or any area where real-estate values have jumped dramatically — can attest to this often negative reality of homeownership.

Tax revolts from North Dakota to Florida have proven one thing: If you lower the local tax bill, you still need revenue from other sources. You end up swapping one levy for another.

Nowhere has the burden incensed more taxpayers than in New Jersey. The state has the dubious honor of having the highest property-tax bills in the country, averaging $6,300 last year, a 7 percent increase over 2005.

After years of citizen activism in New Jersey, a recent proposal called for a 20 percent reduction in property taxes in exchange for higher state sales taxes, estimated to cost the average household an additional $275 a year, according to Citizens for Property Tax Reform, a state taxpayers group.
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“This is neither relief nor reform,” says Cy Thannikary, chairman of the Allentown, New Jersey-based group, which claims to represent 500,000 homeowners and 57 community organizations. “The reduction is not constitutionally guaranteed.” The Garden State collected almost $21 billion in property taxes last year where local levies are twice the national average.

Homeowners just can’t keep up with property-tax increases in many states. From 2000 to 2004, personal income grew almost 16 percent while property-tax collections increased about 28 percent, according to the Tax Foundation, a Washington-based educational organization.

That’s why tax revolts have spread across the country and are gaining momentum.

From the Chicago Tribune:

No housing slump in reality TV ratings

The sagging housing market makes for good television.

Apparently it doesn’t matter that annual rate of home sales nationwide are down 10.7 percent: The real estate boom is alive and well on cable TV.

The networks have crafted entertainment out of fluffing up homes for sale, chronicling the travails of amateurs trying to flip houses for profit or tagging along with realty agents as they angle for a listing.

“Even with the slowing housing market, it doesn’t take away people’s interest,” said Frances Berwick, executive vice president of programming and production for Bravo, which has two titles in the works. “If anything, it makes people slightly more crazy about following it.”

And the real estate obsessed can choose from at least two dozen shows. From “Property Ladder” to “Flip This House” (not to be confused with “Flip That House”) to “National Open House,” the list is long and getting longer.
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And the winding down of the housing boom makes no difference.

“As the market changes, as people become more concerned about their investment or their ability to attain their dream home, the more they want info,” Sykes said.

“The programs are somewhat marketproof,” agreed StarLink executive Miraj Parikh, who said the shows’ appeal swings both ways. When housing was flying, viewers watched to snoop on how many multiple offers the other guy got, he said.

“In a marketplace like we’re in right now, maybe it’s harder to sell your house,” he said. “[The viewer is] using these programs as a benchmark of whether the market is good again.”

But in real estate TV, as in real life, happy endings are no longer guaranteed.

Ralph and Nancy Baumel have learned both lessons. Extremely frustrated when, after nearly a year on the market, their Park Ridge home’s “for sale” sign seemed to be a permanent fixture, they wrote to HGTV’s “Designed to Sell.”

The show this month sent in a designer with $2,000 for materials and a construction crew to make over their living room and conduct an open house.

The couple like the changes but, unlike the outcome typically depicted on the nightly show, no buyer materialized. Still, the Baumels weren’t particularly surprised.

“They say [on the show] they have multiple offers, and they’re above the asking price” because of the makeover, said Ralph Baumel. “I think that if this was an active market, maybe that would be possible. We were just doing it because we were asking ourselves, ‘What can we do to get a leg up on this horrible market?’ “

From Newsday:

Corzine: Maybe a gas tax hike, someday

New Jerseyans tend to pay the nation’s cheapest gas prices thanks largely to low gas taxes, but Gov. Jon S. Corzine is warning that the tax may have to go up someday to help pay for mass transit and highway needs.

The state hasn’t increased its 14.5-cent-per-gallon gasoline tax since 1988, giving it the nation’s third lowest gasoline taxes.

Corzine emphasized he’s not proposing any increase now.

But he said an increase will need to be considered as the state looks to meet mass transit and highway improvements amid mounting state debt.

“It’s certainly something we have to take into consideration in regard to our transportation capital needs and financial needs for mass transit in particular, so we’ll review that,” Corzine said.

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From the St. Petersburg Times:

After the bubble bursts
By DONG-PHUONG NGUYEN

Marc Stern was a commercial airline pilot for 29 years. In 2005, the year homes sold in a day and buyers lined up at the door, Stern did what lots of career professionals did: He ditched his occupation to sell real estate.

He set up shop in the manicured suburbs of New Tampa. In similar communities across the bay area, real estate agents were making a lot of money, and those who had toyed with career changes took the plunge.

As a result, agents popped up almost as quickly as homes were selling. Now, they’re dying under the collapse of the real estate bubble. Some who left their longtime professions are either going back to their old lives or finding different ways to stand apart from the rest of the crowded realty field.
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“Houses are on the market for more days, and the inventory is growing, ” Fuentes said. “I imagine many of our members who have other careers will go back to them and sell real estate part time.”
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Stern, who never fully left the airline business “because pilots like to have a backup, ” is glad he didn’t walk away. He had sold real estate for 10 years, in addition to flying, before making it his full-time job during the boom.

“We’re making less money now, ” he said. “We hope and pray that the market turns by next year. Obviously, having a another career as a backup is always good.”

From NorthJersey.com:

Public to get a clearer view of N.J. budget
By ADRIENNE LU

For the first time in recent history, state lawmakers will be required to attach their names to eleventh-hour budget appropriations — ending the anonymous system that last year added more than $300 million in spending.

New rules such as posting budget requests on the Internet will make the process more open, supporters say, as long as the regulations work as intended.

Public hearings will also be held after the requests have been added, unlike in years past when even most legislators didn’t get a chance to read the complete budget until after they voted for it.

Lawmakers hope the changes will make the budget process more transparent, prompted in part by a federal probe into pork-barrel spending, also known as “Christmas tree” grants.
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Also for the first time this year, lawmakers will be required to indicate in requests for additional funding whether they or any family members, including spouses, receive any compensation from the recipient.

Another key change will be in the time frame for the negotiations. In previous years, lawmakers struggled to meet the statutory deadline of completing the budget by June 30, which often meant budget drafts being released in the wee hours of the morning.

This year, legislators hope to have drafts finished a few weeks before the deadline, to allow everyone adequate time to read and understand the documents and for time for public hearings.

From the NY Post:

BIG GARAGE SALE
HOUSING MARKET COLLAPSE ATTRACTS BARGAIN HUNTERS
By PAUL THARP

Clint Eastwood’s gunslinger character who steps over corpses of bad guys and then spits - “Even vultures gotta eat.”

In the case of the collapsing housing market, vultures are circling for an economic feast, but they aren’t necessarily the bad guys.

Investors of all stripes are snapping up distressed assets and foreclosed properties, ranging from four-bedroom homes and mini-malls to trashed Wall Street mortgage bonds, eyeing double-digit returns on their new bets.

Some wage earners are tapping into IRA nest eggs to plow their cash into a foreclosed home or two as a safe investment, buying at steep discounts of up to 20 percent in Sun Belt towns of Florida and California.

“We’re seeing more investors from the mainstream - single guys, dentists, women executives - all looking to build up portfolios with real estate while it’s cheap,” said Dave Webb, a principal at Hudson & Marshall, the nation’s largest auctioneer of foreclosed homes.

“It’s a tidal wave,” Webb said, adding that his database of buyers, who also do a third of their deals online, has swelled many times over to more than 200,000 individual investors.

He said many are day-trader refugees from stock volatility. “They’re going back into investments they can put their hands on. If you buy right and hold for the short term, it’s probably going to be good for 10 percent, probably more.”

His auctioneers sell more than 1,000 homes a month as they race from city to city hard hit in the meltdown of subprime mortgages, where homeowners with shaky credit and limited incomes are going into default at record levels. In Detroit alone, the auctioneers sell nearly 200 a month.

Auctions could double in 2008 as more homes wind through the eight-month foreclosure process. Foreclosure filings in the first quarter of 2007 surged 35 percent to 437,489 from a year earlier, said Realtytrac.

From the Herald News:

Towns worry open space funds may be limited
By ASHLEY KINDERGAN

If state funds for environmental preservation are allowed to dry up next year, the burden of creating and maintaining green space will fall to counties and municipalities, local officials said.

Passaic County and municipal officials said recently that they are concerned about a debate in Trenton about how to continue paying for preserving open space. The Garden State Preservation Trust, which provides money to municipalities and nonprofit organizations to preserve open space, farmland, and historical sites, is set to run out of cash after fiscal year 2008 unless state officials restore funding.

Municipalities typically rely on state and county grants to supplement their own funds when making major improvements to or purchasing open space. Without state money, local governments worry about their ability to continue preserving land without hitting taxpayers harder in the wallet.
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If the state is not able to cough up cash, officials fear the burden would fall heavily onto the county’s Passaic County Open Space and Farmland Preservation Trust Fund. The fund uses county tax revenues and gave out $1.7 million this year.

Kathleen Caren, county open space coordinator, worries that those communities will begin to ask for more from the county if the state can no longer provide funds.
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The fund was designed to last 10 years, and the money will run out in July of next year. Many politicians and environmentalists have lobbied for a referendum this November that would ask the public to approve a $175 million bond sale to be paid back by sales tax revenue. But Gov. Jon S. Corzine has said that though he wants to fund the program, he does not want to do so by increasing bond debt or using sales tax revenue.

This year, the fund has $155 million left, of which $40 million has been allocated for open space; $69 million to farmland preservation; and $6 million for historical site preservation, Siegel said.The Green Acres staff is still reviewing how to allocate the remaining $45 million, Siegel said. The proposed 2008 state budget includes $25 million in additional money. The total is still less than has been spent in previous years.