New Jersey Real Estate Report

Today’s Comp Killer* comes to us from Essex Fells, NJ.

This home was purchased in June of 2006 for $2,700,000:

GSMLS# 2205254- 15# Oval Road, Essex Fells NJ
List Date: 11/17/2005
Original List Price: $2,950,000
Purchase Date: 05/03/2006
Purchase Price $2,700,000

It returned to market a bit more than a year after it was purchased:

GSMLS# 2418069
List Date: 06/18/2007
Original List Price: $2,795,000
Sale Date: 10/29/2007
Sale Price: $2,500,000

In Summary:

Purchased: 05/03/2006
Purchase Price: $2,700,000

Sold: 10/29/2007
Sale Price: $2,500,000

Commission: 4.5%
Post commission: $2,387,500

Estimated Loss > $313,000
Estimated Loss > 12%

* Note: Not all properties featured in Comp Killer would be used as comps in the case of a formal appraisal. Short-sales and foreclosures, because of their pressured nature, are not typically used as comp sales for an appraisal. In typical mark-to-make believe fashion, appraisers don’t consider ‘forced’ sales to be representative of the market.

From NorthJersey.com:

N.J. to vote on tax relief funding

Voters will get to decide whether to amend the state constitution to dedicate one cent of the state’s 7 percent sales tax to property tax relief through a ballot question next week.

The measure is expected to pass easily, which would mean that more than $1.4 billion in sales tax receipts will be dedi- cated to property tax relief annually.
…
Another critic is Jon Shure, president of New Jersey Policy Perspective. He argues that dedicating sales tax money for property tax relief limits the state’s ability to deal with future budget needs, takes away money that could otherwise be used to reduce the structural deficit and puts off the comprehensive restructuring of state and local taxes that New Jersey really needs.

“Dedicating revenues is one thing that got us into this mess,” Shure said. “It sounds like such good policy … but it really is a way of avoiding tough decisions and when you add them all up over time, they have contributed to the state’s fiscal mess.”

“The purpose of the state budget process is to determine priorities,” he added. “How does the state set priorities if it’s dedicating this and that, avoiding hard discussions about what we really need and how we can pay for it?”

Bogota Mayor Steve Lonegan is campaigning against the ballot question with lawn signs, bumper stickers and media appearances.

Lonegan agreed that the state should not be diverting money away from addressing the structural deficit. He also feels the underlying statute, which calls for one percentage point of the sales tax to be spent on property tax relief, but not necessarily rebates, is “vague, ambiguous and misleading.”

Last year, Corzine and legislative leaders fought over the sales tax increase, with Corzine arguing in favor of it as a way to close the budget gap and lawmakers against it. The disagreement led to a weeklong shutdown of state government.

 

From Bloomberg:

S&P/Case-Shiller Home Prices Fell 4.4% in August, Index Shows

Home prices in 20 U.S. metropolitan areas were down from a year earlier for an eighth straight month in August, a private survey showed today.

Values dropped 4.4 percent in the 12 months ended August, the most since records began in 2001, according to the S&P/Case- Shiller home-price index.

More lending restrictions and higher mortgage costs are prolonging the housing slump, now entering its third year. Near- record inventory levels suggest sellers will continue to feel pressure to lower prices in coming months.

“Buyers have the upper hand, given the massive overhang of homes for sale,” Lehman Brothers Holdings Inc. senior economist Drew Matus said in a note to clients. “Since buyers generally expect prices to continue to fall, they will likely wait to purchase. We expect home prices to continue to fall.”

Economists forecast the gauge would decrease 4.2 percent, according to the median of 11 estimates in a Bloomberg News survey.

The group’s 10-city composite index, which has a longer history, dropped 5 percent in the 12 months ended in August, the most since June 1991.

Compared with July, home prices in the 20-city index fell 0.7 percent after a 0.4 percent decline the month before. The figures aren’t seasonally adjusted, so economists prefer to focus on the year-over-year change.
…
“The fall in home prices is showing no real signs of a slowdown or turnaround,” said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, in a statement. “There is really no positive news in today’s report.”

From S&P:

Further Weakening in Home Prices According to the S&P/Case-Shiller® Home Price Indices

Data through August 2007, released today by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices, the leading measure of U.S. home prices, show further declines in the prices of existing single family homes across the United States, marking the 8th consecutive month of negative annual returns and the 21st consecutive month of decelerating returns.
…
“At both the national and metro area levels, the fall in home prices is showing no real signs of a slowdown or turnaround,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Year-over-year and monthly price returns are continuing to either move deeper into negative territory or are experiencing persistent diminishing returns. There is really no positive news in today’s report, as most of the metro areas are showing declining or vanishing returns on both an annual and monthly basis. Only two metro areas – Denver and Detroit – showed improvement in their annual returns and even those were reports of slightly less negative numbers.”

The S&P/Case Shiller Home Price Indicies are due out at 9:00am this morning. These indicies are quickly becoming the standard for measuring home price movement in the areas that are tracked. S&P/Case Shiller seems to be a bit more respected than the Realtor data, mainly because it is provided by an unbiased third-party, Standard and Poors. Likewise, it is gaining share on OFHEO, due to the numerous limitations caused by the OFHEO methodology.

For those interested in the methodology behind the S&P/Case Shiller Home Price Indicies:
S&P/Case Shiller HPI Index Methodology

An executive review for those who don’t particularly care about the methodological details:
S&P/Case Shiller HPI Factsheet

The last S&P/Case Shiller HPI release on September 25th:
Summer Swoon Evident in the S&P/Case-Shiller® Home Price Indices

As well as the historical dataset:
September 25, 2007: Historical Values

Today’s Comp Killer* comes to us from Mahwah, NJ.

This townhome was purchased in December of 2005 for $616,000. The purchaser likely thought they were getting a “good deal” as the purchase price was significantly under the original $669k asking price:

NJMLS# 2023707 - 13# Day Ct, Mahwah NJ
List Date: 9/1/2005
Original List Price: $669,000
Sale Date: 12/8/2005
Sale Price $616,000
DOM: 99

It returned to market a bit more than a year after it was purchased:

NJMLS# 2701797
List Date: 1/13/2007
Original List Price $639,888
Reduced to: $616,000
DOM: 183
Expired

Relisted as NJMLS# 2737184
List Date: 9/11/2007
Original List Price: $599,000
Reduced to: $587,000
DOM: 49
Active

In Summary:

Purchased: 12/8/2005
Purchase Price: $616,000

Currently For Sale
Asking Price: $589,000

Commission: 5%
Sale at current asking, post commission: $560,000

Est. Dollar Loss: ~$56,000
Est. Nominal Loss: ~9%
Est. Real Loss: ~14%

* Note: Not all properties featured in Comp Killer would be used as comps in the case of a formal appraisal. Short-sales and foreclosures, because of their pressured nature, are not typically used as comp sales for an appraisal. In typical mark-to-make believe fashion, appraisers don’t consider ‘forced’ sales to be representative of the market.

From the Record:

Is open space worth $200M?

Should New Jersey borrow $200 million to preserve open space at a time when the state is $33.7 billion in debt?

That’s the question facing voters on Election Day next week. Conservationists say that despite the Garden State’s financial crunch, the answer is yes.

“Open space, because of real estate prices, is not going to get cheaper,” said Eugene Reynolds of the non-profit Passaic River Coalition. “If we don’t act now, when we can preserve this land, efforts to preserve it down the road are going to be that much harder and more expensive.”

Ballot Question No. 3 would generate $109 million for open space and park development, $73 million to preserve farmland, $6 million for historic preservation and $12 million to acquire flood-prone properties along the Passaic, Raritan and Delaware rivers and their tributaries.

The $200 million — which would last a year — would come from state-issued bonds, which would be paid back within the next 30 years from existing revenue sources.

The most vocal opposition to Question No. 3 has come from Bogota Mayor Steve Lonegan, whose group, Americans for Prosperity, has launched an advertising campaign on several radio stations to oppose all four initiatives on the state ballot.

“The state already has a staggering debt load,” said Lonegan, adding that it would be financially irresponsible to increase that debt to buy open space. The conservative Republican’s group also opposes the use of eminent domain to acquire public land, and says that too much of the money is spent in administrative costs.

The Garden State Preservation Trust, created in 1998 with a $2 billion nest egg, is virtually broke. Governor Corzine and the Legislature, unable to agree on a permanent source of money to replenish the fund, agreed last summer to let voters choose whether they want to keep it afloat for another year in the meantime.

From NY Magazine:

The Catastrophist View

Peter Schiff is laughing at me. I’ve just asked him to entertain the following notion: that we dodged a bullet during August’s financial-market turmoil and, with the stock market bouncing right back from every dip, things might be okay. So why worry?

He stops laughing. “Why worry?” he asks. “Because we dodged a bullet but are about to step on a hand grenade.”

Sitting in a corner office of a nondescript building just off I-95 in Darien, Connecticut, Schiff, the president of brokerage Euro Pacific Capital, will spend the next hour spelling out a singularly pessimistic view of the American economy. And he will do so while exhibiting a curious juxtaposition unique to the bearish prognosticator: He speaks of disaster with a smile on his face. No, he’s not happy about our impending doom. But he is happy that people are finally taking him seriously.
…
THREAT NO. 1
The Bottom Continues to Fall Out of the Housing Market
…
Manhattan’s gravity-defying real estate aside, it’s quite clear the nation is experiencing a genuine housing crisis. In August, pending home sales dropped 6.5 percent, and they currently sit at their lowest level since 2001. The National Association of Realtors conducted a recent survey that showed more than 10 percent of sales contracts fell through at the last moment in August, primarily owing to disappearing loan commitments from banks. The crisis will only deepen, when more borrowers see their adjustable-rate mortgages adjusted upward. There was a foreclosure filing for one of every 510 households in the country in August, the highest figure ever issued, and by one estimate, more than 1.7 million foreclosures will occur in the country by the end of 2008. That’s not just subprime borrowers: According to the Federal Housing Finance Board, while nearly 35 percent of conventional mortgages in 2004 used ARMs, some 70.7 percent of jumbo loans—those above $333,700 (the jumbo threshold in 2004; it’s now higher)—did too.
…
Hedge-fund veteran Rick Bookstaber, the author of A Demon of Our Own Design, spells out a potentially disastrous scenario that could unfold regardless of what the Fed does: Continued foreclosures result in a further drop in housing prices, which results in further foreclosures, which result in a further drop in housing prices. Even for those of us not selling, reduced home values result in a reduced sense of security, which results in reduced consumption, which results in a slowing economy, which … you get the point.
…
THREAT NO. 2
The Derivatives-Related Meltdown, Part II
…
Each time one of these write-downs has been announced, the market has had a curiously positive response, taking the news as a sign that the worst was over and the banks were cleaning up their books. But because these derivatives are linked to other debt, there’s no reason to be certain that trouble won’t bleed into other markets. Among other things, the liquidity crisis froze the market in structured investment vehicles (SIVs), a nifty bit of financial engineering that banks use to profit from the spread between short-term debt and long-term debt. No one yet knows how nasty these losses could turn out to be because SIVs are stashed, Enron style, off the books.
…
THREAT NO. 3
Consumers Run Out of Steam (and Take the Economy Down With Them)
…
The willingness of consumers to keep spending and piling on debt in the midst of a slowing real-estate market is hailed on Wall Street as an act of patriotism, which Schiff considers perverse. Imagine, he suggests, that you ran into a good friend and asked him how he was doing. His reply: “I took out a third mortgage, maxed out my credit cards, and emptied out my kids’ college savings account so I could buy a bigger TV and a new car, and we’re going to Greece on vacation over the holidays. Things are great!” Schiff lets the idea sink in and then finishes the thought: “And we’re celebrating the fact that we’re doing this as a nation?”
…
THREAT NO. 4
That the Rest of the World Decides They Don’t Need Us and the Dollar Tumbles Hard
…
The dollar is falling, possibly collapsing, depending on whom you talk to. The greenback has sunk close to its lowest point in the post-1973 floating-exchange-rate era, so low that it’s been overtaken by the Canadian dollar—affectionately known as the loonie—for the first time since 1976. How low will it go? When Alan Greenspan was asked by Lesley Stahl of 60 Minutes last month what currency he’d like to be paid in, his response was telling: “[The] key question … is, ‘In what currency do you wish to hold your assets?’ And what I’ve done is I diversify.” Translation: He isn’t betting on the dollar. And neither is the majority of Wall Street.
…
THREAT NO. 5
That We Don’t See It Happening Because It’s a Slow-Motion Train Wreck

From the Philly Inquirer:

Raising gas tax can benefit N.J.

After the deadly collapse two months ago of a bridge in Minnesota - a span strikingly like New Jersey’s iconic Pulaski Skyway in its construction - the state Department of Transportation found that more than one-third of New Jersey’s bridges are either “structurally deficient” or “functionally obsolete.” The price tag to repair or replace them: an estimated $6 billion to $8 billion over the next decade.

Attending to this pressing need will, of necessity, be a high priority for the Corzine administration and the Legislature in the months ahead. And the discussion of how to foot the bill will almost certainly center on the governor’s long-awaited “asset monetization” plan to sell or lease state resources, including the New Jersey Turnpike.

There is another, more immediate revenue source that could be tapped to pay for these essential repairs. In the short term, it’s stable, easy to collect, and may be passed along to large numbers of out-of-state residents. In the longer term, it may also be an instrument for achieving several societal goals, including reducing greenhouse gas emissions, promoting energy independence, and curbing suburban sprawl.

It is, of course, the gasoline tax.

On average, New Jersey has the lowest retail gasoline prices in the United States. This is attributable primarily to the fact that New Jersey last raised its gas tax 19 years ago, and now has the third-lowest levy in the nation at 10.5 cents a gallon; only Alaska and Georgia are lower.

Raising the gas tax would have two direct benefits. First, it would provide immediate funds to repair those crumbling bridges. Second, it would, over time, encourage people to drive less.

To make it both fair and politically feasible, the tax would have to be raised incrementally. In the short term, the demand for gasoline is relatively inelastic. A large, immediate tax hike would place a heavy burden on many consumers, who aren’t likely to respond by going out tomorrow and buying hybrid vehicles or moving to a house near a train station. Marginally raising the tax would encourage drivers to do small things to decrease their driving - planning their trips more efficiently, taking care of several errands at once, walking or riding a bike for some short-distance trips.
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Any increase in the gas tax is bound to be unpopular. No one likes paying higher taxes, especially for a product that most people use every day. The irony is that we already pay a heavy price for our automobile dependency. Congestion, pollution, sprawl, even obesity can be linked directly to policies that favor driving over other means of transportation. An increased gas tax, phased in over time, can help change that equation and, more immediately, get those bridges fixed.

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

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

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

From the Record:

Area housing slump echoes earlier slide

House prices soar for years, until even small starter homes are out of reach for first-time buyers. The air seeps out of the real estate market, and property sales — and prices — drop.

Sound familiar? That scenario could be describing the housing market of this decade — or an earlier market cycle that took place in the 1980s and early 1990s.

Looking back at that earlier downturn offers clues to how this cycle will play out. One lesson: Housing slumps can last a long, long time.

“Economic wild parties are followed by prolonged economic hangovers,” said James Hughes, a Rutgers economist who follows the New Jersey housing market. “Anytime there’s a sharp run-up like that, you’re going to have to have a correction.”
…
In the 1980s, house prices rose rapidly as baby boomers began forming households and buying homes. At the same time, New Jersey was shedding its old identity as a manufacturing economy and creating thousands of new, well-paid white collar jobs as pharmaceutical and telecom industries flourished.

From 1980 to 1988, home prices rose 145 percent in the state, Hughes said. Then, around 1988, prices began to fall.

A recession that began in 1990 deepened the housing slump. For New Jersey, it was the worst economic downturn since the Great Depression, costing the Garden State 250,000 jobs and bumping the unemployment rate to 8.5 percent in 1992.

“That reduced housing buying power significantly,” Hughes said.

House prices in the state declined 8 percent from 1988 to 1992 before turning up again. But it took until 1998 before houses returned to the peak of 1988, Hughes said. And if you adjust for inflation, it took until 2002 for house prices to recover to their 1988 levels.
…
Overall, from 1998 to 2006, home prices in New Jersey rose 135 percent — almost as much as in the earlier boom, Hughes said.

As prices rose and houses became less affordable, lenders began offering exotic mortgages, such as interest-only, no-money-down and no-income-verification loans. Many of these products were aimed at subprime borrowers — buyers who couldn’t get mortgages in the mainstream market.

“The floodgates opened up,” said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains company that follows the mortgage market. “Many, many people who normally couldn’t jump into the fray did jump into the fray.”

But many of them jumped in with mortgages that were time bombs. The loans started out with reasonable interest rates that would adjust upward — way upward — in later years. Now some of those buyers are having trouble paying their loans. That situation is expected to worsen, as mortgage interest rates continue to ratchet higher on many loans over the next couple of years.
…
Since the peak of the market in late 2005, house prices in the state have declined by 5 percent to 10 percent, depending on location and other factors. High-end houses costing $1 million or more, in particular, seem to be languishing.

“If you bought two years ago, you’re going to sell for less than you paid,” said Jeffrey Otteau of the East Brunswick-based Otteau Valuation Group Inc.

Not all towns have suffered equally. Otteau said that the towns that have held more of their value include those in easy commuting distance of New York City, including much of Bergen and Hudson counties.
…
But most housing analysts predict there won’t be a rebound before 2009 at the earliest — and some say it will be 2011. That’s good news for buyers, but tough on sellers and businesspeople who depend on a robust real estate market.

“While there are some bright spots, for the most part it’s a bit gloomy,” Otteau said. He predicts prices in New Jersey to be down 7 percent for this year and 4 percent for next year.

And if there’s an economic downturn, housing will be even harder hit.

“If there’s a recession in 2008, all bets are off for housing,” Otteau said. “It would be a collapse.”

From the AP:

Analysts: Housing pain to worsen

The current housing slump, which began in late 2005, probably has another year to go before things turn around. Before it is over, home prices — which soared during the boom years — will probably have fallen by the largest amount in any downturn in the post World War II period.

The problems in housing have been a serious drag on the overall economy — slashing more than a full percentage point off growth in some quarters. And those adverse effects will get worse in coming months, many private economists believe, reflecting the fallout from the severe credit crunch that hit in August.

The betting is that the overall economy will be able to avoid a recession, but that it will be a close call, with the point of maximum danger still ahead.

“I think the housing market has got another year of very weak sales, falling construction and lower home prices. And all of that assumes that the economy holds together reasonably well and we don’t have a recession,” said Mark Zandi, chief economist at Moody’s Economy.com.

The biggest worry is that mortgage financing problems will grow even more severe, with soaring defaults dumping more homes onto an already glutted market, driving prices down further.

In a new report, the Joint Economic Committee estimates there will be 1.3 million foreclosures from mid-2007 through 2009 in subprime mortgages, loans provided to borrowers with weak credit histories.

Those foreclosures will wipe out an estimated $71 billion in housing wealth directly and an additional $32 billion indirectly by lowering the values of neighboring homes, according to the report by the JEC’s Democratic staff. The report predicts that will end up costing states $917 million in lost property tax revenue through the end of 2009. The states of California, New York, New Jersey and Florida are expected to be among the biggest losers.

From the Asbury Park Press:

Outlook bad, but not terrible

Expect at least another 18 months for the state’s economy to heal from the bursting of the subprime mortgage bubble. But demand for homes could start to creep up again in six months.

That’s the forecast of Joel Naroff, chief economist for Commerce Bancorp, who spoke to about 75 people at an Ocean County Business Association luncheon here Thursday.

“Really, it’s the issue driving a lot of the factors causing the economic problems in the country and local areas,” Naroff said.

Since mortgage lenders started overextending themselves by handing out loans to people who couldn’t afford to pay them off, the housing crisis has been working its way through a corrective cycle, Naroff said.

We’re in a sellers’ denial phase, in which homeowners are reluctant to sell based on a false hope that the price will go up, he said.

“We’re beginning to see a softening as prices come down,” he said. “But they’re not coming down nearly enough, because sellers can’t come to terms with dropping prices enough to clear the market.”

The median sale price for an existing single-family home in Monmouth, Ocean, Middlesex and Somerset counties was $385,100 in the second quarter of 2007, down 0.1 percent, or $200, from $385,300 in the same quarter last year, according to the National Association of Realtors.

Once prices become sufficiently low, the next phase kicks in: buyers’ denial, in which those looking to purchase wait on the hunch that the prices will continue to fall.

A glut of homes will be left on the market, a lot of supply with little demand. The next phase is working off the inventory brought on by foreclosures.

“What that tells you is this cycle has a very long time to run its course. How long depends on the specific market,” Naroff said. “But nationally, I’ll not be surprised to see problems into spring 2009.”
…
“I think 2008 should be a sluggish year, but not a terrible year,” Naroff said. “I see a cautiousness, not a recession.”

In the meantime, as banks and the government realize the error of their capricious lending behavior, New Jersey is experiencing a credit crunch.

“So when you came into a financial institution in June and they said, “OK, we’re willing to take a risk with you,’ now they won’t even look at you,” Naroff said.

Such a reversal to caution has stunted business growth. This is compounded in New Jersey by a series of financial hangups — particularly a state budget deficit competing with pressure to lower taxes — that won’t allow it to invest, as other states have, in an infrastructure that generates commercial prosperity, Naroff said.

Business owners at Thursday’s luncheon said they have witnessed this stagnancy.

From the Wall Street Journal:

With Buyers Sidelined, Home Prices Slide
Tighter Credit, Anticipation of Further Declines Add To Worst Glut Since Late ’80s; the Foreclosure ‘Fear Factor’
By JAMES R. HAGERTY
October 25, 2007; Page D1

So many houses. So few buyers.

Home builders are slashing prices, often by more than 10%. Some people who list their homes on Craigslist.org admit they are “desperate” to sell. Inventories of unsold homes are at the highest level in nearly two decades, providing plenty of choices.

Yet a severe tightening of credit by mortgage lenders is keeping many buyers out of the market, while the huge supplies of homes for sale have persuaded others that they can wait for further price cuts.

The National Association of Realtors reported yesterday that sales of previously occupied homes in September dropped 19% from the same month a year ago to a seasonally adjusted annual rate of 5.04 million units. The trade group blamed disruptions in the mortgage market.

Meanwhile, The Wall Street Journal’s quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling and overdue loan payments are piling up. (See chart)

Some forecasters now warn that home prices are unlikely to start rising in most of the country before 2009 or 2010. A year ago, many home builders and lenders still thought that the housing boom — which more than doubled prices in some areas during the first half of this decade — would end with a gentle landing. Now those hopes are dead.

“Everybody’s kind of at a stalemate now, waiting to see what happens next,” says Donna Butera, who has a business in Phoenix “staging” homes for sale, adding furniture and other decorative touches to make them more appealing. Ms. Butera and her husband, Mark, are trying to sell six homes in Phoenix and Scottsdale. They bought the properties as investments over the past few years, but now find that the rents they collect don’t cover mortgage payments that are resetting to higher levels after initial low-cost periods of a year or two.
…
Even so, home sales are likely to remain weak for months because lenders are still very cautious and huge supplies of homes are weighing on prices. On a national basis, the number of previously owned homes listed for sale is enough to last about 10.5 months at the current sales rate, the NAR said. The supply of detached single-family homes, at 10.2 months, is the highest since February 1988. Supplies hovered around four to five months for the first half of this decade. When the figure is longer than six months, it is considered a buyer’s market.

Inventory figures reported by Realtors probably understate supply because not all foreclosed homes are sold through real-estate agents, says Doug Duncan, chief economist at the Mortgage Bankers Association.
…
House prices, as measured by the S&P/Case-Shiller national index, are likely to fall about 7% this year and a similar amount in 2008, says Jan Hatzius, chief U.S. economist at Goldman Sachs in New York. He believes a further small decline is likely in 2009. Of course, house-price movements vary greatly around the country and even within metro areas; in some desirable locations with limited supply, prices are likely to keep rising.
…
Foreclosure headlines create a “fear factor” among buyers and prompt more to think they should wait before taking the plunge, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. He believes the typical home price in New Jersey will fall about 7% this year, after dropping 8% in 2006. He expects a further decline in 2008. But, he says, “when houses are priced right, they’re selling very quickly.”

From the NY Times:

Reports Suggest Broader Losses From Mortgages

Every time economists and Wall Street executives think they have acknowledged the full extent of the losses from the meltdown in real estate mortgages, more bad news turns up.

Merrill Lynch said yesterday that it would take a charge for mortgage-related securities on its books that is $3 billion more than the $5 billion it expected just two weeks ago. And a report from the National Association of Realtors showed that sales of existing homes in September fell twice as much as economists had expected, to their lowest level in nearly 10 years.

Stocks fell sharply early yesterday on the news, with the Standard & Poor’s 500-stock index falling 1.8 percent before recovering in the afternoon. Investors also bid up Treasuries as they sought the safety of government-backed debt.

At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.

That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector. The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.

That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value.

Experts caution that these estimates are preliminary and the total costs could get bigger still. They also note that the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock.
…
In a new report to be issued today, the Joint Economic Committee of Congress predicts about two million foreclosures by the end of next year on homes purchased with subprime mortgages. That estimate is far higher than the Bush administration’s prediction in September of 500,000 foreclosures, which in itself would be a tidal wave compared with recent years. Congressional aides provided details of the report yesterday to The New York Times.

The Joint Economic Committee estimates that the lost of real estate wealth just from foreclosures on subprime loans will be about $71 billion. An additional $32 billion would be lost because foreclosed homes tend to drive down the prices of other houses in the neighborhood.

Those figures would cause a decline of $917 million in lost property tax revenue to state and local governments, which will also have to spend more on policing neighborhoods with vacant homes. The states most likely to be hard hit fall into two categories: those where prices had been rising fastest, like California and Florida, and Midwest states with weak economies, like Michigan and Ohio, where people with low or moderate incomes made heavy use of subprime loans to become homeowners and consolidate debts.

“State by state, the economic costs from the subprime debacle are shockingly high,” said Senator Charles E. Schumer, Democrat of New York and the chairman of the Joint Economic Committee. “From New York to California, we are headed for billions in lost wealth, property values and tax revenues.”
…
The much bigger losses will be in declining real estate prices. Household real estate currently totals about $21 trillion, according to the Federal Reserve.

Global Insight, a research firm, predicts that the national average for housing prices will drop 5 percent over the next year and 10 percent before mid-2009, for a total of about $2 trillion. Economists at Goldman Sachs have predicted prices will drop by 15 percent, meaning an overall decline of more than $3 trillion; other forecasters have said the decline could be 20 percent or more.

House prices decline slowly, because many potential sellers simply stay in their current homes when they think prices are too low. But that becomes more difficult as people have to move either because of job changes or, increasingly, because their monthly payments are rising sharply. In the next 18 months, interest rates on more than two million homes loans will reset to higher adjustable rates.
…
The housing bust has also led to job losses. From the start of 2003 to March 2006, housing-related businesses like mortgage companies, home builders and contractors added 1.3 million jobs, or about 23 percent of all new jobs created in that period, according to an analysis by Mark Zandi, chief economist at Moody’s Economy.com.

Since then, the housing business has shed 383,000 jobs, while the rest of the economy has added nearly three million jobs.

Jan Hatzius, chief United States economist at Goldman Sachs, said the small decline in housing employment thus far is surprising and suggests more layoffs are ahead.

“You still have a million jobs that aren’t really needed anymore due to the downturn in housing,” he said.

From the APP:

Unfriendly business climate hurts New Jersey, experts say

New Jersey needs a more business-friendly climate or it will continue to lose companies and skilled workers to lower-cost states, Gov. Corzine’s economic growth chief said Wednesday.

Gary Rose said improving the state’s poor reputation is like turning a steamship around, but it is the only way of increasing tax revenue without raising taxes.

“We’re clearly at the . . . point that, like it or not, we’ll make decisions over the next few years that will determine whether New Jersey is a tier-one state,” Rose said.

Rose spoke to about 150 people at a forum sponsored by New Jersey Leadership, a nonprofit organization that provides leadership training. Its theme: Can New Jersey win in the global economy?

The answer wasn’t clear. New Jersey touts a highly skilled work force and a prized location in the densely populated Northeast. But it remains a high-cost state in an economy that seems to reward locations with the lowest costs.

And experts said it has a long list of problems that are enough to drive growing businesses to other states or countries.

Rose said the state has begun to win over some companies — a notable change from previous years, when companies left New Jersey for more favorable business climates.
…
But experts said the success stories are overshadowed by New Jersey’s reputation, which, deserved or not, makes it difficult to compete in the global economy.

From Bloomberg:

U.S. Existing Home Sales Fall More Than Forecast

Sales of previously owned U.S. homes fell more than forecast in September, signaling no letup in the real-estate slump that threatens to hobble economic growth.

Purchases declined 8 percent to an annual rate of 5.04 million, the fewest since record keeping began in 1999, from a 5.48 million August pace, the National Association of Realtors said in Washington. Sales were down 19 percent from September 2006 and the median home price dropped.

The collapse in subprime lending will limit access to credit and reduce sales even more in coming months, economists said. The drop in demand suggests home prices will keep falling, raising the risk consumer spending, which accounts for more than two-thirds of the economy, will slow.

“Housing still has a lot of weakness ahead of it,” Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said before the report. “Existing home sales are still not particularly low by historic standards.”

Resales were forecast to fall 4.5 percent to an annual rate of 5.25 million from a previously reported 5.5 million pace in August, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from 4.95 million to 5.8 million.

The median price fell 4.2 percent to $211,700, compared with September 2006.

From MarketWatch:

U.S. home sales fall 8% to 8-year low in September

Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday. Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. Inventories of unsold homes and condos rose to a 10.5-month supply, the largest in at least eight years. For single-family homes alone, sales fell 8.6% in September to a seasonally adjusted annual rate of 4.38 million, the lowest sales pace since January 1998.

From CNN/Money:

Home Sales Plunge by 8 Percent

– Sales of existing homes plunged by a record amount in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years.

The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.

The weakness in sales translated into further pressure on prices. The median price — the point at which half the homes sold for more and half for less — fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.

The 8 percent decline in sales was bigger than the 4.5 percent decline that had been expected.