New Jersey Real Estate Report

Was there ever any doubt that home prices could fall? Below you’ll find a sampling of listings that have either sold, or are currently for sale and have seen price reductions in the past week. Every case has either sold for less than the original purchase price, or is currently for sale and is asking less than the original purchase price.

Please keep in mind that these were not “cherry picked” or “data mined” transactions. These were all found simply looking at the daily hotsheet (GSMLS and NJMLS) over the past week.

Caveat Emptor!

Sales Transactions

39 Port Colden Road, Washington Twp (REO)
Purchased: 8/26/2005
Purchase Price: $235,000

MLS# 2375419
OLP: $209,000
LP: $169,000
Sold: 11/19/2007
Sale Price: $169,000 (28% loss)

313 Ohio Ave, Pohatcong NJ
Purchased: 8/3/2005
Purchase Price: $305,000

MLS# 2446277
OLP: $304,900
LP: $299,000
Sold: 11/29/2007
Sale Price: $281,500 (8% loss)

1 South Locust Lake Road, Hope (REO)
Purchased: 12/17/2003
Purchase Price: $290,000

MLS# 2344781
OLP: $389,900
LP: $299,900
Sold: 11/27/2007
Sale Price: $245,000 (15% loss)

2 The Arbors, New Providence
Purchased: 10/2/2006
Purchase Price: $405,000

MLS# 2403527
OLP: $419,900
LP: $399,000
Sold: 11/29/2007
Sale Price: $399,000 (1.5% loss)

820 Passaic Ave, Linden (short sale)
Purchased: 11/8/2006
Purchase Price: $337,000

MLS# 2427965
OLP: $278,975
LP: $258,957
Sold: 11/29/2007
Sale Price: $259,000 (23% loss)

31 Tall Oaks, Vernon
Purchased: 7/6/2005
Purchase Price: $365,000

MLS# 2406099
OLP: $347,900
LP: $337,900
Sold: 11/27/2007
Sale Price: $309,900 (15% loss)

1 Parkside Terrace, West Paterson
Purchased: 6/16/2006
Purchase Price: $435,000

MLS# 2436182
OLP/LP: $399,000
Sold: 11/29/2007
Sale Price: $382,500 (12% loss)

147 Cambridge Ct, Clifton NJ (Short sale? Error?)
Purchased: 4/12/2004
Purchase Price: $279,000

MLS# 2426580
OLP: $359,900
Sold: 11/29/2007
Sale Price: $237,500 (4% loss)

1391 Pompton Ave, Cedar Grove (Short sale)
Purchased: 7/12/2006
Purchase Price: $350,000

MLS# 2436344
OLP/LP: $319,000
Sold: 11/29/2007
Sale Price: $300,000 (14% loss)

15 Overlook Terrace, Bloomfield
Purchased: 9/16/2005
Purchase Price: $332,500

MLS# 2432976
OLP/LP: $334,900
Sold: 11/29/2007
Sale Price: $320,000 (4% loss)

4-11 Lambert Road, Fair Lawn
Purchased: 6/6/2005
Purchase Price: $372,900

MLS# 2397650
OLP: $389,900
LP: $369,900
Sold: 11/29/2007
Sale Price: $330,000 (11% loss)

2185 Lemoine Ave, Fort Lee NJ
Purchased: 6/30/2005
Purchase Price: $335,000

Sale Date: 11/19/2007
Sale Price: $265,000 (21% Loss)

Currently for sale:

520 Floyd Street
Purchased: 9/26/2006
Purchase Price: $790,000

Currently active, listed as:
MLS# 2733003
Original List Price: $899,000
Current Asking Price: $749,000 (5% under purchase)

175 Parker Ave, Maplewood (REO, HSBC)
Purchased: 12/16/2004
Purchase Price: $490,000

Currently active, listed as:
MLS# 2445181
OLP: $476,500
Current asking: $441,900
(10% below 2004 purchase price)

14 Fernwood Road, Livingston
Purchased: 1/22/2007
Purchase Price: $995,000

Currently active, listed as:
MLS# 2430585
OLP: $995,000
Current asking: $899,000
(10% below purchase price)

306 21st Street, Irvington (REO)
Purchased: 4/14/2005
Purchase Price: $140,000

Currently active, listed as:
MLS# 2448943
Original List: $98,500
Current Asking: $79,900
(43% below purchase price)

792 Park Ave, River Edge
Purchased: 9/20/2006
Purchase Price: $405,000

Currently active, listed as:
MLS# 2438705
Original List: $422,000
Current Asking: $377,000
(7% below purchase price)

1091 Ash Drive, Mahwah (Short Sale?)
Purchased: 9/15/2006
Purchase Price: $367,500

Currently active, listed as:
MLS# 2439202
Original List Price: $369,000
Current asking: $334,000
(9% below purchase price)

53 Forest Road, Allendale NJ
Purchased: 8/27/2007
Purchase Price: $850,000

Current MLS# 2742039
Original List Price: $869,000
Current Asking Price: $819,000 (4% below purchase price)

520 Floyd Street, Waldwick NJ
Purchased: 12/22/2005
Purchase Price: $575,000

Current MLS# 2733003 11/17/2007
Original List Price: $599,000
Current Asking Price: $479,900 (16% under purchase)

86 Platt Ave, Saddle Brook NJ
Purchased: 10/2006
Purchase Price: $700,000

MLS# 2717166/2746969
OLP: $825,000
Cuurent asking price: $689,000 (1.6% under purchase)

290 Kinderkamack Road, River Edge NJ
Purchased: 8/2006
Purchase Price: $585,000

MLS# 2746946
OLP/LP: $575,000 (1.7% under purchase)

43 Walnut Ave, Bogota NJ
Purchased: 2/20/2005
Purchase Price: $423,000

MLS# 2741479
OLP: $379,900 ($494,900)
Current Asking: $362,000 (14% under purchase)

115 Elm Street, Fairview NJ
Purchased: 6/17/2005
Purchase Price: $410,000

MLS# 2740317
OLP: $449,000
Current asking price: $390,000 (5% under purchase)

15 Lee Street, Elmwood Park NJ
Purchased: 7/31/2006
Purchase Price: $390,000

Currently for sale, listed as:
MLS# 2713892
Original List Price: $447,000
Current Asking: $365,000 (6% under purchase)

144 Franklin Ave, Midland Park NJ (REO)
Purchased: 8/2/2005
Purchase Price: $630,000

Currently for sale, listed as:
MLS# 2734110
Original List Price: $539,900
Current Asking: $519,900 (17% under purchase price)

512 Highridge Ave, Cliffside Park NJ
Purchased: 1/30/2006
Purchase Price: $900,000

Currently active, listed as:
MLS# 2740898 (multiple relistings)
Original List Price: $1,120,000
Current Asking: $850,000 (6% under purchase)

55 Elm Street, Englewood Cliffs, NJ
Purchased: 10/28/2005
Purchase Price: $865,000

Currently active, listed as:
MLS# 2614876
Original List Price: $1,025,000
Current Asking: $849,000 (2% under purchase)

From the APP:

Outlook for 08 first half in N.J. not rosy

New Jersey’s business climate forecast remains chilly.

As they did a year ago, nearly half of the state’s businesses expect state economic conditions to weaken in the first six months of the coming year, while only 13 percent expect improvement, according to a report released Wednesday by the New Jersey Business and Industry Association. They are more optimistic about sales and profits for their own businesses.

However, the 1,300 businesses that responded to the annual survey expect the economic decline to be moderate, said Philip Kirschner, president of the NJBIA. Favorable business conditions peaked in 2005 and have declined rapidly since.

“Not only has business activity slowed since 2005,” Kirschner said, “but it has also fallen close to recession levels.”
…
The cost of running a business in the state was a main factor worrying respondents, with rising health care costs remaining the biggest problem.

“Health care costs are just astronomical,” said Philip Brilliant, chief operating officer of Brilliant Lewis Environmental Services and former president of the Ocean County Business Association.

Matthew Wright, president of Apgar Bros. Inc., a Bound Brook trucking company, said, “Insurance costs are more troubling than fuel costs because we can’t control them.”

Businesses expect slow job growth as well. Sixty-one percent expect employment to remain the same, and only a quarter expect to increase hiring.

The state’s growth in private-sector jobs is about half the national rate, according to the National Bureau of Labor Statistics.

Jim Kocsi, district director for the U.S. Small Business Administration, said businesses are “cautious” about expanding because of an up-and-down stock market and a struggling housing market.

“We are in this hold mode right now where people are saying, “Maybe I should just lay low for a while and see which way this is breaking,”‘ Kocsi said.

From Bloomberg:

U.S. New-Home Sales Probably Fell in October as Slump Deepens

Purchases of new homes in the U.S. probably fell in October, deepening the real estate slump that threatens to stall economic growth, economists said before reports today.

Sales fell 2.6 percent to an annual pace of 750,000, according to the median forecast in a Bloomberg News survey. A separate report may show the economy expanded at an annual rate of 4.9 percent in the third quarter, the most in four years.

The collapse in subprime lending and turmoil in financial markets are projected to extend the housing recession well into 2008. Some economists now forecast the world’s biggest economy will grow this quarter at less than a fifth the previous three months’ pace, prompting the Federal Reserve to lower rates.

“The expansion is slowing,” said Gary Bigg, an economist at Bank of America Corp. in New York. “Prospects for future home sales remain dim.”

The Commerce Department is scheduled to issue the home sales report in Washington at 10 a.m. The 71 estimates in the Bloomberg survey ranged from 705,000 to 785,000. Purchases reached an 11-year low of 735,000 in August.

From CNN/Money:

October foreclosure filings surge

Foreclosure filings nearly doubled in October and more people could lose their homes in 2008, according to a report released Thursday.

In October, 224,451 foreclosure filings were reported nationwide, up 94 percent from October 2006 and up 2 percent from September, according to RealtyTrac.

In the month, 53,609 U.S. homeowners were forced out of homes repossessed by banks, up from 20,768 a year ago, the firm said. Through October, a total of 309,557 homes have been repossessed by banks leading to forced evictions.

“Some people are in over their heads, owing more than what they can sell their house for,” said RealtyTrac spokesman Daren Blomquist.

For the full year, RealtyTrac expects 2 million homes to have entered the foreclosure process - including bank repossessions, default notices and auction sale notices.

Foreclosures could hit homeowners even harder in the beginning of 2008, Blomquist said. Homeowners experiencing trouble in the fall may not see a foreclosure notice until the January or later, he said.

On top of that, adjustable-rate mortgages are scheduled to reset in greater numbers through 2008, sending homeowners’ monthly mortgage payments higher, possibly to unmanageable levels.

“The other side of the vise pressing on these people is that it’s harder to refinance because lenders’ standards are tighter,” Blomquist added.

From Reuters:

Home foreclosures soar 94 percent: RealtyTrac

Home foreclosure filings in October edged up 2 percent from September but at 224,451 were a whopping 94 percent higher than a year earlier, real estate data firm RealtyTrac said on Thursday.

The figure, a sum of default notices, auction sale notices and bank repossessions, was down from a 32-month peak in August however, RealtyTrac, an online market of foreclosure of properties, said in its monthly foreclosure market report.

RealtyTrac said the national foreclosure rate was one filing for every 555 U.S. households in October.

“Overall foreclosure activity continues to register at a high level compared to last year but it appears to have leveled off over the past two months after hitting a high for the year in August,” James Saccacio, chief executive officer of RealtyTrac, said in a statement.

In September, home foreclosure filings fell 8 percent.

Default rates in the subprime segment of the U.S. mortgage market, which caters to borrowers with poor credit histories, have jumped this year as the housing industry slowed and prices fell in many regions, particularly areas that benefited the most during the housing market’s boom from 2000 to 2005.

“Default notices were down nearly 9 percent in October, indicating that some of the efforts on the part of homeowners, lenders and advocacy groups to find alternatives to foreclosure may be starting to have an impact. On the other hand, bank repossessions were up nearly 35 percent, evidence that more homeowners who enter foreclosure are losing their homes,” Saccacio said.

From Bloomberg:

U.S. October Existing Home Sales Fall 1.2% to 4.97 Million Rate

Sales of previously owned U.S. homes fell in October to the lowest level in at least eight years as loan restrictions and the prospect of further price declines deterred buyers.

Purchases dropped 1.2 percent, more than forecast, to an annual rate of 4.97 million, the fewest since record keeping began in 1999, from a 5.03 million September pace, the National Association of Realtors said in Washington. Sales were down 20.7 percent from October 2006 and the median home price declined by the most on record.

Defaults on subprime mortgages have prompted banks to tighten lending standards, while foreclosures add to a glut of unsold properties that’s putting pressure on home prices. Lower property values raise the risk that consumers will curtail spending, making businesses more cautious about investing and compounding a slowdown in economic growth, economists said.

“Credit conditions seem to be getting tighter again, the economy is likely to slow and falling prices may be causing people to wait before buying,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “There is plenty of downside left in this market.”

From MarketWatch:

Supply of homes on market at 22-year high
Existing-home sales fall 1.2% to 4.97 million pace in October

Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday.

Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999, when the group began tracking combined sales of single-family homes and condos.

Sales are down 20.7% in the past year and are down 31% from the peak of 7.21 million two years ago.
October sales were stronger than the 4.85 million pace expected by economists surveyed by MarketWatch.
The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since1999.

For single-family homes alone, the inventory of 10.5 months is the highest since July 1985.
The median sales price fell 5.1% in the past year to $207,800. That’s the largest year-over-year price decline ever recorded.

From CNBC:

Home Sales, Prices Fell Further In October

The pace of U.S. existing home sales in the United States fell 1.2 percent in October to
a record low 4.97 million-unit pace, the National Association of Realtors said, amid a nationwide credit crunch and a spike in failing home loans.

The median existing home price of $207,800 was a decline of 5.1 percent from a year ago, a record drop.

The sales pace was the lowest since the realty trade group began tracking both single-family and condo sales jointly in 1999.

From the National Association of Realtors:

Existing-Home Sales and Prices Overview (PDF)

From the New York Times:

Bracing for Home Loan Losses, Wells Fargo to Take Big Charge

Wells Fargo & Company, the nation’s second-largest mortgage lender, after Countrywide Financial, said yesterday that it would take a $1.4 billion fourth-quarter charge for losses it anticipated in connection with home loans.

The bank said that it would continue to provide home equity financing directly to customers, but that it would not originate or acquire home equity loans through indirect channels. Wells Fargo will also not originate home equity loans through third parties when the combined loan-to-value ratio of the first and second mortgages is over 90 percent or where the second mortgage is not behind a Wells Fargo loan.

The bank is putting $11.9 billion into a special liquidating portfolio. The bank’s filing with the Securities and Exchange Commission said that the figure is 3 percent of its total loans outstanding, but that it represents the riskiest element of the $83.4 billion in its National Home Equity Group portfolio. The loans are generally clustered in areas of the country that are having the greatest decline in retail prices.

R. Scott Siefers, an analyst who follows Wells Fargo for Sandler O’Neill, said: “It is unfortunate certainly because Wells Fargo has had an aura of invincibility. Over the last few years, it has not gotten involved in a lot of the issues that have caused so much pain for the group. It is one of the largest mortgage lenders in the country so this is going to be painful for everybody.

From Bloomberg:

Home Prices in U.S. Fell Record 4.5% in Third Quarter

Home prices in the U.S. fell in the third quarter by the most in at least two decades as the subprime lending crisis caused sales to slump.

Home values retreated 4.5 percent in the three months through September from the same period a year before, the most since records began in 1988, according to a report today by S&P/Case-Shiller. It followed a 3.3 percent drop in the second quarter.

Prices will probably keep sliding as foreclosures force more properties on to the market and sales weaken as mortgages become harder to get. The slump threatens to slow consumer spending as fewer homeowners will be able to afford vacations, new autos or home improvement projects.

“Many house shoppers are going to hold off until they feel that markets have stabilized, and this will tend to prolong the price declines,” Robert Dye, a senior economist at PNC Financial Services Group in Philadelphia, said before the report. “As house prices fall, consumers feel less wealthy and more restricted in their discretionary spending.”

Home prices in 20 U.S. metropolitan areas dropped 4.9 percent in the 12 months ended September, the most since S&P/Case-Shiller began compiling the index in 2001. The decline followed a 4.3 percent drop in August.

Economists forecast the 20-city gauge would decrease 4.8 percent in the quarter, according to the median of 13 estimates in a Bloomberg News survey.

From MarketWatch:

Home prices falling at record pace in third quarter

U.S. home prices fell 4.5% in the year ending in the third quarter, according to the national Case-Shiller price index released by Standard & Poor’s on Tuesday. Prices fell 1.7% compared with the second quarter. It’s by far the largest price decline in the 20 years covered by the index. Prices had fallen 3.2% in the year ending in the second quarter. Prices fell in all 20 major cities in September compared with August, and were down 4.9% in the past year. Prices fell 5.5% year-over-year in the original 10-city index. The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metropolitan-area real-estate values.

From Standard and Poor’s:

The S&P/Case-Shiller® U.S. National Home Price Index Posts a Record Annual Decline in the 3rd Quarter of 2007 (PDF)

From the WSJ:

‘Predatory’ Politics
November 27, 2007; Page A18

The housing recession still hasn’t hit bottom and a new Goldman Sachs report suggests falling home values could cause a broader economic slump. So right on cue, by a veto-proof vote of 291-127, the U.S. House earlier this month passed a bill that would reduce homeownership. That’s not the stated intention of the “Mortgage Reform and Anti-Predatory Lending Act of 2007,” but it is the probable result.

Chief sponsor Barney Frank boasts that his bill will avoid a recurrence of the subprime lending meltdown. That it might do, but only by exposing mortgage banks to so many new financial penalties and lawsuits that they will refuse to lend to many low- and moderate-income homebuyers. The companies that securitize mortgages — by packaging and reselling them to investors — will also have an incentive to abandon the subprime market because the bill makes them liable for any improper actions by the loan originators.

The bill bars banks and securitizers from “steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide a net tangible benefit, or has predatory characteristics.” Got that? No one has ever defined what a “predatory” loan is, but rest assured the trial lawyers will try to define it as any loan that a marginal borrower accepts but later can’t afford to repay. A legal analysis done for the Consumer Mortgage Coalition concludes that the House bill “will likely generate significant litigation” and that lenders will “rarely, if ever, be able to dispose of even frivolous lawsuits” thanks to the bill’s subjective standards. That’s probably an understatement.

This legislation comes at the worst possible moment for the ailing U.S. housing market. Banks hardly need new incentives to stop lending. A few months ago Wells Fargo Home Mortgage halted all subprime lending because of high default rates. Countrywide Financial, the nation’s largest mortgage lender, announced this month that the number of new mortgages it issued this past quarter plummeted by 40% from a year ago. The share of its new loans that are subprime fell to 0.2%. Two years ago subprime loans constituted between 10% and 20% of the new mortgage market.

Now the credit screws are so tight that low-income homebuyers without stellar credit ratings are finding it nearly impossible to get any home loan — which will further drag down home values. The broader danger is that this lending aversion will limit credit even for higher-income home buyers who have less than pristine credit histories.

From the Associated Press:

Report: Foreclosures to Hit Metro Areas

Rising foreclosures will lead to billions of dollars in lost economic activity next year in the nation’s major metropolitan areas, but homeowners and financial institutions have the ability to work together to contain the effects, according to a report compiled for the U.S. Conference of Mayors.

The report was released Tuesday ahead of a meeting of mayors from across the country in Detroit, where they hope to create policy recommendations to help address the nation’s housing crisis.

Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation’s economic activity.

“The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods — and the report said.

The biggest losses in economic activity are projected for some of the nation’s largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
…
The report also projects property values will decline by $1.2 trillion in 2008, due in part to the foreclosure crisis, with drops in home prices across the U.S. averaging 7 percent. And it said the loss of property, sales and real estate transfer taxes will hurt local and state governments.

From the WSJ:

Countrywide Borrowing Triggers Call for Review
Senator Says Lender Uses Home-Loan Bank ‘Like Its Personal ATM’
By JAMES R. HAGERTY
November 27, 2007; Page C2

Sen. Charles Schumer, a New York Democrat, urged regulators to examine potential risks posed by a rapid increase in lending by the Federal Home Loan Bank of Atlanta to Countrywide Financial Corp., the nation’s biggest mortgage lender by volume.

In a letter sent yesterday to Ronald Rosenfeld, chairman of the Federal Housing Finance Board, which regulates the 12 regional home-loan banks, Sen. Schumer said he is concerned that mortgages pledged by Countrywide to secure its borrowings “may pose a risk to the safety and soundness of the FHLB system as a whole.” He called for a review of the Atlanta bank’s policies for evaluating collateral and of the loans pledged by Countrywide to secure its advances.

The home-loan banks were created by Congress in 1932 to prop up failing banks and provide money for housing. They borrow money through global bond issues on the strength of investors’ belief that the U.S. government would rescue them in a crisis. The banks have taken on a larger-than-usual role over the past few months in providing funds for mortgages. They have stepped up their secured loans, known as advances, to mortgage lenders to fill a void created in August, when investors’ fears of default shut off mortgage lenders’ ability to raise money through commercial paper or other short-term borrowings.

As of Sept. 30, Countrywide owed the Atlanta bank $51.1 billion, 77% more than the $28.8 billion it owed three months earlier. Although it is based in Calabasas, Calif., Countrywide deals with the Atlanta home-loan bank because Countrywide owns a savings bank based in Alexandria, Va., part of the Atlanta bank’s territory.

“Countrywide is treating the Federal Home Loan Bank system like its personal ATM,” Sen. Schumer wrote in a press release.

From USA Today:

Housing woes have domino effect

If you haven’t yet felt the impact of the nation’s credit crisis, just wait. Chances are, you won’t have to wait long.

So far, the turmoil may feel a bit remote for average people: Failed mortgage lenders. Gargantuan write-downs by banks. Foreclosures for people who couldn’t really afford the mortgages they got.

What about the rest of us? Are we in danger? No one knows for sure, but quite likely, yes.

As the credit crisis seeps into farther-flung corners of the economy, more of us will find it harder — and costlier — to borrow money. The value of the funds in our retirement accounts could shrink. People with subpar credit will likely find it more difficult to qualify for auto and home-equity loans. Even consumers who make the cut may need higher credit scores and more documentation.

With loans harder to get, people will hesitate to buy cars, boats and other big-ticket items. The gravest fear? That weak consumer spending — along with surging energy prices, a long housing slump and sluggish job growth — will plunge the economy into a recession.

Even if a recession doesn’t occur, “We’re going to be in for a rough ride,” says Robert Kuttner, a senior fellow at Demos, a New York policy organization. “With job creation slowing down, credit standards being tightened and housing values not going up anymore, the consumer is under pressure to tighten his or her belt.”
…
Tighter credit and falling home prices top the reasons why the economy could slip into a recession, according to 50 economists surveyed in late October and early November by the National Association for Business Economics.

Most economists still don’t foresee a recession. But the risk of a downturn is growing with each bout of bleak news. About 18% of economists who responded to NABE’s survey put the probability of a recession starting within the next 12 months at 50% or greater. That’s up sharply from the 11% of economists who said so in August.

A recession would inflict pain on a majority of Americans as unemployment rose and the stock market sank further. In a recession, “Investors have to be prepared to absorb a 20%-plus decline in the value of their portfolios,” says Ed Yardeni, president of Yardeni Research, an investment research firm in Great Neck, N.Y.
…
The initial low rates on adjustable-rate mortgages are resetting to higher rates. And with housing prices in many markets falling, overextended buyers can’t refinance. Delinquencies and foreclosures are rising. Banks and other investors holding downgraded securities tied to risky mortgages are writing down their values billions of dollars at a time.

Each week brings fresh evidence of how the credit crisis is causing damage. Last week, for example, the stock market fell after Goldman Sachs downgraded the nation’s largest bank, Citigroup, to a sell. Goldman said the bank would likely have to write down $15 billion over the next two quarters, mainly because of its exposure to risky mortgage securities.

And darker days probably lie ahead: Mortgage-related losses industrywide are likely to mount through 2009 and further bruise financial institutions, says Mark Zandi, chief economist at Moody’s Economy.com.

Such losses eat away at banks’ capital reserves. That means they can’t lend as much money. Goldman Sachs analysts predict that, overall, banks’ exposure to risky mortgages could reduce the credit available to consumers and businesses by a staggering $2 trillion.
…
Consumers who pulled money out of their homes as the market soared in recent years will also be in for a shock as home prices fall during the worst real estate recession since the Great Depression.

Kuttner says he believes that consumers’ recent “reliance on home equity and credit card loans isn’t because middle-income people are going on shopping sprees, but because wages are squeezed.”

Home-equity withdrawals accounted for up to $324 billion a year in consumer spending from 2004 to 2006, according to estimates from Federal Reserve economist James Kennedy, based on a paper he wrote with former Fed chairman Alan Greenspan. These withdrawals and related consumer spending plunged in the first half of this year as the housing market weakened, according to updated estimates from Kennedy.

Pain isn’t restricted to struggling homeowners

This real estate recession is the worst since the Great Depression, affecting almost every part of the housing market, from construction to lending. A turnaround is not expected until the second half of next year and the financial aftershocks from rising foreclosures will be felt for at least another six years.

The confidence level of home builders remains at a 22-year low, and the National Association of Home Builders repeated last week that it doesn’t expect the decline in new home construction to bottom out until the second half of next year.

“Builders do not see any significant change in housing market conditions as compared to last month,” NAHB chief economist David Seiders said in a statement, and special sales incentives are having limited success in attracting home shoppers.

D.R. Horton, the second-largest home builder, said last week that 48% of buyers canceled their contracts in the July to September quarter, and that housing market conditions continued to decline in that period.

But the pain is not being felt evenly across the country. Home prices fell in 17 states during the last year, but most states “continue to have stable home values,” and a half dozen others even showed moderate price growth, according to an analysis of repeat sales last week by First American LoanPerformance.

Worst hit were California, Nevada, Arizona, Louisiana and Florida, where prices declined 5% to 10%.

Almost 16% of homeowners who bought in the past two years owe more on their mortgages than their properties are worth, Zillow.com says.

From the Wall Street Journal:

Citigroup Feels Heat To Modify Mortgages
Nonprofit Groups Press For Subprime Relief; Deciding Who Gets Help
By LAURIE P. COHEN
November 26, 2007; Page A1

Paulo Perez, a graphic artist, hasn’t made payments in months on the $330,000 mortgage on his ranch house in La Puente, Calif. It fell to Citigroup Inc.’s mortgage-servicing unit to decide what to do about that.

After Citigroup moved to foreclose on him, Mr. Perez, who is 28 years old, asked the financial giant to cut his monthly payments to a level he can afford. Citigroup representatives eventually said no, offering him a less appealing suggestion: Sell your house, turn over the proceeds, and we won’t go after you for any unpaid balance.

On the front lines of the great American mortgage workout, tens of thousands of borrowers are in trouble and looking for relief. Washington has offered advice about what lenders should do, and influential groups that counsel low-income borrowers are ratcheting up pressure on Citigroup and others to offer struggling homeowners more favorable terms on their existing loans — even borrowers whose finances seem hopeless.
…
In many ways, the pressures Citigroup faces mirror those on other mortgage servicers, whose job it is to collect monthly payments and pass them on to mortgage investors. Servicers are responsible for protecting the financial interests of those investors. But they also have become targets for criticism that the mortgage industry isn’t doing enough to clean up problems arising from years of careless lending to subprime borrowers with shaky credit.

Citigroup, however, may have a bigger mess on its hands than many. In September, as the U.S. housing crisis deepened, it bought servicing rights to a problematic $45 billion mortgage portfolio. It announced a commitment to “help distressed borrowers remain in their homes,” working with Acorn Housing Corp., a nonprofit group that counsels low- and moderate-income home buyers. But with 46,000 borrowers already in default, Citigroup is struggling with the magnitude of the portfolio’s problems, and its relations with Acorn are fraying.
…
Acorn and other nonprofit community groups contend that mortgage servicers have no right to play hardball with borrowers. Subprime lenders, these groups say, talked customers into loans they couldn’t afford by encouraging them to overstate their incomes and by basing the loans on inflated appraisals. Anyone with steady enough income to make regular monthly payments should get a restructured mortgage, the groups argue.

On the other hand, Douglas Duncan, chief economist for the Mortgage Bankers Association, argues that lenders aren’t the only ones to blame for the subprime-lending debacle. Among the many culpable parties, he says, are the borrowers who didn’t follow through on their obligations.
…
Of the 280,000 loans in the portfolio, 16.4%, or 46,000, were in default as of Sept. 30, meaning borrowers were at least two months late making payments. About 14,000 of those delinquent borrowers faced foreclosure. Nationwide, 14.8% of subprime borrowers were in default as of June 30, according to the latest figures from the Mortgage Bankers Association, a trade group.
…
In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn’t set to rise until next June, but she already is behind on payments.

Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.

This year, she says, their income fell after she suffered a short-term disability. Mrs. Brandon figures if she sold her home today, she wouldn’t get more than $450,000 — what a nearby home sold for in foreclosure.

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 Newsday:

Experts predict more pain before housing rebounds

Problems in the real estate market are going to get worse — much worse — before they better, experts say.

Home prices will keep falling and foreclosure rates nationally will keep rising at least until the end of next year, they said. And some predictions contend that the market won’t right itself until 2010.

“We are going to have a huge correction,” said David Olson, president of Wholesale Access, a mortgage research and consulting firm based in Columbia, Md. “There’s going to be a lot of pain.”
…
No one knows yet the extent of the problem. Just last week, Goldman Sachs published a report predicting home prices will fall an additional 13 to 14 percent over the next three years. And, the report notes, the peak of subprime mortgage rate resets won’t come until March. In that month, the interest rate on $42 billion of mortgages will increase, straining the budgets of many homeowners.
…
Nearly 150,000 subprime mortgages are scheduled to reset each month through the end of next year, according to the Federal Reserve, causing the typical monthly payment to rise about $350, or 25 percent. Goldman Sachs, meanwhile, predicts that losses on outstanding loans could balloon to $400 billion, though some experts feel that number is too high.
…
“The hardest thing is to make the borrowers most at risk fully aware of the risks they face and aware of the opportunities to help ameliorate that risk,” Gumbinger said.

For the most part, however, experts say the country will just have to ride out the troubles in the market. Housing prices should stabilize once they come more in line with incomes. Foreclosure rates should stop soaring once the surge of resets on adjustable-rate mortgages passes.

“We’re just going to have to wait this through,” Olson said.

From the NY Times:

A Time for Bold Thinking on Housing

WE have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent.

As of this August, domestic home prices were already down 5 percent from their peak 14 months earlier, according to the S.& P./Case-Shiller Composite Home Price Index, and prices were falling at a faster rate in the months leading up to August. (Updated data will appear on Tuesday.)

This crisis should be an occasion for some inspired thinking about fundamental changes in our real estate institutions. The actions that have already been taken are not impressive. The housing market is worsening, and more and more home owners are getting into trouble with their mortgages.

The public response to the housing downturn of 1925-33 provides an important lesson in what government and private institutions can accomplish. Back then, people weren’t content with temporary palliatives. They were thinking big, and revolutionary changes were made in real estate institutions. Without those fundamental changes, the Great Depression would have been much worse than it was, and we would be in a more vulnerable situation today.
…
The radical financial innovations of the 1930s were possible because the real estate crisis and other economic problems of the Depression created a sense of urgency. Innovation, after all, tends to come in troubled times.

We should take full advantage of the innovation opportunities stimulated by our current troubles. We would emerge much stronger and better for it.