Otteau February Newsletter

From the Otteau Valuation Group:


February home sales turned in another weak performance erasing hopes of a housing market recovery any time soon. Following a disappointing January when contract-sales were off by 30%, February home sales were down by 21% compared to the same month last year. This leaves year-to-date contract-sales activity 25% below last year at this time, making it the worst start for home sales since the housing recession began in 2005.

Further evidence of market weakness can be found in Unsold Inventory levels which rose for the 2nd consecutive month to 65,000 standing homes on the market, excluding the pipeline of new construction homes not yet completed. All of this provides compelling evidence that falling home prices will continue for the time being. As a reference point there were fewer than 32,000 homes for sale back in 2005 when home prices were last appreciating, suggesting that unsold inventory will need to decline significantly before home prices start rising again. Our current projection is that home prices will not recover to 2005 peak levels until 2015 at the earliest.

Therefore, the advice to home sellers is to Right! Price before home prices decline further. This is because overpricing extends marketing time, leading to a lower selling price down the road.

Despite the ongoing market decline however, some brighter spots exist in the housing market. Housing demand continues to outperform the overall market in downtown redevelopment areas as well as in communities offering transit rail access. Look for this trend to intensify as transit rich communities offer tangible solutions to New Jersey’s housing affordability constraints, particularly as younger Generation-Y home buyers transition from renting to home ownership over the next 5 years.

Switching to the buyer’s perspective, the current housing market presents a unique opportunity by way of falling home prices AND low mortgage interest rates. Because the decline in home prices typically slows later in a correction cycle, the greater risk in timing the market is the potential for higher mortgage rates ahead. Thus 2008 will provide home buyers with the double bonus of lower mortgage rates and lower home prices. Also noteworthy are the increased Jumbo mortgage thresholds for loans in excess of $417,000, which are scheduled to expire at the end of this year. This, together with tax refunds later this year increase the likelihood of higher interest rates and borrowing costs in 2009. Therefore, we’re likely to look back 5 years from now and conclude that 2008 was the ‘sweet spot’ for home buying.

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62 Responses to Otteau February Newsletter

  1. gary says:

    Therefore, we’re likely to look back 5 years from now and conclude that 2008 was the ‘sweet spot’ for home buying.

    Sweet spot for who?

  2. grim says:


  3. grim says:

    Worth repeating..

    Our current projection is that home prices will not recover to 2005 peak levels until 2015 at the earliest.

  4. pretorius says:


    Do Otteau’s reports contain price data?

  5. grim says:

    Hope Cubed..

    Feds moving to ease Fannie, Freddie cap requirement: report

    Federal officials are in the process of putting together a potential deal that could allow Fannie Mae and Freddie Mac to increase their support for the mortgage market by buying and guaranteeing more home loans, the Wall Street Journal reported on its Web site late Monday. The Office of Federal Housing Enterprise Oversight is close to reducing, although not completely eliminating, an excess capital requirement in place at both firms, the newspaper said, citing people familiar with the matter. The current requirement forces the two companies to hold 30% more capital than their normal minimums.

  6. grim says:


    Contains an aggregate forecast, which is as follows.

    2006 8% decline
    2007 7% decline
    2008 4% decline
    2009 2% decline
    2010 Flat

  7. pretorius says:

    Do 2006 and 2007 #s reflect price data that Otteau gets somewhere or collects himself?

  8. grim says:

    I’d have to ask, but I believe the data is his.

  9. pretorius says:

    Grim, don’t bothering asking Otteau about his price data.

    I like his inventory and sales data, and it is only $129 to subscribe for a year. I’m probably going to call him and subscribe, and I’ll ask about how he comes up with his price forecasts.

  10. gio says:

    It seems to not apply to the Jersey Shore. Wall, Point Pleasant, Lavalette NJ all immune. No price decreases here according to our agent. She thinks homes in our range 300-425 are not going down that all this data only pertains to more expensice homes, is this correct. New Jersey is not part of the down turn at least the shore is not ???

  11. lisoosh says:

    “grim Says:
    March 17th, 2008 at 6:35 pm
    Worth repeating..

    “Our current projection is that home prices will not recover to 2005 peak levels until 2015 at the earliest.”

    Yes, that really stood out.

    And then a couple of paragraphs later we get the platitudes that because of X, and due to Y NOW is a great time to BUY!!!.

    Got to love the RE industry.

  12. lisoosh says:

    #10 – don’t those areas have something like 4 years supply of inventory?

  13. JLB says:

    #1: the buyer who needs a mortgage and a contained monthly payment would be smart to shop now because of the interest rates obviously the problem is getting the funding

  14. says:

    Jeffrey, have you even been to a transit town lately?

  15. gio says:

    The supply is up but the way it was explained to us is that things are taking longer to sell in Monmouth and ocean but the prices are not decreasing? Could the shore be an exception, could all of NJ be one? Are we being told mis information.

  16. Clotpoll says:

    grim (5)-

    That’s great. Take two GSE’s who are bleeding like Ebola victims, and cut their capital reserve requirements.

    Sounds like a plan to me! Good times.

  17. sas says:

    Otteau = Jim Cramer

    After it was announced March 16 that J.P. Morgan Chase & Co. (NYSE:JPM) was purchasing Bear Stearns Cos. (NYSE:BSC) for $2 a share, the stock plummeted over 80 percent at the open of trading on March 17.

    But, on March 11, Cramer told an e-mailer not to sell the beleaguered investment bank’s stock on his show’s Web site.

    “Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? –Peter

    Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”

    On Jan. 17, 2007, Bear was trading at its high of $171.51 a share. Since then, it has been racked by the mortgage turmoil. On March 11, when Cramer posted the e-mail and his response, the stock closed at $62.97. As of 10:00 a.m. on March 17, the stock was trading at $3.72 a share.

    Cramer frequently appears on “NBC Nightly News” and “Today.” On the January 22 “Nightly News,” Cramer was referred to by his colleague Carl Quintanilla as “one of the most influential voices on Wall Street.”

    On the “Today” show March 17, Cramer maintained that “if you’re a diversified investor, you’re not going to get hurt” by the Bear Stearns collapse. “Those who only had their money in Bear obviously will get wiped out today. But you most importantly don’t have to take your money out of a bank,” he said.

  18. Clotpoll says:

    pret (9)-

    “I’m probably going to call him and subscribe, and I’ll ask about how he comes up with his price forecasts.”

    Pret, right about now, I think the pressing question is how you come up with yours.

  19. sas says:

    Otteau = Jim Cramer

    ” we’re likely to look back 5 years from now and conclude that 2008 was the ‘sweet spot’ for home buying”


  20. Clotpoll says:

    soosh (12)-

    Pay no attention to the man behind the curtain…

  21. Clotpoll says:

    gio (15)-

    Go to LBI on a Saturday or Sunday, and take a left at RonJon. Drive around. Just follow the signs and the directionals.

    Come back, and tell us what you think.

  22. Clotpoll says:


    “But you most importantly don’t have to take your money out of a bank…”

    Thanks, Cramer. It’s such a bitch when you have to stand in a three-block-long line during the middle of a bank run. Worse than waiting for Hannah Montana tickets…

  23. JLB says:

    #17: my understanding is that Cramer was asked about bank deposits in Bear and said they could leave it, Bear liquidity would have no impact (FDIC), he was not referring to common stock.

  24. grim says:

    Since when is Bear a depository?

  25. sas says:

    “Since when is Bear a depository?”

    exactly my boy ;)


  26. sas says:


    you seem like a good bloke…
    you plan on moving from this area and taken your skills and talents to a better market?


  27. rhymingrealtor says:

    My first job was tending bar for Silky at the old Silky’s on Madison Av (back when you could be a bartender at 18 y/o).


    I just got a smile from that line. I’ve already found out ( from a poll here ) we are the same age, we currently have the same occupation, and looks like we were doing the same job in the late 70’s early 80’s, (-:
    Taking inflation into account I made more money then, tending bar.


  28. RentinginNJ says:

    Look for this trend to intensify as transit rich communities offer tangible solutions to New Jersey’s housing affordability constraints, particularly as younger Generation-Y home buyers transition from renting to home ownership over the next 5 years.

    First of all, what “tangible solutions” do “transit rich communities” offer to New Jersey’s “housing affordability constraints”? What does this even mean? I know Otteau likes to say something positive in each report, but this doesn’t even make sense.

    Secondly, unless prices come down, don’t expect o see Gen-Y’ers buying in any large numbers. They will either keep living with mom & dad, will keep rent or will leave NJ for places with better opportunities. It’s not like Wall Street is creating those top paying jobs now.

  29. sas says:

    Man, does it ever end?

    “New Jersey Aims for Health Insurance for All by 2011”


  30. bi says:

    BSC has been traded around $5 all day, my question to this board is who are still taking positions?

  31. grim says:


    J.P. Bernanke & Co.

  32. bi says:

    31#, you may be right. fed and jp were paying as little as $500m for condolence to the current shareholders.

  33. Sean says:

    There is a young guy with a family who is on Deal or no Deal right now. He has 2 or 3 mortgages, and a new baby. He just turned down 156k, and is pressing on, the banker just offered 141k cause his missed, and his says no deal. What a fool, this guy is an air traffic controller and stated more than once he needs the money to pay off his mortgages.

  34. JLB says:

    324, #25: I may have confused you with the wording “bank deposits” but what Cramer is saying is that cash deposits and stock brokerage accounts are safe and did not need to be removed from Bear because it was only common stock that was at risk. That is what Cramer is saying he meant.

  35. Sean says:

    Guy on Deal or No Deal got the offer it up to 173k and took the deal.

  36. kettle1 says:

    Whistleblower exposes insider trading program at JP Morgan

    In 2000 the SEC promulgated Rule 10b5-1. The new Rule was designed to address the confusion caused by a series of court decisions that had left investors uncertain about what constitutes insider trading. Rule 10b5-1 was designed to “clarify” what constitutes illegal insider trading.

    But top Wall Street houses were not to be deterred from advantaging their big clients at the expense of their small ones. Wall Street firms like JP Morgan found loopholes in Rule 10b5-1 that allowed them to continue trading on inside information “legally.” Indeed, JP Morgan has gone so far as to set up an entire ‘selling program’ within its Securities division to help their clients profit from the loophole.

    Documents obtained earlier this month by Wikileaks from JP Morgan Private Bank, which subtitles itself as “World class solutions for wealthy individuals and families”, show the firm has a dedicated ’10b5-1 Selling program,’ along with a ‘dedicated 10b5-1 team’ to help its clients take advantage of the loophole.

    Here’s how it works:

    1. An insider client transfers all or a portion of their company stock into a JP Morgan Securities Inc. brokerage account.

    2. The insider then develops, in conjunction with the 10b5-1 team, a ‘phased, pre-planned sales program to be executed at either market or

    specified prices’.

    3. Depending on the information available to the insider (but not the public), the insider can decide whether to execute the sale or not.

  37. kettle1 says:

    link to memo

    Nj patient Chifi, BC, any comments on how shady this may be???

  38. grim says:

    From the WSJ:

    ‘We Are All in a Daze,’
    Says One Employee;
    Life Savings Wiped Out
    March 18, 2008

    NEW YORK — The bagpipes from New York’s famed St. Patrick’s Day parade a block away provided a funereal soundtrack as workers at Bear Stearns Cos. headquarters mourned their company and the loss of billions in personal savings.

    J.P. Morgan Chase & Co.’s deal to buy Bear Stearns for $2 a share wiped out the life savings of many of Bear’s 14,000 employees, who owned one-third of the firm’s shares. Most employees at Bear, known for its loyalty and a strong merit-driven culture, expected to lose their jobs.

    “It’s devastating,” said Stephen Raphael, 62 years old, a semiretired Bear broker who joined the firm in 1974. “I have a lot of good friends here, from mail clerks to senior people. I’ve spent more time at Bear Stearns than I have with my own family.”

    One trader said that when he first saw the $2 price, he thought it was a typo. “Two dollars a share?” he said. “I thought it had to be $20.”

    Two weeks ago, these guys said they didn’t need to raise more capital,” said a fixed-income executive who has been with the firm for 16 years. “And now they’re selling the firm for a quarter of the price this building is worth!”

    Two employees who service the mortgage-trading desk have been with Bear Stearns for nine years and seven years, respectively. One, a resident of Staten Island, says he has lost $600,000 in Bear Stearns stock, virtually his entire life savings. The other, from Port Washington, N.Y., her lip quivering, said she has lost $400,000.

  39. gio says:

    #33 that would be true if the show picked the banks with the highest interest rates for its viewers, but a stock show with a self proclaimed guru that gives stock buying tips… he is reaching….I heard tonight he is covering banks that give a free IPOD for new account with an initial deposit of 500.00.

  40. gio says:

    I meant 23

  41. Blodbath in Winter 2007 says:

    Clot – Hey bud, nice posts over the weekend. Really freaked out a friend today at Lehman with your prediction that Lehman is next to buckle. Her: “Nooo, we’re fine.”

    Saw someone ask it on the other thread – we have our 20% (and then some) in online banks. What’s the verdict man – still safe, right? The rates are plummeting, but we’re not going to wake up tomorrow and find the online bank just completely wiped out, right?

    *hangs up*

  42. Steve says:

    cash deposits and stock brokerage accounts are safe

    He also said to hold Bear 1 wk before collapse.

    Google SIPC

    Google FDIC

    Watch a brokerage firm collapse with thousands of creditors at the gates, see how long it takes you to get your “safe” money out.

    Then again, Cramer does have a TV show and a website.

  43. kettle1 says:

    Throughout the first 224 years (1776-2000) of our nation’s history, 42 U.S. presidents borrowed a combined $1.01 trillion from foreign governments and financial institutions according to the U.S. Treasury Department. In the past four years alone (2001-2005), the Bush Administration has borrowed a staggering $1.05 trillion.

    this isnt a problem right?

  44. JLB says:

    #42: the point is that insured money is insured money…note to self: check liquidity…

    If the Fed dissapoints expectation watch commodity prices

  45. WickedOrange says:
  46. Sean says:

    Cramer covered in his opening line today he said to sell all financial stocks, and blamed the accountants (not the execs).

    A few web sites have mentioned that Mr. Right Now picks nearly 3,000 stocks as buys in about 6 months worth of TV shows, with a few sells sprinkled in there.

    Here is his stock picks listed by date, and judging by recent performance he really is the Bob Uecker of stock pickers and a anything he says should be treated as such.


  47. JLB says:

    Greenspan(in his own words)=risk management:

    He goes on to say that bubble discontinuities, by their nature, can’t be predicted, and must pop on their own. “If, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own,” he writes. “Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.’

    He doesn’t predict when the stabilization will occur, but presents the underpinnings necessary for it to materialize. “The level of home prices will probably stabilize as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future.”

  48. chicagofinance says:

    kettle1 Says:
    March 17th, 2008 at 9:17 pm
    link to memo Nj patient Chifi, BC, any comments on how shady this may be???

    Form over substance argument….if so, these guys may be golden….JP can pitch it, but it takes two to tango….I don’t have time right now to review the veracity of the wiki claim…..

  49. chicagofinance says:

    ket: bear in mind, it is not just the SEC, but also the potential of violation of company policy….that said, I can see the purpose here….if taken at face value, and not used for nefarious purposes (which is within the realm of a reason) I think it is a defendable structure….I don’t have to like it though

  50. HEHEHE says:

    Re 38, that’s some sad sh*t

  51. Steve says:


    Insured for what? Like MBIA and AMBAC insuring structured products? PMI insuring against skyrocketing losses?

    Dated but provides example of how great this “insurance” is

    INVESTOR BEWARE; Many Holes Weaken Safety Net For Victims of Failed Brokerages

    Does not protect against drops in mkt value, you held BSC, broker goes belly up, assets frozen, you can’t sell and watch it plummet. Out of luck. You’ll get some nice wallpaper though.

    Or, unauthorized trades where the burden of proof is on you. A clearing agent used is not SIPC insured. On and on.

    But Cramer knows all, of course.

  52. BLB says:

    #43 – back in the day, a subway ride cost a nickle. Now it’s 40 times that. Once it cost $.02 to mail a letter – now it’s 20 times that! How can that be? Must be a conspiracy. Quick, someone tell Kos.

  53. syncmaster says:


    Under a [State Senator] Smith-sponsored bill, Garden State companies that employ at least 100 workers must require at least 20 percent of their employees to either carpool or vanpool to work or work from home. Similar legislation almost made it into law in the early 1990s, Smith said.

    What are everybody’s thoughts on this? It sounds like a lot to ask of employers, especially those with work that can’t be done from home.

  54. jmacdaddio says:

    Real Sports on HBO is showing a segment about Lenny Dykstra, who became an investing genius after his stockbroker turned 2 million into 400 thousand after his playing days were over. He wasn’t educated but he studied opposing pitchers meticulously, and he applied the same grit to investing and finance. Lenny started with car washes, got into publishing and investing, and still seems to be off his rocker. Who knew.

    He looks a lot older than 45… must be the roids.

  55. njpatient says:

    37 kettle

    Not really shady

    Common sale plan with prophylaxis for insider trading.

  56. tortoise says:

    I haven’t posted in a long time. I do feel bad for the hurting the average employee of Bear Stearns is getting, however the top execs have been running, in my experience and opinion a criminal enterprise for a long long time. I used to own a broker dealer in NYC and used (until I fired them) their “clearing services”…they CONSTANTLY traded against my book.
    Laymans terms, as my clearing firm could see my positions and traded against AND illegaly lent securities to certain hedge funds to short. Not being a party type I literally feel like throwing a BIG party to celebrate them going down the tubes.

  57. tortoise says:

    OT: from my last post; Gramm Leach Bliley aka “financial services modernization act of 1999” aka repeal of Glass Steagel is why we are where we are today. It was the match that lit the fuse with the mechanisms for MBS, CDO’s etc.
    It really is legislation indigestion.

  58. Clotpoll says:

    sas (26)-

    Nothing wrong with the opportunities in this market. I don’t need prices moving up to do business…I just need people who are inclined to buy or sell, no matter what the circumstances are.

    A broker of anything makes money whether the market moves up or down. All we need is volume. And, volume is coming back…although much of it is in the form of distress sales.

  59. Clotpoll says:


    “…it can prolong and enlarge the period of euphoria.”

    Great. Now Greenspan is a copywriter for Vi@gr@ commercials.

  60. Clotpoll says:

    mac (54)-

    Dykstra loves to make deep-in-the-money call plays. He had a regular column for a while at, but I stopped going to that site when I could no longer stomach Cramer.

  61. Clotpoll says:

    tort (56)-

    That’s really skeezy. Those SOB’s should’ve been shut down and sent to jail.

  62. Clotpoll says:

    tort (57)-

    Agreed. Like Roubini and Bill Gross have maintained, it paved the way for the creation of a shadow banking system that operates with no rules and no oversight.

    Of course, even in a completely unregulated system, overleveraged and undercollateralized players still get a margin call. Bummer.

    Yet, the shadow bankers seem to me to be getting the last laugh: they can now go straight to the window, pony up their dubious collateral and obtain more capital…still, with no real regulation or oversight.

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