New Jersey Real Estate Report

Need a day off.

19 Yale Terrace, Montclair NJ

Purchased: 6/1/2005
Purchase Price: $762,000
MLS# 2503228
Sold: 6/26/2008
Sale Price: $705,000

19 Woods End Road, West Orange NJ

Purchased: 6/1/2004
Purchase Price: $379,000
MLS# 2493002
Sold: 6/27/2008
Sale Price: $362,500

31 North Road, Chester NJ

Purchased: 7/23/2004
Purchase Price: $425,000
MLS# 2498591
Sold: 6/26/2008
Sale Price: $390,000

2 Lent Street, East Hanover NJ

Purchased: 8/31/2005
Purchase Price: $595,000
MLS# 2504681
Sold: 6/23/2008
Sale Price: $490,000

3 Ryan Court, Montville NJ

Purchased: 9/7/2006
Purchase Price: $1,883,065
MLS# 2465933
Sold:6/27/2008
Sale Price: $1,875,000

2 Spring Brook Court, Randolph NJ

Purchased: 10/25/2005
Purchase Price: $620,000
MLS# 2502058
Sold:6/16/2008
Sale Price: $580,000

568 Herrick Drive, Rockaway NJ

Purchased: 12/22/2005
Purchase Price: $395,000
MLS# 2501924
Sold:6/27/2008
Sale Price: $385,000

1 Shannon Mountain Lane, Washington Twp NJ

Purchased: 7/23/2003
Purchase Price: $625,000
MLS# 2511748
Sold:6/26/2008
Sale Price: $616,500
(Under the 2003 Purchase Price!)

152 Patriot Hill Drive, Basking Ridge NJ

Purchased: 8/22/2007
Purchase Price: $640,000
MLS# 2498959
Sold:6/26/2008
Sale Price: $610,000

5 Crammer Lane, Hillsborough NJ

Purchased: 9/13/2006
Purchase Price: $495,000
MLS# 2515281
Sold:6/27/2008
Sale Price: $490,000

517 Cicilia Place, Scotch Plains NJ

Purchased: 6/15/2006
Purchase Price: $389,000
MLS# 2512061
Sold: 6/27/2008
Sale Price: $287,500

23 Park Ave, Newton NJ

Purchased: 9/12/2005
Purchase Price: $393,750
MLS# 2469605
Sold: 6/27/2008
Sale Price: $382,500

332 Knox Way, Hopatcong NJ

Purchased: 11/21/2006
Purchase Price: $210,000
MLS# 2516427
Sold: 6/26/2008
Sale Price: $175,000

10 Carolina Ave, Newark NJ

Purchased: 8/9/2006
Purchase Price: $195,000
MLS# 2516055
Sold: 6/26/2008
Sale Price: $50,500

95 Blue Hill Ave, Fairlawn NJ

Purchased: 9/15/2005
Purchase Price: $425,000
MLS#: 2811101
Sold: 6/27/2008
Sale Price: $401,000

Now Open, Part II!

Rich was nice enough to provide us with our weekend fill of Bergen County comp killers! Thanks Rich!

Harrington Park FUTURE Comp Killer!

182 SCHRAALENBURGH RD
Purchased $600,000 9/21/2006
MLS# 2825662
Listed 6/24/2008
Current Asking: $579,000

Hillsdale FUTURE Comp Killer!

260 MAGNOLIA AVE
Purchased $510,000 10/2/2007
MLS# 2825778
Current Asking: $499,999 6/25/2008

Mahwah FUTURE Comp Killer!

290 MILLER RD
Purchased $540,000 9/30/2004
MLS# 2825724
Current Asking: $529,000 6/25/2008

Wyckoff FUTURE Comp Killer!

727 MOUNTAIN AVE
Purchased $562,500 8/15/2006
Current MLS# 2825519
OLP: $619,900 3/19/2007
Current Asking: $549,900 6/24/2008

Woodcliff Lake FUTURE Comp Killer!

212 GLEN RD
Purchased: $838,000 8/8/2006
Current MLS#: 2825921
OLP: $829,000 5/1/2008
Current Asking: $799,000 6/26/2008

Ridgewood FUTURE Comp Killer!

8 PATRICIA CT
Purchased: $1,105,000 12/1/2004
MLS#: 2721648
OLP: $1,275,000 5/30/2007
Current Asking: $1,040,000 6/26/2008

Lodi FUTURE Comp Killer!

286 FARNHAM AVE
Purchased: $760,000 8/4/2006
Current MLS#: 2826140 (also listed as a 2-family)
Original List: $839,555 11/29/2006
Current Asking: $697,500 6/27/2008

Hackensack FUTURE Comp Killer!

108 LAWRENCE ST
Purchased: $249,900 3/21/2005
MLS#: 2823262
Original List: $242,900 6/6/2008
Current Asking: $235,900 6/27/2008

Ho-Ho-Kus FUTURE Comp Killer!

160 BLAUVELT AVE
Purchased: $1,350,000 6/30/2004
MLS#: 2813578
Original List: $1,479,000 4/4/2008
Current Asking: $1,349,000 6/26/2008

Teaneck FUTURE Comp Killer!

42 GENESEE AVE
Purchase: $380,000 11/22/2004
MLS#: 2819298
Original List: $350,000 5/9/2008
Current Asking: $320,000 6/27/2008

Waldwick FUTURE Comp Killer!

79 E PROSPECT ST
Purchase: $369,000 4/4/2007
MLS#: 2746066
Original List: $392,000 11/16/2007
Current Asking: $339,000 6/27/2008

Dumont FUTURE Comp Killer!

5 BIRCH RD
Purchased: $410,000 6/23/2005
Purchased: $425,000 6/30/2007
Current MLS#: 2824085
Original List: $429,000 2/12/2008
Current Asking: $389,900 6/27/2008

Bogota FUTURE Comp Killer!

69 MCDOUGALL LN
Purchased: $460,000 1/11/2006
MLS#: 2826265
Current Asking: $400,000 6/23/2008

Ridgefield FUTURE Comp Killer!

511 LOWE AVE
Purchased: $595,000 3/2/2007
MLS#: 2826177
Current Asking: $539,000 6/27/2008

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 MarketWatch:

Existing-home sales rise 2% in May

U.S. home and condo resales inched higher in May as prices continued to fall, the National Association of Realtors reported Thursday.

Resales of U.S. houses and condos rose 2% to a seasonally adjusted annualized rate of 4.99 million in May from 4.89 million in April. It’s the highest sales pace since February.

Economists surveyed by MarketWatch expected sales to rise to 5 million.
…
Resales have sunk 15.9% in the past year and are down 31% from the peak in 2005. The pace of sales has been relatively stable since August at around a 5 million annual pace.
…
Inventories of unsold homes on the market fell 1.4% to 4.49 million, a 10.8-month supply at the May sales pace. The inventory figures are not seasonally adjusted. Inventories are up 2.4% in the past year.

The median sales price in May was $208,600, down 6.3% compared with a year ago.

“It’d be premature to say the improvement marks a turnaround,” said Lawrence Yun, chief economist for the real estate group, which continues to advocate for congressional action to boost home buying, including a first-time buyer tax credit and higher loan limits for Fannie Mae and Freddie Mac.

From Bloomberg:

Sales of U.S. Existing Homes Rose to 4.99 Million Rate in May

Sales of previously owned homes in the U.S. rose in May from a record low, signaling depressed prices lured some buyers into the market.

Resales increased 2 percent to a 4.99 million annual rate, higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said today in Washington. The median price dropped 6.3 percent from May last year.

A drop in property values may have spurred demand in some of the most distressed areas, such as California and the Midwest. Even so, rising mortgage rates, a glut of unsold homes, and stricter borrowing rules indicate the real estate recession will persist for most of the year.

“There’s going to be a little more adjustment until we can say the worst is over,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “If you don’t have the confidence of a job and banks are reluctant to lend money,” housing will stay weak.

Economists forecast home resales would rise to a 4.95 million pace, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from 4.75 million to 5.15 million.

April’s matched a record low for existing home sales.

Compared with a year earlier, sales were down 16 percent in May.

(Click to Enlarge)

S&P Case Shiller Home Price Index - NY Metro Commutable

Low Tier (Under $332,377)
October 2006 - 259.75 (peak)
April 2007 - 255.94
April 2008 - 233.29
8.85% year over year decline
10.19% decline from peak

Mid Tier ($332,377 - $479,467)
September 2006 - 224.18 (peak)
April 2007 - 221.43
April 2008 - 200.83
9.30% year over year decline
10.42% decline from peak

High Tier (Over $479,467)
June 2006 - 193.24 (peak)
April 2007 - 188.57
April 2008 - 177.72
5.75% year over year decline
8.03% decline from peak

Aggregate Index
June 2006 - 215.83 (peak)
April 2007 - 211.61
April 2008 - 193.93
8.35% year over year decline
10.15% decline from peak

New Jersey Association of Realtors

New Jersey State Median Price
2006.Q3 - $385,200 (peak)
2007.Q1 - $361,300
2008.Q1 - $350,700
2.93% year over year decline
8.96% decline from peak
(seasonal effects come in to play here, this isn’t a valid comparison)

Source data: http://njrereport.com/files/NJ_home_prices.xls

Data geeks can find the underlying index data at the following S&P link:

April 2008 S&P Case Shiller HPI (XLS)

From Reuters:

Home prices extend record slide in April: S&P

NEW YORK (Reuters) - U.S. home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor’s/Case Shiller home price index report on Tuesday.

From Bloomberg:

S&P/Case-Shiller Home Prices Fell 15.3% in April, Index Shows

Home prices in 20 U.S. metropolitan areas fell in April by the most on record, signaling the housing recession is far from over, a private survey showed today.

The S&P/Case-Shiller home-price index dropped 15.3 percent from a year earlier, less than forecast, after a 14.3 percent decline in March. The gauge has fallen every month since January 2007. The group began keeping year-over-year records in 2001.

Mortgage defaults and foreclosures are adding to the glut of properties on the market, while stricter loan rules are making it more difficult for prospective buyers to get financing. The prolonged real-estate slump, along with higher fuel prices and a shrinking job market, is taking a toll on consumers and the economy.

“The weakness in prices is going to persist,” Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said before the report. “The mindset has yet to change. We’ll be looking at year-over-year declines in home prices well into 2009.”

Home prices decreased 1.4 percent in April from a month earlier after a 2.2 percent decline in March, the report showed. The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month to month.

The index was forecast to fall 16 percent from a year earlier, after a previously reported 14.4 percent drop in the 12 months ended in March, according to the median forecast of 23 economists surveyed by Bloomberg News. Estimates ranged from declines of 15.4 percent to 17 percent.

From CNBC:

US Home Prices Continue Record Declines in April

U.S. home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor’s/Case Shiller home price index report.

The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year.

Economists expected prices for the 20-city index to fall 2.0 percent in the month and 15.9 percent from April 2007, according to the median forecast in a Reuters survey.

S&P said its composite index of 10 metro areas slid 1.6 percent in April for a record 16.3 percent annual drop.

Home prices in a dozen of the metro areas have fallen for eight straight months.

From the WSJ:

Great Depression Home-Price Declines

The Standard & Poor’s/Case-Shiller home-price index, which reflects prices in 20 U.S. cities, is expected Tuesday to be reported down 16% in April from a year earlier, worse than March’s 14.4% decline.

“Most of the severe price declines are appearing now,” says Mark Zandi, of Moody’s Economy.com, who says house prices are down nationwide about 15% from their 2006 peak. With heavy inventory still to plow through, “I expect prices, when all is said and done, will be down about 25% this time next year,” he says. That skid off the peak would rank it on par with the Great Depression.

From Bloomberg:

U.S. Consumer Confidence in June Probably Fell to 15-Year Low

A report from S&P/Case-Shiller at 9 a.m. may show house prices in 20 U.S. metropolitan areas plunged 16 percent in April from a year earlier, the most since records began in 2001, according to the median estimate of economists surveyed. Forecasts ranged from declines of 15.4 percent to 17 percent.

From Forbes:

On the Watch: Home Prices

On Tuesday, two indexes measuring the change in home prices in April are likely to show declines, as a glut of unsold homes continues to pressure the struggling market.

The March Standard & Poor’s/Case-Shiller 20-city index showed home prices tumbling 14.4 percent in the month to the lowest level since the index was started in 2001.

Press release and datasets can be found at Standard & Poor’s:

S&P/Case-Shiller Home Price Indices

From the New York Times:

Home Not-So-Sweet Home

“Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.
…
But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting!

Even Democrats seem to share the sense that Americans who don’t own houses are second-class citizens. Early last year, just as the mortgage meltdown was beginning, Austan Goolsbee, a University of Chicago economist who is one of Barack Obama’s top advisers, warned against a crackdown on subprime lending. “For be it ever so humble,” he wrote, “there really is no place like home, even if it does come with a balloon payment mortgage.”
…
First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.

This isn’t a hypothetical worry. From 2005 through 2007 alone — that is, at the peak of the housing bubble — more than 22 million Americans bought either new or existing houses. Now that the bubble has burst, many of those homebuyers have lost heavily on their investment. At this point there are probably around 10 million households with negative home equity — that is, with mortgages that exceed the value of their houses.

Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

And these are not the best of times. Right now, economic distress is concentrated in the states with the biggest housing busts: Florida and California have experienced much steeper rises in unemployment than the nation as a whole. Yet homeowners in these states are constrained from seeking opportunities elsewhere, because it’s very hard to sell their houses.

Finally, there’s the cost of commuting. Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.
…
And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.

Welcome to another edition of Lowball!

Lowball! takes a look at home sales from a different perspective. For those new to Lowball!, a lowball offer is when a buyer offers a significantly lower bid than asking in hopes that the seller accepts the offer. We take a list of home sales from the past month and pick out the sales that have the highest percentage difference between original list price and selling price.

To keep the list length reasonable, we’re going to use 15% as the minimum percentage off last list price to be considered a Lowball! Date range was 5/15-6/22, source GSMLS.

Key
MLS - The Listing ID Number
OLP - Original List Price
LP - Last List Price
SP - Sale Price
% off OLP - The difference between the OLP and SP
% off LP - The difference between LP and SP

Caveat Emptor!

If you prefer to look at Lowball from a dollar discount perspective, here you go. The cutoff is successful lowball offers of $150,000 or more off the original list price:

Now Open, Part II!

Weekend Comp Killers!

Summit Killer Comp Killer

MLS# 2100704 - 20 Caldwell Ave
Listed: 8/15/2008
OLP: $649,900
Last List Price: $599,000
DOM: 184
Expired
Foreclosed, REO
Sold: 6/19/2008
Sale Price: $390,000

Basking Ridge Comp Killer

51 Battalion Drive
Purchased: 9/26/2005
Purchase Price: $585,000
MLS# 2505733
Sold: 6/12/2008
Sale Price: $544,000

Chatham Comp Killer

35 Edgehill Ave
Purchased: 4/26/2006
Purchase Price: $1,025,000
MLS# 2499523
Original List Price: $1,140,000
Sold: 6/20/2008
Sale Price: $985,000

Cedar Grove Comp Killer

411 Holly Lane
Purchased: 8/30/2004
Purchase Price: $564,414
MLS# 2491976
OLP: $579,900
Sold: 6/20/2008
Sale Price: $520,000

Upper Saddle River Future Comp Killer

6 Northern Drive
Purchased: 7/6/2006
Purchase Price: $1,425,000
MLS# 2814543
Listed: 4/10/2008
OLP: $1,449,000
Current Asking: $1,349,000

Ridgewood Comp Killer
635 Albert Street
Purchased: 8/17/2005
Purchase Price: $609,000
MLS# 2802116
Listed: 1/16/2008
OLP: $599,000
Sold: 6/20/2008
Sale Price: $570,000

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 Wall Street Journal:

Angelo’s Angel
June 19, 2008; Page A14

Give Senator Christopher Dodd credit for nerve. On Tuesday, the very day he finally admitted knowing that Countrywide Financial regarded him as a “special” customer, the Connecticut Democrat also announced that he was bringing to the Senate floor a housing bailout sure to help lenders like Countrywide.

How much will Countrywide benefit from Mr. Dodd’s rescue? The Senator’s plan allows mortgage lenders to dump up to $300 billion of their worst loans on to taxpayers via a new Federal Housing Administration refinancing program, provided the lenders are willing to accept 87% of current market value. The program will be most attractive to lenders and investors holding subprime and slightly-less-risky Alt-A loans made during the height of the housing bubble in 2006 and 2007.

As the market leader during that period, Countrywide originated $167 billion of such loans, more than 11% of the nationwide total, according to Inside Mortgage Finance. Analyst Fred Cannon of Keefe, Bruyette and Woods estimates that the company is still holding more than $30 billion in subprime and Alt-A loans on its books, based on the company’s most recent quarterly financials.
…
What’s more, the company is holding $34 billion in home equity loans, which are even more risky than the mortgage loans, and typically result in 100% losses for the lender if a borrower defaults. The Dodd bailout will make it more likely that Countrywide gets some recovery from the worst of these loans because the mortgage holder will need to negotiate a settlement with the owner of the home equity loan before participating in the federal bailout.

If borrowers and lenders take full advantage of this new federal program, and Countrywide loans go south at roughly the same rate as those from other lenders, this suggests a potential taxpayer bailout of more than $25 billion for Countrywide-originated loans. Even if the losses turn out to be far less, why should taxpayers do anything to help a company that did so much to foment the mortgage mess?

Meanwhile, Mr. Dodd continues to insist that, though he knew he was a “special” Countrywide customer, he didn’t think he was getting any special financial benefit. But a $75,000 reduction in mortgage payments is no small matter for anyone living on a Senate salary of $169,300. Why else would he be known around Countrywide as a “Friend of Angelo” – Angelo being Countrywide CEO Angelo Mozilo.

Yesterday, nine Senate Republicans led by South Carolina’s Jim DeMint sent a letter asking Majority Leader Harry Reid to delay consideration of Mr. Dodd’s housing bailout bill in light of its benefits for Countrywide – and Countrywide’s benefits for Mr. Dodd. That’s an excellent idea, in addition to a Congressional and Justice Department probe of Countrywide, Fannie Mae and the favors they seem to have spread around Washington. American taxpayers need to understand more about who they’re being asked to bail out here, and why.

From the New Jersey Department of Labor and Workforce Development:

Employment in New Jersey Held Steady in May; Unemployment Rate at 5.4 Percent

Trenton, June 18, 2008 – For the third consecutive month, employment in New Jersey as virtually unchanged in May, while the state’s unemployment rate rose by 0.5 percentage point to
5.4 percent. This is the largest unrevised increase in the unemployment rate since April 2006. Despite the increase, the state’s unemployment rate is still below the rate for the United States as a whole, which rose by 0.5 percent to 5.5 percent in May, the largest increase since 1986.

Total nonfarm wage and salary employment in the Garden State moved higher by just 100 in May, to reach a seasonally adjusted level of 4,071,700, based on preliminary estimates from the Department of Labor and Workforce Development’s monthly survey of employers. The previously released April estimates were revised lower by 1,100 to 4,071,600 after more complete reporting. In addition, April’s unemployment rate of 5.0 percent was revised slightly lower to 4.9 percent.

Private sector jobholding increased by 500 over the month but was offset by a decrease in government employment, which contracted by 400. Over the first five months of 2008, New Jersey’s total nonfarm employment has declined by 10,900 (-0.26%), while over the same period the nation has lost 324,000 jobs (-0.23%).

“Clearly, the national labor market is struggling, and New Jersey is consistent with that trend,” said Commissioner David J. Socolow. “As in prior downturns like this one, the federal government should step in to provide extended Unemployment Insurance benefits, so that job seekers will have additional support while they look for work in this uncertain economy.”

From MSNBC:

Brace for other shoe to drop in mortgage mess, some warn

With most of the country still reeling from the subprime mortgage meltdown, Mark Hanson is warning of the next looming blow.

Hanson, a bank consultant and former mortgage broker from the Bay Area who writes a blog under the name “Mr. Mortgage,” is among a handful of industry soothsayers who expect another big wave of foreclosures to hit sometime around 2010, driven by defaults among people holding less risky loans known as “alternative-A.”

Subprime is the term applied to loans given to people with shaky credit. Alt-A is the next-higher category, typically covering mortgages to borrowers who had better credit but didn’t want to document their incomes or wanted an initial period of low payments, often covering only the interest on the loan. Technically the term “alt-A” applies to securities backed by the loans, but it has come to be used for the mortgages themselves.

While defaults have been creeping up in the alt-A category this year, the foreclosures that have wracked the housing market so far have been largely the result of defaults among subprime borrowers.

“I think we are through the subprime blowup, but that’s nothing compared to what’s coming,” said Hanson, who made similar predictions on CNN in April.

His theory is that other borrowers will follow the path of subprime borrowers, who started defaulting when their mortgage interest rates reset to higher levels. Many alt-A borrowers face a bump in their monthly payments starting mid-2010, according to financial services company Credit Suisse. The firm’s figures, reported in the International Monetary Fund’s report on global financial stability, show a big bubble of U.S. mortgage rate readjustments hitting during that time period, including borrowers with “option ARM” loans that allow a borrower to initially make payments that are so low the balance increases.
…
A record $400 billion in alt-A loans was issued in 2006, according to data by specialty publisher Inside Mortgage Finance, cited in published reports. Alt-A accounted for 13.4 percent of all mortgages offered that year. Hanson said lenders first started pushing them in 2005 as a way for buyers to combat skyrocketing prices and continued issuing them into 2007 despite the subprime concerns.
…
“It’s not hard to get a 700 credit score,” he said, citing a typical score for an alt-A borrower when the loans were being widely offered. “If you had a Macy’s card and a gas card, you could buy an $800,000 home.”

From Bloomberg:

Why Real Estate Market Is Nowhere Near a Bottom: Caroline Baum

Every time a housing statistic emits a faint heartbeat — last week’s 6.3 percent increase in the April pending home sales index, for example — there’s a flurry of pronouncements that the residential real estate market has bottomed.

Hope springs eternal. Housing has been down so long it looks like up, especially with the graph turned upside down.

New and existing home sales peaked in July and September of 2005, respectively. It took a while for homebuilders to catch the drift: Starts didn’t top out until January 2006, leaving a huge inventory of unsold homes in their wake.

Single-family starts, which are the most sensitive to changes in interest rates, are down 63 percent from the January 2006 peak, easily topping the 38 percent peak-to-trough decline in 1973-1975 and 57 percent 1984-1991 dive, and vying for first place with the 65 percent plunge in 1977-1981.

No wonder homebuilders are glum. In a departure from normal practices, the National Association of Homebuilders elected to release its monthly builder survey to the media via conference call on Monday. I received so many advance e-mail alerts I was starting to wonder if the index had sunk to zero in June, and the NAHB wanted to soften the blow.
…
In Southern California, for example, one of the areas where the bubble started early and ended hard, median home prices are down 27 percent in the past year, Lawler said.

“If you look at observed transactions on distressed sales, you could make a case that we are closer to a bottom because prices have plunged so rapidly,” he said. “But that’s no solace to non-distressed prices.”

In Florida, another epicenter of the boom-bust in real estate, “sales are 20 to 30 percent below year-ago levels, but prices haven’t moved very much,” Lawler said.

Builders have been reluctant to slash home prices for fear of alienating previous customers and encouraging current buyers to wriggle out of their contracts.

“Once clearing prices are way down, you can’t attract buyers with granite countertops and gold trim,” Lawler said.
…
Using the MBA and other data, Lawler calculates that there are 1.34 million one-to-four family first-lien mortgages in the foreclosure process, which amounts to 27 percent of the inventory of existing unsold homes. A year ago, foreclosures represented about 18 percent of the unsold inventory, he said.

As scary as that number sounds, so far it’s just on paper. It takes about a year for today’s foreclosures to be dumped on the market, adding to the already-bloated inventory of unsold homes, according to Michael Carliner, a former NAHB economist and now an independent housing economist in Potomac, Maryland.
…
“We are unlikely to see a sustained increase in nationwide new home sales until builders are willing to cut prices to match the plunge in the prices of existing homes in seriously distressed areas,” Lawler said.

If and when they do, you might not have to turn the home sales graph upside down to see the improvement.