The water is nice, but don’t turn your back on the waves

From the NYT:

Partly Sunny at the Shore

JOEL NAROFF, an economist who last year won a prize from the National Association for Business Economics as the country’s most accurate forecaster, found his prediction skills wanting four years ago when it came time to buy his own vacation house at the Jersey Shore.

“I was hoping we had gotten a good portion of the decline behind us and I was ready to make the move,” said Mr. Naroff, speaking of the house he bought in Margate in 2008 not long before Lehman Brothers crashed. The market had indeed skidded by then — but not anywhere near as much as it was about to. “I made what I thought was a reasonably low offer, but clearly we had not hit the bottom yet.”

Today, however, as the president of Naroff Economic Advisors of Holland, Pa., Mr. Naroff says he is confident that the market has truly bottomed out. And based on a recent flurry of activity at the Jersey Shore, he is hoping that he and his neighbors can start to turn the page on losses suffered these last few years.

“What we’re seeing now are very reasonable prices for expensive homes,” Mr. Naroff said. “The high-end real estate has come down to where people are getting back into it. The one-percenters have the money, and they’re seeing there are good deals out there.”

A few trouble spots aside, brokers up and down the shore seem to agree with Mr. Naroff. Randy Leiser, a sales representative with Avalon Real Estate, said the first quarter had been his agency’s strongest since 2006, with 97 new contracts so far this year, versus 75 in the first quarter of 2011 and 55 in the first quarter of 2010. Lee Childers, a broker-owner of Childers Sotheby’s International Realty, said the first quarter of 2012 had been very active for his office as well, but most activity was taking place in lower to middle price range.

“We’re still experiencing some drifting downward, particularly in the upper end,” Mr. Childers said. “There’s still plenty of seven-figure stuff sitting on the market.” He estimated overall prices at the shore in northern Ocean County were down 5 percent since last year, and 20 to 30 percent since the peak.

eal estate activity has picked up, if a little less robustly at the shore than the rest of the state as a whole, according to Jeffrey Otteau, the president of the Otteau Valuation Group. Statewide, first-quarter sales were up 25 percent over last year’s; looking at the shore separately, activity increased by only 15 percent, Mr. Otteau reported.

But it is another story for prices. Overall pricing at the shore was down by 3.5 percent in March, as compared with March 2011. The picture is even less positive for the southern shore, where Mr. Otteau said prices were down 6.1 percent. In towns from Long Beach Island northward, the decline is more like 1 percent.

Kevin Gillen, an economist with the Econsult Corporation of Philadelphia who studies real estate trends in the Philadelphia area and the southern Jersey Shore, said overall shore values were down by 30 percent from their height in the mid-2000s, and closer to 50 percent in Atlantic City. The latter, a year-round market as well as a vacation destination, has seen a severe drop in gambling activity since casinos opened in Pennsylvania. That decline in turn has hurt the housing market, Mr. Gillen said.

Another urban shore community that has suffered greatly since the downturn has been Asbury Park, whose market has been “decimated,” according to Gerald Scarano of Exit Realty. He said houses had lost 30 to 50 percent of their value since the heyday of the early 2000s, when gay New Yorkers discovered the city as a hip alternative to Fire Island and the Hamptons.

“The Good Ship Lollipop is stuck on a sandbar,” said Mr. Scarano, an investor turned broker who once earned tidy profits buying, renovating and selling homes in Asbury Park. As evidence of the continued weakening, he cited a 2,064-square-foot Dutch colonial in the desirable Deal Lake area that was listed six years ago at $775,000 and finally sold in March for $520,000. Nearby, a Victorian sold for $349,000 in late April, having started out at $469,000 last fall.

Mr. Naroff says he doesn’t like to think about how much value his Margate home has lost, noting that such speculation is fruitless anyway. “It’s not a loss,” he said, “if I don’t have to sell.”

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29 Responses to The water is nice, but don’t turn your back on the waves

  1. grim says:

    Dr. Naroff and I traded some emails about shore real estate years back when he was at TD.

    Feels nice to have beaten the #1 forecaster, even if in just one area.

  2. grim says:

    Hat tip Chi – Reposting:

    May 4, 2012, 6:08 p.m. ET
    Renting Prosperity

    Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom.


    In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed.

    “The Great Gatsby,” the pre-eminent American novel of financial ambition, overextension and downfall, offers a revealing vignette about the great American obsession: real estate. The narrator, Nick Carraway, can’t afford to buy in the rarefied Long Island world inhabited by Gatsby, and by Tom and Daisy Buchanan. But he can afford to rent. “When a young man at the office suggested that we take a house together in a commuting town, it sounded like a great idea. He found the house, a weather-beaten cardboard bungalow at eighty a month, but at the last minute the firm ordered him to Washington, and I went out to the country alone,” he notes. “I had a view of the water, a partial view of my neighbor’s lawn, and the consoling proximity of millionaires—all for eighty dollars a month.”

    In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn’t limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

    While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can’t—or won’t—borrow to purchase the goods and services they’ve come to consider part of their standard of living, how does the economy get back on its feet?

    The answer lies in consumers following the example of corporations—that is, becoming more efficient. The reaction to extended leverage and foolish borrowing isn’t to stop consuming and buying; it is to consume and buy more intelligently. That’s what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take “ownership” of a home.

    The vast mortgage-political-financial complex, for a variety of reasons, valued homeownership as a good in its own right. Democrats saw the extension of credit to people on the lower end of the income scale as a matter of social justice; Republicans thought homeownership would make people more bourgeois. Banks and Wall Street firms salivated at the fees mortgages could generate.

    So, during the boom, the homeownership rate grew steadily, peaking at a record 69% in 2006, according to the Census Bureau. But those gains were short-lived and came at a truly massive cost: a huge mortgage bust, expensive bailouts of Fannie Mae and Freddie Mac, an overhang of millions of foreclosed properties and falling home prices. Ownership-boosters failed to note that homes purchased in 2005 and 2006 with no-money-down, interest-only mortgages weren’t really bought. They were simply rented until the “owner” flipped them or walked away from the mortgage. Far from strengthening low-income neighborhoods, this destabilized them through the inevitability of foreclosure.

    In the post-bust climate, renting has emerged as a much more economically efficient way to pay for housing. A one-year lease represents a far less onerous financial obligation than a 30-year mortgage. It’s difficult to get into too much financial trouble as a renter. The homeownership rate has fallen from its peak in 2006 to 65.4% today. The foreclosure crisis, which has caused millions of Americans to turn over homes to lenders, is responsible for much of this decline. What’s more, given the weak labor market and higher lending standards, more Americans today have a difficult time scraping together the required down payments.

    For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody’s, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

    It’s tempting to view the rise of rentership as an economic step backward. Renters can’t build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you’ve failed as a homeowner or are not yet ready to be one. But I’d argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

    The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can’t easily take his skills to where they are needed in North Dakota or Wyoming if he’s underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

    Home builders and property owners have caught on to the economic opportunity presented by the move toward rental. Fannie Mae and Freddie Mac have become reluctant owners of more than 200,000 properties thanks to the foreclosure crisis, working through the backlog, one painstaking foreclosure sale at a time. But in February, Fannie Mae said it would put up for sale some 2,490 homes as a package, asking for $321 million. The Wall Street Journal reported that an assortment of real estate companies and private-equity investors were considering making bids. The presumption was that these sophisticated investors would turn the homes into rental properties. No less a sage than Warren Buffett told CNBC in February that he’d love to buy “a couple hundred thousand” single-family homes for rentals.

    The depressed home-building industry has also shifted gears to adapt to the new reality. Housing starts for multifamily units have risen sharply since 2009, according to the Census Bureau. In 2011, whereas single-family housing starts fell 9% from the year before, starts of structures with five or more units were up 60%. In the first quarter of 2012, starts of multifamily housing structures were up another 27%, while single-family starts were up only 16.7%.

    What’s more, the builders of these structures increasingly intend to rent them out. In 2007, only 62% of the housing units in buildings with two or more units were built for rent. In 2009, 84% of the units in such buildings were built to be rented. In 2011, 91% of the units in such structures were aimed at the rental market.

    And the rising popularity of rentership is hardly contained to the housing market. Indeed, it has spurred the creation and growth of innovative businesses in a number of other realms—particularly those that cater to America’s cash-strapped, credit-wary youth.

    Take cars. The Bureau of Labor Statistics says that private transportation—owning and running a car—is the second largest cost for a typical American household, accounting for 16% of expenditures. Factoring in finance costs, depreciation, repairs, insurance, taxes and gas, AAA calculates that an owner of a midsize sedan who drives 15,000 miles a year spends $8,588 a year on his car.

    Enter auto-sharing firm Zipcar. Founded in 2000, it grew by focusing on cities and college campuses. It uses information technology to manage its fleet, and control access—people get cards that let them into garages where cars are kept and into the cars themselves. Users in New York pay a $60 annual fee and then $8.75 per hour on weekdays and $13.75 per hour on weekends—no extra charge for gas or insurance or miles. As the U.S. economy contracted, Zipcar went into hyper-growth: from 225,000 members in 2008 to 650,000 members and 9,500 cars in November 2011. Zipcar, which went public in 2011, has had success in the predictable big cities like Boston, New York and San Francisco, but its vehicles can also be found on 350 college campuses and in smaller cities like Providence, R.I., and Portland, Ore. Large rental agencies like Enterprise and Avis have responded by rolling out similar services.

    Or take textbooks. College textbooks are, in effect, rental goods. Students buy them at retail, use them for four months, and then resell them to the campus store or a used-book dealer. In 2010, the U.S. college-textbook market was worth about $4.5 billion, according to the American Association of Publishers. But why buy textbooks when you can spend less and rent them?, founded in 2001, has raised more than $200 million in funding and is aiming to displace the college bookstore. An undergrad can buy an economics textbook new for, say, $263. At, she can rent a hard copy of the same book for $94 for 180 days, or an electronic copy for $128 for the same period. As more students come to campus with Kindles, Nooks and other e-readers, the more efficient consumption of college textbooks is likely to grow rapidly.

    Rent the Runway, another Rentership Society business, has likewise found a foothold on college campuses. The company was started in 2009 by Harvard Business School classmates Jennifer Hyman and Jennifer Fleiss. Ms. Hyman has called the company “the Netflix for fashion.” As with Netflix, customers open accounts and then pay for the temporary use of goods sent to them through the mail. A Thread Social Poppy Sweetheart Dress (retail price: $365) rents for $50. Accessorize with Crislu Crystal Tear Earrings (retail $96, rent for $20). In business for less than two years, Rent the Runway has raised $31 million in venture capital, attracted one million customers and is turning a profit.

    All these models involve more sharing than American consumers are typically accustomed to doing. But the culture is changing. Consider how quickly the attitude of consumers toward housing has changed. And I’m not just talking about the rising incidence, popularity and acceptance of home and apartment rental. At the height of the boom, people believed their homes generated cash by serving as a source of home equity credit, or by returning profits when they were sold. Today, not so much.

    But thanks to another postrecession business, efficiency-seeking homeowners have come to realize that their homes can still generate cash. Airbnb, founded in August 2008, is dedicated to the promise that lots of people are willing to earn money by renting out a room in their home and that lots of people are willing to save money by crashing in strangers’ abodes rather than in motels or hotels.

    Only in America could entrepreneurs rapidly transform couch-surfing into a high-tech business worth more than $1 billion in the space of 36 months. With over 100,000 listings available in more than 16,000 cities and 186 countries, it’s a real business. It has booked over 5 million nights. In July 2011, Airbnb raised $112 million from venture-capital firms Andreessen Horowitz, DST Global and General Catalyst. But the real value of Airbnb isn’t necessarily what profits it brings to investors. Rather, it’s the cash it puts into the hands of homeowners. That cash is not enough to turn around the economy. But it’s part of a sea change in how people view the true value of their property and how they role of ownership in their lives as a whole.

    Finally, perhaps, Americans are absorbing a piece of wisdom not from Gatsby, but from Thoreau: “And when the farmer has got his house, he may not be the richer but the poorer for it, and it be the house that has got him.”

    —Mr. Gross is economics editor at Yahoo Finance. This essay is adapted from his new book, “Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy,” which will be published Tuesday by the Free Press.

    A version of this article appeared May 5, 2012, on page C1 in some U.S. editions of The Wall Street Journal, with the headline: Renting Prosperity.

  3. grim says:

    From Mark Kiesel at Pimco – Hat tip CR:

    Back In

    I’m back in. Yes, I’ve finally purchased a house after renting for the past six years. I sold my previous house in May 2006 after nearly a decade of being a homeowner because I was convinced U.S. housing prices were set to fall, and I wrote about it in prior Credit Perspectives pieces, “For Sale” (June 2006) and “Still Renting” (May 2007). Many of my friends, family and colleagues have asked me over the past several years, “Are you still renting?” In fact, that is probably the question I’ve heard most often from clients, consultants and the media over the years.

    So, next weekend I’ll be moving into a house. My decision to buy was mainly driven by the improved relative value of U.S. housing. When I sold my house in 2006, I purchased mainly corporate and municipal bonds where I believed high-single-digit annual returns were possible. In stark contrast, housing prices subsequently fell an amazing 34% from their April 2006 peak through March 2012, according to CoreLogic.

    Today, however, U.S. housing looks like a decent place to put money over the next several years. I’m not sure if U.S. housing prices have bottomed – only time will tell – but there are many more positives today than there were six years ago when I sold my house. Just as important is how an improved outlook for U.S. housing is positive for the U.S. economy, consumers and for the banking sector.

  4. grim says:

    Keisel’s cash out piece was featured prominently on the front page back in 2006.

  5. grim says:

    Now my name is M.C.A. – I’ve got a license to kill
    I think you know what time it is – it’s time to get ill
    Now what do we have here – an outlaw and his beer
    I run this land, you understand – I make myself clear.

    We stepped into the wind – he had a gun, I had a grin
    You think this story’s over but it’s ready to begin

    Now I got the gun – you got the brew
    You got two choices of what you can do
    It’s not a tough decision as you can see
    I can blow you away or you can ride with me

    I said, I’ll ride with you if
    you can get me to the border
    The sheriff’s after me for what I did to his daughter
    I did it like this – I did it like that
    I did it with a whiffleball bat

  6. Mike says:

    Good Morning New Jersey

  7. 3b says:

    grim: Not the pricing any more, but the prpoerty taxes that are the ball and chain, and the fact homeowners, have no control over them.

  8. chicagofinance says:

    Booya! I live for hat-tip…

  9. Juice Box says:

    Grim – “It is not a loss if you don’t have to sell?”

    “closer to 50 percent in Atlantic City” is about right for Margate. Naroff stretched the truth a bit. He bought 10/15/07 paid $925,000 and the assessment is now 613k for his Margate Condo with 8k in taxes. Only comp is from 2009 at $610k same development and they may be going for $550k now. Why make monthly interest payments on what is most likely a whopper of a mortgage that cannot be refinanced at a lower rate? If Nardoff has a mortgage he is losing money every month.

    He should have sold that dump back in 2008 at the end of the first Summer. You first First Loss Is Your Best Loss.

  10. gary says:

    Mr. Naroff says he doesn’t like to think about how much value his Margate home has lost, noting that such speculation is fruitless anyway. “It’s not a loss,” he said, “if I don’t have to sell.”

    Translation: Please tell me everything’s going to be ok (as he wipes sweat from his forehead). Right? Right? I mean… hey, can I get a Johnny Black on the rocks, buddy?

  11. Grim says:

    Speaking of black on the rocks, gtg?

  12. chicagofinance says:

    The End Is Nigh (JJ LI Vending Edition):

    Long Island ‘hooker’ accused of selling s-x out of hot-dog truck — again
    Seller’s ‘quickie’ side dish


    Catherine Scalia, seen here in 2005, is in trouble again, accused of selling more than food out of her roadside hot-dog truck.

    She loves those dirty dogs!

    A Long Island hooker sold more than just sausage at her roadside hot-dog truck — using the truck to peddle her own flesh even though she’d been busted on the same rap eight years ago, cops said yesterday.

    Catherine Scalia, 45, was arrested Thursday night when she offered the off-menu special to an undercover cop and took him back to her East Rockaway pad for some home cooking.

    The mother of four pleaded not guilty to a prostitution charge and was held on $2,000 bail.

    It’s the second time Scalia’s been busted for mixing s-x and Sabretts. She and a pal were nailed in December 2004 for running a similar operation out of the hot-dog truck.

    Cops recently discovered she was back in business after disgusted residents near her Baldwin stand complained she was handing out suggestive business cards alongside steaming kielbasa.

    Titled “Strips-R-Us” and featuring a dated photo, the cards offer bachelor-party services, “one-on-one strips” and a “t-pless cleaning service.”

    An undercover cop approached the stand Thursday and bought two hot dogs and water for $5 before the “specials” were announced.

    Scalia took the cop back to her place and performed a striptease for $100 before unveiling the main course, police said.

    “She agreed to manually stimulate him for an additional $50,” said Nassau County Police spokesman Kevin Smith.

    She was slapped with cuffs instead.

    Smith said that Scalia, who had a prior bust for DWI, did not have permits for hot-dog sales and that her camper-turned-brothel was illegal.

    Her neighbors weren’t surprised by the bust.

    “In the summertime she’s out in her bra and panties,” said nauseated neighbor Jem Velasco. “It’s disgusting. She’s filthy, she’s dirty. How could men take that?”

    One neighbor said the men who exited the home appeared to have enjoyed their experiences there.

    “They seemed pretty happy,” she said. “Now I can see why.”

    In 2004, Scalia and her late co-chef, Rose Skorge, performed s-x acts right in the same camper’s captain’s chair.

    They advertised themselves individually as Roxy and Diamond and in tandem as “Double Delicious” until they were done in by an undercover cop.

    “What do you want? It was a bad hot-dog day. I sold maybe $5 worth of hot dogs that day,” she told The Post after that arrest.

    But she claimed she didn’t offer the cop s-x, just a peek at her chest.

    “I mean, what’s wrong with indecent exposure?” she asked. “Showing your chest — how could that be prostitution?”

    She also said she had shown some restraint.

    “I zip up when I see kids,” she said.

  13. Mikeinwaiting says:

    Grim 11 “Speaking of black on the rocks, gtg?” Just had a couple with some Chilean Sea Bass, excellent.
    Name the time & place I will do my best to show , we are a lot closer now with you in Wayne.

  14. Mikeinwaiting says:

    “I zip up when I see kids,” she said.
    I guess it’s OK then………………

  15. AG says:

    “grim: Not the pricing any more, but the prpoerty taxes that are the ball and chain, and the fact homeowners, have no control over them.”


  16. Hey, Naroff…you’re on a one-way ticket to palookaville. Man up, and stop trying to work out your personal housing angst in the press.

    In the end, you’re still dead.

  17. Jill says:

    Comp killer deluxe: This unfinished house in WT finally sold: township

    I think was bank-owned by this point. It was a tear-down sold for a half-million in 2006, then this POS McMansion was put up and listed for $1.379 million in late 2008. It went down to $1.249.9 million…and that was it. Not sure when the bank took it over, but it just sold for $475K. Check out the photos of this palatial manse:

    …lots of fancy gewgaw trim (probably all styrofoam) but not even painted, just sheetrock and tape inside, no finish work at all, no kitchen, “soaking tub” in one of the baths but no other fixtures. Floors not even finished. Outside has been just weeds, no landscaping, no driveway…and still the builder thought he’d get over a million bucks.

    I’m sure the people who live next door to this thing are happy to see that it sold. I’m kind of sorry to see such a monument to ‘oughts stupidity go away.

  18. 3b says:

    #16 New: That is what I was thinking. The old it is not a loss if I don’t have to sell, says it all.

  19. gary says:

    Jill [18],

    I could only imagine what the monthly PSE&G bill will look like for that Frankenstein. I think a few towels dipped in sterno and a Bic lighter might be cheaper route.

  20. Mikeinwaiting says:

    Gary 20 I was renting a monster for a couple of years(did I say rent more like caretaker 650 a month) 7000k a year heating (propane HWBB) electric about 3500-4000.

  21. Mikeinwaiting says:

    Oops more coffee, 7 k or 7000 take your pick and hold on tight in either case.

  22. Mikeinwaiting says:

    3b, AG going to look at a home today: price fine, taxes under 5k ( very liveable) my fear where do they go. I bought in 98 up here sold in 06, taxes on that property up70% in that time period.

  23. gary says:

    I might check out a few open houses today… and I’m working on zero sleep. Like, never fell asleep at all. Like, still going from yesterday. This should be interesting.

  24. 3b says:

    #23 mike: I have my eye on one. they drop it which I think they will in next 2 weeks, I put my bid in. Taxes under 10K a bargain!!!

    Disclaimer I am buying and I still think prices will continue to fall.

  25. 3b says:

    #24 gary: Bring your checkbook, and hurry, hurry!!!

  26. Comrade Nom Deplume says:

    [24] Gary,

    Better to stay up. If I catch a few hours sleep, I’m actually worse.

  27. Comrade Nom Deplume says:

    You know, these aren’t just for the super rich. . . . I am doing a few of these myself.

  28. Cleci says:

    your texts are worthy a trophy, congratulations.

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