August Otteau Report

From Otteau Group:

MarketNEWS August 2018 Edition

The number of home purchase contracts in New Jersey increased by 4% during July compared to the same month last year. There has however been a noticeable change in the mood of the market in recent months as the pace of home sales has declined in about 1/3 of all markets on a year-to-date basis. As a result, the number of year-to-date purchase contracts (January-July) in New Jersey is up marginally by 1%, or roughly 800 contracts. While this is partially attributable to an under-supply of housing inventory, a growing affordability gap due to rising prices and interest rates is a significant factor.

While the number of year-to-date home sales has increased by 1% overall, that is not the case for all price ranges. Contract activity for homes priced under $400,000 have stagnated due to supply shortages, with unsold inventory having dropped by 9% year-to-date. Recording a 1% decline, are contract sales for homes priced between $1-Million to $2.5-Million (26 sales). This is somewhat misleading, however, given that this price range accounts for a much smaller share of sales. At the opposite end of the spectrum, contract activity for luxury priced homes over $2.5-Million has increased by an impressive 12% (208 in 2017 vs. 232 today).

Shifting to the supply side of the equation, inventory remains restricted, which is limiting choices for home buyers. The number of homes being offered for sale today in New Jersey has fallen to its lowest point since 2005, having declined by 725 (-2%) over the past year. This is also 41% less than the amount of homes (30,000 fewer) on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to just 4.1 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 4.3 months.

Currently, 95% of New Jersey’s 21 counties have less than 8.0 months of supply, which is a balance point for home prices. Middlesex County has the strongest market conditions in the state with just 3.0 months of supply, followed by Essex, Passaic, Union, Somerset, Burlington, Hudson, Camden & Monmouth, which all have fewer than 4.0 months of supply. The counties with the largest amount of unsold inventory (6.5 months or greater) are concentrated in the southern portion of the state including Salem (6.5) and Cumberland (8.7).

Demand for rental apartments continues to expand in NJ with statewide occupancy rates being among the highest in the US. Statewide vacancy increased somewhat from the prior quarter, rising by 20 basis points to 3.8%. The rise in vacancy is attributable to the rapid growth in pipeline supply, which has increased from 7,600 apartments in 2008 to 32,000 today. Nationally, the average vacancy rate increased by 10 basis points to 4.8%. Still, statewide and national vacancy rates remain well below their 2010 peak having fallen by 140 bp and 320 bp, respectively.

Consistent with national trends, the homeownership rate in New Jersey declined precipitously with the onset of the Great Recession. The homeownership rate in NJ has declined from a peak of 71.3% in 2005.Q1 to 66% in 2018.Q2, which is 170 basis points higher than the national rate. This equates to a 7% drop in the homeownership rate, at both the state and national level. Because of this shift, there are approximately 208,000 additional renters in New Jersey.

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49 Responses to August Otteau Report

  1. 1987 Condo says:

    First…/Last?

  2. The Great Pumpkin says:

    Seems like a very healthy market. Buyers are not overbidding like lunatics driving the price up. Prices seem very stable and true to market value. Anything overpriced sits, and anything priced right goes.

  3. Bruiser says:

    babababababababababababa…
    BOOOOOOYYYYYYAAAAAAAAAAAAAAA!!!

  4. Juice Box says:

    Seems like a very healthy market.

    Overall up, up up….

    https://fred.stlouisfed.org/series/USSTHPI

  5. NJDepartment says:

    I guess those overbid will get hosed.

  6. pricequestion says:

    Anybody got an idea on how to price a new construction in Bergen county ??. I would say it is a standard build for a 2500 sqft house in terms of quality. The owner contracted a builder. The house was razed and built on top of existing basement. 4 beds 3/1 bath. Finished basement.

  7. pricequestion says:

    Just trying to make sure I won’t overpay in this market and what is the real cost to builder and what kind of margin he has.. Do we use 150 per sqft. or les or more… Any guidelines from our blog experts..

  8. leftwing says:

    Builder’s cost doesn’t matter. Market price of what is offered does.

    If you apply that logic to the market you would never have paid $1000 for a share of Amazon since the venture investors paid so much less….

    If you want to evaluate if new construction is ‘priced correctly’ look at the quality. Contractor grade cabinets or custom. Landscaping or just sod. Masonry fireplaces or zero clearance. Red oak number 2 flooring or better. What type and brand of windows….etc.

    Unfortunately, not only is builder cost irrelevant but most buyers don’t take into account even the above price comparables. If it looks good cosmetically and wifey wants it and the neighborhood, it’s gone. Plastic windows and fireplaces the gauge of a beer can be damned…

    As 30yr will tell you, the market always determines the price….

  9. pricequestion says:

    Leftwing, I understand the market dictates.. But it helps to understand the cost of building because it depends on what type of margin the seller is ready to accept based on market conditions..

  10. ExEssex says:

    It’s all over cept’ for the shouting and that’ll come later…

  11. leftwing says:

    I’ve done the exact same kind of knockdowns and rebuilds. Have not run across a builder/seller who accepts or declines an offer based on a markup over his costs in a firm (price stable/rising) real estate market. They sell based on market value.

    Back in 2007 we had a house I funded but ceded operating decisions to partners. God bless them, they held firm on pricing and eked out a market top $2.5m as there were clear signs of the market cracking. Nearly sh1t my pants those few months. All-in build costs including soft (broker, transfer tax) was $1.8. Glad they had the deed and not me.

    I understand what you are trying to do but it is mostly an academic exercise. Builder/seller does not need to convince everyone of value nor convince anyone of the ‘fair’ markup over costs. In a firm real estate market builder/seller needs only one person convinced it is offered at market value. He usually finds that person if in fact the house is offered at market. Spend your time deriving market value, not cost-plus.

    If I were to give you advice I would focus not on builder costs but quality of construction to the parameters for the amenities you want. The last point is important, does the house have amenities you don’t even want (in that case why would you even take them at cost). On your specific situation I would note I am not a fan of using existing foundations as I’ve seen some funky stuff on those kinds of rebuilds and with a finished basement it is impossible to inspect for foundation/construction flaws. But it is commonly done and you can mitigate by confirming the builder is reputable. If it’s a local RE broker jumping into the market with his first house acting as GC funded by two neighbors, run. Fast.

  12. 30 year realtor says:

    New construction on existing foundation…just as a builders mistake or misfortune is not your problem and his overpriced house will sit on the market, when the builder makes a real score by buying right you do not share the benefit.

    Location makes a huge difference in value and construction cost. Clearly this is a small lot in an established town and this is the maximum size house permitted. Need the town house is located in and an idea of the location within town to have any chance of accuracy on the value.

  13. pricequestion says:

    30 year,
    If you have time to check…
    1827100 and 1820628… mls

    Damn, are we gonna miss the experts once Grim closes this down..

  14. JCer says:

    pricequestion, both are over priced. With the 2nd one looking more over priced with lower quality finishes, the first is only slightly. From the looks of it they are at the top of the market in Lyndhurst, the lots are small and the layouts might be slightly odd.

  15. Trick says:

    Look at the street view on google for the 1st one, needs to be update :)

  16. Topper says:

    As usual, insightful and reliable advice from LW and 30 yr. All the more reason this site should keep going (and, please … not on FB). It’s going to be tough to come across another forum such as this where we have a broad panel of contributors who provide cogent and reasoned arguments/advice across a myriad of topics.

    So, who is going to take this over? I volunteer Ex-pat – he is technical and seems to be up at all hours ;) I will contribute.

  17. JCer says:

    leftwing, maybe…maybe not. The builders cost does matter. If he is sitting on it making loan payments and hasn’t gotten too much activity, the first offer that makes a healthy profit gets the house. If the housing market had true liquidity,than yes it’s only the market price but housing is slow, buyer pools are segmented and there can be drastic shifts in activity for seemingly little discernible reason.

    If you are the only bidder, you figure out the builders cost+carry and bid in such a way to negate the loss, then you are only negotiating the profit. For most people in business unless they are desperate they will hold out to avoid realizing a loss but if you can capitalize on their fears you will negotiate the best price(a small profit or no profit now is better than a loss later). This technique works for buying any goods, services or item of intrinsic value.

  18. NJDepartment says:

    Yes, we need to do something for this blog.. We haven’t heard from grim since..

  19. chicagofinance says:

    I am willing to cost share to maintain the site. More than happy to get my PayPal nicked for whatever necessary. I think grim should offer the keys to the car to Stu. The main thing grim offered was pragmatism. I actually want an open forum, because groupthink is the worst of all intellectual offenses.

  20. Juice Box says:

    I work with FB even with Secret Groups they scrape your data and sell it. You will start seeing ads for Realtors and ads for Pumpkin lattes (they started this week already) as well as all other kinds of nonsense. Given the demographic here, mostly well off, you might get hit with too much crap in your FB feed. Especially Pumpkin who probably is a hoarder and on some kind of DHS watch list…( I am kidding Pumps!)

  21. Libturd...look me up in Costa Rica says:

    Grim could give me the keys, but I doubt I would have the time to drive. I can’t even find a friggin’ nanny for Tuesday when the school year begins and I’m do into the city on Wednesday. Anyone want to make a quick $20 an hour for three hours? :P

  22. Libturd...look me up in Costa Rica says:

    I don’t see ads. I block them all. So should everyone. The beauty of this site, besides the open minds and differing opinions is the simplicity of it. It’s the same reason Craiglist rocks. I doubt the FB group lives because the format sucks. Who wants to scroll through so many individual topics to see what was updated?

  23. Libturd...look me up in Costa Rica says:

    JCER, your suggestion to do a private blogger site would suck because you still need fresh blood to join once in a while. Would prefer this to remain public, but with minimal maintenance.

  24. Libturd...look me up in Costa Rica says:

    test

  25. Juice Box says:

    Pumps has lots of time based upon his prolific postings. Why not give him the keys?

  26. NJDepartment says:

    If Grim wants, I can run this site full time… probably bear the hosting costs as well..
    I don’t know if this can somehow be managed with wix.. This is hosted on wordpress now.

    But I think we are all speculating.. Lets hear from grim what he wants to do. I hope either he can manage or we gofundme so he can keep it going by paying someone..

  27. chicagofinance says:

    “pragmatism”

    I used this word specifically….. it has to do with not giving a fcuk, not getting sucked in, and keeping an even keel…..

  28. Grim says:

    It’s currently hosted at InMotion at like $200 a year or so.

    Could probably downgrade it, but the amount of spammer traffic is enormous.

  29. Topper says:

    “The beauty of this site … is the simplicity of it. It’s the same reason Craiglist rocks.”

    Spot on Lib. And no ads. OTOH – $20 for 3 hours?! Talk about Captain Cheapo! Perhaps if you throw in a bottle of something to numb me for the 3 hours. And BTW, we should have a “Stu Says” or a “Ask Stu” corner on the new site – where you can share a daily tip (credit card deals, repairs, casino points, etc.) or like the old Ask Jeeves for help.

    NJD – thanks for stepping up. Perhaps we should start calling you ‘Reaper’ (the son of Grim). Or ‘Merry’?

  30. Topper says:

    Dang – went into mod. Please unmod Grim.

    NJD – need to do something about this mod thing if you take over. I don’t think any of us here give a hoot with the words at this point.

  31. Topper says:

    NJD – curious … what’s the difference between wix vs wodrpress? (I think I know wordpress somewhat)

  32. NJDepartment says:

    Two things. grim owns the domain http://www.njrereport.com. A domain can be hosted in any of the service providers including google or godaddy or whatever company and it costs up to $12 per year. This is just to keep you domain name active. You own the domain as long as you pay this yearly.

    Second, you need to host the website in one of service providers to keep your content/develop/edit bla bla. The costs vary based on the amount of data you need to use, traffic it can handle. That is costing grim upto $200 per year. For the package he has subscribed to. I believe he can downgrade to a lower package as low as $80 per year.

    Wix and wordpress are one of few service provider companies who host a domain and website. Currently this website is hosted by company called InMotion.
    grim’s website/blog layout is simple, where users like us can ready and post anonymously without actually registering with a username/password. That’s is where the Facebook idea is not going to work.

    I believe what grim’s issue is the lack of his time to manage this website. To make any necessary changes to domain, to research every day and post an article, to identify and kick the spammers out of forum posts, to moderate the forum members, troubleshoot, keep it up and running etc etc.

  33. Topper says:

    Thanks NJD. Not that obtuse about hosting/domain ;) But thought WOrdpress/Wix were different programs/apps used for blogging so good to know.

    Now … only if Grim stop wasting his time on work and get around to unmodding ;)

  34. NJDepartment says:

    Sorry topper, got little too excited.

    On an another note, what is your RE situation ?. Are you investing in RE ?? or making changes to your existing portfolio ?. Just wondering..

  35. The Great Pumpkin says:

    I agree, can’t let this place die. This place is a wealth of knowledge that deserves a better fate.

  36. Topper says:

    NJD,

    I may have mentioned – not much of a RE guy and I bought my place several years ago which has turned out fine. Not a whole lot of difference from renting other than dealing with the maintenance stuff at times. I suppose being able to do what we what with the house is nice … albeit hasn’t been much.

    Occasionally think about a strip mall but very early and haven’t done any real due diligence so still don’t know enough and not enough to discuss. Hope your RE situation has found firmer foundation. (pun intended)

  37. Jay says:

    I don’t get it. You can setup news alerts, pick relevant articles, and read them yourself. There you go, you’ve basically replicated this blog. Comments section has generally been very random and not useful, in my opinion.

  38. Topper says:

    And. who the f*uk are you?

    NJD – here is an example of one you should ban. No pragmatism with this knucklehead. (Hope this doesn’t modded again)

  39. The Great Pumpkin says:

    To a simpleton.

    The debates that have taken place on this blog have been fierce and educational. You get to hear some pretty good arguments from different perspectives. That’s hard to find. Usually, most places are one big circle jerk with positions not being challenged. Not here.

    Any major life move, post it here before you do it. You will get top notch advice from different perspectives and almost all have a vast wealth of knowledge. You will not be fed nonsense. You will go into that move with a much better perspective and in a way better position to make good choices.

    Understand, people posting here are not your avg human beings. These are people with ocd. These are highly intelligent individuals with a hunger to talk real estate, politics, and economics on a level that most human beings are not cognitively able to participate in. This place is priceless. If you can’t learn something from this place, that’s pretty sad

    In the end, beauty is in the eye of the beholder.

    Jay says:
    August 29, 2018 at 7:00 pm
    I don’t get it. You can setup news alerts, pick relevant articles, and read them yourself. There you go, you’ve basically replicated this blog. Comments section has generally been very random and not useful, in my opinion.

  40. leftwing says:

    “The builders cost does matter. If he is sitting on it making loan payments and hasn’t gotten too much activity, the first offer that makes a healthy profit gets the house.”

    Haven’t seen this in a firm RE market especially in this interest rate environment. If builder/seller can’t carry a loan now they should get out of the business.

    These generally are not WACC/DCF guys….they buy with a finished sale price in mind and develop as cheaply as they can inside that cost envelope to make the nominal dollars they want. As 30yr says, if they get a windfall from what the market will bear they’re not going to cut price because there is ‘excess’ profit.

  41. Juice Box says:

    Grim – Why not delegate to a few trusted posters to moderate and post new content? Heck you can even come back from time to time as an honored guest!

    There are more than a few people who can and will contribute.

  42. Juice Box says:

    Only way to cut the cost is to buy the lot and build yourself. We all saw plenty of that in the last bubble,rampant real estate speculation, heck even the Sopranos had an few episodes of Carmella building the spec house, she made $600k after Tony laid out $200k and only after he leaned on the inspector while she had a thumb up her A*s*s. (Great episodes, thanks David Chase!)

  43. Blue Ribbon Teacher says:

    You forgot that Tony suckered a relative into buying it as well.

  44. Juice Box says:

    Blue – I do remember now, Carmella’s cousin bought it and she was supposed to bet half of the take on a football game and did not. One of the few times I thought Tony was going to wack her…Gandolfini dead five years now..time does fly…

  45. NJDepartment says:

    Looks like 2005 again.

  46. The Original NJ ExPat says:

    It would be so blessedly ironic if wage inflation kicks in at the same time grim pulls the plug on the blog.

  47. ExEssex says:

    The new blog should be called “Trump tickles my nuts Club” Eddie,/Gary fegala Head Fanboy.

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