New Jersey Real Estate Report

From the WSJ Developments Blog:

It’s (Almost) Official: Home Buyer Tax Credit Extended, Expanded

Congress voted on Thursday to extend the tax credit and President Obama plans on signing it into law Friday morning. The $8,000 credit will apply to all contracts, for homes up to $800,000, entered into before April 30, 2010, and closed by June 30. It creates a new $6,500 credit for property owners who have lived in their home for at least five consecutive years.

Income limits for eligible home buyers are expanded to $125,000 for single buyers and $225,000 for couples, from $75,000 and $150,000, respectively. To help guard against fraud, buyers are required to attach documentation of purchase to their tax return.

From the NY Times:

A Bad Way to Spend Money

Congress threw good money after bad this week when it voted to extend and expand a wasteful home buyer’s tax credit set to expire at the end of the month.

The new program, which will continue through the spring, is being portrayed as a rescue plan for the ailing housing market. But this costly giveaway to the real estate and mortgage industry will spend far more in taxpayers’ dollars than it can ever deliver in economic benefit. As happened with the cash-for-clunkers program in the automobile industry, the program will make housing look momentarily betterbut is unlikely to contribute to long-term recovery.
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The bill that passed both houses of Congress this week extends the program through April 2010 and grants the full tax credit to couples who earn up to $225,000. The expanded program introduces a $6,500 tax credit for people who already own homes but want to buy new ones.

From the Philly Inquirer:

Bad home-building loans plague banks

As financial regulators shift their sights to the mounting problems with commercial real estate loans, many Philadelphia-area banks remain bogged down in bad loans for residential construction.

Led by construction loans, the overall percentage of problem loans - those seriously behind in payment - at the 15 largest publicly traded banks here soared to nearly 3 percent Sept. 30 from 0.89 percent a year earlier.

That increase added $1.1 billion to the loans banks will have to collect through restructuring, foreclosure, or other measures - unless the improving economy allows the borrowers to recover enough to pay their debts.
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Bankers, meanwhile, even those with the strongest loan portfolios in the region, see continued problems.

“I think every bank is going to be thinking very carefully about bolstering their reserves because you just don’t know what is out there,” said Kent Lufkin, president of TF Financial Corp., of Newtown, the parent of Third Federal Savings Bank, which had the lowest rate of nonperforming assets among the area banks.

Lufkin said Third Federal stayed out of trouble during the real estate boom because it did not change its conservative lending practices. “That’s helped us today to have a lower percentage of nonperforming assets,” he said.

By contrast, Abington Bancorp Inc., of Jenkintown, followed a suburban builder with which it had previous experience into the Philadelphia condo market during the real estate boom. The move came after the company raised $71 million in a 2004 stock offering and contributed to Abington’s possession of the highest rate of nonperforming assets in the region, 5.03 percent, according to data from Bloomberg News.

“It’s our construction-loan portfolio that’s in bad shape,” said Robert White, the lender’s chief executive officer. Indeed, the delinquency rate on its residential construction loans, including loans at least 30 days past due, was 35.2 percent on Sept. 30, according to a report by Stern, Agee & Leach Inc., a research firm in Portland, Maine.
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The average past-due rate on construction loans at 15 Pennsylvania and New Jersey banks Kelley tracks climbed to 15.5 percent in September from 12.1 percent in June. The figure for commercial real estate climbed to 2.9 percent from 2.6 percent.

With loan defaults still rising two years after the subprime-mortgage crisis began, all business loans - not just for commercial real estate - are getting careful attention.

From Reuters:

U.S. home price gains may not be sustainable: Shiller

The gains in U.S. home prices in recent months may not be sustainable and increases in some areas of the country appear to be in “bubble territory,” an economist known for his property market expertise said on Tuesday.

Robert Shiller, an economics professor at Yale University and co-developer of Standard and Poor’s S&P/Case-Shiller Home Price Indices, told Reuters Television he does not give quantitative forecasts on where home prices are headed but is concerned about the recent pace of increases.

Home prices in certain areas, such as Minneapolis and San Francisco, have risen by double-digits over a mere four months, and if viewed on an annualized basis, they look like they are in “bubble territory,” Shiller said.

“It is a time of great uncertainty,” he said.

U.S. home prices in August rose for the fourth straight month. The Standard & Poor’s/Case-Shiller composite index of home prices in 20 metropolitan areas rose 1.2 percent in August from July, topping the estimate of a 0.7 percent rise according to in a Reuters poll.

“The prominent fact that we are seeing with this data is that home prices are just zipping up,” Shiller said.

“It is entirely possible that even with the bad news we are getting, home prices could start a major increase,” he said.

Prices in the top 10 U.S. metropolitan areas gained 1.3 percent in August after a 1.7 percent rise the previous month, according to the S&P composite index.

From the APP:

Time winding down for home buyers

With its expiration just over a month away, a push is on to extend the first-time home buyers’ tax credit, which boosted the beleaguered housing market in the midst of a recession.
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There are competing ideas out there to extend — and even expand — the tax credit, which gives up to $8,000 to first-time buyers who close on a home by Nov. 30.

In a press conference on Monday at the New Jersey Association of Realtors in Edison, U.S. Rep. Leonard Lance, R-N.J., said his bill would open the tax credit to all people buying a primary residence, regardless of past home ownership or income. He would increase the credit to $15,000 and extend the program through Dec. 1, 2010.

“We do not want the American dream to expire,” Lance said. “We want to make sure as many Americans as possible have home ownership.”

Lawmakers are under pressure from real estate agents and others in the housing industry to extend the credit.

The timing is critical, Lance said.
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In the Senate, Senate leaders are negotiating to extend the credit and gradually reduce it through 2010, Democratic Sen. Bill Nelson of Florida said Monday.

Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers’ extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

Another proposal by Sen. Christopher Dodd, D-Conn., Senate banking committee chairman, and Georgia Republican Sen. Johnny Isakson would extend the credit through next June and expand it to couples earning $300,000 or less, up from the current program’s $150,000 maximum income eligibility for married couples.

The current program comes with costs. Congress allocated $13.6 billion for the home buyers’ credit. As of July 17, 2009, more than 1.1 million tax returns claiming more than $8 billion in credits have been processed.

From the NY Times:

Puzzling Over Home Prices

THE housing market in New Jersey has been on a little roll toward recovery — the number of sales has risen and the number of houses on the market has fallen for four straight months — even though activity cooled slightly in August for the country at large.

But what does that mean for home prices? A halt in the decline? Even, possibly, a start in the other direction?

“In some neighborhoods, I have to say yes, prices are starting to go up,” said Karen Eastman Bigos, a partner in the Towne Realty Group, based in Short Hills, one of the highest-priced markets in northern New Jersey.

On the other hand, she and others say, brokers continue to encounter sellers who are “stuck in 2006.” Some people hear news reports about the improvement in conditions nationally, and insist on pricing their homes at precrash levels, Ms. Bigos said.
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Most recently, Jeffrey Otteau, the group’s president, announced his view that it will take until 2016 for prices to recover to their high point in 2006.

Over all, he added, it is “very difficult — and possibly too soon” to say whether prices have even stopped their decline.

For one thing, data on final sales prices are not available until sales close — usually two to six months after a contract is signed — so there is a lag time before conclusions can be drawn. For another, there is no tried-and-true analytical method for determining the direction prices are headed at a time of flux like this.

When pressed to consider what could be discerned from information now at hand, Mr. Otteau came up with this: The seasonal shift downward in prices that occurred from summer to fall was not as sharp as last year’s. This year, the downward shift from the second to third quarters was 7.4 percent; last year, it was 10.4 percent.
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Mr. Otteau said his data suggested that “a ground is beginning to form in terms of prices,” and noted that the trend had occurred as government stimulus programs that were intended to stabilize the residential real estate market were taking effect.

No matter how good the numbers are in a particular community, however, realistic pricing is critical.

From the AP:

Meltdown 101: Housing starts show industry’s woes

Housing construction is crawling out of its very deep hole, but no one expects it to reach the heights hit before the housing bubble burst — at least not for a very long time.

The Commerce Department released its monthly report on housing starts Tuesday, saying they increased in September by a modest 0.5 percent to an annual rate of 590,000 new homes and apartments. Applications for new building permits, however, fell by 1.2 percent to an annual rate of 573,000 units.

Here are some questions and answers about the housing starts report and what it says about the state of housing and the overall economy.
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Q: What has been happening to housing starts?

A: They have been on a wild roller-coaster ride.

They surged into the stratosphere during the housing boom in the middle of the decade as cheap credit propelled sales of both new and existing homes to record levels for five straight years. To meet demand, builders ramped up production, pushing construction starts to 2.07 million units in 2005, close to the all-time high for housing starts of 2.36 million new homes and apartments constructed in 1972.

Q: What happened after 2005?

A: Housing has been in a painful, prolonged slump. Housing starts hit an all-time low this past April of 479,000 units at an annual rate, 79 percent below the peak month during the boom years. Since April, however, housing construction has staged a modest rebound, rising in four of the past five months, including the 0.5 percent gain in September that was reported Tuesday.

Q: So is that good?

A: Well it is certainly better than the plunge in construction that occurred over the past 3 1/2 years. The downturn in housing, accompanied by rising mortgage defaults, helped trigger the worst financial meltdown since the Great Depression and pushed the country into its longest recession in seven decades.

A rebound in housing is needed to help support overall economic growth — both directly, through the money spent to build new homes, and indirectly, through the support increases in home sales provide to related industries such as appliance makers and furniture stores.

Q: What do economists expect will happen in coming months?

A: The September housing starts report gave some mixed signals. Housing starts did rise but the report showed that permits for new construction fell for the second month out of the past three. And analysts closely follow building permits as a good indication of future activity.

Analysts suspect that the September permit decline was a payback from a jump in applications earlier in the summer, as builders rushed to get projects started in time to take advantage of the government’s $8,000 tax credit for first-time homebuyers. That program is scheduled to end Nov. 30.

From the Wall Street Journal:

Foreclosures Grow in Housing Market’s Top Tiers

New data suggest that foreclosures are rising in more expensive housing markets.

About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
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Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.

The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.

From the NY Times:

Overall, International Interest in U.S. Real Estate Has Waned

Despite plummeting prices, international interest in United States property cooled in the last year, according to an annual survey by the National Association of Realtors, a U.S. organization of property agents.

From May 2008 to May 2009 foreign nationals purchased an estimated 154,000 homes in the United States, down from 170,000 in the previous 12 months, the survey found. Twenty-three percent of the agents questioned reported at least one contact with an international client, down from 26 percent in 2008 and 32 percent in 2007.
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And agents in the top four states for international sales — Florida, California, Texas and Arizona — reported their international business actually increased 35 to 45 percent in the period.
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In May 2009, with currency exchange ranges fluctuating, the average U.S. home price was $218,300, compared with $278,100 in Canada and $237,900 in Britain, according to the association’s data.
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International buyers paid a median price of $247,100 for existing homes, compared with a median sales price of $198,100 in 2008, the new study found. Buyers from India paid the highest median price, $322,200.

Most international buyers came from Canada, Britain, Mexico, India and China, in that order, the survey showed. And while the numbers from Canada, Britain and China declined, those from Mexico and India increased.

From Reuters:

The Flood of Foreclosures Shows No Sign of Ebbing

Every 13 seconds in America, there is another foreclosure filing. That’s the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.

If anything, the country’s worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.

In congressional testimony last month Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.
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The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.

That spillover effect from foreclosures is one reason why Celia Chen of Moody’s Economy.com says nationwide home prices won’t regain the peak levels they reached in 2006 until 2020.

In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.

“The default rates, the delinquency rates, are still rising,” Chen told Reuters. “Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase,” she added.

Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said.

Prices there are still off about 50 percent from the peak they hit 15 years ago.

From the Wall Street Journal:

Would-Be Hovnanian Condo Buyer Lost Bid, But Saved Cash

David Bartz doesn’t regret the one that got away.

About a year ago, Bartz wanted to buy a $1.4-million unit at 77 Hudson, a 48-story condo project now being finished in Jersey City, N.J., across the river from New York City. But another buyer, he says, snapped it up just days before he was set to sign a contract and plunk down his 10% deposit.

The project is one of many local high-end condo developments - gleaming with granite, concierges and rooftop decks - launched during the housing boom, when easy financing fueled what seemed to be insatiable consumer demand. Bidding wars weren’t uncommon between buyers.
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While he was disappointed someone beat him to the dotted line, that person probably did him a favor. The sizzling real-estate market cooled after last fall’s collapse of Lehman Brothers. With New York transformed into a buyers’ market, buyers are trying to get out of those pricey contracts they inked during the bubble, fearful of closing on a unit already worth less than what they paid. Even committed buyers are having trouble lining up financing, and condos across New York and New Jersey are sitting empty.

Hovnanian, the nation’s sixth-largest builder by annual closings, won’t say how many of its units are sold or under contract.

Bartz, who decided to stay in the townhouse he’s now owned for five years, says his desired condo’s price would be “far away” from $1.4 million today.

“I was taken in by the emotion of the project and the views,” he says. “It would have been a tough financial hit.”

From Reuters via CNBC:

Mortgage Delinquencies Rise Alongside Unemployment

High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax credit bureau showed on Monday.

Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89 percent of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44 percent, Equifax data showed.

The rate of subprime mortgage delinquencies now tops 41 percent, up from about 39 percent in each of the prior five months.

The results, which correlate with consumer bankruptcy filings, suggest U.S. homeowners remain under financial stress despite signs of improving sentiment and fundamentals in the U.S. housing market.

August bankruptcy filings were up 32 percent from a year earlier, compared with a 35 percent year-over-year increase in July.

From Bloomberg:

Housing Suffering Relapse Confronts Bernanke Credit Conundrum

The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.

The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.

“Things could get ugly,” said Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage- finance company. “We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”

From MarketWatch:

Moody’s bearish on housing recovery

Moody’s Investors Service threw cold water on optimistic projections of a V-shaped recovery in the battered U.S. housing market, predicting it could take more than 10 years to get back to boom-level prices.

“For many reasons, the rebound will be disproportionately small compared to the decline,” Moody’s said this week in its latest outlook on the residential market. “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”

The housing market is in the third year of the current downturn, one of the worst corrections in U.S. history as a result of the economic recession and the mortgage industry nearly grinding to a halt during the credit crunch.

“The bursting of the housing bubble precipitated a crisis in financial markets the likes of which have not been seen since the Great Depression and plummeted the nation into recession,” Moody’s said.

“The scars that this downturn will leave on the economy and the housing market will be long lasting and persist in nearly all facets of the housing industry, including the demand for homes, ownership patterns, homebuilding, and house price appreciation,” the analysts forecast.

“It will take more than a decade for many measures of housing activity to regain ground that has been lost as a result of the correction: The intense downturn will overcorrect for the excesses in the housing market generated by the boom years,” they added.

From the NY Times:

Fight Looms in Congress on Tax Break for Home Buyers

When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.

As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.

In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.

Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.

The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.
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Now the sponsor of the original Senate bill, Johnny Isakson, Republican of Georgia, is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years.

“The problem now is not first-time buyers, it’s the move-up market — the guy transferred from Chicago to Atlanta who can’t sell his house,” said Mr. Isakson, a former real estate agent.

Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession.

The real estate industry is lobbying heavily for the bill, but acknowledges that in an atmosphere that is less crisis-driven than last winter it will almost certainly have to settle for less.

From the WSJ:

No Easy Exit for Government as Housing Market’s Savior

After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector. It doesn’t look that way to Peter Lansing, president of mortgage firm Universal Lending.

The Denver home lender sees every day how dependent the housing market has become on the government. At the height of the boom, just 20% of Universal’s mortgages were backed by the Federal Housing Administration, an arm of the government that guarantees loans to borrowers who can’t afford big down payments. Today, the FHA accounts for more than 80% of his business. For Mr. Lansing, this represents a new way of life — more government, more paperwork, but also a lot of sales that wouldn’t have happened otherwise.

“Over 29 years in business, we’ve always thought of ourselves as being in the free-enterprise system. Today I think of myself as a government contractor,” Mr. Lansing says. “My business strategy is to get more of my employees to embrace that idea. Plan B would be to sell pencils on the corner.”
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Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.

To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loan portfolios. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government’s various mortgage arms and another $300 billion in Treasurys, which set the benchmark for home lending.

And to boost sales, the government also is offering $8,000 tax credits to first-time home buyers.
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Yet the government’s efforts are the primary reason the housing market is functioning at all, economists and housing experts say, which makes an exit unlikely any time soon. Despite the signs of improvement, the housing market is still a shell of what it was during headier times. U.S. home prices are back around 2003 levels, having fallen by about one-third since their peak in the second quarter of 2006, according to Standard & Poor’s. Sales of distressed homes still account for about one-third of existing home sales, and prices continue to fall in some markets such as the Sun Belt states. In addition, relatively few “jumbo” loans are being made — those above the limits of what Fannie and Freddie will buy or guarantee.
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The government’s role in housing has a long pedigree. The 1930s gave birth to Fannie Mae and the FHA, which traditionally insured loans aimed at low-income borrowers. Freddie Mac was created in 1970. Since the housing crash, these players are in some spots the only game in town.
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That seems to have helped to put a floor under housing sooner than many officials expected. At the same time, it has created distortions in the market.
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If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays’s Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the market.
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Still, Ms. Gifford fears that the U.S. will pull back when the loans it’s backing start going bad. “I’m worried what the future could hold if we put all the eggs in one basket,” she said.