From CNN/Money:
Home-price forecast: First ever decline
Home prices are expected to finish down for the year, the National Association of Realtors (NAR) said Tuesday, which would mark the first drop since the group started tracking values in 1968.
NAR projects a 1 percent decline in the median price of an existing single-family home, to $219,800.
The number of home sales is also expected to dip from 6.48 million in 2006 to 6.29 million in 2007, a drop of 2.7 percent.
Prices of new home, at a median of $246,400, are expected to remain steady.
According to Walter Molony, a spokesman for NAR, the statistics may exaggerate the drop a bit because sales have slowed more in high-priced areas than in moderately-priced ones.
From MarketWatch:
Realtors lower sales forecasts for 2007, 2008
Stricter lending standards are likely to further erode housing markets this year and next, the National Association of Realtors said Tuesday in its monthly forecast update. “If it weren’t for a favorable economic backdrop, housing would probably have a hard landing,” said Lawrence Yun, senior economist for the NAR. “As it is, we see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later.” Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.
From Dow Jones:
NAR Again Lowers ‘07 US Home Sales Forecast
A realtors’ association on Tuesday further pared back its forecasts for the housing market this year, saying stricter lending standards and subprime mortgage woes are producing headwinds for the sector.
In its latest forecast for the real estate market, the National Association of Realtors projected that existing home sales will fall 2.9% this year to 6.29 million, compared with its previous forecast of a 2.2% decline.
The drop-off for new home sales is expected to be more severe. The NAR said new home sales are likely to fall 17.8% to 864,000, compared with the prior forecast of a 14.2% drop.
…
The national median existing-home price is forecast to slip 1.0% to $219,800 this year, and then rise 1.4% in 2008. The median new-home price is expected to be essentially unchanged at $246,400 in 2007, and then rise 2.2% next year.
From Reuters:
NAR cuts U.S. home sales, price forecast again
The National Association of Realtors cut its U.S. housing forecast again on Tuesday, saying that stricter lending standards and a decline in subprime mortgage origination has cut down on speculative buying and hurt prices.
The realtors said existing homes sales are likely to total 6.29 million this year compared to 6.48 million last year. The trade group’s previous forecast, issued in April, was for 6.34 million existing homes sold in 2007.
The group said new home sales were projected at 864,000 in 2007 and 936,000 in 2008, both down from the 1.05 million sold in 2006.
What’s new with this unethical bunch?
Look out for your own interests. You put your finances in their hands, good luck.
AND NO IT IS NOT A GOOD TIME TO BUY!
Dummies use some simple math.
MISERY 2008……
Grubbers keep asking stupid prices you will be rewarded next year with even lower prices.
Jump the competition and sell it fast at a lower price.
There is panic in the market now. Sellers are quite aware of the situation, but a few are still blinded by greed.
READ MY LIPS: that greedy smirk will be wiped off your face shortly.
2008 Misery.
Some good reading and charts here from Reuters:
http://www.reuters.com/news/globalcoverage/subprime?src=E3_subprime_0508
Did anyone else see the Weichert guys this morning on 202 by their headquarters in Morris Plains? They were dressed up as Weichert signs with big white gloves on their hands waving to traffic. I couldn’t stop laughing at them.
Test
“Six men described by federal prosecutors as “Islamic militants” were arrested on charges they plotted to attack the Fort Dix Army base and “kill as many soldiers as possible,” authorities said Tuesday.”
http://www.msnbc.msn.com/id/18549005/
Hi All,
We moved to NJ from North Carolina about a year ago due to a job opportunity. After seeing regional prices on housing and what we could get for our money, we have stayed out of the market. We are planning to stay out of the market for another year.
That being said, our 900 sq-ft. apt. is getting too small. We had a 3200 sq-ft house on .8 acres just outside Chapel Hill, NC (paid $320,000 for new construction). I would like to rent a house, but I have not been very successful in finding listings on the web. Realtor.com has less listed than Weichert.com.
I have learned a lot over the past six months from reading your posts and would appreciate any advice on resources (preferably web-based) listing houses for rent.
Thanks!
BC Bob, same article:
The description of the suspects as “Islamic militants” was causing renewed worry among New Jersey’s Muslim community.
So muslims are worried that “infidels” are calling islamic terrorists, islamic terrorists.
If they’d start worrying about the calls to “kill infidels” in mosques across America, and the rest of the world, instead of attempting to perpetually obfuscate with claims of victim status, “infidels” might have more sympathy.
2,065 days since 9-11, zero anti-terrorist rallies from this group.
“Silence equals consent.”
any forecasts for our markets? national trends just aren’t that useful.
There are a number of houses for rent on njmls.com. Depends on where you are looking. Northern Bergen county has quite a few houses for rent that I drive past regularly. I know I have seen a couple recently on Farview Ave in Paramus, Knickerbocker Rd in Closter and Schralenburg (sp?) in Haworth, also Glenwild Ave in Bloomingdale. Alll pretty busy roads, but all pretty ritzy communities except Bloomingdale. Where are you looking?
April Sales and Inventory (GSMLS) will be posted tomorrow morning.
jb
So it’s finally ‘official’ that prices will decline 1% this year in nominal terms. Which is at least 4% in real terms.
The public is being told far too late in the game that prices will decline. This reduce sales volume further, since quite a few folks who get their news only from the MSM will defer purchases.
http://tinyurl.com/3ylp55
“Deborah Beatty recognizes that she and her family could lose their home in Jersey City, across the Hudson River from New York, because they can’t afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty’s master bedroom window.
“I’m going to miss that,” said Beatty, 53, who collects disability payments and does not work. “When I come in, I like to see the lady (the statue), especially when it’s a beautiful clear night.”
Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans of 8.75 percent and 12.5 percent.
With income from tenants, which didn’t happen right away, Beatty’s daughter thought she could afford monthly payments of nearly $5,000.
But she hasn’t made a mortgage payment in more than three months, and she’s receiving letters threatening foreclosure. ”
…ummm, a graduate student WHERE exactly?
Nothing new, but the Great Depression reference is interesting. From Bloomberg:
U.S. Home Prices to Drop in 2007, First Since 1930s
U.S. home price declines this year are going to be steeper than earlier forecast because of the drop in subprime mortgage lending and the adoption of stricter lending standards, the National Association of Realtors said.
…
The U.S. median price for a previously owned home has not declined since the real estate trade group began keeping records in 1968. The last time it declined probably was during the Great Depression in the 1930s, Yun said.
Funny typo just ran across the MW wire..
June crude oil up 32 cents at $61.80 an ounce
“a graduate student WHERE exactly?”
…sounds like she recently enrolled in the school of hard knocks.
JB,
That would be about $450,000 a barrel!! LOL!
#10 Richard: True national trends are just that national, but it does say a lot I believe.
If your comment somehow implies that it will be different here, I would not bet on it.
The same recklessness and insanity that were present in other areas was just as common here, perhaps more so.
If any thing the declines here will be steeper than in other areas.
Confirmation bias cuts both ways. It’s not only about focusing on information that supports your hypothesis, but ignoring or discounting information that doesn’t.
jb
I forgot how much I missed Booyah Bob! :-)
He’s like the cheerleader with the rally cry for folks like us who are waiting to buy!
sl
“Nothing new, but the Great Depression reference is interesting.”
[15]
…………….And negative savings rate, 2005 & 2006, first time since…..
Largest disparity of wealth distribution since….
Richard and other residential investment guru,
since you mentioned you have several rental properties. I was wondering if you are willing to share with us the current value to rent ratio of your investment properties. what is the ratio you would consider buying a property to rent?
So it’s finally ‘official’ that prices will decline 1% this year in nominal terms. Which is at least 4% in real terms.
Don’t forget, the NAR has been consistently overly optimistic in their predictions. Month after month the numbers come in under their forecasts. Claiming that prices will “continue to rise, but at a more normal pace” doesn’t pass the laugh test anymore. They have no choice but to admit that prices will decline.
However, a 1% price decline isn’t so dramatic as to scare away too many potential buyers. “I’m only going to save 1% by waiting? Why bother? Rates may go up in the meantime and more than wipe out any savings”. It also sends a message to sellers not to hold out for a recovery.
for those who know?
My FIL tells me the price should be no more than 5x to 6x the rent roll. (then again, my FIL is the biggest curmudgeonish, hawkish financial guy!)
So I don’t know how well that formula bears out
sl
oops… forgot to ref. that was for post #25 (apologies.)
sl
…I mean post #23…
good grief… I gotta start getting more sleep!
sl
grim: did you see this?
http://online.wsj.com/article/SB117858895511695308.html?mod=opinion_main_commentaries
The Realignment of America
By MICHAEL BARONE
May 8, 2007; Page A19
In 1950, when I was in kindergarten in Detroit, the city had a population of (rounded off) 1,850,000. Today the latest census estimate for Detroit is 886,000, less than half as many. In 1950, the population of the U.S. was 150 million. Today the latest census estimate for the nation is 301 million, more than twice as many. People in America move around. But not just randomly.
It has become a commonplace to say that population has been flowing from the Snow Belt to the Sun Belt, from an industrially ailing East and Midwest to an economically vibrant West and South. But the actual picture of recent growth, as measured by the 2000 Census and the census estimates for 2006, is more complicated. Recently I looked at the census estimates for 50 metropolitan areas with more than one million people in 2006, where 54% of Americans live. (I cheated a bit on definitions, adding Durham to Raleigh and combining San Francisco and San Jose.) What I found is that you can separate them into four different categories, with different degrees and different sources of population growth or decline. And I found some interesting surprises.
[edit]
I did not, very interesting indeed. Certainly worth posting up on the main page. I’ll put it up in the morning just so it doesn’t get lost in the mix.
jb
#28 How about printing the rest of the article?
Looks interesting, but I can’t read it at the Wall Street Journal site (I’m not a subscriber).
Hi all,
This information has been very useful. Here is our situation and would like to get your thoughts on this !
We actually sold our home in late 2005 and renting right now. So, we can buy pretty much whenever we want if we like something.
We are looking at a home in Bridgewater which is built in late 2001 and listed at 979k (reduced from 1.049). We liked the home and the community. But the only issue is the house is located very close to Rt 287 and I can hear the noise outside the home and not inside. But it is not that bad. And they are willing to come down on the price as well. But I don’t want to jump on it, b’cos I am worried about the resale. Also, more than that the highway proximity, does it bring any other issues that I am not aware of? How will be the noise level in the night? Any ideas?
ANd on the other hand, we have seen a home in Hillsborough which is lower in price and meets our requirements, but not as prestigious neighbourhood as Bridgewater and schools are not that great compared to Bridgewater too. Any suggestions?
Should we wait a little more into summer to see some more listings?
thanks
Shubha: Im no expert, and I hardly post around here, but it seems to me that if I was about to spend close to a million dollars silence from any nearby, overly congested thoroughfares would be a pre-requisite. It seems ludicrous to me that for that much money you still had to deal with the noise. Is a being in a “prestigous” neighborhood worth spending that much money on a place that doesnt even bring you solitude from the traffic of NJ?
Seems pretty obvious to me: if you can afford to wait, then by all means wait–it can only become more favorable. Regarding the location of the Bridgewater property, I think your instincts are correct, that’s quite a bit of coin to pay for a property that has high levels of noise pollution–just as your concerned about it, don’t you think the next prospect will feel the same way?
“Should we wait a little more into summer to see some more listings?”
[31],
You are paying a mil for a house and you are asking strangers if you should see more listings?
don’t you think the next prospect will feel the same way?
This one is the key. Just because you might overlook a defect doesn’t mean the next buyer will. You can fix an issue with the structure, you can update a kitchen or bath, you can’t ever change the location.
jb
“THINK”
Repeat after me: It is NOT a buyers market yet.
Don’t be dummy and rush in. You will be compensated for your patience if you have any.
Keep it simple. Take At least 25 to 30% off of 2005 Phoney house prices.
BOOOOOOOOOOOOOOOOOOYAAAAAAAAAAA
Bob
#31,
I’d be concerned about air-quality/auto emissions as well as noise. You don’t want to be captive inside your house, where the air is probably filtered, without being able to relax outdoors. Also, there’s a lot of inventory in that price range, why not keep looking?
#31 Don’t do it. It will the worst mistake you can make as far as real estate goes.
Don’t forget, as prices come down, those houses in the bad locations will fall in price much more, as buyers will not have to settle. The laws of real estate are returning.
#24 The fact is it is a decline, which is a first, and of course we have to look at what will happen in the real bubble areas like our own area here in the north east,as well as Cal, Fla etc.
Hey James,
Anyway we can all pitch-in and help spread the gospel more effectively? That is, since the real estate industry has been hell-bent on having the world believe their rhetoric, don’t you think it’s about time we rally the troops and become more proactive in informing the masses about what the current data reveals? I pose this to you because it amazes me how ill informed the vast majority of people are out there are–as was I. It blows my mind to think someone would even consider purchasing now unless they absolutely positevely had to.
Your blog has been a tremendous clearinghouse for current and relevant information. It seems to reason that it could only help accelerate the deflation if more people were informed about the inevitable truth, So having said that here’s my proposition A) would you mind if flyers/posters were placed in local venues that mentioned the bubble, subprime debacle, etc. and directed them to your blog for further clarification/enlightenment? B)Would it make any sense to take donations to be used towards an advertising campaign, in a large publication, describing the current state of affairs and cautioning perspective buyers about what could happen? And would/could there be any legal ramifications if this were to occur?
I’d be the first to donate!
“You can fix an issue with the structure, you can update a kitchen or bath, you can’t ever change the location.”
Unless you buy a mobile home.
#25, sl,
Property price that is 5x / 6x rental income is a fancy dream for any landlord. 10x is more realistic and in places like NJ, 15x is more in-line with current prices/rents.
“Keep it simple. Take At least 25 to 30% off of 2005 Phoney house prices.”
Do you really believe this will be the case. I have begun checking out open homes and it seems there are certainly a higher level of homes on the market and they seem to be on the market for a bit longer. However, all I have seen have been willing to come down from LP. I agree they are overpriced and do need to come down a bit more but I can’t see the 25-30% decline bob mentions. Also, from what I have seen recently the homes on “good” (all in the eye of the beholder) areas are selling if priced fair.
#43 Also, from what I have seen recently the homes on “good” (all in the eye of the beholder) areas are selling if priced fair.
What is fair?
If the monthly expenses on a house costs more than monthly expenses to rent the same house.. How can it be fair?!
Anyone who thinks houses (and taxes) in NJ are fairly priced should take a vacation around the country and look at what prices for a similar house are like everywhere else.
Contractor Bill, #40
I am with you on that.
If the wiechert guys can stand on the streets with yellow constumes, I think we can do a little on our part ;-)
Again this is completely up the individual. However, for example to take a situation like the one from the the previous posters (Bridgewater house). I saw a listing for new construction in with a great plot of land, not next to a busy highway or street. The house was listed at $1M last year the builder is now offering the house for $850K. Still high but I cannot see another 10-15% off, but maybe I’m wrong.
From the AP:
Congress Debates Mortgage Reforms
Congress is looking at potential reforms to risky home lending practices, but a Tuesday hearing at a House subcommittee suggested many lawmakers are still sorting out the complex workings of the mortgage market — and some are unsure whether reforms will necessary in the short term.
With the number of foreclosures nationally jumping 47 percent in March from a year ago, lawmakers are weighing whether new lending rules are needed or whether the market is already in the process of self-correcting. The task of crafting reforms is made more complicated by the long list of players involved in mortgage transactions.
“There is a very complicated web of contributors to this issue that makes it very difficult and unwieldy to unwind,” said Rep. Melvin Watt, D-N.C., at a hearing of the House Subcommittee on Financial Institutions and Consumer Credit.
Watt and other committee members said Congress needs to be careful about unintended consequences of potential reforms.
“It’s kind of like the Pillsbury dough boy,” Watt said. “If you push in one place, it juts out someplace somewhere else.”
Rep. Carolyn Maloney, D-N.Y., the subcommittee’s chairwoman, did not say whether legislation is needed, but suggested that it could be necessary.
“This committee is by no means waiting for the private sector to do what it thinks is right to solve this rapidly growing crisis,” she said.
From Reuters:
Mortgage industry speaks out on assignee liability
Mortgage investors could turn their backs on the market if they are forced to pay for flawed loans written by other lenders, several financial services industry representatives told U.S. lawmakers Tuesday.
A mortgage investor “needs to know that he won’t bear responsibility based on conduct by parties outside of his control,” Howard Mulligan, an attorney who specializes in the mechanics of selling home mortgages to investors, told a Congressional panel.
Regarding assignee liability, which would make mortgage investors share the risks of defaults on fraudulent home loans, Wells Fargo home mortgage lending chief Cara Heiden said: “I am of the opinion that we shouldn’t go there.”
But a borrower advocacy group argued that investors could calculate assignee liability like any other cost.
“The secondary market measures risk and allocates that risk” and so can calculate the potential costs of homeowner suits, said Michael Calhoun, president of the Center for Responsible Lending.
Back in 2001, did anybody really think that a 250k cape would sell for 500k, or that a 500k colonial would sell for $1 mil?
From Bloomberg:
S&P to Require More Protection on Second-Lien Debt
Standard & Poor’s joined Moody’s Investors Service in requiring more protection for investors in bonds backed by second mortgages, as late payments and defaults on such debt to borrowers with poor credit exceed expectations.
Second-lien mortgages often have been obtained by homeowners in lieu of down payments. Subprime versions of such “piggyback” loans have performed worse than subprime housing- debt overall, putting some AAA rated securities at risk of downgrades and leading HSBC Holdings Plc to set aside more reserves for losses in last year’s second half.
“People are taking out these loans and they realize they can’t make payments on them,” Terry G. Osterweil, an analyst at New York-based S&P, one of the two largest credit-rating services, said today. “The first one they’re going to default on is the second lien, not the first lien, because many times a servicer will write off the second lien and not foreclose.”
S&P’s new views would have raised the required amount of “over-collateralization,” or investor protection created by having more underlying loans than bonds backed by them, to 8.10 percent, from 5.45 percent in an example the firm used in a report. The amount of debt created with AAA ratings in the issue would have been lowered to 68.30 percent, from 72.25 percent.
$850,000 for a house that would cost 1/3 of that in 99% of the nation with 1/3 the taxes. Let’s run the numbers: 850K with $170,000 down (small potatos) and $16,000 in taxes (very conservative) leaves us with a PITI of $5,600 per month (more small potatos). To qualify for this in the real world, the yearly income would have to be $272,000 which, we all know, is “average” for living in Northern New Haughty. Yup, that seems like a fair price. Hey, don’t get p*ssed at me, it’s the new paradigm for North Jerky; if you can’t compete, then you’re just a wannabe. That’s what I’ve been told.
“The house was listed at $1M last year the builder is now offering the house for $850K. Still high but I cannot see another 10-15% off, but maybe I’m wrong.”
Last year’s prices were last year’s prices.
I was just in Home Depot. Oriented Strand Board (osb) was selling for $4 and change. Last year when I built a spec home it was selling in excess of 12 dollars (OSB is a major component in construction). So I guess that means you should have to pay a premium for a home that was built at last year’s prices when material prices are currently plummetting? This is indicative of what’s to come, believe me he’ll take less when he has to.
CB,
Whats your average margin on a new build?
jb
Gary,
Keep in mind I was only using this as an example. I myself could not/would not purchase this place. I agree witht the 1/3 assesmet as well, but thats a different story and there was whole thread on it yesterday.
I’m just trying to figure out the number for a fair price. I know I hear the 2001 rates and 25-30% off LP. However, with people still buying I’m just wondering when and if this will happen?
Whirlwind of subprime related news just hitting the wires..
From BusinessWire:
Moody’s Outlines Credit Factors of Subprime Securities Performance for House Subcommittee
Moody’s Investors Service Team Managing Director Warren Kornfeld testified today before the U.S. House of Representatives Subcommittee on Financial Institutions and Consumer Credit to provide Moody’s views on the performance of subprime mortgage securitizations and outline the credit factors that Moody’s considers when rating mortgage-backed securities.
Mr. Kornfeld noted that the majority of the subprime mortgages contained in the bonds that Moody’s has rated and that were originated between 2002 and 2005 have been performing better than historical experience might have suggested. In contrast, the mortgages that were originated in 2006 are not performing as well, however they are performing in line with mortgages originated in 2000 and 2001.
“From 2003 to 2006, Moody’s cumulative loss expectations for subprime mortgage securitizations steadily increased, by approximately 30%, in response to the increasing risk characteristics of subprime mortgage loans and changes in our market outlook,” Mr. Kornfeld said. “As Moody’s loss expectations have increased, the amount of loss protection on bonds we have rated has also increased. Consequently, bonds issued in 2006 and rated by Moody’s have greater amounts of credit enhancement when compared to similarly rated bonds that were issued in prior years.”
Mr. Kornfeld also explained that while the employment outlook today is stronger than in the post-2000 period, the outlook for other major drivers of mortgage losses – home price appreciation, interest rates and refinancing opportunities – is less favorable. “As a result, Moody’s is currently projecting that cumulative losses for loans backing 2006 subprime securitizations will generally range between 6% and 8%, though particularly strong or poor performing pools may fall outside of this range.”
thats a very good question James
“Whats your average margin on a new build?”
Anyone know?
njcurious,
Gotcha. I hear ya. I was simply trying to make a statement at the absurdity of the current practices and what most of the mainstream sheep simply accept as fact and the norm.
How bad is the market? Here’s proof:
My neighbor listed his house at 1.225M in Totowa… sold after 5+ months for 900K. Comparables sold for $985 and $950 before him.
My parents listed their house in desirable low-tax area of NJ. Originally listed at 1.175M. Immediate comparable neighbor sold for 1.098M. Currently listed at 899K.
Dow Bull biggest in 80 years. (1927)
Haven’t posted recently…but had to share this one…
http://www.realtor.org/RMODaily.nsf/pages/News2007050805?OpenDocument
#61:
Here’s the same story with more detail (and pictures):
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/05/07/BAGF3PMD2L1.DTL
“Dow Bull biggest in 80 years. (1927)”
How has that bull done in comparative terms?
>>The same recklessness and insanity that were present in other areas was just as common here, perhaps more so. If any thing the declines here will be steeper than in other areas.
disagree. until i see it we’re just speculating. prices are coming down from stratospheric highs but no fire sale prices. people need a place to live and owning a home has so many tangibles and intangibles i doubt we’ll ever see a market collapse. too much money sloshing around this part of the country to think otherwise, but that’s just my opinion.
There’s a ton of money in this region, but it’s highly concentrated. It does not surprise me that $25MM mansions in Greenwich are being built on spec, but there is no way that $800,000 starter homes are sustainable across the board
Its neither a buyers or sellers market. I cant say I have seen a market like this.
With so many forclosures who would even work with a realtor for finding a home when so many foreclosures and soon to be forclosures in the works. Even then with the market swinging downward who is to even say that the forclosure market is even a good buy.
Is the auction house the way to go to even find a deal today?
According to Loan Performance (via Credit Suisse First Boston) 55% of all 2006 mortgage originations in the NY-NJ MSA were low or no-doc. That isn’t opinion, that is a fact. This level of low/no doc loans isn’t far off from what was seen in the bubbliest metro areas. LA and San Diego saw 56% over the same period, Las Vegas and Sarasota saw 56%, Ft. Myers saw 55%, Naples saw 57%.
jb
i doubt we’ll ever see a market collapse. too much money sloshing around this part of the country to think otherwise, but that’s just my opinion.
Outside of Manhattan and a handful of really high-end towns in North Jersey driven by Wall Street money, how much money really is “sloshing around” for most of middle class NJ?
Sure, incomes are higher here than most of the country, but economic growth is anemic in North Jersey. We already has some of the least affordable housing in the country, even when income is taken into account. This is even before our high, and yet to be controlled, property axes are considered.
Over 40% of owners are paying more than the recommended 30% of their income in housing costs. NJ is the 3rd highest in the nation in this distinction.
Migration trends are strongly outward. Jobs and people are leaving the state.
This doesn’t paint a picture of a region swimming in so much money that a downturn is off the table.
This quote is from an article on MSN right now concerning the cost of the wars in Iraq and Afghanistan.
“”This may be the first war in history — in the history of the world — in which there was a tax cut rather than a tax hike,” said Alan S. Blinder, a Princeton University economist who was vice chairman of the Federal Reserve in the Clinton administration.
Administration officials say the 21st-century economy is different from that of the 1960s, when the U.S. government had no easy access to cheap capital. To the extent that fighting in Iraq has contributed to higher oil prices, it has added to inflationary pressures, economists said. But they added that military spending alone has not done so. And the low cost of borrowing today makes a rising debt worth the investment “in the safety and security of Americans,” said White House spokesman Tony Fratto.”
Sound analogous to anything else we know? Ignoring market fundamentals; “This time its different.” And these are the people running our country.
Renting [68],
Good points.
In conjunction with this, it does not matter how much $ is sloshing around any region. Who’s to say the asset class that they decide to slosh their $ in is real estate? Why not rent and slosh your $ in other asset classes?
The problems surface when too much $ is sloshing around chasing too few realistic opportunities. Values then become distorted. The final arbiter in any market is price versus underlying fundamentals. It always comes back to simple economics.
I trust you’ve all seen this map already? Triple bubble trouble for NYC..
http://www.propertyshark.com/mason/Maps/?map=nyc2&basemap=bubble3
“This may be the first war in history — in the history of the world — in which there was a tax cut rather than a tax hike, said Alan S. Blinder, a Princeton University economist who was vice chairman of the Federal Reserve in the Clinton administration.
Context is your friend — Federal tax revenues are way up.
Tax cuts spur economic growth -> increase tax revenues for US government.
Increased tax revenues for the government? It also states that Bush has added more than $3 trillion to the national debt.
#67 We almost got a low/no doc loans where we actually stated our true income. When we got pre-approved for a loan back in the winter, our mortgage consultant said that because we had good credit she did not need to document our income. We did not lie about our income but the mortgage company was willing to lend us much more than I felt comfortable borrowing. We put an offer on a house we liked but the owner rejected it. Currently I am trying to hold off buying in hopes that prices will go down.
When the marked goes down, do houses in less desirable locations really go down in price more than others? If this happens does that mean when prices went up houses on less desirable land had a larger percentage gain in price than those on more desirable lots? Just about all the houses in our price range had less desirable lots (corner lots with no privacy, on a busy street, tiny lots, or near train tracks).
Run down areas are usually the last to go up in a bubble, and thats when the ‘dumb money’ is changing hands…
We almost got a low/no doc loans where we actually stated our true income. When we got pre-approved for a loan back in the winter, our mortgage consultant said that because we had good credit she did not need to document our income.
Sounds like she was trying to get you into a loan that paid her a higher commission.
jb
“Triple bubble trouble”
thats a good one.
SAS
Rentlord- (42)
I dunno if it makes a difference — I’m completely new to these terms ie “rent roll” but I think he meant the year’s worth not a monthly amount.
We started investigating some commercial properties but a wise sage advised us against it. So… here we sit… watching our investments grow, the gsmls get bloated and prices sink.
(Did I mention, I love this site???) ;-)
sl
BTW, my FIL’s dad had a 6 apt building somewhere in Jersey City. He sold it a while ago and is kinda sour on the whole being a landlord thing.
I am pretty sure he was just doing his usual darndest to dissuade us. He (along with this website) kept us from making enormous real estate related financial mistakes. In his mind *everything* is too expensive. (In retrospect, he was right, though, too!)
sl
“So… here we sit… watching our investments grow,”
SL,
Stay the course. You are on the right track.
From Forbes:
Housing Forecasts Fall — And It Could Get Worse
Investors hoping for signs that the housing downturn is nearing an end were surely disappointed Tuesday.
The National Association of Realtors said that sales this year will be lower than it earlier forecast due to stricter lending standards and a decline in subprime mortgage origination.
…
Carl Reichardt, a senior equity research analyst at Wachovia Securities, told Forbes.com that he wasn’t surprised by the lower projections.
“We have seen deterioration in business conditions for the homebuilders that we survey in March and April,” Reichardt said.
Reichardt surveys 150 sales managers for homebuilders in 18 markets every month, studying traffic trends, sales trends and quality of customer base.
“Traffic was OK for the first three months, but then deteriorated in April,” he said. “Sales were also OK, but also then deteriorated in March and April as well.”
And it could still get worse, Reichardt said.
Private equity tax talk amplifies
http://money.cnn.com/2007/05/08/markets/pe_tax/index.htm?postversion=2007050817
Industry experts say any legislation would likely focus on “carried interest” – the usual 20 percent share of profit private equity fund managers take on their investments.
Changing the tax treatment on carried interest would not only affect private equity funds, but real estate and hedge funds as well.
N.Z. Banks May Face New Rules on Lending
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6eDwQ4H7RYI&refer=home
New Zealand’s central bank may tighten capital requirement rules for banks to curb lending, which is stoking a housing boom, Governor Alan Bollard said.
More loans are being offered requiring little or no deposit, while bank lending margins have been shrinking, Bollard said in the Financial Stability Report released in Wellington today. Lenders are increasingly at risk from a correction in the housing market, he said.
“Traffic was OK for the first three months, but then deteriorated in April,” he said. “Sales were also OK, but also then deteriorated in March and April as well.”
[82]
This market required a flood of buying this spring. OK traffic and OK sales just would not cut it. Any market that is looking to continue its advance[especially irrational] needs sponsorship. Unfortunately, that sponsorship is elsewhere, no interest at this level. There were gaps in the dike coming into the spring, these are now mammoth holes. Just a disastrous spring for this industry. The trend continues its downward decline.
JB,
I don’t build new perse. I buy homes and do extensive renovations & expansive additions. I’m able to skate around a lot of technicalities this way, but my last project netted me over 100%.
So I’m sure this has been discussed ad nauseum but could the flight from residential housing investment be the primary force behind the recent stock index advances?
sl #79 – I did mean annual rental income as well. I’m quite new to this as well- I own a home in another state that I converted to a rental after moving to NJ.
As an example, the value of the house I own is 11x the annual rent I get (which is considered a good ratio)
The townhouse I am renting would sell (if at all) for about $400k and the rent is $2000 per month. Which puts the value of this townhouse at about 16x (annual rental income).
Real estate competition limited
http://www.businessweek.com/ap/financialnews/D8P0GU9G0.htm
State laws and real estate agents’ business practices are preventing consumers from getting the full benefit of the competition that the Internet was expected to bring to the real estate industry, federal regulators said Tuesday
…
The report cited outdated state laws and business practices that hamper consumers from saving more money and time while looking for a home to buy.
….
Technological innovations that would improve competition are available, the report concluded. For example, fee-for-service brokers offer specific services, such as listing a house on an online multiple listing service, for a flat fee. Discount brokers provide start-to-finish services but offer rebates or price reductions on some services.
…
And the FTC last October ordered real estate groups in five states to allow fee-for-service and other discount brokers full access to their online multiple listing services, warning that refusal to do was a violation of antitrust law.
….
>>
NAR better start working on a flat fee structure.
Think it through Says:
May 8th, 2007 at 9:15 pm
So I’m sure this has been discussed ad nauseum but could the flight from residential housing investment be the primary force behind the recent stock index advances?
Tit: It is a factor, but not a main driver. The main driver is a flood of liquidity in many forms that have found its way into U.S. stocks [stock repurchases, leveraged buyouts, PE, oil money, USD cash hordes, et al.]
Shubha #31,
I think I’ve been in the house your talking about if it is the gray stucco off Cedarbrook listed by Remax. If so, the barrier wall for 287 is in the backyard for any of the homes on that side of the street. Just yesterday I was speaking to someone who lives near there and he said the area was loud because of 287. That home is nice but there are plenty of that caliber available right now in Bridgewater.
If you haven’t seen anything else, try seeing some of the homes in the Stony Hill section, there are at least 3 for sale and another one nearby on Black Ct.
There are two new construction homes on Foothill that are worth a look. There is a home on Meadow for sale that you should take a look at. For an older homes in that price range there is one for sale on Sunset Ridge. There are also two contemporaries there, one of which is FSBO. I don’t know how they’re priced but the contemporaries overlook the valley and are probably priced accordingly. Although not as prestigious and large, I do think you’ll find a better value on Muirfield.
Whatever you do, I don’t think those homes should be priced as high as they currently are. I would wait if you can, there will be more where they came from. At the price you’re willing to pay you shouldn’t have to compromise on anything. I wouldn’t be afraid to lowball, some of these houses have been available for awhile. These sellers need a reality check.
Tit: It is a factor…
Hmmmmm….think I’ll post under a different name.
:T
Bill (40)-
You grossly overestimate the influence of this board. While it’s my fave place to visit in the sick little world of RE- and a great resource for the RE-obsessed- the market influence of all our bluster is roughly akin to the sound of one hand clapping.
Whatever we choose to call the “market” is a massive, grinding set of gears that are driven by a million conflicting (and passionately-held) opinions, beliefs and misconceptions.
Moreover, buyers and sellers who aren’t into the blogosphere resist these sites like TB. I constantly advise my clients to visit here; to this day, I’m pretty sure none of them have even lurked. And, their resistance is vocal and active! I guess a closed mind is a consistent mind; when a buyer or seller has a plan of action, the last thing he wants are facts that might change his mind.
Just curious – is it too silly to ask for anyone who has had a GOOD realtor experience in Northern New Jersey?
I’m going to do most of the legwork on my own for now, but when time comes to realtor-up, I want to be ready to work with someone who ‘gets it.’ And by that I mean most of the stuff we talk about on here – nobody’s paying NEAR the asking prices, and I’m not wedded to ANY house.
I plan on walking until I find what I want, and on my terms. That being said … how tough is it to find a good realtor?
Mitchell (66)-
You just stated a major reason FOR working with a Realtor. Many foreclosures are ticking time bombs, just waiting to go off on the novice buyer who smells easy money or a big discount…and doesn’t have the knowledge or skills required to perform a very painstaking and specialized type of due diigence.
Buy (94)-
It’s tough, but not impossible. Interview your candidates with the knowledge that you’re very much putting your life in their hands. And, ask for references (almost no buyer or seller ever does this). The tough, maybe even nasty, questions you ask should get you back the answers that will make you comfortable with certain agents…or send you running for the hills.
hi clot…
(…thanks for the reality check….:-) I dunno what we were thinking….)
sl
Penny (75)-
Yes.
Plankton (69)-
Thanks for scaring the pi$$ out of me with this little gem:
“Administration officials say the 21st-century economy is different from that of the 1960s, when the U.S. government had no easy access to cheap capital.”
Back in the ’60s, our currency was pegged to gold. The gubmint couldn’t fire up the presses when things got a little tight. The only way out of a credit crunch was through old-fashioned discipline and financial prudence.
Boy, have things ever changed.
rebar (89)-
This is an old story playing out slowly. Eventually, all the limited-skill guys will have all the ML access they want. I hope it’s sooner rather than later, since most of these hacks use the excuse of traditional RE’s boycotting practices to explain their horrendous inability to deliver results.
Flat-fee and “discount” RE companies exist now. As always, their market share and influence are fractional in nature. Why does the membership of NAR need to adjust its fee structure down to that of a clearly-failed industry segment?
Clot,
You certainly have a way with words and always put forth a very persuasive argument–skills that are essential to your profession. However, it’s my opinion that if nothing is ventured, then nothing is gained. So why not giving it the old college try?
You said it yourself: people have passionate opinions, beliefs and misconceptions. I say let’s make an attempt at challenging these opinions, lets replace misconception and with truth and demonstrate that what people currently believe is not necessarily the truth. After all, is not every convert a victory towards the cause? And how much effort does it take to post flyers in public venues directing people to a blog?
XJ (91)-
Damn, you pegged that range in Bridgewater well! Are you an agent?
BTW, anyone who has the 287 wall in his backyard is just asking for misery.
Bill (101)-
It would be a noble effort.
I just think it’s human nature to avoid that which is promoted from without as being “good for us”. Things like that make us feel so much better when we believe we’ve discovered them on our own. If we were all so susceptible to influence by such good advice freely given, we’d be a nation of tofu-eaters.
sl (97)-
Hey, don’t forget to check those REITs!
What a neat way to invest in real estate without the headache of being a landlord!
I actually looked at them (& other ones: o, rwt, etc) and followed them over 18 mos but didn’t really decide to buy til now.
A lot of them are good. good FFOs, low debt, generous (& consistent) dividends.
It was a nice (and sorely needed) diversification for me.
thanks again! (yes we are *still* looking to buy a house eventually but for now it’s fun to watch the portfolio grow…)
Time will tell if the future is gonna bring some bargain shopping opportunities.
sl
>>According to Loan Performance (via Credit Suisse First Boston) 55% of all 2006 mortgage originations in the NY-NJ MSA were low or no-doc. That isn’t opinion, that is a fact
what’s your point? sounds like you’re making an assumption that this information will translate to enough negative impact on the RE market that it will send prices south. still not seeing it and seeing is believing.
still not seeing it and seeing is believing
Seeing is not believing when the brains don’t accept what the eyes do see. It’s called DENIAL. Prices are coming down. It’s officially official; ask David Lereah. They will be down a huge, mind-boggling and numbing 1% decline this year.
Add 3% inflation, 6% realtor fees when selling, 1% NJ Realty tax and that’s a 11% hole any buyer who buys today needs to overcome to break even.
“Increased tax revenues for the government?”
Yes, Federal tax revenues went way up after taxes were reduced:
http://www.heritage.org/research/features/BudgetChartBook/charts_R/r3.cfm
FDR ran up a deficit — there’s no perfect world, we must choose what’s more important, and rely on our strengths (a robust and resilient economy) to combat our enemies.
9-11 was ‘expensive’ too — wiped out the equivalent of all office space in the entire city of Cincinnati in a few hours, and shut down the Stock Market for the first time in US history. You do remember October 2001, and the US economy then, right? How ‘expensive’ would a nuclear 9-11 be? Try adding that to your calculations.
Tax cuts spur economic growth -> increase tax revenues for US government.
The Laffer Curve Effect:
http://en.wikipedia.org/wiki/Laffer_curve
New Jersey is on the right hand side of the Laffer curve.
As it increases taxes, it pushes more people and businesses out of the state and puts the brakes on economic growth and actually reduces its tax base.
#106 Stil not seeing Richard? Well what can I say, but keep watching, eventually it will hit you right between the eyes.