From Bloomberg:
Syron, Chanos, Faber Say More Losses Coming in Subprime Bonds
The worst is yet to come for mortgage bonds as more holders are forced to sell the securities in a falling market, Freddie Mac Chief Executive Officer Richard Syron and investors James Chanos and Marc Faber said.
“Unfortunately I don’t think we have hit bottom,” Syron, whose company is the second-largest source of money for home loans behind Fannie Mae, said in an interview yesterday from McLean, Virginia. “Things are going to get worse.”
The extent of the declines in bonds backed by home loans to borrowers with limited or poor credit histories is being masked by investors’ reluctance to buy or sell the securities, said Chanos, president of New York-based Kynikos Associates. When Bear Stearns Cos. was forced to bail out two hedge funds in the past month after bad bets on subprime mortgage bonds, “the banks went out of their way so they didn’t have to liquidate” the bonds and establish a price, and instead refinanced them, Chanos said.
Moody’s Investors Service cut credit ratings on $5 billion of subprime mortgage bonds in the past two weeks, while Standard & Poor’s cut $6.4 billion. Fitch analyst Robert Curran said July 12 the decline in housing prices is “as intense, if not more severe” than it was earlier this year.
“The issue here is passing the hot potato,” Chanos said. “No one wants to give these pieces of paper up for cash because that is an actual transaction that people could point to as opposed to a refinancing or trying to finesse your way out.”
Defaults by subprime borrowers are at the highest in a decade, dragging down the value of homes and bonds. Those declines have helped increase borrowing costs and have become a “drag on the economy,” Syron said.
…
Moody’s, Standard & Poor’s and Fitch Ratings all warned in the past two weeks that the housing slump is broadening.“There’s a lot more to come,” Chanos, who oversees $4 billion and specializes in short sales, said in New York. “What we’re seeing already is a spreading of the contagion.”
…
Freddie Mac’s Syron said he was concerned enough to talk to Federal Reserve Chairman Ben Bernanke about declines in the subprime market.“Ben is a friend of mine and I have talked to him about this,” Syron said. “It’s a very, very serious issue.”
From the WSJ:
Bernanke Revises Subprime Outlook
Fed Chief Describes
Worsening Market;
Treasury Yields Rise
By ANUSHA SHRIVASTAVA, DEBORAH LYNN BLUMBERG and APARAJITA SAHA-BUBNA
July 19, 2007; Page C5
Federal Reserve Chairman Ben Bernanke’s semiannual monetary-policy report to Congress punctuated the growing level of worry in bond markets about the subprime-mortgage market.
As Mr. Bernanke testified before the House Financial Services Committee, investors fretted over a possible spillover of mounting subprimes woes into broader markets. Fears of a fallout sent investors into the haven of Treasury notes, driving the yield on 10-year Treasurys, which falls as the price rises, briefly below 5%.
Subprime mortgages are made to individuals with questionable chances of repaying. Delinquencies have been rising sharply, and hitting bonds tied to these loans.
…
Bernanke edged away from previous assurances by Fed officials that subprime troubles will remain contained. He told Congress that conditions in the subprime market “have deteriorated significantly.” He added that “in recent weeks, we have also seen increased concerns among investors about credit risk on some other types of financial instruments,” a reference to recent resistance seen in debt markets to some riskier corporate loans and bonds.
From Bloomberg:
AAA Grades on Subprime CDOs May Give Cold Comfort: Mark Gilbert
Bundling mortgages into asset-backed bonds and then agglutinating those bonds into collateralized debt obligations sliced into different flavors of risk always smacked of a sophisticated pyramid scheme. As the foundations crumble, even the apex of the CDO market is looking shaky.
Investors who thought they were boxing clever by buying only AAA rated securities are about to discover that the top grade offers scant protection when a leveraged market melts down.
And the contagion threatens to infect the leveraged-buyout market, the stock market and, ultimately, the real economy.
First, a brief summary. Lots of U.S. lenders granted cut- price mortgages to people who otherwise couldn’t afford a house. The lenders sold those loans to the bond market. The bond market repackaged the loans and sold them to the derivatives market. The derivatives market worked its alchemical magic to spin CDOs.
Now that the mortgages are starting to default, that derivatives gold is regressing to lead.
…
So, in theory, there’s a thick crust of protection that has to disintegrate before that AAA rated apex is threatened. In practice, however, that shield is remarkably porous.
Daniel Taylor, a Philadelphia-based fund manager at Aberdeen Asset Management, reckons it will only take a 1 percent decline in national U.S. house prices for collateral losses to surge to more than 40 percent — at which point your top-rated security is in the same sinking boat as the lower-rated securities.
Subprime mortgages accounted for about 20 percent of total new home loans in the past three years, more than double the share at the beginning of this decade. Because those mortgage lemons take about two years to ripen as the rates reset, the defaults are only just beginning and are likely to worsen in the coming years.
…
The rottenness at the bottom of the CDO ratings scale is already starting to infect the higher levels, measured by the value of credit-default swaps tied to subprime mortgage bonds. The top-rated ABX AAA index, trading at 99.52 at the start of last month, slumped to 95.23 this week.
To wrap some less opaque context around that concept, a similar decline in the price of the AAA rated 10-year U.S. government bond would send its yield soaring to a near seven-year high of 5.63 percent from its current 5.03 percent.
From Bloomberg:
Basis Capital Suffered Subprime Losses in February
Basis Capital Fund Management Ltd., an Australian hedge fund caught up in the rout in U.S. subprime mortgages, suffered losses as early as February.
In a letter sent to investors July 6, Basis Capital said its investments in collateralized debt obligations, or CDOs, had been tarnished by “guilt by association.” Less than a week later, the Sydney-based hedge fund, which had assets of $1 billion in May, said its two funds lost 9 percent and 14 percent last month. Withdrawals from the funds have been frozen and some margin calls have been missed, research firm Zenith Investment Partners Ltd. said in an e-mailed note today.
…
Both funds had five-star ratings from Standard & Poor’s. The ratings were suspended yesterday.
…
Some of Basis Capital’s lenders are seeking to sell the fund’s assets, Zenith said, citing a disclosure notice from the hedge fund. A sale at “distressed” prices could cut the net asset value of units in the Yield Fund to below 50 percent of the level as at May 31, the notice said.
…
Basis Capital, founded by Steve Howell and Stuart Fowler in 1999, invests in the most risky portion of CDOs, the so-called equity tranche, which is first in line for any losses as borrowers fall short on mortgage payments. Investors in the equity portion aim to generate returns of more than 10 percent.
Howell, a former director of Asia-Pacific trading at American Express Bank in Singapore, and Fowler, a former Salomon Smith Barney trader, worked together at County NatWest. Basis Capital was named `Fund of the Year’ at the 2005 AsiaHedge awards and Macquarie Bank Ltd.’s Skilled Manager of the Year in 2004.
Basis Capital is in talks with creditors after banks seized and began to sell off its investments, the Financial Times reported today.
“reckons it will only take a 1 percent decline in national U.S. house prices for collateral losses to surge to more than 40 percent — at which point your top-rated security is in the same sinking boat as the lower-rated securities.”
From Post # 2,
Talk about leverage and models making wrong assumptions. Funny, no talk of dancing at/near the bottom.
AAA subprime…. oxymoron of the year
Any way to find out by town/county the percent of subprime loans in NNJ?
Had your morning coffee yet? If not, you might want to chug a double espresso and take a look at this hallucination:
The Buckingham Research Group
Research Note for July 18, 2007:
Bear Stearns (BSC-Strong Buy; Tgt: $217) – The WSJ reported that BSC informed investors last night that client equity in the more leveraged hedge fund is essentially zero and that there is only 9% of client equity left in the less leveraged fund. While this clearly seems to be spooking the market, this result should not be surprising given the decline in the underlying assets and the significant leverage employed by the funds. For instance, given the significant amount of leverage in the fund, this performance implies that the decline in net assets was in the 10%-20% range – a discount to current AAA and AA rated ABX indices but not out of whack with expectations. On the positive side, the fact that there is equity left in the less leveraged fund implies that the $1.4 billion margin loan to the fund by BSC is relatively safe. And while we expect a reputational and economic hit to BSC’s asset management business (investment of $35 million in the fund and estimated foregone asset mgmt. fees of $7.5 million per quarter), we believe that is manageable given that asset mgmt. represents 5% of revenue and 2%-3% on net income. More important to the outlook for BSC and the brokers is the performance of fixed income trading, and we believe results at MER and JPM are much more important litmus tests for that business. And all signs are pointing to a substantial pick up in fixed income in June and early July – boding well for 3Q07 results. We continue to believe the market is “losing the forest for the trees” considering the strong global economic environment, and believe the brokers are setting up for the typical “seasonal trade” into the fall. While this is somewhat of a group call, we see the most upside at BSC given the fact that it is trading at its 5-year trough valuation of 1.5x book. Reaffirm Strong Buy.
Bear Stearns
Strong Buy
Mkt.Cap: $20,029.4 mm
BSC-$138.42
Target: $217
Debt/Cap: 81.9%
Shares Out (mm): 144.7
FY Ends November
ROE 2007E: 17.6%
Div./Yield: $1.28/0.9%
2-Year Growth Rate: 9.3%
Bairen,
Anything free is too old to be useful (most free sources are reporting data from ’05).
Anything recent is terribly expensive.
jb
From the Realtor MLS messageboard:
“2 Day Sale this Sunday and Monday only (7/22 & 7/23). Currently $539,000. Sale Price to be announced in Sunday’s Record. Beautiful and spacious 3 bedroom, 2 full, 2 half bath condo that’s ready to move into. See MLS number and check out the virtual tour! Send your client’s by with your business card or bring them yourself. Make an offer in writing and have pre-approval ready.”
Another one for a 2+ million dollar home:
“What are these buyers waiting for? A brand new custom colonial on a gorgeous piece of property,in SADDLE RIVER,LOW TAXES,SHOW ME ANOTHER ONE> Please bring your buyers this house should not still be on the market. Lockbox on front door. Thanks”
#8
Thanks JB.
Was hoping to get some data on Warren, Basking Ridge, Berkeley Heights.
I get the feeling a lot of my neighbors in this area are all sizzle no steak. Overheard 2 stay at home moms at a playground in Basking Rdge talking about their finances. The 1 was saying how hubby got laid off in March and they were in danger of losing the house in July/August, but he went back to work in June so now they can go ba to remdoeling. I thought WTF? You were 60 days away from losing house, so now you can go back to granite and other bs?
Both women drove Lexus/infinti SUVs and both they and their kids were in designer clothes.
I don’t think subprimers living paycheck to paycheck is the exclusive domain of the unwashed masses. Bet a lot of middle class/upper middle class income families are a few missed paychecks away from disaster.
Donald Says:
July 18th, 2007 at 11:52 am
Your welcome #76. I like to back my statements up with facts rather than talking out of my behind like 95% of the people here.
Let me help you with your facts. Only two of your listings are from 2007 and they are 3 and 4 months old (two listings are not enough data to show the state of the current market). The rest are 6 months to 3 years old which make them irrelevant.
Donald Says:
July 18th, 2007 at 11:45 am
3b,
Sorry to disappoint you, but many homes still sell for close to asking price. Here are some examples:
Location:19 Biscayne Drive,Ramsey NJ Price: $815,000
SOLD $792,500
4/2007 OLP $829,000
Location:21 Coach Lane,Upper Saddle River NJ Price: $1,999,999
SOLD! $1,950,000
2/2005 OLP $2,100,000
Location:IO NEW JERSEY AVE Bergenfield,NJ Price: $589,000
SOLD 589000
NOT SOLD, Under Contract OLP $659,000
Location: 361 Grove Street, Oradell NJ 07649 Price: $1,895,000
Sold! $1,700,000
12/2006 OLP $1,995,000
Location: 99 Lambert Place,Paramus NJ Price: $599,900
SOLD! $550,000
12/2006
Location: 16 Berkeley Place,Fair Lawn NJ Price: $529,900
SOLD! $500,000
11/2006
Location: 225 Addison Place,paramus NJ Price: $499,000
under contract!
SOLD 3/2007 $490,000 Now avail. for rent
Location: 52 Maple Lane, Emerson NJ 07630 Price: $649,900
SOLD! $649900
7/2006
Location: 1119 Linwood Ave,Washington Twp NJ Price: $554,900
SOLD! $535,000
9/2006 OLP $679,000
Location: 41 Kent Road,Hillsdale NJ Price: $834,900
SOLD! $810,000
9/2006 OLP $842,500
Location: 109 Cypress Street,Park Ridge NJ Price: $875,000
SOLD! $857,500
4/2006 OLP $899,999
Location: 540 Bogert Road,River Edge NJ Price: $539,000
SOLD! $525000
5/2006 OLP $595,000
Location: 99 BERGEN AVE.,WALDWICK Price: $419,900
sold $412500
3/2006 OLP $435,000
Location: 38 BEDFORD PLACE Price: $524,900 sold 511000
Town?
Donald Says:
July 18th, 2007 at 11:48 am
Continued:
Location: 738 Grant Ave,Maywood NJ 07407 Price: $399,000
SOLD for $399,000
12/2004 (Sold 1/2004 $369,000)
Location: 1012 Abbott Blvd,Fort Lee NJ 07024 Price: $799,000
SOLD for $770,000
12/2004 OLP $799,000
Location: 21 Westbrook Street,Midland Park NJ Price: $454,500
SOLD! $450,00
Not in NJMLS
Location: 687 Doremus Ave,Glen Rock NJ Price: $699,999
SOLD! $700,000 ($1 OVER Asking)
6/2005
Location: 12-37 Western Drive,Fair Lawn NJ Price: $449,900
Sold! $445,000
5/2005 OLP $469,900 Active 5/2007 $549,900
Location: 202 Harding Road,Glen Rock NJ Price: $464,900
SOLD for $464,900
12/2004 OLP $464,900
the American middle class isn’t really shrinking, so much as it is anxious. The median household income for workers aged 25 to 60 is nearly $62,000. If both spouses work, it’s close to $82,000. As Kessler notes: “That is not an extravagant living. But it is not drowning. And it is not one step away from losing your home.” The same Third Way report noted: “The bottom line is that the middle class is shrinking not because the bottom is dropping out; it is because more people are better off.”
go to dataplace.org and you can see the subprime heat map of NJ. It is a little tricky to navigate but that site is free and gives tons off cool info
The WSJ has 07q2 mortgage delinquencies mapped:
http://online.wsj.com/article/SB118481288641971250.html
For those without WSJ access, Barry Ritholtz has posted them:
http://bigpicture.typepad.com/comments/2007/07/brief-history-m.html
It isn’t how much you make, it is how you spend it.
Lower your “standard” of living. Many people in their 20’s and 30’s have this feeling of entitlement. They deserve that new car every 3 years, They deserve new designer clothes, They deserve new high tech gadgets, etc, etc, etc.
#7 Clot – I love this quote:
“not out of whack with expectations”
Maybe the problem is that Bear simply wasn’t clear enough that this sort of performance was what they expected.
#13 john
Middle class wages have not been keeping up with increases in the cost of living for the past 25 years. The middle class is getting squeezed, and more people are not better off.
In early 2005, Bennie and June wanted to marry and set up housekeeping. Bennie rented a small studio and June was still living with her sister. They went looking for a two bedroom apartment and found one for $1250 a month. They were told they needed to pay first and last months rent plus a $750 deposit. They did not have $3250 in cash. June was a secretary and earned about $28,000 a year pretax. Bennie was a salesman for a tote the note used car dealer and averaged close to $38,000. They were bright young kids and knew from their parents to keep their housing expense to about a quarter of their after tax income.
Bennie’s Uncle Vinny had a solution for their dilemma. He knew of this house that had just gone on the market,, by owner in a very nice neighborhood in Phoenix. It was priced at $600,000 and was just two years old. Uncle Vinny told Bennie to go to the owner and offer him $625,000 on the condition that the house would be financed for $700,000 and that the day after closing the seller would kickback $75,000 to Bennie and June. Bennie would have to pay cousin Lennie, a certified appraiser, $15,000 which would leave Bennie and June about $60,000 to set up housekeeping. Their loan would be No doc no closing cost 100% with a two year teaser rate of 3.75%. It would reset in January 07 at 4.5% above Libor.
Uncle Vinny recommended that Bennie save the amount they would have paid for an apartment to pay taxes and insurance on their new home and use the $60,000 to help pay the monthly mortgage. It was a done deal.
Every January for the past two years, Bennie and June’s insurance company raised their coverage on the house by $100,000 assuming like all insurance companies that homes only appreciate in value. Besides structural damage now at $900,000, the contents package was equal to 40% of the house value or $560,000.
Bennie and June were happy. Their house payment of $2187 a month was $937 more than rent but that money came from the $60,000 they banked at closing with about $7500 left over after two years which they spent for furniture and patio furniture by the pool. Then came the shocker. Their mortgage holder informed them that their loan had re set to 9.8% which increased their monthly to $5,716 a month.
Bennie went to Uncle Vinny for advice. Uncle Vinny told them to refi but the market had collapsed and Bennie and Junes house was only worth $600,000. Uncle Vinny then recommended a visit to his second cousin Denny who was the son of great Aunt Winnie. Denny specialized in mortgage equity extractions.
Denny told Bennie and June to plan a vacation, purchase two potted palm trees and a space heater to keep them alive in their garage while they were away. Curiously Denny told them to make sure the car they left in the garage had a full tank of gas……..
Upon arriving home from vacation, Bennie and June were aghast to find their beautiful four bedroom three and a half bath home utterly destroyed by fire! Poor heartbroken Bennie and June collected $1,360,000 from insurance and paid off their $700,000 mortgage. A small gift of $50,000 to Uncle Vinny and Denny for consulting on this matter still left them with $510,000, enough to completely rebuild their home on their own lot and foundation which did not burn. Fire equity extraction. FEW coming to a neighborhood near YOU
#13 Or is it because more people give the illusion of being better off? (I think it is the illlusion)
If you are drowning in CC debt and or mtg debt, car payments and all the rest, are you really better off?
#15 Thank you James. The maps confirm my personal knowledge. I know of many new McMansions in the Atlanta area with a stay at home mom, all new furniture and two Lexus SUV’s in the driveway. Atlanta’s economy is doing ok and the cost of living is certainly lower than NJ, but there just can’t be that many $150K jobs out there in Georgia. They are leveraged OTA.
As for Michigan, well, I know of one person who lives in a nice suburb of Detroit who just spent over $60,000 to re-do her kitchen. She took out a home equity loan at a time when real estate prices are collapsing because the car companies are going broke. The loan is more than her annual income. She is a smart woman but doesn’t seem to know from Shinola about debt. She likes her kitchen though.
http://www.marketwatch.com/news/story/punk-ziegel-analyst-tells-investors/story.aspx?guid=%7BB6CDDAA8%2D0966%2D407D%2D8AD1%2DA3ACB3263D56%7D
sell sell sell
Sept. 1 approaches…
This is somewhat off topic –
There have been discussions on this blog about gangs and encroaching “ghettos” in some towns including West Orange. I have recently taken some time to walk and drive around West orange and I must say that my previous opinion of “encraoching ghetto” is far from true. There is wide disparity between economic groups but I saw little evidence of gangs or ghettos. No graffiti, no colors, dramatic tattoos, etc. There was the occasional teenager..posing, but I see that in every town in NJ. The main streets (Eagle Rock, RT 10 and Northfield running east to west look a bit more travelled as expected, however, make just one turn onto a side street, and you could be in any nice, perceivably “safe” town in NNJ.
Thaought I would post this in the interest of being fair to WO residents and fans…
excuse the spelling.
Not sure if a repost:
http://realestate.msn.com/Buying/Article_bankrate.aspx?cp-documentid=4976420
“I think it’s actually good in a way that Texas is a nondisclosure state because it doesn’t let buyers get hung up on what a property sold for,” she says. “We kind of like it like that because you don’t get too much minutiae of what somebody paid for something. It doesn’t matter what somebody paid for a house; it’s what they’re willing to sell it for.”
#24: Just because you can’t see them does not mean they are not present.
Sept. 1 approaches…
As does July 22nd, and September 13th.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0710.pdf
As prescribed by OFHEO, all nontraditional mortgage loans with an application date on or after September 13, 2007 that are sold to Fannie Mae, must be in compliance with all aspects of the Guidance.
…
DU Version 5.7 will be updated on July 22, 2007 to support the qualifying calculations for nontraditional mortgage products referenced above.
I firmly believe this is the reason so many lenders have eliminated 2/28 ARMs over the past week. Slim chance these loans will qualify under the new guidelines, especially those with an I/O option..
For mortgage loans with an IO feature, an analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by final maturity at the fully indexed rate (if adjustable-rate), or note rate (if fixed-rate), assuming a fully amortizing repayment schedule.
jb
Where I come from they called that a friction fire, where the mortgage rubs up against the insurance policy.
I am entertained by the opinions that the US middle class is struggling. The US underclass is struggling, but the middle class is as rich as ever here.
During the last 25 years, the proportion of households owning stocks has risen dramatically and therefore the middle class has participated in rising equity values during that time. Middle class households in the US also tend to own their homes, so these folks have benefited from rising home equity. The tax rate on capital gains earned by the US middle class is somewhere between 0% and 15%. Where else in the world is this the case?
True, debt has increased. But assets have increased faster, leading to rising net worths.
If you’re middle class and your wages and net worth have not kept up with inflation, then you need to find a better job and do more saving and investing.
Someone define “middle class” for me, because this entire discussion is useless unless we can agree on exactly who makes up this middle class.
Let me start this off by simply stating, those who are neither rich nor poor, is not a good enough definition.
jb
#15,
Thanks JB. Those maps appear to show NJ default rates at well below other parts of the country most often mentioned in subprime/mortgage default news. Is that because NJ is so densly populated and larger numbers mean lower rates? I am asking because the default rate seems better than I expected. Especially as overall homeownership rates for NJ seem in line with regional and national norms –
http://www.census.gov/hhes/www/housing/hvs/annual05/ann05t13.html
Overall NJ appears to be holding up much better than Cali, FL, TX and Mich. Interestingly Southern NJ looks to have a higher default rate. Maybe going south for “more house” didn’t work out for everyone!
Definition for “Tote the Note” car dealer?
#23 Clot: Do not know if this is indicative of Spet 1, but in one of the areas I follow, it looks most of the 500-55K asking prices are now down to 489/499K in asking price. Just noticed this over the last week or so.
par4156,
The reason why New Jersey default rates are lower than the national average is because housing is afforable here relative to places like California and Florida, and our economy is solid compared to midwestern states like Michigan.
New Jersey home prices seem high by national standards, but relative to New Jersey incomes and net worths, they are reasonable.
‘Fraid I’m gonna have to question your policework, there Pretorius. (#30)
The rise in percentage of “middle class” homes owing stocks is largely the result of employee-financed retirement vehicles (e.g., 401(k)), and not of disposable income to invest. These holdings are in place of traditional pensions and other defined benefits.
No “wealth” is created; only the burden is shifted. The amounts taxed at the cap gains rate for middle class families whose retirement accounts are mated to the stock markets are negligible–most of these accounts are set up to pay a tax-deferred benefit. Nevertleless, the US, in its infinite wisdom, still places far more of a tax burden on income derived from labor and production than it does from the generation of dividends from established wealth.
Meanwhile, wages continue to fall in relation to inflation. There is no such thing as a free market, especially for jobs. The assymetry of information alone puts an almost unbeatable advantage in the employers’ hands.
And I’ll wager that increase in debt = rise in housing costs.
#30 pretorius: You cannot spend an asset, unless you turn it into cash.
For many people saying my house is worth 700K and I only paid 500k is worthless, if you are struggling to pay the mtg every month.
It gets even worse,when it then starts to dawn on that person that their 700k asset is now only worth 600k.
par,
Believe it or not, in 2006, the Vineland-Milleville-Bridgeton, NJ MSA had the 4th highest prime mortgage serious delinquency (SD) rate in the U.S (1.2%).
jb
#35 Reasonable? 70% of all homeowners in Bergen County make less than 100K a year,and houses had been averaging 500k to 800k a year.
I would not call that reasonable. As far as our economy being solid, that is very,very debateable. I refer you to the latest Rutgers Univ study on NJ’s economy.
Good point JB. Why are there problems worse in Cumberland County, where home prices are half of Bergen County prices? Because Cumberland County household incomes are probably 1/3 of Bergen County household incomes and Cumberland County household net worths are probably 1/10 of Bergen County net worths.
Cracks in subprime reaching higher-grade bonds
NEW YORK (Reuters) – Weakness in U.S. mortgage loans and the collapse of two Bear Stearns Cos. Inc. hedge funds are raising worries that higher-rated debt may be the next to crumble.
The focus now is on so-called Alt-A loans, mortgages that fall between “prime” and “subprime” loans in quality.
Global financial markets have been roiled in recent weeks because the subprime crisis, triggered by troubled loans, is expanding to more sectors of the markets, impacting Wall Street earnings.
Moody’s Investors Service is now reaching higher into Alt-A, or Alternative-A, loans in its review of potential downgrades, which may affect 66 groups of debt from residential mortgage-backed securities originated in 2005 and 2006, when aggressive underwriting led to problem loans increasingly at risk of default.
More at:
http://www.reuters.com/article/reutersEdge/idUSN1837636320070719?sp=true
From MarketWatch:
Leading indicators point to softer growth
Leading economic indicators fell 0.3% in June, the fourth decline in the past six months, hinting at a possible softening in the economy later this year, the Conference Board said Thursday.
Over the past six months, the leading index fell at a 1.3% annual pace, suggesting that “economic growth is likely to continue, but it is likely to be at a slow pace in the near term,” the private research organization said.
“The economy is currently healthy,” said Ken Goldstein, an economist for the Conference Board, pointing to the 1.3% annualized growth in the index of coincident indicators.
But the slowdown in the leading indicators “suggests a possible softening” in the economy later this year, Goldstein said.
Three of the 10 leading indicators advanced in June, led by the factory work week, capital equipment orders and stock prices. Of the five declining indicators, the biggest negatives came from falling building permits, rising jobless claims and weaker consumer expectations.
Economists expected a smaller decline in the leading index of about 0.1%, according to a survey conducted by MarketWatch.
May’s index was revised lower to a 0.2% gain from 0.3% previously reported.
Might someone supply an address for MLS #2427176
in Westfield?
Thanks.
126 Wyoming
“New Jersey home prices seem high by national standards, but relative to New Jersey incomes and net worths, they are reasonable.”
Pre,
How do you explain 80-100% gains in RE prices, while income gains averaged approx 4%, not even calculating real income. Doesn’t sound reasonale to me. Unles, of course everybody in NNJ has doubled their income in the past 4 years.
Do we just dismiss our negative savings rates?
#44,
That’s what I was afraid of. Gracias!
American Middle class –
Depending on class model used, the middle class may constitute anywhere from 45% to 49% of households. Sociologists such as Dennis Gilbert of Hamilton College commonly divide the middle class into two sub-groups. Constituting roughly 15% to 20% of households is the upper or professional middle class consisting of highly educated, salaried professionals and managers. Constituting roughly one third of households is the lower middle class consisting mostly of semi-professionals, skilled craftsmen and lower level management. Middle class persons commonly have a comfortable standard of living, significant economic security, considerable work autonomy and rely on their expertise to sustain themselves.
http://en.wikipedia.org/wiki/American_middle_class
Alot of referance to “social” status…almost plays down the (individual’s)economic aspect
I think, middle class refers more to lifestyle than income…a “random” sample of Sperling’s Best Places put’s NNJ aver cost of living at about 50% above the national average. Thus we’d need to make 50% more here than in Average Town USA to be middle class. Then there are other trade offs like the person that lives in a 750 square foot one bedroom on W 64th and Central Park West considering themself on par with the person in Ridgewood with a 3500 square ft colonial.
This page has a nice chart showing income correlated to education, sex, race, etc…
http://en.wikipedia.org/wiki/Social_structure_of_the_United_States
BC,
The reasoning sounds oddly circular.
The reason home prices are so high is because our net worth is so high.
The reason our net worth is so high is that home prices are so high.
jb
Was hoping to get some data on Warren, Basking Ridge, Berkeley Heights.
Only anecdotal…I have a family friend that lived in Warren. They bought a new 5,000 sq/ft place in Florida in September 05, before selling their home in Warren. After all, they were expecting big bucks from the sale. They put up their place last Spring (i.e. 2006) and it is still on the market. They had to come out of retirement to pay the bridge loan on the new place and quickly running through their savings.
JB,
I think I know why my last post went to moderation…no fear, it’s squeaky clean!
#37 JB – we did that math the other day, as I recall. It turned out that although, as it was posited, an increase in net worth had “caused” the value of homes to skyrocket, it had had no effect whatsoever on the value of all other assets.
Odd, that.
3b #39,
Most Bergen County homeowners bringing in less than six figures per year are retired – the proportion of 65+ residents in Bergen County is significantly above the national average.
People who hyperventilate about unaffordable home prices in a particular area frequently get hung up on the median income of the area’s residents, which is wrong because this metric includes retired people along with lower income households who aren’t bidding on single family homes.
The right way to assess home affordability in an area is to have a look at the economic situation of people looking to buy there. In most Bergen County towns, a significant proportion of households (>10%) earn at least $250,000 per year, and I would estimate half of the households looking to buy homes in Bergen County (mainly Manhattan finance workers and Asian entrepreneurs) earn at least $250,000 per year. These are the same people who own large stock portfolios and have wealthy parents, which present a large pool of assets for a downpayment.
I don’t know what you are calculating Pre, but when you exclude the vast majority of area residents in your calculations, it is *not* affordability that is being calculated.
jb
In fact, pointing to a minority group of high wage earners as a justification for home prices is the antithesis of affordability.
In essence, what you’ve said is:
“Home prices in Northern New Jersey are affordable if you make $250,000 and have significant net worth.”
jb
“I would estimate half of the households looking to buy homes in Bergen County (mainly Manhattan finance workers and Asian entrepreneurs) earn at least $250,000 per year.”
I would like to see some concrete data supporting this assumption. Wonder why blackboxes built with unrealistic assumptions are blowing up?
JB,
Another way to understand affordability is to look at New York City.
The median income household there is not looking to buy the median priced home. Home affordability seems very low in Manhattan when one calculates it the conventional way – median home price to median income.
But then why are there so few subprime loans and foreclosures in New York City? I believe it is because homes there, while expensive by national standards, are affordable to the pool of people who are buying them.
Reading the friskie eaters jibberish about flattish prices is just hilarious.
Look friskie eaters I went throught the early 1990’s bubble and this one today is bigger and badder. i was able to buy houses at cheap prices today eventhough prices are dropping they need to drop alot more just to get them to fair levels NOT cheap levels.
Bid low —Bleed’em dry.
BOOOOOOOOOOOOOOYAAAAAAAAAAA
Bob
BC Bob,
I’m afraid I don’t have “concrete data.” This is why I made it clear that it was only my estimate.
However, I did flip a condo this year to a couple in their late 20s who together earn more than $200,000 and received six figure downpayment assistance from the parents.
I should have added in #58 that the $500,000 condo is unaffordable on the convention metric (median income to price in the area) but is comfortably affordable to the buyers.
Pre,
Lots of articles have been posted previously about the high – and rising – number of foreclosures in the outer boroughs where people own SFH’s.
Using “Manhattan” and “New York City” interchangeably is mixing apples with oranges.
Manhattan is its own world.
“However, I did flip a condo this year to a couple in their late 20s who together earn more than $200,000 and received six figure downpayment assistance from the parents.”
That’s fine. However, if every buyer met this profile, we probably would not be on this site at this time. Another “estimate”, I would venture to guess that there are not more than 15% of NNJ households earning more than 200K. Don’t have time now to research this, however I will.
#49 RentingNJ
I was looking at trulia.com last night and couldn’t figure out what was going on with the median prices in Warren. trulia claims median prices have dropp 14% from Mar-May 02 to Mar-May 07. Also shows median price drop of 26% from Dec 06 -Feb07 period to mar-May 07.
I can’t think of any new townhouse/condo going up. Was wondering if prices are really ropping or have the big mcmansions quit selling?
Did anyone ever define middle class?
I view it as a household making between 80-120K annually and 250K-1M is assets. Including primary residency equity.
That sounds all nice and dandy but we should be asking the questions of what is their debt to asset ration, or better yet debt to income ration.
I think housing is the major problem here.
If you were to inherit a paid home like my brother did from my Dad, then 120K and no mortgage is GREAT living.
You can lease a benz, take vacations, designer jeans, eat out and still save 10% of income after maxing 401K.
However, since this doesn’t represent the majority of population(excluding Albanians), then the middle class is NOT better of. There is an illusion of a successful professional who makes 120K and lives a GREAT lifestyle but if you look at their bank statement they only have 7K in savings for a rainy day.
500K mortgage,100K student loans,25K creditcard debt a lease pmnt mask a pretty picture.
This picture will look pretty as long as there isn’t a recession. When this happens all bets are off.
I see fed’s hedging the next recession by creating another bubble. (ala 2001). Is it precious metals or equities? or something else?
#52 Not to beat a dead horse, but 70% of the entire population in BC earning less than 100k a year or less, even counting the seniors, that is still an incredibly large number.
And those that know, know that the proportion of seniors in BC has been dropping, many are moving on and passing on. I see itin my own small town.
As far as the 250K finance workers, what can I say, but here here we go again, with the same tired old myths.
There are a total of approximately 260K people employed in the securities industry in NYC. Employment in that sectoe has still nto reached its peak of early 2000, and sutoamtion and consolidation in the industry is an ongoing occurrence.
Many already have houses, and that number includes everyone from the Charirman of the firm on down.
And if you think most are making 250K a year, you are believe me mistaken.
And I will leave it at that, obviously nothing will change your mind.
One final note if these 250K buyers are out there, than how come they are not buying, because there is lots and lots of inventory for sale in BC.
#63 MM: Believe it or not MM you and I agree on something.
I would venture to guess that there are not more than 15% of NNJ households earning more than 200K.
How many of them already own homes? I’ll wager a bottle of scotch that it is significantly higher than the average homeownership rate.
jb
True, debt has increased. But assets have increased faster, leading to rising net worths.
And the number one asset of the middle class is their home, which has been responsible for most of the increase in net worth. But really, what benefit does a typical middle class family really see from this? They may “feel” wealthier, and on paper, they may be wealthier, but what are the practical implications?
Unless you cash out and leave a high cost area for a low cost area or decide to live under a bridge somewhere, it’s almost impossible to ever realize these gains. Sure you can borrow against these gains, but that loan needs to be repaid from your income. In most cases, rising home prices, practically speaking, have just given people more opportunity for getting themselves into debt.
Going back to yesterday’s thread, I still can’t believe Richard offered advice to use a racy mutual fund for people trying to save for a down payment. Many here have said that the best way is to hunker down and raise cash, i.e. get out of debt and save, save, save. Right now, you can pretty much get 5% risk-free at a money market mutual fund or online savings bank, or at TreasuryDirect.
At the end of every month, multiply your down payment amount currently saved by 5 to arrive at what house you can buy today, assuming 20% down. If that is somewhere in the 2.5-3x times annual income, and doesn’t eat more than 28-30% of monthly PITI, you are in the ballpark of being able to afford a home with a traditional mortgage.
Trying to pick an investment to blow the lights out to get into a house a few months earlier is just not worth the risk, IMO.
Am I being too conservative or is this a prudent way to go about it? Thoughts?
Scribe, I accidently typed Manhattan when I meant to write New York City. I agree that foreclosures are rising in some parts of New York City, but remain extremely low by national standards.
3b, I’m talking $250k households, not individuals. Lots of people in non-finance jobs (lawyers, IT, marketing people) are benefiting from the expanding finance industry.
#57 read: Didn’t youy know, that never happened (the early 90’s downturn)according to the uber-bulls.
I lived through it too, but it must have been my imagination, as I am told that it did not happen.
#69 pre: And again I ask where are they, lots and lots of nventory to choose from in BC.
Renting in NJ,
The implication is that homeowners deploy their home equity into very productive uses, such as financial investments that return more than borrowing costs, college education for their children, and health care.
The mainstream media enjoys writing articles about the clown who misspent his home equity consuming stuff. The media never writes articles about people like me use home equity has rocket fuel for their net worths.
#60 And even Manhattan will see the correction at some point.
I can see the headline in the NYT’s now
“What Were People Thinking”?
From MarketWatch:
S&P downgrades more mortgage-backed securities
Standard & Poor’s downgraded more mortgage-backed securities on Thursday. The agency said it cut ratings on 418 classes of residential mortgage-backed securities backed by closed-end second-lien home loans issued between January 2005 and January 2007. The downgrades come because S&P said losses on such mortgage-backed securities will “significantly” exceed anything that’s happened before and its own expectations. The securites were originally worth $3.8 billion and represent 6.1% of the roughly $62 billion of U.S. mortgage-backed securities backed by closed-end second-lien home loans that S&P rated between early 2005 and early 2007, the agency added.
3B,
“And if you think most are making 250K a year, you are believe me mistaken.”
People who bought in BC the past 5YRS are the 30% that do make over 100K. People who make money are buying houses. People who don’t make any money and own a house that’s worth 700K they cash out and downsize.
People who make less than 100K are not the ones that are buying now in BC. But since they already have a house they bought in the 90’s they can stay there and be able to afford it. But if you want to get in you have to go out and make some money.
I know that housing in in a midst of a correction but please be aware that BC will not ever see 2000 prices.
#72 pre: Because you are most likely in the minority.
One final note if these 250K buyers are out there, than how come they are not buying, because there is lots and lots of inventory for sale in BC.
This is just a guess, but maybe because they can’t afford a house that “fits” their assumption of what someone earning 250K should own. I know doctors and lawyers who are pretty disgusted at having spent years of training and forking out massive $ to fund their educations only to find that after the bubble they can only afford a house that a teacher or plumber or groundskeeper Willie bought with their wages 20 years ago. People don’t like to work 60-80 hours a week for the opportunity to fund the retirement of someone who worked only 30 hours a week. Perhaps life isn’t fair but it’s hard for me to imagine a doctor being fine with living in a tiny split in BC.
I feel bad for Bernanke. He has to clean up Greenspan’s mess. Bernanke may have talked about throwing money from Helicopters, but Greenspan is the one who did it, creating these credit bubble.
From Reuters:
Bernanke says subprime losses could reach $100 bln
Federal Reserve Chairman Ben Bernanke on Thursday said losses associated with subprime mortgages could reach $100 billion.
“The credit losses associated with subprime have come to light and they are fairly significant. Some estimates are in the order of between $50 and $100 billion of losses associated with subprime credit products,” Bernanke told a Senate Banking Committee hearing.
“The credit rating agencies have begun to make sure they account for those losses and they have downgraded some of these products,” he said.
From Reuters:
Fed considering range of rules for mortgage lending
Federal Reserve Chairman Ben Bernanke on Thursday told lawmakers that regulators are considering a range of changes to mortgage lending rules in the wake of the subprime lending crisis including better disclosure requirements and limits on prepayment penalties.
“I believe that we are moving as fast as we responsibly can,” the Fed chief told the Senate Banking Committee in answering questions after his second day of testimony on the health of the economy.
Bernanke warned that rules to improve disclosure and to make sure that a borrower is able to afford a loan are difficult to craft. “It’s hard to put into a rule exactly what criteria one would use to decide if a mortgage is affordable or not,” he said.
A few random observations from the peanut gallery (ie, me):
1. There seem to be a lot of $200k+ household earners on this here blog looking at $500-$800k houses in desirable towns. What makes the readers here so special that you guys think there aren’t a heck of a lot more people like this out there right now looking at the same towns you are?
2. Looking at just the market for desirable towns for a second, why would it matter if “only 15%” of households make more than $200k? I’d venture to guess it’s probably the same percentage of people looking in the desirable towns. You think these $200k+ earners are looking in Newark or looking in Short Hills?
3. Ratio of median income to median house value is a fallacy. All that matters is median income of the most recent buyers, not current residents.
4. I do think most people currently buying in the $500-800k range probably are doing so without crazy loans, but are not looking at *value* as much as people here do. A POS Cape is still a POS Cape no matter what town it is in.
#75 Make Money Says:
“I know that housing in in a midst of a correction but please be aware that BC will not ever see 2000 prices.”
I don’t know the BC market, but that’s a pretty bold statement to make about any asset. Maybe the probability of seeing 2000 prices is lower than other counties, but to say never ever, I don’t know.
#75 MM I know 5 couples that have bought in the last 5 years in BC that do not make 100k or over a year,and I supsect they went sub-prime.
Anyhow I do not exepct prices in BC to go back to 2000 levels, in fact never did, and if they did then we would be in serious, serious trouble.
I do expect 25% or more off of 05 high’s and that (expect for the casualities) will be a good thing, long term for the housing market and for BC.
Perhaps life isn’t fair but it’s hard for me to imagine a doctor being fine with living in a tiny split in BC.
My cousin finished his Anesthesiology residency (Cornell) last year. He was going to stay in NJ/NYC, but decided to leave for Florida after getting an offer equal to what he would have made here. Cost of living and home prices were a major driver in his decision to leave.
jb
#78:
I feel bad for Bernanke having to field all the ridiculously stupid questions from Congress right now.
Bernanke must be great with his kids because has a TON of patience.
Re #10 – where is that MLS message board – is there public access to there?
New Jersey home prices seem high by national standards, but relative to New Jersey incomes and net worths, they are reasonable.
That’s just not true.
The Wells Fargo Housing Opportunity Index factors in both income and home prices to derive an affordability statistic. By factoring in income, it’s not just about the price of a home, but about income levels relative to price.
Despite high income levels, NY metro area housing is some of the least affordable in the country.
http://www.nahb.org/fileUpload_details.aspx?contentID=535
#77 I agree, and that is yet one more reason why prices IMHO are and will continue to decline.
” Re: These are the same people who own large stock portfolios and have wealthy parents”.
This is a “blue collar myth” Nearly every single one of my friends who make six incomes plus in the 40-50 range had parents who lived in rent controled apts in Brooklyn/Bronx/Queens who worked their buts off to send their kids to school. My parents and my in-law parents who are born in Europe never made it past the eight grade yet if their children did not finish their masters degree they were considered a failure, same goes for all my high income asian friends in their 30s who grew up above the store in Flushing.
The third generation cops and firemen from Bayone and Staten Island who have not moved up the social or economic ladder despite the fact their great grand parents moved here over 100 years ago like to keep the myth going that the rich people in their 40s came from money and they never had a chance then admit they were too lazy to bust their butt in college and grad school and working late from the age of 21 – 35 to get their, they rather drink beer and play softball and take a union test. Now they can’t afford McMansions and once again it is not their fault the govt should make it more affordable.
Well I guess since they did not save for college they can just have their kids be a 4th generation cop kinda like a third generation welfare baby in Flatbush.
make money #75:
we bought a house in BC in December 2006. We make under 100k a year. We both lived at home with parents, and saved every penny. We ended up with a huge down payment which allows us to afford the mortgage while still being able to do home repairs/renovations, go out to eat once a month, vacation, etc.
#68 Dreamtheaterr – I think you are absolutely right. My rule of thumb has always been this: If we could pay the mortgage, taxes, insurance and all of our other expenses AND save for retirement AND have an amount left over every month equal to the mortgage payment, then we could afford the house. Realtors always disagreed and told us we could afford much more house than we were interested in. They also couldn’t believe that we didn’t have car loans or credit card debt.
It seems no one else wants to drive an old car or live at home with parents or wear old clothes to save some cash.
RE And the number one asset of the middle class is their home, which has been responsible for most of the increase in net worth”.
This is another myth. People who bought in the last five years put almost nothing down and the pigs cashed out at every chance they got. If you got a 600K split with a 500K mortgage that will cost you 30k to sell that is only 70K in equity. With the five year massive run up in equities most people in their 40s have a heck of a lot more in their 401Ks. A 401K and a house is not real cash so how come now that everyones 401K is not back at all time highs the press does not say people are spending again.
John 89,
I agree vehemently with everything you wrote. The stock portfolios I mentioned are self-made by thirty-something workers who saved through retirement plans, employee stock purchase plans, and other investment accounts. Ten years of saving and investing combined with rising asset prices equates to a lot of wealth.
The implication is that homeowners deploy their home equity into very productive uses, such as financial investments that return more than borrowing costs, college education for their children, and health care.
Needing to take out a home equity loan to pay for health care doesn’t exactly sound like the pursuit of an increasingly wealthily middle class to me.
And while paying for a child’s education is a very nice thing to do, this isn’t a productive investment unless you are charging your kid for the loan and making a profit on the interest rate. Otherwise, you are just stuck with a loan that needs to be repaid from your income.
I still argue that you can’t “deploy” your home equity unless you have a real opportunity to cash out. Otherwise, all home price appreciation really is just give you a credit card with a better interest rate, a bigger limit and some tax benefits in exchange for using your home as collateral.
Look at the increase in 401(k) wealth recently. More evidence that middle class households are doing well.
http://www.ici.org/home/faqs_401k.html
#89,
brother is FDNY, Battalion Chief, SI, makes $135,000, owns 4 BDR, shore house, Pension if quits now is $95,000 annual…not too bad, age 49
http://www.autodogmatic.com/forum/viewtopic.php?t=832&sid=f094bc297bdfb6adfdda7174d12d3f06
RUMOR floating WMC closed today!!!!!!!!!
I don’t know if this has been posted before or not…
Poconos commuter rail link funding clears U.S. Senate committee
Washington – Money to fund engineering work on the proposed Scranton to New York City rail link has cleared a key U.S. Senate committee. The Appropriations Committee approved including $2 million in a Fiscal 2008 funding bill. The bill must clear the full senate and house.
…
The “Lackawanna Cutoff” project would include reconstruction of an abandoned rail right of way in New Jersey and enhancements to existing track, including construction of commuter platforms at several locations. Pennsylvania stops would include Scranton, Mount Pocono, Analomink and East Stroudsburg.
Renting in NJ,
If the uses I described – financial investments, health care, education – weren’t productive, then Haiti would be the richest country in North American and the United States would be the poorest.
And New Jersey would be the poorest state in the country and Mississippi and West Virginia would be the richest.
I’m a big supporter of the Lackawanna Cutoff project.
jb
#75 MM – “I know that housing in in a midst of a correction but please be aware that BC will not ever see 2000 prices.”
Real or Nominal?
I’ve already seen it. House in top BC town sold for $799 last August. Was last sold for $682 in 2002. If you take out inflation at 4%, that house sold for 0 appreciation outside of inflation. The house was not sold in 2000, but it’s inflation adjusted price would be ~$610-$640, which is in ballpark range to what that type of house was going for in 2000. I’m not going to argue over the inflation rate or a few thousand bucks, but that house basically sold for a price that equaled early 2000 prices.
From Reuters:
S&P slashes “AAA” ratings on some mortgage bonds
Standard & Poor’s slashed ratings on some top-rated mortgage bonds by as much as eight notches on Thursday as it increased assumptions for losses on closed-end second-lien loans.
The downgrades included classes, or portions, of a bond issued by a Goldman Sachs Group Inc. trust, which were cut to “BBB” from “AAA,” S&P said in a statement.
…
Downgrades to “AAA” rated bonds were limited to eight classes from three bonds, which also included securities issued by bankrupt subprime lender New Century Financial Corp., S&P said. About 79 percent of the downgrades were of bonds initially rated “BBB+” or lower, it said.
Among changes, S&P said it will now assume that 100 percent of loans delinquent at least 60 days will be charged-off over six months by the loan servicer. It also will assume that 50 percent of loans 30 days delinquent will be charged off.
S&P also increased loss assumptions for mortgage loans that have characteristics that make them more vulnerable to default, such as loan-to-value ratios above 95 percent and borrowers with FICO scores at or below 660.
Question: Is 50% of net monthly income too much to pay for PITI? What should be the maximum percentage of net income to pay? How about percentage of gross monthly income?
http://www.msnbc.msn.com/id/19851564/
Ben says Subprime will cost 50-100 billion.
This is a broadest estimate I ever seen. You can actually be off by 50 billion and still be on target.
It’s a shame who’s at the helm.
#102,
Why???
Gary [105],
Old mortgage approval guidelines;
28% of income [gross]; piti
36% of income [gross]; the above plus all other outstanding loans, car, school, personal, etc.
Remember, these “were” guidelines. Everyboby should acces their own situation. When I buy, it will be approx 20-25% of net for piti.
JB, re: 28
So does this mean that you think on July 23 we should call our local bank to see what properties have been turned over to them?
Ditto for Sept. 2?
I’m not sure I follow ….
I remember hearing about how lots of people would move to PA, but if property values appreciate because of the new train line will it makes sense for the NNJians to move west?
In most Bergen County towns, a significant proportion of households (>10%) earn at least $250,000 per year, and I would estimate half of the households looking to buy homes in Bergen County (mainly Manhattan finance workers and Asian entrepreneurs) earn at least $250,000 per year.
I’m afraid I don’t have “concrete data.” This is why I made it clear that it was only my estimate.
I do have more concrete data.
According to the 2005 American Community Survey (U.S. Census Bureau) 9.4% of Bergen County families earned more than $200k per year. They don’t track an over $250k category, but it’s going to be less than 9.4%.
In 1999, 7.3% of BC families earned over $200k. This is not adjusted for inflation. So, a family that earning $170k in 1999 would be in the over $200k category in 2005 just be keeping pace with inflation.
This does not appear to be a big influx if high earning families into BC taking place.
While its true that Manhattanites move to BC, this trend has always existed. Prices in BC were relatively high before the boom because of this.
gary,
50%?
jb
Maybe in Saddle River – but no way in towns like lodi & garfield.
Re 96 – thanks for that 401K info – great stuff. If you are buying a house as an investment and you are not maxing out your 401K already you are not buying it as an investment. Trading an above the line deduction for a below the line deduction that requires tons of maint and taxes to keep afloat makes no sense. The blue collar folks borrowed at sub prime and stole the downpmt from their 401k and “think” they have equity. As the WHO said “hope I die before I get old” should be the subprime crowds mantra cause if they don’t they will be licking out the dog bowl alongside rover as sir paul once said “when I am 65”
RE: 112
The power to edit oneself, cool.
Well everyone in this site is in the top 10% so we all make above 250K so it is hard for us to relate to the poor working class in the first tier of middle class. HA HA
If the uses I described – financial investments, health care, education – weren’t productive, then Haiti would be the richest country in North American and the United States would be the poorest
Don’t get me wrong, these are worthwhile investment, I’m only arguing that the economic benefit is more socialized from these pursuits (at least health care and education) and don’t necessarily directly accrue to the one who makes the investment. After all, the topic under discuss was how to increase one’s own position through the deployment of home equity.
Taking out a home equity loan to pay for your kid’s college education, for example, will give the kid greater earnings potential and will have societal benefits (higher tax revenues, lower crime etc.). You however, are stuck with the bill.
Taking out a home equity loan to pay for bypass surgery provides and income to doctor, nurses & hospitals & supports the economy, however you are stuck with the bill.
BC Bob, jb
I was aware of the 28/36 rule but I thought maybe the “new paradigm” changed all that.
Yeah jb, 50% is nuts. So, that means on a 100K salary, approximately $2400/month is the max in PITI. So, one would have to come up with about $150,000 DP to be able to afford a POS cape based on this criteria.
RE: American ‘middle class’
Decades ago the Soviets created propaganda films depicting the American “poor” to the people living under Soviet rule, in an effort to say “See, Americans are poor too.”
It backfired, as the Soviet people marveled that “even the poor people in America have televisions and washer machines.”
The magic of America, is that you’re not locked into a particular socioeconomic “class” if you’re willing to work hard and sacrifice.
Renting [111],
Thank you. You put that nonsense to rest.
77, 84, 87, 88
Agreed on all counts. My best friend just decided to continue renting for another couple of years and take her savings and spend it outside of the northeast. She had the same objection as Possible at #77: why should she commute two hours a day to work 80 hours a week in order to earn enough to hand over to some bum selling a POS cape that he inherited from his dad, the local insurance salesman?
There are a clearly a lot of people on here these days with some real estate to sell. Or maybe that’s a bridge.
Renting 111,
Thanks for that work. So 9.4% of Bergen households bring home 200k+. Based on that, it seems plausible that in most Bergen County towns, a significant proportion of households (>10%) earn at least $250,000 per year.
122 – If 9.4% earn 200k+, how does >10% earn 250k+? You understand that that doesn’t make any sense, right?
#122 pre
NO. It does not seem plausible.
If only 9.4% of BC earns 200K+, then it is necessarily false that greater than 10% earn at least 250K.
Renting already pointed this out in the original post.
The power to edit oneself, cool.
I didn’t want to come off sounding like a jerk. But I do think that 50% is incredibly excessive.
jb
#122 and #123,
I am not referring to all of Bergen County, where 9.4% earns 200k+. Repeatedly, I wrote “in most Bergen County towns.”
It is entirely plausible that in most Bergen County towns (>50%), a significant proportion of households (>10%) earn at least $250,000 per year
Always happy to be present at a tap-dancing display.
Pret-
I think you need a math class. > (greater than).
Values of properties that are in Bergen County but are not in a Bergen County town must be VERY low….
Gary,
My own rule of thumb is that your mortgage amount shouldn’t exceed twice your income (or push to 2.5x in a *worst* case).
So, for example:
A couple with a $150k income and a $100k down payment should be looking for something near a $400k purchase price. They could potentially push to $475k, but that represents the absolute maximum. If they wish to buy a more expensive property, the gap should be made up by saving a larger down payment, not taking a larger mortgage.
Yes, it’s a very conservative approach.
jb
JB-
Part of my post got cut off.
I think the LT & GT signs are being confused for html.
jb
#126; I think you are very mistaken
You guys put too much emphasis on incomes in towns. The #1 most important priority is property values. There are many towns that have higher property values, but lower mediain incomes. We all know these tx trip loopholes that rich people fall through so they under-report their incomes.
By the way JB,
For some reason, the system only lets me post abotu 3 posts a day and then everyhting else I write gets stuck in moderation. Can you fix this?
Thanks!
par 4156,
Do you not support it? If not, why not?
Sorry, that was a response to 107.
How many 250K+ households already own homes?
How many 250k+ households are actively shopping for homes?
jb
I am a 250K+ household. I do not own a home. I am not actively shopping for a home.
For what it’s worth…
Tens, if not hundreds, of thousands in the New York metro area.
“SUBPRIME SHOCKWAVES”
Bloomberg TV Special Report 7/19/2007
Video Link:
http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/v0OR3iFv14lg.asf
July 19 (Bloomberg) — Robert Shiller, chief economist at MacroMarkets LLC, Freddie Mac Chief Executive Officer Richard Syron, Orange County treasurer Chriss Street, and Pacific Investment Management Co.’s Paul McCulley talked yesterday with Bloomberg’s Brian Sullivan about the impact of the subprime mortgage crisis on the U.S. economy and stocks, lending standards, the housing market and investment opportunities.
JB-
Yes, just noticed that. Okay, in quotes now to make sure it doesn’t get confused for html.
‘
jb: please un-moderate #139
I give up.
JM
Correction for Bloomberg Subprime video link above:
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/v0OR3iFv14lg.asf
Thanks for that work. So 9.4% of Bergen households bring home 200k+. Based on that, it seems plausible that in most Bergen County towns, a significant proportion of households (>10%) earn at least $250,000 per year.
I’m sure there are some towns with >10% $250k earners, these towns, however, were always “well off”. There doesn’t appear to be a new influx of high earners into BC that would explain why home prices have doubled in the last 6 years.
This conversation started with “home prices are reasonable because of high incomes in NJ”, to which we then discussed the impact of high earners on the market.
Getting back to the original discussion, how do a handful of high income towns in BC translate into starter capes in North Arlington more than doubling in price?
Pret-
How about a list of the towns where greater than (learned my lesson) 10% of households earn $250K+? Everyone else, please feel free to chip in a few, too. Then, we’ll need to look at
I’ll start: Alpine…that’s all I’ve got. Anyone?
JM
#93 No myth, the number one asset for most middel class people is STILL theri home. It is a myth to think that people are people stashing tons of money into these things.
Heck I know people that do not even have one, and others that have them, but with no company match.
I know others who have the match but do nto max it, (crazy its free money), but that is the case, its always manana, manana.
I saw an article some time back in Barrons I believe that said according to their studies, the average 55 year old head of household (4 members), had less than 50K in their 401k.
jb: #143 (unmoderate please) contains corrected Bloomberg video link if #139 not working…
Sorry, “…need to look at number of households and number of households with 200K income if that’s available.”
#145 rent: Youa are right, it does not. NAywya these bulls want to slice it it still comes out the same way.
From Bloomberg:
JPMorgan Says Worst `Not Over’ for Subprime Investors
Subprime mortgage defaults will increase this year and holders of securities linked to those home loans may record losses well into next year, JPMorgan Chase & Co. analysts said.
“The worst is not over in the subprime mortgage market,” analysts led by Chris Flanagan, the head of structured finance strategy at JPMorgan, said in a report today. “We expect continued deterioration in subprime loan performance through the balance of this year, and it is likely to be well into 2008 before the problems in securitized portfolios begin to abate.”
…
Flanagan, in a report titled “Subprime Meltdown, the Repricing of Credit and the Impact Across Asset Classes,” said home price declines will lead to increases in defaults. As many as 50 percent of borrowers won’t be able to refinance their loans when they reset in the next 18 months, JPMorgan predicts.
Well, I am a 250K+ household, and you know we just bought a home. But not in prestigious Bergen County:)
Also, I should note we’re in those numbers because we both work – so even though it’s a good amount of money, when you add in the commuting and childcare, it’s not like we’re living high on the hog without paying attention to what we spend, etc. I don’t know so many people in those numbers where it’s a one-person working house – the two I know are a) a private equity single rich guy and b) an older, almost partner attorney.
Also, I have another pal looking for a house, and she’s definitely under the 250K+ income range – probably about 150-200K together, and I know her limit is 550K. It’s not only the higher income folks who are looking.
Re #134 & 135,
yeah…I’ve seen the the planned suburbs all over Monroe, Nothhampton and Pike counties. Some of them were pitched on the “coming” railroad..according to the aunt of a fried that bought one of the townhouses. Now, the prices are high enough to make it cheaper for me to live in Essex county and have a 15 min commute to work than have the 1.5-2 hours each way. In addition to gas, the cost in terms of family time was a big factor for me.
If a train comes into the picture, you can just add the price of the monthly pass to your mortgage, rent or whatever. My friend’s monthly bus pass to NYC is approx $400…not including his car (1.to get to the bus station, 2. for his wife to move around with the kids) payments, insurance etc. His only cost lower than mine is gas. And now…the houses are at Warren or Sussex County, NJ prices.
John # 89 & Pretorius #94:
I am that person you describe from Staten Island and I have a question for you both. I am the son of a fireman who owned both a house on SI. Ask yourselves how many new fireman, cops & blue collar workers can buy a house today. I can give you the answer: None.
That’s precisely the problem. Once the lower levels/plankton can’t get on the property ladder, the whole house of cards starts coming down. It just takes time. Look at inventory.
In my case, wife and are in the top 10% of NJ salaries and live well below means (old car, bring lunch, camping vacations etc) and can put down a huge down payment. Despite that, since I am prudent, I still can only afford the proverbial “4 bedroom Cape if you count the dining room and living room as bedrooms” POS so why buy in NJ? No value for the $$.
We’re getting out of here like the other 72,000 other middle class people who left last year. Oh yeah, I’m taking my job with me.
“As many as 50 percent of borrowers won’t be able to refinance their loans when they reset in the next 18 months, JPMorgan predicts.”
[151],
Sounds pretty ominous to me.
I only count the 250K club for one income, if it takes two it does not count. You should never buy a house based on two incomes if you have kids. What if one wants to stay home with the kids or one loses their job. Also by both parents working working it eats up money in child care etc. A stay at home spouse is worth 135K according to recently published statistic so a two income family with kids where the working wife makes less than 135K that second income should counted as zero. Only DINKS get to count the second income. That second income is not guaranteed and a mortgage is 30 years long.
NJGal Says:
July 19th, 2007 at 1:14 pm
Well, I am a 250K+ household, and you know we just bought a home. But not in prestigious Bergen County:)
Also, I should note we’re in those numbers because we both work –
We make nowhere near 250K and our PITI is at about 33% (fixed for 30 years thanks to this blog!)…however, we stick to our budget almost religiously and are conservative spenders. Almost got my head snapped off the other day when i suggested using money from the savings account (not retirement or investment funds..mind you) because I didn’t want to hand over the debit card!
My real big fear is AMT!!! Coming soon to my household…yeeecchhh.
re: income distribution
There was a fascinating article in The Atlantic a while back about this. It showed income groups as a parade going by. The text is linked below, but you may need subscription to read.
http://www.theatlantic.com/doc/200609/crook-inequality
RE: #59
“I should have added in #58 that the $500,000 condo is unaffordable on the convention metric (median income to price in the area) but is comfortably affordable to the buyers.”
It’s so “affordable” their parents had to give them the “six figure deposit”?
Re #156,
what about if the husband makes
#156 john: people ain’t counting that second income as zero, and the overwhelming majortiy do it (IMHO), because they have to.
less than 135K
BC,
You think the guys over at JPMC are going to rush out and buy after reading that?
jb
Re son of a fireman. That is why I am not a fireman or a cop, sure the hours are nice, you are making a great contribuion to society and you get a great pension, medical and get to feel good about what you do but I have a family to support right now. Plus back in the day 1950s and 1960s a lot of cops and fireman lived in rent controlled apts in the city and did not own a car. Now they want the big house, new car and be able to go out on the civil servant salary, it ain’t going to happen. People should stop applying for those jobs and quit and that will force Bloomberg to raise salaries. That is how it works in the corporate world. If the accounting dept pays 60K a year and all the workers quit due to low pay and new hires won’t take 60K they raise salaries.
#156
“I only count the 250K club for one income, if it takes two it does not count.”
I wonder what portion of the 9.4% in BC you just eliminated…
par4156 Says:
July 19th, 2007 at 1:35 pm
If the husband makes less than 135K and the wife makes more he should quit and stay home.
#153 That train has been coming since 1980, had a family member move down there (with that premise), left after 15 years, sold it for 15k more than he paid for it.
With prices starting to fall, it may not be as enticing to move down there, even with the train it will still be a haul.
Also the Pocono area is seeing lots of forclosures, NYT’s had an article a coupl years back, many calling it the Ghetto in the Woods.
“People should stop applying for those jobs and quit and that will force Bloomberg to raise salaries.”
I’m confused. Why would a 200k cop who works 3 days a week quit?
JB [163],
You can feel the tension in the air. Lots of nervousness.
“I only count the 250K club for one income, if it takes two it does not count. You should never buy a house based on two incomes if you have kids. What if one wants to stay home with the kids or one loses their job. Also by both parents working working it eats up money in child care etc.”
And I’m not guaranteed not to get divorced, or hit by a car and paralyzed, or die. But I don’t and won’t live life on what ifs.
Hubby and I are both lawyers – I don’t know how much you know about law, but firing a lawyer isn’t done all that often for some reason. I am not particularly concerned about our jobs right now. If it happens, it will suck. But remember, I didn’t say how far we were above that 250K line. I could stop working. I just don’t want to and would rather have the extra money than not. I said we were prudent – not broke.
I guess I should also qualify that not surprisngly, hubby makes more than me, but I make enough that staying home makes no financial sense. Believe me, I have run the numbers.
whos kidding who. cops in nj make 100k after
a few years plus the bennies. lets not
feel sorry for them.
many also double dip,
#171 Well NJ Gal that is because you are leaving prestigious BC, for that dump across the river.
If you were really prestigious BC material, you would be part of the country club set, idling away your days playing tennis and shopping, perhaps with a charity event here or there.
(just kidding)
>>I don’t know so many people in those numbers where it’s a one-person working house – the two I know are a) a private equity single rich guy and b) an older, almost partner attorney.
i know plenty and for the most part they’re either doctors, wall streeters or self made business owners. my town tends to have a higher % of them as they tend to congregate in similar areas.
#174 But of course!!
>>I only count the 250K club for one income, if it takes two it does not count
agreed.
From the Fed:
Minutes of the Federal Open Market Committee June 27-28, 2007
From MarketWatch:
Several on FOMC worried about inflation expectations in June
Some FOMC members want inflation expectations to drop
FOMC says core price improvement due to transitory factors
FOMC staff trims core price forecast slightly
FOMC members less concerned about slower growth
FOMC not worried about slowdown in consumer spending
“If you were really prestigious BC material, you would be part of the country club set, idling away your days playing tennis and shopping, perhaps with a charity event here or there.”
Ha.
I’m not really sure why 2 incomes don’t count when half of the tri-state area lives like that. And we’re well above the 250K mark, and only going higher. It’s silly and not practical and frankly nothing but snobbery not to count the two incomes, considering I doubt that the people who compile stats only do it if it’s a single income family.
#174
Reech, you are without question the most egregious name-dropper I’ve ever encountered.
“Now it takes 5 million liquid to be considered well off so you really need to save.”
In who’s world? No, we’re not that well off, but give me a break.
Here are the Bergen County towns where >10% of the households earned >$250,000 income in 2006. 42 out of 70 municipalities, or 60%.
Allendale 18.5%
Alpine 18.2%
Closter 14.6%
Cresskill 13.7%
Demarst 20.5%
Emerson 14.7%
Englewood Cliffs 18.1%
Fair Lawn 12.8%
Franklin Lakes 23.2%
Glen Rock 22.5%
Harrington Park 20.4%
Hasbrouck Heights 10.1%
Haworth 24.6%
Hillsdale 18.9%
Ho-Ho-Kus 24.8%
Leonia 12.3%
Mahwah 14.7%
Midland Park 12.7%
Montvale 20.3%
New Milford 11.0%
Norwood 14.1%
Oakland 15.6%
Old Tappan 21.8%
Oradell 19.1%
Paramus 12.9%
Park Ridge 16.6%
Ramsey 18.9%
Ridgewood 19.9%
River Edge 13.6%
River Vale 18.1%
Rockleigh 25.6%
Rutherford 10.0%
Saddle River 20.2%
South Hackensack 10.3%
Teaneck 13.6%
Tenafly 15.2%
Upper Saddle River 19.8%
Waldwick 13.8%
Washington 16.6%
Woodcliff Lake 22.1%
Wood-ridge 10.2%
Wyckoff 21.0%
Source http://www.claritas.com
Pocono Train:
The article talk about funding for an engineering study…we got to be 20 years away
#179 john
“Well if there were no cops we would not need lawyers so I guess then you could get laid off.”
You don’t know much about what lawyers do, do you, john?
#184
“Us guys like to compare salary man to man and not count in our sugar mama’s cash”
Speak for yourself. “Us guys.” Please don’t try to associate me with you.
can someone please further explain why two incomes don’t count?
““Us guys like to compare salary man to man and not count in our sugar mama’s cash”
Speak for yourself. “Us guys.” Please don’t try to associate me with you.”
Uh, yeah, something tells me this John character is not very manly when it comes down to it.
#188 – based on #184 I would say because of chauvinism.
190 – well, that’s what i was trying to figure out – is it blatant mysogeny or just stupidity.
and by that i meant misogyny
#191
I think the answer is a resounding “Yes”
193 – heh
Wow, after reading today’s posts I am sensing some class envy and insecurity.
I’m sensing some comedy…
Lets say one brother-in-law is bragging he makes 150K a year and in realty he makes 75K a year and forces my sister to work in a job for 75k a year that she does not want to do and shoves the kids in day care am I supposed to count that the same as brother-in-law number two who makes 150K a year and lets sister number two stay home with the kids and save thousands and thousands of dollars each year on child care.
The women can work and the man stays home I don’t care which way it is but counting your spouses income is meaningless. Maybe I should give lesser raises at work to people whose spouses make high incomes? Of course I would not, each indiviuals inome should be counted on their own merit.
OK so after boiling this down I think I learned the following today:
Housing will only improve due to:
A. Middle class folks staging mass walkouts and “getting 250K plus jobs”
B. Rich Asian/ Albanian/ Martian immigrants
C. Rich Wall Street/self employed folks/ and possibly cops who pay only in cash because they are all looking for houses RIGHT NOW in BC.
Reminds me of one of my favorite drug dealer sayings: “never try your own supply”
…and speaking of supply what’s the inventory #’s a little higher than last year right?
199 – ok, what if the kids are too old for day care? what if they don’t pay for day care? what if the day care costs aren’t a significant portion of their income? still the second income doesn’t count?
in your example, both households still have the same income.
and i should mention you make yourself sound like an idiot when you imply that the husband forces the wife to work, or lets the wife stay home. even if it was reversed, it’s still moronic.
#199
I don’t care about your punctuation, but your logic leaves a great deal to be desired.
We are debating home-buying here, not clothing purchases. A married couple only needs to buy one home. The seller doesn’t care whether the money comes from one, the other, or both. The seller only cares how much they can, AS A COUPLE, pay.
I think we can all relax right now. According to the NAR site, housing prices will rebound in 2008:
“Home prices are expected to recover in 2008 with existing-home sales picking up late this year and new-home sales rising early next year, according to the latest forecast by the National Association of Realtors®.”
http://www.realtor.org/press_room/news_releases/2007/hef_july07_housing_prices_recover.html
I feel much better now.
sorry if this is a repost…
http://images.businessweek.com/ss/07/07/0719_rising_rents/index_01.htm
link straight to the story. Nothing we haven’t heard here before…
http://www.businessweek.com/bwdaily/dnflash/content/jul2007/db20070718_123729.htm
#209 john
with your repeated insistence that your wife’s income wouldn’t count toward your homebuying ability, I have to ask: are you married to the sort of woman who would earn as much or more than you and still expect you to pay for 100% of the home you both live in?
If so, that may go a long way toward explaining why you appear to dislike women so much.
re:205…whhhewwww. was worried for a sec.
212 – huh, it works that way? i make like twice what my husband does, but i can ask him to pay for everything and use my income for handbags and shoes and other pretty things??
(hopefully the sarcasm is understood).
this type of rhetoric is starting to get even ME down.
“When negative news comes out, from a consumer’s point of view they just see ‘housing is bad,'” says Yun. “But that just doesn’t make sense in all markets. Eventually, renters will say, ‘I’m tired of putting my rental payment into some landlord’s pocket—I want to build equity.'”
This is a follow up to post 185 which just came out of moderation.
To put into perspective the earnings power of people in this part of the country, notice that Bergen County ranks #37 out of more than 3,000 counties on median household income. Despite ranking in the top 1.5% of counties nationwide, Bergen County ranks only #5 in New Jersey and #10 in the New York metro area.
http://tinyurl.com/28crva
Sugar mamas, knights, free donuts, etc… A total waste of valuable blog space.
#220
Unfortunately, that is completely worthless as an explanation for why NJ home prices skyrocketed since 2000, unless you have data showing that, prior to the bubble, Bergen County (and NJ generally) ranked much lower in comparative median household income.
I’ll bet against.
lurkerA,
Re: 218, somehow, that sounds vaguely familiar.
” 42 out of 70 municipalities, or 60%.”
Accounting for what percentage of population?
RE 212 – huh, it works that way? i make like twice what my husband does, but i can ask him to pay for everything and use my income for handbags and shoes and other pretty things??
It seems to work that way in Upper Saddle River! Except he should buy you the pretty things too as you need to save your money for your alimony payments when your giglo hits the road.
Njpatient wrote: “Accounting for what percentage of population?”
Why don’t you find out and let us know?
My wife’s income pays the bills while mine goes into the beer fund.
#206 Yep the same NAR that said housing would not decline in the first place.
Home prices were ridiculously cheap in 2000, which helps explain a lot of the rebound since then.
According to what metric were they cheap? Or were they just cheap then because they are expensive now?
jb
Adjusted for inflation, per capita income was pretty damn high in 2000. I was under the impression that if incomes were high, home prices would follow… No?
jb
To all the lawyers:
Are these blogging hours billable to your clients? Or are you all RE lawyers with plenty of free time?
;o)
SS, anything is billable to a client.
Just kidding. I type fast.
New Jersey homes were historically cheap in 2000 according to the following meaningful metrics:
-Cost to own versus cost to rent in 2000 favored homebuying, but the homeownership rate was falling
-New Jersey home prices rose 1.1% per year during the 1990s (OFHEO data) while household incomes were rising approximately 3-5% per year and household net worths were probably growing even faster
2000 was a great year to buy a home.
Still, don’t get me wrong, I believe we’re in the middle of a multiyear trend of flat home prices around here. But I also believe the long term trend remains positive.
“-New Jersey home prices rose 1.1% per year during the 1990s (OFHEO data) while household incomes were rising approximately 3-5% per year and household net worths were probably growing even faster”
A large part of the recent increase in home prices can be explained by prices simply rebounding back into line with economic fundamentals.
One of the biggest factors helping to contain core inflation has been the weakness of the housing market. The vacancy rate for ownership units has soared to a record level in the last year, 50 percent higher than the previous peak. The vacancy rate for rental units is also hovering near the record high set two years ago. As a result, there is considerable downward pressure on rents. The owners’ equivalent rent index (OER) has risen at a 1.9 percent annual rate over the last quarter. This component alone accounts for almost 30 percent of the core CPI. A core index that excluded OER would show an inflation rate of 2.5 percent over the last quarter.
A large part of the recent increase in home prices can be explained by prices simply rebounding back into line with economic fundamentals.
Housing prices rose on average 9.2% per year, outpacing income growth. During the 1990’s there was a correction to bring prices back in line with the fundementals.
…In the 1980’s housing prices rose on average 9.2%
“Home prices were ridiculously cheap in 2000, which helps explain a lot of the rebound since then.”
The ultimate spin doctor. That’s the first time I’ve heard an asinine assessment, like that, justifying the past moon shot. Flippers, free money, liar loans, fraud, greed and fear were a non factor during this run? More like irrational, insane, bubblicious, 2006/2007 prices will retrace back to its norm. For 100 years, prior to 2001, RE prices, on average appreciated at or near the inflation rate. From 2001-2006 it became re.com. If you feel that 2001-2006 action is the new paradigm, then step up and buy. Actually, buy multiple properties and flip for the next few years. You have a ton of inventory to choose from.
#212
“Why don’t you find out and let us know?”
My point was that we ALREADY know. Only 9.4% of BC households over 200K. Yet 40 of 72 municipalities have greater than 10% of households over $250K. Those 40 municipalities must have well below half of BC’s households, otherwise the math doesn’t work.
This is all irrelevant anyway, because you’d have to show that massive rises in BC home prices resulted from massive rises in BC household income. The latter simply doesn’t correlate with the former (let alone CAUSE the former), so this $200K/$250K argument is dumb and worthless anyway.
#221 Economic fundamentals!!!!! Now you have become completely undone. Case closed.
pretorius Says:
July 19th, 2007 at 2:52 pm
Home prices were ridiculously cheap in 2000, which helps explain a lot of the rebound since then.
pret: patent duplicitous nonsense. The dot-com boom caused a serious run-up in prices. If you said 1997 – ok, but 1998, 1999 & 2000 were banner years for telecom and pharma as well.
You just labelled yourself here…
“I also believe the long term trend remains positive.”
Define “long term”. Assuming “positive” means “beats inflation net of expenses”, if you mean 20 or 30 years, I’ll second that bold prediction. If you mean five years, I’ll bet you a bottle of 37 year old MacKillop’s Choice that you’re mistaken.
(assuming per JB that the gambling currency for today is Scotch)
I can’t wait to get home and tell my career driven wife that her current $130k salary no longer counts in my calculations, hehe… She better step up and hit $150k or I’m making her stay home.
That ought to go well.
3b (34)-
One of the most critical price adjustment wars I’m fighting right now is getting that 500K+ seller repriced below 500K. In my area, the minute a seller does that, he’s in the game…
“For 100 years, prior to 2001, RE prices, on average appreciated at or near the inflation rate.”
What kind of fall in real prices is needed to bring home prices in line again? Wouldn’t a few years of flat prices put us at mean appreciation over 100 years? Wasn’t there a graph somewhere plotting inflation against home prices?
Doyle, I thought that the problem was that you forced her to go to work in the first place, despite the fact that this does not enable the two of you to increase your homebuying power.
I think it’s time for happy hour – time for a Scotch and some soothing house p*rn:
http://cnj.craigslist.org/rfs/376848981.html
pre (52)-
So it is not notable or significant that a large number of residents in an area could not afford to purchase their homes, were they buyers in today’s market?
BC Bob, maybe you didn’t notice that I wrote that, “I believe we’re in the middle of a multiyear trend of flat home prices around here.”
I agree that the list of things you wrote help to explain a little bit of why home prices increased rapidly in some places between 2000 and 2006. But these conditions were present throughout the United States. Why did “flippers, free money, liar loans, fraud, greed and fear” cause prices to increase in New Jersey, New York, and California, but not in Michigan, Ohio, and West Virginia?
Land, the primary component of real estate, commands an economic rental payment that is based primarily on the proximity that it provides to other economic activity. Land’s value has typically continued to increase
when the surrounding economic activity has increased.
Current home prices in the New York metro area can be explained by the area’s intense level of economic activity and the income levels and net worths that it produces.
Geezus, what a bunch of pretentious bullsh*t. Liar loans, scams, ponzi schemes, theft, greed and stupidity ran up housing prices. The sellers are bunch of fat, f***ing morons still in denial and the NAR and it’s new head quack are still main-lining koolaid. Let the g*ddam houses rot. D*mn, I’m fired up.
Chicagofinance,
Why aren’t recent Hoboken and Manhattan homeowners defaulting on their mortgages?
Because they can afford to pay the prices they did.
njpatient, it’s all too confusing, isn’t it?
Why did “flippers, free money, liar loans, fraud, greed and fear” cause prices to increase in New Jersey, New York, and California, but not in Michigan, Ohio, and West Virginia?
These markets (NJ, NY, CA) have always been more volatile. Land availability is a big factor.
Places like WV did experience bubble effects, just in a different way. Since they have room to build, people don’t bid up existing housing prices, they just build a new home down the street. They experience a construction boom rather than a run up in existing home prices. Go to Cary or Charlotte North Carolina, for example, they have strong economies, but with “more normal” appreciation, because they are building like crazy..
Land’s value has typically continued to increase when the surrounding economic activity has increased.
If so, they why did prices increase so much through the dot com crash, with a big loss of Wall Street jobs & incomes and a recession? Should we not have seen prices drop as a result of contracting economic activity?
From Reuters:
S&P cuts 10 CDO tranches of subprime debt to junk
Standard & Poor’s on Thursday lowered its ratings on 10 portions of subprime-related debt to junk, as part of a broader downgrade of U.S. residential mortgage-backed securities.
The overall rating cuts affect 75 ‘synthetic collateralized debt obligations’ with exposure to U.S. mortgages backed by subprime first-lien collateral, whose ratings were lowered on July 12, S&P said.
…
“We made the move today in response to the underlying loans being downgraded,” Patrice Jordan, managing director of global CDOs in New York, said in an interview. “The trend of greater delinquencies and defaults … seems to be continuing.”
Of 93 pieces of debt that were cut, 10 tranches were lowered to junk status with grades of as low as “BB-minus,” or three steps below investment grade. Previously, all 93 classes of the 75 CDOs held high-grade ratings. S&P did not immediately have a figure on the amount of debt affected.
#241 Because at the end of the day Wall St does not have that big of an impact on real estate either way. Big Wall St bonus money was never buying in Saddle Brook or Fairlawn (no offense to those towns)
260K people in the industry, vs how many people int he NYC Metro area, 20 to 30 million?
Doyle, you, like my husband, will just have to accept that you are evil men forcing us to work so that you can have the creature comforts you want. I would so much rather stay at home wearing a little apron and cooking for my husband all day – maybe I can even restart that really fun activity of tupperware parties. After all, I only went to college and law school for my MRS. – who cares about that silly BA and JD anyway?
(sarcasm off)
pre (72)-
Methinks you’re sniffing rocket fuel.
#237 Land has always been a premium around here, that has not changed, and for all the talk about a lack of it, builders find ways to build, or rebuild.
This area has always been expensive, there is a difference between expensive and insanely expensive.
And again I ask you where are all the buyers, lots of inventory to choose from.
Clotpoll,
Nope. Just hustling up a little $$$ on the side so that I can live comfortable here.
#232 Clot So we are moving in the right direction.
NJGal,
Quite the visual… I have to say, it would be quite nice to come home to the wifie in an apron cooking me some meat and potatoes June Cleaver style. But then again, she looks damn good in a biz suit too ;)
JB,
can you tell me OLP and DOM for MLS Number: 2421148?
Griff,
compare this house to the ones you saw yesterday, especially the taxes!!!
A similar house in that SO neighbourhood would be twice the taxes. Use some of that bonus money and stop lurking and start posting.
Clotpoll,
Can you get the oblivious 600K plus sellers to drop below 600?
Par,
MLS# 2371714
Listed: 02/04/07
OLP: $859000
LP: $859000
DOM: 61
Temporarily Withdrawn
Relisted as # 2421148
OLP: $849000
LP: 849000
DOM: 21
Purchased 11/04: $675000
(Was listed in ’02 for $699)
jb
gary (252)-
I’ve just gotten two sellers under 500K who started with other agents about this time last year for OVER 600K!
One of the sellers nearly came to tears when I told him I’d probably have to pull up my sign if we couldn’t get under 500K.
I suggested he sue his old agent.
3b (248)-
We’re moving. I leave it to the market to decide whether the direction is good or bad.
Any direction that leads to greater deal flow is a good direction to me.
I think the picture is much more cloudy than either side is willing to admit.
on the one hand, you have a massive inventory run-up coupled with a massive decline in number of sales. Right there it seems straightforward that significant price declines will follow to clear the excess inventory.
Also, there is a strong demographic argument for the bear camp. The local population (not counting NYC) is flat to negative, and very negative when you look specifically at the people in prime homebuying age.
It is not obvious that all of the high earners in NYC are going to move out to the suburbs eventually. More and more people are choosing to raise kids in the city. I know where I work, a very large majority of people with young kids live in Manhattan or Brooklyn and have no intention of leaving.
On the other hand, there are a lot of people who make a lot of money in the area. I know this has always been the case, but there is a segment of the population who is really cashing in right now, and most of them are relatively young. They can easily afford to buy.
Also, even before the boom, houses in the NYC area were typically 4X gross income. In other words, 2X gross income would be way below the long term trend– I don’t think we’ll ever get there and personally, I would be overjoyed if we even got to 5X median income.
As it’s been said, median income is not a realistic measure of affordability, especially at the county level. Once you eliminate all of the rundown areas, senior citizens and people on public assistance, incomes are pretty high.
Obviously, I know nothing more than anyone else here, these are just my views
Clotpoll 254,
Good, spread the word!
#238 gary – you made my day!
“Once you eliminate all of the rundown areas, senior citizens and people on public assistance, incomes are pretty high.”
If you take that approach, incomes are pretty high in Somalia, too.
Actually, my brother saw a study of people whose spoouse stayed home from the begining with the kids and since they were the sole bread winner they better focused on their career, were able to work later and travel more for work and after ten years made more on their one income than a similar aged couple on two income. I heard the same story from the highest ranked woman on wall street, she made her husband stay home so she could focus on her career and states that her husband agreeing to play mom allowed her to earn millions of dollars, if he refused to step aside they never would have joined the big times. Anyhow that is what Sallie Krawcheck told me first hand, and she made CFO of Citi, she divorced husband one when he refused to step aside and said she would have done the same to number two if he wanted to work full time.
njpatient–
I think this approach is realistic given the types of areas I assume most people on this board are looking to live in. Is it more realistic to factor in the median income of downtown Newark when almost no one here would live there?
njpatient,
It’s been weeks since I’ve been on a soap box and I have my vacation coming up with no trips planned. I’m gonna tear up things! :)
In fact, I haven’t shaved in three days and may not shave for the next 2 weeks. Couple that with some Scotch and a few El Reys and you got a rebel on the loose! LOL!!
John
That might work if the single income actually achieves the “very top” income he or she is striving for. But working hard is not a guarantee of getting promoted, making partner, etc. If it works, great, but its a high risk game. Then there’s the whole “absentee parent” thing but I’ll ignore that one.
also, is it realistic to consider the incomes of senior citizens, most of whom are not shopping for houses? the realistic metric, in my opinion, is the people who are actually in the market in large numbers (roughly 25-40 yr olds)
I am a stay at home dad. I became one because it was impossible to find day care for him when he was born while we were living in Australia (2 year waiting lists for infants). And even if we could have found it, after paying for daycare ($650 or so a week) plus cost of commuting and other work related expenses would have left me about $80 a month in my take home pay.
Daycare in jersey is much chaeper, but if we have a second one we’d be in the same boat. 2 kids would cost at least $2,600 a month in fulltime daycare. Toss in commuting and work related costs, getting takeout a few times a week since no time to cook, I would have to make at least 70k to break even.
This 70k could be applied towards qualifying for a mtg yet in reality it does not exist since it will be eaten up by childcare and work related costs And even when the first one hits school age, our costs will drop, but he’ll still need after school care, summer camp, so that 70k will be worth maybe 20k.
That’s why these price levels are going to fall. If a 2 income couple household with 2 kids pulls down 180 to 200k a year would be treading water at best if they bought a pos cape or ranch for 500k. And that income level would put us in the top 15 to 20% of households (even in Bergen :D)
PS: Since we only have 1 kid, my mean wife wants to put him in daycare and ship me back to work. I thought she loved, well at least liked me. sigh
#256 “Also, even before the boom, houses in the NYC area were typically 4X gross income. In other words, 2X gross income would be way below the long term trend– I don’t think we’ll ever get there and personally, I would be overjoyed if we even got to 5X median income.”
a couple of months ago jb was kind enough to post median family income vs. median home price for nj 1999 was 2.8 : 1 and 2006 was 4.? : 1 something like that
jb could you repost that info if you have a chance
thanks
“Land’s value has typically continued to increase when the surrounding economic activity has increased.”
“Current home prices in the New York metro area can be explained by the area’s intense level of economic activity and the income levels and net worths that it produces.”
Pre,
Is this was the sole reason why haven’t rents kept pace with prices?
Does anyone know where I could find data that told me the % of employed residents per municipality or county that actually commuted to NYC for work?
“my brother saw a study …”
“I heard the same story from [some person]…”
Color me unconvinced.
And beyond that, I have a hard time picturing Sallie Krawcheck telling you anything of the sort. She’s not the sort whose success is dependent on what someone else does or doesn’t do.
Did you graduate from the Reech School of Name-Dropping?
#265 bairen – Good for you! Really. Kids need a stay at home parent. Period.
#229, good point.
When I wrote that, “I believe the long term trend remains positive,” I meant decades, not the next 5 years. It will take a couple of years of flat prices for the current supply-demand imbalance to return to equilibrium.
New Jersey home prices increased at a compound annual growth rate of 6.96% between 1980 and 1Q2007, a period that spans several cycles. That is the long term growth rate of home prices in New Jersey. Prices increased at a 5.3% from 1980 to 2000, demonstrating that returns were attractive even when last several years are ignored.
Over the next 20-30 years, I expect the growth rate in New Jersey home prices to be approximately 5% per year, which will create a lot of wealth for homeowners if inflation remains within the 2%-3% range.
To all the DINKs out there, enjoy it while the going is good. When (if you’ll plan to have kids) a kid comes along, seeing that innocent newborn throws decisions based only on dollars and cents out of the window for many.
My wife stays at home and we couldn’t be happier. Her mom now absolutely regrets being a working mom when wife was an infant. For us, after taxe income (getting bumped into a higher bracket and elimination of credits), daycare, extra car and other sundry expenses, take home pay was just not worth it for wife to go to work and not see our baby devlop and grow. Having a kid straight out of grad school also helped in another ways; continuing to survive on one income. We are debt-free and when we buy a house with a traditional mortgage, it will be the only debt we will incur.
So when or if a second income will come by for us, it will be extra gravy for putting away to retire early, charity and funding more of our kids college. As of now, all decisions are made with one income in mind. SUre at times, there is pressure that if one loses a job, etc there is a setback. But to be able to spend quality time every day with your child and instill your family values is priceless. An extra BMW in the driveway is not only immaterial to us, but a gentle reminder of being a debt-slave.
I know it is not New Jersey, but Long Island is a good proxy (and its where I used to live). Most houses in this special have either not sold, were pulled off the market, or sold well under asking price. And this is with the extra free marketing from Newsday!
http://www.newsday.com/business/realestate/ny-whybuyupdate,0,1281299.photogallery?coll=ny-relateditems-business&index=1
If someone could hyperlink that for me, I’d be indebted to you for 30 years at a fixed rate.
A Superior Court judge in Essex County delivered a major blow to a plan to build 2,000 condominiums in downtown Newark, saying the city failed to prove the area in question is deteriorating and in need of redevelopment.
The 71-page decision, handed down today by Judge Marie P. Simonelli, carries faint echoes of a watershed state Supreme Court decision, Gallenthin Realty Development Inc. vs. Borough of Paulsboro, handed down earlier this year that limits towns’ power to seize land. Simonelli said the city of Newark cannot designate an area blighted simply because officials feel the property could be used for better purposes.
“The court finds that the city declared the entire Mulberry Street area as an area in need of redevelopment solely because it is not properly utilized and fully productive,” Simonelli said. “Under the Gallenthin holding, this declaration does not meet the constitutional requirement of blight and must be invalidated and set aside.”
The decision puts into question the future of the condo project, which was pushed by former Mayor Sharpe James’ administration and passed by the previous city council.
George Mytrowitz, one of the leaders of the Mulberry Street Association and a business owner, said the decision is vindication for the band of property owners who have been fighting the redevelopment designation.
“It’s what we’ve been saying from day one that the area is not blighted,” said Mytrowitz. “This was a government implemented land grab in favor of a politically-connected developer.”
http://www.nj.com/news/index.ssf/2007/07/judge_throws_snag_into_newark.html
#271 Pre
“Over the next 20-30 years, I expect the growth rate in New Jersey home prices to be approximately 5% per year, which will create a lot of wealth for homeowners if inflation remains within the 2%-3% range.”
This is tantamount to agreeing that RE is a bad investment, since almost anyone can make ~5% virtually risk free (we needn’t even compare to the return on a fully diversified index fund). And that 5% you quote doesn’t take into account the cost of RE taxes, repairs, and RE agent fees.
Furthermore, re the below quote, it won’t create any wealth at all for anyone with respect to their first home, unless the expect to sell their home and not buy another. i.e., the only profit comes from exit unless you own several homes in the first place, in which case we get back to point #1 – 5% can be had with a great deal less risk than in RE, and 5% is an imaginary number with respect to RE.
“Over the next 20-30 years, I expect the growth rate in New Jersey home prices to be approximately 5% per year, which will create a lot of wealth for homeowners if inflation remains within the 2%-3% range.”
#256, skep-tic:
I agree with you absolutely, positively 110%.
as of 3Q 2006 (what many consider peak prices or at least close to the peak) the median house price to median income ratio for the NYC metro area was 7.2.
for it to drop to 5 would be an over 30% adjustment.
http://www.demographia.com/dhi-ix2005q3.pdf
from 1997
Big Losses and Bad Accounting Leave ‘Subprime’ Lenders Reeling
February 12, 1997, Wednesday
By BARNABY J. FEDER (NYT); Business/Financial Desk
Late Edition – Final, Section D, Page 1, Column 2, 2034 words
DISPLAYING ABSTRACT – Subprime lending, risky business of extending credit to millions of Americans with tarnished credit ratings or none at all, is reeling from sudden rash of reports of crooked accounting, bankruptcy and unexpectedly high loan losses among several of industry’s prominent players; turmoil is rooted in relentless growth in number of Americans with blemishes on their credit records, making the market far too large to ignore; with everyone, from biggest banks and giant credit companies piling in, competitive pressures have exposed cracks caused by ill-conceived growth strategies, poor management of operations and outright greed and has dampened Wall Street’s ardor for their shares; financial problems at Mercury Finance Co, Search Capital Group Inc, TFC Enterprise, Olympic Financial Corp and Jayhawk Acceptance Corp…
http://select.nytimes.com/gst/abstract.html?res=FB0712F634580C718DDDAB0894DF494D81
thanks to
http://www.housepricecrash.co.uk/newsblog/2007/07/blog-the-scary-fact-this-is-from-5442.php
please un-moderate #279
Njpatient,
I suggest that you sign up for a finance & investments course because you don’t seem to understand the basic math.
If you invest $100 of cash today in 5% debt security that matures in 20 years, you will earn $100 in interest and zero in capital appreciation on your investment. You will pay taxes on the income.
If you invest $100 of cash today in a home costing $500 (80% leverage) that appreciates 5% per year for 20 years, you will earn $827 in capital appreciation on your investment. You won’t pay taxes on the gain.
And when an asset appreciates in value, that is economic income and wealth creation.
“Over the next 20-30 years, I expect the growth rate in New Jersey home prices to be approximately 5% per year, which will create a lot of wealth for homeowners if inflation remains within the 2%-3% range.”
Another blackbox? Your inflation rate corresponds to the fed’d bogus core rate. Unfortunately, the NNJ homeowner does eat, drives, heats/cools their house, etc.. With headline inflation running at 6%, your assumption, creating wealth, is under water from day one.
Pret-
Are you factoring in depreciation (repairs/upkeep)? I would say a homeowner has a pretty steep depreciation on their asset that should be discounted out of any appreciation?
JM
skep-tic,
Thanks for posting that report. I noticed that the most affordable place to own a home is Youngstown, Ohio. I will agree that homes around here are less affordable than homes in Youngstown.
So, do believe that Youngstown home prices are set to generate higher longer term growth than New York home prices? If you believe most posters on njrereport.com, then you would answer yes, based on the median income-to-home price measure.
I believe New York home prices will grow faster than Youngstown home prices. The New York economy will expand faster, causing New York land values to appreciate faster, and allowing homeowners in New York to accrue economic income which they will harvest when they sell.
BC Bob,
The same homeowner owns 2 or 3 cars, closets of fancy clothes, and multiple computers, TVs, and other electronic gadgets. Prices for these items are falling.
amazing how i get ridiculed for giving you guys no brainer investment advice for your ‘eventual’ down payment to grow. can’t help people who won’t help themselves i guess. i’ll keep giving y’all an update every few months to see all the money you missed out on while most of you doomsday bears sit making a paltry 5% interest taxable @ your income rate. silly rabbits.
IGNBX
inception jan 27, 1999 offered 6.36
close july 19, 2007 35.97
lifetime gain +565%
ytd +31%
>>Did you graduate from the Reech School of Name-Dropping?
what in particular are you referring to?
>>To all the DINKs out there, enjoy it while the going is good. When (if you’ll plan to have kids) a kid comes along, seeing that innocent newborn throws decisions based only on dollars and cents out of the window for many.
don’t agree. most will continue to work because the desire to continue their me me me materialistic lifestyle will outweigh all else.
Youngstown, OH is dead.
But there are fast-growing and affordable places. Dallas was on that document.
That’s right Richard. Any DINK doesn’t have kids because we are just too selfish and materialistic to waste our money on children.
Where did you get your psych degree from?
re: 253,
Thanks JB.
Richard Says:
July 19th, 2007 at 6:35 pm
silly rabbits.
Reech emu: troll
“To all the DINKs out there, enjoy it while the going is good. When (if you’ll plan to have kids) a kid comes along, seeing that innocent newborn throws decisions based only on dollars and cents out of the window for many.”
Very true! When I was expecting my first, I had it all figured out – but the one thing I didn’t factor in was my emotions – all the easy solutions you come up with become heartbreaking when you really have to hand your infant to someone else all day.
Having said that, I did it. I was making a ton more than my husband at the time, and just had no choice (at least that’s what I felt at the time).
The thing that caused me to stop working was the birth of my third. Working with one child is hard and exhausting, with two it more than doubles, and for me, with three, it became impossible. I actually had to shut my eyes at work while I pretended to be reading research. Even though financially (with the cost of 3 in daycare) it would have been better for me to work, I was just too stretched and tired – plain and simple.
So, I guess my advice would be that if you are DINK or if both spouses are working and you have one child, SAVE your money – and live below your means. If you plan on buying a house, try to afford it on one income. This way, if you do want more than one child, you can at least have choices.
#272 Dream – You and your wife have your heads on straight. You won’t regret being a single income family. You may have less money than other people, but your overall family stress level is probably minimal and you never have to worry about “who’s watching the baby.” As your children grow, you will have the time to create memories for them that will last a lifetime. Don’t worry about losing a job – a stay at home mom is a built-in lifeline. If you lose your job, she can always return to the workplace while you stay home. You’re doing it just right.
From Reuters:
KB Home CEO sees U.S. housing market declining in ’08
The chief executive of KB Home, the No. 5 U.S. home builder, said on Thursday he does not expect the overall U.S. home market to bottom out until the end of next year and that prices will not increase until well into 2009.
“By the end of ’08 it will start to stabilize,” Jeffrey Mezger told Reuters. “Then it will start to go back up in ’09. I think it will take a year.”
It was one of the most recent and grimmest predictions by an executive in the housing or housing-related industry.
“i’ll keep giving y’all an update every few months to see all the money you missed out on while most of you doomsday bears sit making a paltry 5% interest taxable @ your income rate.”
Richard, your investment recommendation is way too risky for someone accumulating their down payment that might need to be used anywhere from 6 months to 3 years when they find the house they want. I am guessing most people do not want a drawdown of 15% in their downpayment in a bad quarter the fund might easily have.
As a holding in a diversified portfolio, it seems a decent way to get exposure to the asset class.
“IGNBX
inception jan 27, 1999 offered 6.36
close july 19, 2007 35.97
lifetime gain +565%
ytd +31%”
Richard, what is your NET return on the fund since inception after accounting for expenses, ST/LT distributions and taxes you paid?
“Even though financially (with the cost of 3 in daycare) it would have been better for me to work, I was just too stretched and tired – plain and simple. ”
did you become less tired and stretched after leaving work?
#289
Your missing his point. He’s not saying you DONT want to have kids, he’s being sarcastic about how people are too materialistic today and will continue to work when they can make the choice and stay home.
#294 –
While I agree with most of what you say, the last line:
“If you lose your job, she can always return to the workplace while you stay home.”
is probably more untrue than true and a little simplistic. While I think it is worth it to stay at home (I did both – see post 292), don’t belittle the risk you take when moving to one income.
Also, it is very hard for a woman who has taken time off for several years to just jump back to where she left off.
Taking time off to stay at home and raise your kids is worth it in my opinion, but the reality is that there are major risks and trade-offs as well.
“Prices for these items are falling.”
Pre,
When it is all added up headline inflation is running at approx 6%. That includes flat screens, fancy clothes, etc.. Using this variable as a constant, you need a much higher appreciation rate of 5% annualy to create any real wealth. That is of course, unless the abode, appreciating at 5% is filled with gold bars.
In my old job i would be maing 90-100k right now. I would also have to leave the house befre myson woke up, and at least twice a week get hme after he went to bed. Plus my wife would have to be responsible for his transportation to daycare, picking him up, all doctors appointment, teacher conference etc.
All 3 of us would be stressed on that life style. Would rather make less in Jersey ad be able to spend time with myfamily. This whole concept of workng ong hours with a horrible commute so you can go in debt to provide the “best” things for your family truly disgusts me.
298
Which adds to the stupid comments he made yesterday.
#302
I know alot of people that choose to work instead of sacrificing on one income. I don’t think its a stupid comment at all.
#301
I have a sister in law who justifies choosing to work instead of staying home with the kids by saying “but if I didn’t work, I couldn’t give them the things that they want!”
such a sad, sad statement
From MarketWatch:
IndyMac lays off 400, to take $6.5 million charge
IndyMac Bancorp said on Thursday that it’s laying off about 400 staffers, or roughly 4% of its workforce, to stay competitive in a tough mortgage market.
IndyMac will take a $6.5 million pretax charge in the third quarter because of the layoffs, but cost savings in the second half of 2007 will more than make up for this, according to an e-mail IndyMac Chief Executive Mike Perry sent to employees. The company posted a copy of the e-mail on its blog, http://www.theimbreport.com. Perry said that the company expects $30 million in annual cost savings from the move.
The cuts are mainly in the company’s mortgage operations and IT departments. Perry commented that the move was “painful” and that IndyMac has tried to avoid laying off staff.
“However, we have also said that there could be no absolute guarantees that we would always be able to avoid layoffs if market conditions continued to erode,” he added. “The reality is that the mortgage market continues to be very tough right now, and we recognize that we must take action to protect our business and remain competitive.”
Industry-loan volumes and profit margins continue to be under pressure, according to Perry.
IndyMac’s dollar-loan volume fell 12% in the second quarter, compared with the first three months of 2007, the executive said. In terms of the number of loan units offered, volume fell 17% because the company stopped offering so-called 80/20 piggybank mortgages, in which the borrower has two loans stacked on top of each other, Perry indicated.
Ok Who’s got the whisky?
#297 MJ
“did you become less tired and stretched after leaving work?”
When I left work my kids were 4,1, and infant. So while it was tiring to run after them all day, lift them into the car, feed them…… do all those things you do when you have kids, it was still less tiring than working and having two kids.
The pace just slowed down. Just one example is there was no morning rush out the door. I could give them breakfast at my own pace. If we made pancakes at 10 a.m. or 12 noon, so be it.They could stay in their pajamas on a snowy day for hours – it didn’t matter.
Another relief was when they got sick.(In daycare they get sick a lot) When we both worked, we had to take turns taking them to the doctor and taking off from work. I also heard through the grapevine at work one time that some people were mad at me when I had to leave to pick up one of the kids when they were sick. After I quit, my kids got sick a lot less, but when they did, there was really no stress, other than the normal worry about why they were sick.
There were really so many benefits for my kids and myself – and also my husband. He was the one who took them in the morning, and once I quit, getting to work was a breeze.
Of course, the financial trade-offs were, at times, pretty difficult.
With regards having a nanny raise your kids or putting them into daycare-I equate it to leasing. You really don’t care that much about the car if you lease it vs owning it.
did we miss this….
WSJ
AHEAD OF THE TAPE
By JUSTIN LAHART
For Wall Street, Subprime Story Is Unfamiliar
July 19, 2007; Page C1
Participants in the complex world of debt tied to subprime mortgages may not be the rocket scientists they thought they were. But they have a problem rocket scientists appreciate: It’s hard to precisely analyze something when the thing is moving.
Wall Street has been rocked as investors have found that many of the collateralized-debt obligations they bought were riskier than expected. CDOs are pooled-together debt instruments that sometimes hold subprime-backed bonds. When the housing downturn gathered steam, subprime delinquencies rose sharply, which is now hitting these instruments.
With the shuttering of two Bear Stearns hedge funds and recent moves by ratings services to cut ratings on billions of dollars of subprime-linked CDOs, market participants might better get the risks.
The problem is the U.S. housing market continues to deteriorate. Nobody knows when it will improve or how bad subprime losses can get. At the end of the first quarter, 5.1% of subprime mortgages were in foreclosure, up from 3.5% two years ago, the Mortgage Bankers Association says.
For a sense of how quickly foreclosures can rise, consider the 1980s Texas oil-patch bust. Back then, foreclosures in the state for all mortgages soared from less than 0.1% of all mortgages in 1981 to 1.9% by 1987. And that was based on mortgages to creditworthy borrowers. Many subprime borrowers never should have gotten loans this time.
The problem, Columbia Business School professor Christopher Mayer points out, is that Wall Street’s experience with subprime mortgages isn’t deep. Its experience with the exotic mortgages written in the late stages of the housing boom is essentially nonexistent. That makes their reaction to the housing downturn impossible to predict.
“This story is going to be going on for a long time,” Mr. Mayer says. “There’s no way to fast forward the process.”
#281 Pretorius
Thanks. Go back to day trading, reading Rich Dad, Poor Dad and imagining that you’re a captain of industry.
totally agreed that kids should have a stay at home parent. More dads should realize this and stay home.
lostinny Says:
July 19th, 2007 at 8:07 pm
Ok Who’s got the whisky?
lost: drinking this as I type….neat…
http://www.laphroaig.com/whiskies/10yo/index.asp?expanded=10_year_old
#312 – Nice! My favorite.
#311
If our roles were reversed and my wife made enough to support the family, I would definitely stay home….who wouldn’t?
10 yo laphroiag?
Whats a matter, Chi, couldn’t afford the 15 or 30 yo? Anything under age 12 is for the renting poors. I suggest you start investing in high-yield Canadian oil trusts so you can afford to buy decent scotch…
OK ChiFi
You, me, Jim, everyone else on the board, the whisky and someplace that plays Depeche Mode. Help me figure it out.
Quick question from the renting poor:
We weren’t planning on buying until the fall put a little more pressure on sellers, but a friend’s father passed away in one of the neighborhoods we like, and we may have the opportunity to make a private purchase. So…
what are the potential pitfalls of a private sale? We have a good attorney, but I was just hoping you all could give us a little guidance on potential problems.
Thanks so much.
Chi [309],
Refreshing, a post pertinent to the original topic. Beats reading about how housing is catching up to its 2000 undervalued status. I get it, this whole insanity was strictly an arb play by Joe 6 pack.
Pooch123 Says:
July 19th, 2007 at 8:42 pm
10 yo laphroiag?
Whats a matter, Chi, couldn’t afford the 15 or 30 yo?
P: Have you tasted it?
BTW – the least expensive place is the Wine Library that sells it for $41.99. I just had to drop $54 at Sparrows Uptown.
#311 Home Seller
“If our roles were reversed and my wife made enough to support the family, I would definitely stay home….who wouldn’t?”
At the time I quit, I made much more than my husband. He would have stayed home if I insisted, but, he would have rather worked and I would have rather stayed at home.
People would say that I made such a big sacrifice by quitting my job and staying home, but in many ways it was my husband who made the sacrifice by going out to work everyday.
#314 Home Seller
I couldn’t agree more. Hat tip to tcm at #320 as well
BC Bob Says:
July 19th, 2007 at 8:50 pm
Chi [309],Refreshing, a post pertinent to the original topic. Beats reading about how housing is catching up to its 2000 undervalued status. I get it, this whole insanity was strictly an arb play by Joe 6 pack.
Bost: You bring up a good point. People seem to forget that just because you are 28 years old and pricing this stuff doesn’t mean that you are undeserving. These people are REALLY SHARP and deserve to be paid for that skill, and you can’t be just a digit head. You need the polish to pull it off in front of clients. Has anyone here tried to dynamically hedge anything? I know we have a couple of microeconomists here with the requisite econometric skills. Seriously, I think people take a lot for granted, but it’s easy to do so, because it is convenient to bash successful people.
I have tasted it, not a scotch snob, but will admit that its pretty darned excellent.
Speaking of the next meet, anyone have location suggestions?
jb
A ritzy hotel bar on the gold coast seems fitting.
jb
“So much for summer being the hot selling season. June home sales were dismal throughout the northern San Joaquin Valley, and sales prices plummeted. Merced County home prices plunged more than 23 percent in June compared to a year ago, dropping to a median $290,000 selling price.”
“Stanislaus County homes sold for a median $343,250 in June, which was about 9 percent below last year. San Joaquin County homes sold for $396,000, which was a nearly 12 percent drop.”
“As low as those prices were, homeowners who sold property in June should consider themselves lucky because most who tried failed. Home sales nose-dived throughout the region by more than 43 percent, compared to last year.”
“Northeast Modesto, including the new home developments of Village I, had sales volume drop 31 percent and prices tumble 23 percent to a median $336,000. Ripon sales dropped 60 percent and prices fell 27 percent to $455,000.”
“Patterson sales dropped 54 percent and prices fell 23 percent to $407,000. Waterford sales dropped 46 percent and prices fell 28 percent to $285,500.”
“Atwater sales dropped 42 percent and prices fell 25 percent to $275,000. Livingston sales dropped 70 percent and prices fell 25 percent to $310,000.”
“The continued price plunge means Merced is settling into a ‘normal market’ after a period of hyperinflated activity, said Scott Oliver, president of the Merced County Association of Realtors.”
“‘Home prices now are back to about what they were in 2003,’ said Ernie Ochoa, who manages the Century 21 M&M and Associates office in Merced.”
“Even those rolled-back prices are too high for most families. ‘The median-income family earns about $47,000 a year in Merced County,’ Ochoa said. ‘So it only can afford to buy a home priced about $175,000.’”
who was saying prices do not fall????
a wonderful sight to see.
cf,
Completely missed that piece.
jb
“So much for summer being the hot selling season. June home sales were dismal throughout the northern San Joaquin Valley, and sales prices plummeted. Merced County home prices plunged more than 23 percent in June compared to a year ago, dropping to a median $290,000 selling price.”
“Stanislaus County homes sold for a median $343,250 in June, which was about 9 percent below last year. San Joaquin County homes sold for $396,000, which was a nearly 12 percent drop.”
“As low as those prices were, homeowners who sold property in June should consider themselves lucky because most who tried failed. Home sales nose-dived throughout the region by more than 43 percent, compared to last year.”
“Northeast Modesto, including the new home developments of Village I, had sales volume drop 31 percent and prices tumble 23 percent to a median $336,000. Ripon sales dropped 60 percent and prices fell 27 percent to $455,000.”
“Patterson sales dropped 54 percent and prices fell 23 percent to $407,000. Waterford sales dropped 46 percent and prices fell 28 percent to $285,500.”
“Atwater sales dropped 42 percent and prices fell 25 percent to $275,000. Livingston sales dropped 70 percent and prices fell 25 percent to $310,000.”
“The continued price plunge means Merced is settling into a ‘normal market’ after a period of hyperinflated activity, said Scott Oliver, president of the Merced County Association of Realtors.”
“‘Home prices now are back to about what they were in 2003,’ said Ernie Ochoa, who manages the Century 21 M&M and Associates office in Merced.”
“Even those rolled-back prices are too high for most families. ‘The median-income family earns about $47,000 a year in Merced County,’ Ochoa said. ‘So it only can afford to buy a home priced about $175,000.’”
prices can and do go down? what a surprise? duh
tcm – I agree that it’s hard for anyone who’s been out of the workplace for awhile to get back in and nearly impossible to jump in at the same level they were when they left. My point was that with a stay at home parent, if the working parent loses a job, the income needn’t go to zero. The dual income family can get into trouble if their lifestyle requires every bit of both incomes. Then, when one loses a job, there is no way to make up any of the lost income because the other person is already working and all that money is already spoken for. If a dual income family is prudent and saves a bunch of one income, they’ll be fine.
How about this one?
The Entitlement Epidemic:
Who’s Really to Blame?
July 19, 2007; Page D1
Why do so many young people today have an inflated sense of entitlement? And who’s to blame?
The list of suspects is long, and includes the state of California, Burger King, FedEx, MTV — and parents, especially parents.
I compiled the list this month, after more than 1,000 psychologists, educators and observant readers contacted me in response to my recent column headlined “Blame It on Mr. Rogers.” That column included a premise some found too provocative: Did TV icon Fred Rogers contribute to our entitlement epidemic by telling children they were “special”?
Many readers appreciated the arguments. But others felt the column was unfair to target Mr. Rogers, who was such a positive influence. I hadn’t expected that column to be taken so literally, and I should have articulated the fact that Mr. Rogers also encouraged hard work and mutual respect. It’s not his fault if others now misinterpret the “special” language he popularized.
…
Indulgent parenting. Several readers argued that our kids are more capable than we think. Why do we make their beds and pour their juice long after they could do it themselves? Other readers asked why we give kids so many choices, from what’s for dinner to the station on the car radio. And why do we do so much trouble-shooting for them, which leaves them dependent as young adults?
Susan Lewis, who teaches at University of Maryland Eastern Shore, calls the cellphone “the world’s longest umbilical cord.” At her school, when students don’t like their grades, some come up after class, hand over their cellphones and say, “My mom wants to talk to you.”
Psychologist David Walsh says entitled parents and kids suffer from DDD — “discipline deficit disorder” — with symptoms such as impatience and inflated expectations. His book “No: Why Kids of All Ages Need to Hear It and Ways Parents Can Say It” has led to a movement in his home state. Minnesota Say Yes to No is a coalition of parents and educators working to counteract the culture of “more, fast, easy and fun.”
Some colleges are also combating young people’s sense of entitlement. At Loyola University Chicago’s Graduate School of Business, Mary Burns teaches a course modeled after her book “Entitled to What? A Reality Check for the Generation Entering Corporate America.”
Consumer culture. TV shows such as MTV’s “My Super Sweet 16” celebrate acquisitive lifestyles. Meanwhile, advertising fosters entitlement. Consider Burger King’s slogan “Have it your way.” Tim Curran of Omaha, Neb., believes it encouraged rudeness and selfishness, leading people to become “unglued over minutiae,” such as burgers that arrive with unwanted pickles.
FedEx began as a service for packages that “absolutely, positively” have to get there overnight. The slogan helped cement the idea that everyone is entitled to instant gratification, argues Jonathan Spira, CEO of Basex Inc., a business research firm.
• The self-esteem movement. In 1986, California created a state task force on self-esteem. Schools nationwide later adopted “everybody’s a winner” philosophies. One teacher told me that her superiors advised her to tell students that she liked their smiles, or the way they sat up straight, rather than focusing on, say, their failed spelling tests.
Yes, it’s important for kids to like themselves. But many readers long for some balance. One California woman wrote that her grandchildren are being raised on “self-esteem babble.” This year, her grandson wanted to play trumpet in the school talent show, but hardly practiced. Every note he played was wrong, yet he thought he was “awesome.”
At the show, so many acts were horrible, though the kids seemed proud, the grandmother wrote. “One child had real talent, but my grandchildren couldn’t see past their own self-absorption to even recognize it.”
There are remedies, if adults are willing to model good behavior. Syd Corbett, a teacher in Ocala, Fla., says he keeps reminding students: “Self-esteem comes from the self doing something worthy of esteem.”
Undeserving. What is that? Since when is “Fair” part of the black box?
You don’t want the press to start bashing the black box babysitters? You don’t want the paychecks criticized? New products need time to age like laphroaig, so just be patient and let the mistakes be made? All a part of the game. Nobody’s changing any rules, market priced this event into their paychecks, right?
Phrase your comment to address maybe $1.2m gone *POOF*
‘Young Man, what do you mean, “We messed up on the risk premium?”‘
“We’ll try to do better next time, Sister Euphemia.”
First one who blinks gets the baseball bat.
Suggestion for meeting place –
27 MIX, Halsey Street, Newark
The MIX menu looks good.
#329-
Agreed.
WOW! Insightful “Me Generation” article.
In Emerg Medicine, our debacle is the balance of “Patient Satisfaction” and doing what is medically necessary and important and prudent.
Mother of Patient: “I want a CAT scan of my son/daughter’s [fill in the body section] and I want it NOW”
Me: It’s not necessary and it’s a lot of radiation exposure.
MOP: “I don’t care! I WANT IT!! I WANT IT DONE NOW.”
Me (in a world without Patient Satisfaction Scores): “Please bring the child to his/her pediatrician tomorrow morning to be rechecked or return here before then if s/he is worse.”
Me (in this world where the customer is king): Yes. sure. Um, since this is their 3rd (or 4th, 5th, 6th) CAT scan – you should be aware that they have an increased risk for cancer in the future as a result of the increased radiation exposure.
MOP: Fine. Why isn’t the CAT scan done YET???
Me: (to myself) I f*king hate stupid, arrogant people who think they know it all.
sl
Maybe we can have a pre-MIX event where we collectively go to the NJ AG which is literally down the street and as a group submit consumer-fraud related real estate complaints
grim: RE 330…they have an online blog at WSJ…here is one response…
Posted: Thu Jul 19, 2007 12:33 am Post subject: Re: Who’s more narcissistic?
——————————————————————————–
If the parents are boomers — the parents. Has a more worthless generation ever tasted the sweet air of American liberty? I think not. From their patron fetish JFK through Clinton His and Hers, evangelist Schlesinger through the stunningly mediocre Punch Sulzberger the Great Society through Multiculturalism and the moribund hippies chanting yippie slogans with feeble power fists clenches against the depredations of Chimpy mcBushhitlerburton, the boomers (at least, those in the chattering classes and academe, or what Hayek called second-hand dealers in thought, and the political class in Washington and the DNC) have damaged the body politic perhaps irreparably.
Okay, after peeing on me, the kid literally crapped right in my hand. And yet it’s alright.
I think just listening to the peels of laughter coming from my wife made it even better.
But I digress.
Anyway,
Speaking of the next meet, anyone have location suggestions?
A ritzy hotel bar on the gold coast seems fitting.
I’m sure Donald can recommend a place where we can meet face to face.
If I think of a place with a GOOD bar I’ll get respond. Right now my sleep deprived mind draws a blank.
.
James Bednar Says:
July 19th, 2007 at 9:04 pm
A ritzy hotel bar on the gold coast seems fitting. jb
fits the bill…but I heard the food is average
http://www.harborbar.com/
That was a joke, btw, sometimes its hard to detect sarcasm over the interweb…
Send the spoilt brats to Africa or an impoverished nation in South America or Asia for summer camp to interact with other kids. I guarantee they’ll never complain about life again or take things for granted. They’ll appreciate how good they have it in this great country.
the other choice
http://hyatt1.rtrk.com/coupon/?scid=369199&cid=90507&tc=07071918592260080&dynamic_proxy=1&primary_serv=hyatt4-px.rtrk.com&se_refer=http%253A%252F%252Fsearch.yahoo.com%252Fsearch%253Fp%253Dhyatt%252Bjersey%252Bcity%2526fr%253Dyfp-t-501%2526toggle%253D1%2526cop%253Dmss%2526ei%253DUTF-8
maybe this will work
http://www.opentable.com/rest_profile.aspx?rid=5985
#311 njpatient
When we were living in australia I joined a dad’s group. It was a playgroup for mostly stay at home dad’s with kids under 3. We met once a week with the kids and once a month we would get togethor on dad’s night out and do manly things (drink beer and eat pizza). Plus sometimes a few of us would go out wih the kids and do some kiddy stuff (zoo, aquarium, parks)
I was kind of thinking more like a bar and grill maybe. I imagine people would want to drink more and eat lightly. Am I off on this? Personally, I’ll go anywhere that has bread and a nice salad.
(309)-
“This story is going to be going on for a long time,” Mr. Mayer says. “There’s no way to fast forward the process.”
Can’t somebody black box it? There are certainly more known inputs now than when these products were devised.
lost (316)-
Sounds like Grim’s basement.
Clot- can we all fit in Jim’s basement?
Something tells me that all those who are recommending that a parent stay home to raise children are probably the same who favored recent changes in welfare policies that forced single mothers to work in order to receive benefits(by the way I favored the policy changes, I just don’t believe there is any evidence that children are harmed when both parents work). Somehow it’s a real social benefit and developmentally appropriate for middle and upper-middle class families to stay at home and parent their children, but somehow the social utility and developmental benefits don’t accrue to the poor and working class children. Many of the comments on this subject not only gloss over the day-to-day struggles of the poor and working class attempting to provide for their families(some families don’t have the option for one parent to opt out of working), but also reveals a deep level of ignorance of the recent socioeconomic and political forces that have assaulted middle class families over the past twenty-five years. For example, how is it that with less than 25 percent of adults 25 years or older holding a college degree that we expect a vibrant and thriving middle class? Look around, all of you on this site with college degrees are a very small minority and if you have an advanced degree, well, now you are part of the elite, and that probably explains why you have the opinions that some of you do.
lost (347)-
I’ll bring the truncheon.
Women who wish to stay at home might want to read ‘The Feminine Mistake’.
Clot I think it might get a lot of use.
Bring it on!
348
BDM, I think we’re talking about two totally different situations. Single parents have no choice but to work to feed themselves and their kids.
What the discussion I believe is about is two income families where both parents choose to work. I agree with you that most kids do turn out fine if both parents work, but no amount of money can replace the time missed in watching your kids grow up. You’ll never get that back with any amount of materialistic gifts you provide them. People hate to hear this, but its the flat out truth.
I know several parents who both work long hours (by choice) and try to “make up” time with their kids on the weekends. Very sad.
Again, don’t mis understand me. Single parents are in a totally differnet situation. I don’t envy them one bit.
RE:
Sallie Krawcheck told me that personally, Hard to believe but I am a huge supporter of Women on Wall Street and the various NOW (Network of Women) groups and I have been a mentor and performance manager to numerous women and have been instrumental in making sure they can break into senior managment. Generally speaking I promote women at twice the rate of men.
Bottom line 90% of career driven women want to take a break when they reach partner or SVP by 37 to have some kids before the clock stops ticking and want to stay home with the kids for at least five years full time. I fought for and won this at my prior company that women can have an unpaid leave of absence for five years and we will guarante their job and benefits and re-train them upon return and set them up with a flex schedule so they can continue to operate at a senior management level and still have work life balance and time their kids.
July 19th, 2007 at 5:22 pm
“my brother saw a study …”
“I heard the same story from [some person]…”
Color me unconvinced.
And beyond that, I have a hard time picturing Sallie Krawcheck telling you anything of the sort. She’s not the sort whose success is
#335,
If you come here…look me up. 7th Floor, administration, renewal unit.
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