From Inman News:
The housing market: How bad will it get?
Speculation, rampant building, risky loans, overborrowing and escalating prices propelled the housing market to an unprecedented peak — and are now counted among its greatest failings.
The “soft landing” that so many analysts and economists had predicted has given way to a record number of foreclosures, an implosion in the subprime lending market, an oversupply of housing, and home-price declines in many market areas. The dreamy days of the housing boom have received a cold slap of reality.
Real estate markets are historically cyclical — that’s nothing new. But in this case, the nation is in the midst of a downturn following a long-lasting and massive real estate run-up, and it remains to be seen whether this period will become known as one of the greatest real estate slumps in history.
How bad will the real estate market get before it gets better? Many experts have said they don’t expect a quick return from these doldrums, and this outlook could turn dire if the overall U.S. economy hits a snag. While there is not a nationwide epidemic of job loss, there are worries about rising inflation and energy prices, and declining consumer spending.
David Shulman, of the Anderson Forecast at the University of California, Los Angeles, said in his latest report that he expects a 10 percent peak-to-trough home-price decline that could extend into 2009, with the swell of foreclosures growing “well into 2008.” His forecast report bears a one-word title: “Turbulence.”
Real estate industry consultant John Burns said during a housing conference in May that the buyer’s market will continue for at least two more years, and “we’re heading into a year with more price declines,” with builders dropping prices by about 20 percent in some markets.
The National Association of Home Builders expects a 21 percent drop in total housing starts and an 18 percent drop in new-home sales this year compared to last year, and the National Association of Realtors expects a 4.6 percent drop in existing-home sales, a 1.3 percent drop in median existing-home prices and a 2.3 percent drop in new-home prices this year compared to 2006.
…
The sensational rise of the housing boom may be a key factor in its demise.“This was sort of a market-fed downturn,” said Jay Q. Butler, director of Realty Studies at Arizona State University’s Morrison School of Management and Agribusiness. The rapid upswing in home sales and pricing was not sustainable, he said.
“A lot of the system was being stretched, both legally and illegally to some degree, with the idea that this was going to continue. So people got in over their heads. It really sort of turned in on itself. You usually find a (real estate) downturn associated with a downturn in the economy — we really haven’t seen the downturn in the economy.”
Likewise, the latest annual housing market report by Harvard University’s Joint Center for Housing Studies stated that the housing downturn “has been driven largely by the market’s own excesses,” including an oversupply of new homes that was artificially inflated by activity among investors and speculators.
Some familiarities exist now from past cycles, Butler said. For example, in a real estate boom there are always people who overextend themselves financially to purchase homes during a real estate boom, perhaps thinking that they will be able to sell the home for a profit based on the appreciation trends.
“I don’t think we really ever learn. The lenders and real estate agents and everybody else is more than willing to help people achieve this goal (of home ownership) because they make a commission for you to achieve this goal,” Butler said.
…
The lesson to be learned from this market cycle is that there was “way too much flexibility” in the loan products offered to consumers, which ultimately led some consumers to buy homes that they couldn’t afford, Jacobson said. “Sometimes that’s not the right house … they may not like what they hear but that’s the right answer.”
…
He said he would support a giant banner with a statement to consumers: “Stop going out and shopping like it’s a bottle of catsup.” He added, “There are a lot of people who are encouraging people not to do the right thing. During those boom years there were a lot of people getting into programs that were risky for them as well as the lender (and) were putting people really on the margin,” he said.
A familiar story from the Boston Globe:
Separate, barely, and not equal
Ann and Jim MacDonald put their house in Foxborough on the market in May 2006 for $450,000. After switching agents and lowering the price to around $400,000, they eventually sold the three-bedroom home for $389,000 last month — about 310 days after first listing the property.
“My husband and I had a running joke,” Ann MacDonald said, “Our house was always the bridesmaid, but not the bride. It was always the second choice for the buyer.”
In nearby Franklin, Tim Maio and his wife also ginned up interest in their four-bedroom Colonial by cutting the price, from an original listing range of $475,000 to $500,000, to $474,900. The house just sold for $460,000.
The Maios’ total time on market? About a month.
“We thought it would be 45 to 90 days,” said Maio. “We knew it was a soft market and interest rates were going up. It was a pleasant surprise to us.”
The real estate slump is not hitting all Massachusetts communities — and home sellers — equally, as the experience of these two houses less than 20 miles apart shows. And even among a clutch of neighboring communities, the time it takes to sell a home can vary greatly.
…
Real estate agents and market watchers said many factors influence this trend, including a community’s aesthetics, tax rate, schools, and the services it offers, such as commuter connections to Boston and shopping centers. But in a market that remains tilted toward the buyer, it doesn’t hurt for a seller to be in a place where homes are known to move fast — and to have one for sale at the right price.
From the Courier Post:
Home sales fall 9.5 percent in Phila. region
Home sales in the Philadelphia area fell by 9.5 percent in the first half of the year, as the region remained mired in a housing slump that started last fall, according to a report released on Friday by a real estate brokerage.
The southern New Jersey suburbs showed the biggest decline, down 13 percent, while northern Delaware was down 11.7 percent and southeastern Pennsylvania fell by 7.5 percent, according to all multiple listing service data of existing single-family homes and condominiums compiled by Prudential Fox and Roach in Devon.
Homes in the region also stayed on the market an average of 66 days, up from 52 during the same period last year.
“We were hopeful it would start coming back in the first half of this year. It has not,” said Steve Storti, marketing director at Prudential, the nation’s fifth largest real estate brokerage.
From the Record:
Mortgage woes hurt thrifts
Northern New Jersey thrifts, which rode the home-buying and refinancing booms to record profits in the early 2000s, are now proving the adage that what goes up comes down.
Shares in Hudson City Bancorp Inc., which increased as much as eightfold from their initial price from 1999 to the end of 2004, have slipped 17 percent this year at the largest New Jersey-based thrift. The stock hit a 52-week-low of $11.58 on Friday as demand for loans has fallen and high short-term interest rates have translated to high deposit costs and slim profit margins.
Shares in other local thrifts, including Provident Financial Services Inc., Kearny Financial Corp., Clifton Savings Bancorp Inc. and Oritani Financial Corp., have all seen double-digit declines this year.
“The weakness in the thrift sector is driven by the slowdown in the mortgage market,” said Collyn Gilbert, an analyst at Stifel Nicolaus & Co.’s Florham Park office on Friday.
The mortgage market is expected to continue to be weak at least through the rest of this year.
“It’s tough,” she said. “Some [thrifts] are hunkering down and reining in growth, but there are not a lot of levers they can push.”
Thrifts traditionally rely more on residential mortgage lending than commercial banks, so their financial performance tends to suffer more when the housing market turns soft.
The SNL Thrift Index, which includes 167 thrifts around the country, was down 12 percent for the year as of Friday. The KBW Bank Index, comprised of large commercial banks, has fallen 5 percent in 2007.
…
Among the few bright spots for thrifts is that the interest-rate environment has begun to improve and they’re feeling less competition from the finance companies caught up in the sub-prime mortgage shakeout, said Gerard Cassidy, analyst at RBC Capital Markets in Portland, Maine.
“There is a bunch of capacity coming out of the business,” he said
Whic NNJ bank will throw in the towel
first.
S8 housing voucher is the prize.
lets see how the housing stocks do this
week. Any writedowns coming?
The pricing in North Jersey continues
to hold .
From the Courier Post:
$1 billion in property taxes needed for pensions
Local governments are grappling to pay for hefty increases in what they owe the state’s public employee pension systems.
New cost projections from the state Treasury Department have more than $1 billion in funds from local property taxes paying for pensions in the coming year — a number 20 times larger than what local governments had to pay four years ago.
“This is one of the essential reasons why it’s difficult to control property taxes, when you have these kinds of mandated increases,” William Dressel, executive director of the New Jersey State League of Municipalities, told The Star-Ledger of Newark for Saturday newspapers.
The Treasury Department numbers show a $1.056 billion tab, due next April, to support pension benefits for hundreds of thousands of government workers, firefighters and police officers.
The bill is almost twice what it was the year before, and about 20 times larger than the $53 million owed in 2004, when towns came off a payment “holiday” of several years.
The pricing in North Jersey continues
to hold .
Are you sure about that?
The Standard and Poors Case Shiller home price index for the NY metro area is down 1.54% (nominal) year over year.
New York – Home Price Indices
The CPI-U Less Shelter (the inflation index to be used to adjust home prices for inflation) was up 2.2% in June.
Adjusted for inflation, home prices in the NY metro area are down 3.74% in the past year. Keep in mind that this is based on a repeat sales measure, and not a simple median/average analysis.
jb
#6
At least we’ve all gotten raises to keep pace with the housing price, property tax, food, energy, education increases. Othewise I would be concerned and spend part of my day lurking on housing bubble blogs, or at least re report.
I drove around Wallington yesterday, I thought it was pretty nice…The section by the bridge into Passaic isn’t nice, but the rest of it is fine in my opinion. There is also a very nice county park in Wallington.
Frank,
Since we were talking about this yesterday, what are your thoughts on #3? I know you were looking at the issue from a big bank perspective, not necessarily at the smaller thrifts, but this presents an interesting twist. It’s arguable that the large I-Banks are well diversified, so they wouldn’t necessarily show losses until economic weakness hit all business lines. It would be the smaller lenders, and those banks reliant on housing-related profits, that would be first to show weakness in a downturn.
jb
JB,
Do you think some of these NJ thrifts could go bust? I’m seriously thinking about closing my emergency fund at a thrift and puttting it in t-bills.
“A lot of the system was being stretched,”
Bubbles will stretch further than most can imagine. Unfortunately, the corresponding action is just as, or more, severe. Like a rubber band, stretched to its limit. It will either pull back violently or just snap. This market is on the verge of snapping.
Doesn’t FDIC protect S & L deposits up to 100K?
BC (12)-
It’s snapped. Next act? The rush for the exits.
“It’s tough,” she said. “Some [thrifts] are hunkering down and reining in growth, but there are not a lot of levers they can push.”
The Hat Bandit better pick up the pace before the coffers are bare.
Clot,
re:FDIC
Even if that’s true, my understanding is that it can take months or even years to get your money back.
if you like Wallington, you would love
Bogota,Lodi, and Garfield.
Wonderful Bergen Communities
#16,
that’s what I thought too. You get your money back eventually. Could take a lonnng time.
technically not NNJ (though quite a few people in the neighborhood commute to NYC), but visiting friends in Perrineville/Roosevelt this weekend toured an open house yesterday for S&G:
MLS 20729034
http://www.zillow.com/HomeDetails.htm?zprop=39338847
RE Agent told me the OLP 18 months ago was $950,000, and now it’s “priced to sell” at $729,000. Very nice place; tastefully put together, spacious, gorgeous wooded lot, etc. Hard to imagine the sellers thinking they might get close to a mil though.
Kurt
Clot (455, 256),
We’ve checked out the FEMA flood maps, and the zone is about 2 blocks away from the house. Should we be satisfied?
As far as the school goes, well, it’s what we can afford. NJ’s school report card numbers suggest that the high school is comparable with other high-performing schools in the state. Is there another performance standard we should be looking at?
Thanks for the heads-up on the issues. We figured it was a compromise, but it’s good to know the details of the bargain.
#17: Parts of Lodi and all of Garfield are dumps, a very small section of Wallington is but the rest seemed okay from what I saw driving around yesterday…is there something I am missing?
Straw Men and Liar Loans – OK guys this market is in Free Fall. I was tempted to buy when I saw a 4 bedroom foreclosure on a canal with a pool and a two car garage. Here is the house history
6-14-93 215K
11-25-03 – 560K
9-3-04 – 580K
2-17-05 – 665K
7-23-07 – 490K and bank will pay closing
OUCH – Turns out the bank rep from HSBC who owns it said it may take months to show, only two people including me showed up at a MLS open house with a 75K price cut. Bottom line it had 12K in taxes and even with 90K down and no closing, 400K at 7% is $3,500 hundred a month mortgage with 1K a month taxes and almost $500 in insurance as house in on water. That is $5,000 a month to buy house and it rents for $3K a month. Not a bargain.
I then asked who the heck paid $665 for house in Feb 05. I was told it was a 100% down liar loan with a straw man buyer and the new “owner” illegaly cut the house into two got two renters never pay one mortgage payment pocket 3K a month rent for 18 months and let the bank foreclosure and evict the tennants. Even worse two doors down an honest family bought in April 2005 and used the liar loan house as the comp as well ast the assessors office and the bank and the couple paid 660K for a house that is now worth 500K just 2.5 years later and their taxes are up 4K too. Turns out the bank told me that HSBC and Wells Fargo has a boat loat of foreclosures in the bank line, IOs, 2/28s 3/27s 100% financing that were non confirming loans they did not unload in time and the pain will be great this winter.
Wallington is a dump. period.
#21 Garfield has both not so nice and nicer parts, the look of the town changes depending on what block you are on. If you have kids, Garfield High School is not very good.
#5 pesche: The pricing in north Jersey continues to hold?
I am seeing price reductiosn avery day, many significant, and inventory continuing to rise,and we are almost in August.
From the Record:
On the job: Contractor crackdown
It robs the government of revenue and can cost workers their health.
By misclassifying full-time construction workers as independent contractors, crooked business owners see a way to save on tax payments and insurance costs. But those who engage in the practice now face far more severe consequences.
A new state law establishes possible jail time and fines of up to $75,000 for knowingly misclassifying employees. It also threatens companies with the loss of their eligibility to bid for public contracts.
Governor Corzine held a ceremonial signing of the bill last week during the New Jersey Building and Construction Trades Council’s 103rd annual convention in Atlantic City. Unions had pushed for strengthened enforcement.
“I think the impact is really on union contractors,” Labor Commissioner David J. Socolow said. “[Union] worker representatives are not going to allow someone to be mislabeled by their own contractors. But other companies that do create a cost disadvantage to the honest employers. It’s unfair competition and creates an uneven playing field.”
Socolow said two out of every five construction contractors audited last year had misclassified their employees. On Tuesday, the commissioner is scheduled to testify about the practice in Washington, D.C., before two House subcommittees.
John [22],
WOW. A 25% hit. This fall and early winter will be bringing in a major storm.
pricing only seems to be coming down
on the POS dumps. the really nice homes
seem to be holding.
Bergen County, where prices never go down
are holding pretty good.
Do you think some of these NJ thrifts could go bust? I’m seriously thinking about closing my emergency fund at a thrift and puttting it in t-bills.
No, I don’t forsee widespread banking failures (ala S&L). While there is exposure, the exposure is not at all similar to what spurred the S&L crisis. I’m not in the camp that expects this to play out like the next Mad Max episode.
If you can’t sleep at night, diversify those funds across different banks. There is no reward for bank loyalty, so spread your funds out if you are worried. My down payment funds (dry powder) are spread across a number of different CDs (I hunt yield) and T-bills of various durations.
jb
pricing only seems to be coming down
on the POS dumps. the really nice homes
seem to be holding.
Bergen County, where prices never go down
are holding pretty good.
Did you miss this one?
Purchased 10/2004 for $1,065,000.
MLS# 2529067
Listed: 4/7/2005
List Price: $1,349,000
PCH $1,299,900 4/11/2005
PCH $1,249,900 5/7/2005
PCH $1,195,000 5/29/2005
Withdrawn
Relisted: 2521799
Listed: 7/9/2005
List Price: $1,199,000
Withdrawn
Relisted: 2529067
Listed: 9/9/2005
List Price: $1,198,000
PCH $1,098,800 10/10/2005
Withdrawn
Relisted: 2615244
Listed: 4/21/2006
List Price: $1,077,000
PCH $979,000 9/5/2006
Withdrawn
Relisted: 2637201
Listed: 9/21/2006
List Price $999,000
PCH $925,000
In Attorney Review
Seller is currently facing Sheriff sale on 8/31 for a judgement amount of $817k.
If the property sells for asking, the seller is facing a loss of approximately $200,000.
That property is in Closter.
jb
I don’t know any specific banks in NJ that may be in trouble but if I wanted to know which ones would potentially be in trouble I would look at their financials very closely. Especially the banks that are trying to be a portfolio lender and have not properly hedged their risk. Its difficult for the big boys to do it properly so that’s a potential risk there. Look at Irwin Financial (IN) and Netbank (GA) , they have not gone under but are struggling.
okay, there are price reductions but they aren’t huge and cases like that (#30) are few and far between and definitely more likely in the 7 figure class
where is this huge inventory in the 600k-900k range? at least in nnj
and has the european influence in the nnj area been left out of these doom and gloom forecasts?
Its going down. When I met with the bank rep on Sunday from HSBC I was told part of the issue is Inflated Comps. There are a lot of liar home houses, homes with kickbacks at close and house with IOs where buyers overpaid. There is a boatload of 2/28 and 3/27s on the books at HSBC in great neighborhoods that are resetting into 7% loans from teaser 4% loans and the owners are at negative 200K equity. Remember stocks are generally valued at next years price. Houses are valued at last years prices. Banks are not doing phoney loans anymore and people are not in their musical chair mentality to trade up trade up. The amount of buyers have diminished and inventory has risen. It takes one foreclosure or distress sale on a block to wreck it. That house on the water I looked at tyhis Sunday every single house on the block was assessed at 600K a few months ago, when HSBC cut their price to unload their house every single house on that block fell that same price even if the owners refuse to admit it.
#28 pesche: Some of the really ncie ones may be holding,e except there does nto appear to be that much interest.
Are the rpcies holding, or the asking prices, some really nice house in my town now on the market for almost a year.
So they may be holding, but are people buying?
#30 is an oddball.
go look at some Bergen Homes.
Shocked by the high pricing.
Closter,Demarest,Norwood,Old Tappan,
Tenafly.
Not NJ, but related to #3. From PR/Newswire:
Corus Bankshares Inc. . Corus’ 2007 second quarter earnings were $42.4 million, or $0.74 per diluted share, down 11% from $47.8 million, or $0.82 per diluted share, in the second quarter of 2006. The year-to-date 2007 results were $68.8 million, or $1.20 per diluted share compared to $91.2 million, or $1.57 per diluted share in 2006, a decline of 25%.
“As has been widely reported, the United States’ residential housing market continues to see significant weakness throughout many parts of the market. With a loan portfolio consisting, almost exclusively, of condominium construction and conversion loans, this nationwide slowdown has clearly impacted Corus and its lending business. Evidence of this slowdown can be seen in recent trends in loan originations and loan balances outstanding, as well as credit quality trends. The current quarter’s earnings declined as a result of these adversities, and it would not surprise us to see an even greater impact on earnings over the next several quarters, or even years, depending on when the market improves” said Robert J. Glickman, President and Chief Executive Officer.
…
It is unclear at this point what impact, if any, the problems in the subprime and Alt-A home mortgage lending market will have on our condominium business. Corus does not make, purchase, or hold any subprime or Alt-A mortgages at all. In fact, Corus does not invest directly in any residential home mortgages to individuals. Nor does Corus invest in any pools of residential home mortgages. We understand that the lenders who do make subprime and Alt-A mortgages have tightened their lending criteria. The effect on Corus of the subprime home mortgage lending market issues is indirect: our customers are the condominium developers who sell condominium units to individuals. To the extent that subprime and Alt-A lenders cut back on their loans, it is likely that our customers (the condominium developers) may lose sales to those individuals who would have required a subprime mortgage to close on their purchase.
In summary, at this point in the housing cycle, we are experiencing a disappointing decrease in origination volume, and a certain, albeit very manageable, degree of problem loans. We anticipate that problem loans could get worse before they get better. Nevertheless, we are bullish that in the long run condominiums and condominium construction will remain a permanent fixture in the U.S. housing market. With the reputation Corus has built as an expert in this niche, with our highly experienced and trained staff, and with our strong balance sheet and income statement, we are very well positioned to capitalize on the eventual housing recovery that we are confident will occur.”
#33 JLB: Give it time, this thing is just really getting started. Watch it all unfold over the next 12 months or so.
Oh and watch how a once great state continues to slide into the muck, but don’st worry right becasue we are right next to NYC.
You got capes with 9k tax bills in some
of the NOrthern Valley area.
21 It’s not that bad, but you have to compare apples to apples blue collar town to blue collar town
Not Alpine to Closter.
#38 3B: So many posters on this chat want to believe that everything is going down but the reality is that some things will go down but longer term everything will go up and there will always be a different vista for those investing and those living when it comes to real estate.
Everyone is so focused on subprime but in some of the commuter nj towns the issue may be closer linked to the dollar
lastly, the numbers on a bank book might look grim with resets, etc. but the fact is that to assume everyone that took an adjustable wasn’t planning for a reset or using their “extra” liquidity to generate income with an eye to a reset is to assume all people are idiots except those posting their commentary on this board
i drove over a took a look at Del Webb’s
over 55 complex in Wanaque.
They are kidding , right.
Prices start at $380k on a staking condo
offer.
In wanaque no less.
jb re #10…
I just happened to talk with my younger brother last nite in Orlando. He is a helicopter pilot for a local charter business. Guess who he has been a flying the last few weeks?
Bank Execs.
All over the greater Orlando market and all the surrounding areas. They are locating housing developments via gps coordinates. Seems these bankers loaned large sums of money to develop properties without ever actually locating where the subdivision was. This is not a rare thing. From what i gathered last nite he has been very busy the last three weeks. He would not say any bank names but did mention most all were from up north.
But here is the best part. Most developments only have a few homes built with a bunch of land cleared. Now the builder is nowhere to be found. A lot of the subs have also gone missing.
1 development he mentioned had approx 50 500k plus homes with all the windows broken out getting rain inside. There is no money to even board up the places…
I will try and get more info later in the week…
Chris
#37, CORS up 70 cents (4%) after earning
JLB: Agree with you to some extent, that prices in NNJ are not going to drop like hot areas such as NV or FL. Here is my prediction, based on my personal analysis,
1. In long run, prices in NNJ area appreciate at Inflation + 3% rate. The additional 3% is due to factors such as location, closer to NYC, supply limitations, demand with increasing immigrant populations etc…
2. We crossed that Inflation + 3% line in 2004, that’s when we entered Boom in RE. The same point in previous cycle was in 1985. The Bust started about 2 years after that.
3. The third year usually brings price declines. We saw some declines in 2007, but 2008 will be year that will be remembered with price reductions.
4. If the same pattern as last bust cycle repeats, you will have flat prices or very small growth from 2009 till 2014.
5. The bust will not be as large as 87 to 90. Though the price increases have been significant compared to prior boom, it was coupled with much lower interest rates. Hence affordability did not decrease as much as compared to 80’s.
6. Hence look for big price reductions in 2008. To me still the good time to buy will still be winter 2009 onward.
But buying house for most part is an emotional decision, and logic takes back seat when you see your friend living a good life and you keep feeling being left out. You will always have buyers, not everyone can have the required patience. I personally would like to thank JB for this blog, I like many would have jumped the gun in 2005, I am glad, I did not. Now I know I am shooting for 2009, I can better plan my finances.
#6
“The bill is almost twice what it was the year before, and about 20 times larger than the $53 million owed in 2004, when towns came off a payment “holiday” of several years.”
This tax problem makes me more nervous than the high prices, because it’s so out of your control as an individual. If this continues, as it seems it will, “homeownership” will be a complete joke. Are you really an owner if every year your taxes increase beyond your control and the govt. can kick you out of the house? It’s really like you’re leasing from the govt. (at least with sales tax you can choose not to buy something – or income tax, if you unfortunately make less, you pay less). If it was just modest increases, I could understand – but the taxes seem to be skyrocketing, with no end in sight.
And for what? To support a corrupt system? I feel like I’m in The Godfather I, where that guy extorts money from the working stiff, just to allow him to survive.
We’ve checked out the FEMA flood maps, and the zone is about 2 blocks away from the house. Should we be satisfied?
That’s hard to say. 2 blocks could be a big difference if you are a few feet higher in elevation.
I would check the history of the area for flooding. I used to live in a town with a flooding problem. Many new buyers were shocked the first time they got flooded, despite the history of the area they lived in.
If you are that close to the flood zone and it isn’t a big geographical difference between your home & the flood zone (i.e. a hill), I would strongly consider flood insurance.
#41 JLB: What can I say, believe/ignore what you wish.
And to answer one of your questions, sadly most people who took ou these loans are/were idiots. clueless or whatever you want to call them.
Why would anyone take out one of these loans when 30 Yr FRM’s could be had at 5.25%.
We on this site believe this was a bubble, and much of what we have talked about over the last couple of years is unfolding now.
Some of us myself included have direct experience with the last real estate crash, that was ugly, this will be uglier.
If you wish to believe that all is well, and that this run up was all justified, and everyone makes 200, 250, 300K or whatever, than suit yourself.
If you purchased recently and are looking for justification, than at least be honest about it.
Getting angry at us will not change the fact that the market is unraveling, just as we knew it would.
The Treasury Department numbers show a $1.056 billion tab, due next April, to support pension benefits for hundreds of thousands of government workers, firefighters and police officers.
Total property tax receipts in NJ are around $20 billion. $500 million in additional funding for pensions over last year’s bill equates to about a 2.5% across the board property tax increase. This is for pensions only & doesn’t factor in inflation, school spending, current salaries etc. Assuming everything else goes up by inflation plus 1% (say around 4%), we are looking at yet another year with 6% plus property tax increases.
John #22, nice info, thanks for posting.
“okay, there are price reductions but they aren’t huge…”
A friend’s house in Ridgewood has been on the market 19 months. It started at $910,000 and is now down to $719,000. She and I went to four open houses in Ridgewood yesterday, to compare those homes to hers. Every one of the houses, ranging from $595,000 to $669,000, had been price-reduced at least once.
41#, JLB,
I want to reiterrate my twin city theory there: the premium towns will hold and even get higher from now. The rest may be going lower. Both short hills and newark are in essex county. No matter how well short hills is doing, the median and average will go down considering much large population in newark.
I am not looking in BC. But from my random oversavation in Westfild, Edison and Princeton area, the average price is going up slightly this year.
JLB: Forgot to put the link for Home prices to Inflation + 3% comparision. Look at the HPI to Inflation+3% line crossings.
http://www.geocities.com/skgala/newark.htm
51 Annamel
Were those houses comparable? Does she need to come down some more to be in competition for a sale?
#45 SG Keep in mind that there was no funky financing back in 1987,people had to qulaify for a mortage, alos keep in mind NJ’s property taxes, scarier in many respects than prices.
I belive the declines will be far steeper than you might suspect, even steeper than other areas of the NYC metro area.
NY and Conn are in far better fiscal shape than NJ.Being close to NYC will not save us, as other places are close to NYC too.
Most fo the positives for moving to NNJ vs other areas , such as Westchester LI etc, have disappeared over the last 20 years.
This is soemthing many NNJ natives cannto seem to fathom.
Just curious … everyone loves to say, ‘interest rates are rising.’ Is there any evidence of this?
JB, I’m sure you’ll all over it … but are rates on the 30-year fixed rising? Last i saw was in the 6.5 range … which isn’t bad at all.
The only time I’ll worry is when it gets to 8.0.
Of course rates COULD rise, but are they? We know for sure asking prices are going down.
(For what it’s worth, rates don’t scare me in the least. My guess/gut based on nothing is that they won’t go up too high.)
Prices in Bergen Continue to hold? Hahahahahahahahahahahaha
from Rich in NNJ over the weekend
Deed $417,000 7/2004
Deed $800,000 8/2005
Mortgage $640,000
LisPenden 4/2006
Sheriff sale 5/2007
SLD LINCOLN AVE $417,000 7/23/2004 (Flip)
ACT LINCOLN AVE $799,900 11/2/2005 (Same owner as above trying to finance project?)
PCH LINCOLN AVE $779,900 11/29/2005
W-U LINCOLN AVE $779,900 12/30/2005
ACT LINCOLN AVE $774,900 2/1/2006
ACT* LINCOLN AVE $774,900 3/13/2006
U/C LINCOLN AVE $774,900 4/4/2006
BOM LINCOLN AVE $774,900 5/4/2006
W-U LINCOLN AVE $774,900 5/5/2006
ACT LINCOLN AVE $675,000 7/20/2007 (REO)
“Were those houses comparable? Does she need to come down some more to be in competition for a sale?”
The houses were comparable in size, but hers is in much better condition. More than one couple has said they want to buy her house BUT they have to sell their home first. As others on the site have pointed out, the “plankton” that would allow these chain-reaction purchases to occur have disappeared. I think she needs to lower her price a lot (at least another 10 percent) or else take the house off the market and wait several years for the turnaround.
56#,
The rate will go down – it is based on PIMCO’s prediction. The economy is slowing and less people buying mortage, banks have to compete with each other to generate revenue. Only thing they can do is to cut rate. Therefore, this winter and next spring will be good time for buying a home.
#55, there certainly were 1 year ARMs with teaser rates that adjusted 2% per year for 4 years in 1987..I had one..5.5% to 7.5% to 9.5% up.
#59 Rates are not going down any time soon. Mr. Bernanke has made that more than clear.
In fact the consensus now is that there will be no cut in short term rates until well into 2008 at the earliest.
The Fed’s main cocnern is not the housing market,and the fact that many people are not buying.
#48 3b
I agree. I can’t believe the extent of these loans. Over the last week, I have found that two friends of mine…friends that I considered amongst the most financially responsible people I know, “purchased” their homes with a piggyback HELOC for their “downpayment”. One of these homes is in Summit. The other friend actually sold their previous home for over a $100k profit, but had to use most of that to pay off credit card debt. 4 years into their new home and they still are not at the 20% mark for equity.
#60 I know they were around, but from my memeory, they were the exception, and not the rule, and they were straight ARM’s based on 6 month, 1 year Treasury etc.
I also do not remember no money down, getting a mortage back then could be painful, as one actually had to have a down payment and qualify.
61#,
This Fed and previous Fed are market followers. They don’t want to give market surprise. Almost everytime in last 5 years they act in line with majority of street surway. It is totally depending on the economic condition from now.
#64 What are you talking about? With all due respect you sound like an ill informed realtor, reading off a script.
Clot,
Yesterday, you said half the sales in your office were short sales.
I’d like to hear more about those. How short are they – how much of a discount? When did the owners who are now in trouble buy?
I’ve seen some unbelievable closings.
Prices over the top, for POS,townhomes
as well as homes.
Some of these townhomes have tax bils of 10k
crazy
Re: The economy is slowing and less people buying mortage, banks have to compete with each other to generate revenue. Only thing they can do is to cut rate. Therefore, this winter and next spring will be good time for buying a home.
WHY – Big banks such as Chase, HSBC and Citi are not making money on mortgages and impared assets negatively hit their VAR calcs in turn tieing up even more capital. Big banks ofter non competive rates on purpose all the time, whey would they want to compete to get people to get mortgages if they are money losers. The one trick ponies mortgage shops have dried up. Take Chase they had a blood bath in SUV leases when gas prices shot through the roof and residuals fell, then in 2005 they offer crappy rates on purpose to limit their exposure, banks like Chase can’t redline or pick and choose loans so non-competing in a money losing market where they have exposure is good. Similar to 2005 why compete in the money losing SUV market when their in house hedgefund can bank out 20+ returns with a 3% cost of capital. When market conditions become more favorable and chase has less underwater SUVs on the books they once again will have competitive lease rates. Watch them they will do the same thing with Mortgages.
65#,
I am not a realtor. i am just give some observations from different perspective. I don’t take fed minutes too seriously, rather i am watching 10 year more closely.
#69 The 10 year has nothing to do with the Fed, as far as rate cutting.
I’m not going to place any predictions on where rates are going to go. Can we agree that interest rates today are higher than where borrowers originally got their loan a year or two ago? This basically applies to all borrowers regardless of whether they are prime, Alt-A, or subprime loans. Some will be able to manage this rate increase better (prime) than others (subprime). However if they stretched themselves when they initially got the loan they are both in the same boat trying to row upriver.
People with ARMs in the process of resetting or will be resetting later this year if they did not properly plan for it are going to have to make some hard decisions as to whether you can stay in your home or not.
Short Sales are a nightmare – If you do a shortsale and the banks take 450K on your sale on a house worth 600K you owe tax on the 150K to the IRS that the bank forgave, remember for non W4/W2 income you need to pay taxes quarterly, NJ Fed and State is around 40% so you need to mail in 60K to Uncle Sam as an estimated payment within 90 days at most or you got your self 10% fines and penalties on the 60K come April 15th. Lots of people take a short sale and then the IRS nails them and you can’t wiggle with the IRS as they will nail you to the cross.
#71 True, and ofc ourse the unending increase in property taxes.
Thank you SG that is a quality point with some factual information to consider
3b—What are you talking about? I am not angry, as a matter of fact, I just disagree! Also when you say “we” on this site, is this site reserved for those that believe real estate is tanking or may the voices of reason,fact and opinion also participate?
funky financing has always been around but you could argue it became more prevalent. that so called funky financing is and will be used by people who know how to manipulate money to make more not just to get into a house. People don’t typically stay in a house for more than 10 years on average so a 30 yr fixed rate isn’t always the best vehicle.
Connecticut and Westchester have high taxes and high prices and high cost of services, etc. So I am not sure what you mean by reasons for NNJ over them have dissapeared?
also, one might assume your screen name of 3b denotes your apartment number and might I suggest that just because you want the market to tank so you can afford to own, don’t count on it, get out and start looking for something you can afford or feel better about renting for now but don’t beat a dead horse in the hopes it will live again. Could the market decline? yes. But will you make it happen? No!
BDM (20)-
Don’t trust what you see at the free section of the FEMA website. These flood zones are constantly updated, especially in that area. I believe there is a “paid subscriber” section at FEMA’s site where you can get the most current info.
The only thing you can ultimately rely on is the flood cert that will be ordered by your attorney. I’ve had several prospective homeowners in that area get a big pre-closing surprise over the years.
I’d also try to find out how many times that house may have flooded. There are parts of Green Brook that take on lots of water, even though they may not be classified flood zone. The whole town below 22 was underwater during Floyd.
As for the school, what can I say? I highly encourage a personal visit. All these “rankings” are complete baloney. I don’t understand why people rely on them. I can assure you though, that I’ve gotten more squawk on that school not performing up to its rep than any other “top” district in which I sell.
JLB, you said, to 3b:
also, one might assume your screen name of 3b denotes your apartment number
3b is shorthand for “bergenbubblebust” .. his original userID
Also rates are irrelevant to many. Someone had a five year IO baloon 100% financing with a teaser on a 600K house. Time is up, bank wants whole 600K amount back and now house is worth 500K, owner will need to pay 100K at close so as not to be in negative equity and a couple of thousand in closing costs just to re-finance. But even better they no longer qualify for 100% financing as banks are smarter and the banks wants 10% down so they need in that case the 100K plus 10% of 500K to close or 150K to be in a nice confirming 30 year mortgage or they are back in subprime. Even if the confirming mortgage went to 4% the bozos are still cooked as they can’t get those zero down baloon loans anymore.
70#
I think you are too much on textbook stuff. Fed looks everything. 10 year and overnihgt are in sync over 99% of time.
some really good continued discussion re: buyers’ income over the weekend…
This issue seems to me the only real unknown left in the equation. No one can deny the massive inventory spike, drop in transactions or credit tightening. All of these point down.
High and rises incomes provide the only possible support for this market. To the extent that this ship isn’t going down as fast as one would expect given the swath of negatives, I don’t see what other explanation there is.
I would love to be proven wrong on this and I expect we’ll know the answer by the end of the year
#45 SG Keep in mind that there was no funky financing back in 1987, people had to qualify for a mortgage,
Take a look at this article from Time magazine in 1989.
A “risky loan” in 1989 was a run of the mill adjustable rate mortgage with a 20% down payment.
If you read the full article, it talks a lot about first time buyers being priced out and the challenges of saving for a down payment. While a 1989 buyer may have taken a hit on the value of their home, they had real skin in the game and most likely maintained positive equity.
Gimme Shelter
http://www.time.com/time/magazine/article/0,9171,957117,00.html
February 27, 1989
Almost from the day they were married eleven years ago, Chuck Dribin and his wife Alice Eysenbach began salting away savings toward a home in suburban Chicago.”…. “Every time we saved $5,000, interest rates jumped and we needed $10,000.” Even with a solidly middle-class income, Dribin and Eysenbach, 39, a part-time teacher and actor, wondered whether they would ever be able to unlock the door to home ownership.
They finally managed to do so by lowering their expectations, accepting family help and taking out a riskier form of mortgage. With a $15,000 contribution from their parents, the couple scraped together about $25,000 for the down payment on a $117,500 three-bedroom home that they bought last September … To finance the deal, the family took out a 7.75% adjustable-rate mortgage that can jump as much as 2 percentage points a year if interest rates move up rapidly. “It’s a little chancy,”
…
“The first-time home buyer is virtually priced out of the market in many parts of the U.S.”
…
State governments have taken the lead in giving first-timers some help with financing. Earlier this month, Michigan Governor James Blanchard proposed the first state plan to help future home buyers save money for down payments. The program, which Blanchard hopes to begin this summer, will allow state residents to buy bonds that not only pay tax-free interest but are also guaranteed to keep up with housing costs. For example, a family that wanted to buy a type of house now costing $75,000 but likely to climb in price to $105,000 in five years would invest $8,820 in the bond program over that period of time. The interest would boost the family’s investment in five years to $10,500, enough for a down payment on the $105,000 home. If the price of the house were to climb higher, the state would nonetheless provide the family with the down-payment amount that it needed.
[74]
In a normal interest rate environment with a normal increasing yield curve as you go out on the curve, there are benefits to getting an ARM over a 30 yr fixed. However, when the curve is close to being flat, that benefit pretty much disappears so one can infer that if you purchased a home in the past few years with a ARM loan, it probably was not the best decision.
For the most part, these loan options (IO, POA,etc.) have be around for a while but have reserved for borrowers considered to be more financially savvy (i.e. prime borrowers). During this boom, lenders began making this products available to borrower’s down the credit grade (Alt-A and subprime) which may not have been their benefit.
#75
Green Brook, Stirling, Gillette seem to have a significant number of Beavus and Butthead types. I don’t know how they can carry a mtg on their pos since they seem unable to pay for a toothbrush and semi-annual haircut.
I’ve noticed the same in Bernardsville Boro.
I’m growing less and less enamored about Warren. Watchung also is not as nice as I thought. Especially around Watchung ave.
#79 Skep-tic: it is not just income related, I truly believe that the old indicators are just that old. people are changing their idea of success and it doesn’t always include paying off your house anymore. many people are seeing their goals in a dynamic way and you are seeing that in their financing decisions and investment decisions. even if someone bought and got stung by a reset they can absorb that small sting in the face of larger gains in stocks and income and rates are still low
#82 jlb: The new paradigim huh? I think you are deluding yourself. You do know that this eun up int he stock market was not retail driven, I hope.
You sound like a recent buyer, trying to justify your decesion.
SG #45,
Great post. I agree with what you wrote.
#81 Like I said, thery were the exception, not the norm. In the last few yaers many people were usingt hese things, we are seeing the results of that now.
#81 2010: you are assuming the motivation of the buyer and that is a variable hard to plot. I do it (just did with 3b actually) and everyone does but “ASSUME=makes an ass out of you and me.”
#87 Just not buying your new paradigim, its different this time, and all of the rest of it.
#79 Only if the incoemes are there, can we not argue that the inventory should not be? What changed?
#78 ????????????
#84 3b: you scare me as you strike me as the type of person who might not realize there is such a thing as a global economy. some of what you say makes no sense and maybe you are just sitting in a cubicle pissed at your miserable life and looking to vent it out on people who genuinely care to share ideas but the reality of this world most of us live in is that there are many ways to get from point a to point b and many people do it different ways, get it?
#83 JLB
You are mistaken. THE AVERAGE Baby Boomer has about 50k set aside for retiremnt. That would barely cover a 10% hit on a pos cape.
Do you remember all the talk about the new paradigm in the late 90’s tech stock market bubble. The shills started hyping real estate after that party ended.
Anytime someone says this time its different. They are right. It will end badly in a differnt way and take some new flesh who are financially illeterate or fraudalent with it and unfortunately will probably impact financially responsible people as well in the form of layoffs, crashing propert values, and some kind of gov bailout for lenders and probably bagholders.
“even if someone bought and got stung by a reset they can absorb that small sting in the face of larger gains in stocks and income and rates are still low”
L-O-L
Yes, they are all smart investors.
JLB– not convinced that most homebuyers are so strategically minded. What is so smart about tying up such a huge amount of money in an illiquid asset that historically underperforms far more liquid vehicles over the long term by a wide margin?
On the contrary, I think some smart people keep on buying because they’ve resigned themselves to the idea that the price of admission in the tri state area is high, and they plan on being here for the long term so they bite the bullet. They are seeking permanency; they figure that they can afford it and it will all work out in the end. The people who are levering up to buy a home in the hope that the home itself will make them rich are truly delusional and are the ones facing foreclosure right now
Salaries are not the issue. People at every salary level bought more then then can afford and stretched to the max. Otherwise how can you explain 900K houses in distress. Last crash it was more of the POS cape with 10% down that joe six pack with a stay at home wife lost when the ford plant shut down. This time it is a guy with a six figure salary on a 100% IO purchase who should have paid 800K but paid 1.2 mil and is in over his head caus the bank let him.
Here’s another little-talked about situation: most bagholders folks seem to think that the premiere towns in NJ don’t have anyone that took out I/O risky loans.
Well what happens if there’s one in Ridgewood … and the bank has to take that bad boy over. You do realize the whole block gets nuked because the real value of the house comes out … and housing values in the neighborhood go south, right?
This just gave me an idea … wouldn’t it be great to know, before you buy, if your neighbors used i/o loans?
#92 bairen: Listen, there are people that will take a hit and I have said there might be a decline but I don’t believe that every person that took a loan out other than a 30 yr fixed is doomed to dumbness and made a poor decision. some will lose some will gain and some will remain the same. The paradigm is changing as tech did–not to say there won’t be hills or mountains along the way.
#93 Big window: Did not say they were investors or that it was smart, just pointing out that some people will be able to absorb the shock and it is not all downhill for everyone that gets hit with a reset
#91 JLB: What does the global economy have to do with the price of a cape in Bergen county?
I am not pissed off at any body,e xcept those who think they know it all,a nd talk babble about it being differeent this time, and ignore the litany of serious problems the state of NJ is facing.
I am not blowing you off, but I have heard all of this before,and unless you have lived through a crash, please do not tell me how and why it is different this time.
You give yoruself away with your comment, about the “small sting” in reset rates, small sting?
Then of course in typical bull fashion you a attack with the miserable with my/our life comments jealous, and all of the rest.
I do not have a problem with a differecne of opinion, but when it is just rhetoric, well thats all it is.
#91 JLB
There has been a global economy for over 2000 years. Why do you think the Romans were expanding the empire? Why were the europeans fighting over colonies from the Renaisance to WW 2. For trade purposes. The leaders may talk about king and country or making the world safe for democracy, but the sad truth most wars or other international “exploits” were for trade.
What is new is that the well paying industrial jobs are disapperaing from the US, now the same is true for a lot of office jobs. they are moving to India or the sunbelt.
And as I’ve said before, I really doubt that the family or individual who has either obtained the educational level or business savy to support a real mtg on a 600k house is so clueless as to buy a pos for 550 to 600k?
No. They will vote with their feet. There are 49 other states to chose from.
Combine that with cheap money, liar loans, arm resets, huge prop tax increases and NNJ is going to get hit hard. Did i mention that thestate of NJ has about 5k in debt for every man, woman , and child who has the honor of residing here?
#97 JLB– you are making a good point that the real issue here is whether most recent buyers could actually afford their purchases. Much of the epic crash theorizing is based on widespread distress. It may happen, but such an outcome is not necessarily destined.
scribe (66)-
Much as you’d expect, the sellers were late-2004 or more recent. Right now, none of the sales are terribly short (none more than 12K), but the lenders still have seen that there’s no more to be wrung out of the deals. That’s why they are going through.
However, some of my guys have a new gang of prospective sellers in the pipeline who are in far deeper than the people we’ve recently helped. My take is, ti’s only going to get worse…and the short sale activity should closely mirror ARM resets on 2005-06 vintage loans. These people seem to being going bust the damn second those loans reset.
but the fact is that to assume everyone that took an adjustable wasn’t planning for a reset or using their “extra” liquidity to generate income with an eye to a reset is to assume all people are idiots
ARMs & especially I/O loans & Option ARMs & no/low doc loans, have always been available to the small percentage of sophisticated buyers (probably less than 5% based on historic utilization of these loans) who understood the risks and made an informed decision to accept the risks so that they could free up cash flow for alternative investments.
Now these loans make up the majority of originations. Either the majority of the population has suddenly become savvy investment bankers over the last 5 years, or people are stupidly taking these loans to stretch affordability.
#3b and Bairen: oh my, are you saying the global economy has nothing to do with the US economy and hence housing? Do you understand the difference between the current global economy and 2000 years ago? we aren’t talking about wars here, we are talking about exchanges and progress. Start paying attention to reality and realize that it is time to get a skill as the future of this country is highly skilled labor or this country will lag. Instead of arguing the 10yr vs. the fed fund learn what they do and how they may be impacted by happenings outside of your apt.,block,town,county,country! If you have children stop espousing your negative view (about jobs moving offshore) and start listening to what makes sense going forward as they need to get a SKILL that will allow them to own a home if they want to. 3b–even people who haven’t lived through a real estate crash or the depression, etc. can understand how to go forward with a review of history!
As always, the truth lies somewhere in the middle.
Sure, there are a handful of savvy investors that used ARMs or I/Os to their advantage. Likewise, there are some percentage that were completely duped by their lenders, true cases of predatory lending. Also, some percentage that knew there was risk, but threw caution to the wind, and the remainder who simply didn’t care. Idiot borrowers? Check. Savvy borrowers? Check.
jb
>>Adjusted for inflation, home prices in the NY metro area are down 3.74% in the past year
what exactly does adjusted for inflation mean to the average wanna be homeowner? anyone getting those annual raises far outstripping inflation to make it worth your while? anyone getting much above inflation in the bank on your deposits after paying taxes? $100k borrowed at 6% over 30 years is $600 a month, less with the interest rate deduction. not very much money these days. these small moves in prices mean little IMO.
#104 Thank you JB because that is my point that there are both out there and you just can’t pool everyone into the idiot borrower category.
>>#33 JLB: Give it time, this thing is just really getting started. Watch it all unfold over the next 12 months or so.
been hearing this for how many years now? always the first and last response of the bubble believing masses. every year just repeat after me….year XXXX give it time, in the next X months it’s all going to crumble.
[rant on]
I’m getting really sick of people on this board referring to every house that sells for under $800K as a POS. POS cape. POS ranch. For years, perfectly normal people raised perfectly normal children in these houses you are calling a POS. Even now, people are raising children in these houses you call a POS.
One of the reasons the market is in the mess it is now is that too many people decided that a modest house is by definition a POS and that they simply MUST have a 4000 square foot house with a bridal staircase, a master suite with tray ceiling and a jacuzzi tub, and a home theatre.
For all that people here jeer at those who have granite counters and stainless steel appliances, take a look at what you’re branding a POS. If snobbery is a disease, you’ve got it too. And I’ll tell you a secret, folks: my sister is a realtor in the very areas of NC many of you are hoping to move to — and down in NC, they do not much care for this attitude — nor the aggressive driving and rush-rush-rush that New Jerseyans are taking with them when they go. So if you’re going to take your POS attitude down there, you might as well buy the ostentatious McMansion here that you can’t afford — and live around people as obnoxious as you are.
[/rant off]
#103 jlb: again it is more rhetoric on your part. What does having a skill have to do with the price of a cape in NNJ?
Why is our state not creating jobs?
The 10 year the Fed,all impact the housing market, should we not discuss those?
How do we justify prices doubling in 5 years?
Is our state an attractive place for business ot grow and prosper? Apparently not.
What do we do about property taxes increasing by 40% and more in many North Jersey towns over the last 4 years? Get another skill?
#103 JLB,
2000 years ago the global economy was backed by gold and silver. We now use a fiat currency run through a printing press backed by faith n politicians.
3b: Please give me the webster definition of rhetoric, no let me supply your definition “anything you don’t agree with”
Absolutely, talk about the 10yr, Fed fund rate and anything else you want but just know that there are things that impact housing other than just rates.
One of the skills you might consider if your issue is property tax hikes is using what technology is available to streamline some of the state stuff that is being done by endless workers that cost a fortune to support in retirement. Less state workers means less state salaries and less pensions down the road. Oh crap, I hope you aren’t a state worker 3b, now I would really feel your rage, huh?
Jill (108)-
It’s not the ask/sell price that gets these houses labeled POS. It’s the disconnect between price/value.
“POS Cape” is actually a Realtor term that’s been around for years…long before this blog was even a glimmer in young Grim’s eye.
bairen: it’s called the “Emperors New Clothes”, get used to it and get some skin in the game, OR just continue to live in your history books and lament the good old days.
RentinginNJ: A “risky loan” in 1989 was a run of the mill adjustable rate mortgage with a 20% down payment.
One more point for late 80’s boom/bust. From above observation, one would assume the bust would have happened when ARMs would have resetted to higher value. If you see the Interest rates from 1989 to 1992, 30 year fixed rates declined from 10.21% to 7.31%. So, definitely ARM’s reset should not have caused any heartburn.
I think all quantifiable statistical data such as Interest rates, Unemployment etc… can be accounted for but the unknown factor is Psychology. I think the boom from 2000 to 2003 can still be quantified, but from 2004 Psychology took over. This is were fundamentals were abandoned. I do understand teaser rates & I/O mortgages were new products that excerbated the issue, but so far I have not seen any numbers of large scale abuse in NNJ area. You will definitely have 20% or so cases.
I think if we profile buyers who paid premium from 2004 to 2006, you are going to find majority can survive Interest rate hike as Incomes are also growing slightly. The main issue with them was that they got caught up in euphoria and kept feeling that they are being left out of the biggest bull run.
I am bearish on RE for next 2 years, but just not as much as many on board think.
Oh great…another troll.
#108 Jill: Speaking for myself, when I describe a Cape as a POS, or colonial or ranch, it is not a reflection on the style, or the size.
In gfact I am a fan of the 4 bed cape,2up, 2 down.
The term POS for me any how is based on 40+ year old kitchens and bathrooms, old electrical (fuse boxes) old plumbing, old drafty windows that do not open, 30 year old roofs, cracked and decaying drive ways.
Old beat up carpeting, wood floors that have not been refinished, a single light bulb in the basement. etc. etc.
And finaally moldy smelly, and just a general lack of any kind of pride in the hosue by the people who lived there.
And for this I am asked to pay 500K, that Jill IMHO warrants it being called a POS.
RE – many of you are hoping to move to — and down in NC, they do not much care for this attitude.
NC is for losers!!! Red Lobster is seafood, Olive Garden is Italian Food and Fast Food is really slow food as the toothless server ain’t moving so fast.
Other than retired cops and firemen and post office workers I don’t know any six figure teacher, doctor, lawyer or wall streeter who moved there. Plus who wants your to send your kids to second rate school and have them marry into some born again or southern baptist religon just so you can save 5k a year in proprty taxes. Of course people drive slow down their even their mobile homes don’t have wheels and if you got to get your car off the blocks on your front yard you ain’t getting no where fast.
“been hearing this for how many years now? always the first and last response of the bubble believing masses. every year just repeat after me….year XXXX give it time, in the next X months it’s all going to crumble.”
Richard,
Just listen to yourself. That is of course, pre capitulation.
#111: JLB State wroker, far from it.
What does a state worker and streamlining his/her job skills, have to do with the price of a cape in NNJ?
Am I to believe than that you are saying if we employ the use of technology better,that will somehow justify the increase in prices?
Skin in the game? Like all the people who bought with no money down? Do they have skin in the game?
Like I said rhetoric.
Ignore history at your own peril.
#107 Ricahrd: Bubble believing masses? I thought we bubble belivers were the minority? Certainly not the masses.
And lets not forget up until a year ago, you were one of us
One of the skills you might consider if your issue is property tax hikes is using what technology is available to streamline some of the state stuff that is being done by endless workers that cost a fortune to support in retirement. Less state workers means less state salaries and less pensions down the road.
JLB,
What happens to those laid off government workers? Whether we like it or not, state and local government employees are a major player in our own state economy. We can’t simply eliminate these positions without a corresponding impact to our economy. Not to mention the massive political implications here.
Did you see the uproar in Newark from the layoffs proposed by Booker? The originally proposed 1,000 cuts have been whittled down to 400. Even at 400 people are screaming recall.
If it was so easy to scale back big government to cut property taxes, it would have been done already. We’ll see meaningful progress towards solving the state budget issues and pension liabilities when the state is facing bankruptcy.
jb
I’m getting really sick of people on this board referring to every house that sells for under $800K as a POS. POS cape. POS ranch. For years, perfectly normal people raised perfectly normal children in these houses you are calling a POS
Jill,
I understand your rant, however I think that you may be misinterpreting the intent behind labeling a house a “POS cape”. It’s not snobbery.
There is absolutely nothing wrong with a starter cape. It’s a perfectly acceptable form of housing. Many of us were raised in smaller houses and/or live in smaller houses today. At the right price, a starter home offers many people a great opportunity to get on the property ladder, without getting in over their head. At the right price, it offers other people a chance to own a home rather than rent forever.
The “POS” label isn’t so much a knock on a particular type of home, but rather the value that these homes offer in today’s market. A $450k starter cape is simply not a good value. That’s too much money for what you get.
For about $15,000, a Toyota Corolla is a solid, reliable and affordable form of transportation. Nothing wrong with it at all. But if Toyota jacked up the price to $40,000, it would be a POS Corolla. Same car, the price difference makes one a good value and the other a POS.
Starter capes (along with the rest of the lower end market) get picked on here because it represents the worst value across market right now. Whereas in a normal market, first time buyers board the property ladder on different rungs, the exorbitant cost of housing has meant that more and more first time buyers are fighting over starter capes. As a result, starter cape prices have tripled in many places, where high-end homes have gone up maybe 80% – 100%.
#121 JB: there in your comment lies the reason NJ will always having rising property taxes, because we are apathetic. We like to complain that our taxes are high but we don’t want to push for resolution which would require the pain of some job losses but how is a state worker any different than a Dell employee whose job goes to India. These people are costing this state a fortune because we are too apathetic to require them to get schooled and skilled to fit into dare i say it, a new paradigm.
#117 &3122
john and JLB. nice way to stereotype Has either one of you been to NC? Do you know that in the lots of sections about half the people are expats from the Northeast? Why don’t you pick up a phone book. You would be amazed at the number of evangleical, baptist, and charismatic churches there are in NNJ.
bairen: I was born there!!! so that would be a yes to your question. and expats now refers to people from the northeast? BTW, google works as well as a phone book in 2007! I know they didn’t have that new fangled thing 2000yrs ago.
what does POS stand for?
#122
i think it is not fair comparison to cars with houses. some parents may want to sacrifice the confortability for desirable school systems.
JLB Says: #113
July 23rd, 2007 at 11:54 am
“bairen: it’s called the “Emperors New Clothes”, get used to it and get some skin in the game, OR just continue to live in your history books and lament the good old days.”
What are you talking about? The “Emperor’s New Clothes” showed how people were fooled into believing something that was obviously false. Do you mean that the new paradigm = The Emperor’s New Clothes?
This blog makes for great reading sometimes. I wonder, would it be worth it to quit my job so I can read full-time?
Drew (#126) POS= piece of s***
Syn (#129) I agree!
there in your comment lies the reason NJ will always having rising property taxes, because we are apathetic.
Apathy may play a part, but just as problematic is the fact that government employees vote. Would you willingly vote yourself unemployed?
We like to complain that our taxes are high but we don’t want to push for resolution which would require the pain of some job losses
Again, it’s the political issues that need to be overcome. Realize that there is no ‘problem’ that needs to be ‘solved’ here.
jb
#125
I doubt your claim. Anyone who thinks 550k for a pos is jusified is unreliable. The effiecient maret theory for stocks is bunk.
Studies: Stem cell, open space borrowing mean big debt hike
7/23/2007, 11:19 a.m. ET
By TOM HESTER Jr.
The Associated Press
TRENTON, N.J. (AP) — Gov. Jon S. Corzine has spent months arguing the state must tackle mounting debt, yet supports plans to borrow $650 million for stem cell research and open space preservation that new studies show would mean a “significant” debt increase.
Under plans approved by the Legislature, voters would be asked in November whether to authorize borrowing $450 million for stem cell research and $200 for open space preservation at a cost to taxpayers of up to $52 million per year.
…
Studies by nonpartisan legislative staff have found the stem cell and open space proposals “would, over time, result in significant debt service costs to the state.”
…
The Office of Legislative Services analysis estimates the stem cell plan would increase state debt by as much as $37 million per year.
…
New Jersey’s debt has nearly doubled since 2000 to about $30 billion total and will cost the state about $3 billion this year, or about 10 percent of the state budget. And a state report released late last year found New Jersey was the nation’s fourth-most indebted state, behind Massachusetts, Hawaii and Connecticut.
#133
The gov was in Singapore about a year ago trying to get Singapore to invest in medical research in Jersey. Too funny.
#128 Emperors New Clothes and monetary systems, get it?
#131 JB: Listen, would I like to be unemployed, no. BUT, unfortunately, in a capitalist society (and I hope we all agree that is what it is) we need to justify ROI and I don’t see how our state’s antiquated is working to generate a return so any CFO would have to work the numbers or get a new job. IT is time for our elected officials to be reminded they are just that elected and if they have a crooked nose go get a nose job. we as the voters (not an individual state worker, but tax payers en mass) need to start complaining the right way.
#67 – Come on down to Highlands/Atlantic Highlands where some pay in excess of $12K for a townhouse or condo and new home construction will net you a nice $23K tax bill.
Speaking of ‘low’ interest rates, there’s definitely things that can happen to force them higher. What if China decides for whatever reason to stop taking dollars for their exports? What if the petrodollar becomes the petroyuan or petroeuro? When the demand for dollars goes down and the supply stays the same (or goes up), that’s textbook inflation, demanding a textbook raise in interest rates.. So that cheap $600/mo for 100k (which, btw, turns into $3600/mo for a “starter” 600k home, which is outrageously overpriced for a standard ‘25% of net’ nut) at 6% becomes an alligator at 9% or 12%? Doesn’t affect you immediately if you have a fixed rate, but it affects new entrants, demand for properties, etc..
Frankly, I’d rather rent at prices the rental market can bear (which are comfortably below 25% of my net, enabling me to have more space for a little more $) and wait for prices to return to the historical norm, somewhere that doesn’t continue to ram the tax fist in deeper and deeper every year..
#139 Was in response to another post, I guess it was yanked.
On another note, JB, Rich or tbw, could you give me the details on the following njmls listing #2729795. Thanks in advance.
Listen, would I like to be unemployed, no. BUT, unfortunately, in a capitalist society (and I hope we all agree that is what it is) we need to justify ROI and I don’t see how our state’s antiquated is working to generate a return so any CFO would have to work the numbers or get a new job.
You are preaching to the choir here. I don’t think you’ll find anyone here that thinks that the state and local government aren’t bloated and filled with graft and corruption. However, don’t be so naive to think that change comes so easily.
The solution is easy, I said it before. Gut and consolidate. Unfortunately, implementing the solution borders on an impossibility. Unless, of course, the state is facing consequences so dire, that the solution is the only possiblity. Only then will you see changes made.
jb
#7
Prices went up by 300% in the past 6 years and they’re down 3.74% in the last year. What a decline!! Weeeeeeeeeee
Throw my $.02 in on the POS definition of a Cape/Ranch. To me, there has to be a certain amount of decay to the house, bad remodeling/renovation, tacky or very out of date decorating (this is 100% subject. BTW, it’s amazing to see how much 50’s/60’s/70’s vintage furniture is in museum quality condition.)
Yes, the layout of a cape can be debated. But, it worked for the time period it was built.
Ok, let the bashing, flame throwing, stoning, etc. begin.
JM
Let’s all just admit that NJ is a blue state split between two classes of residents. One portion is encased in poverty and supported socially and the other portion are residents that can afford to be democrats and overpay in taxes
Prices went up by 300% in the past 6 years and they’re down 3.74% in the last year. What a decline!! Weeeeeeeeeee
What is your source for the 300% figure?
jb
JLB (143)-
That leaves about 5.5 million people in NJ who take it in the shorts daily from both of those groups…often at the same time.
Let’s all just admit that NJ is a blue state split between two classes of residents. One portion is encased in poverty and supported socially and the other portion are residents that can afford to be democrats and overpay in taxes
It certainly appears headed in that direction.
Then why don’t those 5.5 million people vote for a NEW New Jersey?
I guess you’re being sarcastic.
In my case, I don’t even need to do any calculations since my company gave 0 raises last year.
#6
At least we’ve all gotten raises to keep pace with the housing price, property tax, food, energy, education increases. Othewise I would be concerned and spend part of my day lurking on housing bubble blogs, or at least re report.
From MarketWatch:
Housing market ‘wilting in the heat’
Home builders had hoped the spring would provide some relief to a troubled housing market, but that key selling season has been a bust and demand has weakened even further so far this summer, Wall Street analysts said Monday.
“Our recent conversations with builders around the country find that housing demand has continued to wilt in the summer heat, with conditions sequentially worsening in the past four to six weeks,” wrote Deutsche Bank analysts Nishu Sood, Lou Taylor and Rob Hansen in a research note.
“Pricing pressure persists, with many markets in list-price reduction mode, as builders struggle to find demand that continues to slow as a result of mortgage-market contraction,” they added.
Economists are still trying to get a handle on the fallout from the subprime-mortgage meltdown, which is hitting consumer confidence in every link of the housing chain and almost wiping out some hedge funds that made bets on mortgage-related debt.
With the resulting tighter lending standards, fewer buyers are qualifying for home loans, which is one reason why cancellation rates have surged. Rising mortgage rates are also taking a bite out of demand.
JLB (147)-
You can’t vote out appointees and gov’t paper-pushers.
Let’s face it. NJ is a hopeless Welfare
State. JB give an example. They call
for a recall in Newark when Booker tries
to balance a budget.
The payroll was loaded up by Sharpie, who
now may go to jail
Trenton, loaded with payroll as well, city
and state.
it goes on and on.
And the Gov. wants to sell the turnpike.
He may get away with it.
Re: If you got a zero percent raise, what are you doing about it? Unless you are overpaid already you should be taking courses to improve your current career, training for the next career and networking. If you take zero percent and don’t quit or cause a fuss, why should the boss ever give you a a raise?
Bubble Disciple Says:
July 23rd, 2007 at 1:18 pm
I guess you’re being sarcastic.
In my case, I don’t even need to do any calculations since my company gave 0 raises last year.
“Then why don’t those 5.5 million people vote for a NEW New Jersey?”
Why, because NJ voters are masochists. Look up “apathy in the dictionary and there you will find a picture of your NJ voter. Look in the mirror people, the face looking back at you is the problem.
The worst homedebtor of all is our own state gov’t.
Selling off valuables at a pawnshop, just to cover the nut for another 30 days.
It’s an easier sell than cutting payrolls and consolidation.
jb
NJ will not remain apathetic. The first step is when we lose congressional muscle and the rats can’t get their big payoffs because they don’t have as much influence and then they all go to NC and we get our state back. Ahhhhh, I feel better already.
Oh and just in case you missed it Inman has an article that NYC apt. prices went up, wow what a crappy market.
Jill,
The term POS has more to do with the wildly inflated prices of the older houses.
When my mother was still living, she was a great fan of the bubble. One of her hobbies was following along with that column in the Star Ledger on houses bought and sold. Any time she saw a local street address, she’d take a walk and look at the house. Her universal response was always something like: “$350,000 for that piece of cr*p!”
It wasn’t that the houses were bad houses. It was that they were older houses that just a couple of years earlier had been selling for maybe $125,000 or $150,000, where all of a sudden, the prices had more than doubled.
And, for that much money, it wasn’t that much of a house. For $125,000, it was OK. But for more than $300,000 – clearly overvalued, given the age of the house, the size of the house, the work that was needed to upgrade – nothing special that would warrant that kind of huge increase in price.
Hope this helps to clarify the use of the term POS or POC :)
154
Really mimics addictive behavior.
here is an example to support my theory that the premium towns will hold the price:
two houses almost identical and next to each other in westfield. 808 columbus drive has a slightly better location than 804 and slightly higher zillow estimated value.
808 sold on 11/7/2005 for $630K
804 sold on 3/7/2007 for $726,750
#153 nwbergen: Most people do not want to admit it is a problem, so they ignore it.
We are close to NYC, so people will always want to live here, etc. etc.
It is near impossible to have a rational conversation with people regarding many of these topics. Talk about group belief.
I swear I soemtimes think I live in a cross between the former Soviet Union,and insane asylum.
And believe me having a differeent opinion is not appreciated or even tolerated.
A small group set themselves up as the arbiters of what can or cannot be discussed, or more importantly believed. you have 2 choices, go along to get along, or be silent.
#159 JB: Can probably produce an example from a premier town that will show the exact opposite.
“Housing market ‘wilting in the heat’”
…and falling with the leaves this autumn.
“Traders ask how low can the dollar go”
“At some point, the fall in the dollar will translate into foreign investors no longer buying US assets and selling their existing holdings,” said William Strazzullo, chief market strategist at BellCurve Trading.”
“A US economy growing more slowly than global rivals and interest rates rising outside the US while domestic rates remain on hold explain much of the dollar’s weakness. The greenback is also suffering anxiety over US credit and mortgage markets.”
http://www.ft.com/cms/s/e3dd78ec-3872-11dc-bca9-0000779fd2ac.html
One such POS in my town.
MLS: 2418497
“And a state report released late last year found New Jersey was the nation’s fourth-most indebted state, behind Massachusetts, Hawaii and Connecticut.”
Just shoot me. About one-third of my life has been spent in MA, HI and NJ. With $30 billion in state debt and climbing, isn’t NJ close to bankruptcy now?
Clot-
Can you enlighten me on the meaning of Sept. 1?
NJ NJ don’t have a frown
Housing prices will soon be down
Real Estate taxes will soon be hiked
Faster than the Jersey Turnpike
Subprime loans will be gone
Replaced by even more subslime loans
Take your POS capes and old run down ranches
your starters and your junkey splanches
Sell all those homes in poor condition
Before you are worse off than a RE on commission.
“Clot- Can you enlighten me on the meaning of Sept. 1?”
[166],
Clot, college football kickoff?
From the NJ Department of Banking and Insurance:
BULLETIN NO. 07-15 – STATEMENT ON SUBPRIME MORTGAGE LENDING
On July 17, 2007 the Conference of State Bank Supervisors (CSBS), the American
Association of Residential Mortgage Regulators (AARMR), and the National Association of
Consumer Credit Administrators (NACCA) issued their Statement on Subprime Lending. In
substance, this statement parallels the Statement issued on June 29, 2007 by the Office of the
Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System
(Board), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision
(OTS) and the National Credit Union Administration (NCUA) but it applies to entities not under
the supervisory authority of the Federal agencies.
The New Jersey Department of Banking and Insurance endorses the July 17, 2007
Statement on Subprime Lending and now issues its own Statement, which is attached hereto and
is also posted on the Department’s website at http://www.njdobi.org. All New Jersey licensed
mortgage bankers, correspondent mortgage bankers, mortgage brokers, secondary lenders, their
officers, directors and employees, and their registered mortgage solicitors are strongly
encouraged to review this Statement.
The Statement expresses concerns about adjustable rate mortgages with low initial
payments followed by a rate reset that can result in payment shock, particularly when the
borrower originally qualified for the loan based only on the low introductory payment rate. The
Statement addresses additional concerns relating to prepayment penalties, the absence of escrow
accounts that provide for insurance and tax payments, and the need to improve borrowers’
understanding of these products through enhanced disclosures.
Hats off to Goldman and the rest of the NJ DOBI for pushing through the statement in under a week!
jb
“At some point, the fall in the dollar will translate into foreign investors no longer buying US assets and selling their existing holdings,” said William Strazzullo, chief market strategist at BellCurve Trading.”
An alternative theory (proposed by itulip) is that foreign central banks will begin to devalue their currency in line with the US$, buying dollars and dumping their own currency on the market. The US remains the world’s largest consumer and most countries can’t afford to be “priced out” of the US export market because their own currency is too strong to sell competitively priced products in the US.
JLB,
re:#156
Interestingly, the median sale price in the “Luxury” market in NYC is down 10% from last year.
The average sales price of a 2BR was also down 6.8%.
boken (154)-
Mimic? Hell, it IS addictive behavior.
Permanently hooked to the gubmint teat.
Frankly, I’m shocked to see that the NJ DOBI has issued guidance in less than a week.
To give you a sense of timing, it took almost two months for the NJ DOBI to issue the Nontraditional mortgage guidance after it was provided by the CSBS/AARMR. It was issued by the CSBS in mid-November and was accepted in mid-January. The Subprime statement was issued last Tuesday.
jb
They say it can’t get worse
Than then the bubble went and got worse
NYC is going down
Faster than a trannies gown
Full statement can be found here:
http://www.state.nj.us/dobi/bulletins/blt07_15a.pdf
re:post 172,
refers to Manhattan specifically, not NYC.
#177 That is impossible, everybody knows that Manhattan is in a world of its own. Well isn’t it?
Orion (166)-
It’s my call for the date when a “tipping point” number of sellers realize things are on the way down, rush for the exits…and find all the exits blocked.
Then, a capitulation will follow that brings down RE 25-30% in value by this time next year.
“The US remains the world’s largest consumer”
For now. The voracity will gradually reduce.
“most countries can’t afford to be “priced out” of the US export market”
There are markets being created within countries currently exporting to the US.
One can only run deficits for so long before the cracks start to appear in the foundation.
testing
So if Manhattan prices are down, I assume that there must be a glut of inventory and it is very easy to find a 3 bedroom apartment, right?
http://www.nytimes.com/2007/07/22/realestate/22cov.html?ref=realestate
Donald (181)-
Every time you post, it is a test of human patience and reason.
“An alternative theory (proposed by itulip) is that foreign central banks will begin to devalue their currency in line with the US$,”
Renting,
That is certainly a plausible scenario, discussed often. Foreign central banks would inflate and use to purchase our dollar, to support ther export driven firms. It would be the race to devalue. There is only one winner in this game.
On the other hand, they recoginize that the US consumer is on life support. Do they prostitute their currencies to provide a small price concession to a tapped out US consumer? Very interesting balancing act.
What is the connection between new construction and high taxes? I’ve noticed even in towns with a lower than average tax rates that new construct means higer than average taxes.
BC (168)-
Sept. 1- UNC vs. James Madison, Kenan Stadium, Chapel Hill. The dawn of the Butch Davis era. He is gonna figure out fast that UNC is not Miami. And, the 2nd biggest sport on campus is women’s soccer.
I’m not re-arranging my weekend to be there.
Clot,
You are amking wild predictions that are never going to come true. 30% off prices by this time next year? Is something big going to happen next year to cause this? A terrorist act? Natural disaster? That is the craziest thing you have ever said to date.
#179 Clot: Stupid question ,mbut how shocked do you exepct potential sellers to be.
Believe it or not the numbers have decliend dramatically I think )and I believe that because no one talks RE any more for the msot part), but there are still a few I know that are in absolute complete denial.
Donald,
Do something productive. Get the NJRER thread unlocked on that Hoboken site.
Sellers in Clot’s market must be totally different than sellers in Bergen because I have spoken to many local sellers and none of them intend to drasitcally drop their price or “run for the exits.” They are ready to wait the market out. Practically all of the other homes for sale have been on the market in excess for one year. Some for as much as 3 years.
Donald (187)-
I made that call several weeks ago. I stick by it. Call me crazy, but I’m in front of sellers and buyers every single day. I’m not some blogosphere whack job.
BTW, something big IS going to happen. All the sellers are going to rush for the exits.
Clot, you’re starting to give me the jitters when you mention a 25-30% decline in prices. In absolute terms, it’s mind-numbing to say the least.
Will continue to remain an observant plankton…
“They are ready to wait the market out.”
Textbook version of market dynamics.
#141 Frank Says:
July 23rd, 2007 at 1:08 pm
#7
Prices went up by 300% in the past 6 years and they’re down 3.74% in the last year. What a decline!! Weeeeeeeeeee
Where?????
Show us a concrete example of one property that increased 300% in six years.
You are saying that the typical property selling for 400k in 2000 was selling for $1.6 million in 2006?
#192 It was mind numbing when it was 25% or more increases in a year. I think it will be refreshing on the down side.
“some really good continued discussion re: buyers’ income over the weekend…
This issue seems to me the only real unknown left in the equation. No one can deny the massive inventory spike, drop in transactions or credit tightening. All of these point down.
High and rises incomes provide the only possible support for this market. To the extent that this ship isn’t going down as fast as one would expect given the swath of negatives, I don’t see what other explanation there is.
I would love to be proven wrong on this and I expect we’ll know the answer by the end of the year”
The income of buyers does not matter that much because, as JB has said, most buyers already own houses and are looking to upgrade or downsize. First time buyers are very few in number in NJ. In a way, the income of the sellers will dictate prices because today’s sellers are tomorrow’s buyers.
“Wall Street can’t cage its mortgage monster”
“Today’s version of Frankenstein turning on its creator is the mortgage loan mess. Wall Street in recent years has taken a simple concept — bundling mortgages and selling them to investors as interest-paying bonds — and concocted an alphabet soup of securities so incredibly complex they defy understanding by all but a handful of PhDs.”
“Now, “as mortgage default rates go up, investors are going to find out that what they own is not what they think it is,” he said.”
“That is likely to be the unfolding story of the rest of this year and the first half of 2008.”
“The fire sale in mortgage securities has yet to begin. But it’s coming. The implications for the rest of financial markets aren’t clear, but when confidence is shaken in one market there usually is collateral damage.”
“Once again, Wall Street’s rocket scientists have created a monster they can no longer control.”
http://www.latimes.com/business/la-fi-petruno22jul22,0,4722028.column?page=1&track=ntothtml&coll=la-tot-business
#190 Waiting the market out for 3 years and still waiting? Talk about putting your life on hold.
Guess those people live on a street called Denial.
3b,
Prices never went up 25% a year. In 2005, the peak, they barely reached the 15% mark.
Another example to support my theory.
6 weeks ago, a couple in westfield (north side) put their house on sale on FSBO at $950K. They got 5 reasonable offers in a week. Now they raised the asking to $1025K.
“#190 Waiting the market out for 3 years and still waiting? Talk about putting your life on hold.”
Money dictates peoples’ lives and they will do whatever it takes to get money. If they have to sit for 5 years, they gladly will. The last time the builder who owns the house that has been listed for 3 years sold a house, it took him over 4 years.
#2 South Jersey sales down 13%; median price is up 5.8%. The article says the increase is partly due to newer homes coming on the market. That’s just silly. Why would there be more new homes now? What they don’t want to say is that fewer first-time buyers are buying, which skews the median price up.
Anybody is tracking East Windsor houses some of the houses I was tracking came down by 30K to 50K dollars in last 3 months. Can anybody tell me about the East Windsor school district.
#199 Not going to argue with you but in many BC towns they went up anywhere from 20% to 25% a year;there I clarified it.
And anybody that sits with a house for 4 years trying to sell it is uhmm….challenged. And of course he “made money” on it”.
dream –
Remember, there’s that statistic – that approximately one-third of homeowners own their homes outright with no mortgage.
Someone who bought a house at least 10 or 15 years ago can come down substantially to meet the market and still be way ahead.
3b (188)-
Believe it or not, I’m encountering more and more sellers who ruefully admit my argument has merit. I make that argument to someone at least once a day, BTW.
It is not out of the realm of imagination to assert that a market that’s gone up 100% in five years…and has corrected around 20% in the past two years (except in BC, Brigadoon and Cliffside Park), COULD correct another 30%.
Here’s one of a few typical potential deals I’ve got cooking right now:
My buyer and I are looking at 2BR townhomes; local community, nothing unusual. Four places on the market; one of the four goes under contract after 412 days-on-market and three price drops (down to 350K asking from an OLP of 410K). BTW, the unit under contract is perfect: spotless, stylish…a 10+.
So, with that home under contract, we check out the SAME model, NEXT DOOR…asking price: the SAME as the gorgeous one under contract. EXCEPT, this place is a foul-smelling, Rohrschach-wallpapered, festering POS that the now-deceased owner spent his last days in.
My client, being handy and willing to do the rehab work, comes in low (10% off list) three weeks ago. By low, I mean just enough to give him pricing room to do the fix-up and not have his improved value be more than what the market will currently bear (and no, he’s not a flipper).
Of course, the seller and his agent toss us a teensy little counter, then pretty much blow us off. I tell the seller’s agent that we are so convinced no one else will want this home that we’ll leave the offer on the table and simply wait for the place to withdraw or expire. I also tell the agent that we’ll then wait past the 90-day “protection period” then approach the owner’s heirs directly.
That was 14 days ago. Over the weekend, I heard back from that listing agent. Seems as though the heirs have had a “change of heart” and will now accept our offer.
When we get this deal through, there goes 10% off everyone’s value in that area.
So, how inconceivable is it that another 20% gets lopped off that level over the next 12 months?
OK folks, the average POS home in a good NJ/NY neighborhood was around 280K back in Jan 2000. On my little chart up till 2003/early 2004 we were able to handle 25% yearly increase. But compounding is a funny thing. If someone bought in 2004 for $683k did they really expect that in 2004 it would be worth over 1.3 million?
25% increases on a house bought 1-1-2000 for $280K
$280,000 2000
$350,000 2001
$437,500 2002
$546,875 2003
$683,594 2004
$854,492 2005
$1,068,115 2006
$1,335,144 2007
$1,668,930 2008
$2,086,163 2009
I do not have any first hand experience with East WIndsor schools, but NJ Monthly ranks Highstown High School at #119/316, which isn’t that great.
http://www.njmonthly.com/topschools/hslist2.lasso?-KeyValue=121
Robin,
I live in central Jersey and is not surprised that they reduces the asking tag by 30K to 50K if it is $600K house. There have been a lot of development in East Windsor, Monroe and nearby townships in recent years. I heard that the EW school distritt is goog and getting improved in recent years. But the higher ranked districts are West Windsor-Plainsboro, Princeton,South Brunswick and Montgomery in the area.
“And of course he “made money” on it”.
The guy is a builder. That is his job to make money by selling houses. If he did not make money, then he would not have had the resources to build his current McMansion. He originally started out at $2 million and now he is down to just under $1.5 million. I assume you are going to go look the house up…..
#206 moderated.
“Someone who bought a house at least 10 or 15 years ago can come down substantially to meet the market and still be way ahead.”
But it does not mean that they are going to come down to meet the market. I sold an apartment in Manhattan with no mortgagae and I was the most stubborn seller in the entire building. I think I came in at #2 for the longest time on the market.
RE:Sept 1 – “I made that call several weeks ago. I stick by it.”
Completely agree, there was a big shift in thinking last year in the houses I was looking at after Sept 1st. All the people that were too proud or too stubborn began to drop prices significantly.
Labor Day/Sept 1st is the time when people finally realize “oh crap, if I don’t sell my house now at the end of the summer, my prospects are bleak until next spring as the market is much slower in the winter.”
I’ve been thinking it as well, hopefully I’m right as this market is stuck in purgatory and will be until someone blinks first, and it sure looks like there will be enough desperate sellers that will blink first and affect the whole market.
“When we get this deal through, there goes 10% off everyone’s value in that area.”
Why would the sale cause everyones’ value to drop 10%? You just said that the place was a POS dump and the other one was top notch. Anytime a place is a dump it will sell for less than places that are fixed up. DUH.
Donald,
re:#182,
I’m just reporting the facts. I never said that 3br’s went down in price.
Or do you think I’m making these figures up?
(214)-
That’d be the case if this place were being marketed as a fixer. It’s not. It’s being put out- and is asking-priced- just like the nice ones.
So, when it closes, it will become the new comp.
Just like with bankruptcies and foreclosures that take down comps, nobody asks questions once the deal- and damage- are done.
BTW, the market goes up the same way, too. A guy with a gorgeous place gets his number, then the neighbor with a POS asks the same…and gets it.
What goes up, must come down.
Why?
Because it becomes very difficult to defend an appraisal when there is a recent comp with significantly lower value.
jb
#206 Clot: Thanks for the continued update.
“Labor Day/Sept 1st is the time when people finally realize “oh crap, if I don’t sell my house now at the end of the summer, my prospects are bleak until next spring as the market is much slower in the winter.”
Last Labor Day sellers did not get desperate and the same thing will happen this Labor Day. If a home has been on the market this long, then the seller is not desperate. Those who are desperate already got foreclsoed on or sold.
Hey Don that was a nice price list you posted last week. Keep up the good work.
“Because it becomes very difficult to defend an appraisal when there is a recent comp with significantly lower value.”
JB,
This happens all the time. In an old apartment building, you will have sellers who did nothing and sellers who totally gutted the palce. That explains the big difference in price.
Let’s take Hoboken as an example. You have comparable brand new condos selling for significantly different prices. Why? Because one has a NYC view and the other does not. Obvivously this difference is not hurting owners in Hoboken. If a buyer goes to a seller of a condo with a view and says that unit # XXX (which does not have a view) sold for $150,000 less, the seller is going to laugh at the buyer.
test
Bi and Donald
Thanks for the reply I checked the school rankings of the other towns in Central Jersey.
South Brunswick 75
Monroe Twp 106
North Brunswick 130
New Brunswick 302
I used to think these were blue ribbon schools. Seeing these numbers East Windsor’s(Highstown) ranking of 119 seems in line with these towns.
Off-course I intentionally omitted Plainsboro and Princeton
Donald,
I think you might be misunderstanding what “comparable property” means.
jb
#206 Clot: who pays you a commission, why would you leave an offer on the table, why not reserve the right to come back to the table with a lower offer? Something about that story does not sound true, would you be making it up?
Donald,
Yes, let’s take Hoboken as an example. A recent gut renovated unit in my building sold for significantly more than any of the recent comps (as it should have). But now suddenly lots of others are listed their non-renovated units for the exact same price as the gut renovated one. No better view, no nothing. Just more $$$$.
#224 JB: I think Donald makes a valid point. Comps can be very subjective and it is easy to weed one out, it is only when you have multiple lower comps that there becomes an issue
Duck (219)-
“Last Labor Day sellers did not get desperate and the same thing will happen this Labor Day. If a home has been on the market this long, then the seller is not desperate. Those who are desperate already got foreclsoed on or sold.”
Big difference this year, Ducky. ‘Cause now we’ve had two years of NO Spring market.
Hard to hold out hope for next Spring…when all next Spring promises is a poleaxe across the forehead.
#113 JLB
“get some skin in the game…”
You recommend buy buy buy!???!?! Are you selling?
From Reuters:
Potential CDO downgrades climb to $1.4 bln – Fitch
Fitch Ratings on Monday said it may lower ratings on 26 parts of 12 collateralized debt obligations (CDOs) due to eroding quality of subprime mortgage bonds held in the securities.
The potential cuts affect $603 million in debt, bringing the total for subprime-related CDOs on watch for downgrade to about $1.4 billion, Fitch said in a statement.
Investors have been expecting downgrades on CDOs will follow cuts to the underlying mortgage bonds that have been mounting at a rapid pace this month. Mortgage bonds were increasingly favored for yield in CDOs until last year as the slumping U.S. housing market revealed unsound underwriting practices and excessive credit.
ok kids, Countrywide reports in the morning
could be interesting.
Clot: Any difference in % drop between Condo, TWH or SFH? Common notion is Condos loose value faster then SFH.
On the other hand this time, affordability being so low, many FTB’s can’t even afford 500K+ SFH’s.
and of course lets see which small
nj bank throws in the towel
and could we possibly have a large public
homebuilding go upside down.
#229 actually I sold in the “No Spring Market” that Clot refers to.
The “get some skin in the game” comment was regarding a discussion on monetary policy. I don’t urge people to buy,buy,buy right now. As a matter of fact when securing my position I fall back on something my father taught me…location,location,location.
Here is an interesting one, we were talking about this early last year.
From nj.com:
Helmsley’s ex-chef to get day in court
Hotel magnate Leona Helmsley’s former chef will get a chance to argue his case that he was the key ingredient in a $46 million real estate deal in Bergern County.
A three-judge Appellate Division panel ruled the man whose lobster fra diavolo so impressed the woman often called the “Queen of Mean” deserves a chance to have a jury determine whether a developer duped him into working on the land deal.
The judges did not make a ruling about the validity of Dennis Sammarone’s claims and said he might not be able to prove his case. Even so, the court found, he had a right to press the case.
“At this juncture, we decline to deprive him of the opportunity to try to do so,” wrote Judge Dorothea Wefing who was joined by Judges Carmen Messano and Joseph Yannotti.
At stake in the case is the roughly $5 million Sammarone claims is due to him from the developer. The chef maintains he played a pivotal role in the purchase of Helmsley’s long-vacant 16-acre property at the foot of the George Washington Bridge.
The chef’s lawyer, Angelo Genova, said he was thrilled with the ruling.
“He gets his day in court and that is all one can ask for. It has restored his faith in the justice system,” said Genova.
…
The developer, the chief operating offcier of Town & Country Developers, has argued Sammarone is not entitled to anything because the chef is not a licensed real estate broker.
“and could we possibly have a large public
homebuilding go upside down.”
pesche,
IMO, the only question is which one/ones.
Would any of the large homebuilders
have the guts to start discounting.
Hov,Tol,Dhi,phm
JLB (225)-
I don’t need to “reserve” a right to do that. We could change our minds and pull that standing offer at any time, then re-submit a new one…or walk away.
I left that offer on the table to tell the seller’s agent that we were dead serious in our belief that our offer would be the best- and only- offer they’d see. Implicit in that was the invitation to “shop” our offer and use it as a rabbit or stalking horse (which I’m sure that listing agent did).
I’ve gotten my client’s consent every step of the way, and he’s not a novice at this game. Even though he’s the buyer, my fee is built into the price he eventually pays. By doing what he has freely consented to, how am I not serving his interests?
Are you a Realtor? What would you do differently here?
From CNBC:
Law Firm Weighs Class-Action Suit Against Bear Stearns
A major class-action law firm is weighing whether to file a lawsuit against Bear Stearns over massive losses in two subprime hedge funds, according to people close to the matter.
It would be the first such lawsuit brought over the collapse of the funds, though many more are expected.
The firm, Bernstein, Litowitz, Berger & Grossman, could make the filing as soon as Monday or in the coming days, these people say.
However, a potential stumbling bock has emerged: Whether the law firm can assert that an entire “class” of investors has been harmed by any alleged mistatements made by Bear Stearns that kept investors from bailing out of the fund earlier this year.
pesche [237],
They have been lowering prices, along with incentives.
“Horton said that its gross profit margin on the houses it sells declined to under 18 percent in the last quarter, compared with more than 25 percent profit a year earlier.
The builder blamed price cuts and other buyer incentives for the lower margins.”
http://www.dallasnews.com/sharedcontent/dws/classifieds/news/homecenter/realestate/stories/042007dnbushorton.213218.html
Wells Fargo drops 2/28:
http://biz.yahoo.com/rb/070723/wellsfargo_mortgages_subprime.html?.v=3
Anyone know where I might get a good write up on CDO’s, what they are, how they work, and compare/contrast to CMO’s (for a layman) Thanks.
Finally, some high paying jobs coming to our area:
NBC moving to Englewood Cliffs
NBC Universal Inc. is creating a digital media center at the CNBC headquarters in Englewood Cliffs, and will move an undetermined number of workers to the site later this year, the company said today.
About 800 people now work at CNBC, a cable financial news network that is a subsidiary of NBC.
The addition of more workers to the two-building campus is “great for Englewood Cliffs,” said Shari DePalma, president of the town’s Chamber of Commerce.
http://northjersey.com/page.php?qstr=eXJpcnk3ZjczN2Y3dnFlZUVFeXkzJmZnYmVsN2Y3dnFlZUVFeXk3MTczMTA1JnlyaXJ5N2Y3MTdmN3ZxZWVFRXl5Mg==
3b,
Have you read CR’s (Tanta really) “Complete UberNerd”?
http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html
“Donald,
I think you might be misunderstanding what “comparable property” means.
JB,
An unreonvated condo is just as comparable to a fully renovated one (Clot’s example) as a condo with a view is comparable to a similar one without a view.
3b [242],
Try this;
http://accruedint.blogspot.com/2007/03/how-does-cdo-work.html
JB – #241 in moderation?
#244 No, but thanks for the info, I will take a look.
#240
Devlopers on the Gold Coast are not lowering prices. Actually, they are raising prices and eliminating incentives. It is fun watching all the buyers who waited for prices to come down get taken for a ride by Toll and K Hov when they go to buy!
#246 Thanks BC
In Clot’s sale, 10% off the price that the renovated unit sold for is not too bad because the buyer is going to have to take that 10% he saved to renovate the unit. When everything is said and done, the buyer paid the same amount of money that the renovated house sold for.
223#,
the housing in this part of area is certainly more affordable than BC. Recently, McGraw-Hill company announced big expansion to its EW campus. Again, EW is a good town but if you are interested in top schools, you may want to look at Princeton and other towns in the area.
Donald (251)-
Yes…which is my client’s only goal.
No…because once this sale is done, it becomes the new comp, since the current God-awful condition isn’t referenced in the listing.
“It is fun watching all the buyers who waited for prices to come down get taken for a ride by Toll and K Hov when they go to buy!”
HOV is not taking anybody for a ride, except shareholders, over a cliff. New 52 week low, down over 7% today.
Can someone please tell me how much and when this house in Alpine was bought for? The house is listed under 2 MLS#s:
2728903
2728907
Thanks!
Awwww, snap!!!
But seriously, HOV appears to be dropping faster and harder than other homebuilders, anyone have a clue why?
#256
Maybe because Toll is stealing all of their customers. On the Gold Coast, they have been going head-to-head for a while now.
256#,
because warren buffett is shorting the stock to get a better deal -:)
I lived in a POS cape once for about 10 months. It was horrible! Why anyone would buy one with the intnetion of living in it is beyond me. If it is a buyer’s market and prices are supposed to come down drastically, why not look at better houses? If prices are coming down as much as you say they are, then ditch the cape and look at colonials, tutors, etc.
Good Article:
London vs. New York smackdown
Which city is the real financial capital of the world? In one corner, the IPO champion and derivatives king. In the other, the investment-banking titleholder. The battle isn’t over – and new contenders are vying for a shot, says Fortune’s Peter Gumbel.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/08/06/100141310/index.htm?postversion=2007072306
Sorry, I find it purely comical to hear things like, ‘raising prices’ and ‘interesting rates going up’ and ‘buyer’s market.’
Has anyone thought how bad this will get get come nov/dec?
Once Sept. 15 hits and all the bag holders who couldn’t cash out take their homes off the market, it’ll be a race between all the rest of the sellers to see who can lower their price the quickest.
Also, I’m considering renting cot-space at a few banks so early in the morning, when the foreclosures come in, I can be first in line …
There will be lots of foreclosures …
John,
I didn’t post this to solicit advice (guess I should have known better!) I was just trying to make a point:
Wages are not just losing ground to inflation. They are flat-lining at the higher end, and all industries will be affected, whether their jobs are offshored to Asia or their clients’ jobs are the ones that are offshored.
Everyone will have less money to spend now, and this will probably play out over 10 or 20 years until some equilibrium is reached in the global economy.
We’ve already seen the effects on home building, which was propped up by easy credit, and these jobs weren’t even offshored; they just disappeared.
————–
Re: If you got a zero percent raise, what are you doing about it? Unless you are overpaid already you should be taking courses to improve your current career, training for the next career and networking. If you take zero percent and don’t quit or cause a fuss, why should the boss ever give you a a raise?
I meant: “everyone in the US”
who cares about RE. check out this chart. hope some of you had 2 brain cells to rub together and bought like i told you.
http://finance.yahoo.com/q/bc?s=IGNBX&t=3m
when did you tell us to buy? What else have you told us to buy?
still recommend buying?
http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/ItsStillBetterToBuyAHome.aspx
Richard, it hasnt gone up much since you made the initial recommendation, no more than the total stock market has, anyway.
In general performance-chasing is a recipe for disaster. Just ask anyone who bought a REIT index fund this time last year (after being on fire for five years or so, down about 7% on the year and over 20% off its high)
More fun statistics for Manhattan:
Average sale price of a coop studio down 1.9% from a year ago.
Average sale price of a 2br coop down 1.7% from a year ago.
Actually, I stand corrected. That seems to be the co-op and condo market combined.
Hobokenite – where are you getting these stats?
“hope some of you had 2 brain cells to rub together and bought like i told you.”
Richard,
What’s your point? I have been long the 4 m’s for years.
Richard, c’mon.
You sound like a ML loser trying to schlepp a dog fund on some unsuspecting 401(k) manager so you can pay for little Judy’s skating lessons.
Why don’t you respect some of the funds in the category that have seriously outperformed?
http://www.fundalarm.com/honor.htm
Hey, Bob. ;)
Richard Says:
July 23rd, 2007 at 11:41 am
>>#33 JLB: Give it time, this thing is just really getting started. Watch it all unfold over the next 12 months or so.
been hearing this for how many years now? always the first and last response of the bubble believing masses. every year just repeat after me….year XXXX give it time, in the next X months it’s all going to crumble.
Richard,
The reason you’ve been hearing this for SO long is becuase you were spouting this mantra YOURSELF less than a year ago.
Clot-179
I appreciate your explanation, thanks.
Pooch123,
Miller Samuel.
http://www.millersamuel.com/reports/
Manhattan Market overview 2Q report.
OT-For everyone to be proud of…
http://www.youtube.com/watch?v=vJNqep77vBw
O (278)-
Here’s my idea of patriotic and uplifting:
http://www.youtube.com/watch?v=8z2M_hpoPwk
Good times, indeed.
Clot does that mean you’re a Sex Pistols fan? :)
lost (280)-
Much preferred The Clash and XTC, but Rotten and the boys are just fine.
And, the ne plus ultra of punk:
http://www.youtube.com/watch?v=Et-p1TgNs2U
Joey, we hardly knew ye.
Clot, I have a hard time with XTC personally. But whatever floats your boat. I never figured you for an old skool punk. Please bring old pics if there is another get together.
I don’t know if anyone noticed one detail during the historial week of downgrades by the rating agencies two weeks ago.
New expectations for home price appreciation: national median existing-family sale price
Moodys: -10% by end of 2008 from peak in 2005
S&P: -8% by end of 2008 from peak in 2005
hoboken – i could not find the stats you posted, but check out manhattan report for q2’07. 2005 all over again
YOY:
Sales up 100+%
DOM down 19%
Inventory down 32%
Price per sq. foot +5.2%
Mean price +1.7%
Overall NYC seems to be doing just fine. From bberg:
New York Apartment Prices Climb, Sidestep U.S. Slump (Update2)
By Sharon L. Crenson
July 23 (Bloomberg) — New York City apartment prices climbed 16 percent in the second quarter as the country’s most expensive urban market sidestepped declines in the rest of the U.S.
The median price of co-operative apartments and condominiums rose to $525,000 from $452,000 a year ago, the Real Estate Board of New York said today in a statement. Manhattan had the highest median at $790,000.
“While everyone knows the Manhattan market continues to be strong, the boroughs outside Manhattan are bucking the trend in the rest of the country,” said Steven Spinola, president of the real estate board, in the statement.
New York prices are rising even as the rest of the country posts declines or modest gains. The median price of a U.S. condo fell 0.4 percent in May to $228,200 and the median for previously owned homes rose 1.8 percent to $223,700, according to the Chicago- based National Association of Realtors. The trade group has cut its 2007 forecast seven times this year and now predicts prices will drop 1.4 percent in the U.S. this year.
The average price per square foot for co-operative units, which make up about two-thirds of New York City’s owner-occupied apartment stock, rose 5.8 percent to $708 in the second quarter, the real estate board said today. For condos, the average price per foot increased 8.1 percent in the second quarter to $877.
In co-ops, residents hold shares in a corporation that owns the building and occupy their apartment under a proprietary lease. Such properties are losing the escalating price war with condominiums, which allow owners to have title to their property and have fewer financial restrictions.
Single-family homes and those with two or three apartments such as brownstones and townhouses sold for about $550,000 in the quarter, a 7 percent increase.
In a July 3 report, broker Prudential Douglas Elliman Real Estate and appraiser Miller Samuel Inc. said overall Manhattan apartment prices rose 1.7 percent in the second quarter from a year earlier, led by gains in apartments with at least three bedrooms.
The real estate board represents more than 12,000 commercial and residential property owners, builders, brokers, architects and other real estate professionals.
To contact the reporter on this story: Sharon L. Crenson in New York at screnson@bloomberg.net .
Last Updated: July 23, 2007 18:07 EDT
Orion Says:
July 23rd, 2007 at 2:10 pm
Clot- Can you enlighten me on the meaning of Sept. 1?
orion: it is the day Hurricane Chip comes ashore in NJ
“Richard Says:
July 23rd, 2007 at 6:32 pm
who cares about RE. check out this chart. hope some of you had 2 brain cells to rub together and bought like i told you.
http://finance.yahoo.com/q/bc?s=IGNBX&t=3m”
Any emerging markets ETF is up the equivalent, if not more.
What’s your point, in any case? You seriously think folks have their ears open for a stock tip from a tout?
#285
Anyone who says that the market in Manhattan is going down does not know what they are talking about. HOWEVER, one thing I have began noticing is that the market is beginning to split in half: One half for condos and the other half for co-ops. Since condos do not require board approval and do not dig into your personal finances, condos have been seeing more appreciation than co-ops recently. They are a much better investment, if you can afford them!
Also on Sept. 1:
LEONID news
2007 AURIGID FORECAST
A very unusual meteor outburst will happen in the early morning of September 1, 2007. Earth will encounter the debris of comet C/1911 N1 (Kiess), ejected in about 83 BC
(289)-
“Earth will encounter the debris of comet C/1911 N1 (Kiess), ejected in about 83 BC”
Wasn’t 83 BC the year Duck first listed his house?
I got your meteor outburst…right here.
Check out this bagholder:
MLS 2264758
27 Barnsdale Rd, Short Hills
Listed April 4, 2006 @ $2,295,000, went under contract 26 days later, closed @ $2,285,000.
MLS 2421654
27 Barnsdale Rd, Short Hills
Listed $1,995,000 June 28, 2007, raised price to $2,095,000 July 4th.
If someone pays full asking, and that’s a big if, this bagholder hopes to lose $325,700 in 12 months.
Re: Fannie Mae & Freddie Mac
From BusinessWeek July 30
…But that doesn’t mean they’re immune to the pain. Like the big private- sector players, these government- sponsored companies, which own or guarantee 45% of all residential mortgages, have taken on more risk in recent years. Now they hold a sizable piece of subprime and other potentially toxic debt–securities and largely illiquid loans that could take a hit after the recent fire sale prompted by two Bear Stearns hedge funds. And given the state of the broader housing market, more trouble may lie ahead. That would be bad news for shareholders and investors who own their mortgage-backed securities. “We don’t know how much trash is on their balance sheet,” says Josh Rosner of researcher Graham Fisher & Co. “It seems they’ve shot themselves in the foot.” Fannie declined to comment. Says a Freddie spokeswoman: “We are well positioned to withstand even a severe and enduring period of heightened credit risk.”
Driven by market competition and regulatory mandates, the two have become big buyers of adjustable-rate mortgages, or ARMs, and MBSS that include them. Those items accounted for 18% of Freddie’s volume in 2006 and 22% for Fannie in 2005, the latest data available. That’s up from virtually nothing in 2001. A large chunk comes in the most exotic flavors, such as payment-option ARMs and interest-only loans.
With home prices falling, ARMs, both prime and subprime, are especially scary. Some $300 billion in ARMs guaranteed by the agencies will automatically reset through 2011, according to Banc of America Securities. The unknown is just how many homeowners will default. By Fannie’s own estimates, 18% of the subprime ARMs industrywide that reset in the first three months of 2007 have gone south.
The two have also moved more prominently into low-documentation loans, which require little or no proof of the borrower’s income. That segment has proven to be rife with abuse in recent years. A study by the Mortgage Asset Research Institute found that 90% of borrowers with so-called stated income loans upped their annual incomes falsely to qualify for more money. In almost 60% of low-documentation loans, the borrower’s income was inflated by more than 50%.
Much of Fannie and Freddie’s shift into riskier parts of the mortgage market has been driven by the government’s affordable housing mandates, which require the two to fund a lot of loans for low-income borrowers, first-time buyers, and people living in mobile homes or economically distressed neighborhoods. Their regulator, the Office of Federal Housing Enterprise Oversight, estimates that Fannie holds $292 billion of such mortgages, or 40.6% of its portfolio, on its books because the loans are less liquid and can’t easily be repackaged and sold to investors. Freddie owns $68 billion of those loans, some 9.5% of its portfolio.
Problems from Fannie’s and Freddie’s risky loans are mounting. Foreclosures are on the rise, and it’s harder to sell the houses they own as a result. Some are worth pennies on the dollar. Fannie has a “charming colonial” on the market for $7,000 in Detroit, despite the $59,000 outstanding on the loan. The property, repossessed in May, has been looted, with the kitchen sink and drainpipes stolen. Meanwhile, agent Debbie Leslie of Le Valley Real Estate has cut the price on a home Freddie owns in Flint, Mich., five times this year, from $10,900 to $5,250. The mortgage is $26,250. “We’re waiting to see where the floor is,” says Leslie.
Such exposure is taking its toll. Freddie upped its loan-loss reserves by $125 million in the first quarter in response to higher foreclosure rates; the company reported a $211 million loss during that period. Fannie, still reeling from an accounting scandal earlier this decade, hasn’t reported its financials for 2006 or 2007, but will likely face a similar fate when it does. Looking at the numbers, says James B. Lockhart III, director of OFHEO, “you can see the impact not only on their portfolios, but also their MBSs.”
Re: NYC Real Estate. This is how smart my family was. My grandfather owned a parking lot in a very desirable area of NYC. When he passed away in 1985, my Aunt sold it to a developer for “pennies on the dollar”
Nice, right?