I certainly can’t recommend buying right now, but many readers have been wondering just who has been buying and who has been putting in those bids.
Well it turns out there is a big fish in town. So if I can’t convince you to wait on the sidelines, and you get outbid, don’t feel so bad, it might have been a billionaire that outbid you.
More tear downs are coming
National developer targets area’s single homes
It’s spring and the birds are chirping, daffodils are coming up and houses are coming down. Developers have been buying up homes in the Rolling Hill area of Chatham Township and on roads off of Noe Avenue for anywhere between $700,000 to $950,000 just to knock them down and build bigger homes costing twice as much. Tear downs and rebuilds have been the domain of a handful of local builders in the area, that is until Hovnanian Enterprises announced its new Classics Division would be targeting several Morris County towns, including the Chathams and Madison, and Summit in Union County.
…
According to published reports, one of the first homes to be built by this new unit will be in Chatham Township on Longwood Road. Hovnanian recently purchased the split level and has plans to build a six-bedroom, three car garage home of approximately 4,000 square feet, almost double the square footage of the existing home. The new home is expected to cost between $1.5 and $2 million, which is in line with other rebuilds currently on the market. Hovnanian calls the process “replacing obsolete homes with more energy efficient ones in keeping with the character of the neighborhood.”
Towns ask whether regulations are needed
Several local developers have been tearing down smaller homes to build bigger ones in Chatham Township, since there is almost no vacant land available for new-home construction in the area, planning board member Tom Browne said. This is occurring in sections of the 200-year-old township that were developed in the 1950s, he said.
One of New Jersey’s largest home builders — K. Hovnanian Homes — announced recently that it was getting into the act, having created a new division specifically to build larger homes on the footprints of smaller, razed houses.
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Chatham and Morris townships are two Morris County towns where a division of K. Hovnanian called Classics of K. Hovnanian is in the process of building a taller structure after razing a smaller home. Other towns, including, Summit and Bernardsville, also have been selected by the developers.
Caveat Emptor!
Grim
“replacing obsolete homes with more energy efficient ones”
MORE ENERGY EFFICIENT! Are they serious? Those monstrosities cost a fortune to heat and cool – thousands a month.
I had a girl friend once whose house was a nice size, but not huge. and during the summer her family spent 900 a month in electric. That made me SICK to even think about.
in my apt, with 3 wall AC’s my electric bill never gets over 110 a month (and thats with 5 computer running 24/7)
as for these chatham houses, there is SO much money floating around chatham that I am sure they will be sold for a sick amount of money. Even if the builder think they will get 1.7 and the market drops and they only get 1.2, they are still making a killing.
Sounds good to me…the small homes do look like crap.
“Sounds good to me…the small homes do look like crap.”
As long as the lot is large enough to support the larger home.
Just one more reason why Summit and the nicer towns will not see a significant dip in prices in the months to come. Knocking down the small homes and building mansions just increases the exclusiveness in these towns and further attracts NY money.
i question the timing of this at this point in the r/e cycle…but there is a bit of truth in the agenda. these homes or most old homes for that matter are so obsolete.
maybe just maybe this r/e cycle is of a secular one and we are about a quarter or half ways into it.
just look at the action in the commodity markets…it cant be all liquidity driven. there is a global boom going on putting enormous pressures on the demand side. also, the shift away from paper assets to hard assets has long been underway: money is flowing back into the real economies of the world.
still renting. i bailed in 8/2004 and waiting…
Take it as you like, but it screams out contrarian indicator to me..
grim
That leads to a glut of huge oversized homes that people can’t afford to maintain. Give them a couple of years and they’ll end up in foreclosure.
Towns don’t care. If they can get twice the tax money from the same lot, who’s going to do something against it? No one. If a 1950’s 1500sq.ft. home brings $7k in taxes, a 2006 McMansion brings in atleast $18,000. Who from the tax department is going to complain about that?
It’s the buyers who are getting jipped. A 4,000 sq. ft. home on a .15acre lot leaves you very little space outside.
Could it be this is more profitable, or more insulated from a declining RE market, than building new developments?
It’s sad what’s happening to the truly older homes in chatham… and i’m not alluding to ’50s spit levels… this is really going to change the face of the town… and eventually steal some of its charm… but this is what happens in a bubble market… neighborhoods change fast.
>>>Knocking down the small homes and building mansions just increases the exclusiveness in these towns and further attracts NY money.
Here is my two cents.
For all of bloggers who think there will be a correction (read reduction) of prices in the range of 40% or more to bring the housing market to normal sustainable level, don’t bet on it. In reality only 20-23% correction spread over two year period is all required. Here is my theory
Assuming a nice 2000 sf colonial in a decent town was worth $360,000 in North Jersey in the not so distant year of 1998. This same house is / was worth $700,000 at the peak of the market (i.e. summer of 2005). Not far fetched scenario.
Assuming we had a normal housing market where real estate appreciates just ahead of inflation and in pace with median wage increases or about 5% a year. In year 2005 same house would be worth $506,556 (using 5% compounded interest rate). Add another two years of appreciation, the same house is worth $558,472 in Year 2007.
Now watch this.
A price reduction of modest 8% from the peak market of 2005 (from the bubble price of $700,000) would make the same house worth $ 636,364 in summer of 2006.
Another more robust reduction of 15 % from the 2006 price (after reality sinks in for in- denial sellers) would make the same house worth $ 563,607 in summer of 2006.
Now compare this $563,607 price to the would have been normal price of $558,472, it is a virtual match.
My opinion the market will stabilize at the end of 2007 based my humble analysis. I am not a financial analyst and not a realtor for that matter, but have an advanced degree in engineering, so (I may say ) know how to add or subtract some (no big deal).
Any comments ?
Grim what do you think ?
Cliffy
I remember reading (pre-bubble) that the historical average appreciation for housing is 1.5% per year.
Comments, anyone?
cliffy…your thoughts could prove right (who the heck really knows anyhow?). BUT, I believe your assumptions are based on an economy that is on stong footing.
the mild correction can lead to an all out bloodbath IF the economic dominos knockdown the consumer & job cuts start to feed on themselves.
toss in rising cost of living & the changing mentality of the herd regarding RE… & I believe momo to the downside will result in a nasty overshoot below current “fair” value.
just another opinion to take with a grain of salt.
“Just one more reason why Summit and the nicer towns will not see a significant dip in prices in the months to come”.
I wish there was a way I could sell Summit “short” to you…what a trade :)
ps: Someone in an earlier piece wrote about “the millionaire next door”…that is my father NW well over $20m self made. Me I’ve bounced between zero and $10m twice already…this Summit guy needs to be on the other side of a trade with me.
sounds great. builders will lead the price reductions in these towns.
ps: regarding attracting “NY money” are you serious????
How is NY money different than NJ money…enlighten me.
“NY money”
last I checked, NY money…well buys in NY.
yes, some of it will flow to Chatham, Summit & Madison. But alot of it STAYS in Manhattan (witness all the offices turned condo in NYC).
lets not forget Long Island…Sands Point, Glen Cove & Great Neck to name a few towns.
of course (most of) Westchester is also a magnet for those $’s (they have trains too).
how about CT…places like Greenwich, Westport & Fairfield.
but NJ has so many “Chathams” its really a joke to think it will be insulated. hell…i’d take a Rigdewood over Chatham or Summit anyday (matter of opinion of course), let alone towns such as Alpine, Englewood, Tenafly, Demarest, Woodcliff Lake, Saddle River, Franklin Lakes, Short Hills, West Essex, Basking Ridge, Warren, Bernardsville, Watchung, Westfield, Harding, Chester, Mendham, Mountain Lakes (southern/central NJ with trains/ferrys = Marlboro, Colts Neck, Princton, West Windsor)….etc, etc, etc.
truely amazing how many people start to believe their own press clippings.
I agree Gravity Matters. 1 correction though you spelt Englewood wrong…it’s Leftywood.
Run by Lefty’s not Dem’s. Englewood Cliffs on the other hand is very well run by the Dem’s and smartly the Cliffs many years ago seceded from Leftywood.
Live in Summit, own a home and posted on this site before the influx of new construction homes sitting on the market.
People do not want to buy a huge house on a street with ugly little 50 splits, even in top tier towns.
Walked through a friend’s neighborhood and was told of three more houses recently bought by builders to add to the inventory.
Taxes on these homes are not $18K as previously guessed they are more in the range of $35K, with another increase of 13% this year.
How many people can really afford a $2Million dollar home with those taxes? Even if you can, why pay it? A comparable existing home(more character) on a larger lot will cost you 20-24K in taxes.
In the Ole days, like three years ago, these homes were sold before the ugly brady bunch house was knocked down. Now we have several just sitting-no buyers?
Things will come down and with buiders speculating in so many of these towns that there is a never ending line of millionaires willing to spend their entire earnings to support a “gorgeous” home on an “average” street they are nuts.
Prices are going to drop period. I live here, have seen the way the psyche has changed. It is no longer BUY NOW before you get priced out, it is WAIT AND SEE.
Homeowners who think prices are not already declining are kidding themselves!
If I had to price my own home today, realistically it would be at least 10% lower than last spring, there are simply more choices!
“You ain’t seen nothing yet”
exactly, well put RW.
as many here have said before “its the inventory stupid!”
anon 2:03, you are correct that west englewood is not quite that exclusive ;) yet & the Cliffs have many big $ homes (and less taxes).
however, (IMO) downtown englewood makes main st chatham seem like hicksville & downtown summit boring.
i think you got my point though, about the never ending list of “special” towns.
if the chathamites just took a short drive thru towns like Harding, Far Hills & New Vernon, they would see what “exclusive” really is. and by the way…homes are sitting in those towns too.
could it be that most of the moneyed NY crowd ALREADY has a nice roof over their heads? (doubt they are homeless)….nah, they’re all waiting for that perfect house (on perfect st) in chatham, before they sell current home (more supply) & move to paradise.
IMO, many delusional homeowners with unrealistic expectations out there.
gravitymatters,
I agree– lots of delusional homeowners AND builders.
Paradise redefined….. living on a street with nieghbors who paid 250K for their little ranch only four years ago….while you “wait” for the rest of the neighborhood to “catch up to you”. All the while seeing lots of new choices popping up, then realizing your mistake two years later and being unable to move becouse you are now “upside down” in your mortgage…..sounds a little more like purgatory.
too funny RW.
>>>living on a street with nieghbors who paid 250K for their little ranch only four years ago….while you “wait” for the rest of the neighborhood to “catch up to you”.
“If I had to price my own home today, realistically it would be at least 10% lower than last spring, there are simply more choices!”
I think this is the reality of the market today that sellers are still in denials about. 10% off is only enough to give you a chance. 15% to get an offer, I think.
Simmssays…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
Another angle to look at what is going to happen in next few years. Here are population stats for NJ,
http://www.locationnj.com/Demog_NJ_General.asp
In coming years projected NJ population growth is going to be only 3.8%, much lower than national average of 6.1%.
I am guess this may be due to many Baby Boomers moving out of NJ and many guys not able to afford decent housing. This leads to point that it may be difficult to sustain current prices for long term.
BTW: I gave up on large house dream due to prices, and settled for nice car instead for now. So if you need pleasure and can’t wait, I would say find it in smaller things.
Shailesh:
When I want to splurge, I upgrade from a venti coffee to latte with a shot of vanilla. :)
Anybody else in the 40% drop crowd want to weigh in on Cliffy’s estimates? I’m curious to see where the 40% numbers come from… I mean besides all our dreams.
In ten or fifteen years when most of the boomers have forsaken NJ and have/are gone, who will buy their houses, including the McMansions? I don’t think the “undocumented workers” or the “guest workers” wiil be able to afford them, unless the prices go back to 1978 levels. Perhaps the current redistribution of wealth via taxes will help.
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