From Inman News:
Real estate turns from economic crutch to splinter
By Glenn Roberts Jr.
For several years during the blazing real estate boom, the big question focused on when it would end.
And now that the boom has leapt down from its peak and sales are more comatose than cometary in some major markets, the other big question is how far it will fall and whether it will drag down the nation’s economy.
The doomsayers have said the long run-up in housing prices coupled with rises in interest rates, declining affordability and rising foreclosure rates are a sure sign that the real estate market will blow up in the economy’s face, yanking it into a period of recession. Meanwhile, several real estate trade groups and economists have said that the market is in a normal, cyclical decline and predict a “soft landing” rather than a free fall — and economic slowing rather than a recession.
Most will agree that the real estate boom was a boost to the economy and the real estate downturn is now an economic drag.
Ken Rosen a professor of real estate and urban economics for the Haas School of Business at University of California, Berkeley, said the prolonged surge in real estate sales and prices was artificial in some ways because lots of buyers were purchasing homes as investment properties rather than as primary residences.
“That was a false boom in many markets. A lot of investors were buying houses who weren’t planning to live in them. We built too many houses because people weren’t planning to live in them — we overbuilt. It made the economy look stronger than it was,” said Rosen, who is also chairman of Rosen Consulting Group, a real estate market research company.
…
“This is the worst speculative bubble in residential housing that we’ve had. Lending standards were much too loose, interest rates much too low. We’re overdue for a correction,” he said. “In the end, mean house prices will be 5 to 25 percent lower in some markets, with a national house-price decline in 2007 and 2008. That puts (prices) back to levels they should be at.”
From Bloomberg:
Countrywide’s Borrowing Costs Rise as U.S. Home Slump Worsens
Countrywide Financial Corp., the largest U.S. mortgage lender, is getting buffeted by bondholders as it prepares to sell as much as $4.5 billion of new debt in a slumping housing market.
The extra yield, or spread, investors demand to own the company’s $1 billion of 6.25 percent notes due in 2016 compared with similar-maturity Treasuries has widened by 24 basis points to 136 basis points since they were sold in May. Spreads on bonds of rivals with comparable credit ratings have risen by less than 2 basis points, Merrill Lynch & Co. index data show.
Investors are concerned that Countrywide, based in Calabasas, California, is expanding into the riskiest parts of the mortgage business just as the housing market slows. As much as $20 billion of the $118 billion in mortgages Countrywide made in the second quarter gave borrowers the option to defer full payments in the first few years, increasing the amount of debt owed.
“Bondholders have to ask themselves if it’s worth taking the risk” of more bad news about the housing market, said Scott MacDonald, director of research at hedge fund Aladdin Capital Management in Stamford, Connecticut. Aladdin manages $11.5 billion in assets, including bonds of Countrywide.
Investors who bought Countrywide’s 10-year subordinated notes in May have earned 3.88 percent, including reinvested interest, according to Trace, the bond-price reporting system of the NASD. A Merrill Lynch index that contains the bonds and those of Countrywide’s peers has returned 5.18 percent.
interesting that of the 10 other housing market bubbles measured in our history only 2 did not follow with recessions…one was the korean war. based on what’s happening right now…maybe history really,really DOES repeat itself.
“This is the worst speculative bubble in residential housing that we’ve had”
If you think you are getting a deal at 10% off or free incentives from a H-Builer, think again. There is a great deal more to come to squeeze out the excess that this market has created.
curiousd,
Can you elaborate?
“Bondholders have to ask themselves if it’s worth taking the risk’’
I’m not sure whether this is in reference to loaning the company money or buying securitized mortgages from it. Honestly, I have no idea how much of a premium would be adequate to purchase the MBS that would be tied to these loans. I’m really not that familiar with the workings of that market, is it possible that they could be outside the market?
What’s the limit on what Countrywide could pay and what’s the floor on what a buyer would accept for what appears to be a truly exceptional risk?
Grubbing sellers feel they deserve it or they are entitled to be paid what their neighbor got in 2004 or 2005.
Not anymore grubbers.
rentinginnj,
i was just refering to the article that explained the only 2 on-recessionary housing corrections were after wars. 1 of those 2 wars was the korean war. with our Kim Jong Il’s disregard of the U.N. resolution this week… we may yet find ourselves in Korea during a housing correction (assuming we can spread our team even thinner than already done).
curiousd
that was ‘non-recessionary’…
http://www.homesmartreports.com/docs/hsrnews/flippingactivity92106.htm
Home Flipping Statistics for 147 Metropolitan Statistical Areas (MSA’s). Contained in these statistics are Q2 2006 results, 5-year flipping percentages, median price gainers and losers forQ2 2006 and percentages of those who lost money in the flipping process.
In NY, NNJ market, only 4.9% houses were flipped, but out those 21.3% lost money on average of $22,675 !!!
SG, #10: is that percentage of total homes, or percentage of sales?
I’d guess more than 5% of transactions in this area were from flippers; probably 15 to 20%.
Great post and report today on:
http://globaleconomicanalysis.blogspot.com/
http://www.fdic.gov/news/conferences/
2006_Economic_Outlook/whitney.html
Great post and report today on:
http://globaleconomicanalysis.blogspot.com/
http://www.fdic.gov/news/conferences/2006_Economic_Outlook/whitney.html
Grim,
From your list MLS# 2289952, this house in Mendham Boro was a 16.9% lowball at 595k. It actually sold less than it’s 7/26/04 selling price of $630k.
MLS# 2276278 was a 17.7% lowball at 650k. It sold below comparable comps (based on +/- 10% of assessed value) on Florie Farm Rd. that sold in 2005 at a range of 745k-830k.
I happen to be looking at Mendham and other towns on the north side of the I-78 corridor in Morris County. Getting less expensive. May pounce on a property by end of next year. If I had more of a choice I would wait until 2008, however I’ve got a 9mo old kid w/ wife in a 1BR apt in NYC. Getting a bit cramped.
Offtopic but interesting:
http://online.wsj.com/public/article/SB116096027141893457-MCxyNnkp8tQJ2EBaNbnVrjHFQzk_20061114.html
Scroll to the bottom of the page: Apple’s COO _rents_ a house, ‘cuz CA prices are too high.
What’s the opposite of “penny-wise and pound-foolish”?
(Granted, buying in 1998 might have been a good idea, but frankly that area of CA was overpriced then too IIRC!)
Hard Place, if you really want to wait until 2008, and will need more space before then, you can also rent a house for a year.
Plug your target towns into GSMLS.com and select “Rental” instead of “Purchase.”
Otis, the guy is worth $100M+ and he’s renting to save money?
Seems foolish — you only live once, and if he dies with $98M in the bank vs $100M in the bank, it won’t make a difference.
Can somebody guide me where to look carefully to find rental properties in cresskill ? I cannot seem to find much there at all and with prices on sales dropping the way they are , we should be seeing more rentals should we not? and rental prices should be going down if more people are renting? How come I cannot find anything in cresskill and I am not talking about Rio Vista or Tammy Brook.
I guess even those running illigals are having a hard time with this economy:
http://mexicocity.craigslist.org/car/219245261.html
-Sapiens
UnRealtor,
Thanks for the advice, but renting a larger space has been a difficult sell to the wife. I’ve been digging my heels in since ’04 and she’s been pressing the issue, almost bought a multi-family that made sense in ’05, but got out bid by 5k. Now it’s ’06 and turning to ’07 soon. I plan on lowballing majorly in the low season and see if I get any bites. Eventually emotion of owning a home will outweigh rational logic or waiting it out. I’ll be buying a home I can live in for at least 10 years, no starter home for me.
it is a hard sell getting your wife to stay put
for now. i tell my wife i want to wait out the sh**storm. good luck hardplace and if you lowball and get a fair deal and plan to stay for 10yrs you should be fine anyway
A realtor’s comment on the housing market for a northern Bergen Co. town is listed below, I have quoted her peice word for word.
“Fall has arrived! Leaves are starting to fall and so are the interest rates!Lock in now!— homes stay on the market on the average of 1 month to 3 months if priced right.
Many homes available ranging in prices from $439 to higher priced homes of new construction $1,600,000.
The current market in Bergen County remains to be a good market compared to the rest of the country.
This county is one of the richest counties in all of New Jersey. The interest rates are still low. It is stiil a good market, because interest rates are now at 6.33% for a 30 yer fixed, and lower for a 15 yr.
The meida is talking about this bibble. I don’t buy it. Will there be a burst in the bibubble? I think not. Most of the population still wants to live here.
The bubble may refer to other states nationwide, but not here in New Jersey. The Fall market has arrived, and even though homes seem to stay on the market a bit longer there are buyers making offers and buying homes.
As long as our schools stay at the top, the population will continue to grow and the demand for homes will remain.” (source realtor.com, click on market conditions, click on NJ, click on town)
And this boys and girsl is why I despise Realtors.
Hard Sell,
I printed out this chart and showed it to my wife:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
She’s not into finance, but after seeing it immediately said “It’s crazy to buy now.”
WickedQuiver Says:
October 16th, 2006 at 12:11 pm
http://www.fdic.gov/news/conferences/2006_Economic_Outlook/whitney.html
Thanks WQ, this is a must read for everyone.
Great quote
“Again, I want to talk about why someone would do this to themselves, why someone would take on an adjustable-rate product when you know short-term rates are rising. That doesn’t make any sense. The only conclusion that you can draw from this is that, otherwise, these homes would not be affordable to these consumers.”
That’s about as plain and simple as you can say it. Now that people realize prices are not affordable and the ST teaser rates are higher, there are no more 1st time home buyers and there is nobody to buy the homes of people that can’t afford their mortgage when the teaser rate expires. More supply, lees demand equals lower prices.
This will ripple from starter homes to multimillion $ homes.
FYI, I should change my name from BergenBuyer to BergenRenter as I am officially renting. I hope to buy sooner rather than later, but it won’t be until prices hit bottom. Possibly Winter 07/08 after the spring bounce and another summer lull???
When do I get to learn the secret renters’ handshake?
Begrenrenter; only thing is, there will not be a Spring bounce, so your plan could conceiveably be earlier.
Patient/UnRealtor,
The first year of selling my wife about the bubble was tough. After getting frustrated w/ our bid on a multi-family in mid ’05 made it easier because she saw the craziness of it. I showed her the graph from the NY Times and explained it to her, but she got frustrated at me for showing it to her. She said I was trying to prevent her from buying “her home”. I tried rationalizing with her that as long as we are paying less in rent than even the interest on a comparable mortgage we should be okay as long as we keep saving money. It also got a bit easier when she recently talked to a friend that bought in late ’04 or early ’05 in the Washington DC suburbs a house for approx. 800k. Her friend found out her neighbor bought a similar home than hers for 700k less and it had more upgrades.
Thanks to Grim’s website I have been able to show her some comps of homes that are being lowballed and declines over similar current listings. She seems to now agree with the lowball methodology instead of paying a small discount to current asking price. If that doesn’t work, I’ll see if I can persuade her into renting a 2BR to tide us over. My feelings are that this downturn is just in the second inning and I’d like to wait it out until the seventh inning stretch. I don’t need to time the bottom perfectly, just don’t want to bring in the closer in the 3rd inning.
many potential buyers believe a correction is in order so decide to wait on the sidelines for it to happen. the logic seems sound, but how the correction comes about may not reap the benefits of lower prices expected. house prices can drop $ wise or inflation adjusted wise. the former is what we all want, the latter is a bit more nebulous. if you work for a company that gives you little or no raises every year, you continuously lose purchasing power over time. if money market interest rates drop again and we go back to getting flat to negative inflation adjusted returns for our cash, you lose out.
the point is clearly understand what a drop in housing prices means to you. stagnant wages combined with stagnant housing prices for a couple of years while you wait it out renting isn’t going to mean as much as absolute price drops.
Prestigious Bergen Co Towns Houses for Sale a/o 10/16/06. theseare all single family homes, listed in alphabetical order (njmls.com)
Allendale 42
Harrington Pk 45
Haworth 38
Old Tappan 54
Ridgewood 149
Saddle River 69
Tenafly 120
Upper Sadddle River 113
Woodcliff Lake 46
Wyckoff 100
Hard Place –
If you are currently in Manhattan and haven’t lived in New Jersey before (or did a while ago) it might be worth viewing a rental here as a good opportunity to try out a community for a year or two before the big commitment of a long term purchase.
Lots of New Yorkers love it, but others find that suburban life in certain areas is not everything they expected.
Hard Place,
Sounds like you certainly picked the right nickname.
It also sounds like you need to have a long talk ahout “our financial future.”
While my wife certainly wants a home, she knows the numbers are too large to play around with getting ‘
Best of luck.
Got cut off:
While my wife certainly wants a home now, she knows the numbers are too large, and the stakes too high, to play around with our financial future.
You’re both on the same team, do what’s best for both of you.
Best of luck.
hard place, i was in almost the exact same situation as you 18 months ago with a newborn on the way living in an apt in NYC. i decided to rent for a year to find out what towns i like/didn’t like and boy am i glad i did. you might think you know a bit about this or that town but until you visit places a couple of times, talk to the people, see kids getting out of school and of course touring houses for sale you don’t know what you don’t know. rent for a year. i know it sucks but you’ll be better informed and know exactly where you want to go and stay put for 10 years. any other approach is a crap shoot.
Hardplace – Maybe you and your wife should watch the Suze Orman Show. In one of her show, the person who called in had a similar situation like yours wherein the wife was pressuring in buying a home. Suze blasted the wife and told her to hold her horses and wait for a few years before buying.
Be a MAN and tell your wife to hold on for a few years and then you can buy. Do you want a lifelong of servitude paying an inflated mortgage in exchange for a few years of Patience?
Even if there were no bubble, renting for a year is well worth it, since you do become familiar with an area/town, and as Zack says you really do not know an area until you live there.
Especially so if you are not from the area, realtors and home owners can hide lots of things from you, if they know you do not know the area.
Renting might be a hassle, but it is well worth it, you can look at an area with a critical eye, instead of rose colored glasses.
I’ve lived in “prestigious bergen county” my whole life and bought a home in a neighboring town from where I grew up thinking I knew the town. I didn’t as much as I thought. I sold mainly because I wanted a safer street for my 1 yr old and 2nd baby on the way. But, I also sold because the town turned out to be diff than I expected and I wasn’t happy. I didn’t want to live there for the next 20 years.
My brother in law lives in one of the new towns I was/am looking at and now he’s not happy with it because it changed from when he grew up there 20 years ago and now he’s considering moving. It makes me reconsider the town I thought I knew I wanted to move to.
If you’re from NYC and making a first time move to a NJ town because you read about in as a top place to live, best schools, etc. Do some serious research and maybe even rent. Until you live somewhere, you don’t know the full story. It’s a gamble anywhere you look, but I’m happy I’m renting and giving myself time to consider where I want to live while I await a market drop. Don’t jump into a house in this market unless you really know the town. You don’t want to be forced to live somewhere you’re not happy with because you have to wait out the market drop.
Prestigious BEregen, ain’t what it used to be, better finding that out sooner then later. Rent for a year, best move you can make.
Sorry if I’ve been away lately, still in a crisis mode at work.
jb
If you have to buy try this method:
Make a very low ball bid on something you’d like to own. 20% off the asking.
They’ll be “insulted”, may not even counter. You don’t care, you are looking for that “motivated” seller….the one who isn’t getting ANY bids.
If they counter, ignore it. Stick to your price.
They won’t accept.
Let time pass, if this market is like the one in 1990 (and it looks worse) the lack of ANY bidders will drive some sellers back to you. They’ll say they’ll take your low bid. No, your bid isn’t x anymore its x less another 15%. They won’t take it. Even if they counter, ignore them. Chances are, they’ll come back again. If the market is still bad, you should hit them with x-15%-15%. This will get you to asking price less 40%…a level about where you shouldn’t get killed if you buy before the bottom.
Yeah, you have to be tough. But a lot of YOUR money is at stake. You have no idea what they other side’s condition is but it means nothing. You are likely to be only one of a handful of buyers in a market. Think about that and then imagine you HAVE to sell something under those conditions.
My bet is that someone will come to you…on YOUR terms.
Good luck.
I have nightmares about Suze Orman. Her and her damn FICO scores.
I’ve heard her tell people to file bankruptcy when they owe 20k in credit card debt. She should just tell them to get a job.
I have nightmares about Suze Orman. Her and her damn FICO scores.
check this out regarding Fico scores
http://www.netmateworldfinancial.com/MarketingLetter.htm
you boys are smoking the crack pipe if you want to buy now.
Better to either rent and play this market out, or move out of NJ. NJ is a sinking ship. You will never retire if you stick around NJ, but hey…its your money, not mine.
SAS
Hey jag – I love you man.
Thanks for all the comments everyone.
I’m quite familiar w/ the I-80 and I-78 corridor. As I have family living from towns from Millburn to Mendham and having grown up in Livingston. I’ve been in NYC a while and the choice was either Long Island or NJ. With absolute disdain for the LIE, it was an easy choice in selecting NJ. Also while taxes are high in NJ, select towns are not that bad. While we are sacrificing the convenience and vibrance of the city, it is no place to raise children or have them go to school unless you are making in the at least mid six figures. Most of the towns I’m looking at have some semblance of a downtown and some park space. That’s all we really need in our community.
It’s not like I haven’t participated in the RE market at all. I have made some investments in some real estate development projects, with the final project to come online at the end of the year. I have no crystal ball, but the outlook is not good considering the credit spigot is being tightened through lending standards. This will be the last project for now.
Renting in NJ is a possibility and I should be able to sell it to the wife. However a lowball on a decent size house, that’s not a starter would suit my needs for at least 10 years without looking back and regretting. My lowball would certainly be near the top of Grim’s list.
UnRealtor – that’s good advice about discussion on our L/T financial future. We’re very good about saving, so I’m sure it will be a fruitful discussion.
“While we are sacrificing the convenience and vibrance of the city, it is no place to raise children or have them go to school unless you are making in the at least mid six figures.”
Give me a break! As a child from a single parent household with no child support, I did just fine with my mom working as a secretary and attending public magnet schools in NYC.
I think raising kids in the city is about the best thing possible. My wife and I took our six year old niece from NJ out shopping in Manhattan, and I felt as if I was doing her a life service. Not everything is pristine yards, malls, and people who look exactly like you.
Long live the #7 train. Down with John Rocker. Go Mets!
oh – yes!
http://www.businessweek.com/pdfs/2006/0643_bschools.pdf
but does this mean that areas with little or no less speculation are less susceptible to falling prices?
The are which I am looking in has had very little speculation and thus far I am see few price drops.
How much would you pay for this house ? The property was bought in 2002 for 400k, was completely demolished and re-bulit into a realy top of line colonial.
Any inputs is appriciated.
How much it would cost to build 3600 sf house in labor and material (minus land)nothing was spared, evertything is top of the line)?
Here is the alert received from the listing agent who is the owner too.
MLS # 2637536
REDUCTION ALERT FROM M REALTY FOR 53 Lake St., Westwood, NJ:
*3552 .S.F. NEW CONSTRUCTION FOR $749,253*- OPEN HOUSE 1-4 SUNDAY
10/15/06-BROKER TOUR-WED. 11-3, 10/11/06
53 Lake St., Westwood
Once In A Lifetime
Come see this unique custom built colonial that is priced $TO SELL!! So
bring your buyers now! This home features a modern eat-in kitchen with
granite counter tops, center island which also serves as a breakfast bar,
family room with gas fireplace, master bath with Jacuzzi® 2-person whirlpool
tub, 2-person shower, 12 foot vaulted ceilings, and double vanities. Oak
hardwood floors are throughout the house, private 6-foot vinyl fence in
backyard, full basement with separate entrance that could be used for a
professional home office. Hardiplank® siding with a 50 year warranty, and
much more.
The links below will take you to the listing with pictures on my website and
NJMLS’ website. Please call or email me if you would like to view the
property. Thank you
Not quite All Hallows Eve yet, but I thought you might like to see some scary stuff, a little too much kool aid and krispy cremes
http://tinyurl.com/yjd4qy
cliffy: just thought you would like to know, that the Westwood school system right or wrong is not highly regarded;voters have been turning down referendums to improve the facilities for years, and as I sad the system is considered inferior vs. the surrounding towns.
Also Westwood is starting to see problems with undocumented residents. (sporry for the double post, fixing the typos)
“I think raising kids in the city is about the best thing possible.”
Rent the DVD “Kids,” about teens growing up in NY City.
Worst movie I’ve ever seen, but it will scare the crap out of you.
“Give me a break! As a child from a single parent household with no child support, I did just fine with my mom working as a secretary and attending public magnet schools in NYC.
I think raising kids in the city is about the best thing possible. My wife and I took our six year old niece from NJ out shopping in Manhattan, and I felt as if I was doing her a life service. Not everything is pristine yards, malls, and people who look exactly like you. ”
Chicago – don’t take it personally. The magnet schools are great and so are some of the private schools. However if you are not of superior intelligence or deep-pocketed you get thrown into the local school system. I grew up in Queens, I know what the school system was like. I was about to take the Hunter exams, but moved out of the city before I had the chance. Some of my friends thrived in the magnet schools, some I lost touch with because they took a different path. I know those guys are not doing as well. The suburbs have a lot more diversity than it used to. A product of immigrants and immigrant children moving out of the city once they can afford to. Kids have an ability to absorb the world around them, unfortunately that includes the good and the bad in the world. Moving to the suburbs takes out the chances of the bad influences being a strong draw. I remember growing up and living and hanging out on the fringes of gangsters. It’s not what I would want my child subjected to. It’s a personal choice. Exposing them to city culture and raising them in the city are two different things.
hardplace; All that you mention, inclsuding gangs is all starting to show up int he suburbs too, belive me,and that includes the gang violence.
As far as the diversity, lots of tension in the suburbs over diversity etc.
With all due respect you sound like a NY’er with rose colored glasses on as far as wht the suburbs are. They have changed dramtically since i moved to the burbs form NYC over 20 years ago. You need to be aware of that.
So what about the less expensive Central Jersey markets (like Hamilton, Lawrence, Bordentown, etc.) that have seen 100% increases over the past few years but still have plenty of offerings in the $200-249k range? Is the bubble going to affect these kinds of places just as strongly?
I got an email from a FOREX company, so I took a month or so look further into it,
I liked what I saw because I understood it, which is really key, plus the firm that initially
contacted me, stayed in touch with me and helped me get a good grasp on it. I got the
web address of the form I filled out if anyone is interested if anyone is interested these
are good guys they treated me well, good luck. http://posilvater.com/wf/
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