From the Otteau Valuation Group
HOUSING MARKET WEAKENS DESPITE STABILIZED INVENTORY
The New Jersey housing market took a turn for the worse in September as contract-sales activity fell for the 3rd consecutive month to the lowest level of the year. Home purchase activity in September, as measured by contracts signed by buyers, declined 23% from the prior month and was 17% below the year-ago level in September 2006. This negative performance provides compelling evidence that home buyers continue to take a ‘wait & see’ approach out of concern that home prices will continue to drift lower. Much of this concern is rooted in news of sub-prime mortgage delinquencies, which continues to be overstated. This is particularly true in New Jersey where sub-prime mortgage originations occurred at modest levels relative to the rest of the nation and where foreclosure activity is only slightly elevated from last year’s pace. Notwithstanding the more favorable circumstances in New Jersey, potential home buyers continue to hold off which is causing further erosion of market dynamics.
From a supply perspective, the Unsold Inventory of homes for sale in New Jersey has been virtually unchanged for 5 months now. Given however that the pace of home sales is declining, this inventory now represents a 13 month supply on the market up from 7 months in March and 10 months in August. It is therefore clear that the bottom to the current housing slump is nowhere near.
13 months. Damn.
From Bloomberg:
MBIA, Ambac, ACA Will Take `Massive’ Losses, Egan Jones Says
Bond insurers including MBIA Inc., Ambac Financial Group Inc. and ACA Capital Holdings Inc. face “massive losses” over the next few quarters that could test their ability to raise new capital, according to rating company Egan-Jones Ratings Co.
MBIA may have losses of $20.2 billion on guarantees and securities holdings, Sean Egan, managing director of Egan-Jones, said during a conference call. ACA Capital may take losses of at least $10 billion; Ambac Financial Group Inc. may reach $4.3 billion; MGIC Investment Corp. $7.25 billion; and Radian Group $7.2 billion, Egan said.
“There is little doubt that the credit and bond insurers face massive losses over the next few quarters and many will be capital challenged,” Egan said.
The rating company’s estimate of losses included those on existing guarantees, mainly on securities that rely on mortgages for repayment, and on securities holdings, he said. Egan Jones is paid by investors to rate debt, rather than by issuers.
Yesterday, Fitch Ratings said it will review the bond insurers after “broader and deeper” downgrades of collateralized debt obligations, which package debt such as subprime mortgage securities and loans.
why the continual blame on subprime? Why is it rarely mentioned that there is a clear disconnect in the median price/median income ratio as well as the greater than historical normal appreciation rates. It doesn’t get much simpler than that. Prices are too high, they need to come down.
I know it’s in realtors best interests for prices to be higher, but it’s definitely in a realtors best interest to sell something at a lower price than nothing at all. If Otteau has to publish with his clients(realtors) in mind, wouldn’t the overall best interest of realtors to be to have as high of sales volume as possible?
Hmmm, NJ home buyers are holding off because of the news of sub-prime mortgage delinquencies though it affects this state the least?
How about the tighter (or normal) lending standards put in effect due to the sub-prime meltdown?
And what about what I believe is the initial affect, affordability and the fact that housing became an over-priced commodity, investment, market, what have you in NJ?
Mr. Otteau’s comments seem to say that all is well in NJ and that potential buyers are just being spooked by a few national headlines. Sorry, but I don’t believe 13 months of inventory is due to sub-prime losses in other states…
Rich
Two choices….make or save more money or look at less house. Sellers are still selling….people without money just can’t be buyers now…..Boo Hoo.
17 billion dollar bonus pool divided by 30,000 employees is one sweet pot.
Goldman’s Employee Pay Will Top Bear’s Market Value (Update1)
By Christine Harper
Nov. 6 (Bloomberg) — When Goldman Sachs Group Inc. employees cash their year-end checks, they’ll have enough money to buy Bear Stearns Cos.
Goldman, the biggest and most profitable U.S. securities firm, set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of 2007, according to the company’s third-quarter earnings report. The stock market values Bear Stearns Cos., the fifth-biggest firm, at $14.7 billion. Bonuses, the majority of Wall Street compensation, are typically paid after the fiscal year ends this month.
The figures demonstrate how the fortunes of U.S. investment banks have diverged this year during the collapse of the subprime mortgage market and a credit-market contraction that has saddled the biggest lenders and brokerages with at least $40 billion of writedowns. While analysts expect Goldman to top last year’s profit record, they estimate that Bear Stearns’s earnings will drop 27 percent. Goldman’s shares have added 12 percent this year while Bear Stearns’s are down 37 percent.
“This has been a year of winners and losers on Wall Street and there will be incredible variance on bonuses from bank to bank,” said Michael Karp, chief executive officer of Options Group, a recruiting firm based in New York. “The fact that Goldman Sachs can pay its employees more than Bear’s market cap speaks to this disparity.”
Goldman climbed $4.77, or 2.2 percent, to $223.16 in New York Stock Exchange composite trading today. Bear Stearns rose $2.09, or 2.1 percent, to $102.00.
Cayne, Blankfein
Bear Stearns Chief Executive Officer James Cayne, 73, has watched the market value of his firm decline more than $10 billion from its February peak. Two of the firm’s hedge funds, which invested in securities linked to subprime home loans, have filed for bankruptcy protection and company President Warren Spector has been ousted. Analysts expect earnings at the company, the No. 2 underwriter of mortgage-backed securities, to slump amid falling house prices and surging defaults on U.S. home loans.
Goldman, under Chief Executive Officer Lloyd Blankfein, 53, navigated through the worst credit contraction in at least nine years, posting record fixed-income revenue in the third quarter, aided by investments that gained in value as mortgage securities fell.
Goldman employed 29,905 people at the end of August, almost double the 15,516 working at Bear Stearns
Essex,
Fact: Home sales will never drop to zero.
That being said, in terms of the NJ RE market, when you have 13 months of inventory homes “aren’t selling” .
And your reason is that most of the residents don’t have or make enough money? There’s a word for that… damn, if I could only remember…
Rich
GM to record $39 bln non-cash charge in third quarter
37 Rich Essex: Is a recent homebuyer, and as such reacts acccordingly.
13 motnhs supply of homes, and its just that people need to make more money/ Bunch of crap, prices need to come down, it is a simple as that.
As far as Otteau, just another industry shrill.
bergen (3)-
It’s not in Realtors’ best interests for prices to be higher or lower. It’s in our interest for prices to be at whatever level it takes to generate deal flow.
That’s why I can’t wait for the big capitulation. However, I don’t want it to come too soon, because I still want to see as many of my competitors as possible get wiped out.
bergen (3)-
Otteau repeatedly pounds Realtors to get sellers to price within reason. He offers multiple examples of properly-priced homes that sell fast and badly-priced homes that die.
What more can the guy do? His statistical work is sound. And, believe me, nobody in my industry is paying this guy the kind of loot he commands to simply blow sunshine up our a$$es. His opinions and conclusions may differ from many of ours here, but you cannot brand a person dishonest and/or disingenuous just because he has a differing opinion. Fact is, he’s forgotten more about RE than most of us will ever know. His command of the subject is- in and of itself- grounds for respect, not the easy derision so many like to toss his way.
Sellers aren’t still selling if there is a 13 month supply of houses. They aren’t selling as fast as they are listing them and they are piling up!
We are looking in NW Bergen and all we see are people listing at prices that are higher than the comps, and we have only seen two houses sell since we’ve been tracking the market in two towns up there since June.
Things will still be bought and sold. Those who really need to sell will lower their price until they do. Those who really need to buy will buy when they find a house they like at a price they can afford.
Hi
Anybody hear from NJGAL? if you there give me a heads up. My SIL went in today. Baby girl 9lb 12oz 22 in. Baby doing a tad better than Mom, she’s a lot younger (-: A long awaited girl in our all boy family.
KL
13 Congrats KL!
Clotpoll,
I second that. Some posters are too quick to disparage useful work. These lazy posters make the tired case that a conflict of interest exists without citing more objective data or bothering to produce more objective data themselves.
Pre,
I actually agree with Clot. I think the services Otteau’s provides to his clients are reliable and factual. I also know what he has to say at his seminars. But his public comments don’t jive with his “private” proclomations for realtors to lower prices.
But then to sum all the NJ real estate ills on the sub-prime news… come on.
Rich
Rich (16)-
You’ve got to keep in mind, though, that the psychological component of this downturn is underpinned by the constant bleat of subprime woe. The general public doesn’t dig deep enough to see all the components of the downturn; like everything else, the word “subprime” becomes a proxy for all the poop that’s hitting the prop.
And, when potential buyers hear the dire news often enough, it does create the hesitation that begets even further decline. Most buyers who are coming to me these days don’t understand the complexities of SIVs, CDOs, inventory overhang, HB credit rating deterioration, credit market seizure and other arcane pieces of the puzzle. They do, however, know how to say one word…”subprime”.
And that’s enough to keep them sitting on their hands. Even if they don’t really understand why they’re doing it.
#9…….’recent’ being 2002. In fact my thoughts are more about the ability to purchase a home…or purchase an expensive home….think about it. If you are waiting for that $500k home to get to $250k…….
Clot,
Good points, neh! Excellent points. Subprime news definitely hastened the slow down (if you will) as of late.
But the subprime drum didn’t start getting beat rhythmically until August and this market was slowing down way before then.
But damn, I agree with you.
Time to eat!
#18 Essex: I do not think anybody here is expecting the 500k home to go to 250k.
Because if that were the case we would be looking at a depression, and even at 250k people would not, or should I say could not buy.
My apologies on the recentt purchase comment, for some reason I thought you purchased in 05.
Clot forget the public the re people up here don’t understand much beyond subprime catch all.J.O. must put out something the rank & file re agents can digest.I know a few,I don’t even try to explain its pointless.So shell shocked from loss of income I don’t have the heart.No rebound in spring O My God they’ll go over the hill.
#15 pret: He made a simplistic statement, that almost all of the woes in the housing market are due to sub-prime, which he then says is not a problem in NJ, and then to translate that means people are mistakenly not buying.
Nowhere does he mention tightening lending standards, the end of toxic loans (which were not just sub-prime),and affordability.
He oculd have also mentioned rising property taxes.
It was a simplistic even a false explanation.
#10 clot Good points,and I respect thogh not necessarily agree with your view of Otteau.
The big capitulation will restore this market, to a healthy state.
3b would you say 25% off peak and when do you think the sellers will finally start cutting in mass?I like end of May time line when spring uptrend in sales does not materialize.
My sister just read in article in the Star Ledger about Jan – Jun 2006 vs. Jan – Jun 2007 Sales for Essex County. The article said in Essex county sales were up YoY.
Can anyone quickly verify this? I try to tell her never to believe Real Estate numbers from the paper. Thanks.
#18
“If you are waiting for that $500k home to get to $250k…….”
essex –
i’m waiting for that $500K home to get to $500K…….
I do not think anybody here is expecting the 500k home to go to 250k.
Because if that were the case we would be looking at a depression, and even at 250k people would not, or should I say could not buy.
Ny question is why? The last housing bubble from 1985-1997 prices were 50% off the highest prices in that bubble.
Most people in NJ do not make this kind of money. Most people do not commute to NY. Most people make 65k or below per household so yes prices will come back to 1998-1999 levels. Its seems most people on this site are from Burger King county and commute to NYC and make some fancy salary. We are in the begining of a recession, a sock market crash. I mean did people not learn from the 85-97 bubble. All people did is make it much worse and now people are trying to do everything to prevent it, But there is nothing that can prevent such corruption on a huge level.
People say that I am crazy but most people do not make 100k. So am I the nutty one being realistic. People can stay in denial all they want it will probably take till 2011 or 2012 before we finally see the bottom of the crash. But when we start to build and come out of the slump, people should think about this long and hard and realize greed is the root of all evil and nothing good will come from it. I like money as much as the next person but not enough to see what it has done o our country over the past few years.
Listening to Otteau about real estate is like getting automobile repair advice from a cab driver!
“If you are waiting for that $500k home to get to $250k…….”
Essex,
Then again, many were prudent when that 250k house was selling for 500-600k and said thank you bubble.
Homer [27],
I agree, that 500k house will probably settle around 300k. I’m looking at the same time frame, 2011-2012.
Homer, Amen your on the mark.With out the loans that caused this bubble most NJ workers do not make enough to afford to live here.Prices must come down as are well paid friends here are in the minority.
Clotpoll Says:
November 6th, 2007 at 7:09 pm
Rich (16)-
“You’ve got to keep in mind, though, that the psychological component of this downturn is underpinned by the constant bleat of subprime woe.
blah, blah…….
And that’s enough to keep them sitting on their hands. Even if they don’t really understand why they’re doing it.”
Well, that’s the case with everything, isn’t it?
-People didn’t know why, but they sure knew that Iraq needed to be attacked.
“Australia’s central bank raised its interest rate to an 11-year high and sparked speculation of another increase after Governor Glenn Stevens said inflation will exceed his target.”
http://www.bloomberg.com/apps/news?pid=20601080&sid=a.V0QKovl1GM&refer=asia
#24 mike I am expecting the big declines to start in the late Spring/ Summer of 2008 with probably the biggest declines Summer into the Fall of 08.
# 29 BC Bob I agree, that 500k house will probably settle around 300k. I’m looking at the same time frame, 2011-2012.
Do you expect it to take that long (2011/12) to get to 300k, or is that just your general time framr for whatever reason/s?
3b I will be waiting and I hope you are right.
Renting just isn’t owning a house can’t explain it.Sold my houses 1- 05 another 06 lucky good timing.Meant to leave state but job fell thru.Stuck in Jersey home of taxes.
Happy Camper it’s amazing everything can be seen thru your opposition to the war even real estate.Get over it. Wars happen some times right some times wrong and always terrible.Read some history,sorry to say it’s not the last either. Lord help us.
Yeah, I totally understand the frustration of how the market is and was….in fact the whole bidding war mentality was something I avoided. I felt everyone was flush with cash from selling a home and couldn’t wait to overpay for their next one….even in 2002.
Fortunately we did not overpay. I like my place enough to want to stay here. My concerns are more about my taxes and the unfair practices of the credit card companies. We are propping up troubled lenders….we pay our bills but thanks to horrid legislation and a blind eye from government, the card firms have the upper hand. I want to see more protections now. Cause god knows we are getting soaked here.
KL –
Congrats on the family addition. 9lbs 12oz – Holy Cr@p, no wonder Mom needs to recuperate – regular delivery? My first was 9lbs and that was no joke.
Also wondered about NJGal today, she must be ready to go, if not already.
Just had to share:
“Recession symptoms near fever level
…..
Ken Rappaport, a Boca Raton bankruptcy lawyer, also sees people in financial distress.
But when Rappaport received 250 applications for a $10-an-hour receptionist job in his office, that’s when the area’s economic troubles hit home. Many of the applicants were real estate and mortgage brokers used to sky-high salaries.”
http://www.palmbeachpost.com/search/content/business/epaper/2007/11/05/m1a_RECESSION_1105.html
bi,
How is DUG?
why the continual blame on subprime? Why is it rarely mentioned that there is a clear disconnect in the median price/median income ratio
I agree.
I think the Otteau is putting the cart before the horse. He makes it sound as though subprime is the cause of the downturn. We have a subprime problem because the market started to deteriorate, preventing distressed owners from selling or refinancing. This deterioration trigged the underlying subprime time-bomb, which is now reinforcing the downturn.
If prices were still going up 15% per year, we wouldn’t have a subprime problem. Homeowners would refinance or sell their way out of trouble.
BTW…I do have a lot of respect for Otteau. I don’t think he is pushing an agenda. However, I think he places too much blame for the downturn on this idea of buyer fear over subprime problems and foreclosures, which he believes are overblown in NJ. This almost implies that if buyers knew the “real story” about the extent of foreclosures in NJ, everything would be okay.
Most lumpen fence sitters I talk to simply think prices are too high; what they can afford just doesn’t go too far. They thought prices were too high in 2005 too, but then there was pressure to “just get in while you can” or “don’t worry, appreciation will let you trade up in a few years”. These dynamics don’t exist anymore, so now we are just left with prices that are too high. This is why buyers aren’t buying.
Two choices….make or save more money or look at less house. Sellers are still selling….people without money just can’t be buyers now…..Boo Hoo
If I can’t afford to buy these houses, I’m SOL
If no one can afford to buy these houses, sellers are SOL
dreamtheaterr Says:
November 6th, 2007 at 4:09 pm
How about focussing on car insurance premiums? That’s where the scamming is…. who in here has not had a double digit increase in recent premiums?
yan: moved from Hoboken to Monmouth County….premium decreased 23%
hate this guy…but boooya as it were….
WSJ
GETTING GOING
By JONATHAN CLEMENTS
Dump This House: Unloading
Your Property in a Slow Market
November 7, 2007
It could be the kindest cut of all.
Look at the prices of homes getting sold, and the property market’s decline seems no worse than a rough day in the stock market. Look at the number of unsold homes, and you realize there’s a world of financial pain out there.
True, these unsold homes may eventually get bought at decent prices. But in the meantime, the owners are often bleeding money — and many of them would be smart to slash their asking price and go for the quick sale.
Yet even as prices appear pretty much unchanged, the number of unsold homes has soared. At the current pace of sales, it would take more than 10 months to clear this backlog, according to the National Association of Realtors.
Sure, it would be emotionally draining to have your home on the market for more than 10 months. But it probably wouldn’t be a financial disaster — as long as you’re still in the house and you can comfortably cover the mortgage.
Maybe, however, you have an adjustable-rate loan that’s now unaffordable. Maybe you’re trying to unload a vacation home. Maybe you moved cross-country for a new job, but your old house still hasn’t sold.
The monthly cost of carrying a vacant home could equal 1% of a home’s value, figures Charles Farrell, an adviser with Denver’s Northstar Investment Advisors. After all, you still have to pay utilities, insurance, property taxes, maintenance and, of course, the mortgage.
What if the mortgage is paid off? There’s still an opportunity cost. The equity in your home could instead be invested in, say, bonds yielding 5%.
To make matters worse, “prices could be lower a year from now,” Mr. Farrell warns. “There’s also the risk of owning a physical asset. I’m thinking about things like fire, broken pipes, theft.”
Despite all this, sellers are loath to cut their asking price, which is the reason prices have barely budged — so far.
“People focus on what their home was worth two years ago, or how much they’ve sunk into it, or on their desire not to bring a check to the closing,” notes financial adviser Bert Whitehead, author of “Why Smart People Do Stupid Things With Money.”
His advice: Ditch these emotional hangups — and unload your property now. “If you really want to sell your house, you have to cut deep,” Mr. Whitehead says.
Good advice? Here’s how to decide for yourself:
• Ask your real-estate agent how many properties are on the market in your town today and how many sold in each of the past six months, advises Chris Mayer, director of Columbia Business School’s Milstein Center for Real Estate.
“If there are 2,000 houses on the market and 200 houses sold last month, that means it’s taking 10 months to sell a house,” Prof. Mayer says. “That’s pretty simple math, but nobody ever does it. If you price your house like everybody else, it might take 10 months to sell it.”
• Suppose you price your home like everybody else and it does indeed take 10 months to sell. Figure out how much you would be out of pocket over that stretch, either because your home is vacant or because the mortgage has become unaffordably large.
• Spend your Sunday going to open houses in the neighborhood. That should give you an indication of what you need to ask if you want to get your home sold now. Given the cost of carrying your home and the risk prices will fall further, would it be cheaper to slash your asking price?
If you’re going to lower your price, Prof. Mayer advises doing it right away — or waiting until early next year. He notes that very few houses sell between Thanksgiving and mid-January.
“The best scenario is that prices fall through the spring and then stabilize,” Prof. Mayer says. “But I’m more pessimistic than that. I would sell now.”
I like money as much as the next person but not enough to see what it has done o our country over the past few years.
Homer,
You know what I noticed, everyone is rich, everywhere I go women have manicured fingers and toes, higlighted hair, Dolce & Gabana wallets and purses, the lexus’s bmw’s,and mercedes in this working town I live in blows me away. Materialism is rampant. Some of the women I work with think nothing of buying $200.00 purse WTF? Friend just said she bought her husband 5 pair of pants $90.00 each! What are they made of? They were a steal according to her, the quality was incredible! Sorry, but since I’ve known her husband has gained about 10lbs a year, she don’t need quality she needs elastic!
Rant Off
KL
Italics off
There is one more part of the equiation – sales are going down because of fear.
How many here are not afraid of mortgage – this costs are fixed.
BUT
There is one more part of the equiation – sales are going down because of fear.
How many here are not afraid of mortgage – this costs are fixed.
BUT WE DO LIVE IN NJ – HOME OF EVER RAISING TAXES.
I am sorry but people in NJ are Idiots… I do not know how can you justify 1200$+++/month realerstate taxes by good schools…..
Every single member of my family live outside of NJ and their TOTAL month payment (mortagge + taxes) is under 1200$!!!!!!
Keep chanting: “but we have good schools!!!” HAve them and I will be laughing at you in 10 years when state goverment will take your home because taxes will be more than your yearly salary….
Clot,
I only see public comments as I don’t go to his seminars, but from Grim’s live blogging at his seminar he was definitely pushing for lower prices. I simply made the point here that he now seems to be placing the blame on subprime, which I have a problem with. Everyone just blames it on subprime, there was a problem long before subprime was an issue.
Also, you agree with my statement that realtors want deal flow, however to say it’s not in realtors best interest for prices to be higher is dead wrong. If the price is higher, you get paid more, plain and simple. Whether it’s $5 or $500, you’re still getting more commish on a higher priced home. It’s when prices move from the range where deal flow slows is when realtors lose. Which is where we are now.
Man, Clot is sure earning whatever Grim pays him today. Thanks for the insight and candor.
Re: post 20, there are some specific circumstances in which I could see housing once priced at $500K going for $250K (think about the builders here). The volume of such bargains would be extremely small, but it is not out of the question.
WARNING, TOTAL AMATEUR PSYCHOLOGY TIME
As far as the subprime reference, I think there are a few other things at play in the discussion.
First, as long as the bankers (the people generally quoted on the topic in the press) call the problem subprime, they can kid themselves about the bigger problem (though how successfully, is tough to say).
The other thing about calling the problem “subprime” is it puts the problem in a certain box. All of the people who don’t have “subprime” loans, but are struggling are left with the sense that they are unique, and that s the problem they have is their own fault (which it is).
However, if lots of people are known to be failing then the people in trouble could rationalize that it’s not their fault, it’s happening to “everyone.” When you can place the blame outside yourself it’s a lot easier to go belly up and walk away with some dignity, even if it’s undeserved.
http://homes.realtor.com/search/listingdetail.aspx?zp=07052&mnp=33&mxp=32&typ=1&sid=85a44c293fb64f2182199b4f075b1db9&lid=1088401280&lsn=7&srcnt=11#Detail
whau do you think is the real actual value of this house?
it is in 38 redwood ave
west orange nj 07052?
I know that maybe in 2011 is going to be 350k 400k
but I have to buy this year