Bubble chant continues to grow louder

Posted on September 15, 2015 by grim

From HousingWire:

Bubble, bubble? Number of overvalued markets doubles since first quarter

A new report from CoreLogic (CLGX) identifies 14 of the top 100 markets in the U.S. as currently overvalued, double the number as of the end of the first quarter 2015.

CoreLogic’s Market Condition Indicators says that Texas has the largest number of overvalued markets, with five of its six top markets identified as overvalued. The Market Condition Indicators evaluate whether individual markets are undervalued, at value, or overvalued based on the market’s real disposable income per capita.
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“Since last year, geopolitical events have shifted in favor of excess oil supply, possibly exerting further downward pressure on oil prices in the next few years and impacting some of these Texas markets. The areas that have become overvalued since last quarter are: Cape Coral, Fla., two Tennessee markets, Knoxville and Nashville – Davidson – Murfreesboro – Franklin, philadelphia, Silver Spring–Frederick–rockville metro in Maryland and Denver–aurora–Lakewood in Colorado. as home prices have risen significantly since 2013, homes have become less affordable, and therefore, home prices less sustainable,” the reports says.
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During the bubble years of 2005 through 2007, home prices were more than 10% above the long-run sustainable levels. During the market collapse, home prices quickly fell more than 10% below the sustainable price during late 2010 and early 2013. Subsequently, as home prices have continued to rise, the gap has narrowed to 3.6% below the long-run sustainable level in June 2015 and is expected to remain within the normal range through the end of 2017, with the gap forecasted to shrink further to 1.5%.

Posted in Demographics, Economics, Employment, Housing Bubble, National Real Estate | 43 Comments

What me worry?

Posted on September 14, 2015 by grim

From Real Estate Weekly:

Threat of natural disaster does little to dampen home prices

Do the high real estate prices in New York and New Jersey equal high danger?

The area has certainly seen its share of intense weather in recent years. But while the Tri-State area won’t likely be considered as a backdrop for the next earthquake blockbuster to hit the big screen, a recently released report from RealtyTrac reveals that a significant number of local neighborhoods are likely targets for harsh weather.

The 2015 U.S. Natural Disaster Risk Report found that 35.8 million U.S. single family homes and condos with a combined estimated market value of $6.6 trillion are in counties with high, or very high, natural hazard risk.

Those 35.8 million homes represent 43 percent of the 83.4 million single family homes and condos in all counties analyzed for the report.

For the report, RealtyTrac assigned a natural disaster risk score to 2,318 counties nationwide with sufficient home value data available. Based on its score, each county was assigned to one of five risk categories for overall risk of natural disaster: Very High, High, Moderate, Low and Very Low.

New York and New Jersey ranked in the less favorable categories on multiple occasions.

“In the interest of personal safety and protecting the value of what is likely their biggest financial asset, prospective buyers and investors should be aware of any natural disaster risk impacting a potential home purchase,” said Daren Blomquist, vice president at RealtyTrac.
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“In most cases learning about natural disaster risk will not stop a home sale, but it will help buyers make a better-informed decision about where to buy, and also be prepared, in terms of appropriate insurance coverage and family contingency plans, depending on the type of natural disaster risks most affecting the home they end up purchasing,” Blomquist added.

Blomquist’s optimism regarding home sales is backed up by the fact that home values in high-risk disaster areas throughout the country are stronger than those in regions where the threat of storms, floods, etc. is less daunting.

Homes in Very High risk counties for overall natural disaster risk had an average estimated market value of $170,237, and homes in High risk counties had an average estimated market value of $191,244, according to the report.
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Both New York and New Jersey were tagged in a group of states with the most homes in the High Risk or Very High risk categories with New York holding 2.4 million and New Jersey contributing 2.3 million.
Other states with significant numbers in both categories include California (8.4 million), Florida (6.7 million), and North Carolina (2.3 million).

In terms of metro areas with the highest risk, New York City took home the most precarious ranking and registered 3.5 million homes in High risk or Very High risk zones.

Posted in New Jersey Real Estate, NYC, Shore Real Estate | 35 Comments

Hey NYC – Come to Jersey!

Posted on September 12, 2015 by grim

From the NYT:

Buying a Second Home First

Some New York City renters are skipping the typical first rung on the urban homeownership ladder: Instead of investing in an apartment, they are buying a country house. Disappointed by what their budget will buy in the city, they are still living the American dream of having a place of their own, if only on the weekends, in the Catskills, at the Jersey Shore or in Connecticut.

For less than $350,000 — an amount that barely buys a studio in brownstone Brooklyn these days — they are finding that they can afford homes with three bedrooms or more on several acres of land, sometimes on lakefront property, or with a pool. For those with as much as $2 million to spend, the options range from turn-of-the century mansions to sprawling estates.

Graeme Sibirsky and China Aroh Sibirsky are both artists and educators who live in a three-bedroom apartment they rent in Clinton Hill, Brooklyn. With a $600,000 budget, they initially searched for a house of a similar size to buy deeper in Brooklyn, looking as far as Mill Basin, Canarsie and East New York. But within their budget, they found that the places they could afford were smaller than their current apartment. “If we are spending hundreds of thousands of dollars, we need to feel we upgraded, not downgraded, our living space,” Mr. Sibirsky said.

Switching gears, they cut their budget in half and began searching for vacation houses upstate, in Sullivan County and Orange County, N.Y., and the Poconos in Pennsylvania. “We wanted to start investing in real estate, so we decided to start with a vacation home that was more affordable, can be rented on Airbnb and would be fun to enjoy ourselves, and with family and friends,” he said.
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“We’re seeing this now more than ever before because prices are historically high in the city,” said Kathy Braddock, a managing director of the New York City office of William Raveis, which also has offices in Connecticut, Massachusetts, Rhode Island, New Hampshire, New Jersey, Maine and Vermont. While there always have been New York City renters looking to buy weekend homes, she noted, demand has been so strong that the company is introducing a new division this month called Raveis Escapes, to cater to New Yorkers shopping for their second home first. “A lot of hard-working young people can’t amass a down payment that’s substantial enough” to purchase something in the city, she said, noting that many co-op boards require sizable liquid assets in addition to hefty down payments and closing costs. “But they still want the benefits of homeownership.”

Posted in Demographics, Economics, New Jersey Real Estate | 27 Comments

Bubble? Already?

Posted on September 11, 2015 by grim

From CNN:

Rising home prices aren’t all good news

Nationwide, the median home price increased 8.2% to $229,400 in the second quarter compared to 2014, according to the National Association of Realtors.

First, the good news: Higher prices increase home equity and help bring some owners above water and increase their wealth.

“People with a lot of equity are more likely to start small businesses and are more likely to move up the economic ladder,” said Bill Wheaton, an economics professor at MIT. “Having collateral propels you in life.”

Now, the bad news: Incomes haven’t kept up. While the unemployment rate has dropped from 10% in October 2009 to the current 5.1%, pay growth has been slow. Hourly earnings rose just 2.2% in August from the year before.

Sluggish wage growth makes it harder for buyers to enter the market — particularly first timers and borderline borrowers.

“When home prices are far outstripping incomes, it will take out the marginal buyer who can qualify for a certain loan and down payment. If home prices continue to increase, those properties are no longer affordable,” said Keith Gumbinger, vice president of HSH.com.

Home prices have recovered unevenly across the housing spectrum. “Homes in the bottom third of the market are appreciating faster on an annual basis than those on the top,” said Zillow’s Chief Economist Svenja Gudell.

“At the same time, incomes at the bottom are flat, and sometimes even declining where incomes at the top are mildly rising.”
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“That is too much. You can’t sustain that. If you think of the average worker, what are they to do?”

Posted in Demographics, Economics, Employment, National Real Estate | 60 Comments

Flipping Revel?

Posted on September 9, 2015 by grim

From the Star Ledger:

Revel owner trying to flip closed casino to new buyer, power company says

The power company engaged in a prolonged legal battle over energy costs at the former Revel casino claims in a recent court filing that the boardwalk resort’s owner is trying to sell the property.

Lawyers for ACR Energy wrote in documents filed in federal court on Friday that Florida real estate developer Glenn Straub’s Polo North “refuses to pay for energy services, while it tries to flip the nonoperational complex to a new buyer.”

The filing further claims that Polo North has engaged in “knock-down-drag-out war rather than negotiate, leading one to conclude that Polo North is just not interested in operating any business or permitting any business to operate in the complex.”

Straub said he didn’t buy the Revel with the intention of flipping it.

“We didn’t buy it because we wanted to sell it,” he said. “We didn’t buy it if we weren’t going to develop it.”

But Straub also said if somebody makes an offer “that would turn our heads” on any of the properties or other assets his company owns, they’d consider it.

Polo North bought the former Revel Casino, which cost $2.4 billion to build, for $82 million in April. The casino was one of four to close in Atlantic City last year. Straub said then that the property may reopen as early as this summer.

It remains closed.

Posted in New Development, South Jersey Real Estate, Unrest | 143 Comments

Wells Fargo just doing their job? Or crossing a line?

Posted on September 8, 2015 by grim

From ThinkProgress:

Why A Bank Was Allowed To Plunder Family Heirlooms That Escaped The Nazis

When Adier died at 82, he was downstairs in the Morristown, New Jersey home where he and his late wife Rita raised their two adopted children. As of his death in August of 2012, that house held the physical and emotional spoils of the Adlersteins’ elusion. Henri’s children hadn’t lived there for years, but they began the painful preparations that follow the death of a parent.

There were practical matters to tend to, and finding the energy to crack open Henri’s handwritten memories was always a task for the future.
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The stories and recollections that book contained must have been gripping. Henri didn’t just survive the war. After Paris fell and soldiers sealed his family’s apartment, the boy helped his father – David’s grandfather, a tailor by trade – to sneak into the flat and boost sacred family heirlooms: a kiddish cup, a seder plate, and some other objects.
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But they didn’t survive Wells Fargo. Neither did Henri’s diary.

After Henri died and Hurricane Sandy devastated David’s business, he says, financial paperwork involving the Adier family home was slow to process. Henri’s mortgage, which had been current when he died, went unpaid for two months.

Then, a lawsuit by David and Anne Adier alleges, agents under contract to Wells Fargo visited the house in Morristown, New Jersey, and decided it was abandoned. The inspectors’ finding allowed the bank’s property management subcontractor, Lender Processing Services (LPS), to ask the bank to authorize what’s called a “lockout.” The inspectors left a sticker on the Adiers’ door warning that the bank would consider it abandoned and start changing locks unless notified otherwise.

Anne Adier discovered the sticker on November 6, 2012, the Adiers say, and called the company to inform them they were mistaken, that the house was being looked after and didn’t need to be secured on Wells Fargo’s behalf. “They thanked her for calling and assured her nothing would happen to the property,” David said. (Anne declined to be interviewed.)

Three weeks later, though, David arrived to find the locks changed and the house ransacked. David called the police, but “their party line was this is a civil matter between you and the bank.” Despite Anne’s conversation with LPS, Wells Fargo’s contractors had gotten approval to go into the Adier home. They changed the locks. When David finally got back into the house weeks later, he found it ransacked.
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Wells Fargo hadn’t initiated foreclosure proceedings, but refused to deal with David until he furnished his father’s death certificate. After he sent that over, he says the bank demanded to see court papers deeming David his father’s executor. When those documents were certified, the bank finally began negotiating with David about the property’s future.

By then it was the spring of 2013. Bank agents had visited the house repeatedly. Almost every material object had been taken, including family photos and a diary Henri kept of his wartime travails.

“It became this game of cat and mouse, until everything of value — down to the brass door knocker — had been taken,” Adier said.
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“The way it works in most cases is the bank engages a property preservation company, which then sub-contracts with another company, who then sub-subcontracts with day laborers to save as much money as possible,” said plaintiffs’ attorney Josh Denbeaux, referring to numerous confidential contracts he has seen in other cases but cannot discuss in detail. “The day laborers get paid $10, $12, $15 bucks a pop for doing a drive-by inspection. They get $200 to $300 for a lockout.”

There is little in the way of accountability or professional training to counteract the skewing effect of those wage incentives, according to Center for American Progress housing market expert Julia Gordon. “The compensation to do the work quickly is there,” Gordon told ThinkProgress, but not the kind of compensation that would motivate people to do it correctly.
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Wells Fargo doesn’t dispute that its sub-contracted agents conducted a lockout and a trashout on Henri Adier’s home, but believes that it had the proper legal authority to perform any actions necessary to secure a home they thought to be abandoned.

Posted in New Jersey Real Estate | 76 Comments

Can we still make things here?

Posted on September 6, 2015 by grim

From the Record:

NJ manufacturing employment gains suggests end of job losses

A surge in New Jersey’s manufacturing employment over the last year has raised the possibility that the more than 40-year decline of the sector has bottomed out.

The state has added 4,600 manufacturing jobs since July 2014, the largest 12-month increase in the sector since at least 1991, according to the earliest records that are readily available on the website of the New Jersey Department of Labor and Workforce Development.

The manufacturing sector has had only a few 12-month employment increases in that period, and those — including upticks in late 2013 and early 2014 — were far smaller than the current one. The largest previous increase in that stretch was in 1997, when the state added 2,900 manufacturing jobs over 12 months.

The recent uptick was about evenly divided between the two categories that make up manufacturing employment figures, with an increase of 2,100 over 12 months in the category of durable goods, those that last a long time, such as household appliances, machinery and equipment. Non-durable goods, which don’t last long, such as food and clothing, accounted for an increase of 2,500 jobs.

While the increase is modest — adding 4,600 jobs is a rise of about 2 percent in manufacturing employment — it provides a relatively strong reversal of the extended tide of factory job losses. And economists, though cautious in light of four decades of manufacturing jobs losses, said the figures suggest that the sector has hit the bottom.

“I would take that as a positive,” said Patrick O’Keefe, director of economic research at CohnReznick, a global accounting firm with an office in Roseland. “It’s bottoming out,” he said, adding that the sector’s apparent surge has come despite the fact that the strengthening dollar and the weakness of some foreign economics have made U.S. goods less attractive to foreign buyers.
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Manufacturing employment peaked in New Jersey in 1969, and the predominant trend — until recently — has since been downward. The state has lost on average about 11,600 manufacturing jobs every 12 months since 1991.

Sector employment has fallen by more than half, from 548,000 to the current 247,300, since 1990, and now accounts for just about 6 percent of all jobs in the state, figures on the department website show.

James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said the state shed manufacturing jobs rapidly during the recession and at a slower pace as the post-recession recovery took hold, rarely adding jobs.

The current figures, with a significant increase, suggest that that dynamic may have changed, however, Hughes said.

“This would suggest that maybe we have reached a floor in the long-term steady decline,” he said. “It could be that the long-term hemorrhage in manufacturing jobs may finally be bottoming out.”

Hughes said the proportion of jobs in the state manufacturing industry peaked in the 1940s, when half of all New Jersey’s jobs were in manufacturing, and the state was a strong producer of cars, textiles, chemicals, embroidered cloth, telecommunications equipment and other products. He added that the sector accounted for about one-third of all jobs when the number of jobs peaked in 1969, with service jobs having grown dramatically to become the predominant sector.

Posted in Demographics, Economics, Employment, New Jersey Real Estate | 44 Comments

Which way is up? A new home price index.

Posted on September 4, 2015 by grim

From Bloomberg:

Almost Half of Homes in New York and D.C. Are Now Losing Value

Almost half of single-family houses in the New York and Washington metropolitan areas are losing value, a sign that buyers’ tolerance for high prices in many large U.S. cities may be reaching a limit.

The values of 45 percent of houses in both the Washington and New York areas slumped by at least 2 percent in June from a year earlier, according to a new index created by Allan Weiss, co-founder of the Case-Shiller home price indexes. In June 2014, only 15 percent of Washington residences dropped in value, while 20 percent fell in New York. Because the index is of only single-family homes, it doesn’t include Manhattan. More properties also were in decline in Los Angeles, Chicago, Phoenix and Miami.

A steady rise in U.S. home prices since the bottom of the market combined with weak income growth has made housing less affordable, especially in big cities. Credit remains tight and demand is now being driven primarily by buyers dependent on mortgages, as foreign buyers and investors pull back from the market.

“What happens in any bull asset bubble such as what we’ve seen is you run out of buyers,” said Chris Whalen, senior managing director at Kroll Bond Rating Agency Inc. and an advisor to Weiss. “It’s hard to get deals done if the bottom third can’t get a mortgage.”

Weiss, founder and chief executive officer of Weiss Residential Research LLC, based in Natick, Massachusetts, introduced his repeat-sales index last year. It provides a value for every home in the markets the firm covers based on similar homes that sold nearby.

While an average home in a city may be rising, many homes within the area may be losing value instead, he said. A larger share of homes with declining values could be an early warning that the market may be in danger, he said.

“If you have a market where every house is rising and you hear the news that the housing market is up, you’re correct in applying it to your own home,” Weiss said. “However, if you are in a market where 60 percent of houses are rising, you have a 40 percent chance of misunderstanding what’s going on with your house.”

Posted in Economics, Housing Bubble, Housing Recovery, National Real Estate | 59 Comments

September Beige Book

Posted on September 3, 2015 by grim

From the Federal Reserve:

Beige Book – September 2, 2015 – Second District–New York

The Second District’s economy has continued to grow at a modest pace since the last report. Businesses generally report that selling prices remain stable; while input price pressures have abated somewhat, there are signs of increased wage pressures. Labor markets have tightened further in recent weeks. Consumer spending has picked up somewhat in early August but remains generally soft; tourism remains sluggish. Manufacturing activity has weakened noticeably since the last report. Housing markets continued to improve, while commercial real estate markets were mixed but generally stronger. Both commercial and multi-family residential construction remain fairly robust. Finally, banks report stronger loan demand and lower delinquency rates, especially on consumer loans.
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Construction and Real Estate
The District’s housing markets have generally been stronger since the last report, and new multi-family residential construction remains brisk. Northern New Jersey’s housing market continues to recover gradually, with a large overhang of distressed properties continuing to weigh on the market; the multi-family segment, as well as areas near New York City, continue to outperform the market as a whole. Realtors in western New York report that the housing market has picked up steam over the past month or two; low inventories and strong demand have pushed up prices and made bidding wars common. Home sales and prices across New York State more broadly have also been increasingly robust. New York City’s co-op and condo market has continued to strengthen gradually: activity is down from elevated 2014 levels, but steady, while prices continue to climb, except at the high end of the market.

Residential rental markets have been steady to somewhat stronger. Apartment rents have been running 3-5 percent ahead of a year earlier in Brooklyn, Queens and northern New Jersey, while they have been essentially flat in Manhattan and across upstate New York. Whereas vacancy rates on rental apartments have been steady or declining across most of the District, Manhattan’s vacancy rate, though still quite low, has climbed steadily over the past year. One contact notes that there is a large supply of new (mainly luxury) rental apartments in the pipeline. Multi-family residential construction remains brisk across most of the District.
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Other Business Activity
The labor market has gained some further momentum since mid-year. Two major New York City employment agencies report that hiring activity has picked up further, while a major agency in upstate New York notes that the job market continues to improve moderately. Job candidates are getting job offers more quickly, and there is growing upward pressure on starting salaries. The financial sector is reported to be hiring more actively, but the recent increase has been broad-based. In particular, truck drivers, IT workers, creative workers, auditors, accountants, and human resource professionals are reported to be in high demand. Temp workers are also said to be in short supply, as many are being hired permanently.

Service-sector firms broadly report that business has continued to improve moderately in recent weeks, and they remain generally optimistic about the near-term outlook. In contrast, manufacturers report that business activity has weakened noticeably, though they too express fairly widespread optimism about the near-term outlook. Unlike business in other industries, manufacturers indicate they have scaled back hiring somewhat. Both manufacturers and service firms generally report that selling prices remain flat overall. Manufacturers also report that input prices remain flat, while service-sector firms report that input price pressures, though still fairly widespread, have abated somewhat.

Posted in Economics, New Jersey Real Estate, NYC | 61 Comments

30% of the US at peak home price (but not NJ)

Posted on September 2, 2015 by grim

From HousingWire:

CoreLogic: Home prices rose 6.9% in July 2015

Home prices nationwide, including distressed sales, increased by 6.9% in July 2015 compared with July 2014, according to CoreLogic.

On a month-over-month basis, home prices nationwide, including distressed sales, increased by 1.7% in July 2015 compared with June 2015.

“Home sales continued their brisk rebound in July and home prices reflected that, up 6.9% from a year ago,” said Frank Nothaft, chief economist for CoreLogic. “Over the same period, the National Association of Realtors reported existing sales up 10% and the Census Bureau reported new home sales up 26% in July.”

Including distressed sales, only Colorado has more than 10% year-over-year growth. Additionally, only 10 states have experienced increased growth in the last year that matched or surpassed the nation as a whole; those states are: Colorado, Florida, Hawaii, Nevada, New York, Oregon, South Carolina, South Dakota, Texas and Washington.

Fifteen states reached new price peaks since January 1976 when the index began including Alaska, Arkansas, Colorado, Hawaii, Iowa, Kentucky, Montana, Nebraska, New York, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee and Texas.

Only two states experienced home price depreciation: Massachusetts (-2.1%) and Mississippi (-0.8%).

Posted in Housing Recovery, National Real Estate | 84 Comments

Welcome Home!

Posted on September 1, 2015 by grim

From the Real Deal:

The Chinese are about to flood the US real estate market

The chaos of the past few weeks is likely to lead to an acceleration in the rate of real-estate purchases by wealthy Chinese buyers in the US and elsewhere.

“[Chinese] Investors who were looking at investing overseas may bring forward their purchases,” James MacDonald, head of Savills Research in China, wrote in an email to Business Insider. “While some of those that may not have been considering the purchase of property in the U.S. may now look at doing so.”

The Chinese see US real estate as a relatively moderate risk, high-return investment, Svenja Gudell, the chief economist at real-estate-research site Zillow, told Business Insider. Especially if buyers anticipate further RMB devaluation and market volatility.

Wealthy Chinese are already the largest group of foreign real-estate buyers in the US, with 16% of the single homes and condominiums purchased by foreign buyers snapped up by Chinese last year, according to the US National Homebuyers Association. They were trailed by Canadians, who bought 14% of homes.

These houses are typically more expensive properties, worth an average $831,800. Domestic buyers average $345,800 on a new single-family home, according to the US Census Bureau.

Brokers in the US can see the shifting sentiment among their Chinese real-estate clients.

Emma Hao, a broker for Douglas Elliman who specializes in Chinese clients, told Business Insider she’s already felt an increase in urgency among her buyers to purchase property in the US before the yuan devalues further.

“Because they are insecure about the economy and the politics, with the RMB devaluation, the stock market got mashed, and the real estate in China is a big bubble — there is nowhere to go.”
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Andrew Wu, a real-estate agent at Daniel Gale Sotheby’s who caters to Chinese luxury-real-estate buyers in Long Island, told Business Insider: “They’re looking for a safe haven, and the real-estate market has always been looked upon as a safe haven for Chinese buyers.”

Posted in Demographics, Economics, Housing Recovery, National Real Estate | 76 Comments

The Subprime Myth

Posted on August 31, 2015 by grim

From PBS:

The U.S. foreclosure crisis was not just a subprime event

Many studies of the housing market collapse of the last decade, and the associated sharp rise in defaults and foreclosures, focus on the role of the subprime mortgage sector. Yet subprime loans comprise a relatively small share of the U.S. housing market, usually about 15 percent and never more than 21 percent. Many studies also focus on the period leading up to 2008, even though most foreclosures occurred subsequently. In A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012 (NBER Working Paper No. 21261), Fernando Ferreira and Joseph Gyourko provide new facts about the foreclosure crisis and investigate various explanations of why homeowners lost their homes during the housing bust. They employ microdata that track outcomes well past the beginning of the crisis and cover all types of house purchase financing — prime and subprime mortgages, Federal Housing Administration (FHA)/Veterans Administration (VA)-insured loans, loans from small or infrequent lenders, and all-cash buyers. Their data contain information on over 33 million unique ownership sequences in just over 19 million distinct owner-occupied housing units from 1997– to 2012.

The researchers find that the crisis was not solely, or even primarily, a subprime sector event. It began that way, but quickly expanded into a much broader phenomenon dominated by prime borrowers’ loss of homes. There were only seven quarters, all concentrated at the beginning of the housing market bust, when more homes were lost by subprime than by prime borrowers. In this period 39,094 more subprime than prime borrowers lost their homes. This small difference was reversed by the beginning of 2009. Between 2009 and 2012, 656,003 more prime than subprime borrowers lost their homes. Twice as many prime borrowers as subprime borrowers lost their homes over the full sample period.
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The authors’ key empirical finding is that negative equity conditions can explain virtually all of the difference in foreclosure and short sale outcomes of prime borrowers compared to all cash owners. Negative equity also accounts for approximately two-thirds of the variation in subprime borrower distress. Both are true on average, over time, and across metropolitan areas.
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The authors’ findings imply that large numbers of prime borrowers who did not start out with extremely high LTVs still lost their homes to foreclosure. They conclude that the economic cycle was more important than initial buyer, housing and mortgage conditions in explaining the foreclosure crisis. These findings suggest that effective regulation is not just a matter of restricting certain exotic subprime contracts associated with extremely high default rates.

Posted in Economics, Housing Bubble, Risky Lending | 65 Comments

Will higher rates tank the market?

Posted on August 29, 2015 by grim

From Reuters:

U.S. housing market seen strong enough to handle Fed rate hikes: Reuters poll

The U.S. housing market is probably strong enough to stand up against an interest rate hike by the Federal Reserve this year, with stabilizing home prices supporting sales, a Reuters poll of top economists showed on Wednesday.

Of 22 economists surveyed, all but two said the market could withstand the Fed’s expected rate hikes. They pointed to job creation and growing demand for houses from millennials as factors contributing to the market’s resilience.

“Rates are very reasonable now, and the signal the Fed will give when they begin raising their key lending rate will push more people into the market,” said Rajeev Dhawan, director of the economic forecasting center at Georgia State University.
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Economists say home price increases of about 5 percent are just strong enough to raise equity for homeowners to encourage some to put their properties on the market and help address a persistent shortage of houses available for sale.

The increase is also not big enough to price out first-time home buyers, economists say.

But the economists were evenly divided over whether the home ownership rate, which dropped to a 35-year low in the second quarter, would decline further before rising again.
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“The recent strength of housing activity suggests the market is well placed to cope with a gradual rise in interest rates,” said Capital Economics economist Matthew Pointon. “Rising rates will also be accompanied by an improving labor market and gradually loosening of credit conditions.”

Some said potential buyers would try to lock in low rates, but others said staggering student debt would continue to prevent young people from buying homes.

“There are no bargains in the market now,” said FAO Economics economist Robert Brusca. “Maybe high rents will drive people to buy. But it seems the opposite is true. High house prices make high rents look cheaper.”

Posted in Economics, Housing Recovery, Mortgages | 44 Comments

Pending Home Sales Up in July

Posted on August 28, 2015 by grim

From CNBC:

Pending home sales rose just 0.5% in July

U.S. home buyer demand remained steady in July, although consumers did not react significantly to easing mortgage rates. An index of so-called pending home sales from the National Association of Realtors, which represents signed contracts, not closings, was basically flat, rising 0.5 percent from an upwardly revised June reading.

The index is now up 7.4 percent from one year ago. Pending sales slipped in June but had otherwise been rising for five months.

“Contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” said Lawrence Yun, chief economist for the NAR in a release. “While demand and sales continue to be stronger than earlier this year, Realtors have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust.”
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Pending home sales in the Northeast increased 4 percent July from June and in the Midwest were unchanged. In the South, sales increased 0.6 percent. The West was the only region to see weakness, with pending home sales down 1.4 percent for the month.

Posted in Economics, Housing Recovery, National Real Estate | 51 Comments

As goes our infrastructure, so goes our economy

Posted on August 27, 2015 by grim

From Bloomberg:

N.J.’s Creaky Mass Transit Endangers Boom for Wall Street West

Jersey City, one of the few bright stars in New Jersey’s employment recovery, is in danger of being strangled by the state’s transportation crisis.

The city on the Hudson River waterfront accounted for 10 percent of the state’s job growth in the past year. It has lured residential development and companies like JPMorgan Chase & Co. and Fidelity Investments, and outpaced the state and nation in reducing joblessness. Mayor Steven Fulop expects Jersey City to surpass Newark as the state’s most populous municipality in 2016.

He’s not so sure, though, that New Jersey’s rails and roads can handle the influx. A new commuter-rail tunnel into Manhattan is at least a decade away. The existing ones are vexed by repairs and delays. Governor Chris Christie’s calls for fiscal restraint are threatening the growth of cities like Fulop’s that are dependent on public transportation.

“Jersey City’s success has largely been correlated to investment in mass transit,” said Fulop, a Democrat. “Trenton’s lack of a plan has really had and could potentially have a devastating impact.”

His 14-square-mile (36 kilometer) community of 257,300, one train stop from Manhattan, has lured financial firms in the past decade, earning the nickname Wall Street West. Fulop, 38, who worked at Citigroup Inc. and Goldman Sachs Group Inc., quit Sanford C. Bernstein & Co.’s trading desk to run for mayor and took office in 2013.

Millions of dollars in tax incentives have persuaded companies to move to Jersey City. New York Life Insurance Inc. received $33.9 million over 10 years from the New Jersey Economic Development Authority to bring 625 jobs to Goldman Sachs Group Inc.’s waterfront building, itself the recipient of a 20-year tax break. JPMorgan secured about $188 million in tax benefits over 10 years, according to filings with the development authority.

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