December Beige Book

Posted on December 2, 2010 by grim

From the Federal Reserve:

December Beige Book (Summary of current economic conditions) – Second District–New York

Construction and Real Estate

Housing markets across the District have been steady to softer since the last report, with some of the ongoing weakness at the lower end of the market attributed to the mid-year expiration of the home-buyer tax credit. In general, prices have drifted down across much of upstate New York and in northern New Jersey since mid-year, while prices in New York City remained relatively steady. Buffalo-area Realtors report that the housing market weakened somewhat in October through early November, particularly for lower-priced homes; sales activity has slowed, and the supply of homes on the market has increased. Similarly, a contact in northern New Jersey reports that market conditions remain sluggish: sales activity remains low and is still largely composed of distress sales, and prices are still said to be edging down.

Activity in New York City’s co-op and condo market has slipped by a bit more than the seasonal norm in October and early November, particularly at the lower end of the market, though a recent flurry of activity is reported at the very high end (homes in the range of $8 million or more). Prices remain stable across the spectrum. While the number of new condos under construction has declined modestly, there continues to be a substantial inventory of unsold, completed units. Manhattan’s rental market has reportedly softened a bit since the last report. Rents remain stable, but landlords are, once again, offering concessions (such as one or more month’s free rent), though these discounts are not as steep as in 2009. A substantial amount of new housing in the pipeline is likely to be offered as rentals.

Office markets across the District have been steady to slightly softer thus far in the fourth quarter. Asking rents held steady in Manhattan and slipped in northern New Jersey, Long Island and Rochester but rose modestly in Westchester and Fairfield counties and in Buffalo. Vacancy rates have been steady to modestly higher since the last report. Sales of commercial properties remain sluggish, and a contact in upstate New York reports that commercial construction activity remains at depressed levels.

Posted in Economics, New Jersey Real Estate | 199 Comments

Brother Customer can you spare a dime?

Posted on December 1, 2010 by grim

Was doing some shopping last night, and came across the following sign taped to a cash register at a local small business. Are we really so sure the recession is over?

Coincidentally… From the AP via the Cherry Hill Courier Post this morning:

Business survey: Mood is downbeat in N.J.

Some small business owners surveyed across New Jersey remain pessimistic about their short-term future.The New Jersey Business and Industry Association Tuesday released results from its annual survey. Nine percent of the membership, or 1,311 members, responded. More than three-quarters of those respondents represented small businesses.

Most respondents said they did not expect a significant economic upturn in the first half of next year. Many said business picked up slightly this year. But they reported that sales and profits remain at recession levels.

“Despite improving business conditions, most companies are still struggling to shake off this terrible recession,” said NJBIA President Philip Kirschner.

Posted in Economics | 168 Comments

Case Shiller Day! (September home prices)

Posted on November 30, 2010 by grim

From the WSJ:

S&P Case-Shiller: US Home Prices Fall In September, 3Q

U.S. home prices dropped in September from a month earlier and the rate of decline showed signs of accelerating, according to the S&P Case-Shiller home-price indexes. Third-quarter prices were also down.

The indexes, based on the three-month averages of home prices, had fallen in August for the first time in four months, a delayed response to the housing-market weakness following the expiration of federal home-buyer tax credits in April.
…
The Case-Shiller index of 10 major metropolitan areas dipped 0.5% from August, while the 20-city index decreased 0.7%. Adjusted for seasonal factors, the declines were 0.7% and 0.8%, respectively.

For the third quarter, the S&P Case-Shiller U.S. National Home Price Index posted a 1.5% decrease from a year earlier. It declined 2% sequentially.

The economy continues to weigh on the housing market, along with the large supply of houses and “hidden” supply from delinquent mortgages, pending foreclosures or vacant homes, said David Blitzer, chairman of S&P’s index committee.

From MarketWatch:

Sept. home prices down 0.7%: S&P/Case-Shiller

The prices of single-family homes in 20 major cities fell a non-seasonally adjusted 0.7% in September, according to the S&P/Case-Shiller home price index released Tuesday by Standard & Poor’s. Prices have moved up 0.6% in the past year, down from 1.7% in August. This is the fourth consecutive month where annual growth rates moderated from the prior month’s pace, confirming a “clear deceleration in home price returns,” S&P said. Home prices decreased in 18 of the 20 metropolitan areas tracked by Case-Shiller in September compared with August.

From Bloomberg:

Home Prices in 20 US Cities Probably Cooled in September as Sales Fell

Real-estate prices in 20 U.S. cities probably rose in September at the slowest pace in eight months, showing the latest slump in sales is destabilizing housing, economists said before a report today.

The S&P/Case-Shiller index of property values climbed 1 percent from September 2009, the smallest year-over-year gain since February, when the market began to recover following a three-year drop, according to the median forecast of 28 economists surveyed by Bloomberg News. Other reports may show consumer confidence rose and businesses expanded.

The end of a government tax credit for homebuyers and unemployment hovering near 10 percent have led to a decrease in demand, delaying a recovery in the industry that precipitated the worst recession since the 1930s. Declining home values threaten to undermine the improvement in consumer confidence that is helping boost spending and accelerate economic growth.

“We’re in for more downward adjustment on home prices,” said Neil Dutta, an economist at Bank of America Merrill Lynch Global Research in New York. “People don’t want to buy a house when they think it’s going to lose value. A return to a normal housing market is going to be measured in years, not months.”

The S&P/Case-Shiller figures are due at 9 a.m. New York time. Survey estimates ranged from an increase of 1.6 percent to a decline of 3.4 percent, after a 1.7 percent gain in August.

Posted in Economics, Housing Bubble, National Real Estate | 162 Comments

From Bonnie & Clyde to Ozzie & Harriet

Posted on November 29, 2010 by grim

From BusinessWeek:

The Next Home Buyers: Ozzie & Harriet

It’s an unsettling time to be shopping for a home. Home values have yet to stabilize in three-quarters of U.S. metropolitan areas. Alarm about so-called robo-signing of foreclosure paperwork has raised fundamental questions about who owns a property’s title. And, while unlikely, two bipartisan commissions have suggested capping or killing the previously sacrosanct tax deductibility of mortgage interest.

As a result, home shoppers are being forced to accept a more traditional view of a real estate purchase: seeing their new home more as a savings account than as an investment. That represents a switch from how many owners thought during the go-go years of surging home prices and easy money, says Stan Humphries, chief economist of real estate information and listings website Zillow. “It’s essentially a forced savings plan, putting aside a percentage of your income into a savings account that is a non-depreciating asset in typical times,” he says.

Of course, that’s not necessarily a bad thing. From the 1950s through the mid-1990s, home values appreciated 2 percent to 4 percent a year, on average, just beating the rate of inflation. The challenge is that Humphries also thinks home values won’t bottom nationally until June 2011 at the earliest. Even when home values bottom out, Humphries expects an L-shaped bottom. His grim outlook is based on the fact that 23.2 percent of single-family homes across the U.S. had negative equity in the third quarter—which means high foreclosure rates will likely persist, while underlying demand for housing remains weaker due to high unemployment. The Obama Administration doesn’t expect unemployment to return to a normal range, below 6 percent, until 2015, according to the Office of Management and Budget’s mid-session review released in July.
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Prospective home buyers are happy now if their purchase simply holds its value, says Patrick “Bud” O’Hagan, a broker at Terry O’Connor Realtors in Allendale, N.J. Buyers “want to make sure that a year or two from now the house is still worth more than what their mortgage is,” says O’Hagan. “They’re looking at what happened to houses bought two years ago that are under water.”
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Charles Moore, owner of McGuire Real Estate in San Francisco and a third-generation broker, sees the psychological reset among prospective home buyers as a return to attitudes that prevailed before the 1970s, when inflation drove up home prices in California and other hot markets. He doesn’t fault people for hesitating to jump in now; he sees them as simply exercising all the diligence that home buyers largely abandoned earlier in the decade.

“Not only am I not overly alarmed by it, but in a way I’d say this was necessary for the market to adjust from this bubble effect to [more realistic] value,” Moore says. “‘Ozzie and Harriet’ buyers didn’t expect any return on investment.”

Posted in Economics, Housing Bubble, National Real Estate | 89 Comments

Rich Turn to Renting

Posted on November 28, 2010 by grim

From CNBC:

Rich Americans Ditch Home Ownership For Renting

Patrick Lee went from homeowner to home renter this year.

It may sound like a downgrade, but the New Yorker didn’t make the switch because he couldn’t keep up with payments or because he lost his job. Instead, Lee was nervous about the state of the housing market.

So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved — along with his wife and child — a few steps away into a luxury, two-bedroom rental unit in a brand new building.

Lee wouldn’t disclose what he’s paying, but similar two-bedroom apartments in the building usually rent for $11,000 a month.

“I wanted to protect ourselves from prices going down,” says Lee, who is a managing director at a major bank. “I didn’t want to be an owner anymore.”

Lee has company. Demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to, according to brokers and real estate analysts in affluent areas of the country such as New York City, Chicago and San Francisco.

“More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”
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Lee says that he’s the first of his peers to make the switch to renting. But that doesn’t mean they don’t want to.

“I suspect a lot of people are underwater and can’t get out,” says Lee. “A lot of people are just stuck.”

He says he doesn’t regret selling his apartment and moving to a rental, especially since the building he lives in has all the amenities and handiwork of his previous place. And he can rest easier knowing that if he has to relocate for his job, he can leave without having the burden of trying to sell an apartment.

“With so much uncertainty,” says Lee, “It gives me a lot of peace of mind.”

Posted in Economics, National Real Estate | 63 Comments

How To Make Lose a Fortune

Posted on November 26, 2010 by grim

From Fortune (Hat tip Shore!):

Why the housing bulls are wrong

A number of notable investors presented thoughtful and well-researched ideas at the Value Investing Congress last month. The one idea that we would take the other side of, though, was one from Bill Ackman of Pershing Square Capital, which was unveiled in a presentation titled “How To Make a Fortune”: to go long U.S. housing. To state it bluntly, we think Ackman is wrong on housing.

According to several reports, his thesis on U.S. housing focuses on a few key points. First, affordability is at its highest level in decades due to low mortgage rates. Second, household formation will rebound and go back to long-term trends, which suggest growth in demand. Third, supply of housing, which Ackman admits is high, will start to decline since builder production rates are as low as they have ever been. Finally, he believes the downside in housing is limited because at a certain price, institutions could step in and soak up the excess inventory.

To be fair to Ackman this is a secondhand summary of his ideas, but we wanted to address some of these key points and highlight where this thesis falls short.
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First, credit standards are higher and lenders typically require larger down payments and more upfront points, which increase the “all-in cost” of a house. (If the consumer can get a loan at all.) Second, we believe, based on our supply and demand models, that home prices will fall another 15% to 30%, which implies that the U.S. housing stock is actually overpriced. Finally, and most importantly, our analysis actually shows as houses get “cheaper,” or more affordable, demand goes down.
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As we’ve highlighted in the chart below, based on our proprietary census work, household formation has turned negative for the first time ever. This is attributed to the fact that individuals are getting married at later and later ages. In fact, we have seen a growth of 1000 basis points in unmarried people aged 25-34 over the last decade. As these people get married less frequently and later, it has a commensurate impact on household formation. In the shorter term, unemployment is also a key negative catalyst for household formation. If the long-term trend in the chart below tells us anything, we shouldn’t look at history as a guide for future household formation.
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Despite new homebuilding rates being at all time lows, we have seen no meaningful improvement in the national housing inventory overhang. In the chart directly below, we highlight months of supply of homes on the market. Currently, there are almost 11 months of supply on the market, which is near the highs of 2008. Specifically, there are now more than 4 million housing units on the market, a number that’s been accelerating throughout the year.
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While on a limited basis, small funds have been created to buy housing stock, we have not seen institutions stepping up on a larger scale to buy houses. The primary reason for this is that individual homes don’t lend themselves to purchases of scale due to their localized nature. Each and every neighborhood is unique and has its own attributes from which value must be determined and researched.

Also, the management of single family housing as an asset is labor intensive as it relates to managing the rentals of these properties. Further, a wide-scale institutional buyout of housing stock would require banks to suffer massive losses on their loan books – a scenario that they have been avoiding the entire time, as evidenced by the growth in average number of days homeowners spend in foreclosure (which is also impacted by other factors such as moratoriums and litigation).

As the housing river cards continue to show their data, it is becoming increasingly clear that U.S. housing is no bargain.

Posted in Economics, National Real Estate | 119 Comments

Thanksgiving Open Discussion

Posted on November 25, 2010 by grim

Happy Thanksgiving everyone!

—————————–

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labeled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 47 Comments

New Jersey Contract Sales Continue Decline

Posted on November 23, 2010 by grim

From the Otteau Valuation Group:

MarketNEWS – November 2010

The New Jersey housing market continued to experience weak purchase demand in October due to the lingering effects of the economic recession. In October, home purchase contracts in New Jersey for both existing and new homes fell by 30% from one year ago, marking the 6th consecutive month of declining sales. To put some perspective on present pace of sales, the chart below shows that October’s performance essentially matched that from 2 years ago in the midst of the worldwide economic collapse following Lehman Brothers bankruptcy in September 2008.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 162 Comments

October Existing Home Sales

Posted on November 23, 2010 by grim

From Bloomberg:

Existing Home Sales Decrease More Than Forecast

Sales of existing homes fell more than forecast in October as foreclosure moratoriums and a lack of credit disrupted the U.S. housing market.

Purchases decreased 2.2 percent to a 4.43 million annual rate from 4.53 million in September, the National Association of Realtors said today in Washington. Economists projected sales would decline to a 4.48 million pace, according to the median forecast in a Bloomberg News survey. The median price fell 0.9 percent from a year earlier.

An overhang of distressed properties and an unemployment rate hovering near 10 percent may restrain home sales, while concerns over faulty foreclosure proceedings threaten to further delay the mending process. At the same time, mortgage rates near record lows may help limit the damage.

“There are still going to be quite a bit of homes up for sales that have come from foreclosures,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “There is little improvement.”

Estimates of the 71 economists surveyed by Bloomberg ranged from 3.85 million to 4.7 million. In July, sales ran at a 3.84 million annual rate, the weakest in a decade’s worth of record- keeping by the Realtors group.

From CNBC:

Existing Home Sales Fall More Than Expected

Sales of previously owned homes fell more than expected in October, possibly due to delayed foreclosures and overly strict lending standards, the National Association of Realtors said Tuesday.
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Sales have fallen 25.9 percent over the past year, while median prices have fallen 0.9 percent in the past year to $170,500.

Posted in Economics, National Real Estate | 113 Comments

A “significant and growing shadow inventory that is likely to persist for some time”

Posted on November 22, 2010 by grim

From Inman:

Report: 8 months of ‘shadow inventory’

The “shadow inventory” of homes likely to be repossessed by lenders or already in their real estate owned (REO) inventory but not yet on the market reached 2.1 million units in August, up from 1.9 million a year ago, according to the latest analysis by data aggregator CoreLogic.

Because home sales also slowed, the shadow inventory represented eight months of housing supply, up from five months a year ago, CoreLogic said.

Weak demand for housing is “significantly increasing the risk of further price declines in the housing market,” said CoreLogic Chief Economist Mark Fleming — a problem that’s exacerbated “by a significant and growing shadow inventory that is likely to persist for some time” because of the length of time it takes loan servicers to liquidate properties.

Posted in Economics, Foreclosures, National Real Estate, Risky Lending | 145 Comments

Weekend Trash: Oprah buying the Frick Mansion?

Posted on November 20, 2010 by grim

From Newsroom New Jersey:

Oprah Winfrey says she’s not home shopping in New Jersey

“The Real Housewives of New Jersey” may be gaining a new neighbor.

Oprah Winfrey has been spotted looking at homes in the northern New Jersey area.

For her part, Winfrey denied any interest in moving to New Jersey.

This morning, according to the New York Daily News, Winfrey took to Twitter to stop the gossip:

“No truth to me looking for a house in Jersey. No idea who started that rumor. Been in Chicago all week working,” she tweeted.

According to published reports, Winfrey quietly slipped into town Wednesday for a house-hunting expedition along the banks of the Hudson River, sources said.

Among the homes on her list: a $68 million mansion on the sprawling grounds of the old Frick estate in Alpine, N.J., the sources said.

Prominentproperties.com lists the home as a Colonial, with twelve bedrooms, 15 full and three half-baths, 42 rooms, and a basketball court and locker in the basement. Quaint.

Oprah’s three-car entourage pulled into the ritzy enclave before noon Wednesday, a source said.

The billionaire then toured the 30,300-square-foot, English-manor-style mansion, which is part of the “Estates at Alpine.”

From the NY Post:

Oprah eyes $68M NJ mansion

Oprah Winfrey is eyeing a house in the New York area, The Post has learned.

The TV titan — whose new network is slated to launch in Los Angeles next year — quietly slipped into town yesterday for a house-hunting ex pedition along the banks of the Hud son, sources said.

Among the homes on her must-see list: a $68 million manse on the sprawling grounds of the old Frick estate in Alpine, NJ, the sources said.

Posted in New Jersey Real Estate, Trash | 68 Comments

“We still have a long way to go”

Posted on November 18, 2010 by grim

From the Record:

Third quarter saw record foreclosures in N.J.

A record number of New Jersey mortgage holders were either in foreclosure or late on their monthly payments during the third quarter, the Mortgage Bankers Association said Thursday.

About 15.5 percent of Garden State mortgage holders — almost one in six — were in trouble, up from 14.5 percent in the year-ago quarter. New Jersey was 25th in delinquencies and ninth in foreclosures started nationwide.
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The housing market will continue to be dragged down by foreclosure activity into 2011, Fratantoni predicted.

“There’s a very substantial overhang of homes on the market,” he said. Foreclosure activity is expected to dump millions more homes on the market, he said. Since foreclosed homes usually sell at a discount, this is likely to keep home prices from rebounding.

“People are still losing their jobs and having a difficult time finding a job,” he said. “And they have a lot of difficulty selling their homes” to get out from under mortgages they can no longer afford.

“We still have a long way to go,” he said.

Posted in Economics, Foreclosures, Housing Bubble, New Jersey Real Estate | 208 Comments

NJ unemployment falls to 9.2!

Posted on November 18, 2010 by grim

From Bloomberg:

New Jersey’s October Unemployment Rate Falls to 9.2% With Business Hires

New Jersey’s unemployment rate fell by 0.2 percentage point to 9.2 percent last month, the lowest since May 2009, as businesses recruited workers, according to the state’s labor department and data compiled by Bloomberg.

Total employment in the state rose by 2,600 jobs to 3.8 million, with all the gains coming from companies hiring in October. The federal, state and local government workforce shrank 2,200 overall while private businesses created 4,800 jobs, the department said in a news release today.

Businesses in the state have added a net 1,500 jobs this year through October, compared with 111,000 jobs eliminated during the same period a year earlier, the figures show.

New Jersey lost 16,100 jobs in September, according to revised data, compared with a preliminary estimate of 20,200 jobs lost, the department said.

The state’s unemployment rate was below the national unemployment rate of 9.6 percent in October, according to the Bureau of Labor Statistics.

Industries that hired the most last month include professional and business services that added 2,700 jobs, and financial services, which added 1,600, the state said.

Posted in Economics | 184 Comments

Do tighter lending standards make sense, or not?

Posted on November 17, 2010 by grim

From Bloomberg:

Home Ownership Gets Harder for Americans as Lenders Restrict FHA Mortgages

Home ownership may be falling out of reach for more Americans as lenders toughen their standards for Federal Housing Administration-insured loans beyond what the agency itself requires.

Mortgage lenders including Wells Fargo & Co. and Bank of America Corp., the two largest, have raised the minimum credit score on FHA-insured loans that they will buy to 640 from 620. About 6.3 million people fall within that range, according to FICO, which created the formula for the ratings.

The higher hurdles for FHA loans, used in about a fifth of U.S. home purchases, add to challenges for a housing market already struggling with record-low sales and surging foreclosures. While lax lending fueled the bust that led the U.S. into recession, the new requirements will stifle the real estate recovery needed to revive the economy, said Ron Phipps, president of the National Association of Realtors.

“We’ve gone from silly to stupid,” Phipps, principal partner of Phipps Realty Inc., said in a telephone interview from his home in Warwick, Rhode Island. “People who should be getting credit can’t get it. To have a healthy real estate market, you need activity. You need transactions.”

The FHA, which previously didn’t have minimums for FICO scores, began in October to require grades of at least 500, and more than 580 for loans with down payments of as little as 3.5 percent. Borrowers with scores between those levels must put 10 percent down. Several lenders moved minimums to about 620 at the start of 2009, the companies said then.
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Mortgage companies are tightening FHA standards partly because of the higher costs they face in servicing delinquent loans, said Luke Hayden, president of the mortgage unit of Mount Laurel, New Jersey-based PHH Corp. By keeping defaults low, they can also boost the prices they ftch for bonds filled with the loans and thus offer lower rates, he said.

When FHA-backed loans go into default, the lender bears a greater share of the expenses than when the mortgage is backed by Fannie Mae and Freddie Mac, Hayden said. That’s one reason why the banks impose their own, higher standards on the loans.
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“When the big companies change their standards and rules, it has a huge effect on the market,” said Bob Walters, chief economist at the Detroit-based company.
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FHA lending to the riskiest borrowers has declined in the past two years. Only 3.8 percent of FHA loans had scores below 620 or no score in the quarter ended Sept. 30, down from a peak of 50.4 percent in the period through Dec. 31, 2008, according to a Nov. 4 agency report to Congress. A score below 620 was typically considered subprime before the credit crisis, meaning the borrower had a bad or limited credit history.

Posted in Economics, Housing Bubble, National Real Estate, Risky Lending | 129 Comments

Standard & Poors and Fiserv see additional home price declines on the horizon

Posted on November 15, 2010 by grim

From HousingWire:

S&P predicts more home price declines through 2011

Standard & Poor’s analysts believe home prices will drop between 7% and 10% through 2011, erasing any improvements prices have recently made.

Home sales, which plummeted after the homebuyer tax credit expired in April have continued to lag. Pending home sales, which preclude existing home sale data, dipped 1.8% in September before the market goes into a winter many expect to be bleaker than usual. With this lack of demand, inventories should grow, according to S&P, while prices drop.

“Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited due to the weak housing market and a lack of demand,” S&P credit analyst Erkan Erturk said.

Fiserv expects another big drop in home prices next year

Despite national gains in home prices through the second quarter, Fiserv, a financial services technology provider, said it expects a 7.1% drop over the next 12 months with some markets falling into a double-dip.
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Without the homebuyer tax credit that expired in April, home sales have plummeted, and Fiserv expects prices to follow before stabilizing again at the end of 2011.

Fiserv Chief Economist David Stiff said the largest declines will come in those markets that had strong spring and summer price gains.

“This is because the home buyer tax credit delayed the correction in home prices that is necessary to return housing affordability to its pre-bubble levels,” Stiff said.
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But by the end of next year, Stiff said prices should hit bottom.

“If there are no downside surprises for the economy or the housing and mortgage markets, home prices should start to stabilize at the end of 2011,” Stiff said.

Posted in Economics, Housing Bubble, National Real Estate | 200 Comments