$8 $10 Billion in the Hole

Posted on July 22, 2009 by grim

From the Courier Post:

N.J. faces $10B deficit next year, report says

New Jersey faces a projected budget deficit of $8 billion in its next fiscal year, as well as a shortfall of more than $2 billion in its unemployment compensation fund, a report said Tuesday.

The independent Office of Legislative Services estimated the shortfall at the request of Senate Republicans — and GOP office-holders greeted the $10-billion figure with calls for a special legislative session to address state finances.
…
David Rosen, the OLS’ budget and finance officer, in April told lawmakers the state was facing the worst revenue plunge in “modern history.”

Tuesday’s estimate predicted the unemployment compensation fund’s deficit would rise from $2.2 billion to $3.5 billion over the course of fiscal year 2011.

The gloomy projection came just weeks after Corzine signed a $29 billion budget that initially faced a deficit estimated at $6 billion.

When he signed the budget, Corzine noted it was nearly $4 billion smaller than the spending plan enacted for the previous year.

From Bloomberg:

N.J. Faces $8 Billion Budget Deficit, Forecaster Says

New Jersey faces a projected deficit of $8 billion next fiscal year, even after cutting $4 billion of spending and raising taxes this year to close a budget gap, the nonpartisan Office of Legislative Services said.

The state would need $2.5 billion in fiscal 2011 to fully fund pension contributions and will lose $1.6 billion of federal stimulus money, David Rosen, the office’s chief budget analyst, said in a July 20 memo to Senate Minority Leader Tom Kean. It also faces $1.1 billion in expiring tax increases, Rosen said.

Rosen predicted a total of $8.8 billion in spending growth and revenue losses, which would be offset by an $800 million increase in collections from major taxes including those on sales, personal income and corporations. “This figure represents growth below normal growth rates, but would be the first year of growth following two years of decline,” he wrote.

The office’s projection comes about three weeks after Governor Jon Corzine signed a $29 billion budget for fiscal 2010, which began July 1. That plan trimmed spending the most in state history while raising taxes on cigarettes, wine, liquor and the wealthy to close a deficit of $8.8 billion.

Posted in New Jersey Real Estate, Property Taxes | 216 Comments

Look at the bright side, at least they got multiple offers

Posted on July 21, 2009 by grim

NYC Comp Killer

151 East 58th St Unit 34C, One Beacon Court
(aka the Dreier Residence, aka Bloomberg Tower)
Purchased: 2007
Purchase Price: $10.4 Million

Sold: 7/21/2009
Sale Price: $8.2 Million
21% below 2007 purchase price!
(Not to mention numerous remodels, new kitchen, home automation, etc)

There were over 40 bidders and the best they could do was 21% under the purchase price?

This sets one hell of a comp.

From Bloomberg:

Marc Dreier’s Manhattan Condo Sold at Auction for $8.2 Million

Con man Marc Dreier’s luxury Manhattan condominium sold today for $8.2 million, 21 percent less than what he paid two years ago, in an auction that attracted more than 40 bidders.

The buyer at the auction at U.S. Bankruptcy Court in Manhattan declined to identify himself. A broker who attended and who declined to be identified said the purchaser was Ajit Jain, head of Berkshire Hathaway Inc.’s reinsurance unit. Jain didn’t return a call for comment.

The buyer of the 3,000-square-foot apartment at One Beacon Court got the apartment at a discount to the most recent comparable sale there. The last recorded sale at Beacon Court was a 3,058 square-foot unit on the 49th floor. It sold in May for $12 million, city records show. Proceeds from the transaction will be used to pay creditors in Dreier’s bankruptcy case and victims of Dreier’s fraud, said Salvatore LaMonica, trustee in the Chapter 7 bankruptcy case.

From Curbed:

Marc Dreier’s One Beacon Pad Auctioned for $8.2 Million

When it was all said and done, fresh penitentiary inmate Marc Dreier’s One Beacon Court condo (and pretty much everything in it) was scooped up at auction by an anonymous bidder for $8.2 million. Dreier reportedly paid $10.4 million for the 3,000-square-foot apartment in 2007

Posted in Housing Bubble, Humor, National Real Estate | 26 Comments

Realtor affordability index “rosy”, not “relevant”

Posted on July 21, 2009 by grim

I think I’m more surprised that Bloomberg and BAC actually thought that the Realtors would provide an unbiased economic picture. They sell houses, it’s their job to make houses look like a good buy. When home prices were shooting skyward, they told us to ignore affordability, because we’d all be rich and giddy on equity. Now that prices are falling, and continue to fall, they focus our attention on “affordability”. Silly Bloomberg, it’s always a good time to buy.

From Bloomberg:

Realtors’ ‘Rosy’ Index Overstates Affordability

A common measure of the affordability of homes for buyers is providing a too “rosy” assessment because of tighter credit conditions, according to Bank of America Corp. strategists.
…
“Despite the rosy appearance of affordability provided by the index,” its “relevance” has been lessened in recent years, the New York-based mortgage-bond analysts wrote.

Tougher lending standards mean that instead of coming with the average interest rates on typical loans used to calculate the index, about half of new mortgages for home purchases are going to borrowers who need to turn to debt insured by the Federal Housing Administration, they said. FHA loans allow for down payments as low as 3.5 percent, and the agency doesn’t have credit-score requirements.

Insurance premiums required on FHA loans help create financing costs on the debt more than a percentage point higher than available on conventional mortgages, according to the report, which said the FHA share of home-purchase loans has climbed from about 10 percent.

“It’s like seeking admission to a prestigious, free university,” the strategist wrote. “For those who can get in, education is cheap, but who can get in?”

Posted in Economics, National Real Estate | 226 Comments

Not to worry, the commercial problem is contained

Posted on July 20, 2009 by grim

From the Wall Street Journal:

Commercial Loans Failing at Rapid Pace

U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years, according to an analysis by The Wall Street Journal. At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.

The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year.

The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions.

The commercial real-estate market, valued at about $6.7 trillion, represents 13% of the U.S.’s gross domestic product. But the recession and scarce credit are pushing more commercial developers and investors into default. Meanwhile, property values continue to decline, and banks are required to record a loss on any troubled real-estate loans where the appraised value falls below the amount owed.

Delinquencies on commercial mortgages held by banks more than doubled to about 4.3% in the second quarter from a year earlier, Foresight Analytics estimates. Rep. Carolyn Maloney (D., N.Y.), who heads the House’s Joint Economic Committee, said she is working with Treasury Department officials on a plan to try to head off rising defaults on commercial mortgages before they cascade into a crisis.

In contrast to home loans, the majority of which were made by about 10 lenders, thousands of U.S. banks, especially regional and community banks, loaded up on commercial-property debt.

Posted in Economics, Foreclosures, National Real Estate | 172 Comments

Ding Dong! The Witch is Dead!

Posted on July 19, 2009 by grim

Ding Dong! The Witch is Dead! The New Jersey housing market has lost its biggest set of pom-pom waving cheerleaders, and none to soon!

Sugar-coat this one all you want, but the fact of the matter is that Burdgdorff is gone, the axe was swung and those who survived were folded into the characterless Caldwell brand (not sure which fate was worse).

These folks were the self-proclaimed kings of real estate, nothing but arrogance and hubris. I’m sure many of you here are happy to see them gone. There is something inherently beautiful in the fact that a firm that vehemently denied the existence of a bubble ultimately being destroyed by it. Just desserts.

From the NYT:

The Home-Grown Advantage

TWO of the state’s largest real estate agencies — Coldwell Banker and Burgdorff ERA — are in the process of being melded into one by a parent company, NRT (which itself has a parent, Realogy, and a “grandparent,” Apollo Management). And some smaller, independent agencies are taking the move as an opportunity — to promote their smallness, and perhaps to grow bigger.

In Montclair, the week after the June 23 merger announcement, one smallish agency ran a full-page ad in the local weekly to tweak their larger rivals.

“Big is one thing,” it said under a picture of David with his slingshot, standing next to the gigantic hairy foot of Goliath. “Smart is something else. We’re something else. Rhodes Van Note & Company.”

In that community, the Burgdorff ERA branch had just been “rebranded” as a second Coldwell Banker office — less than a mile from the first. Instant rebranding took place in six other communities, too, including Short Hills and Summit. In mid-July, however, Burgdorff signs still hung on a few office buildings; even some lawn signs still hadn’t been switched.

In six additional towns, Burgdorff offices were closed outright, and agents moved to Coldwell Banker offices. NRT officials based in Parsippany described the merger as a way to cut costs and strengthen efficiency.
…
But for the affected agents, said Lois Schneider, a longtime Summit broker, the turmoil “has to be nightmarish.” Ms. Schneider, whose independent agency bears her name, also described the merger as “confusing for the public, at least right now.”

She said that she had built her firm’s success on “community-oriented, personal, friendly service,” handpicking a tight-knit team of agents, all women, and that she saw customers as being hungry for “local-ness” and personal attention now, more than ever.
…
Like both Ms. Schneider and Ms. Bigos, Mr. Baris said it pained him to see the demise of the Burgdorff brand, created by Douglas and Jean Burgdorff in Murray Hill in 1958 and sold to NRT in 1996.
…
The six towns that lost Burgdorff offices are Basking Ridge, Chatham, Hillsdale, Morristown, Princeton and Ridgewood.

In addition to Montclair, Short Hills and Summit, the towns in which Burgdorff branches became Coldwell branches are Cresskill, Livingston, Maplewood and Westfield.

Posted in Economics, New Jersey Real Estate | 101 Comments

Baking her way out of foreclosure

Posted on July 17, 2009 by grim

From the Record:

Teaneck woman hopes bake sale will help forestall foreclosure

Facing foreclosure on her Teaneck home, Angela Logan is navigating a difficult time like a true PTA mom.

She’s having a bake sale.

The 55-year-old actress, comic and divorced mother of three sons has spread word among her friends and Teaneck’s arts community: Buy one of my famous apple cakes and help save my house.

Since coming up with the idea a week ago, Logan has received orders for 42 “mortgage apple cakes,” at $40 each. That’s nearly halfway toward her goal of selling 100 cakes by July 26, when an initial payment of $2,559.94 is due her lender under a federal program created to help homeowners in financial distress.
…
After meeting with a credit counselor, she turned to the Making Home Affordable program, established by the Obama administration to help struggling homeowners reduce their mortgage payments.

According to the terms of her modified loan, Logan has to make three payments of $2,559.94 to Bank of America, which took over Countrywide, by Oct. 1. She thinks she’ll be in good shape if she can get past the first payment.

Enter the apple cake.

Posted in Economics, Foreclosures, New Jersey Real Estate | 374 Comments

Foreclosure activity at record levels

Posted on July 16, 2009 by grim

From Bloomberg:

U.S. Foreclosure Filings Hit Record 1.5 Million in First Half

U.S. foreclosure filings hit a record in the first half, a sign that job losses and falling property prices deepened the housing recession, according to RealtyTrac Inc.

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, the Irvine, California-based seller of default data said today in a statement. That’s a 15 percent increase from the year earlier. One in 84 U.S. households received a filing.

“People are losing their jobs, seeing their income go down and are underwater on their mortgage,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a toxic combination.”

From RealtyTrac:

1.9 MILLION FORECLOSURE FILINGS REPORTED ON MORE THAN 1.5 MILLION U.S. PROPERTIES IN FIRST HALF OF 2009

RealtyTrac®, the leading online marketplace for foreclosure properties, today released its Midyear 2009 U.S. Foreclosure Market Report, which shows a total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,528,364 U.S. properties in the first six months of 2009, a 9 percent increase in total properties from the previous six months and a nearly 15 percent increase in total properties from the first six months of 2008. The report also shows that 1.19 percent of all U.S. housing units (one in 84) received at least one foreclosure filing in the first half of the year.

Foreclosure filings were reported on 336,173 U.S. properties in June, the fourth straight monthly total exceeding 300,000 and helping to boost the second quarter total to the highest quarterly total since RealtyTrac began issuing its report in the first quarter of 2005. Foreclosure filings were reported on 889,829 U.S. properties in the second quarter, an increase of nearly 11 percent from the previous quarter and a 20 percent increase from the second quarter of 2008.

“In spite of the industry-wide moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk. Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue.”

From the WSJ:

US Foreclosures Continue Shattering Records: RealtyTrac

National foreclosure filings in the U.S. continue shattering records, propelled by mounting unemployment and continued erosion of home values.

Filings were reported on more than 336,000 properties in June, the fourth-straight month to see the total topping 300,000, according to RealtyTrac’s latest foreclosure report released Thursday. That helped boost the second-quarter’s tally by 20% from the year-earlier period, making it the highest quarterly total since the report’s first-quarter 2005 launch. When counting this year’s first half, one in every 84 homes was slapped with at least one filing, ranging from default notices to bank repossessions.

It’s just more bad news as the limping real-estate market struggles for stability. Foreclosures can command discounts as high as 60%, a drag on surrounding home prices and appraisal values. The data also show that the government’s frantic efforts to keep Americans in their homes haven’t been completely effective, and moratoria crafted to slow foreclosures seem to simply delay the pain. Even worse, with unemployment at a rate not seen in a quarter century, there’s no relief in sight.

Posted in Foreclosures, Housing Bubble, National Real Estate | 345 Comments

State unemployment jumps to 9.2% in June, 32 year high

Posted on July 15, 2009 by grim

From the NJ Department of Workforce and Labor Development:

NJ Employment Losses Slowed in June; Unemployment Rate, Over the Month, Rose to 9.2 Percent

New Jersey employers trimmed payrolls once again in June, however, the monthly decline was the smallest since February 2008. While job losses have moderated during the past two months, New Jersey’s June unemployment rate rose by 0.4 percentage point to 9.2 percent and remained below the national rate of 9.5 percent.

According to preliminary estimates from the New Jersey Department of Labor and Workforce Development’s monthly survey of employers, nonfarm wage and salary employment in the Garden State decreased by 2,100 jobs in June, to a total of 3,931,200. Based on more complete reporting, the previously released May estimate was revised lower by -1,800 for a revised April-to-May loss of 8,000. Since the beginning of the recession in December 2007, New Jersey has lost 155,000 jobs (-3.8%). Nationally, employment has declined by 5.3 million jobs (-4.7%).
…
The largest over-the-month losses occurred in leisure and hospitality (-2,600), professional and business services (-2,300), and financial activities (-1,400). In leisure and hospitality, the majority of the drop occurred in the accommodation and food services segment (-2,400). The job losses in professional and business services were largely attributable to decreased payrolls in the administrative support/waste management/remediation services component (-3,700). The decline in financial activities occurred in both the finance and insurance (-800) and real estate/rental and leasing categories (-600).

Job gains were concentrated in other services (+3,700), education and health services (+1,200) and transportation, trade and utilities (+900). The gain in other services was due to higher payrolls at employers such as nonprofit groups, grant-making organizations and industry associations. Gains in the educational services component (+1,600) of education and health services overshadowed a slight loss in the healthcare and social assistance component (-400). Hiring in transportation and warehousing (+1,500) and retail trade (+200) were responsible for the advance in trade, transportation and utilities, while wholesale trade contracted by 800.

Over the month, the unadjusted workweek for manufacturing workers increased by 0.1 hours to 41.3 hours, average hourly earnings increased by $0.06 to $18.57 and weekly earnings were increased by $4.33 to $766.94. Compared with June of last year, the unadjusted workweek was lower by -1.2 hours, average hourly earnings increased by $0.74 and weekly earnings were higher by $9.16.

From the Record:

NJ unemployment rate at highest level in 32 years

New Jersey’s unemployment rate rose to 9.2 percent in June, the highest level in 32 years, as the state lost 2,100 jobs, state figures show.

Unemployment, which increased from 8.8 percent, remained below the national rate of 9.5 percent, according to the monthly jobs report of the New Jersey Department of Labor and Workforce Development.

The June job loss is well below the 11,500 average monthly loss this year and the year’s highest decline of 18,700 in April. State Labor Commission David J. Socolow said the loss is the smallest since the recession began in December 2007.

Patrick O’Keefe, director of economic research at Roseland accounting firm J. H. Cohn, called the relatively small job loss “encouraging” but said the overall jobs picture is still “troubling.”

He noted that the state’s unemployment level has now doubled, from 4.6 percent, since the start of the recession.

Posted in Economics, New Jersey Real Estate | 162 Comments

Have we hit a sales volume (not price) bottom in North Jersey?

Posted on July 14, 2009 by grim

Based on the contracts volume for June, I’m very tempted to make a bottom call with respect to volume (but not prices) for Northern NJ.

History buffs will note that this blog started in September of 2005, with my call of a market top. While I was darn close on the volume and inventory predictions, the price prediction was off. While some areas saw price peaks during the Summer of 2005, many other areas saw prices continue to rise well into 2006. That said, take my calls with a grain of salt.

Based on the behavior we’ve seen in this area, it is clear that price and volume are not correlated. Therefore, just because we may be forming a volume with respect to sales, doesn’t necessarily mean we’re forming a bottom in prices. Remember what happened in California months back, prices cratered as contracts jumped. Seller capitulation? Large levels of low-priced distressed inventory hitting the market? Who knows, but we need to be vigilant.

The reason I’m hesitant to call a bottom is because my gut is telling me we may be seeing a late surge of buyers who held out for lower prices earlier this year. Recent fence sitters who sat out the Spring market hoping that prices would drop, but eventually making a move as Summer came.

Why?

First quarter Northern NJ contracts (GSMLS) were down 21.8% year over year, a very strong decline. The first month of Q2 saw some improvement, a smaller decline of 5.1% YOY. The final two months of Q2 saw good year over year gains, 6.1% and 14.4% (May and June respectively). My hesitation is because year over year contracts in the first half of the year were still negative, down 6.6%. So if I had to sum up my thoughts about this year, I’d say the Spring market started very weak, and finished very strong, but was still down on the year. So even though contracts are up sharply in June, we’re still seeing fewer buyers than last year.

If we see strong contracts again in July and August, I think it will be clear we’ve hit the bottom from a volume perspective. Barring some kind of significant economic dislocation (sharp spike in unemployment, significant credit event, etc), I think we might be close to the volume bottom.

It is worth noting that if we are bottoming, we’re bottoming at a volume level that is significantly under peak levels. Frankly, I don’t see volumes rebounding anytime in the near future. In my opinion an echo bubble in housing is extremely unlikely.

Also worth noting that many areas that saw increases in contract volume also saw significant drops in price (as defined by the last list price at the time of the contract).

The biggest contract jumps in June were in Sussex County, with contracts up 43.5% and in Passaic County, with contracts up 35.2%. Contract prices in Sussex were down to $274,922 in June 2009, from $359,405 in 2008, a decline of approximately 23% year over year. Contract prices in Passaic County were down to $334,737 in June 2009, from $386,827 in June 2008, a decline of 13% year over year. This behavior of increasing contracts along with declining prices is similar to what other states have been reporting.

Do not mistake my post as a sign that it is a “good time to buy”. Frankly, I don’t believe that to be the case and expect prices to continue to fall through the remainder of the year.

Posted in Economics, New Jersey Real Estate | 134 Comments

Bye Bye Jersey Jobs

Posted on July 13, 2009 by grim

From the Courier Post:

Relocation means loss of jobs

A cocoa-processing plant in Glassboro and a team of money managers for the wealthy are leaving South Jersey, taking more than 100 jobs to Pennsylvania.

ADM Cocoa, which turns cocoa beans into cocoa powder, butter and chocolate for the snack food and cereal industries, will close its Glassboro plant by Oct. 31. Work will be transferred to a new facility in Hazleton, Pa.

“The company is in negotiations with United Food and Commercial Workers Local 152 regarding the effects of the closing,” said company spokesman Roman Blahoski from headquarters in Decatur, Ill.
…
Penn Capital Management, which has been in Cherry Hill since 1987, moved last Monday from LibertyView on Haddonfield Road to the Philadelphia Navy Yard, a 1,200-acre development area that is home to Tasty Baking Co. and about 75 firms.

Philadelphia made Penn and its 60 workers an offer of tax incentives they couldn’t refuse, said senior managing partner Christian Noyes.

“We aggressively pursued opportunities in Jersey, but were unable to work anything out. We would have strongly considered staying put if the state had offered us anything close to Pennsylvania. We regretted leaving,” said Noyes, of Moorestown.

At the same time, Noyes said his company is happy in a new building with dramatic waterfront views.

Posted in Economics, New Jersey Real Estate | 323 Comments

Weekend Open Discussion

Posted on July 12, 2009 by grim

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 labelled “[#] 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 | 112 Comments

Not to worry, the crisis is “contained”

Posted on July 10, 2009 by grim

From the Record:

Commercial properties take hit

Commercial foreclosures soared in New Jersey in the second quarter, with lenders and loan servicers going to court to take back 413 income-producing properties — nearly three times the number of such filings during the same period last year.

About half of the state’s commercial foreclosures in the second quarter came in June, according to records provided by the state judiciary. Of the 198 filed that month, 17 were in Bergen County and 14 in Passaic County.

The increase in commercial foreclosures is another sign of how the recession is rippling into commercial real estate, the sector that includes office buildings, shopping centers, industrial sites and apartments.

Much like the earlier crisis in residential real estate, commercial-mortgage borrowers — facing steep declines in revenue or rental income — stop making payments. In turn, lenders and loan services are asking courts to give them back the assets, such as the former headquarters of Linens ‘N Things Inc. in Clifton.

The now-defunct big-box retailer had its main offices in a complex on Brighton Road, which it rented from Daibes Enterprises. After the liquidated company stopped paying rent this year, Daibes Enterprises stopped making payments on the $15.2 million mortgage on the property in March, according to the foreclosure complaint filed April 22.
…
“We knew were taking a gamble of $3 million when we did the deal,” said Daibes. He said they would not contest the foreclosure.

Daibes said the loan servicer was quite willing to work out the loan problems, but Daibes said brokers he enlisted had difficulties in attracting new tenants. In this economy, companies are hesitant to move, especially without enough state incentives, he said.

“Unfortunately today, New Jersey is not a state that businesses are looking to move into,” said Daibes.

From the NY Post:

REALTY BUBBLE

Long-awaited evidence that the commercial real estate market is about to stumble may finally be emerging.

According to newly released data from Real Capital Analytics, some $108 billion worth of commercial real estate is either in default, foreclosure or bankruptcy as of July 1, a jump of $60.5 billion from the start of the year as office and residential rents sag, condo sales languish and retailers go bankrupt.

Meanwhile, 120 properties in Manhattan worth nearly $8 billion are considered “troubled,” Real Capital’s data show. They include 84 apartment buildings, 24 office buildings, eight development sites, two hotels, two retail properties and one industrial building.
…
“Excess leverage is endemic to every type of investor, all of which are facing difficulties refinancing mortgages as they come due,” the report said.

From Bloomberg:

Commercial Real Estate Is a ‘Time Bomb,’ Maloney Says

The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.

The response by banks to this “growing threat has been slow and inadequate,” said James Helsel, a partner at RSR Realtors in Harrisburg, Pennsylvania, and treasurer for the National Association of Realtors. “The lack of liquidity and banks’ reluctance to extend lending are also becoming apparent in the increasing level of delinquent properties.”

There were 5,315 commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of last year, with hotels and retail among the most “problematic,’ Real Capital Analytics Inc. said in a report yesterday. Losses on commercial mortgage-backed securities, or CMBS, will total 9 percent to 12 percent of the market, or as much as $90 billion, said Richard Parkus, a research analyst for Deutsche Bank Securities in New York.
…
The bottom is several years away, and it will be at least 2012 before there is “palpable improvement” in the commercial real estate market, Parkus told lawmakers at the hearing. “It’s hard to imagine fundamentals improving in an environment where we are beginning to see massive increases in defaults.”

The largest concentration of distressed properties is in New York City, Helsel said. Las Vegas, Los Angeles, Detroit, Phoenix, Chicago, Dallas and Boston also have high distress rates, he said.

Posted in Economics, National Real Estate | 428 Comments

“Unemployment has had a much more immediate impact on the rental market than the purchase market”

Posted on July 9, 2009 by grim

From Bloomberg:

Manhattan Apartment Rents Drop as Unemployment Curbs Demand

Manhattan apartment rents fell as much as 18 percent in the second quarter from a year earlier as rising unemployment curbed demand.

The median price dropped 3.1 percent to $3,100 a month, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. Studio prices fell 18 percent to $2,000; one-bedrooms declined 13 percent to $2,795; two-bedrooms were down 5.1 percent to $4,550 and three-bedrooms dropped 4 percent to $7,673. A separate report from broker Citi-Habitats Inc. showed average rents fell 8 percent for studio and one- bedrooms and 11 percent for two- and three-bedrooms.

“People were kind of in a preservation mode, saying ‘I’m not sure of the future so I’m not going to make any leaps,’” said Prudential Douglas Elliman President Dottie Herman. “Most consumers, when they did not have to make a decision, didn’t.”

The number of new leases signed plummeted 58 percent, according to Miller Samuel. Private-sector employment in the city dropped by 91,200 jobs, or 2.8 percent, in the 12 months through May as Wall Street losses and asset write downs topped $1.4 trillion. National unemployment climbed to 9.5 percent in June, according to the Labor Department.

Across the U.S., apartment vacancies rose to their highest in 22 years in the second quarter, New York-based real estate research firm Reis Inc. said yesterday. The last time landlords had so much empty space was in 1987, when the Standard & Poor’s 500 Index lost almost a quarter of its value in three months.
…
“Unemployment has had a much more immediate impact on the rental market than the purchase market,” said Miller Samuel President Jonathan Miller.

Landlords agreed to average reductions of 9.5 percent off their original asking rents, compared with a typical discount of 2.6 percent a year ago, Miller Samuel reported.

“Appropriately priced properties are renting at a far greater pace than those properties that are not,” Citi-Habitats President Gary Malin said in a statement. “It is very clear that prices and incentives have played a larger role in the rental marketplace during the first half of 2009.”

Posted in Economics, Housing Bubble, National Real Estate | 361 Comments

Northern NJ June Home Sales

Posted on July 8, 2009 by grim

Preliminary June sales and inventory data for Northern New Jersey (GSMLS) is in. Please note that this data is subject to revision.

The first graph plots the unadjusted sales data (closed sales) for the counties listed. Please note the lower bound of the graph, it is set to 500, not to zero. I do this to emphasize the seasonal nature of the Northern NJ market.


(click to enlarge)

The second graph is another view at the sales data for the full year. Please note that this graph does cross at zero.


(click to enlarge)

The third graph displays only June sales, 2001 to 2009 YOY.


(click to enlarge)

The fourth graph displays an overlay of Sales and Inventory from 2003 to 2009.


(click to enlarge)

The fifth graph displays the year over year change in inventory on a month by month basis.


(click to enlarge)

The sixth graph displays the year over year change in sales on a month by month basis.


(click to enlarge)

The last graph displays the absorption rate (not seasonally adjusted), in months:


(click to enlarge)

Bonus Graphs!

March Sales By County (log scale):


(click to enlarge)

Posted in Economics, New Jersey Real Estate | 393 Comments

PMI: Home prices to fall into 2011

Posted on July 7, 2009 by grim

From Bloomberg:

U.S. Home Prices to Fall Through 2011’s First Quarter, PMI Says

Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.

Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.

“The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” LaVaughn Henry, senior economist at PMI, the fourth- largest U.S. mortgage insurer, said in an interview.
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“Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough,” the Deutsche Bank analysts wrote.

The 15 areas with the highest probability of lower prices in 2011 each have a 99 percent chance, PMI said. They include Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville in Florida; Riverside, Los Angeles, Santa Ana, Sacramento and San Diego in California; Las Vegas; Phoenix; Providence, Rhode Island; and Detroit.

Edison and Newark in New Jersey have a 97 percent and 96 percent chance, respectively, and Nassau, New York, has a 92 percent chance. New York City showed an 88 percent chance of lower prices, according to PMI.

“The New York area has gone from a moderate level to an elevated level because of the big hit from the financial crisis,” Henry said.

Posted in Economics, Housing Bubble, National Real Estate, New Jersey Real Estate | 438 Comments