New Jersey Real Estate Report

From Bloomberg:

U.S. Home Prices to Fall 14% More, Deutsche Says

U.S. home prices may fall another 14 percent, led by the New York and Orange County, California, metropolitan areas, before reaching a bottom as an increase in unemployment offsets lower prices, Deutsche Bank AG said.

“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,” Deutsche Bank analysts led by Karen Weaver, wrote in a report yesterday. “The bottom is getting closer, but we are not there yet.”

Home prices are forecast to fall 41.7 percent from their peak, Weaver said. That’s higher than a forecast she released in March and reflects “the actual declines to date and the expected future impact on home prices from rising foreclosure inventory and unemployment.”

In March, Deutsche Bank had forecast a 16.5 percent decline in “current-to-trough” prices. While today’s projection is less than that, many metropolitan areas will still see steep declines, the report said.

In the New York metropolitan area they may drop 40.6 percent from the first quarter to the bottom, the report said, less than Deutsche Bank’s March estimate of 47.4 percent.

Financial firms have cut more than 183,000 jobs in the Americas in the global credit crisis, driving down prices and rents in the New York area. In New York City, Manhattan co-op prices slid the most since 1995 in the first quarter, according to data from Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate.

From Reuters:

Is the housing bust about to take Manhattan?

New York City real estate prices are looking increasingly shaky as instability in two of the city’s sexier submarkets — second homes in the Hamptons, and new condos in Manhattan — register the latest signs of a housing downturn.

Property prices in the Hamptons, a fabled playground of the rich on nearby Long Island, rose steadily for almost two decades, but the prices on almost 1-in-3 of current listings have been cut an average 11 percent from the initial asking, said Sofia Kim of real estate website StreetEasy.com.

Back in town, the number of sales in new developments dropped a whopping 71 percent in April from a year earlier as condo developers enmeshed in complicated financing arrangements have been slow to slash prices even as the market corrected all around them, Kim said.

But if prices on these new condo towers do not fall to match the rest of the market and stay empty as a result, then it could eventually trigger foreclosures of entire properties, forcing much bigger price cuts as lenders seek to reduce their liability.

“If you have a property not priced at market, is it going to sell? Something has to give,” said Jonathan Miller, author of real estate broker Prudential Douglas Elliman’s market reports.
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The elite in the real estate industry had once hoped Manhattan could escape relatively unhurt as other housing markets suffered. But the collapses of financial powerhouses such as Lehman and Bear Stearns destroyed such thinking.

“What ended up killing us was the foreclosure crisis because that’s what killed Wall Street,” said Rick Hoffman, a regional senior vice president in the Hamptons for the Corcoran Group, a high-end brokerage. “It bit us in the end.”

From Fitch Ratings:

Fitch Takes Various Actions on 543 2005-2008 U.S. Subprime RMBS Deals

Fitch Ratings has taken various rating actions on 543 2005 through 2008 vintage U.S. subprime RMBS transactions in the course of its ongoing review of subprime RMBS.
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The updated expected collateral losses incorporate performance trends since the last rating revisions which relied on September 2008 remittance data. The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. To date, national home prices have declined by 27%. Fitch Rating’s revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today’s levels.

The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%.

The combination of continued home price and employment decline has kept negative pressure on the roll-rates of performing borrowers into a delinquency status. Although net roll-rates have moderated from the seasonal high in January, the most recent month’s performing-to-delinquent net roll-rate of 3.17% remained modestly higher than that exhibited in the third quarter of 2008 when modified loans are excluded.

From the NY Times:

Why Home Prices May Keep Falling
By ROBERT J. SHILLER

HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time.

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.

There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan’s major cities fell every single year for 15 consecutive years.

Why does this happen? One could easily believe that people are a little slower to sell their homes than, say, their stocks. But years slower?
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Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.