New Jersey Real Estate Report

From MSNBC:

Brace for other shoe to drop in mortgage mess, some warn

With most of the country still reeling from the subprime mortgage meltdown, Mark Hanson is warning of the next looming blow.

Hanson, a bank consultant and former mortgage broker from the Bay Area who writes a blog under the name “Mr. Mortgage,” is among a handful of industry soothsayers who expect another big wave of foreclosures to hit sometime around 2010, driven by defaults among people holding less risky loans known as “alternative-A.”

Subprime is the term applied to loans given to people with shaky credit. Alt-A is the next-higher category, typically covering mortgages to borrowers who had better credit but didn’t want to document their incomes or wanted an initial period of low payments, often covering only the interest on the loan. Technically the term “alt-A” applies to securities backed by the loans, but it has come to be used for the mortgages themselves.

While defaults have been creeping up in the alt-A category this year, the foreclosures that have wracked the housing market so far have been largely the result of defaults among subprime borrowers.

“I think we are through the subprime blowup, but that’s nothing compared to what’s coming,” said Hanson, who made similar predictions on CNN in April.

His theory is that other borrowers will follow the path of subprime borrowers, who started defaulting when their mortgage interest rates reset to higher levels. Many alt-A borrowers face a bump in their monthly payments starting mid-2010, according to financial services company Credit Suisse. The firm’s figures, reported in the International Monetary Fund’s report on global financial stability, show a big bubble of U.S. mortgage rate readjustments hitting during that time period, including borrowers with “option ARM” loans that allow a borrower to initially make payments that are so low the balance increases.
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A record $400 billion in alt-A loans was issued in 2006, according to data by specialty publisher Inside Mortgage Finance, cited in published reports. Alt-A accounted for 13.4 percent of all mortgages offered that year. Hanson said lenders first started pushing them in 2005 as a way for buyers to combat skyrocketing prices and continued issuing them into 2007 despite the subprime concerns.
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“It’s not hard to get a 700 credit score,” he said, citing a typical score for an alt-A borrower when the loans were being widely offered. “If you had a Macy’s card and a gas card, you could buy an $800,000 home.”

From the Associated Press via the International Herald Tribune:

Bank economists see home prices only halfway through decline, gloom for consumers

“home
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prices
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halfway
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through
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decline”

(The above quote meets the AP standards for blog quotation)

Summary: A group of 10 prominent economists say that home prices are only halfway through the decline. Expectations are that prices will fall an additional 15% by late 2009.

From CNN:

Is America’s suburban dream collapsing into a nightmare?

While the foreclosure epidemic has left communities across the United States overrun with unoccupied houses and overgrown grass, underneath the chaos another trend is quietly emerging that, over the next several decades, could change the face of suburban American life as we know it.

This trend, according to Christopher Leinberger, an urban planning professor at the University of Michigan and visiting fellow at the Brookings Institution, stems not only from changing demographics but also from a major shift in the way an increasing number of Americans — especially younger generations — want to live and work.

“The American dream is absolutely changing,” he told CNN.

This change can be witnessed in places like Atlanta, Georgia, Detroit, Michigan, and Dallas, Texas, said Leinberger, where once rundown downtowns are being revitalized by well-educated, young professionals who have no desire to live in a detached single family home typical of a suburbia where life is often centered around long commutes and cars.

Instead, they are looking for what Leinberger calls “walkable urbanism” — both small communities and big cities characterized by efficient mass transit systems and high density developments enabling residents to walk virtually everywhere for everything — from home to work to restaurants to movie theaters.

The so-called New Urbanism movement emerged in the mid-90s and has been steadily gaining momentum, especially with rising energy costs, environmental concerns and health problems associated with what Leinberger calls “drivable suburbanism” — a low-density built environment plan that emerged around the end of the World War II and has been the dominant design in the U.S. ever since.

Thirty-five percent of the nation’s wealth, according to Leinberger, has been invested in constructing this drivable suburban landscape.

But now, Leinberger told CNN, it appears the pendulum is beginning to swing back in favor of the type of walkable community that existed long before the advent of the once fashionable suburbs in the 1940s. He says it is being driven by generations molded by television shows like “Seinfeld” and “Friends,” where city life is shown as being cool again — a thing to flock to, rather than flee.

“The image of the city was once something to be left behind,” said Leinberger.
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And aging baby boomers are looking for a more urban lifestyle as they downsize from large homes in the suburbs to more compact town houses in more densely built locations.

Recent market research indicates that up to 40 percent of households surveyed in selected metropolitan areas want to live in walkable urban areas, said Leinberger. The desire is also substantiated by real estate prices for urban residential space, which are 40 to 200 percent higher than in traditional suburban neighborhoods — this price variation can be found both in cities and small communities equipped with walkable infrastructure, he said.

The result is an oversupply of depreciating suburban housing and a pent-up demand for walkable urban space, which is unlikely to be met for a number of years. That’s mainly, according to Leinberger, because the built environment changes very slowly; and also because governmental policies and zoning laws are largely prohibitive to the construction of complicated high-density developments.
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Yet Nelson also estimates that in 2025 there will be a surplus of 22 million large-lot homes that will not be left vacant in a suburban wasteland but instead occupied by lower classes who have been driven out of their once affordable inner-city apartments and houses.

The so-called McMansion, he said, will become the new multi-family home for the poor.

“What is going to happen is lower and lower-middle income families squeezed out of downtown and glamorous suburban locations are going to be pushed economically into these McMansions at the suburban fringe,” said Nelson. “There will probably be 10 people living in one house.”
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In Shaun Yandell’s neighborhood, this has already started to happen. Houses once filled with single families are now rented out by low-income tenants. Yandell speculates that they’re coming from nearby Sacramento, where the downtown is undergoing substantial gentrification, or perhaps from some other area where prices have gotten too high. He isn’t really sure.

But one thing Yandell is sure about is that he isn’t going to leave his sunny suburban neighborhood unless he has to, and if that happens, he says he would only want to move to another one just like it.

“It’s the American dream, you know,” he said. “The American dream.”

From CNN/Money:

Housing crunch, 90210

Across the country, real estate agents and home sellers in wealthy neighborhoods who grew accustomed to seven-figure bidding wars during the boom are feeling the sting of the housing crunch.

Ed McMahon can vouch for that. The former Johnny Carson sidekick and TV pitchman recently saw his $5 million Beverly Hills home go into foreclosure.

In fact, McMahon is a celebrity face to a broader trend.

Three of the nation’s richest zip codes saw particularly steep home-price declines in the three months ending April 30, compared with the previous three months.

In Palm Beach, Fla. (zip code 33480), median home prices fell 38% during that period, according to the real estate Web site Trulia. Prices in Greenwich, Conn. (06831), dropped 15%, while homes in Wayzata, Minn. (55391), are selling for 28% less.

Prices in other wealthy towns also declined: Gladwyne, Penn. (19035), was down 6%, and Beverly Hills (90210), Lincoln, Mass. (01773), and Ladue, Mo. (63124), each slid 2%.

“What I’m finding is that million dollar plus homes declined 4% or so [over the past 12 months],” said Don Kelly, a spokesman for Zaio, which is building a national data base of home value appraisals.

And foreclosure data tracks the pricing information. In Beverly Hills, filings nearly doubled to 41 in the first four months of this year, up from 22 in the same period last year, according to RealtyTrac, which compiles foreclosure stats. In Palm Beach, there were 34 foreclosure filings, up from 9 in the period a year ago. Greenwich had 23, up from 10, while Wayzata had 18, compared with 14 a year ago. Kenilworth, Gladwyne and Medina had just one each, while Lincoln had none.
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But many ritzy areas are finding they are not immune to the housing slowdown.
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In the Philadelphia suburb of Gladwyne, the wealthiest town in Pennsylvania which lies along the fabled “Main Line,” the market has also slowed, according to Judy Getson, the sales manager for Prudential Fox & Roach in Haverford.

According to Trulia, just six homes sold in Gladwyne during the three months ending April 30, down from 14 sold in the same three months during 2003, a boom year. There are now 42 homes in town on the market for a million dollars or more, according to Realtor.com, ranging from $1.195 million to $17 million.

Getson is seeing a downsizing phenomenon similar to Greenwich in the Philadelphia area, although not in Gladwyne proper. “A lot of people are moving from mansions and buying condos in the city,” she said.

From Bloomberg:

Wealth Evaporates as Gas Prices Clobber McMansions, SUV Makers

Homeowners in the exurbs aren’t the only ones whose assets have taken a hit because of the surge in energy costs. Companies such as General Motors Corp. and UAL Corp. are writing off billions of dollars in plants and equipment that are no longer viable in an age of dearer oil. The destruction of wealth and capital will weigh on U.S. growth for years to come.

“Our whole economy reflects the relative costs of energy: the cars we drive, the houses we occupy, the kinds of factories we have and the equipment in them,” says Dana Johnson, chief economist at Comerica Bank in Dallas. “I’m expecting relatively large changes in all of these things.”

The loss of wealth could be a double whammy for the U.S. economy. In the short run, it depresses demand as homeowners save more and spend less, and companies fire workers. Longer run, it curbs productivity growth, as firms shift their focus from increasing worker efficiency to reducing energy costs.
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“At $4 per gallon gas, $125 per barrel oil and $10 per million Btu natural gas, a lot of activity becomes uneconomical,” says Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.

The lifestyle of the exurban commuter may be one casualty.

Emerging suburbs and exurbs — commuter towns that lie beyond cities and their traditional suburbs — grew about 15 percent from 2000 to 2006, nearly three times as fast as the U.S. population, as Americans moved further out in search of more affordable houses or the bigger ones that are sometimes derided as McMansions.

“It was drive until you qualify” for a mortgage, says Robert Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria, Virginia. “You can’t do that anymore. Your cost of transportation will spike too much.”
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Nationwide, home prices in neighborhoods with long commutes and no public transportation are falling faster than prices in communities closer to cities, according to a study by Joseph Cortright, an economist at Impresa Consulting. For example, his study found that prices in distant suburbs of Tampa fell 14 percent in the last 12 months, versus a 9 percent drop in areas nearer the city.
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“The decline in almost every case is worse in the suburbs and exurbs than it is in close-in neighborhoods because transportation costs are so much more of a factor,” says Cortright, whose Portland, Oregon, firm studies regional economies.