Defining Stabilization

Posted on April 9, 2008 by grim

Nice timing from the WSJ:

Real-Estate Market Slump
Continues Despite Forecasts

For everyone struggling to sell their homes in a terrible market, the latest forecast may offer some comfort. The National Association of Realtors says sales of “existing” homes, by which presumably it means used homes, are showing signs of stabilizing. It suggests we have passed the bottom of the market, and are likely to see an “upturn” in the second half of the year, with home sales “improving notably.”

The only problem: That’s what they’ve been saying for most of the past two years, while the market has continued to slump.

In March 2006, the realtors’ association announced signs the market was “stabilizing,” and promised “price appreciation should return to more normal rates of growth this year.” The chief economist, David Lereah, said “this looks like we’re touching down for the soft landing we’ve been expecting.” Ah yes, the soft landing.

Since then the association has reassured us prices would remain on a “high plateau” (April, 2006), were “entering a period of equilibrium” (May, 2006), were about to “return to normal” (June, 2006), were “stabilizing” and should “hold fairly steady” for the rest of the year (August, 2006), “should return to positive territory within a few months” (September, 2006), were “stabilizing” again (November, 2006) that there had at long last been “a turn in the market” (December, 2006).

We were told used home sales would “gradually rise through 2007” (January, 2007), that a “recovery is likely this year” (March, 2007), the market “may be stabilizing” yet again (June, 2007), would see a “gradual upturn becoming more pronounced by the end of the year,” (June, 2007), was “expected to recover in 2008” (July, 2007), was “likely to stabilize” again (August, 2007), was “beginning to rebound” (September, 2007), was “likely stabilizing” again (November, 2007), and would “trend up in 2008” (December, 2007). Now we’re told it’s stabilizing.

Doesn’t exactly inspire confidence, does it?

Yes, at some point the market really will stabilize. Obviously a broken watch is going to be right eventually. But you can’t rely on it to tell the time.

Posted in Housing Bubble, National Real Estate | Comments Off on Defining Stabilization

Still no sign of a bottom

Posted on April 9, 2008 by grim

From the AP:

Bottom of real estate slump? What’s that?

Hoped-for end to tumbling housing market appears pushed back by the latest sales data

Homeowners and investors hunting for any indication that the housing market has bottomed out did not get it Tuesday, as the latest home sales data from a real estate trade group moved that sign further down the road to recovery.
…
With house prices falling and credit continuing to tighten, many economists say the housing market is likely to worsen in the coming months, though some remain hopeful about a recovery in the second half of the year.

“The question was whether things were starting to stabilize,” said Global Insight economist Patrick Newport. “Apparently they’re not.”

Newport predicts home sales will fall by another 5 percent to 10 percent before picking up at the end of the year, while the Realtors group forecasts sales will remain flat in the first half of the year before rebounding strongly in the second half.
…
Moody’s Economy.com forecasts sales of existing homes will fall 1.6 percent in March to an annual rate of 4.95 million units, down from 5.03 million units in February. That month’s 2.9 percent increase in home sales was the first increase since last July.

“Despite recent steps to provide more liquidity to the mortgage market and ease financing constraints for potential buyers, access to credit remains restricted, especially for marginal buyers,” Aaron Smith, senior economist at Economy.com, wrote. If job losses prove worse than expected as the economy slows, “the floor forming under home sales could begin to cave in.”
…
Some analysts say lower home prices are luring bottom-fishers to look for cheap deals, but that activity is not a guaranteed industry booster.

“We’ll have to see if these pending transactions can actually close,” Mike Larson, a real estate analyst with Jupiter-based Weiss Research said in an e-mail. “My concern is that stingier lending standards are leading to more deals falling apart.”

Posted in Economics, Housing Bubble, National Real Estate | 288 Comments

“We’re in the middle of a recession…”

Posted on April 9, 2008 by grim

From Bloomberg:

U.S. Economy to Stall as Consumer Spending Cools, Survey Shows

Economic growth in the U.S. will come to a halt in the first six months of 2008 as consumer spending cools, a Bloomberg News survey showed.

The world’s largest economy will not expand at all from January through June, according to the median estimate of 62 economists surveyed from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession.

Job losses, falling home values and credit restrictions are plaguing consumers already burdened by soaring food and gasoline bills. Federal Reserve Chairman Ben S. Bernanke, who conceded for the first time last week that the economic expansion may end, will cut interest rates again, the poll showed.

“The economy is not going anywhere in the first half,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “The American consumer is pretty dismal right now. We’re in the middle of a recession and we’ve got another three to six months to work our way out of it.”

The deepest reductions came in the outlook for the second quarter as economists slashed the growth estimate to zero from last month’s projected 0.5 percent annual pace.

Increases in fuel prices and the unexpected pickup in firings since the start of the year explain the downgrade.

“Those two things are hitting the consumer hard,” said Stephen Stanley, chief economist for RBS Greenwich Capital Markets in Greenwich, Connecticut. “Demand is deteriorating rapidly.”

Posted in Economics, Housing Bubble, National Real Estate | Comments Off on “We’re in the middle of a recession…”

Who to save when we can’t save them all?

Posted on April 9, 2008 by grim

From the AP via the Philly Inquirer:

Democrats are split on a subprime bailout

Democrats are split over how to respond to the housing debacle, with House leaders focusing on helping homeowners who face foreclosure while the Senate moves to take care of businesses affected by the subprime crisis.
The Senate could pass its bipartisan, business-friendly measure – which showers $25 billion in tax breaks on home builders and banks – as early as today. That’s also when a key House panel is to consider a rival Democratic plan that instead steers tax breaks toward first-time home buyers and investors in low-income rental housing.

The emerging rift casts in doubt the prospects for a broader housing-rescue plan that would have the government step in and insure $300 billion in restructured loans for homeowners staring at foreclosure. Rep. Barney Frank (D., Mass.), the House Financial Services Committee chairman, begins hearings on that measure today.

The debate unfolds as Democratic leaders consider using a forthcoming war-spending bill as a vehicle for additional economic aid, such as an extension of jobless benefits and food aid for the poor.

House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.) are calling for a follow-up plan to the stimulus package President Bush signed in February, which included tax rebates for most wage earners.

“We’re going to look at the supplemental not only for the war funding, which is about $109 billion, but also what we can do . . . for summer jobs programs, extending unemployment benefits, some things that would be stimulative to the economy,” Reid said yesterday.

Pelosi has made little secret of her distaste for the Senate’s approach on housing. “Hopefully, the balance will swing to being more in favor of the families who are in danger of losing their homes,” she said last week.

The House plan would give first-time buyers a 10 percent credit – up to $7,500 – on the purchase of a new home. It is targeted toward lower earners, with smaller credits to people who make $70,000 (or $110,000 for a couple).

“We need to provide relief to the buyers and families themselves, not just the banks and builders,” Rep. Charles B. Rangel (D., N.Y.), the Ways and Means Committee chairman, said yesterday.

Rangel’s panel is scheduled to consider the measure today, and House leaders plan to add it to the broader housing overhaul expected to come to a vote in May.
…
The White House weighed in against the Senate bill Tuesday, opposing provisions to fund state and local government purchases of foreclosed homes and opposing the $7,000 tax credit.

“The bill will likely do more harm than good by bailing out lenders and speculators and passing on costs to other Americans who play by the rules and honor their mortgage-debt obligations,” White House press secretary Dana Perino said.

Jim Manley, Reid’s spokesman, said those comments “sound like yet another excuse to do nothing to help the thousands of American families facing foreclosure each day.”

Posted in Economics, Housing Bubble, National Real Estate, Politics | 1 Comment

February Pending Home Sales

Posted on April 8, 2008 by grim

From the AP:

Pending Home Sales Hit New Record Low

The National Association of Realtors says pending U.S. home sales fell to the lowest reading on record in February, signaling the housing market distress is not yet over.

The Chicago-based group’s seasonally adjusted index of pending sales for existing homes fell to 84.6, which was 21 percent below year-ago levels.

Wall Street economists surveyed by Thomson/IFR had predicted the index would inch higher.

An index reading of 100 is equal to the average level of sales activity in 2001, when the index started.

From Bloomberg:

February Pending Home Resales in U.S. Fall More Than Forecast

The number of Americans signing contracts to buy previously owned homes declined more than forecast in February, indicating the U.S. real-estate recession will extend into a third year.

The National Association of Realtors’ index of signed purchase agreements decreased 1.9 percent to 84.6, the lowest reading since records began in 2001, the group said today. The drop follows a revised 0.3 percent increase in January.

Falling property values and stricter lending standards are prompting prospective buyers to delay purchases, a sign the housing slump hasn’t touched bottom. Mounting home foreclosures and related losses at financial firms may keep the Federal Reserve cutting interest rates to soften the downturn.

“Conditions are bleak in the housing market,” Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “The housing correction is contributing directly to job losses and the recession.”

Economists had forecast the index would fall 1 percent from an unchanged reading previously reported for January, according to the median of 29 estimates in a Bloomberg News survey. Projections ranged from a decline of 1.5 percent to a 1.5 percent gain. Compared with a year earlier, the measure was down 21 percent.

Posted in Economics, Housing Bubble, National Real Estate | 239 Comments

“No sensible policy, he maintains, could have prevented the housing bubble.”

Posted on April 8, 2008 by grim

From the Wall Street Jounal:

His Legacy Tarnished, Greenspan Goes on Defensive
Future of U.S. Financial Reform Is at Stake; ‘I Am Right’
By GREG IP
April 8, 2008; Page A1

WASHINGTON — Alan Greenspan’s reputation is under siege, and he’s incredulous.

Hailed three years ago as “the greatest central banker who ever lived,” the retired chairman of the Federal Reserve now is being criticized for his management of the U.S. economy before he retired in 2006. The Fed’s low rates and laissez-faire regulatory oversight during his final years are widely blamed for sowing the seeds of today’s financial crisis — one that began in the U.S. housing market and is now battering banks, stock markets, borrowers and consumers around the world.

For much of his 18 years atop the world’s most-influential economic institution, Mr. Greenspan was lionized for the economy’s performance. Now, he notes, he’s being second-guessed for it.

“I was praised for things I didn’t do,” Mr. Greenspan said during one of three interviews at his sun-drenched office in downtown Washington, D.C. “I am now being blamed for things that I didn’t do.”

Now 82 years old, Mr. Greenspan wants to set the record straight before the ink dries on the first draft of the financial crisis’ history. The former Fed chief doesn’t deny that he cares about his reputation. But the larger issue at stake, he says, is getting the lessons of the crisis right.

“The [wrong] evaluation of this period — and how to avoid the problems associated with it — will give you the wrong answers and the wrong policies,” he says.
…
Mr. Greenspan now admits he was wrong about the improbability of a housing bubble. Yet he has long maintained that bubbles are an unavoidable feature of a dynamic economy. He pulls out a 1999 speech and shows, underlined in green marker, passages in which he warned of recurring but unpredictable patterns of overconfidence followed by investor panic. He does not share some foreign central bankers’ belief that their job is to defend against excessive asset-price inflation: No sensible policy, he maintains, could have prevented the housing bubble.

“I am reasonably certain that I am right here,” Mr. Greenspan says. If proved wrong, he says, “I will change. I do not have a vested interest in holding wrong ideas.”

Posted in Housing Bubble, National Real Estate | 5 Comments

Covered with gloom

Posted on April 7, 2008 by grim

From the Associated Press:

Poll finds New Jerseyans feeling gloomy on economy

Economic woes have New Jerseyans gloomy, a new poll has found.

Forty-nine percent of respondents in the poll issued Monday by Fairleigh Dickinson University’s Silberman College of Business said they’re worse off financially than they were a year ago. That’s up from 41 percent in a January poll.

The new poll also found only 25 percent think they’re better off financially.

“The prospect of a broad economic downturn continues to cause discomfort throughout New Jersey,” said William Moore, FDU’s Silberman College dean. “People are ever-hopeful for their personal prospects, but this economy is fragile and things may get worse before they get any better.”

The poll found 40 percent think they’ll be better off financially a year from now, compared to 35 percent who think they’ll be worse off.
…
However, respondents younger than 30 are more upbeat about their position and prospects. Half of them say they’re better off now than a year ago, and more than half say they’ll be better off a year from now.

Those 45 and older, though, say they’re worse off.
…
The poll found 79 percent don’t plan on taking on more debt, with 31 percent saying they have either a “somewhat” or “very difficult” time making debt payments.

Posted in Economics, New Jersey Real Estate | 276 Comments

“In this business, a deal is not done till it’s done.”

Posted on April 7, 2008 by grim

From the Record:

More deals falling through

Deal — or no deal?

Does a signed contract mean the property will actually sell? In a volatile housing market, the answer these days is “not necessarily.”

“You start earning your commission the day you get the contract,” said Kate Conover of Re/Max Properties in Franklin Lakes. “Getting a contract isn’t as hard as keeping it together.”

Home builders are especially plagued by canceled deals. Large builders say their cancellation rates have soared in the past year or two — to 35 percent or higher — often because their would-be buyers can’t unload their own homes. In an effort to head off cancellations, Hovnanian Enterprises of Red Bank, New Jersey’s largest homebuilder, now offers free home inspections, staging advice and other services to help its buyers sell their homes.

Cancellations are not as big a problem with existing home sales, according to North Jersey real estate agents. But they say keeping deals on track — from the offer through the contract to the closing — has become much more complicated.

Sometimes buyers have second thoughts; sometimes lenders balk at the size of the mortgage or the credit record of the buyer. Sometimes the home inspection turns up trouble.

“A lot of buyers are getting cold feet and backing out in attorney review,” said Ann Murad of Re/Max Real Estate Associates in Woodcliff Lake. “It’s usually three days of attorney review. Sometimes they’re dragging it out a week, and then they’re backing out.”

Often, deals go on the rocks because lenders have gotten tightfisted — after several years of being free (in some cases, reckless) with mortgage money. And at banks’ request, appraisers are being more conservative when valuing properties.
…
When real estate prices were rising, deals that fell apart were no big deal, McGuirl said. “You’d sell for as much or more, and it was never a matter of litigation,” he said. But now a seller could face real losses, he said.
…
“In this business,” he said, “a deal is not done till it’s done.”

Posted in New Jersey Real Estate | Comments Off on “In this business, a deal is not done till it’s done.”

Weekend Open Discussion – Part II

Posted on April 6, 2008 by grim

Now Open, Part II!

Prior weekend thread closed due to comment overflow.

Posted in General | 90 Comments

Weekend Open Discussion

Posted on April 4, 2008 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 | 218 Comments

Northern NJ March Residential Sales

Posted on April 3, 2008 by grim

Preliminary March sales and inventory data for Northern New Jersey 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 March sales, 2000 to 2008 YOY.


(click to enlarge)

The fourth graph displays an overlay of Sales and Inventory from 2003 to 2007.


(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)

Additional tables/graphs:

NJAR Q4 Statistics – New Jersey Pricing by Bedroom

NJAR Q4 Statistics – New Jersey Pricing by Region

OFHEO, S&P Case Shiller, and NAR pricing graph, courtesy of Pretorius:


(click to enlarge)

Posted in Economics, New Jersey Real Estate | 392 Comments

Liquidity lost

Posted on April 3, 2008 by grim

From the New York Times:

Unsold Homes Tie Down Would-Be Transplants

Dr. Michele Morgan migrated last fall from Detroit to Phoenix, taking a job as a psychiatrist. She expected her husband, Sam Kirkland, to soon join her, since he was accepting an early retirement package from his employer, General Motors. But he cannot move, he says, because he has not been able to sell the four-bedroom family home.

“As things now stand,” said Mr. Kirkland, who is 51 and intends to seek work in Phoenix, if he ever gets there, “my wife might decide to give up her job in Phoenix and come back to Detroit for a while, until we can sell the house.”

The rapid decline in housing prices is distorting the normal workings of the American labor market. Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer. Or people seek, as in Dr. Morgan’s case, an escape from harsh northern winters.

Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people like Mr. Kirkland and Dr. Morgan are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring.
…
“You hear a lot about foreclosure and the thousands of families who are being forced out,” said Joseph S. Tracy, director of research at the Federal Reserve Bank of New York. “But that is swamped by the number of people who want to sell their homes and can’t.”

Posted in Economics, Housing Bubble, National Real Estate | 3 Comments

$38 Billion Dollar Bailout

Posted on April 2, 2008 by grim

NAR Existing Home Sales Estimate (February 2008) – 5,030,000 (1)
Census New Home Sales Estimate (February 2008) – 590,000 (2)
Total Home Sales Estimate – 5,620,000

Less ineligible existing homes – 1,666,000*
Less ineligible new homes – 195,000*
*(Total investment/vacation homes (3) + nonconforming homes – fraud)

Total eligible sales – 3,759,000
Tax credit per sale – $10,000

Total cost – $37,590,000,000

If this plan increases home sales by 10%, total cost will rise past $40 Billion, a rise in sales of 20% will increase the total cost to $45 Billion. If this program reignites the boom, and sales surpass the 2005 peak, total cost will far exceed $70 Billion.

Where is this money coming from?

(1) Source: NAR Existing Home Sales February SAAR Estimate.

(2) Source: U.S. Census Bureau New Home Sales February SAAR Estimate.

(3) Source: NAR Vacation and Second Home Sales 2007 Estimate.

From MarketWatch.

House lawmakers propose home-buyer tax credit

Home buyers would get a $10,000 tax credit for their purchase under a bipartisan House bill proposed on Wednesday.

The bill, a response to the sluggish housing industry and its drag on the overall economy, was unveiled by Reps. Vito Fossella, R-N.Y., and Bill Pascrell, D-N.J. The temporary credit would apply only to those planning to live in the home and could only be claimed by taxpayers once, making speculators and flippers ineligible for the perk.

But the tax benefits won’t last for long; the credit would expire one year after enactment, according to a release from the two lawmakers. A tax credit reduces an individual’s tax liability on a dollar-for-dollar basis.
To be eligible for the credit, home purchases would have to meet the new temporary conforming loan limits approved in the economic stimulus package, according to the proposal. The limits are now equal to 125% of the area’s median home price, up to $729,750. The bill also includes an alternative-minimum-tax blocker to protect people who claim the credit, according to the release.

Posted in Economics, National Real Estate | 71 Comments

World Recession?

Posted on April 2, 2008 by grim

From Bloomberg:

IMF Cuts Global Forecast on Worst Crisis Since 1930s

The International Monetary Fund cut its forecast for global growth this year and said there’s a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.

The world economy will expand 3.7 percent in 2008, the slowest pace since 2002, according to a document titled “IMF Background Paper on the Update of the Global and Regional Outlook” obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. In January the fund projected growth of 4.1 percent.

It’s the third time the Washington-based institution has cut its forecast for 2008 after downplaying the threat of a U.S. credit squeeze to the world economy last July, when it predicted a 5.2 percent expansion this year. Central banks will need to conduct policy “as flexibly” as the circumstances warrant, the statement said, adding that the European Central Bank has room to lower borrowing costs.

“The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. “The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression.”

The IMF gave a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009, a pace the fund described as equivalent to a world recession.

Posted in Economics, National Real Estate | 339 Comments

Reform or sleight of hand?

Posted on April 2, 2008 by grim

From the APP:

Corzine wants $260M to replenish jobless trust fund

Gov. Corzine said Tuesday he wants to move $260 million from the current state budget to shore up the unemployment trust fund and avoid a trigger that would mean higher payroll taxes for employers.

The decision came after state projections showed the fund that pays unemployment benefits might not have enough money to meet its obligations.

“This really was brewing,” said David J. Socolow, commissioner of the state Department of Labor and Workforce Development. “We’ve been right on the bubble of this happening for years.”

Unemployment benefits are given to workers who lose their jobs through no fault of their own, and they are funded by taxes both on employers and workers. The state is required by law to maintain a balance that ensures the program will be adequately financed.

But lawmakers diverted $4.7 billion from the fund for other projects for 14 years until Corzine took office and ended the practice. The program is under more strain, given the shaky economy; the state’s jobless rate rose to 4.8 percent in February from 4.5 percent in January.

The result: The unemployment fund on March 31 was projected to have $999 million for the next fiscal year, less than the $1.04 billion it needed to be considered financially healthy. That would automatically trigger a hike on employers’ payroll taxes that would generate another $350 million, Corzine officials said.

Employers’ tax rates for the unemployment program depend on how often their workers use it; an employer with heavy turnover pays more than an employer with a relatively stable work force. If the trigger were to go into effect, an employer paying a 1.7 percent tax rate, for example, would see it rise to 2.1 percent. Workers’ taxes would remain the same.

The governor “will not burden employers with taking care of an obligation that is not their fault,” Corzine spokesman Jim Gardner said.

Corzine’s solution is to change the date on which the fund balance is calculated from March 31 to June 30 for this year, and to transfer $260 million from the state’s current budget surplus to the unemployment plan. The plan first needs the Legislature’s approval.

Posted in Economics, New Jersey Real Estate, Politics | 3 Comments