New Jersey Real Estate Report

From the WSJ:

Home Sellers’ Pain Is Renters’ Gain
By NICK TIMIRAOS
January 15, 2008

There’s one bright side to the housing crisis: some lower rents.

The regions hardest hit by the housing downturn have seen ailing builders, rising foreclosure rates and a glut of unsold homes, amid other signs of distress. But there are also stories like Laura Evans’s.

The 38-year-old elementary-school teacher moved to Stuart, Fla., from Orlando with her husband and baby last fall. Looking for a rental apartment, they were pleasantly surprised: There were plenty of choices at lower-than-expected prices, thanks to the multitude of owners trying to rent units they couldn’t sell.

“When we got down here, we shopped and shopped around,” says Ms. Evans, who rented a new 2,200-square-foot, three-bedroom townhouse with a pool and a playground for $1,150 per month. The owners allowed the couple to move in with their dog, despite a prohibition against pets.

To be sure, rents have continued to rise steadily in many markets. And the housing downturn means that more people are looking for rentals as well, increasing demand. Many would-be buyers have become renters because they can’t get a mortgage in today’s tight credit environment, or because they’re sitting tight in hopes that prices drop further.
…
Behind the trend are tens of thousands of unsold condominium units that are being dumped on markets such as South Florida, Las Vegas and Phoenix. While thousands of single-family homes also are coming on the market, renters prefer condos to houses, which typically have more expensive upkeep. “Tenants have to pick up more of the bills,” says Artur Ciesielski, a Phoenix real-estate agent.
…
More than 4,200 units have been pulled out of the for-sale condo market and put into the rental pool in Florida’s Palm Beach County alone, according to Mary Grace Breeding, president of McCabe Research & Consulting in Deerfield Beach. Those units include the 216-unit Aventine at Boynton Beach and the 450-unit Mizner Court at Broken Sound in Boca Raton, where rents range from $975 to $2,000.

Nor are so-called condo reversions limited to the Sunbelt. In Brooklyn, N.Y., two luxury condo developments converted to rental apartments last spring, including 99 Gold Street, which had begun accepting sales contracts less than a year earlier. Rentals at the 88-unit building range from $2,000 a month for 700-square-foot studios to $5,500 for two-bedroom penthouses.
…
Savvy renters in struggling markets are playing landlords off each other. Ms. Evans, of Stuart, Fla., says the same day she and her husband leased their apartment for $1,150 a month, the owner of a bigger home they had looked at called to lower his asking price from $1,500 to $1,200. “If he had called earlier, we would have taken it,” she says.
…
Housing experts predict that many would-be home buyers may be forced to rent for years because the relationship between rents and home prices are out of whack. Rents remained at around 5% of home prices throughout much of the postwar period, but beginning in 1996, home-price growth rapidly outpaced rent growth. By the end of 2006, home prices had more than doubled while average rent was up just 48%, driving down the annual rent/price ratio to 3.48%.

A study by one former and two current Federal Reserve economists suggests that home prices will have to fall by 15% over the next five years while rents increase by 4% a year to return that rent/price ratio to normal.

From Bloomberg:

Greenspan’s ‘Superstar’ Status at Risk as Recession Risks Grow

The next bubble to deflate may be Alan Greenspan’s reputation.

Hailed as perhaps the greatest central banker who ever lived when he left the Federal Reserve in 2006, Greenspan is under attack from critics ranging from the New York Times to economists at the American Enterprise Institute for his handling of the 2000-2005 housing boom. The former Fed chairman has taken to the media to defend himself, writing in the Wall Street Journal and appearing on network television.

“He’s had a bubble reputation that derived from the growth of U.S. household wealth,” said Edward Chancellor, author of “Devil Take the Hindmost: A History of Financial Speculation.” “As that goes down, his standing as a superstar will suffer.”
…
“The Fed and the other regulatory agencies were slow on the draw,” Blinder said. “They could have made this debacle substantially smaller, not by better monetary policy, but by better regulatory and supervisory policy.”

Desmond Lachman, a former International Monetary Fund official now at the American Enterprise Institute in Washington, blames Greenspan’s libertarian bent for his failure to curb lending abuses: “That philosophy got us into a lot of trouble.”

Greenspan said in the interview that, while the Fed’s bank examiners were hard at work during the mortgage-lending boom, “we have to be realistic about what regulators can and cannot do.”

“It is extremely rare to uncover fraud other than through whistle-blowers,” he said. “You don’t get at it through internal audits, you don’t get it through outside audits and you certainly don’t get it through bank examinations.”
…
Some economists, including Blinder, also fault Greenspan for fostering the housing bubble by keeping interest rates too low for too long. The Fed cut its benchmark rate to a 45-year low of 1 percent in June 2003, held it there for a year, then raised it only gradually, in quarter-percentage-point increments.

“For that episode of monetary policy, I would probably give him a B, where my overall grade is A or A-plus,” Blinder said.
…
Meltzer said that while Greenspan was a “great Fed chairman,” he erred in ignoring warnings about the risks of keeping rates low.

“I think he lets himself off much too easy,” Meltzer said, adding that he told Greenspan at the time that he was exaggerating the danger of deflation and thus making a mistake in cutting interest rates to 1 percent.
…
Allen Sinai, chief economist at Decision Economics Inc. in New York, said the Fed’s experience is leading other central banks to rethink their approach to asset bubbles.

“There is a growing body of thinking in central banking that one should not let these bubbles run and allow them to burst,” he said. “They should lean against them.”

Greenspan disagrees with such a strategy. “There is no evidence that it works other than in computer models,” the former Fed chief said. He noted that the stock market merely leveled off when the Fed doubled interest rates to 6 percent in 1994-95, then resumed its climb.

Greenspan maintained that the housing bubble was inflated not by the Fed’s monetary policy but by a global savings glut that held down long-term interest rates worldwide.

From the NY Times:

Realtors’ Index Shows Dip for Existing-Home Sales

Pending home sales dipped in November, a trade group for real estate agents said on Tuesday, but the association expects sales to pick up in the second half of 2008.

In the latest indication that the housing market’s struggles are not over, the National Association of Realtors said on Tuesday that its seasonally adjusted index of pending sales for existing homes fell 2.6 percent to a reading of 87.6 from an upwardly revised 89.9 in October.

Analysts warned of continued problems in the housing market.

“The best thing you can say about pending home sales is that they aren’t getting much worse,” Michael D. Larson, a real estate analyst at Weiss Research in Jupiter, Fla., said in a statement. But with the labor market weakening, “you have the recipe for ongoing trouble in housing.”

In a speech on Tuesday, the chief executive of the mortgage finance company Fannie Mae, Daniel H. Mudd, said home prices would “perhaps begin to gain modestly” in 2010.

The Realtors index, which was down 19.2 percent from a year ago, hit a record low of 85.5 in August at the peak of the worldwide credit squeeze.

Typically there is a one- to two-month lag between the time that a buyer signs a home sales contract and the closing of the deal. So the November reading should reflect sales that were completed last month and into this month.

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

Final results for existing-home sales in 2007 — to be released this month — are expected to be down 12.7 percent from 6.48 million in 2006, the Realtors group said.