New Jersey Real Estate Report

From the AP:

Analysts: Housing pain to worsen

The current housing slump, which began in late 2005, probably has another year to go before things turn around. Before it is over, home prices — which soared during the boom years — will probably have fallen by the largest amount in any downturn in the post World War II period.

The problems in housing have been a serious drag on the overall economy — slashing more than a full percentage point off growth in some quarters. And those adverse effects will get worse in coming months, many private economists believe, reflecting the fallout from the severe credit crunch that hit in August.

The betting is that the overall economy will be able to avoid a recession, but that it will be a close call, with the point of maximum danger still ahead.

“I think the housing market has got another year of very weak sales, falling construction and lower home prices. And all of that assumes that the economy holds together reasonably well and we don’t have a recession,” said Mark Zandi, chief economist at Moody’s Economy.com.

The biggest worry is that mortgage financing problems will grow even more severe, with soaring defaults dumping more homes onto an already glutted market, driving prices down further.

In a new report, the Joint Economic Committee estimates there will be 1.3 million foreclosures from mid-2007 through 2009 in subprime mortgages, loans provided to borrowers with weak credit histories.

Those foreclosures will wipe out an estimated $71 billion in housing wealth directly and an additional $32 billion indirectly by lowering the values of neighboring homes, according to the report by the JEC’s Democratic staff. The report predicts that will end up costing states $917 million in lost property tax revenue through the end of 2009. The states of California, New York, New Jersey and Florida are expected to be among the biggest losers.

From the Wall Street Journal:

With Buyers Sidelined, Home Prices Slide
Tighter Credit, Anticipation of Further Declines Add To Worst Glut Since Late ’80s; the Foreclosure ‘Fear Factor’
By JAMES R. HAGERTY
October 25, 2007; Page D1

So many houses. So few buyers.

Home builders are slashing prices, often by more than 10%. Some people who list their homes on Craigslist.org admit they are “desperate” to sell. Inventories of unsold homes are at the highest level in nearly two decades, providing plenty of choices.

Yet a severe tightening of credit by mortgage lenders is keeping many buyers out of the market, while the huge supplies of homes for sale have persuaded others that they can wait for further price cuts.

The National Association of Realtors reported yesterday that sales of previously occupied homes in September dropped 19% from the same month a year ago to a seasonally adjusted annual rate of 5.04 million units. The trade group blamed disruptions in the mortgage market.

Meanwhile, The Wall Street Journal’s quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling and overdue loan payments are piling up. (See chart)

Some forecasters now warn that home prices are unlikely to start rising in most of the country before 2009 or 2010. A year ago, many home builders and lenders still thought that the housing boom — which more than doubled prices in some areas during the first half of this decade — would end with a gentle landing. Now those hopes are dead.

“Everybody’s kind of at a stalemate now, waiting to see what happens next,” says Donna Butera, who has a business in Phoenix “staging” homes for sale, adding furniture and other decorative touches to make them more appealing. Ms. Butera and her husband, Mark, are trying to sell six homes in Phoenix and Scottsdale. They bought the properties as investments over the past few years, but now find that the rents they collect don’t cover mortgage payments that are resetting to higher levels after initial low-cost periods of a year or two.
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Even so, home sales are likely to remain weak for months because lenders are still very cautious and huge supplies of homes are weighing on prices. On a national basis, the number of previously owned homes listed for sale is enough to last about 10.5 months at the current sales rate, the NAR said. The supply of detached single-family homes, at 10.2 months, is the highest since February 1988. Supplies hovered around four to five months for the first half of this decade. When the figure is longer than six months, it is considered a buyer’s market.

Inventory figures reported by Realtors probably understate supply because not all foreclosed homes are sold through real-estate agents, says Doug Duncan, chief economist at the Mortgage Bankers Association.
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House prices, as measured by the S&P/Case-Shiller national index, are likely to fall about 7% this year and a similar amount in 2008, says Jan Hatzius, chief U.S. economist at Goldman Sachs in New York. He believes a further small decline is likely in 2009. Of course, house-price movements vary greatly around the country and even within metro areas; in some desirable locations with limited supply, prices are likely to keep rising.
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Foreclosure headlines create a “fear factor” among buyers and prompt more to think they should wait before taking the plunge, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. He believes the typical home price in New Jersey will fall about 7% this year, after dropping 8% in 2006. He expects a further decline in 2008. But, he says, “when houses are priced right, they’re selling very quickly.”

From the NY Times:

Reports Suggest Broader Losses From Mortgages

Every time economists and Wall Street executives think they have acknowledged the full extent of the losses from the meltdown in real estate mortgages, more bad news turns up.

Merrill Lynch said yesterday that it would take a charge for mortgage-related securities on its books that is $3 billion more than the $5 billion it expected just two weeks ago. And a report from the National Association of Realtors showed that sales of existing homes in September fell twice as much as economists had expected, to their lowest level in nearly 10 years.

Stocks fell sharply early yesterday on the news, with the Standard & Poor’s 500-stock index falling 1.8 percent before recovering in the afternoon. Investors also bid up Treasuries as they sought the safety of government-backed debt.

At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.

That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector. The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.

That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value.

Experts caution that these estimates are preliminary and the total costs could get bigger still. They also note that the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock.
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In a new report to be issued today, the Joint Economic Committee of Congress predicts about two million foreclosures by the end of next year on homes purchased with subprime mortgages. That estimate is far higher than the Bush administration’s prediction in September of 500,000 foreclosures, which in itself would be a tidal wave compared with recent years. Congressional aides provided details of the report yesterday to The New York Times.

The Joint Economic Committee estimates that the lost of real estate wealth just from foreclosures on subprime loans will be about $71 billion. An additional $32 billion would be lost because foreclosed homes tend to drive down the prices of other houses in the neighborhood.

Those figures would cause a decline of $917 million in lost property tax revenue to state and local governments, which will also have to spend more on policing neighborhoods with vacant homes. The states most likely to be hard hit fall into two categories: those where prices had been rising fastest, like California and Florida, and Midwest states with weak economies, like Michigan and Ohio, where people with low or moderate incomes made heavy use of subprime loans to become homeowners and consolidate debts.

“State by state, the economic costs from the subprime debacle are shockingly high,” said Senator Charles E. Schumer, Democrat of New York and the chairman of the Joint Economic Committee. “From New York to California, we are headed for billions in lost wealth, property values and tax revenues.”
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The much bigger losses will be in declining real estate prices. Household real estate currently totals about $21 trillion, according to the Federal Reserve.

Global Insight, a research firm, predicts that the national average for housing prices will drop 5 percent over the next year and 10 percent before mid-2009, for a total of about $2 trillion. Economists at Goldman Sachs have predicted prices will drop by 15 percent, meaning an overall decline of more than $3 trillion; other forecasters have said the decline could be 20 percent or more.

House prices decline slowly, because many potential sellers simply stay in their current homes when they think prices are too low. But that becomes more difficult as people have to move either because of job changes or, increasingly, because their monthly payments are rising sharply. In the next 18 months, interest rates on more than two million homes loans will reset to higher adjustable rates.
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The housing bust has also led to job losses. From the start of 2003 to March 2006, housing-related businesses like mortgage companies, home builders and contractors added 1.3 million jobs, or about 23 percent of all new jobs created in that period, according to an analysis by Mark Zandi, chief economist at Moody’s Economy.com.

Since then, the housing business has shed 383,000 jobs, while the rest of the economy has added nearly three million jobs.

Jan Hatzius, chief United States economist at Goldman Sachs, said the small decline in housing employment thus far is surprising and suggests more layoffs are ahead.

“You still have a million jobs that aren’t really needed anymore due to the downturn in housing,” he said.

From Bloomberg:

U.S. Existing Home Sales Fall More Than Forecast

Sales of previously owned U.S. homes fell more than forecast in September, signaling no letup in the real-estate slump that threatens to hobble economic growth.

Purchases declined 8 percent to an annual rate of 5.04 million, the fewest since record keeping began in 1999, from a 5.48 million August pace, the National Association of Realtors said in Washington. Sales were down 19 percent from September 2006 and the median home price dropped.

The collapse in subprime lending will limit access to credit and reduce sales even more in coming months, economists said. The drop in demand suggests home prices will keep falling, raising the risk consumer spending, which accounts for more than two-thirds of the economy, will slow.

“Housing still has a lot of weakness ahead of it,” Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said before the report. “Existing home sales are still not particularly low by historic standards.”

Resales were forecast to fall 4.5 percent to an annual rate of 5.25 million from a previously reported 5.5 million pace in August, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from 4.95 million to 5.8 million.

The median price fell 4.2 percent to $211,700, compared with September 2006.

From MarketWatch:

U.S. home sales fall 8% to 8-year low in September

Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday. Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. Inventories of unsold homes and condos rose to a 10.5-month supply, the largest in at least eight years. For single-family homes alone, sales fell 8.6% in September to a seasonally adjusted annual rate of 4.38 million, the lowest sales pace since January 1998.

From CNN/Money:

Home Sales Plunge by 8 Percent

— Sales of existing homes plunged by a record amount in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years.

The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.

The weakness in sales translated into further pressure on prices. The median price — the point at which half the homes sold for more and half for less — fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.

The 8 percent decline in sales was bigger than the 4.5 percent decline that had been expected.

From Bloomberg:

U.S. Housing Decline Threatens to Last Into 2009: John F. Wasik

Ivy Zelman’s view of the U.S. housing market is gloomy, but it’s probably the most realistic.

A veteran Wall Street analyst, Zelman, chief executive of the research firm Zelman & Associates, says it’s unlikely the U.S. housing market will recover before 2009, adding there’s a “50 to 60 percent chance of a recession,” as the housing slump curbs consumer spending.

Zelman paints a much darker picture than Federal Reserve Chairman Ben Bernanke, who said last week that housing will be a “significant drag” on the economy into next year.

When you consider the huge home inventories and tight-as-a- drum mortgage restrictions, it’s easy to conclude that the housing slump could extend well past 2008. Unless financing loosens up and buyers return, her prophecy will become a reality.

“I’ve never seen the market as bad as this,” Zelman said. “And it could get worse. The home-price decline could range from 16 percent to 22 percent.”

Monitoring inventory, builder incentives and demand, Zelman is also watching adjustable-rate mortgage resets. Homeowners with these loans will automatically face higher monthly payments that they may not be able to afford, another trigger for foreclosures or sales. Some $500 billion of these loans will re- adjust through 2008, Zelman says.
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“These are the worst inventories we’ve seen as a nation,” she says. Zelman originally presented her report Oct. 10 to the Home Improvement Research Institute, a Tampa, Florida-based trade group.

Zelman’s words carry some weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year.

She was alarmed that home prices far outpaced personal- income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime. Now economists and analysts are trying to assess the collateral damage of the bust and subprime mortgage meltdown.

Meanwhile, builders are stuck with thousands of new homes they can’t sell and potential buyers are canceling in droves or are unable to get a mortgage. Housing starts fell to a 14-year low in September.

From Bloomberg:

Stiglitz Says U.S. Housing Slump Will Stunt Consumer Spending

A slowdown in the U.S. economy may be prolonged as a house-price drop cuts off a source of funding for consumers, said Joseph Stiglitz, a Nobel economics laureate.

“The average price of housing in the U.S. is already falling,” Stiglitz said in a speech in Tokyo today. “That will be a big problem for the U.S. and if it is a problem for the U.S., it’s going to be a big problem for the global economy.”

A U.S. real-estate recession sparked by defaults on home loans to borrowers with poor credit histories may worsen as stricter lending rules and higher mortgage rates make it more difficult for potential buyers to get financing. A drop in consumer spending in the world’s biggest economy may depress demand for exports in countries from China to Germany.

Stiglitz estimates that last year between $850 billion and $950 billion was taken out of the value of homes in mortgage- equity withdrawals, with a “significant fraction” translated into consumption and helping to offset the effect of higher oil prices.

“It is hard to see how this level of spending will be sustained as long as house prices decline and mortgage lending rates go up,” he said.

There is also a risk that the problems of the subprime market will spread, Stiglitz said, estimating that 1.7 Americans will lose their homes over the next year as charges rise on variable-rate loans.

“As all that housing is thrown into the market, it depresses prices and that means some mortgage holders will be under water — or the value of their homes will be less than their mortgages,” he said.

Housing prices in 20 U.S. metropolitan areas fell 3.9 percent in the 12 months through July, a report showed Sept. 25.

The International Monetary Fund cut its forecast for U.S. growth last week.