Weekend Open Discussion

Posted on September 7, 2007 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 | 326 Comments

“Things are destined to get worse before they get better.”

Posted on September 7, 2007 by grim

From James W. Hughes and Joseph J. Seneca at the NJ Voices blog:

Housing slump promises more budget woes

The current housing slump is destined to worsen, according to the National Association of Realtors’ index of pending sales of existing homes that was released this week for the month of July. The NAR index for the nation, which is based on signed contracts to purchase existing homes, was 16.1 percent below that of one year ago.
…
Things are destined to get worse before they get better.

In New Jersey, residential building permits are down approximately 30 percent so far this year compared to the equivalent period in 2006. Thus, it should be obvious that New Jersey and its economy are full participants in the national housing slump.

What may not be obvious is the direct impact of declining home sales on the state budget. New Jersey’s total Realty Transfer Fees, collected when a home is sold, have become a growing revenue source for the state. They increased more than eight-fold between 2000 ($77.7 million) and 2006 ($655.5 million). The large jump in revenue since 2000 was attributable to both higher realty tax rates and sharply rising home sales during the boom.

In 2006, Realty Transfer Fees generated 2.5 percent of all state tax revenues, up from 1.4 percent in 2004. Total Realty Transfer revenues were expected to decline this year, but the housing market has tumbled far deeper and faster than most analysts predicted just several months ago. Thus, the decline in Realty Transfer Fees is destined to continue to grow until the housing market bottoms out. Sales of existing homes in the state surged from 132,300 units in 2001 to 184,400 units in 2005. But, by the second quarter of this year, sales dropped sharply to a seasonally-adjusted annual rate of 145,100 units.

This is not good news for the state’s current budget or for that of next year. Moreover, there are other state revenue sources – such as sales taxes (on building supplies and home-related items), corporate business taxes (on homebuilder profits), and personal income taxes (on real estate- and residential construction-related employment) – that are highly vulnerable because of their link to the state’s housing market.

With the national economy slowing, and the housing market still facing further declines, fiscal prudence for New Jersey is certainly in order.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 3 Comments

“I’ll have my day in court.”

Posted on September 7, 2007 by grim

From the New York Times:

11 Arrested in New Jersey Corruption Inquiry

Eleven current or former public officials, including two members of the State Assembly, were charged Thursday with taking thousands of dollars in bribes in exchange for promising municipal business to undercover officers posing as insurance brokers in the latest federal probe into New Jersey’s rampant political corruption.

The officials, and a man affiliated with one of them, were rounded up by agents with the Federal Bureau of Investigation early Thursday morning and appeared before a judge in Federal District Court here by afternoon. The arrests culminated an 18-month investigation in which an undercover agent and cooperating witnesses posed as insurance brokers and traded wads of cash ranging from $1,500 to $17,500 for assurances of votes on school boards and city councils.

The investigation initially focused on the Pleasantville Board of Education, which runs a tiny, impoverished school district near Atlantic City. With 13 superintendents in the last 10 years, the district has been plagued by turmoil and is now working with a state-appointed monitor.
…
But even Mr. Christie said that he was stunned by the business-as-usual boldness uncovered in the most recent investigation, which the F.B.I. dubbed Operation Broken Boards. Mr. Christie noted that one of those charged, Assemblyman Mims Hackett Jr., is the chairman of the State Government Committee, which is responsible for government rules and oversight, including ethics legislation.

“It’s been six years doing this job, and I thought I could no longer be surprised by a combination of brazenness, arrogance and stupidity,” Mr. Christie said. “But the people elected in this state continue to defy description.”

Along with Mr. Hackett, who is also the mayor of Orange, the highest-ranking person arrested was Assemblyman Alfred E. Steele, who is also a Baptist minister and an undersheriff in Passaic County. Both hold leadership posts in the Democratic-controlled Assembly.

Federal investigators also arrested Mayor Samuel Rivera of Passaic, who resigned Thursday from a committee of mayors supporting Senator Hillary Rodham Clinton’s presidential bid. Mr. Rivera, a former police officer in both New Jersey and Puerto Rico, has had a variety of run-ins with law enforcement, including domestic violence charges filed by his daughter in 2004 that were later dropped; charges in 2002 of making terroristic threats against a boxer who had gone to the home of a woman Mr. Rivera later married (also dropped); and a 2003 assault conviction for yelling obscenities at a woman and pushing her. In 1966, a 20-year-old Mr. Rivera, who was working as a security guard, killed his brother-in-law in what was ruled an accidental shooting.
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The other men arrested are Marcellus Jackson, of the Passaic City Council; James Pressley, Rafael Velez and James T. McCormick, of the Pleasantville School Board; Maurice Callaway, a former member of the Pleasantville School Board; and Louis Mister of Pleasantville, an associate of Mr. Callaway’s.

Posted in Politics | 7 Comments

“There’s still a lot of pain . . . ahead of us.”

Posted on September 6, 2007 by grim

From the Philly Inquirer:

Home-sales indicator hits a low

A near-record low for an index that forecasts home sales in the short run suggests borrowers in expensive areas are struggling to finalize home purchases amid mortgage-market troubles.

The National Association of Realtors said yesterday that its seasonally adjusted index of pending sales for existing homes fell 16.1 percent in July from a year ago and 12.2 percent from the prior month.

July’s reading of 89.9 was the second-lowest ever for the index and its lowest since September 2001, when the economy was jolted by the terrorist attacks.
…
“Numbers like this should put to rest the belief that we’ve reached the bottom” in the housing market, said Joel Naroff, chief economist for Commerce Bancorp Inc., of Cherry Hill, N.J. “There’s still a lot of pain . . . ahead of us.”

Lawrence Yun, senior economist at the real estate trade group, said the weak pending-sales data stemmed from the fact that mortgage giants Fannie Mae and Freddie Mac could not package “jumbo” home loans above $417,000 into securities sold to investors.

With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages, and many lenders making jumbo loans have demanded higher rates from borrowers.

The pending-home-sales data show the biggest year-over-year declines in Western states, which dropped 21.8 percent. The smallest drop was in the Northeast, which declined 10 percent.

Posted in Housing Bubble, National Real Estate | 166 Comments

Cracking down on risky loans

Posted on September 6, 2007 by grim

From the Wall Street Journal:

Congress Takes Up Mortgages
One Proposal to Protect Homeowners May Chill Secondary Debt Market
By JAMES R. HAGERTY, KARA SCANNELL and SARAH LUECK
September 6, 2007; Page A7

Congress returned from vacation with a series of proposals that could reconfigure the mortgage market, suggesting lawmakers are in a mood to make substantial changes in the wake of the summer’s subprime mess.

Possible bills in both the House and the Senate would expand homeowner protections to cover more high-cost loans, crack down on prepayment penalties and prohibit brokers from steering borrowers toward more-costly loans. Critics blame such practices for encouraging mortgage brokers and lenders to push unsophisticated borrowers to accept loans with onerous terms.

The House version, which has yet to be introduced, could include a more controversial provision that would make buyers of mortgage debt on the secondary market liable for abusive practices by lenders. That provision will face stiff opposition and could chill an already-faltering secondary market.

The common ground between House and Senate Democrats increases the likelihood that Congress will complete some kind of mortgage legislation. The precise details and timing remain hard to predict.
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Yesterday, Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking Committee and a candidate for the Democratic presidential nomination, announced plans for an ambitious bill. One key part would ban payments to mortgage brokers known as yield-spread premiums, or YSPs, on subprime loans. Lenders pay YSPs to brokers when borrowers pay a higher interest rate than the best one they could qualify for. Critics say that gives brokers an incentive to push higher-cost loans. The mortgage industry says it can be a way for consumers to compensate brokers without paying upfront fees.

The Dodd plan also would prohibit lenders from giving subprime loans to borrowers who could qualify for prime loans.
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House Democrats want to address another, more problematic question: whether secondary buyers of mortgage debt should be legally liable for the underlying loans. Democrats acknowledge this is likely to be a sticking point.

Lawmakers say they want to encourage good underwriting practices while being sensitive to industry complaints. Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents national lenders, said that additional liability would increase interest rates by an average of 1.5 to two percentage points.

“One of the arguments we’ve got against regulation in any way of the secondary market is you will impinge on the market and kill the market,” said Mr. Frank. But “giving the investor some assurance of quality in what he or she is being asked to invest in is part of the role of regulation….It can help the market.”
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State legislatures have tried assigning secondary liability in the past, with limited success. Georgia passed a law in 2002 that extended liability to a loan’s end buyer, essentially holding them responsible for the actions of underwriters. After mortgage underwriters threatened to leave the state and the major credit-rating concerns said they wouldn’t rate pools of mortgages that included Georgia loans, the legislature voted to weaken the liability component in 2003.

A congressional push to add liability to the mortgage market will also likely face resistance from the Bush administration, which has been outspoken about the cost of lawsuits in driving overseas companies from doing business in the U.S.

“A lot of the key details [of the Senate plan] are missing,” said Kurt Pfotenhauer, a senior vice president at the Mortgage Bankers Association, a trade group. He agreed that YSPs need to be addressed, because of the potential for abuse, but said it isn’t clear that an outright ban is the best solution.

Mr. Pfotenhauer noted that Congress has struggled for years to achieve a consensus on how to combat predatory-lending practices. The issue is very hot now, he noted, because of a surge in defaults and foreclosures. But passing legislation still “isn’t a slam dunk,” he said.

Posted in National Real Estate, Risky Lending | Comments Off on Cracking down on risky loans

Credit crunch or risk aversion?

Posted on September 6, 2007 by grim

From the Wall Street Journal:

Conventional Mortgage
Has Lenders Competing
By JILIAN MINCER
September 6, 2007; Page D6

While subprime and jumbo mortgage loans are drying up, there is plenty of cash flowing to borrowers with stellar credit who want conventional fixed-rate mortgages.

Banks and credit unions are battling for these customers with fee waivers, competitive interest rates and a willingness to negotiate on rates that have dropped in the past three months.

“I’ve talked to many banks who are anxious to lend,” says James Chessen, chief economist for the American Bankers Association in Washington. “A good credit risk will always have access to funds at the best rates in the market.”

This summer’s subprime crisis has tightened lending standards, making it extremely difficult for borrowers with less than perfect credit to get a mortgage, especially if they are stretching to afford their first home.

Even consumers with solid credit scores and high incomes are now finding it more difficult and more expensive to find jumbo mortgage loans, which are loans of more than $417,000. A mortgage that large is often necessary on either coast because of high home costs.

But individuals with good credit and a down payment are in the driver’s seat at a time when the average 30-year fixed rate mortgage on a loan of less than $417,000 was 6.5% yesterday, according to Bankrate.com’s benchmark 30-year fixed rate. The bigger the down payment, the more the borrower’s negotiating strength.

One reason for the current strong market for conventional, or “conforming,” mortgages is that there is plenty of cash to lend because “investors are willing to invest in these sectors,” says Joe Rogers, executive vice president at Wells Fargo Home Mortgage.

Posted in National Real Estate, Risky Lending | Comments Off on Credit crunch or risk aversion?

North Jersey August Residential Sales

Posted on September 5, 2007 by grim

Preliminary August 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 1000, 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 August sales, 2000 to 2007 YOY.


(click to enlarge)

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


(click to enlarge)

The last graph, new this month, displays the year over year change in inventory on a monthly basis.


(click to enlarge)

Contract-sales data can be found in spreadsheet form here: contracts.xls
Sales and inventory data can be found in spreadsheet form here: salesinvoverlay.xls (large file)

Posted in Economics, New Jersey Real Estate | 157 Comments

Home slump reality hard to swallow

Posted on September 5, 2007 by grim

From the Record:

Yearning for good old days of 2005

If there’s one thing that home sellers hate to hear, it’s: “Your house is worth less than you think.”

But that’s exactly the message that real estate agents in North Jersey (and nationwide) must deliver in a market where prices have declined from their peaks of 2005.

“We have homeowners who bought two years ago; they’re going to have to sell for less than what they paid,” said Randy Douglass of ERA Douglass Realtors in Montvale. “They get very upset and disappointed. It’s hard to swallow.”

The problem is that many sellers stubbornly cling to the price their neighbors got two years ago.

“Sellers are still stuck in the old days, and they’re not going down [with their asking prices],” said Ivana Crecco of Camelot Realty in Hackensack.

Many, she said, tell her they need to get the higher price because they have to pay off credit card debt. She has to break the bad news that buyers just don’t care about their credit card problems.

“When it sits on the market [at the higher price], they start to blame the real estate agent,” Crecco said.

So how can real estate agents get sellers to accept reality?

“Often we have to show them what the other homeowners are doing,” Douglass said. If the asking price has just been cut on a similar house nearby, some sellers will agree to lower their prices. Douglass also shows the actual selling prices of comparable houses — another reality check for sellers.

Tim King of King Real Estate Agency in Bergenfield said he often reminds sellers that the house they’re buying has probably come down in price, too.

“It’s all relative,” he said. “Even though you’re getting less for this house, you’re paying less for the next house.”

King said he will sometimes spend two hours with clients, showing them all the comparable houses on the market in their town. “It takes a lot of educa-tion,” he said. “You can’t ask $400,000 for a Cape Cod in Bergenfield if the same house next door is on the market for $358,000.”

Buyers are out there, agents agree — but they’re looking for bargains. Homeowners must understand that as the inventory of houses has risen, there’s a lot more competition for buyers’ attention, Douglass said.

“If you have 10 houses in Upper Saddle River that you’re competing with, you have to be the No. 1 or 2 house in your price range,” Douglass said.

Douglass said the sellers in the most pain are those who bought in 2005. They may have to take a loss of as much as 10 percent, he estimated.

Posted in Housing Bubble, New Jersey Real Estate | 2 Comments

Commercial poised to fall?

Posted on September 5, 2007 by grim

From Bloomberg:

Commercial Real Estate in U.S. Poised for 15 Percent Price Drop

U.S. commercial real estate prices may fall as much as 15 percent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales.

“People aren’t willing to do deals right now,” said Howard Michaels, the New York-based chairman of Carlton Advisory Services Inc., which has arranged financing for real estate purchases including the Lipstick Building in midtown Manhattan. “The expectation is that prices will come down.”

Investors in July bought the fewest commercial properties since August 2006 and apartment building acquisitions were down 50 percent from June, data compiled by industry consultants at New York-based Real Capital Analytics Inc. show. Archstone-Smith Trust in August postponed its $13.5 billion sale to a group led by Tishman Speyer Properties LP until October. Mission West Properties Inc., the owner of commercial buildings in Silicon Valley, said on Aug. 13 that the company’s $1.8 billion sale may fail after a bank withdrew funding.

“There are so many deals falling apart,” said David Lichtenstein, chief executive officer of Lakewood, New Jersey- based Lightstone Group, an owner of more than 20,000 apartments and 30 million square feet of office and retail space. “People who can get out are getting out.”
…
About 930 commercial real estate transactions valued at $5 million or more closed in July, preliminary data from Real Capital show. That count could climb as much as 15 percent when all of the month’s deals are tallied, which would still be the lowest this year, said Dan Fasulo, director of market analysis for Real Capital.

Average prices for commercial properties might drop 5 percent to 15 percent in the next two years depending on the type of property and its quality and location, said Matthew Ostrower, an industry analyst at New York-based Morgan Stanley, the second-largest U.S. securities firm by market value.

Commercial mortgage rates have climbed as defaults rose in the subprime part of the residential real estate market. About six months ago, a 30-year commercial loan with 5 to 10 years of interest-only payments would have cost the borrower about 120 basis points more than the yield of the 10-year Treasury note. A similar loan would now cost about 160 to 200 basis points more than the 10-year Treasury’s yield of 4.6 percent, data compiled by New York-based Cushman & Wakefield Sonnenblick Goldman show.

Posted in Economics, National Real Estate | 2 Comments

How will NJ cope?

Posted on September 5, 2007 by grim

From the WSJ:
Housing Slump Strains Budgets Of States, Cities
By AMY MERRICK
September 5, 2007; Page A1

Tremors from the housing market’s slump are straining the budgets of state and local governments from coast to coast, sending officials scrambling to plug gaps.

Rising defaults on subprime home loans are boosting the inventory of unsold homes and driving sale prices lower. That’s cutting into housing-related revenues from building-permit fees, taxes on contracting and recording property transfers, and even sales taxes.
…
In many cases, budget officials knew that the fast pace of housing-related revenue growth in recent years wasn’t sustainable, but the extent of the slowdown has sometimes surprised them. Unlike the federal government, states and local governments generally balance their budgets. That means sudden revenue shortfalls can translate into serious cutbacks in spending plans.

“Our forecasts for the last couple of years have been building in a decline” of revenue as the economy headed toward a soft landing, says Amy Baker, coordinator of the Florida Legislature’s Office of Economic and Demographic Research. “What we discovered, when we met in 2006 and then spring 2007, is that the decline was actually occurring more rapidly than we thought.”

Among other effects, the housing slump has caused a decline in revenue from real-estate transaction taxes, which are based on sales prices.

Such taxes typically account for a small percentage of state income, but can contribute enough for a sudden shortfall to turn a surplus into a deficit. Collections are down amid a decline in the overall number of home sales and an increase in houses in foreclosure, which typically are sold for less than homeowners might otherwise have received.

Sales-tax revenues have also declined, a side effect of the housing slump that has blindsided many states and municipalities. States are collecting less in sales tax — which can account for as much as 15% to 20% of their total revenue — partly because builders have cut back on buying construction materials and fewer homeowners have been withdrawing equity from their homes to remodel or buy furnishings. Homeowners struggling to pay mortgages have even less incentive to splurge. States blame weak real-estate sales for lower-than-expected spending on cars and other big-ticket items.
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Their budget problems could worsen when property-tax assessments catch up with the rapid decline in housing prices over the past year or so, something that hasn’t yet happened in most parts of the country.
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Lower assessments would cut into property-tax receipts, a crucial source of funding for local governments but which rarely account for more than 10% of state-level tax collections. “As a nationwide trend, you’ll probably start to see property-tax revenues begin to fall next year or the year after,” says Gerald Prante, an economist with the Tax Foundation, a nonpartisan research group in Washington.

Reduced assessments are already causing budget problems in some areas. In Virginia’s Fairfax County, where almost 60% of county general-fund revenue comes from real-estate taxes, housing prices fell last year for the first time in 10 years. Foreclosures have jumped, and the county wants to hire more appraisers to perform new assessments.
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“People kept hoping that the good times would continue,” Ms. Baker says. “When the bubble has burst and we’re returning to more normal levels, and even a little below — it’s just a rude awakening.”

Posted in National Real Estate, Property Taxes | 3 Comments

“Why should government favor today’s owners over tomorrow’s buyers?”

Posted on September 4, 2007 by grim

From the LA Times:

Is America really pro-bailout?

President Bush announced his intention last week to reach out a hand to the “many Americans” who “may have been misled” in the sub-prime mortgage market. Two days earlier, presidential hopeful Barack Obama called for fining “predatory lenders” to bail out “hoodwinked” families. L.A. City Councilman Richard Alarcon wants a $5-million revolving fund to “help homeowners on the verge of foreclosure.” The news media report on families losing homes, disabled owners facing foreclosure and newlyweds being tossed into the street.

Here’s one tale of sub-prime woe you may not have heard. Casey Serin, a twentysomething real estate investor in Sacramento, bought eight houses in four states with little or no money down, couldn’t sell them and couldn’t pay the mortgages, and so naturally began losing them to foreclosure. He then began keeping a self-pitying online diary he called Iamfacingforeclosure.com.
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“It is amazing all the sympathy we are seeing from politicians for people who knowingly took out loans they couldn’t afford, often lying on their applications to do so,” commenter “srl” posted at the LA Land blog I write for the Los Angeles Times. “Usually,” added “Brian,” “when the facts are examined closely, we find people who . . . took a chance that house prices would keep rising, that they could remodel the kitchen, buy the truck and the motorcycle, put it on the credit card and pile that debt into the next refinance. .”

You can find thousands of similar comments on scores of “housing bubble” blogs. I asked Patrick Killelea, whose blog (patrick.net) has long predicted the current housing crisis, to quantify his readers’ feelings about a bailout. “It is easy to quantify,” he replied. “100% against.”

How can these people oppose helping out their fellow Americans? Easy. Many or most of them saw this crisis coming years ago — not through any real estate wizardry but by observing the signs that have been in front of us through most of this decade. In large parts of the United States — and in all of Southern California — the housing market turned into an obsession, a mania. So when the mortgage industry nearly collapsed this summer, Americans were fully versed in 100% financing, “liar loans,” “teaser rates” and “flippers.” There was no mystery here, no unforeseen “perfect storm.”

And yet now, just as the market is starting to cool and possibly provide buying opportunities, many of these folks — especially those patiently waiting out the bubble — find themselves crashing a pity party for the very buyers who priced them out of the market. They are furious that the government appears interested in supporting overextended borrowers and high prices, and they cite data to support their position. According to the California Assn. of Realtors, 41% of first-time California home buyers in 2006 put no money down. The median down payment for first-time buyers was just $10,000. No wonder LA Land commenter “jbunniii” writes: “No bailout is needed — most of the borrowers in trouble didn’t put any money down in the first place, so they will lose nothing by walking away.”

You don’t have to accept all of these arguments. There is no doubt that some big lenders confused and, in some cases, defrauded borrowers, with the tacit approval of Congress, the Bush administration and regulators. It’s also notable that “bubble bloggers” are not disinterested parties. Many are hoping that prices will fall so they can buy.

But it’s striking how little attention the views of the anti-bailout bears have gotten. Politicians, by rushing to the defense of recent home buyers, give the appearance of endorsing price stability at historically high levels. This makes little sense in Los Angeles, which ranks among the least affordable markets in America when housing prices are matched against income levels. Why should government favor today’s owners over tomorrow’s buyers?

Posted in Economics, Housing Bubble, National Real Estate | 166 Comments

Following housing “into a slump”

Posted on September 4, 2007 by grim

From Bloomberg:

Recession Risk Rises as Consumers Feel Pain of Tighter Credit

The pain from higher borrowing costs may be spreading as consumers and businesses follow investors in shying away from risk, increasing the odds of a recession.

“While there is no basis for predicting a recession right now, the risks have surely gone up,” says former Treasury Secretary Lawrence Summers, now a professor at Harvard University in Cambridge, Massachusetts. “The combination of softness in the housing sector, contractions in credit, increased uncertainty and volatility, and losses in wealth make the chances significantly greater now.”

Economists at JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. are among those lowering economic forecasts as the rising cost of credit prolongs the worst housing recession in 16 years. Now, two areas of the economy that have held up well so far, jobs and consumer spending, no longer appear immune to the fallout.

Already, the financial turmoil has put a dent in consumer and business confidence, according to surveys taken in August. Wal-Mart Stores Inc., the world’s largest retailer, lowered its earnings forecast for this year. Financial-services companies including Atlanta-based SunTrust Banks Inc. announced plans to eliminate thousands of jobs.

Though reports show a strong start to this year’s third quarter, economists will be watching this week for U.S. auto sales and August employment to see whether spending and the job market might follow housing into a slump.
…
“I think there’s a significant risk of recession now,” says Martin Feldstein, president of the National Bureau of Economic Research, the unofficial arbiter of when recessions begin and end. “The consumer will be spending less. The most recent consumer confidence numbers are down. That’s going to be reinforced by everything happening in the housing market.”

Americans have “pulled back on buying big-ticket items; and pulling back means that unless there is a rate cut, you will have a recession,” Michael Jackson, chief executive officer of AutoNation Inc., said in an interview Aug. 29. AutoNation, based in Fort Lauderdale, Florida, is the largest U.S. auto retailer.

The pace of car and truck sales in the U.S. has dropped for seven consecutive months, the biggest string of declines in at least 31 years, according to data compiled by Bloomberg. Economists forecast little change for August when car makers report sales figures today.
…
The pressure on consumers may increase if jobs become harder to get. First-time applications for jobless benefits have risen for five straight weeks, the longest streak since May last year.

“Employers are turning more cautious about taking on workers,” says Steven Director, a professor at the School of Management and Labor Relations at Rutgers University in New Brunswick, New Jersey. “The jobs market is softening.”

Payroll growth may slow in September to 50,000 jobs from more than 100,000 in August as businesses pull back on hiring, according to Kurt Karl, chief U.S. economist at Swiss Reinsurance, the world’s largest reinsurer, in New York.

Posted in Economics, Housing Bubble, National Real Estate | 2 Comments

Remittances fall, sign of the slump

Posted on September 4, 2007 by grim

From the Herald News:

Fewer sending cash home, agencies say

Late summer is usually a time when Jose Cordero of Passaic sends extra money home to his family in Mexico.
…
When work is steady, Cordero wires home about $300 every week to 15 days. But the past few months he’s barely managed to send $150 to $200 at irregular intervals.

“The past three months have been really slow,” said Cordero, 38, who solicits work as a day laborer by the Passaic Home Depot. “There’s not much work, and when there’s no work, there’s less money to send, and everything else goes down.”

Late August and early September are the busiest times of the year — second only to Mother’s Day and the Christmas season — for money transfer agencies with largely Mexican clientele. But several agencies said they have noticed a drop-off in business in recent months.

“I’ve been working here for three years, and this is the worst year I’ve seen,” said Maribel Hernandez, who works at Calixto Express, a money transfer agency in Passaic. “The regular customers are sending with less frequency, and they are sending less money.”

Hernandez said she started sensing a downturn about three months ago.

“Here, at this agency at least, it’s off about 30 percent,” she said, “enough to be something we’ve noticed.”

A recent survey by the Inter-American Development Bank released in August, showed a significant decrease in remittances to Mexico and other Central American countries in immigrant communities across the United States.
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Sixty-six percent of Mexican immigrants in traditional states like New Jersey said they sent remittances home this year, according to the report compared with 68 percent last year. But in so-called “new states,” the figure has dropped from 80 percent who sent money home last year to 56 percent this year.
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As for the remittance issue, Pearson said he wondered if it’s not a sign of things to come for the overall U.S. economy. When those at the bottom rung of the pay scale start to show signs of economic distress, Pearson said, legal low-wage workers may not be far behind. The report found that 61 percent of Mexican immigrants reported making $20,000 or less each year and sending an average of $3,550 home annually.

Posted in General | 15 Comments

“This sacred cow should be the biggest casualty of the recent mortgage crisis.”

Posted on September 4, 2007 by grim

From the Baltimore Sun:

Homeownership: the sacred cow of U.S. housing policy

As we pick through the debris caused by the subprime lending fiasco, it is pertinent to ask how we got into this mess.

Dodgy lending practices, unreliable risk assessment, sheer greed and other dubious financial practices all played their part. But at the heart of the matter is the shibboleth that homeownership is the only housing policy worth pursuing.

Federal policies now make the alternatives to homeownership very unattractive. Public housing has disappeared for all but the very poor, and private renters get no tax breaks. In contrast, owner-occupiers get tax relief on mortgage interest repayments and capital gains from the sale of their homes up to half a million dollars. In 2006, these two subsidies cost $112 billion in tax expenditures, and they are estimated to rise to $174 billion by 2010. These are among the most regressive subsidies, aiding the wealthy and middle class more than lower-income households.

There are also personal benefits to homeownership. But these have been exaggerated by an aggressive and self-serving lobby of house builders, real estate agents and financiers. Most gains go to those with higher incomes. For people on more modest incomes, homeownership can be a very mixed blessing.
…
And prices are more likely to fall or stagnate in lower-income areas; witness the devaluation of many inner-city neighborhoods passed over by the recent housing boom.

Many of the suburbs built between 1945 and 1980 experienced a crisis of falling prices, declining population and rising fiscal stress even before the subprime meltdown. Suburban counties such as Worcester in Massachusetts and Lackawanna in Pennsylvania, as well as small suburban districts such as Forest Park close to Atlanta, saw marked declines. The poverty rate in Forest Park, for example, doubled from 1980 to 2000. The new metropolitan crisis is in the inner-ring suburbs.

The homeownership rate, 55 percent in 1950, rose and then remained around 63 percent from the 1960s to mid-1990s. Since then, the rate has been pushed to almost 69 percent. Encouraging homeownership beyond around 63 percent, as successive administrations have done, has pushed more households into a precarious financial position.

If we have learned anything from the history of government, it is that one policy size does not fit all. Yet that is exactly our housing policy.

We need to embrace a diversity of housing possibilities. Let us level the playing field so that homeowners do not receive such disproportionate benefits by perhaps reducing and even eliminating the numerous tax benefits to owner-occupiers. Although politically difficult to accomplish in property-owning democracies, it is possible. The United Kingdom abolished tax relief on mortgage interest payments in April 2000.
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It is time that we critically evaluate the costs as well as the touted benefits of promoting homeownership. Over the long haul, the gains are not so impressive as advertised. Middle- and lower-income households are financially stretched by a system geared to benefit the wealthy.

For middle-income America, homeownership is the preferred choice because there are no decent alternatives.

The single-minded pursuit of homeownership is an assumption taken for granted and shared by both left and right.

This sacred cow should be the biggest casualty of the recent mortgage crisis.

Posted in Housing Bubble, National Real Estate | Comments Off on “This sacred cow should be the biggest casualty of the recent mortgage crisis.”

NJ: Lagging the nation

Posted on September 3, 2007 by grim

From the Home News Tribune:

State’s high taxes, debt contribute to hard times

Despite the recent downturn in financial markets and mounting concerns about the health of this country’s home mortgage and housing industries, the national economy has expanded at a fairly rapid clip for the last five years. Not so in New Jersey, unfortunately.

Fresh evidence of negligible job and income growth for the Garden State showed up last week in reports that New Jersey workers are no longer No. 1 in the nation when it come to the amount of money they earn — Maryland now claims the top spot — and in the news that the state’s unemployment rate had climbed from 4.3 percent to 4.6 percent.

Additionally, the Federal Reserve Bank of Philadelphia forecast that New Jersey’s economy is only expected to grow at a meager 0.7 percent pace through next March, the lowest rate in five years, and the worrisome news doesn’t end there.

A drop in permits for new buildings indicates a further slowdown in new construction, while the number of people living below the poverty level in New Jersey — while roughly equal to the national average — doesn’t take into account that New Jersey’s high cost of living, which is tops in the nation, means that those poorest of families must stretch their dollars more than residents of any other state.

Although these economic indicators for New Jersey are particularly dismal this year, they aren’t of great surprise, historically speaking; state economic performance has lagged well behind the nation’s throughout the most recent five-year period of growth.
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The average property-tax bill in New Jersey topped more than $6,300 last year, a 7 percent hike over what were already the nation’s highest property taxes.

This year, New Jersey was ranked the 48th worst tax climate for business among all 50 states by the Tax Foundation, a nonpartisan tax-research group based in Washington, D.C. Only Ohio and Rhode Island fared worse.

New Jersey’s state and local tax burden on individuals ranks 10th worst nationally, also according to the Tax Foundation.

New Jersey’s state budget was $21.5 billion in 2000. New Jersey’s state budget for the current fiscal year is $34 billion, an astonishing $12.5 billion increase, or a jump of more than 50 percent, in seven short years.

Parallel to direct state spending, New Jersey’s per capita debt as a result of government borrowing has soared. Today, every man, woman and child would have to pay $8,361 to retire the state’s debt, compared to $2,030 at the beginning of the decade.

The effect of government spending and taxes on economic performance isn’t to be taken lightly. High-tax strategies drive away industry, jobs and individuals, crimping innovation and expansion. This state’s government has its work cut out for it to restore balance to its tax policies, lest New Jersey suffer a further erosion of its position in the world of commerce in the coming years.

Posted in Economics, New Jersey Real Estate | 41 Comments