Traders betting on home price declines

Posted on October 4, 2007 by grim

From the WSJ:

Home-Price Outlook Takes Another Shot
Trading on CME Indicates a Decline Into Late 2011
By JAMES R. HAGERTY
October 4, 2007; Page D6

The outlook for house prices is getting even gloomier as traders on the Chicago Mercantile Exchange bet on steep price declines and the number of homes for sale grows.

The contracts have been trading since May 2006 but last month were adapted so that traders could bet on prices as long as 60 months into the future. The trading is based on expected movements in the S&P/Case-Shiller house price indexes.

Trading is very light so far — about 20 contracts a day, a CME spokeswoman says. That means the contract values provide only a rough idea of the expectations of speculators and people hedging against house-price risks, says Anthony B. Sanders, a professor of finance at Arizona State University. But Dr. Sanders says the contracts are a useful signal, and he expects house prices generally to fall in the next couple of years.

“There are too many houses coming onto the market [in many areas], and the demand is just not there at current price levels,” he says.

The current contract prices show that traders expect prices in the Miami metro area in November 2011 to be down 28% from the mid-2007 level. (The indexes cover metro areas as defined by the U.S. Census Bureau.) The expected drops in other metro areas for the same period are 18% for Las Vegas, 12% for New York, 19% for San Diego, 26% for San Francisco and 13% for Washington, D.C.

Posted in Housing Bubble, National Real Estate | 129 Comments

High on taxes

Posted on October 4, 2007 by grim

From Forbes:

America’s Priciest Property Taxes

After navigating a tight credit market and securing a home loan, a big property tax bill really hurts.

And nowhere is it felt more than in New York and New Jersey, where residents pay more in these taxes than anyone else in the country. The hardest hit? Homeowners in western New Jersey’s Hunterdon County. Last year, the median yearly property tax bill amounted to a whopping $7,999 here, according to the Tax Foundation, a nonpartisan research group in Washington, D.C, which compiled data based on 2006 figures.

Things aren’t much better in New York. In Nassau County, Long Island, the median homeowner drops $7,706 a year, while up north, Westchester County residents pay $7,626 a year.

In fact, New York and New Jersey residents can expect to pay up to $6,500 more in yearly property taxes than the national average. The reason: The region’s homes are among the priciest in the country, and tax rates there are high as well.

“They spend more on government [in the Northeast],” says Gerald Prante, an economist at the Tax Foundation. “In New York and New Jersey, they’re high on every tax.”

Posted in New Jersey Real Estate, Property Taxes | 2 Comments

A Subprime Katrina?

Posted on October 4, 2007 by grim

From the Financial Times:

Democrats call for mortgage ‘tsar’

Democratic leaders in the US Congress called on Wednesday for the appointment of a “mortgage tsar” to co-ordinate government response to the home loan crisis.

Harry Reid, Senate majority leader, and Nancy Pelosi, speaker of the House of Representatives, called for $200m in fresh federal funding to help distressed borrowers avoid foreclosure. The cost would be less than the daily bill for the Iraq war.

Democrats likened the pending wave of evictions to the aftermath of Hurricane Katrina, and invoked the Bush administration’s handling of that crisis, which was heavily criticised as poorly co-ordinated.
…
“This crisis is the equivalent of a slow-motion, 50-state Katrina, taking people’s homes one-by-one, deva­stating their lives and destroying their communities,” Christopher Dodd, chairman of the Senate banking committee, said at a joint press conference.
…
The White House immediately rejected the proposal.

“We have a housing tsar, his name is Alphonso Jackson. He’s the secretary of housing and urban development.” a spokesperson said.

Spencer Bachus, Republican representative called on Democrats to “stop having press conferences” and be more bipartisan in their approach to the issue.

Posted in Housing Bubble, Politics | 2 Comments

Northern NJ – September Contracts Tumble

Posted on October 3, 2007 by grim

The Northern New Jersey real estate market continued to slump in September, with contracts for sale falling by the worst amount this year. September contracts fell approximately 21.5% year over year (GSMLS) and 25.7% (NJMLS) , with the largest declines seen in Bergen, Essex and Morris counties.

Looking at the GSMLS data, It is clear that the strength seen in the early part of this year has faded substantially. While first quarter contracts were at a respectable 0.2% decline (YOY), third quarter contracts were down a sizable 12.5% (YOY). NJMLS shows a similar pattern with first quarter sales showing considerable strength up 4.9%, only to fade to a -10.6% in the third quarter.

Contract sales in Bergen, via NJMLS, tumbled substantially in September, with a decline of 28.2% year over year. Even more sobering are the multiyear declines seen across all areas. From the peak in 2004, contract sales in Bergen are down more than 40%.

GSMLS Contracts Data


(Click for XLS Spreadsheet)

NJMLS Contracts Data


(Click for XLS Spreadsheet)

Posted in Economics, New Jersey Real Estate | 149 Comments

Mortgage finance and foreclosure forum

Posted on October 3, 2007 by grim

From the New Jersey Department of Banking and Insurance (DOBI):

DOBI announces public forums, education plan to address mortgage lending issues

The Department of Banking and Insurance today announced a series of measures designed to address recent difficulties experienced by New Jersey residents in relation to their home mortgages, including skyrocketing mortgage payments due to resetting adjustable rate mortgages and threats of foreclosure.

DOBI, hosted by local mayors, will conduct a series of community forums throughout the state to offer information and direction to homeowners who have or may have recently experienced difficulty in making their mortgage payments. DOBI is also working with the New Jersey Housing and Mortgage Finance Agency (HMFA), a state agency that makes below market-rate mortgages for first-time and urban home buyers, and distributes federal tax credits to promote the construction of low-income housing.
…
“Homeownership is the American dream, but for those who have bought into unconventional mortgage products and have seen their mortgage payment increase to an untenable level, it has quickly become a nightmare,” said DOBI Commissioner Steven M. Goldman. “Educating and informing the public is the best defense against business arrangements with potentially catastrophic consequences. That’s what this consumer education campaign is all about.”

Each forum will include information from U.S. Department of Housing and Urban Development (HUD) certified debt adjusters and credit counselors, mortgage bankers, and mortgage servicers. Representatives from additional agencies, as well as DOBI staff, will be available to discuss potential options with homeowners and address such topics as how to spot and avoid “foreclosure prevention” scams.

All forums are scheduled from 7 p.m. to 10 p.m. For additional information on the forums, consumers can call the DOBI Office of Public Affairs at (609) 292-5064.
…
OCTOBER 3
Paterson
The Christopher Hope Center
60 Temple Street
Paterson, NJ

OCTOBER 4
Berkeley Township
Central Regional High School
509 Forest Hills Parkway
Bayville, NJ

OCTOBER 10
Edison
City Council Chambers
100 Municipal Boulevard
Edison, NJ

OCTOBER 23
Atlantic City
Atlantic City Council Chambers
1301 Bacharach Boulevard
Atlantic City, NJ

OCTOBER 24
Vineland
Vineland City Council Chambers
640 East Wood Street
Vineland, NJ

OCTOBER 25
East Orange
East Orange Public Library
21 South Arlington Avenue
East Orange, NJ

OCTOBER 29
Trenton
Trenton City Council Chambers
319 East State Street
Trenton, NJ

Posted in New Jersey Real Estate | 5 Comments

August Pending Home Sales Decline

Posted on October 2, 2007 by grim

From CNN/Money:

Pending home sales at record low

The meltdown in the mortgage market in August dried up the supply of buyers for homeowners looking to sell their homes, as an industry group report showed the lowest level of homes under contract on record.

The National Association of Realtors’ pending home sales index fell to a record low of 85.5 from an upwardly revised 91.4 reading in July. That broke the previous low of 89.8 in September 2001, the period in which the terrorist attack shook buyer confidence. The trade group started the index in 2001.

This time the hit to home sales came from buyers having trouble finding the financing they needed to buy homes, coupled with the reluctance of some buyers to jump into the battered market.

“Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments,” said a statement from Lawrence Yun, senior economist for the group. “The volume of activity we’re seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can’t because of the credit crunch.”

The drop was worse than expected by economists surveyed by Briefing.com, who had forecast only a 2 percent decline from the previous reading to 88.1. The index fell 21.5 percent from year-earlier levels, the biggest 12-month drop ever recorded, as the one-month decline of 6.5 percent was third biggest drop on record, trailing only July of this year and the September 2001 period.

From Reuters:

Pending home sales fell 6.5 pct in August

Pending sales of previously owned homes fell by a larger-than-expected 6.5 percent in August as more borrowers seeking home loans were turned away by cautious lenders, a real estate trade group said on Tuesday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in August, fell to a reading of 85.5, the lowest since records began in January 2001. The previous low was 89.8 in September 2001.

The fall was sharper than the 2.1 percent decline in the index economists were expecting for August and comes after existing home sales for the month dipped to their lowest level in five years.

Notably, more than 10 percent of sales contracts fell through late in the process largely due to borrower trouble securing credit, according to an NAR survey.

From Bloomberg:

Pending Sales of U.S. Homes Fell More Than Forecast

The number of Americans signing contracts to buy previously owned homes fell more than forecast in August, another sign the housing recession will persist.
…
“The existing homes market is now in freefall,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, New York. “The downside from here is still substantial.”

A Bloomberg survey of 30 economists forecast the index would decline 2.1 percent. Projections ranged from a decline of 4.7 percent to a gain of 3.4 percent.

Compared with a year earlier, pending home sales were down 22 percent.

Pending Home Sales Data can be found at the NAR website:

PENDING HOME SALES INDEX

Posted in Economics, National Real Estate | 174 Comments

Greenspan: A long way to go

Posted on October 1, 2007 by grim

From Reuters:

Long road to recovery for housing market: Greenspan

The housing market has a long way to go before stabilizing after the subprime crisis, spelling bad news for consumers in the world’s biggest economy, former Federal Reserve chief Alan Greenspan said on Monday.

Greenspan, who has been outspoken throughout the credit crunch, said more house price declines were likely given a surfeit of supply but pointed to signs the lending crisis could be coming to end as demand for more risky assets grows.
…
“As in similar situations of inventory excess, I would expect home price declines to continue until the rate of inventory liquidation reaches its peak,” Greenspan told an audience at Reuters in London.

“There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners.”

The U.S. housing market remains extremely fragile after a crisis in low-end mortgage borrowing spread fear of a global economic slowdown
…
“All that I conclude is that the process of inventory adjustment has just started and we have a long way to go before residential housing and mortgage markets stabilize in the U.S,” Greenspan said.

Greenspan said likely victims of sustained weakness in the housing market would include the consumer and, consequently, the world’s biggest economy.

Posted in Housing Bubble, National Real Estate | 5 Comments

An “accident waiting to happen”

Posted on October 1, 2007 by grim

From Reuters:

UBS takes $3.4 billion credit hit

Swiss banks UBS and Credit Suisse joined the ranks of casualties from a global credit crunch on Monday, fuelling fresh concern about the depth of the crisis.
…
UBS unveiled $3.4 billion in losses, mainly on securities linked to the U.S. subprime mortgage sector, swept out senior managers and slashed jobs, while Credit Suisse said its results would be “adversely impacted” by the market turmoil but it would remain profitable in the third quarter.

European credit spreads widened as the UBS losses underlined concerns about tight credit markets after short-term lending rates jumped on Friday, dashing hopes from earlier last week that credit conditions were easing.

“It definitely fuels ongoing worries on the markets. Credit spreads are widening again and the interbank (lending) market remains very tense,” said Valerie Plagnol, chief strategist at CM-CIC Securities in Paris.

In a speech at the Reuters headquarters in London, Greenspan said the market upheaval stemming from defaults on U.S. home loans to people with poor credit histories “was an accident waiting to happen”.
…
UBS, the world’s largest wealth manager, said the 4 billion Swiss francs ($3.42 billion) write-down would result in a third-quarter loss of as much as 800 million Swiss francs ($683 million).

“The critical time will be over in the next six months,” Chief Executive Marcel Rohner told reporters after UBS shed 1,500 jobs in its investment bank.
…
The Swiss banking giant is only the latest in a string of global banks that have reported hits from a downturn in the U.S. housing market, which has triggered a global credit crunch.

Banks worldwide have clammed up on lending to each other as they strive to calculate exposure to soured loans, forcing the world’s major central banks to inject emergency funds into the global financial system to prevent it grinding to a halt.

Credit Suisse said on Monday its investment banking and asset management results had been adversely hit.

“It’s probably safe to say UBS won’t be the last bank to announce something like this in the months ahead, but it begs the question as to how long this turmoil will continue,” said Eamonn Hughes of Goodbody Stockbrokers.

Posted in Housing Bubble, National Real Estate | Comments Off on An “accident waiting to happen”

Weekend Open Discussion

Posted on September 28, 2007 by grim

Weekend Topic: New York City vs. New Jersey

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 | 399 Comments

Top end hit hardest?

Posted on September 28, 2007 by grim

From the WSJ Real Time Economics Blog:

Sales of Pricier Homes Plummet With Credit Crunch

The market for higher-end homes took an especially strong blow in August as a result of the credit crunch: Sales of new homes priced above $500,000 dropped by more than a third in the latest government figures.

Today’s report on new-home sales show that 68,000 new homes overall were sold during the month, down from 74,000 in July (and off 22% from a year earlier). Sales of new homes priced at $500,000 or more plummeted: 6,000 were sold in August, after 9,000 for each of the previous three months (and 11,000 a year earlier).

The credit market turmoil, spurred by the subprime-market meltdown, has sent rates higher for “jumbo” loans — those $417,000 or more — and blocked many consumers out of mortgages. Lower demand is expected to push prices down even further for higher-end homes, whether new or previously owned. That means larger spenders “will pay a price as the housing market continues to unwind” and could hit consumption growth especially hard, says Joseph Brusuelas, chief U.S. economist at IDEAglobal.

Posted in Housing Bubble, National Real Estate | 4 Comments

Sinking, Skidding, Gloom, Carnage

Posted on September 28, 2007 by grim

…and people call me grim?

From the NY Post:

HOME WRECK
CARNAGE MOUNTS AS PRICES ARE SINKING FAST

Posted in Housing Bubble, National Real Estate | 4 Comments

So Long, Foxtons

Posted on September 27, 2007 by grim

From the Asbury Park Press:

Foxtons done in by housing slump

Foxtons, a West Long Branch-based real estate company that made a splash with its discounted commissions, said Wednesday night it is closing because of a downturn in the housing market.

The company said it is contemplating bankruptcy for an orderly shutdown, and it will continue only with a skeleton crew; it is laying off 350 of its 380 employees.

“The plain fact is that we have been battling against a real estate market that recently has turned into a sharp decline, and the company no longer has the liquidity to operate as a going concern,” said John D. Blomquist, Foxtons’ senior vice president and general counsel.

The decision marks the latest casualty in the softening real estate industry, and it brings a stunning end to a company that was a lightning rod among real estate agencies.
…
Foxtons in a statement Wednesday night said it has 4,400 current listings, and “the intention will be to preserve the value of these listings, to minimize customer disruption and to dedicate the anticipated revenues to pay creditors.”

Posted in Housing Bubble, New Jersey Real Estate | 253 Comments

“In our opinion, the full impact is yet to come.”

Posted on September 27, 2007 by grim

From Bloomberg:

Subprime-Mortgage Defaults Rose Last Month, Data Show

Late payments and defaults among subprime mortgages packaged into bonds rose last month, according to data for loans underlying benchmark ABX derivative indexes.

After August payments, 19.1 percent of loan balances in 20 deals from the second half of 2005 were at least 60 days late, in foreclosure, subject to borrower bankruptcy or backed by seized property, up from 17.5 percent a month earlier, according to a report yesterday from Wachovia Corp.

Prepayment speeds for the loans slowed, suggesting it’s more difficult for borrowers to sell their homes or refinance, according to another report by New York-based analysts at UBS AG. Record levels of delinquencies and defaults on subprime mortgages are worsening as home prices decline and interest rates on loans adjust higher for the first time. As lenders tighten standards, borrowers are finding it harder to refinance into new mortgages with lower payments.

The “reports showed the first inkling of the impact of shutdown of subprime market,” the UBS analysts led by Thomas Zimmerman wrote late yesterday. “In our opinion, the full impact is yet to come.”

Posted in Housing Bubble, National Real Estate, Risky Lending | Comments Off on “In our opinion, the full impact is yet to come.”

A luxury tax on vacation homes

Posted on September 27, 2007 by grim

From the Wall Street Journal:

Bill Tightens Second-Home Tax Rules
By JOHN GODFREY
September 27, 2007; Page A8

WASHINGTON — Popular legislation to ease the tax burden on struggling homeowners could hit an unexpected constituency: people with second homes.

The Ways and Means Committee, the House’s tax-writing panel, approved a bill yesterday under which homeowners facing foreclosure won’t get stuck with a tax bill if part of their debt is forgiven by lenders. Currently, forgiven debt is treated as income to the borrower and is subject to tax.

The committee decided to pay for the tax break, as required by congressional budget rules, by restricting homeowners’ ability to avoid or reduce the taxes on the sale of second homes. The gain in revenue would be equal to roughly $2 billion over 10 years.

Some Republicans complained that the move would hurt the second-home market. Rep. Kevin Brady (R., Texas) said the change would punish those who had saved to purchase a second home. Rep. Sam Johnson (R., Texas) called it a “luxury tax on retirement homes.”

There is little evidence that such opposition could threaten the underlying bill. The bill, which came in response to the subprime-lending crisis, has broad bipartisan support in both the House and Senate. The Senate hasn’t said how it would pay for the bill.
…
Under current law, a person can exclude from taxes up to $250,000 in capital gains on the sale of a principal residence. Up to $500,000 of gains can be excluded for married couples. A second home can become a principal residence as long as the taxpayer has lived there for two of the previous five years.The bill approved yesterday would change those rules. Under it, the size of the tax break for a second home would be tied to the portion of time, out of all the years a house is owned, that it serves as a principal residence. Living in a property longer would result in a larger tax break on any gains when it is sold.

Posted in National Real Estate, Politics | 1 Comment

Pessimistic or realistic?

Posted on September 26, 2007 by grim

From Page 1 of the Wall Street Journal

Housing Chill Grows Worse, Bites Consumers
By SUDEEP REDDY and MICHAEL CORKERY
September 26, 2007; Page A1

The housing market is going into a deeper chill, and consumers are starting to shiver.

Sales of existing homes in August fell sharply, and home inventories by one measure soared to an 18-year high, according to data released yesterday. One major home builder, D.R. Horton Inc., is auctioning homes this weekend with starting prices for some units at 50% off an earlier price.

The housing market is worrying consumers, raising fresh concerns about economic growth. Consumer confidence fell this month to its lowest level in almost two years, a new survey showed. Retailers such as Lowe’s Cos. and Target Corp. said they’re feeling the pain. Both reported softer-than-expected sales Monday.

“The combination of all this is indicative of an economy that has lost quite a bit of momentum,” said Joshua Shapiro, chief U.S. economist at the consulting firm MFR Inc., an economic forecasting firm that advises investors.
…
Optimists believe the Federal Reserve’s aggressive move last week to cut interest rates will help keep the economy out of recession. Also, exports are rising, thanks to a weaker dollar, and business investment is holding up.

Still, the pace of housing’s downturn is accelerating, surprising even some bearish analysts.

From the Record:

Mortgage woes taking a toll

Home sales dropped in August for the sixth month in a row, reflecting the recent mortgage crunch, the National Association of Realtors reported Tuesday. And the NAR said it expects similar results for September.

Sales declined 4.3 percent from July, to an annual rate of about 5.5 million existing homes – a pace well below last year’s 6.5 million sales and 2005’s record 7.1 million sales.
…
In another sign of housing distress, the Standard & Poor’s Case-Shiller Home Price Indices, also released Tuesday, found home prices down an average of 3.9 percent from July 2006 to July 2007 in 20 metropolitan areas around the nation. The New York metropolitan area was down 3.8 percent in that period.

“The decline in home prices clearly continued into the summer months,” said Robert J. Shiller, chief economist at MacroMarkets LLC.

And in one more piece of pessimistic housing news Tuesday, Miami-based homebuilder Lennar Corp. said it lost $525 million in the third quarter, as home contracts and deliveries plummeted by more than 40 percent.
…
Lennar has a number of developments under way in New Jersey, including Dehart Place, a town house complex that is part of the redevelopment of central Morristown, and Henley on Hudson, a luxury condo and town home development on the West New York waterfront.

Prices of most units at both Dehart and Henley top $1 million.

Somebody should tell the Daily Record, not to ask a real estate agent their opinion on the market. What he got was a sales pitch, not an accurate assessment of the market. After all, everyone knows that there has never been a better time to pay a commission buy or sell a home.

Coldwell Banker exec: Real estate back to ‘normal’

Real estate is still one of the best investments you can make, says Ronnie Laiken, president and chief operating officer of Coldwell Banker Residential Brokerage in New Jersey/Rockland County, N.Y.

As she sees it, things are back to normal after the frenzy of recent years.

Sellers “should be aware that buyers are doing their research and checking comparables,” she says.

“We experienced an unusual market where prices were inflated, but now the market has stabilized. We didn’t have a bubble that has since burst but a market that is transitioning back to a more normal market.

Posted in Housing Bubble, New Jersey Real Estate | 257 Comments