It’s [not] a buyer’s market

Posted on June 12, 2007 by grim

From the Allentown Morning Call:

It’s a buyer’s market

The number of new listings for homes in the Lehigh Valley hit an all-time high in May, providing prospective buyers with enough selection to be choosier and make offers below asking price.

Prospective buyers are reaping the benefits of lots of homes on the market because they can be choosier and make offers below asking price.

Real estate agents say buyers do not feel the urgency to purchase that they felt two years ago when many homes received multiple offers the day they came on the market. As a result, many sellers find their homes are sitting longer on the market, there are more price reductions and there are fewer bidding wars, which drive up the sales prices.

The number of new listings was about three times the number of homes sold in May. Bethlehem economist Kamran Afshar said the two statistics should be roughly even.

”As the price of housing goes up, everyone and their uncle wants to list their house, even if they really were not planning on leaving,” said Afshar, who publishes the quarterly Lehigh Valley Economic Review. ”You have more houses on the market than otherwise would have been because it is such an attractive market.”
…
But the high number of homes for sale is slowing the pace of transactions, and possibly depressing prices. New listings rose 16 percent last month to 1,864 units, compared with May of 2006, while the number of homes sold fell year-over-year for the 12th month in a row.
…
Last month, there were about 3,400 homes listed by real estate agents for sale, or about 1,000 more than the number of real estate agents who work in the Valley.

”Buyers are finding more inventory from which to choose. They are not making their decision as quickly as they did before, and that’s why now you will find more listings on the market,” said Rosemary Scardina, chief executive director of the Realtors’ association.

Posted in National Real Estate | 4 Comments

North Jersey May Residential Sales

Posted on June 10, 2007 by grim

Preliminary May sales and inventory data for Northern New Jersey is in..

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 May 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)

Posted in New Jersey Real Estate | 224 Comments

Weekend Open Discussion

Posted on June 10, 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 | 610 Comments

Water-use tax on the horizon?

Posted on June 10, 2007 by grim

From the Record:

Water tax can’t tap legislative support

One sure way of protecting the state’s water-generating Highlands land is to buy it, but state funding sources are running dry.

And that has led to renewed calls for a water-user fee to pay for land acquisitions envisioned in the yet-to-be-completed Highlands regional master plan.

“It’s one thing that everybody who has spoken at Highlands Council hearings seems to agree on,” Highlands Council Chairman John Weingart said recently.

“Farmers, environmentalists, other speakers — in this region, it seems to be a very popular way to deal with” the issue of how to pay for open space buyouts.

The tax would apply to everyone in the state who uses water from a public supply.
…
Yet legislative supporters of establishing a user fee on millions of homes and businesses are treading water in Trenton.

The regional master plan is being designed to severely curb large development in the seven-county mountain region stretching from the New York border in Mahwah into Hunterdon County. The region supplies water to more than half the state.
…
Assemblyman John McKeon, D-Essex, a sponsor of a bill that would create a statewide water-user fee to fund water-utility upgrades and land purchases in the Highlands, said legislative leaders have higher priorities at the moment.

“Everything is kind of fluid now,” McKeon said, “as we do interim funding on the Garden State Preservation Trust,” which is expected to run dry this year. That trust funds the Green Acres and Farmland Preservation programs.

McKeon said he expects a bond referendum for about $200 million will get approved for November’s ballot.

Others, however, see the impending drought in open-space funding as an opportunity to set a water-user fee.
…
McKeon said the water user fee is not off the table. But, he recalled, it died in legislative discussions last year because many legislators saw it as a new tax.

“There was no appetite for an additional tax. The votes weren’t there,” McKeon said.

Posted in New Jersey Real Estate | Comments Off on Water-use tax on the horizon?

Morning-after regrets

Posted on June 10, 2007 by grim

From the Boston Globe:

The subprime barn door

HOME FORECLOSURES are on the rise, and lenders specializing in subprime mortgages — that is, loans for homebuyers with blemished credit — have been evaporating left and right. At long last, lawmakers and regulators have taken an interest in this untidy corner of the mortgage market, and financial-services trade groups are getting in on the act, too, recently issuing a joint statement offering their response to the mess.

Nobody should lend people more than they can pay back, urged the American Bankers Association, Mortgage Bankers Association, and other industry groups. The terms of a loan should be clear to the consumer. Ways should be found to help struggling mortgage holders stay in their homes.

These recommendations sound suspiciously like what should have been happening all along. Instead, some brokers knowingly wrote mortgages far larger than their clients could afford — and did little to make sure clients understood the terms.

Earlier this month, Attorney General Martha Coakley requested public comment on regulations that would ban “no-documentation loans” and prohibit brokers and lenders from inflating a borrower’s income on application forms. The lateness of the industry response underscores the need for such rules — and for legislation like that filed earlier this year by state Representative David Torrisi and Senator Jarrett Barrios. Their measure calls for better licensing for mortgage brokers, a cooling-off period during which borrowers who miss payments can catch up without incurring prohibitive fees, and provisions allowing state banking regulators to scrutinize the mix of loans that mortgage lenders offer to different communities.
…
In the past two years, mortgage lenders have become more cautious; an orgy of exotic loans has given way to morning-after regrets. But these lessons may be forgotten when the housing market trends upward again — unless lawmakers and regulators act now.

Posted in Housing Bubble, Risky Lending | 2 Comments

So much for “quick and painless”

Posted on June 9, 2007 by grim

From the Wall Street Journal:

RIPPLE EFFECT
Economists See
Housing Slump
Enduring Longer
Downturn Is Expected
To Keep Growth Tepid;
Retailers Feel the Pinch
By JAMES R. HAGERTY, JONATHAN KARP and MARK WHITEHOUSE
June 9, 2007; Page A1

Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless.

Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007, remaining a major drag on the U.S. economy. The culprits: a glut of homes for sale and growing caution among lenders who now regret being so free with their mortgages during the boom.
…
The rise in interest rates is only adding to the gloom. The average rate for 30-year fixed-rate mortgages stood at about 6.65% Friday, up from 6.35% in early May, according to HSH Associates, a financial-publishing firm in Pompton Plains, N.J. Though that rate remains far below the 8.2% average of the 1990s, the recent jump makes it harder for many Americans to afford new homes. “That’s putting more pressure on housing and delays its ultimate recovery,” says Andrew Tilton, a senior economist at Goldman Sachs in New York.
…
Federal Reserve Chairman Ben Bernanke acknowledged in a speech Tuesday that the housing market remains weak, and warned that residential construction “will likely remain subdued for a time, until further progress can be made in working down the backlog of unsold new homes.”

The market started to cool in mid-2005 after a buying frenzy that drove up the average U.S. home price nearly 60% in the first half of the decade and more than doubled prices in many areas near the East and West coasts.

Late last year, some economists were saying the market would start bouncing back by the middle of 2007. That hasn’t happened, partly because inventories of unsold houses have continued to grow and a surge in mortgage defaults has made lenders much more reluctant to grant credit to people with spotty payment histories.

David Resler, chief economist at Nomura Securities International Inc. in New York, says he is surprised by the degree to which speculation caused builders to overestimate demand, leaving a glut of houses and condominiums.
…
Ian Shepherdson, chief U.S. economist for High Frequency Economics, a research firm in Valhalla, N.Y. , doesn’t expect a recession but says weakness in housing will help keep U.S. economic growth at a sluggish pace averaging less than 2% for the next several quarters.

Housing accounts for a lot of jobs, not only in construction but in related areas such as mortgage finance and furniture sales. Zoltan Pozsar, senior economist at Moody’s Economy.com, estimates that housing-related sectors created nearly 1.3 million jobs between January 2003 and March 2006. Since then, he says, housing jobs have declined by almost 300,000. He sees more losses to come during the summer, which is usually a big building season.
…
Economists at Merrill Lynch admit it is hard to predict how the slump will play out from here. “We are not sure how deflating a $23 trillion asset class — the value of real-estate assets on the household balance sheet — will end, but we doubt that it will end well,” Merrill economists wrote in their recent report.
…
Lenders have eliminated most no-money-down “subprime” loans for people with weak credit records. That means many people who hoped to buy homes this year will have to wait until they can clean up their credit records and save for a down payment.

At a conference of mortgage lenders in May, David Lowman, head of the mortgage business at J.P. Morgan Chase & Co., warned: “The largest part of the problem in the subprime space is ahead of us, not behind us.” Many borrowers who got loans the past couple of years are still paying the low initial monthly payments and have yet to face the steeper adjustable rates that kick in after two or three years. Once they do, foreclosures are sure to rise.

Mark Zandi, chief economist of Moody’s Economy.com, a research firm in West Chester, Pa., expects lenders to acquire about 900,000 homes this year and roughly the same number next year through foreclosures, up from an average of about 500,000 a year from 2000 through 2006. That will add to the glut of homes on the market, further depressing prices in some areas.

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

Appraisers under scrutiny

Posted on June 9, 2007 by grim

From Crain’s New York Business:

Mortgage appraiser ensnared in Cuomo probe

Vanderbilt Appraisal Co. became the third Manhattan-based firm to be subpoenaed by New York state Attorney General Andrew Cuomo in his widening probe of possible fraud in the huge subprime mortgage market.

The firm’s executives are reviewing the subpoena, according to a spokesman.

In the face of rising default rates among new homeowners throughout the state, Mr. Cuomo launched a probe in March, saying his office would focus on lending practices in the subprime market. In particular he is focusing on whether appraisers had been inflating property values, especially in transactions involving borrowers with poor credit histories.

Last month, Mr. Cuomo subpoenaed records from two area companies: Manhattan-based appraiser Mitchell Maxwell & Jackson Inc., and real estate broker Manhattan Mortgage Co. for their records.

Vanderbilt now joins that list. The company values properties throughout New York, New Jersey, Connecticut and South Florida, and is owned by Terra Holdings — which also owns residential real estate brokerage Brown Harris Stevens and Halstead Property.
…
Nationally, the subprime market entered crisis-mode in March, when several subprime lenders began posting huge losses, and several went bust as the result of soaring loan defaults.

Nearly 25% of homes purchases in New York City were financed with subprime loans, compared to the national average of 17%, according to a 2006 study by NYU’s Furman Center for Real Estate and Urban Policy. In some neighborhoods in Brooklyn and the Bronx, the percentage of purchases made with subprime loans exceeded 50%.

Foreclosure rates in New York, and around the country, are at their highest level since 2002, according to the Mortgage Bankers Association.

Posted in Housing Bubble, National Real Estate | Comments Off on Appraisers under scrutiny

Do Realtors add value or not?

Posted on June 8, 2007 by grim

From the NY Times:

One City’s Home Sellers Do Better on Their Own

It sounds like the setup for a dull economist’s joke. Who gets the better deal: the cautious economist who sells his house through a real estate agent, or his risk-taking colleague who finds a buyer on his own?

But the question — debated by two Northwestern University economists who chose different methods to sell their homes — and the research it helped prompt are serious. And the answer will be of interest to anyone who has paused to consider whether paying a real estate agent’s commission, typically 5 to 6 percent of the sale price, is worth it.

The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially.
…
There are asterisks. The authors cautioned that they did not know whether the results from Madison applied to the country as a whole; certainly, selling a house without a real estate agent would be harder in a city without a heavily trafficked for-sale-by-owner Web site. The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.

Some aspects tilted in agents’ favor. The researchers found that homes on the multiple listing service sold somewhat faster than houses on the for-sale-by-owner site. The study also did not place a value on other services provided by agents in selling a home.

Posted in Economics, National Real Estate | 10 Comments

The first downturn for many agents

Posted on June 8, 2007 by grim

From USA Today:

Housing slowdown smacks Realtors hard

Chris Beach often works through lunch and seldom leaves the office before 9 p.m. So far this year, he’s taken 2½ days off from work. And he hesitates now to take vacations, because he fears losing business: potential home buyers or sellers.
“My wife went out and bought two dogs because I’m never home,” says Beach, whose hands-free cellular earpiece seems permanently attached to his head.

This is the life of a real estate agent in a market in which in the past year home sales have tumbled 30%, prices have fallen 13% and there’s a one-year supply of homes for sale.

In many markets across the country, the glamour of the go-go days — when investors bought homes sight-unseen and lenders didn’t require down payments — are gone. In those areas now, the job of an agent is one of chasing leads, marketing like hell and chauffeuring hesitant buyers to open house after open house.

“Since the first of the year here, I’ve shown more homes than all of last year, and worked more hours on a regular basis,” says Beach, 39, one of the top-producing agents at Coldwell Banker Elite.

For many of today’s agents, this is the first housing downturn they’ve ever seen, and it’s become a belt-tightening test of their staying power. Nearly 25% of Realtors nationwide received their real estate license in the past two years, just as the market had peaked and was turning south.

Posted in Housing Bubble, National Real Estate | 1 Comment

Encap future uncertain

Posted on June 8, 2007 by grim

From NorthJersey.com:

Top aides OK’d risky EnCap deal

Senior officials in the McGreevey and Codey administrations signed off on a $212 million loan for the troubled EnCap golf project, even though subordinates warned that the cut-rate financing was a risk for New Jersey taxpayers and bad policy for the environment.

Documents reviewed by The Record show that lawyers from the politically connected DeCotiis firm of Teaneck scored the massive loan for EnCap Golf Holdings in December 2005 despite concerns about the developer’s shaky credit and long history of missing payments and breaking promises to state agencies.

The Department of Environmental Protection, which contributed $105 million to the EnCap financing package, even exempted the developer from providing more than minimal collateral.

The bottom line: The biggest loan the DEP has ever made to a private developer is backed only with $13 million in borrowed cash and the promise of future tax revenues that may never materialize as the massive landfill-to-links project teeters on the brink of collapse.

The developer is months behind in payments to its subcontractors, and on May 17 the state Attorney General’s Office found EnCap in default of the terms of its deal with the New Jersey Meadowlands Commission. EnCap has until next Friday to submit a revised landfill cleanup budget — or else the project could be canceled.
…
EnCap, the records show, initially failed to disclose plans to collect hundreds of millions from public bonds backed by future tax revenues, or PILOTs, that would be generated by the 2,500 houses, hotels and other businesses scheduled to be built as part of the luxury golf village. In separate agreements with EnCap, Rutherford and Lyndhurst ceded large shares of those future revenues to the developer.

State officials, who had been scrambling to find sufficient collateral for the loan package, were shocked to discover that EnCap hadn’t told them there was a potential mountain of cash that could be pledged to back the loan.
…
Less than two years after the loan was approved, the EnCap project is in default and threatening to unravel.

Under the direction of Corzine, the DCA’s Local Finance Board has all but rejected EnCap’s PILOT bond application.

The future of the Meadowlands dumps — ugly and contaminated orphans set amid some of the world’s most valuable real estate — seems as uncertain as ever.

Posted in New Development, New Jersey Real Estate | 1 Comment

Part of the exodus

Posted on June 7, 2007 by grim

From the Philly Inquirer:

With taxes flying through the roof, N.J. retirees face a painful decision

Fifty years of my life have come and gone. My youngest child has graduated from college, and my husband, who is five years my senior, is eager to retire.

I suppose it’s about time. He has worked for the same company for more than 33 years. Plus, nearly everyone we know is either on the verge of retiring or has already retired.

And although I have about five years to go before I’m eligible to retire, planning for the next phase of our lives has become foremost in my thoughts.

The question is: Where do we go from here?

As we look toward the future together, financial stability seems so far off and utterly unachievable. Living in New Jersey is taking much more out of our pockets than ever before. I’m beginning to wonder whether we should move out of New Jersey.

When I broached the subject with my husband and started some investigating, it seemed like a no-brainer. But, alas, the thought of having to leave the place we’ve called home has left us angry and disheartened.

We’d have to give up the beautiful home we worked so hard to remodel and make our own. Leaving behind friends and family is not something we’d relish, either. We always expected to live close to our children so that we could enjoy quality time with them through their adulthood. And although the idea of grandchildren seems so distant at this time, we do plan to be involved grandparents someday. Our friends? Some have said they’ll follow us wherever we go. Others, who are clearly much better off financially, plan to stay put.

Even with the property-tax-relief plan outlined in Gov. Corzine’s fiscal 2008 budget, we wouldn’t be able to manage the high cost of living on a limited, retirement income. We could save thousands of dollars if we moved to a state where taxes are a fraction of what we pay here.
…
It looks as if we, like so many others before us, must bid farewell to New Jersey and begin our lives as retirees somewhere else. We’ll become part of the exodus. Hopefully, the thousands of dollars we’ll save will enable us to travel and enjoy many more fun-filled years ahead.

Posted in New Jersey Real Estate, Property Taxes | 354 Comments

Mortgage market manipulation

Posted on June 7, 2007 by grim

From the Wall Street Journal:

The Sure Bet Turns Bad
Funds Howl As Bear Stearns Buys Mortgages
By KATE KELLY and SERENA NG
June 7, 2007; Page C3

Just a few months ago, bets against securities backed by shaky subprime-mortgage loans were among the most alluring trades on Wall Street.

But the market for those securities has since stabilized, potentially hurting those who bet against it, and left a messy squabble in its wake.

A band of hedge-fund managers accuse Wall Street’s Bear Stearns Cos. of attempting to manipulate the market for securities backed by subprime loans by purchasing shaky mortgages. Bear retorts that it has the right to repurchase mortgages and that sometimes it can help a struggling borrower. Meanwhile, an industry association that oversees derivatives trading has been drawn into the middle of the matter.
…
Back in February, the shorts looked like they were making a great trade. Many hedge funds had been shorting a derivative index called the ABX that is tied to a basket of subprime bonds with weak credit ratings. The index had a value of 100 when it was launched this past July.

By late February it had plunged to a low of 63, bringing millions of dollars in paper profits to the short-sellers. The plunge also caused ripples of worry through the stock and bond investors about the broader health of the U.S. economy. The index has since turned around, reaching 77 in mid-May before sinking back to 73, according to its administrator Markit Group.

Back in January, at a Las Vegas industry conference, Bear’s head mortgage trader, Scott Eichel, talked with a small group of traders over drinks in the Venetian hotel about propping up the ABX index by buying and rescuing some struggling subprime bonds, say two people who were there. A Bear Stearns spokesman said Mr. Eichel disagrees with the account, but wouldn’t elaborate with any details.

The recovery of the ABX index has led to howls from hedge funds which are short subprime, including Mr. Paulson, who manages a $12 billion hedge fund. Mr. Paulson says Bear wanted to prop up faltering mortgages-backed securities by purchasing individual mortgages that were rapidly losing value to avoid doling out billions in swap payments.

Bear denies the allegations. “None of the [mortgage] servicing decisions we make are driven by any activity or outstanding positions in the CDS market,” says Tom Marano, who runs Bear’s mortgage business.
…
In April, when the ABX was trading at about 74, Paulson executives called Mr. Eichel to ask whether he was contemplating a plan to repurchase mortgage-backed securities. “Maybe we are, maybe we’re not,” Mr. Eichel replied, according to two Paulson executives, who say he added they should call him if they were interested. A Bear spokesman said the Paulson executives’ recollection of the conversation is inaccurate.

The prior day, Bear’s mortgage desk had sent Paulson a copy of new language it was proposing to the International Swaps and Derivatives Association, the industry group that represents traders of swaps and other complex market instruments.

It exacerbated the controversy. The proposed rules would codify its right to prop up a faltering pool of home loans in a mortgage security, even if it knew its clients bet those loans wouldn’t perform.

“We were shocked,” says Paulson vice president Michael Waldorf, that a firm “like Bear would introduce language that would try to give cover to market manipulation.” Also on his mind: With a big bearish bet on the ABX, his firm stood to lose a lot if the index didn’t fall.

Posted in National Real Estate | 3 Comments

High-end market “market has started to feel the pinch”

Posted on June 7, 2007 by grim

From Newsday:

Inventories for multimillion-dollar houses are up, and it’s taking longer to sell them

Are the rich getting restless?

You might be too if you had multimillion-dollar digs waiting to be sold.

Prices for some swanky pads on Long Island have been reduced recently, and it’s taking longer to sell, signs that the high-end market has started to feel the pinch – same as the regular folks. Agencies’ inventories of expensive homes have gone up, triple in one case.

Even when nearly empty, these homes can cost their owners hundreds of thousands of dollars a year in staff, electricity, maintenance and more, depending on the property’s size.

Still on the market after 16 months is Northwood, an Oyster Bay Cove estate; listed originally at $43 million, it’s now at $20 million because Nassau County is negotiating a contract to buy more than half its 60 acres of property. Middlesea, singer Billy Joel’s estate on Centre Island, has dropped from last September’s $37.5 million to $32.5 million.

“The luxury market has more beautiful homes in it than I’ve ever seen,” said Barbara Candee, vice president of Daniel Gale Sotheby’s International Realty in Locust Valley, whose firm now has about 35 prime properties that range from $10 million to Joel’s $32.5million.

Southerly, a Centre Island estate where owner Patricia Altschul’s mini horses gambol, has dropped from $19 million last fall to $15.8 million now. She’d like to sell it because she already has another New York home, and she’s away a month at a time, following horse races, visiting her California son, boating and other pleasures.

“I found two houses that I like down South,” Altschul said. “I’d love to get back down to ‘my people,’ but I still have an apartment in New York and tons of friends in New York, and I would never give that up.

“I’ve had several offers. If I don’t do the kind of deal I want, I’ll keep it, be happy here and get some place down South, too. I think high-end properties usually take a while to sell.”

One new reason for higher inventory is the aging of the owners, a trend that has affected so many other markets.
…
But real estate experts said the high-end market is still much healthier than the middle. In the Hamptons, agents said, the hobnobbing and glamorous image still generate bidding wars reminiscent of the real estate boom all over Long Island less than two years ago.

Only now, wealthy buyers are getting the same advantage that not-so-rich ones have been getting for more than a year – a more level bargaining field with sellers.

“At the high end, there’s an end to the speculative market, in which people felt they could pay anything and sell and have their property be worth more than whatever they paid for it a year later,” said Robert Campbell, associate professor of real estate finance at Hofstra University. “People are no longer making that assumption.”

Many of the high-end property owners have become more realistic also. Instead of mentally living in the real estate boom years, when they could demand a lot, they’re dropping the prices.

“They’re getting restless in the sense of we live in a world of instant gratification,” Caputo said. “They have places they want to go to.”

The properties that languish on the market most likely don’t have realistic prices. Several agents said they think Joel’s house is overpriced. And the Lloyd Neck estate Sassafras, likely the North Shore’s highest priced listing ever, is still on the market for its original asking price of $60 million. The 48-acre estate, with two helipads and two houses, went on the market in March 2006.

Posted in Housing Bubble, National Real Estate | 12 Comments

Insuring the shore

Posted on June 7, 2007 by grim

From the Wall Street Journal:

HURRICANE WARNINGS
As Insurers Flee Coast, States Face New Threat ‘Last Resort’ Carriers Could Shift Liability To the Broader Public
By LIAM PLEVEN
June 7, 2007; Page A1

As hurricane season gets under way, a dramatic shift in the way homeowners insure against disasters could pose a big financial risk in several coastal states.

Private insurers have been fleeing the shoreline, wary of costly storms and often fed up with government regulations that prevent them from pushing rates higher. In more than a dozen states — from Texas along the Gulf of Mexico and up the East Coast to Massachusetts — an odd breed of carriers known as “insurers of last resort” is filling the void.

These last-resort insurers, which cover people the private sector won’t, issued more than two million policies to homeowners and businesses in hurricane-prone states last year, about twice as many as in 2001. Over that same five-year period, their total liability for potential claims has increased roughly threefold, topping $650 billion. Meanwhile, a separate federal flood-insurance program has seen its liability jump by two-thirds since 2001 to just over $1 trillion.
…
Last-resort insurers are created by state governments, although they operate much like other insurance companies. Many of them are set up as associations, which actually write policies that cover hurricane damage from wind, among other standard threats. Any insurer that sells property insurance in the state must also be a member of the association.

But these insurers also differ in significant ways. They often don’t have deep financial reserves, leaving other private insurers, and sometimes taxpayers, to help foot the bill for huge claims.
…
The system “shifts the risk literally from those who are most at risk…to individuals who are at less risk or even at no risk,” says Robert Hartwig, president of the Insurance Information Institute, an industry trade group that plans to release a report detailing the growth of last-resort insurers.
…
The current situation represents a reckoning for years when states saw extensive waterfront growth, due in part to low insurance premiums. For a three-decade stretch starting in the early 1970s, private insurers were writing policies more or less freely along the water and relatively few major storms hit. Coastal development boomed.

Florida offers a glimpse into what could happen down the road. In the wake of recent storms that prompted many insurers to limit their exposure, the state’s last-resort insurer is growing — and assuming more risk.

When the 2004 and 2005 hurricanes slammed its coast, the state’s insurer of last resort, Citizens Property Insurance Corp., suffered heavy losses. It hit its own policyholders — and eventually even those insured by other companies in the state — with $2.7 billion in premium surcharges. Florida legislators also allocated $715 million to hold down fees.

Since last year, Citizens has continued its massive expansion, writing roughly 15,000 to 20,000 new policies a week. As a result, it could be on the hook for significant losses if major storms roll in. A direct hit on Miami could cost tens of billions of dollars, much of which would be borne by Citizens — now the largest property insurer in the state.

Posted in National Real Estate, New Jersey Real Estate | Comments Off on Insuring the shore

Affordable suburbs

Posted on June 7, 2007 by grim

From the Courier Post:

Urban mayors call for changes to promote affordable housing

A group of urban mayors issued several demands Thursday before they could support legislation eliminating the practice in which richer suburban towns pay poorer cities to take some of their affordable housing obligation.

The mayors said the practice, known as regional contribution agreements, or RCAs, have done wonders for redeveloping their cities and giving people the opportunity to own a home. Critics say the arrangements go against the notion of inclusive affordable housing, sending affordable housing to cities and preventing the poor from living in the suburbs.

Such pacts would be eliminated under legislation pushed by Assembly Speaker Joe Roberts, D-Camden, but the mayors said several conditions must be met in order to ensure they and their constituents still reap the benefits they get under RCAs.

Among the demands were:

Giving distressed cities funding to attract moderate- and market-income housing.

Constitutionally dedicating a new real estate transfer tax to subside construction of affordable housing in cities.

Offsetting school costs and using a housing tax credit to spur affordable housing in the suburbs.

Creating a commission to address affordable housing issues.
…
The New Jersey Regional Coalition, an advocacy group pushing to eliminate RCAs, distributed several statements praising the mayors for opposing the agreements. Marty Johnson, the group’s president, said he wasn’t surprised to hear the mayors tout the virtues of RCAs.

“We would love to see an elimination of RCAs be on the top of everyone’s agenda, knowing long-term it has really negative implications for all of New Jersey, including urban areas,” Johnson said. “. . . We think it’s a heartening sign that the urban mayors are moving forward with this level of thinking and engagement on this issue.”

Posted in New Development, New Jersey Real Estate | 1 Comment