‘Glut Of Houses Calls For Softening Prices’: New Jersey
Some reports on the housing bubble in New Jersey. “In New Jersey, existing home sales, which include single-family homes and condos, showed a dramatic 8.1 percent drop from January through March of this year compared with this same time period in 2005.”
“Home prices in the Newark metropolitan region, a six-county span that includes Essex, Union, Morris, Hunterdon and Sussex in New Jersey and Pike County, Pa., rose 6.5 percent in the first quarter of 2006 to $405,300. However that figure has also been on a downward trajectory since hitting a high of $446,800 in the third quarter of 2005.”
“‘The fact that there is some softening in the pace of house-price appreciation indicates that some sellers are beginning to reduce their prices,’ said (economist) Celia Chen, a positive sign since the big pop in housing prices that prevailed during the past few years was simply ‘unsustainable.’”
“It will take longer for prices to cool than sales, particularly in the juiced-up markets,’ she said. ‘House prices are still generally up from a year ago since many homeowners are still reluctant to reduce prices to match the softer demand. Instead, inventories are building up as sellers wait longer for their homes to sell.’”
“Chen said that..the national median price of a home is actually down by an annualized 4 percent; the first time that has happened in nearly 11 years.”
“‘It gets back to supply and demand,’ said Bob Moulton, residential mortgage broker based in Long Island. ‘Inventory is a lot higher than where we were a year before so there is a glut of houses available for sale. The equation calls for the softening of sales prices over time. It has to happen.’”
“In the Newark area, one analyst said the new data are a bit deceptive because they include deals that were negotiated last year. Sean T. Shallis, a real estate strategist in Jersey City, said that in newly negotiated sales, he’s noticed prices have been down. ‘What we’re seeing is a softening market,’ Shallis told The Record of Bergen County.”
“The National Association of Home Builders on Monday said builders’ confidence in May dropped to its lowest level in since mid-1995. Hovnanian, New Jersey’s largest homebuilder, on May 1 cut its earnings forecast for the fiscal second quarter. Earnings were hurt by production delays, a slowdown in sales, higher cancellations, price reductions and higher costs, the Red Bank, New Jersey-based company said.”
“Many real estate insiders say the market appears to be slowing, not crashing. Buyers who reduce their asking price can sell quickly. And the North Jersey market has some protection because of its proximity to New York City and a limited supply of housing, experts say.”
“Maureen McSpirit, a realtor in Tenafly, said buyers are being more selective and deliberative because they now have more homes to choose from. But homes that are priced right are selling, she said. ‘Many sellers are willing to drop their prices,’ McSpirit said. ‘They’re becoming more aware of the change in the market and are making adjustments to reflect that.’”
“Many real estate insiders say the market appears to be slowing, not crashing.”
Of course they do, and they’ll continue to say it all the way down.
Once you take away the presumption of 20+% YOY appreciation, the speculative mania collapses.
the market appears to be slowing, not crashing
slowly crashing
“Home prices in the Newark metropolitan region, a six-county span that includes Essex, Union, Morris, Hunterdon and Sussex in New Jersey and Pike County, Pa., rose 6.5 percent in the first quarter of 2006 to $405,300. However that figure has also been on a downward trajectory since hitting a high of $446,800 in the third quarter of 2005.”
Let me try to parse the above information, by taking out all but the essential details:
“Home prices in the Newark metropolitan region … rose 6.5 percent in the first quarter of 2006 to $405,300 … since hitting a high of $446,800 in the third quarter of 2005.”
THAT DOES NOT COMPUTE…
Don’t you just love YOY figures? Anything to make the claim that price went up. I wonder what happens when the YOY figures are down? What will be the new positive spin?
How about ….prices falling over 10% in just 1/2 year leading experts to say the market isn’t stable .
10% reduction in average price over last 180 days. NAR says…
soft landing…
a much more balanced market…
a healthier environment long-term…
clearly stabilizing…
returning to normal…
taking a breather but staying strong…
cooling, but not crashing…
settling…
Good catch — your parsing makes the drop pretty stark.
I think they mean that the 6.5% increase is YOY. In other words, 6.5 more than the first quarter of 2005, but indeed somewhat less than 3Q05 and 4Q05.
We know this, but it is tempting to conclude that their lack of clarification was intended to deliberately confuse the sheeple who don’t read between the lines like you do.
He knows; he is making a point of the article’s emphasis on YOY appreciation vs. the more recent quarterly declines that are now evident.
It used to be only MOM depreciation; now we are in the realm of QOQ; and probably only 3-5 months to go before YOY depreciation is prevalent (probably some regions sooner (SD hint hint).
The spin sure will have to get creative when we have concurrent MOM-QOQ-YOY depreciation.
They will compare to 2004, or 2003, or whenever. You already see this - “sales are down, but still higher than 2003.”
When your team is losing, just change the scoreboard.
Betamax,
Like the “handle” btw! An astute poster on patrick’s blog for the Bay Area has constantly reminded us is that all that needs to take place to have a crash is to have home prices so much as flatten. Once the “potential” is taken out of the equation why be a buyer? Sure, people are willing to eat negative monthly cash flow on the rents just as long as they more than make up for it when they go to sell. Well now that they’ve had their legs cut out from under them the speculators are doing the only thing they can do. Dump it or hope a rent hike “sticks”. Good luck on both fronts.
Also I think there were alot of speculators that refi’ed once or twice to stay in the game who can’t do that anymore. It’s sink or sell time.
Seriously? These guys aren’t over stretched enough already they actually went BACK in and took what little equity they did have in the property out? How can that possibly make sense? What kind of nut job lender extends themselves on an “investment property” (with little or no equity to begin with) and then a few months later writes an even bigger loan taking away any “imaginary” cushion they might have had? Who’s defrauding who here? Oh well, never mind. In the end it won’t matter anyway. Forget I even asked.
DinOR it goes something like this. You buy in 04 for 400k. By the same time in 05 you could sell for 500K. It cost you 30k or so to carry the place in that time, but your still up 70k. But if you sell you lose 6% / 30k comish so you only come out 40k ahead.
So you get greedy and refi using the paper 100k equity thinking in another year you will be 200k up.
Now here in 06 you’re told your house is only worth 450k and falling.
Of the extra 100k you refi’d you only have 40k left having spent the other 60k in carrying costs and a plasma tv to reward yourself for being such a smarty pants.
Now the jig is up cause the 40k left will be eaten up in comish and concessions. Your zero down house now has a 60k grip around your neck and it’s squeezing harder each day.
all that needs to take place to have a crash is to have home prices so much as flatten.
Exactly. The current price structure has a large, built-in speculative premium. People have been willing to pay, say, 30% over the fundamental value of a house because of the expecation that prices would continue to rise. That expectation is binary - prices will either rise or they won’t. If the expectation goes from “true” to “false”, the 30% speculative premium disappears immediately.
(“In New Jersey, existing home sales, which include single-family homes and condos, showed a dramatic 8.1 percent drop from January through March of this year compared with this same time period in 2005.”)
They’re calling an 8.1% drop in sales from a high level “dramatic”? That’s nothing. The bubble hasn’t popped here yet.
More confusion:
“In the first quarter of 2006, the median home price rose 9 percent to $374,100. Back in April 2005, that number stood at $394,100 and has been falling ever since.”
They’re confusing year-over-year gains with three quarters of decline, leading to a sentence that implies prices have “risen” to a lower level while falling. I’ll be glad when third quarter data rolls around.
“Many real estate insiders say the market appears to be slowing, not crashing.”
They are blinded by the short-term time horizon of greed.
It is hard to argue with the long-term trajectory of the builder share prices, which seem to all be headed straight back to earth…
http://tinyurl.com/fvjqb
One always slows down right before they crash .
It’s like they are in the back seat of a car that just hit a brick wall. We’re just slowing.
Or that joke about the two realtos who get in the elevator and go up ten floors… SNAP the cable breaks and they start to plummet… as they pass the second floor on the way back down one says to the other: “Well at least we’re still higher than we were two minutes ago…”
This NJ bag holder paid $1.3 million last June, put the house back on the market a few months later (MLS 2204767), and now after 100+ days on the market, and several price drops, they’re hoping for a $300,000 loss:
MLS 2261656
http://www.realtor.com/Prop/1057139140
Don’t get burned. Buy in 2007 or later.
It’s scenarios just like this that give “some” credibility to the various one size fits all financial gurus out there like Suze that have been telling potential buyers (lately) to plan on being there for at least 5 or 7 or 10 years (depending on the guru).
To me, buying ANYTHING (let alone high end, high price homes) in this environment is like saying “Just get married, doesn’t really matter who”. You don’t even have to particularly care for the person. Stay married for 5 or 7 or 10 years THEN get divorced! Well if we’ve done so little “due diligence” up front on the “buy side” how can we have any expectations other than that this will turn out badly? Why bother?
While we’re at it wouldn’t it be equally silly to say that the misery, anxiety and overall sense of defeat won’t hurt quite as much b/c you will have spread the cost of the wedding and honeymoon out over a 5 or 7 or 10 year time frame?
Wow! Why won’t this person just walk away? I doubt he/she put a substantial down payment on it.
Now that you mention it, that’s a good question Hannah! Add that to the myriad of things that don’t make sense here. Had it been me (well I never would fork over that kind of money regardless) I would have A, had a much longer timeline, B, getting a second or THIRD job to cover my once substantial (now non-existing) down payment or C, be dropping off the keys. Alas, like much of this unruly mob, don’t look for it to make sense.
I have been thinking… was the sale of 1.3m legit? I mean could it have been some scam by flipper(s) to record an inflated price of 1.3m and then hoping to reel in some GF thinking of 300K of instant equity???
Remember, you can’t just “walk away” or “turn in the keys”
without going the bankruptcy route 1st. Otherwise the bank sends you and the IRS a statement on the amount written off by the bank after liquidation that is fully taxable by the lendee.
that is fully taxable by the lendee
So what? You just write off the gain against the loss of the house.
I’ve heard this argument before, and it doesn’t make any sense to me.
How can you write off a gain that doesn’t exist ? and losses on house are NOT deductable.
The gain from the bank exists. You’ll get a 1099 that says so.
The assets employed to achieve that gain lost value. (ie the house price dropped.) So you or your accountant will write off the asset price change.
The income from the forgiven debt is ordinary income, taxed at ordinary income rates. The loss on the house (which may or may not be deductible, depending on whether it was held for investment), is a capital loss, limited to $3,000 in any taxable year. So, the best result can only be a $3,000 offset against the amount of the loan forgiven. Bottom line: Very expensive, tax-wise.
irs publication 523, table at bottom of page 4. The forgiven debt becomes part of the selling price, up to the FMV. Anything in excess becomes taxable, and then only IF the taxpayer is not in bankruptcy.
Bottom line: it’s a complex accounting issue. People who are wealthy enough are not going to pay much tax on the 1099C.
Under the new bankruptcy laws, doesn’t the government now go after future wages?
I think the days of “walking away” are gone.
If you look at pub 523, it looks like the wiggle room is in FMV. You don’t even have to declare bankruptcy, just make sure you have a damn good accountant.
> Bottom line: it’s a complex accounting issue.
> People who are wealthy enough are not going
> to pay much tax on the 1099C.
It’s not a complex accounting issue; it’s relatively straightforward. And in fact, the wealthier you are, the more you’ll pay, all other things being equal. (e.g. similar use of the house, etc.)
If this house is an investment (even just speculation), and you can show that, then you can normally use the capital loss to offest the 1099 imputed gains. But that’s often not the case with foreclosures.
If it’s your primary residence, as many foreclosures are, you are not allowed to take a capital loss; those are not allowed on your primary residence. (Kind of a mirror to the gains that you don’t have to pay tax on for primary residence.) One of my unlucky friends realised it, to his dismay, when he at least had the foresight to talk to an accountant before selling his house (at a loss, hoping to use that loss to offset his realy high income that year). He ended up staying put.
So if you get a 1099 from your foreclosing lender for your primary residence, it can and will be a painful experience. If you are not in bankruptcy before that, you might well be soon, especially considering the high dollar losses that some of the coastal states will be encountering.
So if you get a 1099 from your foreclosing lender for your primary residence, it can and will be a painful experience.
Of course it’s painful. It’s just not what people here are making it out to be. Your friend was trying to *sell* his house, which is different than walking away from it. The rest of this thread is on a walk away, and what happens to the taxes on the forgiven debt.
Many people are under the impression that walking away causes a large tax liability. It may happen that way, but there’s going to be wiggle room in the FMV. See pub 523.
Bottom line, the people holding the mortgage security are going to get hit the hardest.
“Many people are under the impression that walking
away causes a large tax liability. It may happen that
way, but there’s going to be wiggle room in the FMV.
See pub 523.”
There is wiggle room, due to things like Katrina, bankruptcy, “insolvency”, and other things you can document on Form 982 (pray you never see THAT one in your tax return!). The IRS, however, is not entirely clear on how easy it would be to skirt the problems involved in the 1099-C you will receive, and how to exclude the income attributable to the cancelled debt. If you’re not in bankruptcy (which would then remove the debt cancellation from your gross income forever), then you could perhaps just check “insolvent” on 982, and their friendly auditor will let you know in 12-18 months if you quallify.
Like someone once said:
“Why get married? Just find a girl you don’t like and give your house to her.”
I know the argument is location, location, location, but that same house in South Carolina will cost you anywhere from 130-200K. What a joke for that. The home does look nice, but wait another 100 days and I’ll bet it is around 600K. 1Mil for that is just way too much!
It never fails to amaze me the size of the images that realtors use to sell a 1M$ house. Modern cameras are 5MP. Is there some reason they have to post a thumbnail picture of the 1M$ house ?
Why is that house so expensive? Is it near NYC? Even if it is, it seems like it’s overpriced by quite a bit. I would think 500K or so. For an avg. house on a small lot.
Why would someone pay 1.3M?
Millburn/Short Hills is a primo location. Great schools and very wealthy towns (save for at least one person — the guy trying to sell this house.)
this NEVER happens
“Chen said that..the national median price of a home is actually down by an annualized 4 percent; the first time that has happened in nearly 11 years.”
(David Lereah talking to his own image in the mirror):
THERE IS NO NATIONAL HOUSING BUBBLE
THERE IS NO NATIONAL HOUSING BUBBLE
THERE IS NO NATIONAL HOUSING BUBBLE
————————————————————————–
Real estate cools down
Prices in the first quarter fell 3% from the fourth quarter, though are still up more than 10% from a year ago.
By Les Christie, CNNMoney.com staff writer
May 15, 2006: 4:12 PM EDT
http://money.cnn.com/2006/05/15/real_estate/NAR_firstQ2005_home_prices/index.htm
“Still up YOY…”
NOT FOR LONG
Even common people have figured out its over. Here is a bunch of sailors.
http://www.sailinganarchy.com/forums/index.php?s=8816a32993f4884c8e9b7073719496af&showtopic=35049
We hope and pray this will slow the flow of these NJ monsters into New England.
Anyone willing to pay >1 Million for an eight room, four bedroom house because it is in Short Hills is not about to go for anything as declasse as rural New England.
OT a little bit.
It’s the typical “the market is soft, but we are still up YOY story.”
http://www.kolotv.com/home/headlines/2788651.html
Reno Housing Market Softens
Reno
Staff
The median price for existing homes in the Reno-Sparks area rose 8 percent to $345,000 in the first quarter of 2006 compared with last year, a new report said.
At the same time, the report by the Bureau of Business &
Economic Research at the University of Nevada, Reno said it took a
median of 85 days to sell a home, 37 percent longer than a year ago
but in step with what’s considered normal.
“This is the sort of soft landing that everybody has been
talking about,” said Brian Kaiser, an analyst at UNR’s Nevada
Small Business Development Center. “It’s finally hit the market.”
Overall, the number of sales made through the Northern Nevada
Multiple Listing Service fell to 917 in the first quarter, down 27
percent from the same period in 2005, the report said.
Reno boasts the most expensive homes in the metropolitan area,
with a median of $404,500, up 9 percent from 2005. Sparks showed a
6 percent year-over-year rise to $329,000, while the North Valleys
rose 5 percent to $280,000.
_____________________________________________________________
Now 917 properites sold through the MLS in the first quarter. Or 305.666 each month.
http://rgj.homescape.com/rgj/index_map.jhtml?userId=UIZHCAACD0JVFLAYYEPSFEY227531&_requestid=13551
There are 8564 houses on the MLS, or over a 28 month supply.
Holy dog do. I wonder how many months supply Phoenix has.
Let’s see, the averag price dropped from the mid 400’s to around 400K. That is about a 10%, or 40K haircut. That would be pretty significant for most part. For $1.3M, that GF flipper really got **__S***(((’d. For $1m, I would expect a completed basement. But there is granite countertops.