Housing Market ‘Jinxed’ By ‘The Obvious Reason’
A pair of reports on housing from New Jersey. “While home prices are still edging up, they are not rising at the furious double-digit clip of the past three years. And that is starting to put a damper on the real estate market for investors, some would call them speculators, who have had a hand in driving up prices in recent years.”
“Last year, real estate investors accounted for 15 to 20 percent of residential sales in Monmouth and Ocean counties, said (appraiser) Jeffrey Otteau. This year, he estimates it will be less, about 5 percent.”
“In the near term, Otteau said, investors will be rushing to the sidelines, hurting the market even more. ‘Investors will be looking to liquidate and that is going to bring additional supply onto the market and will further weaken the real estate market,’ he said.”
“Typically, they hope that prices will rise quickly and until they can sell, they expect to cover their carrying costs with rents. Neither is expected to happen. ‘Many of the investors who would want to liquidate will be unable to sell their homes in the current market and that will push them into the rental market.’ That will weaken the rental market for single-family homes, he said.”
“Wall resident Terrance Hege, an investor and developer, said he is ‘not necessarily a buyer at this point.’ Hegel believes that the market peaked in the early summer of 2005. Now he is waiting for median home prices to decline. ‘I wouldn’t be surprised if they fell from their peaks,’ he said.”
“Last year, Hegel sold two new homes and two renovated houses. ‘I sold them all at a pretty aggressive price because I didn’t want to be sitting with them,’ he said. ‘I don’t think prices are moving up, so (that) I am missing the boat on something,’ Hegel said. ‘With the inventory that is out there right now, you can be patient.’”
“Otteau said experienced investors will continue to buy homes that are owned by people who are in financial distress, such as someone who might have had an increase in their adjustable rate mortgage and can no longer afford the payments. But these investors will no longer be willing to pay top dollar. ‘To be an investor going forward, it is not for the inexperienced, it is only for the expert,’ Otteau said.”
An editorial. “May and June are traditionally the best months for real-estate sales, but this May and June have been ‘very, very slow,’ says Dan Scher of Ledgewood, who has been selling real estate for 25 years.”
“It’s the worst market he has seen in 10 years, for himself and other agents. The root of the problem, in his view, is that sellers are stuck in a time warp and refuse to budge from their lofty asking prices.”
“What has jinxed the market? Scher says, “The inventory of houses for sale has risen dramatically, interest rates have climbed, gas prices are outrageous.’ Then there’s the obvious reason: House prices have climbed too high.”
“His advice for buyers: It’s not a bad time to buy, considering the large number of houses for sale. But look for a seller who’s aware that this is the summer of 2006, not last year. It’s undeniable. Things are very different. I see a lot more For Sale signs when I drive around and a lot more PRICE REDUCED! signs.”
“Jeffrey Otteau says he has no hard evidence that house prices in New Jersey have declined, but the latest data aren’t in. He points out that the market began slowing in April, at the start of the second quarter. That’s when ‘the bottom fell out of the market.’ The number of potential buyers declined sharply.”
“‘Buyers are taking a wait-and-see attitude,’ he says, and he gave three reasons: ‘People have been so drilled by the press that there’s a bubble that they have started to believe it.’ He cites a poll that found that 71 percent of the public believes that a real-estate collapse will begin within a year.”
“Rising mortgage rates. House prices that have outpaced salary increases. During the past five years, there has been a 16 percent increase in salaries in New Jersey, and an 88 percent increase in home prices, he reports.”
“Gumbinger acknowledges that it’s a different market. ‘We’ve passed the peak, we’ve topped out. There’s more room for negotiation now. Sellers know that buyers are not lined up 10 deep. And buyers know that while there were once three acceptable houses and 22 bidders, there are now 30 acceptable houses and very few bidders. Instead of asking for 10 percent off, they may ask for 20 percent off. Power has moved from the seller to the buyer,’ he said.”
“May and June are traditionally the best months for real-estate sales, but this May and June have been ‘very, very slow,’ says Dan Scher of Ledgewood, who has been selling real estate for 25 years.”
Dan’s probably one of the minority of real estate pros thats seen a down market like that of the late ’80’s. It sounds like this one may rival it. I remember houses in my area during that period that were listed for a year or more before they sold.
If May and June are the busiest months, we’re quickly approaching the downside.
Crash;…Just a slight ajustment in your timing….It was 1991-1993 not the late 80’s….
Nationally that’s probably accurate. In my rural boom/bust area the market started declining in ‘87, and never really recovered until about ‘93. I was in the homebuilding business then and I recall how many of the local builders just disappeared from the area.
‘87-88′ Was the top for the New York Metro area. The stock market crashed in 87 and this area has closrer ties to the financial sector than most other areas.
I’m seeing some price reductions here in roseville, near sacramento. There is so much home equity money floating around here it is simply nuts. I think all people do is find ways to spend more money on sh@t they don’t need. Closets full of shoes and other nonsense from shopping binges.I’m glad my 575/ month in rent is all that I’m paying right now.
Damn! Where are you paying $575 in rent in California? Sacramento? Wow…I’m in Dublin and there is no such rent like that around here…that’s more like a low deposit.
BayQT~
I’m guessing room mates.
Karen…I didn’t think about that. You’re probably right.
BayQT~
That may be the entire rent. There’s some cheap areas in Sacramento, and Roseville itself is not so big that a cheap area couldn’t abut a more expensive one. (In other words, we may have ghettos, but they’re very very small.)
For the record, I am posting one of the 2 1980s, 1990s timelines that have been previously posted here that list headlines beginning in the mid-1980s to 1997. Silly me, I didn’t bookmark the other one but when I find it I will post.
Ben: May I suggest that this link plus the one that I will post later be added to your permanent links? There is always a disagreement on the timeline of the last bust and it’d be great to have it available for everyone to refer to. Here is the link, courtesy of Marinite of the Marin Real Estate Bubble Blog:
http://marinrealestatebubble.blogspot.com/2005/09/of-bubbles-past-chronological-listing.html
The topic title for that information is “Of Bubbles Past”.
BayQT~
Found the other one….courtesy of Grim of Northern New Jersey RE Bubble Blog.
Ben: I realize that you have both of these blogs listed, perhaps a sublisting of these 2 specific articles/topics. Regulars as well as new readers/participants won’t remember where to find them if they are not specifically pointed out. Just a suggestion.
http://www.youdovoodoo.com/80sbubble.htm
BayQT~
‘People have been so drilled by the press that there’s a bubble that they have started to believe it.’
Sad that’s all these RE “pro’s” can come up with.
Yeah, now let’s kill the messenger. Sheesh!
Yeah…how about this about 4 years ago until a few months ago:
‘People have been so drilled by the press (and RE industry) that prices never go down that they have started to believe it.’
And WAY too many people drank the KoolAid.
BayQT~
There’s a fifth reason the market is “jinxed” in the original article:
What has jinxed the market?
Scher says, “The inventory of houses for sale has risen dramatically, interest rates have climbed, gas prices are outrageous and we have a terrible war in the Mideast. The country is in the doldrums.”
What next?????
Yeah, the war is the problem. Gosh, I don’t want to buy a house because of turmoil in the middle east. Wasn’t the war going on during most of the big runup?
‘People have been so drilled by the press that there’s a bubble that they have started to believe it.’
I love this,
Yeah, don’t you though. They didn’t mind it when the press was writing stories spurring the sheeple into suicide loans and paying outrageous prices, so long as it put a few bucks in their pocket as well.
“It’s the worst market he Eseen in 10 years, for himself and other agents. The root of the problem, in his view, is that sellers are stuck in a time warp and refuse to budge from their lofty asking prices.”
Exactly. Usually when inventories pile up, firms will cut price to clear the market. We just kinda assume that it happens quickly, because sellers are rational, and trying to maximize profits.
For houses, the individual seller is selling only ONE house, and may not be aware of the large inventory increase. Of course, you would think that after a few weeks of no offer, sellers would get smart, look at the Internet, listen to honest realtors, and realize that prices are too high to clear the market.
Mr. Boroson, the writer of the second piece, was one of the loudest real estate cheerleaders last year. His tune has changed dramatically. I believe he is a regular reader of my blog, and this little snippet is, no doubt, aimed at both myself and the readers of my blog..
“I asked him: Why are there some weird people out there gloating over a slowdown? Is it because they are not homeowners and have been choking with envy in recent years at the fortunes that we homeowners have made? (I tell people: “I bought my house for $1.75 and sold it for $4.5 million. Or something like that.” Actually, I cleared a mere $500,000.)”
Caveat Emptor!
Grim
Northern NJ Real Estate Bubble
http://bigpicture.typepad.com/comments/2006/06/a_consensus_is_.html
Also see Michael Santoli’s column in tomorrow’s Barron’s.
The joke around Wall Street last week, as he tells it, was: “They got the wrong guy - They should’ve gone after Bernanke, not Zarqawi.”
That recalls to mind the “Get Obama” jokes that went around when Osama bin Laden was the terrorist bogeyman du juor…
Why is there gloating over a slowdown? Because a lot of people have been locked out of the RE market due to financial manipulations that weren’t prudent. Or had their taxes raised or expenses raised due to the inflationary effect of housing bubbles.
I personally think that there’s a bigger problem with a huge number of people going after really easy money taking huge risks to do so.
All the talk is about real estate these days on the upside about how much people made on flips. Is that gloating?
Being contrarian and/or short an asset class isn’t a way to make friends.
Someone else posted more eloquently than me.
You have to bite your tongue on the way up and you can’t brag at the bottom because the sheeple are all shorn and shivering in the cold.
Besides, journalism today isn’t much better than politics, a dressed up popularity contest to see who can quickly tell as many people as possible what they want to hear.
Nicely said!
…there are now 30 acceptable houses and 1 or 2 fools bidding
I’ve noticed a number of unusual data coming from various mls systems.
Here is an example:
Total listings for June 8: 27652
Total listings for June 9: 25723
http://virginiamls.com/charts/index.htm
I’ve noticed this too. My theory is folks are pulling and relisting inventory. These dips and spikes and inventory started in May I believe before that there was a steady increase. My other theory is that folks are still buying but its not enough to keep inventory down. Who knows.
“Jinxed ” …..I don’t think so . The market was such a false market to begin with that it’s amazing it got as high as it did . Everybody is coming out of their “Purple Haze”,(remember Jimmy Hendrix?)
Everybody is coming out of their “Purple Haze”
And finding all the dumptrucks and pop-up condos are causing crosstown traffic ( Jimmy Hendrix) lol
“Instead of asking for 10% of they are asking for 20% off”
Why not just ask for 50% off. That is what homes are really worth anyways. Reality check, exotic loan products and liberal financing got us here and will be the housing markets un-doing. Just wait as foreclosures increase and financial institutions get stuck with OREO and non-accrual loans. This is a huge headache for financial instituitons. LET THE FIRE SALES BEGIN.
“What has jinxed the market? Scher says, “The inventory of houses for sale has risen dramatically, interest rates have climbed, gas prices are outrageous.’ Then there’s the obvious reason: House prices have climbed too high.” “Not to mention that getting into a property right now would be financial suicide, in fact just standing next to a house for sale may cause you to spontaneously explode on the spot. The current real estate market is bad, I’m talking real fire and brimstone bad”, Scher says. “Babies crying, women screaming and men jumping out of windows bad.”
but…
“His advice for buyers: It’s not a bad time to buy, considering the large number of houses for sale”.
LOL, Leave it to you to point out how absurd the real estate industry comments are .
“His advice for buyers: It’s not a bad time to buy, considering the large number of houses for sale.”
Sorry Dan, but it’s potentially a very bad time to buy. People should think “it’s a good time to buy because there are a lot of homes for sale” compared to what, a year ago? Only a fool would see the logic in that statement. Dan, here’s a scenario, using rough numbers, for you to ponder before making such ridiculous statements:
1. Someone buys a $1M house with 20% down using a 30-year 6.5% fixed mortgage.
2. Over the next 5 years there is a 35% price correction in the area this home was purchased. (Dan - I agree this is just a guess, but let’s not be naive about the situation we’re in, OK?)
3. Following the 5 year - 35% correction period, the market begins to adjust upward at an annual rate of 4%. (Another guess, they could still be going down, but let’s be optimistic.)
4. The homeowner who bought when it was “not a bad time to buy” needs to live in this house for at least an additional 5 years (10 yrs total) just to recoup their original $200K down payment, plus interest at 4%. Gee, that seems like very expensive “rent”, doesn’t it Dan?
Oh, and this doesn’t include taxes, insurance, maintenance, home improvements, etc., but I think you get the point.
No thanks Dan, I think it would be wise to wait a few years and see how this plays out. If the market has turned into the “worst one you’ve seen in 10 years” this quickly, there’s a strong probability it will get worse before it starts getting better.
Dan, good luck to you and your “time warp” sellers.
“His advice for buyers: It’s not a bad time to buy, considering the large number of houses for sale”.
I bet some Japanese “real estate expert” trotted out the same line back in 1990, when the RE market there had corrected sharply over the 1989 peak. Only thing is, the market then continued to decline for another 16 years. The Japanese “expert” would probably have enough integrity and chagrin to commit hari-kari, but Dan will probably just manage an embarrassed shrug.
Hari-kari. Ah, yes - I loved the old Cubs announcer. But, what does he have to do with Japense experts?
‘People have been so drilled by the press that there’s a bubble that they have started to believe it.’
Um, yeah…and the trees waving make the wind blow.
And that foul smell makes me pass gas.
Why does everyone continue to blame the investors and the high rates? Why don’t they realize that people (including the seasoned investors) stopped buying because they even realized that house prices are too high?
Yep…some finally realized that prices were too high (with the help of the brick that conked them on the head and knocked some sense into them), PLUS a reduction of GFs available. And remember it was the *low rates*, voodoo loans, easy credit that lured many into the credit bubble trap. ALSO, regarding the GFs…there may have been more that were positioning themselves to jump in, but then they began to witness what was happening to their friends, family members, acquaintances (foreclosures, defaults, credit problems, increases in mortgage payments, assorted crying-in-your-beer type problems) that it completely stopped them in their tracks. I’m sure seeing this up close and personal changed a few minds.
BayQT~
The smart investors left when they couldn’t find properties that cashflowed or were good to flip. There actually are some smart investors out there. Many of them are sitting on nice piles of cash waiting for this whole thing to play out. The unfortunate thing is that they are in the minority.
Maybe SpecuVestors have a mindset like the HBs who keep building because “that’s what they do?” No transferrable skills?
“While home prices are still edging up, they are not rising at the furious double-digit clip of the past three years. And that is starting to put a damper on the real estate market for investors, some would call them speculators, who have had a hand in driving up prices in recent years.”
The Chinese government has taken a more pro-active stance to drum speculators out of their RE markets. Among the many novel measures they are employing: down-payment requirements. Imagine requiring down-payments in the US real estate market…
http://www.signonsandiego.com/uniontrib/20060611/news_1h11china.html
“Sellers know that buyers are not lined up 10 deep.”
Buyers know that sellers are lined up 10 deep
“Many of the investors who would want to liquidate will be unable to sell their homes in the current market and that will push them into the rental market.’ That will weaken the rental market for single-family homes, he said.”
Obviously this guy doesn’t know that the burger-flippers, shelf-stockers, and chamber maids are going to experience an era of significant wage growth that will allow these stuck landlords to raise their rents.
I thought the burger-flippers, shelf-stockers, and chamber maids are the landlords?
“It’s the worst market he has seen in 10 years, for himself and other agents. The root of the problem, in his view, is that sellers are stuck in a time warp and refuse to budge from their lofty asking prices.”
No, and it’s been awhile since I’ve seen this remark on the blog, it’s not the stubborn sellers, it is that we sold houses houses to the next ten year’s worth of buyers in the past two years, especially to younger folks who would typically rent until ready to settle down.
Great point. Home sales skyrockted and now were stuck without buyers. This is so true. Realtors talk of a huge population increase in California and they will create demand for homes. I agree the population will increase, but with whom. Last I looked the birth rate in this Country does not increase population. So how then will the population increase? IMMIGARTION and we know that immigrants attracted to the land of opportunity come ready in hand with $400,000 in cold hard cash and free cheese. The only reason they leave their former Country is because????? It sucks and they have no money. Please!!!!!!!!