Tuesday, May 31, 2005

An Ominous Sign for Real Estate, Bears at the Shore

Real estate bears, meet the real bears.

"Police in three Monmouth County communities asked residents Monday to be vigilant, following a number of black bear sightings this weekend.

The bear was spotted in Ocean Township, Eatontown and Oceanport from Sunday night through Monday, police said, noting they think it is the same bear."

Welcome Curbed.com Readers

Thanks to www.curbed.com for sending so much traffic my way.

For all the New York residents who might want to sound like a local while looking at the shore's over priced McMansions - and some nice houses too:

-The town of Avon (by-the-Sea) is pronounced with a soft "A", as in Aah-Von. Not Avon, with a hard "A" like the cosmetics company.

-People who live at "the shore" year round do not call it the shore. They call the coastal area, where the sand meets the water, "the beach."

-McCloone's Rum Runner in Sea Bright has a nice view and dull, bland food.

-Beach bars don't have velvet ropes.

Shopping for the Right Appraiser

This is an excerpt from a NY Times article about the job the appraisers have to do in this real estate market. It seems inconceivable to me that someone would want to pay for a house that an expert (the appraiser) just said was not worth the amount you were willing to pay.

[But in areas where prices have been rising rapidly, closed sales may represent an outdated snapshot of a market, taken several months earlier when prices may have been significantly lower. According to a market report prepared by Halstead Property, the average price for all Manhattan apartment sales that closed in April was 17 percent higher than the average for December. In many parts of the city, prices have climbed even more rapidly, and, especially in those areas, the prices on contracts being signed today can be expected to be significantly higher than recent closings.]

Lackadaisical Lending Standards

Low interest rates, creative mortgage products like I/Os, and lackadaisical lending standards are fueling people’s ability to pay for new homes. There is no shortage of housing. Wealthy baby boomers are not soaking up supply. The only reason house prices keep going up is because money is cheap and easy to obtain.

[“He didn't have the income to qualify for the first loan, let alone the subsequent mortgages. He has no reserves, suspect credit and a stay-at-home wife. It is illegal for me to deny him a loan. It is illegal for me to ask him to verify his income if he is applying for a no income verification loan. But his loan was approved, which made me sick to my stomach. Today I had a conversation with him. I told him that if he wanted the loan, I could not stop him from taking it and that I would give it to him. I also told him that I believed he was lying about his income. I violated the law when I did this.]

I Should Have Sold Cisco at $75

This article is illustrative of why amateurs tend to get beat up the hardest when asset prices expand and eventually collapse. I wonder how many people decided to hold onto their Cisco shares at $75 because they thought it was going to $90 next. The lady in this article is doing the same thing so many dot-com investors (not that Cisco is a dot-commer) did in 2000. They held out for one more, or five more, or ten more points, and got left with nothing.

[Kandy Walsh owns a second home near Tucson that has appreciated $200,000 in five months, and she's ready to sell it. But not just yet.

The reason: She's betting that if she waits six or 12 months more before selling the new 2,200-square-foot home in a gated golf-course community, she can make even more money.

"I don't want to sell too early," says Walsh, a real estate broker in her 50s. "But I don't want to get clobbered, either. But if I roll the dice (and win), it is an extraordinary opportunity to really make money."]

UK Economy is Slowing

Economic growth in the UK is starting to swoon because already highly leveraged consumers are running out of the ability to extract equity from their houses. This could happen here for the same reasons. People have been able to borrow from their house and buy other big ticket items, thereby fueling other sectors of the economy. Unfortunately, if house prices stay flat or fall, the ability to extract equity diminishes or disappears, which leads to less consumption.

“Britons are among the most heavily indebted citizens of the world's largest economies. Their borrowings amounted to 140 percent of disposable income in 2003, according to figures from the Paris-based Organization for Economic Cooperation and Development released in December. That compared with 118 percent in the U.S. In Germany, the proportion was 112 percent.

Higher borrowing costs and changes in bankruptcy laws are prompting a growing number of Britons to default on their debt. Insolvencies surged 28 percent to 13,229 in the first quarter, the highest since records began in 1960.

Debt Free Direct Group Plc, a U.K. debt-advice company, said May 3 its second-half revenue more than doubled to 858,000 pounds and predicted it will benefit from growing signs of ``consumer debt fatigue.'' The Chorley, Lancashire-based company's shares have doubled in the past 12 months.”

Monday, May 30, 2005

More Negative Cash Flow Investments

The bad ideas seem endless.

[NEW YORK – "For rent" signs are increasingly showing up in tony bedroom communities, condos, and exclusive resort areas around the country.

They are one more sign of the magnitude of the real-estate boom in the US. Eager to cash in on one of the strongest housing markets in the postwar era, speculators and even average investors are buying homes and renting them out until they decide to sell them at presumably far higher prices.]

All About Interest Only Loans

It seems like the heavy use of interest only loans could be a catalyst for the eventual downturn in real estate prices. This article does a good job at trying to time the collapse.

"2007 especially, has the potential to be a real ugly epidemic as the negative amortization goes away on commonly used 3/27 IOs. Even the 2003 3/27 IO cohort with more appreciation and equity, who face regular amortization in 2006, should panic as soon as they see their "gains" dwindle away. It's problematic though that the markets will wait that long, as initial teaser rates are already rolling off. Reality checks and "leaving the party" stirrings are already taking place. I believe payment shock is already encouraging some speculators to cash out. Trouble should emerge as prices pause and roll over."

More About Foreclosures

From the Washington Post

"Foreclosure rates rose in 47 states in March, according to Foreclosure.com, an online foreclosure listing service. The rates in Florida, Texas and Colorado are more than twice the national average. Even in New York City and Boston, where real estate markets are white-hot, foreclosures are rising in working-class neighborhoods.

Virginia, Maryland and the District have relatively low foreclosure rates -- analysts say troubled owners in those booming markets can still sell their homes before facing foreclosure.

Should the nation's housing bubbles deflate, as many economists and federal officials expect, the foreclosures could prefigure a national crisis. Americans now shoulder record levels of housing debt -- more than 8 percent of homeowners spend at least half their income on their mortgage."

Sunday, May 29, 2005

I Always Thought NC Would be a Nice Place to Live

I always thought NC would be a nice place to live, if NJ became too expensive.

"CAROLINA BEACH -- A place at the beach. Those five little words have fueled a home-buying frenzy along North Carolina's coast as baby boomers look for a warm place to retire and others a safe place to put their money.

The demand is pushing sprawling villas and high-rise condos out of the sand at an unprecedented rate and sending property values soaring. Communities such as Carolina Beach, Wrightsville Beach and Topsail Island have seen some home values increase fivefold since 2001.

"Coastal North Carolina is seeing its greatest redevelopment in history," said Dave Spetrino, a developer in the Wilmington area."

Monmouth County Foreclosures up 6 to 39 this week

I will post the graph later.

Here is the link to the sheriff's office.

Saturday, May 28, 2005

CBS News Video About the Housing Bubble

CBS News Video Link about the housing bubble.

I like how confident the couple is in the video that house prices will continue to go up.

If Everyone Owns a Rental Property, Who are the Renters?

So many people want to own real estate that they are willing to pay any price it seems, even for rental properties. If your cash flows are not going to be positive relatively soon, then there is no point in making the investment.

"After watching prices on the houses he was selling jump by an average of $3,000 a month most of last year, Mike Larson, president of the oldest real-estate agency in Tacoma, Wash., decided to try for some of the easy money himself. In October, he and his wife bought a duplex, which they planned to rent out while the value kept growing."

House P/E Ratio

This story ran in today's NY Times. For whatever reason, the media has really started to play up the housing bubble. As I said in previous posts, the Wall Street Journal has been busy writing about the bubble for two weeks straight now.

"While gleeful about their apparent riches, homeowners in many of the hottest areas are also growing concerned. How, exactly, does one know if the family palace is sitting atop a bubble about to burst?

The answer might have less to do with the sale price of your neighbor's house and more to do with something most homeowners ignore: the local rental market.

The easiest way to gauge a home's value is to borrow a tool from the stock market. In the most basic method of analyzing a stock, investors look at its price-to-earnings ratio, a comparison of a company's share price with its annual profit. The higher the ratio, the more expensive a stock is relative to its underlying value."

Friday, May 27, 2005

Quit Your Job and Become a Day Trader, I Mean Realtor

In 2000, it was quit your job and day trade. In 2005, it's quit your job and sell real estate.

[“Agent boom could signal housing bubble. In California, thousands of people are getting into the home sales business as the market expands. But will they simply find themselves out of work if the bubble bursts?

12:25 PM EST May 27, 2005

by Jim Goldman

With the continued strength of the nation's real estate market, and record-setting sale prices in key communities around the country, the industry's success may be its undoing.

A crush of new real estate agents may be a signal of a true real estate bubble. In California, for instance, tens of thousands of people are migrating to the real estate business, hoping that it hasn't peaked and trying to hitch a ride on the state's latest, big-time gravy train.”]

Today’s Wall Street Journal Warning

Today’s Wall Street Journal article that warns about the housing bubble is called House of Cards? If Rates Don't Kill the Boom, What Will?

The housing bubble doesn’t have to wait for high mortgage rates to make it burst. The flattening yield curve must be contributing to fears that banks will turn off the cheap money spigot soon. A flat yield curve presents problems for banks because it is harder for them to make money on loans. Consider how a bank makes money. It borrows money from depositors at 1% and loans the money out for a longer term at 5%, making a profit of 4%. If the yield curve flattens, it must pay depositors a rate of 2%, but still can only loan out at a rate of 5%, which reduces its profit to 3%. Here is a link, but it requires a subscription

Here is the WSJ article link and an excerpt below.

[Most players think a spike in long-term interest rates will be the bad guy, pushing 30-year mortgage rates out of the Garden of Eden and pricing would-be home-buyers out of the market. But what if long-term rates don't rise? They've shown a stubborn unwillingness to budge in the past few years, despite robust economic growth and the Federal Reserve's campaign to tighten credit.

In fact, housing can fall even if long-term rates don't rise. Lehman Brothers chief economist Ethan Harris thinks the more likely scenario is that some minor event will spook speculators, leading to a "contagion effect" that chases them from all of the hot markets. "The history of speculative bubbles is that often they collapse for what appear to be minor causes," he says.]

Thursday, May 26, 2005

Hedge Your House

"Starting today, a futures market called HedgeStreet.com, a U.S. government-designated online financial market, is offering home owners the opportunity to protect themselves against the uncertainties of the red-hot housing market.

The new service from HedgeStreet lets investors bet on the direction of home prices in six U.S. markets — Chicago, Los Angeles, Miami, New York, San Diego and San Francisco. The idea is to hedge against a housing bubble bursting, which in many of the nation’s hottest housing markets would likely lead to a sudden drop in house prices."

Semi-Interesting Jersey Shore Factoid

The semi-interesting Jersey Shore factoid below was from the annual Asbury Park Press write-up about the upcoming Memorial Day weekend. Next Tuesday's Asbury Park Press will have the annual "The Shore Tourism Season Got off to a Strong/Weak Start" depending on if the weather was good/bad.

"From Friday to Tuesday, 6,166,000 people will be driving on the Garden State Parkway and 3,188,000 on the New Jersey Turnpike, with most of the traffic bound for the Shore area, said Joe Orlando, spokesman for the New Jersey Turnpike Authority."

The Wall Street Journal is on a Mission

The Wall Street Journal has been running stories for the past two weeks, almost non-stop, that are about the housing bubble. Unless you have a subscription, the link won’t work, but here is part of what they ran today.

[Lenders Clamp Down
On Inflated Appraisals

Overly Aggressive Valuations
Add Fuel to Housing Boom;
Requiring a Second Opinion

May 26, 2005; Page D1

With home prices climbing at a double-digit pace in many parts of the country, lenders are increasingly worried about inflated appraisal values -- and some are taking steps to clamp down.

U.S. Bank Home Mortgage, a unit of U.S. Bancorp, has increased the number of in-house appraisers on its staff roughly 40% in the past 18 months -- cutting down its reliance on outside appraisers. The Minneapolis lender also is doing more audits of appraisals produced by outside firms, particularly in areas where home prices have been climbing rapidly.]

Maybe Invest in More Productive Assets, Like Pets.com, or Enron

“What happens when the housing boom finally slows? The share of GDP going into housing construction will fall sharply, hurting construction workers, architects, and homebuilders. Homeowners will no longer be able to draw on rising home equity. And what about Americans who borrowed heavily to buy properties for investment, expecting prices to keep climbing? Much like the companies who built miles of now-unused fiber-optic cable during the 1990s, they will be in deep trouble.

Yet even if there are temporary disruptions, the end of the housing boom may be good news for the overall economy. The U.S. doesn't need to drive growth with ornate new homes and elaborate kitchens with expensive marble counters. Instead, a shift away from housing could free up hundreds of billions of dollars for other, more productive investments.”

Wednesday, May 25, 2005

Monmouth County Forclosures May 23, 2005 -Repost

The trend is your friend. It's starting to look like forclosures in Monmouth County, NJ are on the upswing. I think it is still to early to determine what might be causing the uptick in the number of forclosures. For all I know, the recent upturn could be due to seasonal factors. In the meantime, we'll continue to track Monmouth County forclosures. Posted by Hello

All Grown Up and Moved to Monmouth County

On the NY Times real estate discussion forum, somebody went on a diatribe about how “over” NYC is and how “in” Monmouth County has become. I would generally subscribe to this view to, however, I also think that some of NYC’s appeal starts to wear thin as you get older. The NYC nightlife in the old days (the 90’s for me) seemed better because I could handle drinking till two in the morning and still make it to the office on time. That would be virtually impossible now. Space was not a priority then when looking at apartments because I barely owned anything.

[“muralp - 4:51 AM ET May 25, 2005 (#2158 of 2163)

The article in Sunday's paper where some guy whined about his commute and the food in NJ was so classic Times pretentiousness. I lived in Manhattan in the East Village for 20 years...what was once a fun, exciting neighborhood, with a diverse population of Puerto Ricans, blacks, gays, Ukraines turned into a lily-white enclave of yuppie boredom, full of overpriced, pretentious, restaurants, haughty little boutiques and awful high rise dorms thanks to NYU...the worst was the turning of the Palladium, a venerable NY institution, into a dorm...NY is so over it isn't funny. It has become as homogenized and dull as any Mid-western City...nightlife is the worst, the streets are filthy again, the subway service sucks...I could go on. I moved to NJ Shore, and I couldn't be happier. Sure, the commute's longer, but I relish going home to trees, flowers, seagulls, lapping waves, sailboats, lawns, and space that I would be paying at least 4X as much for in Manhattan. I will NEVER go back to living in a shoebox again, so I guess I will never be in Manhattan again. The sacrifice in quality of life is not worth it. Bloomberg and Giuliani have destroyed the middle class of NYC. It is no longer an affordable City. Don't tell me how great all the entertainment is...at what price? Outlandish prices for so-so fare...sorry, doesn't cut it. When prices were reasonable, going out in this town rocked...the nightclubs were awesome, the bars amazing...none of that exists now. I don't miss it. I work in town, that's enough. Glad to see the City in rear view mirror any time.”]

Housing Sales Softened in Massachusetts

Although US housing sales were strong nationally, Massachusetts reported that sales were down 10.4% on a year-over-year basis.

[“While low mortgage rates and an improving jobs picture boosted US housing sales to an unexpected record in April, sales softened for Massachusetts single-family homes, according to reports released yesterday. Local real estate agents blamed the weather.

The number of single-family homes sold was 3,658, down 10.4 percent from April 2004. It marked the first year-to-year double-digit percentage decline since April 2003, the Massachusetts Association of Realtors reported.”]

Housing Sales Remain Strong in Most of the Country.

“May 25 (Bloomberg) -- U.S. new home sales unexpectedly increased in April to a record pace, a sign historically low mortgage rates and job gains keep powering housing. Prices rose, reflecting an increase in purchases of more expensive homes.

Sales rose 0.2 percent to a 1.316 million annual rate during the month, after a 1.313 million in March that was less than initially reported, the Commerce Department said today in Washington. Economists forecast a 1.325 million sales rate in April, according to the median estimate in a Bloomberg News survey.”

But It’s Got Granite Countertops

After reading this article, I can’t help but imagine a scenario in the not to distant future when a realtor tries to justify paying a $100,000 premium for a condo in Tinton Falls because the kitchen has granite countertops.

[“During the last couple years, we've finally been creating some new jobs - still barely enough to keep up with the rising population. Disturbingly though, a very high percentage of the new jobs are related to real estate - around 50% in the most bubbly areas.

Lots of jobs for construction workers, real estate agents, loan specialists, escrow agents, and title insurers. To that add service jobs at Wal-Mart and Home Depot, landscapers, interior decorators, remodelers, and most importantly - granite countertop installers.”]

It Sounds Like the Fed is Getting More Serious About the Bubble

Last week, Greenspan commented how the housing market is getting “frothy” and today, the president of the Atlanta Federal Reserve Bank, Jack Guynn, warned that

["There are some local markets, especially in coastal Florida, where I've heard stories for more than a year about behavior that's got to be characterized as nothing other than speculation,"

"It makes me very uncomfortable," he added, "Some buyers, some builders, some lenders are going to get burned, could very likely get burned, in some of those local markets."]

Tuesday, May 24, 2005

Even Drudge is Linking To Housing Bubble Stories

House Sales Climbed 4.5% to a Record 7.18 Million Units

House sales climbed 4.5% to a record 7.18 million units (annualized) and the price of a median single family home jumped by 15% per cent over the year according to data released today.

[“The fact that so many people are opting for adjustable rate mortgages when 30-year rates are still so low is a very worrying sign,” said Ian Morris, US economist at HSBC. “As rates move higher this will squeeze a lot of people as their adjustable rate mortgages are reset.”]

Some Appraisers are to the Current Housing Bubble what some Analysts Were to the Dot Com Bubble

Home appraisers and stock analysts have very similar job descriptions and valuation methodologies. Like an analyst looking at companies in the same industry to try and determine what a stock price should be, appraisers look at similar houses in the same neighborhood to try to determine what the appropriate value is of a particular property.

Similar to analysts in the late 90s, appraisers now apparently feel pressured to come up with valuations that will facilitate a transaction, rather than provide an objective look.

"Unfortunately, America has been to a school of hard knocks since Congress took action in the S&L crisis. Faulty appraisals are still dictated by interested parties, the schoolyard bullies of real estate," said Hummel. "It's common knowledge that if an appraiser doesn't play the game and 'come in' at whatever value is needed to close the deal, the bullies will take his lunch money. And he had better not tattle."

And They Called it Shiller's Bubble

I bet that there are more economists that believe we are in the midst of a housing bubble than there are economists that believe otherwise. Once again, Robert Shiller gets his name in the paper talking about a housing bubble.

["Prices are likely to fall in places where they have been booming the most, and where people are having trouble affording the houses," said Yale University economist Robert Shiller, who has published a second edition of his book, Irrational Exuberance, which covers the housing market boom.

California and Florida lead that list, along with cities such as New York, Boston, Las Vegas and Phoenix.

"I think this is actually the biggest [real estate] bubble in U.S. history and possibly even world history," he said in a telephone interview yesterday.]

NY Times Bi-Monthly Upper Middle Class Angst Article.

In one of my posts yesterday, I complained about service at restaurants at the Jersey Shore. Coincidentally, The NY Times had a lengthy article today about some of the problems that people encounter when they move from the City to the suburbs. Towards the end of this article, this paragraph describes the Jersey restaurant “scene” or lack thereof.

[But one thing many transplants never adjust to is the food. Barbecues aside, "the food in New Jersey is some of the worst food I've ever eaten in my life," Mr. Aloe said, citing the generic quality of many restaurants. "How can you explain a 40-minute wait to eat at Chili's?"

Beth Little of Summit, N.J., said a good selection of restaurants is "the one thing we always say we miss."]

The rest of the article is pretty good, too - lots of wealthy people complaining about how rough life is in the suburbs.

Monday, May 23, 2005

Real Estate to Stay Unaffordable for Everyone

[NEW YORK (CNN/Money) - Bill Gross, manager of the world's biggest bond fund, sees long-term bond yields staying at or near their current low levels for at least several years.

In a commentary published on his Web site Wednesday, Gross, manager of the PIMCO bond fund, said that current global economic forces should keep yields in check.

"If we had to forecast (and we do), we believe a range of 3 to 4½ percent for 10-year nominal Treasuries will prevail during most of our secular timeframe," said Gross. That time frame is three to five years.]

Attention Jersey Shore Restaurant Owners

Although you may own and operate a very fine restaurant down here at the shore, and the food you serve might be the best in the greater metropolitan area, chances are you still have no business charging Manhattan prices. The reason why you shouldn’t be charging Manhattan prices is because no matter how good the meal, or how nice the atmosphere is in your restaurant, the service still sucks. In the city, the wait staff in the average to superb restaurants is almost always professional and experienced. Most of the time when I eat in the city, you can tell that the job of being a waiter or waitress is the person’s profession, and so that person acts competent and is attentive. However, when I eat in a restaurant at the shore the wait staff is almost always a high school or college kid who does not want to be there. Since your service sucks Mr. Restaurant owner, and I know good help is probably hard to fine, consider lowering the price of your meals if you want me to come back on a regular basis.

The South Jersey Shore is for Philadelphians.

Unlike in Monmouth County and maybe Northern Ocean County, the part of the Jersey Shore mentioned in this article is mostly devoid of commuters that head to New York City each day.

[When it comes to having a place down the shore, a beachfront location is becoming optional for those in search of bargains on the mainland.

What’s a 5-mile hike to the beach if it saves you a few hundred thousand bucks on the price of a vacation home?

A vacation-home buying spree has made the South Jersey shore one of the hottest real estate markets in the country. Homes in the Brigantine, Ocean City, Sea Isle City, Ventnor and Beach Haven ZIP codes had the highest median price increases over the past five years in the entire Northeast, according to CSW Fiserv, a Cambridge, Mass.-based research firm that tracks real estate sales data.]

Today Was Another Bad Day For Bond and Housing Bears

Treasury bonds rallied again today to bring the yield on the 10 year note solidly below 4.1%. According to some, the rally in bonds is due to the realization – a week later – that no large hedge fund was about to blow up, despite the earlier rumors that something bad was about to happen. Nevertheless, housing share prices also moved higher, including Hovnanian, which was up a pretty healthy 3.8% at around 2:00 PM Eastern.

As someone waiting for a fall in housing prices, I think a sharp rise in interest is needed to prick the real estate bubble and it is frustrating to watch yields on the 10 year fall day after day.

Appraisal Fraud is Getting Attention

Apparently a number of appraisers are feeling pressured to inflate how much a home or condo might be worth.

[SALEM, Ore. (CNN/Money) – Anyone who's ever bought or refinanced a home knows the sense of relief when the appraisal comes in with high marks. The appraisal tells bankers, brokers and, ultimately, investors whether a house is a sound investment.

But on Tuesday, the Appraisal Institute will tell Congress that its members are under increasing pressure from lenders, mortgage bankers and real estate agents to "hit their number" when appraising property.

Rather than come up with an independent estimate of a home's value, appraisers -- who are typically independent contractors -- say they are being told to base their estimate on a predetermined value.]


[A puffed up appraisal can have serious consequences for a homeowner down the road.

"There are a lot of people who have refinanced for more than their homes are actually worth and they're effectively already upside down even without a real estate bubble bursting," said Callahan. Down the road if they have to sell or decide to refinance, a more accurate appraisal might show that they owe more than the house is worth.]

Trains Will Probably Not Make Your Miserable Commute Less So.

I sort of like the idea of bringing trains back to western Monmouth County. However, I doubt that traffic congestion would subside substantially along route 9, and no one should delude themselves into thinking NJ Transit is more than 75% competent at anything at anyone time. In other words, if any business or government agency can turn a good idea into a bad one, it is NJ Transit. Just look at the monstrosity and waste of money that is known as the Secaucus Transfer and you’ll see what I mean.

From a housing point of view, I wonder if the possibility of a rail line though western Monmouth County will raise property values there. Ideally, the best places to live in western Monmouth would be a 5 to 10 minute walk from the nearest train station. Not too close to the tracks and not too far.

[LAKEWOOD — Brick resident Eric Schnittman would like a shorter, and easier, commute to his Manhattan job. Retired Berkeley residents Leonard and Mary Gehlhaus wish there was an easier way to get to theaters in the city. Jan Larson of Dover Township hopes a new rail line could improve the environment by cutting the number of cars on local roads.

Schnittman, the Gehlhauses and Larson were all at a rally Sunday afternoon in Lakewood in support of the Monmouth-Ocean-Middlesex rail line, or MOM.]

Sunday, May 22, 2005

High Shore Real Estate Prices Force Residents to Move.

Connecticut is an apparently cheaper place to raise a family than the Pine Barrens. Who would have thought?

This article is lame by most journalistic standards, however, since it was in the Asbury Park Press, that was to be expected. Despite the infantile prose, it is about the Jersey Shore real estate market and is therefore worth a read.

[The Morgan family is leaving the Shore region for western Connecticut, because they cannot afford to stay.

"We would much rather remain in Waretown," said Jim Morgan, 35. "My wife and I love it here. We love the community, we love our church, our families live in the area. We're not poor. I have a good job. We have food on the table. We just cannot afford a house or apartment in Ocean or Monmouth county. We feel like we're being pushed out."

The Morgans are not alone. Statistics show that tens of thousands of people who work in the Shore region cannot afford to live there.]

Thursday, May 19, 2005

Henry Blodget of Internet Bubble Fame is Back

There are aome other very good articles at this link.

“Prices are in the stratosphere. Everyone’s making money—on paper. Sellers are asking for the moon. Buyers are ponying up and then flipping for more. Investment clubs are proliferating. Amateurs are quitting their day jobs. Professionals are dreaming up new financial instruments to increase their leverage. A somber chorus of experts is issuing warnings about risks, bubbles, and insanity, but the market is ignoring them. For no apparent reason, prices have risen some 30 percent since the beginning of the year.

If you think you’ve seen this movie before, then you think you know how it ends: with catastrophic drops in prices; assets that are suddenly, irrevocably illiquid; and a long, painful morning after. At least, that’s what happened when the tech bubble burst.”

Beach replenishment projects are a colossal waste of money.

Beach replenishment projects are a colossal waste of money. First off, no matter how much sand is pumped onto a beach, it is only going to be there temporarily. If you do not want to see private and public property destroyed every 10, 15, or 20 years, then don’t build on the beach. Second, beach replenishment is a subsidy for the wealthy. The government should not be in this business of making sure that storms do not destroy property. That is the job of insurance companies. Most, if not all, insurance companies will not insure beach front houses, which means that they have determined that underwriting these properties would be too risky for them, which it is.

“Five million dollars was earmarked in the 2006 federal budget Wednesday for beach replenishment funding on Long Beach Island, clearing a key hurdle for the U.S. Army Corps of Engineers to begin shoring up 17 miles of oceanfront.”

Another Great Pimco Article

As I said a few days ago, when the collapse finally comes, a lot of people are going to be pointing fingers and credit default swaps (CDS). This article from Pimco gives a provides a good synopsis of the perils facing the economy as well as why the CDS market will add to volatility.

“Today, however, the stimulus from tax cuts is fading, consumer debt is at record levels, personal saving rates are stretched, and the size of the U.S. budget deficit makes future tax cuts unlikely. Housing valuations appear stretched, virtually ensuring low single-digit returns on consumers’ balance sheets. Consumers’ income is limited by real wage growth that is barely positive due to rising inflation. In addition, the Fed is normalizing short rates, which will negatively impact mortgage refinancing.”

Wednesday, May 18, 2005

King Of Queens Flips Property

If anyone watched the King of Queens tonight on CBS, you would have noticed it was about flipping properties. Maybe this is the sign that the end of the bubble is finally here.

Interest Only Loans in NJ Approach 20%

According to this article and chart the percentage of new single-family home mortgages in New Jersey that were interest-only in 2004 was 19.8%. Although not as bad as a lot of other states, as the article implies, the high use of interest only loans may indicate that the home buyer may not be able to afford the house they are buying with a conventional mortgage.

New Development Project in the Works for Red Bank.

“The plan by MW Red Bank LLC — a partnership between Metrovation/Terranomics Development and Woodmont Properties — would encourage more pedestrian traffic because of its proximity to the train station and a 238-space parking garage underneath the building, they said.”

Moving to the ‘burbs to live in an apartment to commute to Manhattan seems counter intuitive to me. Why not just live in NYC, or if that is too expensive, Hoboken, Brooklyn or Queens.

More Flight to Quality

The yield on the 10-year note fell again today after a relatively benign inflation report. That should be good for mortgage rates, which are priced off of the 10-year treasury. The 10-year yield has been falling for about a month now and many have said it is because hedge funds are unwinding loosing positions in GM derivatives and buying safer treasuries. If this “flight to quality” is what is holding up prices on the 10-year note, then it should only be unique to that bond (or maybe other treasuries). Consequently, spreads on other bonds should eventually widen to the treasury, including mortgages.

When Pimco's Bill Gross Speaks, Listen

Pimco’s Bill Gross, who runs the largest bond fund in the US, came out with his latest essay on the state and direction of the national economy. As usual, he is predicting doom and gloom and blames Greenspan for getting the economy into the predicament it is in.

About the housing market specifically, Bill Gross says, “That doesn’t mean that the housing “bubble” can’t keep going because it likely will if the Fed “Pumps” real yields closer to 0%. But there are limits, and we are heading down the home stretch of this U.S. race towards prosperity based on asset price appreciation.”

Tuesday, May 17, 2005

Abnormal Gains Eventually Disappear

When there are outsized or abnormal gains to be made in any investment, sufficient liquidity will flow to that investment, eventually driving the price higher so that those outsized yields return to normal yields. If the real estate investor in this article thinks that even 5% to 10% gains are conservative, when still leveraged 5 to 10 times, then he is deluding himself, like so many others.

[“So there certainly is some risk," says LeReah. "There are certainly some pockets where they may be more vulnerable to a price bubble bursting than other areas of the country because of the speculative element."

Darryl Wortham says he's not speculating.

"I’m not looking to get a 50 percent return out in Vegas." He says. "I'm looking at 5 percent, 10 percent."]

Non-Real Estate Post About Buying Wine in NJ

New Jersey Legislators Line Their Pockets with Liquor Money

New Jersey is the only state in the Union that bans the intrastate shipment of wine. This means that NJ also has the right to ban interstate (ie California to New Jersey) shipments of wine and still comply with the new United States Supreme Court Ruling. Consequently, NJ is now the only state that does not allow its citizens to buy wine over the Internet. I’m guessing that alcohol distributors in the state bought the legislation that protects their monopoly.

Northeast Housing Starts Were Down 17.8%

Housing starts were up an impressive 11% nationwide in April, however, they declined 17.8% in the Northeast. I wonder if that means that homebuilders in the Northeast have completely run out of room. Or maybe the drop in the Northeast means that homebuilders are anticipating fading demand.

“WASHINGTON (Reuters) - U.S. housing starts surged 11.0 percent in April, topping expectations, as ground-breaking on both single-family and multifamily homes recovered after a plunge in March, a Commerce Department report showed on Tuesday.

April housing starts picked up to a 2.038 million unit rate from a downwardly revised 1.836 million unit pace in March as the housing market, buoyed by still-low lending rates, showed few signs of flagging despite a string of interest-rate increases from the Federal Reserve begun last June.”


“In the U.S. South, groundbreaking soared 25 percent, marking the biggest advance for that region since a 29.5 percent increase in July 1995. Starts rose 6.2 percent in the Midwest and 2.5 percent in the West but fell 17.8 percent in the Northeast, the Commerce Department said.”

SeaSteak is Too Expensive

There are a bunch of people that are angry with SeaStreak, which is the company that runs the ferry service to New York out of the Highlands. SeaStreak keeps raising prices and many people have decided to take the train instead.

The company that owns SeaStreak, Sea Containers carries over $1.3 billion of debt, which means that the company has absolutely no room to accommodate a bunch of angry commuters by reducing prices.

“It’s (a) good to buy and (a) better time to sell,”

The last line in this article is a classic. [“It’s (a) good to buy and (a) better time to sell,”] How can it be both? If you sell now you are getting the highest price possible but if you buy now it will be cheaper than buying later?

Monday, May 16, 2005

Let's All Blame Greenspan

A lot of believers in the credit bubble theory of exploding house prices lay the blame for current conditions squarely at Greenspan’s feet. While I agree that that Greenspan’s easy money policy of the past 5 years has been the fuel for ever higher asset prices, I’m not ready to accuse him of incompetence and mismanagement the way others currently are. What Greenspan’s most severe critics seemingly tend to forget was how shocked and precarious the economy felt after, 1.) the dot-bomb collapse 2.) September 11th and 3.) the collapse of Enron and Worldcom. At the time, I don’t think that the US economy could have survived a tightening. Granted, in retrospect, some tightening might have been the right course of action, but that is Monday morning quarterbacking on my part and other Fed critics.

“Now, there are several interesting development in the housing markets. In Britain home prices are no longer rising and turnover is down. In Australia, in many markets home prices are already down and in the US, on record home sales in March, stocks of homebuilders failed to make a new high.

Usually if a new high in a physical market is not confirmed by the stocks in the respective sector - that is if there is a divergence in the performance between physical and financial market we call it a non-confirmation.”

Star Ledger Real Estate Price Change Sheet

New York City is Pretty Expensive

Imagine paying $1.2 million for a two bedroom apartment in Manhattan. Is that not insane? I wonder if the thought of paying $1.2 million for an apartment is pushing New Yorkers into the ‘burbs a lot sooner than they originally planned. If that is the case, and I believe it is in some cases, then maybe we should be looking at NYC condo prices as an indication where prices in Monmouth County might be going.

“It doesn't matter whether it's near the Empire State Building or Eastchester Bay in the Bronx. Wherever they build it, people will come.

The city's residential market has been going strong for so long - since a brief chill right after 9/11 - that buyers worry the bubble is about to burst, and their investments will lose value.

It hit record levels yet again in the first quarter of the year, with the average Manhattan apartment sale rising to $1.2 million, according to appraisal firm Miller Samuel.”

Sunday, May 15, 2005

Article From Money

Boomtown USA

Something strange happens to a place when real estate makes everybody rich. And no place seems stranger these days than San Diego, where property values have soared higher than in any major metropolitan area. Is this where your town is headed too?

NJ Legislators Are Cowards

Other obvious headlines...

Man Walks on Moon

President Kennedy Assasinated

The mayor of Scotch Plains is looking for property tax relief and does not expect to get it.

[Saturday, May 07, 2005
Star-Ledger Staff

In a surprising scene that seemed to crystallize the frustration of local officials over long-delayed promises of tax relief, the mayor of Scotch Plains confronted state legislators yesterday and called them "self-promoting cowards."

The verbal attack by Martin Marks, a Republican mayor for six years, won applause from a crowd of nearly 200 mayors, council members and local officials gathered at the National Guard Armory in Lawrence for a summit on property tax reform sponsored by the New Jersey League of Municipalities.]
I always thought that Fort Monmouth would make a nice university campus. It has lots of dorm type housing, classrooms, labs, athletic fields etc. According to this article, others have different plans for the Fort. Eventually, if Fort Monmouth is closed, I'm sure that whatever political group is in charge of developing it will make the wrong decision.

Star-Ledger Staff

"In the communities around Fort Monmouth, the venerable Army base marked Friday for closure by the Defense Department, local officials speak of the facility's likely demise in terms of disaster. They envision jobs lost, businesses shuttered, an economy in tatters.

Tim Delorm envisions something else entirely: an opportunity."

The Most Expensive Shore House

This house in Spring Lake, NJ is the most expensive house in Monmouth County that I can find on the Internet. It is listed on the MLS for $8,999,000. Posted by Hello

Homebuyers Go to Extremes in Hot Markets

Friday, May 13, 2005

Fox News

LOS ANGELES — Potential homebuyers are going to extremes when making offers in superheated real estate markets across the country.

In states like California and Florida, low interest rates and high demand have kept prices soaring for the past few years. Some real estate agents are suggesting potential buyers make their offer stand out with personal touches. More...

Fed Governor of SF Mentions House Prices

Janet Yellen, Fed. Gov. in San Francisco gave an intereview and mentions housing as well as other factors driving the economy.

"I wouldn't rule out the possibility that there's a bubble and we could have house price declines ahead. If you look at the past history of housing prices, it's rare to see very rapid declines in house prices. They might decline a couple of percent a year but not like the Nasdaq that, in a year or so, was down 40 percent."

Saturday, May 14, 2005

Economist Likens Housing Bubble to Dot Bomb

Like most economists, Joe Keating used to downplay the likelihood of a housing bubble.

That was before sharply escalating home prices in markets including Florida started adding up.

"In selected markets, housing prices have risen 40 to 50 percent . . . some isolated cases for waterfront properties are up 100 percent in a 3-year time-frame," Keating said during a visit to Tampa last week. "Personally, I do believe there is a chance of a bubble. I'm a better seller than buyer in real estate for the moment for speculative purposes."

Keating, executive vice president and chief investment officer for AmSouth Bancorp., zeroed in on those buying condominiums and single-family homes intent on flipping them for a fast profit. They're entering eerily familiar, and dangerous, territory. More...

Friday, May 13, 2005

Forclosures up 2 in Week

Monmouth Foreclosures, week ended May 13, 2005 Posted by Hello

The number of forclosures this week in Monmouth County was up 2 to 30 in the past week according to the Sheriff's office.

Australian Canary in the Coal Mine

["The Australian residential real estate market could be the canary in the coal mine – that is, a harbinger of bad things to come for a lot of us,"]


[According to Grantham, the Aussie canary is already swooning a bit. "Sydney prices are well off their highs," he observes, "although as yet far from a real bust." But the "real bust" is certain to arrive, he warns, because ALL bubbles do "indeed move all the way back to (or below) the trend that existed prior to those bubbles forming."]

Be Careful What you Wish For

“In Washington these days, complaining about China has become standard operating procedure. The Bush administration regularly calls on China to allow its currency to rise and Congress talks of taking steps to punish China for not doing so.

Be careful what you wish for.

As speeches of low-level Chinese bureaucrats are read with care for hints as to just when Beijing will allow its currency to rise, perhaps it would be better for Americans to ponder the impact that China's current policies are having.”

To put it very simply, when the Chinese finally decide to let their currency float free, they will then stop buying US Treasury bonds at current rates, and all interest rates in the US will rise.

The 10 Year Gained in a Flight to Quality.

The Wall Street Journal (Subscription only)

NEW YORK -- Building on solid gains garnered throughout the week, Treasuries shot higher Friday morning as concerns about hedge-fund problems continued to feed flight-to-quality flows into government securities.

Yield on the 10-year note broke below 4.13% for the first time since Feb. 16, when Federal Reserve Chairman Alan Greenspan made his now infamous "conundrum" comment about the persistence of low long rates. Yields move inversely to prices.

The buying also forced bearish investors to cover their positions by buying government securities since falling yields wreak havoc on their short positions, which only benefit when rates rise….”

It is quite a conundrum that mortgage rates, which are priced off the 10 year, have remained relatively low because fear is forcing people to buy 10 year treasury bonds. It really doesn’t make sense. If there is a flight to quality going on, then there should be a flight out of riskier assets, like mortgage loans.

Gallup Poll Shows What Consumers are Thinking.

What does the average consumer think about the idea of a housing bubble? Could the housing bubble burst and have economic fallout similar to that of the dot-com bubble? Is this something today's home buyers should be worried about as they consider their purchases? The latest Experian/Gallup Personal Credit Index survey provides some key insights.

Not surprisingly, 7 in 10 consumers expect housing prices in their areas to increase over the next year. Significantly, one in three of those who expect rising prices think they will go up by 10% or more during the next 12 months. In fact, nearly 1 in 10 expect housing price increases in the 20%+ range in their areas.”

This is a very good look at what consumers think about the housing bubble and broader economy. Given the general bearishness sentiment, it is hard to believe that house prices can go much higher.

Fort Monmouth Might Close

[“WASHINGTON - The Pentagon wants to close Fort Monmouth and restructure several other New Jersey bases as part of a massive reorganization of the nation’s military installations.

The recommendations still must be reviewed -- and could be changed -- by an independent commission before they go to the president. But today’s announcement is bad news for the Army research base and its more than 5,200 workers.

Some other bases would lose jobs, including Naval Air Engineering Station Lakehurst (186 positions) and Naval Weapons Station Earle (61), Others would gain, including Fort Dix (353 jobs), McGuire Air Force Base (535), Picatinny Arsenal (693) and 177th Fighter Wing of the Air National Guard in Atlantic City (269).”]


Fort Monmouth, right in the heart of Monmouth County, is on the new potential base closings list. At one time, I would guess that the threat of the closing of the Fort would have been a much bigger deal, since so many people from the area were employed there. Over the past 20 years though, the Fort has become less important as a local employer, although, according to this article, quite a number of jobs would be affected.

[“Fort Monmouth officials estimate that its closure would affect some 22,000 jobs once businesses that provide goods and services to the base are counted.

Fort Monmouth’s payroll, including benefits, is about $478 million, but base officials estimate its economic impact on the community at around $3.24 billion.”]

The $3.24 billion “economic impact” (whatever that means) amount seems exaggerated to me. Given a population in Monmouth County of about 630 thousand, that is about $5,142 per man, women and child. I doubt many people would notice in a year if Fort Monmouth were to close tomorrow.

Thursday, May 12, 2005

Monmouth/Ocean Prices Gain 20.3% in First Quarter.

The median house price in Monmouth/Ocean County was $358.5 million in the first quarter of 2005, which was a 20.3% increase over the same period last year. Link...

I Guess this is a Good Thing

No one likes to sit in traffic on the Parkway on a hot Friday afternoon.

“WOODBRIDGE — In an attempt to relieve bumper-to-bumper summer Shore traffic and rush-hour congestion, acting Gov. Codey announced on Wednesday a $135 million plan to widen a 17-mile stretch of the Garden State Parkway in Ocean County...”

Professor Says no Bubble in NJ

[“No, there's no real-estate bubble in New Jersey, and no, housing prices won't fall off the table.

Just don't expect gigantic appreciation in the years to come.

That was the message of Joseph Seneca, professor of economics at Rutgers University and chairman of the New Jersey Council of Economic Advisers.”]

The professor gives some good reasons why he does not think the bubble is going to pop in NJ. However, I don’t think he appreciates how much the cheap credit is responsible for the current housing boom, and therefore doesn’t understand what will happen to house prices when the “punch bowl” of cheap interest rates is taken away.

The overall economy, ignoring interest rates, doesn’t seem much different from the economy of the late 90s, and real estate price growth was more subdued back then. The key driver currently, given approximately the same GDP growth and unemployment rate now as is 1998, is interest rates that are 300 basis points lower.

Not Enough Land in Sea Bright

One of the arguments about why Shore housing, or coastal housing in general, will remain strong is that there is not enough land to meet all of the demand. This, of course, should make perfect sense. However, if the lack of available land and high demand is what is driving real estate prices higher, then how come Las Vegas property values are going through the roof? If there is one thing that there is plenty of in Nevada, it is land. I don’t think a lack of land is what is driving the real estate market in Vegas, but rather speculation. If speculation is driving property values in Vegas higher, then it might be doing the same at the Shore too.

[With 900 homes sold in three months, Mountain's Edge has overtaken Summerlin as the top-selling master-planned community in Las Vegas, Ritter said.

"The market response has been excellent," he said Wednesday on his way to New York, where he'll talk to bankers about financing Focus' other developments. "We built a drought-tolerant community and the public's response has been fantastic."

Focus also purchased 485 acres from the BLM in the northwest valley for $113.5 million in 2003, 1,940 acres in Henderson for $557 million last year and 1,710 acres near Kyle Canyon for $510 million in February.]

Wednesday, May 11, 2005

Wall Street Money and the Shore

Maybe I’m wrong, but I have always thought that Wall Street money provides the liquidity for the Jersey Shore real estate market. When things are going good on the Street, you definitely see a lot of new construction in the area, especially along Ocean Avenue from Sea Bright all of the way to Spring Lake. It might be too early to notice, but I can’t help but think that many on Wall Street are not having the best year so far and that the second half of 2004 wasn’t so great either. For one, stock market volatility has been weak, which suggests not a lot of equity trades are getting done. Additionally, IPO and new bond issue markets have also been weak, which means a lot of investment bankers are probably sitting around doing nothing. Finally hedge fund performance has been particularly bad in recent months.

[“Hedge funds declined 1.75 percent in April, the worst monthly performance since September 2002, according to Hennessee Group LLC, a New York-based consulting firm that tracks industry returns…”]

Aside from all of the other reasons why I think Jersey shore real estate is over-valued, and because Wall Street is not having a banner year, and since I think a lot of Shore real estate depends on the fortunes of real estate, I would be surprised if house prices do not level out in the near term.

Credit Default Swap (CDS)

When the bubble finally bursts, the media will inevitably lay the blame on some sort of catch-all culprit for bringing about the demise of so many hedge funds and banks. I expect much of the blame will be placed on “derivatives” but in particular, credit default swaps, or CDS. A CDS is simply a derivative security that protects bondholders from much of the risk that a bond they own will default. Ideally these are hedging instruments and are bought in conjunction with a bond. There are rumors though that these hedging securities are not being used correctly and that a hedge fund blow-up is imminent.

In either case, when the 7:00 news starts talking about Credit Default Swaps, you can always say you read it here first.

Larry Kudlow Always Seems Bullish

He seems to be one of the few prognosticators that have consistently argued that the Fed should keep the cheap money flowing. According to Larry…

[In the last economic cycle the Fed ignored falling inflation and instead aimed its guns at the Internet bubble. We soon were reminded that any time you deflate the money supply, the overall economy slumps badly. Stocks delivered their worst performance in over 40 years. As for signs of inflation today, the price of metals and overall spot commodities are dropping, gold is going nowhere, and long-term bond yields are at 45-year lows. These tried-and-true inflation indicators are saying: “No inflation.”]

Tuesday, May 10, 2005

Moving to the Beach

If you have recently moved to the Shore, or are thinking about it, and the reason you did so is because of the beach, then you might become frustrated this summer trying to actually get on the beach. New Jersey beaches are some of the most inaccessible places on the planet, protected by rock face walls, and hostile shore residents.

Many people who live directly on the beach, or even in some cases, across the road from the beach, seem to think that the area of sand directly in front of their house is their own private property. This is generally not true. People with beach houses usually only own the area in front of their house up until the mean high water mark. After the high water mark, the sand belongs to the state.

New Jersey needs to establish what exactly is state property and what is private property As far as I can tell, for the most part, all of NJ’s beaches is basically public property. Also, the sea wall, from what I understand in public property. (This would imply to me that the “no trespassing” signs on the stairs of the sea wall are to be ignored.)

Here is a good site about NJ beach access...

I Can’t Wait Till 2022.

'The real crash in housing -- and the final burst of the greatest bubble in history -- will come in the downturn we project for 2010 to 2022 when we see a deflationary downturn.'

Talk on the Street of a Hedge Fund Blowing Up

There were rumors on the Street today that a hedge fund or two were about to start liquidating large positions because of some kind of trouble they got themselves into,

“1610 GMT [Dow Jones] Speculation surrounding the difficulties of one or more hedge funds stems from the much-publicised short equity, long credit capital structure arbitrage trade on General Motors (GM), say traders.”

Monday, May 09, 2005

Maybe the UK House Bubble is a Leading Indicator

The housing market in the UK and other parts of Europe has supposedly been even hotter than here in the US. There has been a lot of talk in recent weeks about weaker prices in the UK and it will be interesting to see if prices come in over there. I would imagine that if prices do decline over there, it will signal that house prices here might be ready to decline.

House prices are fluctuating around a softening trend, according to new figures from the Office of the Deputy Prime Minister (ODPM).
Figures out today show that in March house prices rose 2.1 per cent, seeing property values stand 12.6 per cent higher than in the same month last year.

However, this rise should not be taken as a return to the housing boom of the last few years, economists have warned.

"The rise back up in annual house price inflation to 12.6 per cent in March from 10.5 per cent in February reported by the ODPM should not be taken as a renewed sign of strength in house prices…”

A million dollars doesn’t get you much house at the Shore

A million dollars doesn’t get you much house at the Shore, or a lot of other places in the US either.

“Time was (and not so long ago), that seven figures could buy you something really special. A penthouse with amazing views. A stunning Hamptons home. A really, really great place in California. On the beach.

But the days of million-dollar mansions are, in nearly every corner of the U.S., sadly, over. Welcome to an era of million-dollar bungalows, garden apartments and two-bedroom condos (in need of renovation).”

Sunday, May 08, 2005

The Sinkhole Theory of Economics

"Here's a new economic theory to ponder: Economic bubbles can occur in two directions. One you can see, the other you can't. But the impact of both can be devastating.

We're all familiar with the classic bubble. It works something like a pyramid scheme. The first ones to invest in a new technology or a new idea get rich. That attracts others to invest, but they never reap the same kinds of rewards. They get caught, in effect, propping up a pyramid that becomes nothing but a shell for bad investments." More...

Jersey Shore Mentioned in Philly Paper

"Atlantic City-Cape May's average price was $299,800, and the affordable price was $191,600, making the average price 56 percent higher than the average income in that area can support.

For Monmouth-Ocean Counties, the average price was $316,500, the affordable price was $222,200, and the difference was 42 percent.

The North Jersey Shore has traditionally been more expensive than South Jersey's. Veteran real estate agents in the south tell me they have been seeing more well-heeled New Yorkers in their market, looking for bargains.

Of course, none of them would acknowledge, on or off the record, that their houses are overpriced. After all, if there are plenty of people willing to pay those prices, how can they be considered out of line?

Much of what is going on at the Shore is second- or vacation-home buying, which means people with large amounts of disposable income are coming from elsewhere to buy property.

So if you look at sale prices in Stone Harbor, for example, you'll find that there is little on the market for under $1 million.

Houses in Stone Harbor and Avalon have long been the most expensive of Jersey Shore houses, but five years ago it was possible to find a house for one-third that price.

A few weeks back, I received an e-mail from the Wyndham Financial Group in Connecticut ranking 250 resort communities in housing affordability. Avalon was No. 25, Cape May 41, North Beach Haven 44, Sea Isle City 49, and Surf City 50."

Things are Slowing Down in San Diego

"San Diego County's housing market, on fire a year ago, has cooled dramatically, according to figures from Sandicor Inc., the local real estate industry's multiple listing service.

In March, the average days on the market – the time a property spends from its listing date to when it enters escrow – was 54 days for resale single-family homes, compared to 31 last August and 40 in March 2004.

For resale condominiums, the slowdown has been even more dramatic, year-over-year, going from 21 days in March 2004 to 45 this past March with fastest time being 15 days last June."

About the Foreclosure Graph

The foreclosure graph below shows the number of forclosure sales in Monmouth County.

According to the Sheriff's Website ["Homes, businesses, and properties in foreclosure are subject to auction pursuant to court order. Sheriff's sales are held as an open auction every Monday at 2:00 p.m. in the Hall of Records, 1 East Main Street, (Freeholder's Meeting Room 2nd Floor) Freehold, NJ.

The online listings are provided as a public service and are intended only to be a general summary of the latest information. All sales are subject to statutory adjournments, and are sold subject to unpaid taxes, assessments, water rents, and such statement of facts as an accurate survey of the premises might disclose. Inspection of the property is not permitted. All sales may be subject to a first mortgage, and also municipal, state or federal liens, if any. It is advised that a complete title search be conducted prior to the purchase of any property, as the purchaser must assume all liabilities.

After 5 P.M. on Friday's the current Monday Sheriff's Sales are posted on the website."]

Saturday, May 07, 2005

Weekly Foreclosures in Monmouth County, as listed by the Monmouth County Sheriff. Posted by Hello

Forclosure Lists are Free

The forclosure list for Monmouth County is free. There is probably not much need to pay for forclosure information from one of those data aggregators that you always see advertised.

Monmouth County Posted by Hello

You Can Always Move to Mexico...

...if you can't afford to buy a house in the states. At least that is what people in California are doing according to this article.

"Look at us...this is unbelievable, I mean you can't get this in San Diego," said Tim Arron who is a San Diegan who buys property in Baja. "This particular property for the price you couldn't get this so close to beach and San Diego. If you did, it would be in the way millions."

In fact, if this three bedroom, three bath, ocean-front condo with spectacular views were in La Jolla it would sell for no less than $6 million.

But in Rosarito, it's yours for $450,000.

Friday, May 06, 2005

Unaffordability Matrix

The graph above is hypothetical example of the negative change in the value of a house given an increase in interest rates. In this example I have calculated how much the price of a home has to drop, given a rise in interest rates, so that the monthly payment remains constant.

Beginning with a mortgage of $500,000, and an interest rate of 6%, the monthly payment on the mortgage (excluding taxes) would be $2998.00. If interest rates were to move from 6% to 7.2%, then the mortgage could only be $441,633 in order to maintain the same monthly payment of $2998.00.

On a $500,000 mortgage and a starting with a 6% interest rate, and all else being equal, for every 15 basis point increase in mortgage rates, the total borrowed amount would have to decline roughly 1.6% so that the monthly payment stayed constant.

For the record, Treasuries fell hard today after a much stronger than expected jobs report hit the wire.

Constant Payment Posted by Hello

Thursday, May 05, 2005

Everywhere is the Best Place to Live

Including some lost corner of Maryland according to this article.

“First District Councilman Sam Moxley, who grew up in southwest Baltimore County and bought his current house in Catonsville nine years ago, said he believes the market is stable.
"I do think the southwest area is the best place to live, work and raise a family," he said.
"We have convenience, we have services, great houses, safety and, most important, quality education."
Maybe so, maybe hype as well, but University of Maryland-Baltimore County economist Darryl Getter takes a different approach and draws a similar conclusion.
"When we talk about a bubble in the stock market or the housing market, we're talking about when prices go up because of speculation," he said, giving an economist's definition.
"Most people think it means housing prices are going to have to drop at some point, and that's not necessarily the case."
Although Getter lives in Annapolis and has no specific data on the Catonsville market, he "would imagine" that many UMBC faculty and staff, local airport employees and even Baltimore City workers would choose to live here, not just to invest in housing to”

Even if suburban Maryland has not experienced the speculative extremes of Miami, Manhattan or San Diego, because everyone wants a first or second home in those cities, it has still benefited from the cheap money that is currently available. Places like this might not collapse as quickly as other more cosmopolitan areas when interest rates move higher, but prospective buyers are still going to lower there bids when a mortgage rates move from 6% to 7%, and then 8%.

Shore Commuters Cheat Tolls to Pay for Overpriced Houses!

Not really though. The only reason there are so many tickets being written at the Raritan toll on the Garden State Parkway is because of the current design of the toll plaza. All of the lanes that are to the left of the barrier are E-Z Pass. If you do not know this ahead of time, and you don’t have E-Z Pass you will be forced to go through the toll without paying.

“The Garden State Parkway has issued almost 1,800 tickets to accused toll cheats at the Raritan Toll Plaza during the past two months -- seven times more summonses than were written in the same period last year. That's more toll violation tickets than the Parkway has issued at any single plaza at any time in the past 10 years, officials said.”

How the Chinese Will Effect the Value of Shore Houses.

This article gives a pretty decent explanation as to why mortgage rates will go higher here if the Chinese decide to let their currency float. Since the Chinese fear a protectionist US stance more than letting their currency appreciate, it seems pretty much inevitable that Chinese purchases of US treasuries will end soon, and higher interest rates would soon follow, dampening the affordability of houses in Holmdel.

[Right now China is one of the biggest buyers of U.S. government bonds, helping keep U.S. interest rates low. But if the yuan rose, the Chinese would probably cut back on their purchases, driving yields on Treasuries and mortgage-backed securities higher.
Ashraf Laidi, chief currency analyst at MG Financial Group, cited estimates that yields on the benchmark 10-year Treasury note are up to 70 basis points below where they would be without purchases by China and other Asian buyers. There are 100 basis points in 1 percent.

If China were to suddenly to drop its yuan-dollar peg, that means long-term bond rates could rise as much as a full percentage point, Laidi estimated.
Just the possibility of a free-floating yuan could drive up long-term rates, said Sung Won Sohn, CEO of Los Angeles-based Korean bank Hanmi Financial. "They don't have to do anything," he said. "If they just say they are going to buy fewer U.S. Treasuries, they can hurt us badly."

Even advocates of a free-floating yuan agree it will mean higher rates in the United States.

"Mortgage rates are going to go up, the long bond rate is going to go up," said Maryland's Morici, who has long been calling for China to let the yuan rise. "The only question is what is the precipitating event."

Meanwhile, a rising yuan would let China, already a big oil importer, buy even more oil for the same number of yuan, since oil is priced in dollars worldwide -- a move that would put upward pressure on oil prices.

"It is a country interested in growing rapidly, and one of the big bottlenecks in its growth has been energy," said oil analyst Peter Beutel, president of Cameron Hanover. "If it was suddenly trying to buy 1.5 million barrels today, it'd sop up most of the surplus right now."]

Wednesday, May 04, 2005

Evil Clown Sign

Evil Clown Rte.35 Middletown NJ Posted by Hello

Everyone Says Move to Rumson

About a year ago I was talking with a guy who trades interest rate derivatives on the desk of a money-center bank. Needless to say, he did pretty good financially and had a decent size apartment in the city. The topic of our discussion was where to eventually move to in order to raise a family. He immediately said that he heard that Rumson was a good place to move to. What was funny to me though, was that he had only driven through Rumson once in his whole life and was not familiar with the Jersey Shore at all since he was from Connecticut. His entire knowledge of Rumson was almost based solely on the desk chatter of his colleagues. To him and apparently some of the guys on the trading desk, the town of Rumson, over the past few years, has taken on the same mystique as Rye, New York, or Greenwich, Connecticut. Although the town has always had affluent residents, its allure seems to have superseded the normal requirements of high-end home buyers to have good schools, a large property, and/or be close to the beach, and instead has succumbed to nouveau rich posers who seem willing pay anything to have a Rumson address.

Monmouth County Developer Arrested

["I like Marlboro, but the problem is that (Marlboro officials) allowed (developers) to build so many new homes that now the town is overcrowded," township resident Ilene Barba said Tuesday outside the A&P supermarket on Route 520.

"Now, we have high taxes, crowded roads and need to build new schools, and the taxpayer is the one who will have to pay for it. You have to wonder . . . why didn't anyone see what was going on?"
Barba's comments came hours after Marlboro developer Anthony Spalliero was arrested and charged with offering cash bribes to former Marlboro Mayor Matthew V. Scannapieco and former Monmouth County Freeholder Director Harry Larrison Jr.]

I always used to think of Marlboro as farm-county, or the town with the big mental hospital. It has certainly grown a lot in the past 20 years, thanks to the corrupt mayor. Given that Highway 9 has cut through the town for at least 50 years, and therefore a relatively easy commute to the city, I’m surprised that it did not see more development in the 60s and 70s.

Tuesday, May 03, 2005

A Perfect Storm

"NEW YORK, May 3 (Reuters) - Standard & Poor's on Tuesday reaffirmed the criteria used to support the triple-A debt ratings of U.S. government-sponsored enterprises."


Things are getting very interesting. This article points out that S&P reaffirmed the criteria of Fannie and Freddie that justify both government agencies triple-A ratings. S&P also implies that the AAA rating will remain intact as long as legislation does not remove the implied guarantee of the US Treasury.

What would make a "Perfect Storm", to use a much over used expression, in the real estate market would be a near simultaneous downgrade by S&P and Moody's of Freddie and Fannie debt and a rise in interest rates. I would roughly estimate that a downgrade of Freddie and Fannie debt from AAA to A would result in a 70 basis point increase in the agencies' cost of debt funding. That would be bad for mortgage rates.

Trump Wannabees

In the avalanche of media stories about the real estate bubble, a commentator will occasionally reference an amateur investor as a “wannabe Donald Trump”. What is interesting to me is that there is a perception on Main Street that the Donald is some kind of brilliant businessman, and therefore being called a mini-Trump is complimentary.

Although Trump is certainly wealthy and successful, I believe that the perception that he is a brilliant and trusted businessman is more prevalent on Main Street than on Wall Street. In fact, from my experience on Wall Street, I would say that many analysts, traders and bankers take Trump’s advice, philosophy and outlook, about as seriously as any other ego driven celebrity, which is not very. To Wall Street he is an important and wealthy developer and investor, however, there are hundreds of more important developers and investors in the United States than Donald Trump, but who are not as publicity crazed and therefore command more respect.

Trump is essentially a bit player on Wall Street, and too some people, a joke. When the local paper calls an amateur real estate investor in Beach Haven, or San Bernardino a mini-Trump, or Trump Wannabe, myself and many on Wall Street do not view the comparison between Trump and the amateur as a compliment for the amateur.

Here is a decent rant by Mark Cuban about the Donald.

Monday, May 02, 2005

Manhattan Real Estate Prices Reach a Peak

The New York Sun, one of the best daily papers around, has a story about real estate prices in Manhattan today (Monday, May 2.) Unfortunately, the story is not on the web page. The story gives anecdotal evidence that high end real estate prices in the Big Apple seems to have reached a peak.


25 bps.

The Fed is expected to raise short term interest rates by a quarter point tomorrow. Although many believe that Greenspan and company should be more aggressive in increasing rates, I do not believe he is the idiot that some gold bugs and real estate bears believe he is. I think the Greenspan is keeping the pace of increases “measured” because he thinks the Chinese and others will slow purchases of treasuries in the coming months, which will have the same effect as lowering rates.

High Property Taxes Hurt Values

What if New Jersey homeowners could get a 30 percent reduction in their property tax bill without paying higher taxes and at the same time see fiscal responsibility restored to state and local government?”

New Jerseyians (Jerseyites?) could probably get the local real estate bubble to inflate a little more if property taxes were lowered. A 10% reduction in a year on a $10,000 per year property tax bill will give you an extra $83 per month. If someone can afford to pay an extra $83 per month on a mortgage payment, (all else being equal on a $500K mortgage at 6%) then the value of the home should be worth about $13,800 more.

Fannie and Freddie are Going to Collapse

Here is a link to an interesting paper presented by Dwight Jaffee at the American Enterprise Institute last week. As a Dow Jones wire story said about the paper

“Jaffee said the source of the systemic risk threat is the immense size of Fannie and Freddie debt and mortgage-backed securities outstanding in comparison with other components of the U.S. debt market.”

Essentially, Jaffe believes that Freddie Mac and Fannie Mae are subject to too much interest rate risk creating too much risk in the US financial system. Furthermore, he concludes that legislation should be passed that reduces the size of Fannie and Freddie’s mortgage portfolio.

Link to more Jaffee papers


Although the article mostly repeats what has already been said over the past few weeks about the housing bubble, it is interesting to see that talk of the bubble is everywhere – even at earthtimes.org.

Here is the article.

Sunday, May 01, 2005

McMansion in Marlboro

McMansion in Marlboro Posted by Hello

This is a good example of a McMansion. What makes it such a good example is the lack of shrubbery, trees or landscaping on the property.

I Thought This was a Good Letter to the Editor

Published in the Asbury Park Press 04/24/05

Middle class must wake up

The middle class of New Jersey, for the most part, does not have a clue about what is going on in local politics. They have no idea that some local politicians are greedy and corrupt. They do not read the local newspapers or the editorials.

They are too preoccupied with their schoolchildren and jobs to become involved with politics. However, they must wake up to the greed, corruption and arrogance of the local politicians. (When caught with their hands in the cookie jar, politicians scream entrapment. What a joke.) It seems to be a way of life with the politicians, Democrat or Republican, when they get into office.

The middle class must unite and practice GRIP (Get Rid of Incumbent Politicians) when voting. Politicians have become entrenched and know the apathy of the middle class will keep them in office. The middle class must realize their real estate taxes depend on their ability to control the politicians, instead of the reverse.

Paul Haluska Sr.


John Templeton is Another Smart Guy

This is another good article from prudentbear.com. None other then John Templeton believes we are in the middle of a real estate bubble. I would say he is a pretty smart guy.

"The U.S. economy, increasingly dependent during the last few years on cash-out re-financings, will be adversely impacted by plunging home prices and the concomitant reduction in available home equity. The possibility of this type of unraveling is so great that John Templeton currently believes that the risk of a 50% decline in U.S. home prices is “quite possible.”[xiv] He notes that the Japanese real estate market, which peaked in 1990, has fallen by roughly 75% over the ensuing 14 years. Mr. Shiller shares Templeton’s pessimism but won’t predict how far prices could fall. What he does say will certainly come as a surprise to many home buyers today: “I don’t think housing prices will be higher five to ten years from now.”[xv]"

When Staten Island is Offered as an Alternative to NJ, then the Top Must be Near.

Needlesss to say, I usually don't consider Staten Island a suburb of New York. For all the comments from New Yorkers about how bad Jersey smells, Staten Island is about 10 times worse.

"That’s right. Staten Island is quickly becoming a hot spot for Manhattanites looking to make a move. And with a major real estate boom, rising home prices are really putting Staten Island on the map, making it competitive with other popular suburbs in New Jersey, Long Island and Westchester."

Good Lengthy Article About Global Economic Imbalances

"The Achilles' heel of the US economy is its over-dependency on cheap credit. Five years ago, the US experienced its largest stock price bubble since the 1920s with valuations of technology stocks set at ludicrously high levels. This bubble was driven by rapid money supply growth and was accompanied by a sharp increase in the private sector debt burden and current account deficit, both of whom reached new record levels."

What will Happen to Interest Rates if the Chinese De-value the Yaun?

If the Chinese decide to let their currency float, many believe that they will also reduce the amount of US Treasuries they need to purchase. If the Chinese demand for US Treasuries falls, the rates should rise. In any event, a decision by the Chinese to de-value appears imminent.

"The yen chalked up heavy gains on Friday across the board, extending a week of gains on the back of heightened speculation about a possible revaluation of the Chinese yuan.

The US dollar and particularly the euro were sharply lower versus the Japanese and other Asian currencies, most of which which are seen as potential beneficiaries of any move by China to let its currency appreciate. The yen also benefited from a drop in crude price below US$50 per barrel in the New York afternoon."

More Real Estate Corruption in Monmouth County

"TINTON FALLS — During the borough's housing boom over the past decade, a major developer known as the "deputy mayor" gave the borough administrator's son a private mortgage in 2001 when he needed to "get his life in order."

That 6 percent simple-interest loan allowed the son to buy one of the developer's condominiums in the Fox Chase development and then sell it, less than two years later, for $72,000 more than he paid, according to public records."