Motley Fool on the Bubble

This article from Motley Fool has been referenced numerous times on various bubble blogs over the past few days. Regardless, if you haven't seen it yet, it's worth reading.

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"Remember Black Monday in October 1987? How about the savings and loan failures that followed? From the late 1980s to the late 1990s, real estate was not a particularly great investment. My wife and I bought a home here in Virginia in 1998 for the same price the previous owners had paid way back in 1989. That's nine years and zero appreciation.

But wait, there's more. One of Warren Buffett's early partner letters (with updated numbers) provides a great example of the irrational returns of today's real estate market. Back in 1636, the Dutch purchased Manhattan Island for $24 worth of glass beads. In 2004, the assessed value of all the properties on Manhattan was $186 billion. What a steal, right?

Well, hang on a minute. Do you have any idea what kind of annualized return you'd need if you wanted to turn that measly $24 into $186 billion? Just 6.37%. Real estate, or any other investment for that matter, will not increase at 20% per year for very long. Eventually, reversion to the mean kicks in."

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Long Islang Bubble Trouble

It looks like Long Island is cooling off. Down here in Jersey, inventories seem to be growing by 2 to 10 houses everyday.

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[After repeatedly setting records this year, median home prices plateaued in September at $500,000 in Nassau and $400,000 in Suffolk, according to the most recent monthly market report by the Long Island Board of Realtors.

This might not have caused much of a stir a year or even six months ago, but there are other signs of deceleration. Homes are languishing on the market: The number of unsold homes on Long Island and in Queens has rapidly increased in recent months and now exceeds 20,000. This region has not seen such a high inventory since 1997, when the market was just beginning its rise from the bust of the late 1980s.]

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Red Bank Rentals

Red Bank has come a long way since the late '80s and it seems like it is attracting more families now than in the past. It is my understanding that St. James grammar school is pretty tough to get into these days compared to the early '90s and before that. This makes me think that families are moving to Red Bank, instead of highly expensive Little Silver, Shrewsbury or Fair Haven, and are sending their kids to parochial school since Red Bank's public school system is still miserable. I would imagine that the premium paid for Little Silver schools, when buying a house there, is probably close (on a present value adjusted basis)to paying annual tuition to St. James for 8 years.

But that's not the point.

I drove through the east side of Red Bank today and noticed lots of properties up for sale. In addition I saw at least three single family houses for rent today and thought they looked well maintained and would probably be a nice place to live; especially since they were within walking distance of downtown. I looked on craigslist to see what single family houses rent for in Red Bank and the one example I found was for less than $2000 per month. That sounds like a pretty good deal to me. I would bet that the house on craigslist could be sold for at least $350,000 in Red Bank, and probably more. Needless to say, a $325,000 mortgage at 6.25% for 30 years is going to cost you $2000. If you add another $500 a month for taxes and insurance and upkeep and I don't know why anyone would bother buying a house in Red Bank when it appears to be so cheap to rent.

But Will They Reasses on the Downside?

Monmouth County is ordering Red Bank to reasses property values in town given the sharp rise in real estate prices in recent years. When prices go down, as they already appear to be doing, will property values be readjusted to the downside?

Seriously does anyone know if a process exists for lowering the assesed value of a property? When I eventually buy a $750,000 house (today's price) at the Shore for only $450,000 (October 2007 price) I do not want to pay property taxes on a 2005 assesed value.


"RED BANK — Property owners, hold on to your wallets. The borough's been ordered to conduct a tax reassessment.

The good news, said borough officials, is that the county-ordered reassessment isn't as expensive or intrusive as a full-blown revaluation. But it's only been four years since the borough conducted a revaluation in 2001, said Matthew Clark, Monmouth County tax administrator.

A revaluation requires inspectors to look inside homes and businesses for improvements that affect the property value, he said. A reassessment is done using current sales data, Clark said."

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As the Interest Rates Rise...

"Rates on 30-year mortgages stayed above 6% for the third straight week, rising to the highest level in 15 months.

Mortgage giant Freddie Mac reported Thursday that the nationwide average for 30-year, fixed-rate mortgages rose for the seventh straight week to 6.15%, up from 6.10% last week and the highest level since 30-year mortgages were at 6.21% in late July 2004."

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That Rumson House Again

We have been tracking this house since the Spring when it was listed at $940,000. Since then the asking price has been reduced several times. An alert reader just pointed out the price was just dropped to $749,900 from $799,900 earlier this week.

Rumson house listing

Stuck in a Holding Pattern

I recently spoke with a friend of a friend who has been trying to sell his Ocean Township home for about 2 months now. The plan is to unload the Ocean house and move further south to a larger house in the Toms River area. (Since the Ocean Township home owner works in Monmouth County, as opposed to NYC, commuting is not a factor.) In any event, the house for sale in Ocean is apparently attracting very little interest, but the owner refuses to budge on price. In turn, the house that he has his eye on in Toms River also refuses to budge on price. As a result of these people’s refusal to move their asking price lower, no transactions are getting done and both houses just sit there. I think that this scenario is becoming more common, as we keep seeing the number of houses for sale move higher each day in Monmouth County and elsewhere.

Prices Down, Yields Up

Mortgage rates are going higher.


Oct. 26 (Bloomberg) -- U.S. Treasuries fell, pushing the 10-year note's yield to the highest since its peak this year in March, on speculation the Federal Reserve will continue raising interest rates into next year.

European and Japanese government bonds also slumped on speculation central banks in those regions will lift rates for the first time in years. Two-year Treasury yields, more sensitive to expectations for monetary policy, are at a four- year high. Inflation has accelerated, led by fuel prices.

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Eastern Monmouth MLS up to 3094

Last week the count was 3035. That looks like a pretty big jump to me.

Forced Affordable Housing

This will never work. It never has and never will; nor should it.


"With the third round of state Council on Affordable Housing (COAH) obligations under way, the Little Silver Borough Council is taking steps to create a plan based on the amount of undeveloped space in the borough.

To meet the borough’s current obligation, two ordinances and one resolution were passed at this week’s council meeting.

The borough is backlogged on its fair-share housing obligation with 207 affordable housing units yet to be built.

The first ordinance requires developers to construct one affordable housing unit for every eight market-rate units built, and one unit of affordable housing for every 25 new jobs created by a commercial project."

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That’s a Lot to Pay for Housing

According to this press release, people in NYC are spending about three quarters of their income on housing. I keep hearing how cheap other parts of the country are relative to NYC and it’s surrounding ‘burbs and sometimes I’m tempted to pack up the family and head south, or to the mid-west, or anywhere else where the cost of living isn’t ridiculous. I would imagine that other people have considered the same and believe that individual decisions by people in NY and NJ to move puts a cap on house price appreciation at some point. In other words, if housing gets too expensive in New Jersey, other parts of the country start to look very attractive.

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"The Nassau-Suffolk county region on Long Island is ranked by several economists as being second only to Boston as being at risk for price declines as the housing price boom cools down," said ForeclosureS.com (www.foreclosures.com) president, Alexis McGee. She went on to say that median home prices in Nassau County had reached more than $450,000 and in the five boroughs of New York City, median prices had climbed to more than $428,000. She added that when the down payment is factored in, 49% of incomes on Long Island were going to housing expense, while in New York City, the number was 74%. According to building industry and real estate consultant John Burns of Irvine CA.

"With prices and incomes so far out of whack," said Ms. McGee, "prices are much more likely to come down before incomes can catch up. That can lead to a rise in mortgage defaults, especially among homeowners that are over-leveraged with consumer debt on top of big mortgages." She pointed out that, while there was no national housing bubble, there were "bubblettes" in markets where price declines were probable in the near and intermediate future. She added, "Price adjustments have already begun in overheated coastal markets, but we're not seeing a housing crash. Instead, we're seeing a gradual return to realistic price levels. That's a good thing."

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NY Times Defines Bubble

JUST about everybody has taken to using the word "bubble" when talking about the housing market.

Among the optimists who have embraced the idea is a condominium developer in Miami who is running an advertisement for two new properties that shows a woman blowing an enormous chewing-gum bubble above the word "Boom!" And at the Mortgage Bankers Association, the chief economist, Doug Duncan, says he subscribes to the Don Ho way of thinking, referring to the singer's hit, "Tiny Bubbles."

How do you define a real estate "bubble"?

But the pessimists aren't surrendering the metaphor they started. Robert Shiller, an economist whose 2000 book predicted the stock market crash, has re-released the book with a new cover warning of "the world wide real estate bubble and its aftermath."


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Cool Chart via Curbed.com via Miller Samuel

The chart shows the relationship between the Dow Jones and NY Real Estate prices. I believe that once Manhattan prices show a meaningful turn to the downside, Jersey Shore prices will also.

First Tradewinds, Now the Surf Club

Developers are building on all of the great old Shore bars. What's next, the Parker House goes condo? Donovan's is bulldozed over for a McMansion?


"DOVER TOWNSHIP — The music may soon die at Joey Harrison's Surf Club, a beachfront landmark that has lured summer revelers to Ortley Beach for more than 50 years.

On Wednesday, Centex Homes LLC received approval from the Planning Board to build "The Sands At Ortley Beach," a 28-unit town house development on the Surf Club property, at 1900 Ocean Ave., and on a parking lot at Route 35 North and Seventh Avenue."

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Interest Rates are Going to Keep Going Up

The Fed is specifically targeting the housing bubble and I don't think they are going stop raising rates until they have evidence housing prices have started to fall.

"ROCK HILL, S.C. (Reuters) - Federal Reserve officials said Thursday it was essential that unwelcome inflation be kept in check, bolstering expectations for more interest-rate increases from the central bank.

Building on a chorus of tough inflation talk this week from fellow policy-makers, Richmond Fed President Jeffrey Lacker said the Fed would respond to economic developments as needed to preserve its credibility as an inflation fighter.

"To preserve and build on the credibility we already enjoy, we will need to continue to respond to changing economic conditions in a way that confirms our commitment to low inflation," Lacker said in a speech at Winthrop University."

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Credit Crunch Coming

I have a feeling that retailers are going to have a slow holiday selling season.


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"Rates are on the rise, and possibly a dramatic rise. Mortgage rates and home equity lines are finally on the inevitable move upward. It is impossible to overstate the potential consequences from interest rate fallout. Consumers are leveraged more than ever in recorded history. This is really bad news for those consumers who have taken advantage of their personal "ATM" machines. Referenced by the free spending from the newfound equity in their homes. This is a nationwide phenomenon that has reached record levels.

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Listings Up all Over Monmouth County

On Sept 13 the Western Monmouth MLS was at 1604 and Southern Monmouth MLS was at 721. Today the count is 1656 for Western Monmouth and the Southern is 787.

Flipping in Boston

Lots of bloggers and others interested have been saying that once the speculation from flippers ends, then prices will finally start to come down for all residential real estate. From this article, it looks like flippers are having a hard time making any money in the Boston area.

The Jersey Shore probably has fewer flippers than extremely hot markets like Vegas or Miami, however, I think some areas of Monmouth and Ocean do have a healthy share of people looking to get rich flipping real estate. In particular, the town homes along Ocean Avenue in Long Branch (the ones stolen through eminent domain) look like they attracted more than a few speculators. I'm always checking those properties on the MLS and notice that there are a number for sale even though they are relatively brand new.

Has anyone else seen signs of flipping at the Shore?


"Get in, get out, get the next deal. That's the code of the ''flipper."

Flipping -- buying and quickly reselling houses -- has helped some investors make a killing in booming markets like Boston's western suburbs.

But with concerns rising about a slowing housing market, has the world flipped on flippers? Some analysts and brokers think so.

Short-term investors can't expect the same quick, lucrative turnarounds for the same generic houses anymore, said Miceal Chamberlain, a Newton real estate agent."


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Listings Up to 3035 This Week

Last week the number of houses listed for sale on the eastern Monmouth County MLS was 2995. Jersey Shore house buyers now have 40 more properties to choose from this week compared to last week.

A Neutral Market in Marin County CA

This article is mostly about Marin County, California, however, it does provide an interesting “rule of thumb.”

When more than 40 percent of homes are under contract it is considered a sellers market and when under 25 percent of homes are under contract it is considered a buyers market.

I don’t know what percent of homes are under contract in the Jersey Shore area but if anyone else knows I would like to hear about it.

[Mike Metcalfe, a general contractor who lives in Mill Valley, has been looking for an investment property in Novato for six months, attending dozens of open houses and touring 10 homes before putting in an offer on a fixer-upper Saturday. Metcalfe says the real estate market is changing.

"I've noticed that homes are staying on the market longer and prices are coming down," he said. That trend may be seasonal or it might be the beginning of the long-awaited "flattening" of the market that some analysts have predicted.

Since early September, only 32 to 37 percent of Marin home listings have been in escrow each week, according to the Multiple Listing Service, indicating what agents and industry analysts call a neutral market. When more than 40 percent of homes are under contract, it is considered a sellers' market, according to Patti Cohn, a real estate broker with Frank Howard Allen Realtors in Novato. Below 25 percent is a buyers' market.]

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Producer Prices Come Out Tomorrow

The 10 year note has weakened considerably over the last few weeks as fears of inflation have pushed up required yields. The producer price index, a key inflation gauge, will be reported tomorrow.

Here is a wire story excerpt about expectations.

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“One potential catalyst for such a move could be Tuesday's producer price index. The median estimate of 21 economists surveyed by Dow Jones Newswires and CNBC has soaring oil and natural gas prices pushing up overall PPI to 1.4% in September. The core non-food, non-energy reading is expected to rise by 0.2%.”

All on the Same Page

Yesterday I remarked how it seemed that many of the speculators involved in buying residential properties seem to be realtors. Also, I suggested that the coming decline in realtor commisions will eventually snowball into lower house prices because realtor take home pay will not be enough to cover the monthly costs of carrying various investment properties.

Portions of this article from the Dallas Morning News point out how connected the overall economy is to the real estate market.



"Housing jobs

OK – by how much?

Northern Trust Co.'s Asha Bangalore estimated recently that 43 percent of the jobs created since 2001 have stemmed from housing. It stands to reason that a slowdown in housing will just as easily take away what it has so generously given to the workforce.

Mr. Hatzius figures that the nation as a whole could lose upward of 1.3 million jobs, or 1 percent of the pie, in a housing-bubble recession. And California would get hit twice as hard, losing some 2 percent of its jobs.

These estimates assume that employment in housing-related industries falls back to 1990 levels, when housing employed 4.4 percent of the U.S. population and 5.3 percent of California's. Today, it employs a record 5.2 percent of the nation as a whole and 6.3 percent of California's population.

Mr. Hatzius limited his definition of "housing-related" to construction, contractors and real estate services. That explains why the numbers don't look so bad."

Full article...

Leveraged to Real Estate too Much

Doesn't it seem like a lot of the real estate "investors" we have been reading about over the past few months also have full time jobs in the real estate industry?

I almost think that the boom of the past 18 months has been partially driven by realtors themselves buying up investment properties because of their own percieved industry expertise. When the bubble bursts these realtors are going to suffer from a loss of income at the same time that their real estate investments go into the tank. The bursting of the bubble becomes almost self fulfilling at that point.

-Realtor commisions decrease as the number of transactions fall.
-Commision dollars are insufficient to pay the monthly expenses of the real estate investment.
-Investor (realtor) is forced to sell the investment at a lower price.


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[But permanence is not a priority for Bob Dougherty, who has purchased a total of four homes in Scottsdale, Ariz. His primary residence is in Camarillo, where he works as a real estate agent for Coldwell Banker. He initially bought a second home in Arizona so his wife had a place to stay while finishing up her doctorate at Arizona State University.

The other homes were purchased merely as investments. "I see them as little 401(k)s," he said. "Ultimately, the three properties could end up generating some income for us."]

Full story...

No Bubble Here (sarcasm)

I don't think newspapers should ask realtors what their opinions are regarding the housing bubble. It's like asking a North Carolina tobacco farmer if smoking causes cancer.


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[The market in North Jersey seems less frantic than just a year ago. And prices have flattened in high-end markets such as Ridgewood, Franklin Lakes and Woodcliff Lake. But overall, North Jersey real estate agents are optimistic.

"Interest rates are still good, and there's still appreciation," says Donna Tkacz of Weichert Realtors in Wyckoff. "It's just not as dramatic as it was two years ago."

Tkacz and other agents interviewed by The Record believe North Jersey home prices - which were up roughly 15 percent over the 12 months ended June 30 - are protected by a sort of "bubble wrap." These factors include proximity to New York City, a shortage of undeveloped land, environmental regulations that restrain development, a steady influx of immigrants and a strong, diverse job market.

"I don't think we're in a bubble," says Pat Hoferkampt, president of Burgdorff Realtors ERA in Parsipanny. "What we're dealing with is pure economics - supply and demand."]

Full article

New Bubble Blog

Take a look at www.homeloanbubble.com.

Asbury Park Press Story About Area Affordability

The Asbury Park Press just discovered that the Shore is becoming unaffordable for many middle class people and that exotic loans are not helping matters.

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[Faced with the soaring cost of living, many middle-class New Jersey residents are getting squeezed. Some residents are following the Scalciones' lead and looking to move to other other with an interest rate of a little less than 10 percent — to give her a monthly mortgage payment of $2,150.

The interest rate is fixed the first two years, but then could rise dramatically.

"We don't anticipate this being a great loan for more than a couple of years," Anlas said. "We're hoping that the value of the home goes up and the rates are better or (reasonably close to) where they are."

Still, Bennett sounded grateful and pledged not to worry about the downside.

"You can't find a decent house for under $300,000, and I always thought (you have to pay) $1,000 for every $100,000 you borrow, which would be a $3,000-a-month payment," Bennett said.

Could she have afforded that? "Three thousand dollars a month?" she said. "No. Nor would I even think about it."]

Full Story...

Not Real Estate Related - A Debacle in the Making

If you have any interest in financial markets in general, then take a look at at what has been happening to a broker/dealer called Refco over the past few days. The company is a major player in the commodities market and the actions of its CEO have started to come to light this week. Needless to say, Refco looks like a train wreck in slow motion.

Partial Story

Dohhhhh! - Listings Up Big

We usually only post listings from the Eastern Monmouth MLS every Wednesday. I took a look today out of curiosity and noticed a big jump from yesterday's count of 2995 to 3024 today. That is the biggest one day increases I have seen since about April. If I were to go long Jersey Shore real estate, I think would wait until the supply stops increasing.


Eastern Monmouth listings here

Treasury Rates Moving Higher

Treasuries got whacked today. The decline in treasury prices (and increase in yields) is supposedly due to positioning ahead of the release of inflation data scheduled for this Friday.

“Selling pressure on 10-year notes pushed yields above a closely watched technical barrier at 4.44 percent. The benchmark note was down 14/32 on the day for a yield of 4.45 percent compared with 4.40 percent on Tuesday.”

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Listings Keep Rising

The Eastern Monmouth MLS showed a big jump in the number of house listings this week. The count is now 2995 compared to 2962 last Wednesday, which is a week over week increase of 1.1%. The increase in the number of property listings at the Shore is similar to what other blogs have been reporting in other parts of the country.

Housing Price Reductions

This site at www.theburstingbubble.com will track the number of house price reductions on craigslist.com. It should be interesting to watch over the next few months.

Here Comes the Slowdown

"SAN DIEGO/SAN FRANCISCO (Reuters) - On a rolling San Diego street, where home prices have doubled in three years, real estate agent Shawn Ommid kept a quiet vigil, chocolate chip cookies at the ready, waiting for buyers.

By Sunday afternoon, the cookies remained plentiful and prospects were scarce, with few turning up to tour a two-story tract house in a neighborhood known for its striking canyon views and equally stunning home prices of around $800,000.

"It's a shame because it's better to be a buyer now," said Ommid, citing a rise in San Diego home listings.

It is a scene that is playing out across some of the hottest property markets from California to Florida.

Inventories of unsold homes are rising, buyers are turning cautious, and, in some cases, prices are slipping after a period of explosive gains, analysts and real estate agents said."

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A 6 Hour Commute

This poor women commutes 6 hours each day because she can't afford to live closer to work. Last year I spent a week commuting from Jackson (NJ) to NYC and I couldn't believe that the Parkway was filled at 6:AM with cars that were coming from points further south heading towards the city. I thought that was a tough commute.


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"And then there are the newest home buyers - often making incredible sacrifices for their piece of the American dream.

Kirsten O'Brien drives six hours a day from her new house in Yucca Valley to her teaching job in Watts. With rents and prices out of her reach in the L.A. Basin, the single mom decided the stability of homeownership was worth the long commute.

High home prices - coupled with overcrowding, traffic, air pollution and long commutes from far-flung subdivisions - are taking the sheen off the Golden State."

Rest of story

Mortgage Company Execs Cash Out

About a week ago we posted a story about mortgage company REIT, New Century Financial and remarked on their diminishing net interest margins. As turns out, insider selling at New Century has been pretty rampant. Although I view insider sales in general as common and not always indicative of coming future problems, it is noteworthy that insider buying is non-existent.

[OBSERVERS MIGHT EXPECT INSIDERS at a struggling sub-prime mortgage lender to do a little bottom fishing.

But they would be wrong.

Since May, New Century Financial insiders have sold more than half a million of the company's shares, according to Securities and Exchange Commission filings. Some of those insiders have also exercised options, and all have sold stock through trading plans, according to SEC filings.

Trading at 34.78, the stock is 48% off its 52-week-high. The shares trade at 4.4 times projected earnings for the next four quarters – lower than a five-year forward median of 5.5x, according to Thomson Financial Baseline.

"What you don't see here is the insider buying that you would expect if insiders really believed that investors had overreacted," says Jonathan Moreland.

"If insiders really believed in the health of this business," they would be buying, not selling shares, he adds.

New Century, which is incorporated as a real estate investment trust, has struggled with margins. Last month, company officials lowered the year's earnings per share forecast to a range of $7.25 to $7.75, from $8.25 to $9.”]

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More Property Grunt Wisdom

The property grunt updates us on the state of the real estate market in NYC.


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Although I suspect October will be chock full of price reductions which will allow some properties to move, I am unsure if that will help the majority of sellers. With higher interest rates what will most likely happen is that buyers will be stay on holdout vigil to see the bottom of the market. If buyers can't get a sweet deal on a mortgage, then they will get it a from the purchase price.

Full article

High Rents Drive Red Bank Businesses Away

Red Bank seems to make parking such a hassle that it is often easier and more convenient to go to The Grove or in shopping centers up in Middletown and Holmdel. In any event, Danny the steak house owner makes some interesting points.

"Over the last 5 years the pendulum of business has been swinging from a packed downtown to now a number of stores being vacant. The high rents due to landlord greed and/or the high purchase price of these buildings have driven the mom and pop stores out of town. One woman’s rent for 2000 square feet on West Front St. was raised to $7000 a month, needless to say that store is empty now. Parking is also a key issue businesses are leaving Red Bank, unless we address the above problems we could see a lot more empty stores."

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A Peek at the MLS

I usually only check the Eastern Monmouth MLS on Wednesdays, however, I took a look this morning and noticed the number of listings is now up to 2975. It was only 2728 on June 15th.

Rent or Buy

I say rent.

"Housing prices in the Sarasota-Bradenton market have risen so fast that they are out of line with rental rates, a sign that the housing bubble might be real.

A Herald-Tribune analysis of home sale prices compared with average home rental rates -- call it the price-to-rent ratio -- shows the ratio has more than doubled in the past five years.

Nationally, that would place the Sarasota-Bradenton market at No. 15 on a list of the riskiest markets, as ranked by Economy.com, a West Chester, Pa.-based provider of financial research. Other places with similar ratios: Riverside-San Bernardino, in the Los Angeles area, and Nassau-Suffolk, outside New York City."

Full article...

Cringing Quotes from Jersey Realtors

The quotes from some of the realtors in this article will make you cringe.


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"We still have a tremendous amount of people coming into New Jersey because of its proximity to New York and the job market here," said Bill Hanley (picture), who manages a real estate firm in Metuchen, N.J., and is first vice president at the New Jersey Realtors Association.

"We're also seeing more people staying here," he said. "There's more of a feeling of nesting. People aren't really moving out of state to Florida. They want to stay near their families."

New Jersey, ranked among the top 10 hottest housing markets in the United States with a 17.8 percent average home appreciation rate, exceeded the 13.4 percent national average for the year ended in June, according to the Office of Federal Housing Enterprise Oversight.

In the last five years, New Jersey home prices have appreciated by 80.5 percent, according to OFHEO.

Full Article

Liquidity is Contracting

A few mortgage companies are strating to tighten their lending policies or are making an effort to limit the amount of loans that they originate. The bubble began with loose lending strategies on the part of banks and mortgage companies and it looks like the bubble may pop with tighter lending rules which will eventually cause liquidity to dry up. It can't happen fast enough for me.


WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan is turning up the volume on his warnings about the potential perils of certain risky mortgages if the high-flying housing market loses significant altitude.

There are signs some companies are getting the message. A few have begun scaling back some types of those mortgages or making them less appealing by raising costs.

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Inform the Clueless

There are apparently a lot of people who don't believe in the real estate bubble.

"Despite fears in the marketplace about a U.S. housing bubble, about 60 percent of homeowners expect the value of their homes to increase by at least 5 percent annually during the next several years, according to an online survey of 1,001 American consumers.

According to the survey findings, released by RBC Capital Markets, the corporate and investment banking arm of RBC Financial Group, 24 percent of respondents said they expect annualized gains of 10 percent or more over the next few years. About 3 percent of respondents said they expect their home values to decline over the next few years."

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Things are Getting Interesting

Over the past few weeks there have been a number of indications that the real estate market is finally starting to falter. Interest rates have moved up steadily since August, inventories are growing in hot markets, and the press coverage of the bubble has picked up again. Although prices have yet to show a meaningful turn to the downside, I get the impression that real estate buyers and sellers have entered into a “Mexican stand off” phase, where sellers are reluctant to lower their asking prices and buyers are reluctant to step in with a bid knowing that prices are likely to go lower.

As the bid and ask spread widen, sales activity will continue to slow down and inventory seems likely to continue to build. Prospective buyers seem to have the advantage, especially over investors, many of which have negative carrying costs. Back when the bubble talk really got going this past spring, many on the various bubble blogs said that October would where the data would finally start to reveal that the leaking of air in the real estate bubble actually began mid summer.

Site Traffic is has Picked Up Again

I can usually tell when people are interested in the housing bubble by monitoring the traffic to this blog. Since the NY Times and other NYC papers carried a story earlier in the week about the decline in apartment prices in NYC in September, traffic to this site has picked up pretty steadily. For some reason, prior to the NY Times article, site traffic was kind of slow since about Labor Day. Prior to Labor Day, site traffic was busier. In short, and without doing any hard analyses, I would say that there are more people curious about the housing bubble now than compared to about three weeks ago.

No More Conundrum

Greenspan’s attempts to raise long-term interest rates by pushing short term rates higher finally seems to be working according to this article.


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“The pattern appears to be changing now. With the federal funds rate at 3.75%, and likely at 4.00% on Nov. 1, the yield on the 30-year is poised to trend above its 200-day SMA at 4.540. The close on Sept. 30 was also cheaper than its five-month modified moving average at 4.507, which shifted the monthly chart profile to negative, another sign that the bond conundrum is now over.

Another signal for higher yields would be if the 50-day SMA rises above the 200-day SMA, which, as the chart shows, could happen next week. The Fed's plan to remove monetary accommodation at a measured pace continues, despite the destruction of hurricanes Katrina and Rita. The Fed and most Wall Street economists say that the economic effects of the storms are temporary, but in my opinion, that's wishful thinking. I believe that the FOMC and Wall Street just don't understand Main Street, USA.

In my judgment, sagging income and higher energy prices will continue to depress consumer spending for months, if not quarters. The Conference Board and University of Michigan consumer sentiment readings plunged in September, and some economic statistics from before Katrina suggested that the economy was already slowing. For example, new-home sales fell 9.9% in August.”

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Payment Due

This was from the Dow Jones Wire. Apparently some one at CIBC (Canadian Imperial Bank of Commerce) thinks there is going to be hell to pay for all of the easy money that has been floating around.


12:26 (Dow Jones) A payment is coming due for all those years of loose credit. As liquidity becomes constrained, CIBC postulates that 10% of U.S. consumers will be hit by a "segmented consumer recession." There will be serious implications, the firm says, for credit-card lenders and sub-prime mortgage lenders. "In both sectors, we believe there will be unprecedented credit losses, and that profitability will be cut by at least 25%." CIBC goes on to say "it is clear to us that the economy is bifurcated between 64% of haves and at least 10% of those about to have a lot less." (PJV)

No link.

Inventory Moving Higher - 2962 Listings this Week

This week the eastern Monmouth MLS had 2962 listings. Last week there were 2945 listings on the eastern Monmouth MLS.

Advice For Realtors From The Grunt

The Property Grunt says that the real estate bubble in NYC has finally started to leak. He has been predicting for weeks that the market has turned and today’s NY Times article confirms his suspicions.

Snip…

“How far will prices go down? I have no idea. That is up to the market. But as I stated before this has become a game of chicken between buyers and sellers and now we are waiting who is going to blink first. And buyers are more motivated to keep their eyes open.

Sellers are now in deep s**t. The bidding wars of yesteryear are on their way out and the days of wine and roses are gone. It is time to start getting realistic and doing the numbers and figuring what is the most optimal strategy for your property.

This means figuring out how much of a price drop are you willing to undertake even if it means taking a significant chunk out of your profits. If you are hoping for the return of desperate buyers, it’s not going to happen. If you are determined to wait it out, be my guest. As long you can afford the maintenance, mortgage and it is worth your time to hold onto for the next boom, which will be in a couple of years. But get into your mind that the boom is over. The sooner you accept that the better off you will be.”

More…

A Good Day For Bears

Today’s article in the NY Times about falling Manhattan Real Estate prices was certainly encouraging from a bear perspective. (FYI, the NY Post had a similar article today too, based on the same data that was contained in the Times article.)

As I have said in this space before, I believe that some of the strength in Shore housing prices is probably due to Manhattan money finding its way to the beach to buy condos in Long Branch, summer houses in LBI and weekend estates in Spring Lake (for the really wealthy.) If prices really are coming down in Manhattan, than I think eventually house prices at the Shore will have to come down too. At the very least, a decline in Manhattan apartment prices will prompt fewer people to cash out of there co-op on the upper west side and buy a Manalapan McMansion.

Times Real Estate Slowdown Article

"A real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country, including New York.

More sellers are putting their homes on the market, houses are selling less quickly and prices are no longer increasing as rapidly as they were in the spring, according to local data and interviews with brokers.

In Manhattan, the average sales price fell almost 13 percent in the third quarter from the second quarter, according to a widely followed report to be released today by Miller Samuel, an appraisal firm, and Prudential Douglas Elliman, a real estate firm. The amount of time it took to sell a home was also up 30.4 percent over the same period."

More...

Drudge Report Headline

"NYT TUESDAY FRONT PAGE: Real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country... Developing..."


No flashing siren, yet.

Condo Inventory Up in NYC

Look at how inventory has been rising in NYC from www.curbed.com.

Snip..

"Meantime, the monthly Luxury Letter report from Elliman brokers Leonard Steinberg and Hervé Senriquier concedes the reality—"As we end the month of September, we have to conclude that the market has certainly been active, although attendance at Open Houses is down sharply, and so too are appointment requests." Along with the graph they show of rising inventory below 34th Street (above), they conclude, "Unrealistic Sellers with too high expectations and not enough flexibility may regret passing on good offers." That said, today's prices will look like a steal in 2072."

Verbal Suasion

According to Tony Crescenzi, the Fed is trying to use verbal suasion to take some air out of the housing bubble.

Snip...

"The talk is that the Federal Reserve is now reviewing lending standards at top mortgage lenders, which will be used as a model for issuing regulatory guidance to other banks around the end of this year. In such cases, the Fed can pressure banks to adhere to its guidelines via verbal suasion, and by its power to issue supervisory letters and or perhaps by being more scrutinizing toward banks that do not follow the guidelines. The Fed can also issue less favorable reviews of institutions seen as engaging in imprudent lending practices."

Full Article

Interesting Data From North Jersey

North Jersey seems to be experiencing a slow down in sales according to the North New Jersey Real Estate Bubble Blog.

North Jersey Data

The Wealth Effect

Snip...

"The sharply rising value of housing in recent years has created a “wealth effect” that has contributed significantly to consumer spending growth — not unlike that created in the late 1990s by the boom in stock prices. In fact the housing wealth effect is even more powerful, with homeowners spending an average of 5 cents for every dollar in increased home value they enjoy, compared with 3 cents for every dollar in the increased value of stocks and bonds, said Richard DeKaser, chief economist for National City, a Cleveland-based bank."

Continue...

Reader Submission

Here is a little ditty to consider regarding Monmouth County shore
properties, as I am a long time Sea Brighter....

On realtor.com there are at least 5 maybe 7, 1 bed/1 bath condos for
rent in Runaway Beach posted, for $1100.00 per month, and more.

There are two condos in this complex for sale at $325,000 each.

So how out whack is the real estate market? If you want to purchase
one of the 325K condos, with a 20% downpayment of around 67K, your
monthly mortgage payment is aproximately $1,634 ! ! ! !

So, I can rent one of these condos for $1,100 per month, or buy it with
the 20 % down and still pay over $500 more than to rent it ! ! !

Thought you might be interested in this real life analogy. Post if you
like.

All the information I presented can be verified through realtor.com