Wednesday, February 15, 2006

What Areas Will Crack First?

I think that by the Summer, we will have plenty of evidence that the housing market is not going to make the soft landing that Fed Chairman Bernanke is looking for, or, on the other extreme, the flaming crash landing that former Fed Chairman Paul Volker is looking for. The landing, in my opinion, will be hard enough to seriously injure a few people but probably soft enough not to kill anyone.


At the national level, the housing bubble experts have pointed out that some cities lead the way in appreciating prices and that these cities are leading the way on the downside. San Diego is usually mentioned as the most likely city to collapse first, along with Miami, Las Vegas, and sometimes Boston.


At the Jersey Shore, I think that there are a few areas that will fall earlier, and probably harder, than other areas and therefore will be an early indicator for the rest of the Shore. In addition, aside from specific geographic regions, I think some market segments in the Shore might show signs of weakening before certain other areas do.


The towns along Long Beach Island will probably be some of the first, if they haven’t already, to experience falling prices. Not too many people live on LBI year round, so I think that when people are feeling nervous, they will look to sell the second home in Beach Haven before they sell the primary residence in Basking Ridge. Also, I would not be surprised if many of the homes there are un-rentable at prices that would be sufficient to cover the mortgage, especially if the house was bought sometime over the past four years. Finally, if you read the Asbury Park Press occasionally like I do, you’ll notice that there is a big fight as to whether property owners on LBI will allow a sand replenishment project. If the sand is not pumped on to the beach (at taxpayer expense) I’m not sure I would be a buyer of LBI property at even 25% of current prices.


The condos and town houses along Ocean Avenue in Long Branch that were built on property seized by the city look like good candidates for a correction. A few weeks ago I did a rough count of the number properties for sale at the The Bluffs and came up with about 17 out of I think 130 units for sale, not including FSBO. It is my understanding that many of these condos and townhouses were bought by real estate agents in the area in the hopes of making a quick buck from a quick flip. Given that the flip trade has been over since at least the summer of 2005, I would expect some of these units to start to trade below the original purchase prices. In addition, I bet many of these condos were sold as second homes for people and that second homes are the last thing anyone needs in a collapsing real estate market.

Speculative mansions probably seemed like a good idea in the summer of 2004. Rumson seems to have a pretty decent inventory of mansions built on spec. for sale. Along Rumson road, and along some of the side streets, old large houses were torn down and new bigger ones were put in there place. In many cases, these tear downs and build ups were done with a specific buyer in mind, like Queen Latifah (she owns one of these on Rumson Road.) However, I think in a few cases, the mansions were built without a particular buyer in mind. (The MLS says there are 35 houses in Rumson with an asking price above $3 million.)


I think that spec mansion builders will start to cut prices in order to unload what they have built because they can’t carry a $3 million house for very long. These mansion spec builders are mostly smaller private contractors rather than large publicly traded homebuilders (Toll, Hovnanian), and probably do not have the financial resources to hold onto a $3 million mansion too long, waiting for the right buyer, the way Toll Brothers can carry entire developments waiting for the right buyers. Therefore, while spec properties built and carried by national homebuilders might eventually fall in price, spec mansions built by Monmouth County general contractors might fall in price sooner.

26 Comments:

Anonymous Anonymous said...

Thank you for all of your honest information. While I am in the market to buy a home, these realtors I speak to do not suggest I make a low offer or wait for a price reduction. They say I will never loose your house value at the shore. One pushy realtor tried to fax me over a contract just in case I changed my mind about a house I said, "no thanks" to. I don't see the big rush anymore - no one else was looking or putting down offers on any of the way over priced houses I am being shown. I'll keep the blog posted in case I crack and pay some ghastly price for a house I must have. Until then I will share the realtors' lines I am hearing.

Wednesday, February 15, 2006 7:50:00 PM  
Blogger Little Silvered said...

I would love to hear what Jersey Shore realtors have to say. Keep us posted.

Wednesday, February 15, 2006 10:16:00 PM  
Anonymous Anonymous said...

new jersey shore r/e is in free-fall, don't kid yourself. Listings are at an all time high.

IF YOU LOWERED THE PRICE OF ALL THE LISTINGS BY 25%, NOBODY WOULD CARE!!!!!

Prices are going back to 2000 levels---and probably lower.

Fear has finally enter this housing market....panic will soon follow.

Thursday, February 16, 2006 6:04:00 AM  
Anonymous rbyzell said...

hi. love the blog. they keep tearing things down and building condos in long branch! the town says that it's going to put the big pier back in but we'll see. that big hotel that is there already went out of business once so they have to do something to bring in vacationers, give people something to do. can someone please tell me. all i see are for sale signs all over the shore every where i go. how can towns and developers keep building "luxury condos?" the shore has always been a resort place. this "luxury condo" stuff i really don't believe will last and it's in the end very bad for the shore. eventually long branch will have to build some amusements again or something. who are these people that can spend $500,000 to $1,000,000 for a condo in long branch? someone please tell me.

Thursday, February 16, 2006 10:19:00 AM  
Anonymous Anonymous said...

I have been watching the Wildwood Crest real estate, and inventory is rising especially for condos and townhomes. In addition to existing inventory increases, new building of condos/townhomes is booming.
Real Estate agents keep raising listing prices over and above similar units which are not selling. If inventory in this area doesn't move in the spring and early summer, Wildwood Crest real estate will be in a free fall.

Thursday, February 16, 2006 11:40:00 AM  
Anonymous Anonymous said...

Comment from Jersey Shore realtor as I am looking at a $589k house. I say this place needs a complete overhaul. The bathrooms are old, kitchen is old, floors are pink linolium! She said, "well you could get a stove for $700 at Home Depot". Sure, I'll just tack that on to the total - no thanks. She left me with this warning, "get back to me on this, because this one isn't going to last"....this house has been on the market since July 05 and was just reduced from over $659k.

Thursday, February 16, 2006 8:06:00 PM  
Blogger Little Silvered said...

Maybe the of Long Branch can use their eminent domain rights in a few years to tear down the town houses and condos and bring in better ratables that all the formerly expensive new condos could provide.

Bring back the pier, the Haunted Mansion, the Pier Pub, Club Paradise, the Waterslide, everything Long Branch used to have to make it a destination.

Thursday, February 16, 2006 8:24:00 PM  
Blogger njcoast said...

Case and point- Spec house built in Rumson- 129 Ave. of Two Rivers -listed price on 9/22/05-$3,850,000- sold 11/30/05-$3,350,000. That's a 15% haircut. The house was on the market from 9/04 to 11/05.Buy,buy,buy before you're priced out. Real estate only goes up,up,up.LOL.

Thursday, February 16, 2006 9:47:00 PM  
Anonymous rbyzell said...

hi silver. well, i don't think that all of those things will come back to long branch (unless there's like another major depression or something) but, i hope that they do. anything more commercial would be good. look at their website, it actually says "long branch used to be frequented by the middle class, but not the rich are coming back!" it says something to that extent, unbelievable! well, we still have asbury!

bob

Friday, February 17, 2006 9:46:00 PM  
Anonymous rbyzell said...

oh yeah, about l.b. it says "but the rich are coming back!" and please guys, don't ever let anyone tell you that r.e. prices never go down, if they can crash in los angeles, hong kong, tokyo, n.y.c. and boston, like they have done in the past, then, they can definitly crash at the jersey shore!

Friday, February 17, 2006 9:50:00 PM  
Anonymous Anonymous said...

I laughed at the Jersey Shore realtor who showed me a $769K (3 small bdrm, 1.5 bath, 60's era carpet, kitchen, appliances, no garage) house. She asked "do you think it is too high?" If she has to ask, don't list it like a lunatic. The next thing she tells me is, "the season is coming fast, and the house won't last long, so you had better act quickly if you want this". Panic tactic.. buy now!
I especially love the realtors start explaining to me how I can knock down walls, put additions, etc. Are they architects on the side too? I am so sick of realtors' attitudes and idiot comments. I am buying a home, not a used car.

Saturday, February 18, 2006 11:12:00 AM  
Blogger El Zorro Viejo (aka; Jim) said...

So, here's the deal. Sure, prices have run up too fast over the past few years, so there will probably be a price correction in the short term. However, real estate in New Jersey is a finite quantity and there is an increasing population which desires a piece of that finite resource. Finite resourse plus stable/increasing demand means that real estate prices will eventually keep going up.

If you are in it for a quick flip, then now is not the time to buy. However, if you are just looking for a place to plant your butt for the next 10 years, then I don't think you will lose money no matter when you buy. As an investment (2nd home/rental property), right now I think its a toss-up whether carrying costs will be made up by price increases.

Sunday, February 19, 2006 12:11:00 PM  
Anonymous Anonymous said...

Dear El Zorro, are you suggesting I should consider buying one of the $650k + houses I am being shown? They all need 2 new bths, kitchens, etc... but in 10 years, I can get sell & get it all back If I need $ for my kid's college? Is there no hope for any price reduction at the Jersey Shore? I am truly in the market to buy, but am considering renting, but I also don't want to get priced out of this market, as the realtors suggest.
I am looking for honest market conditions, like the one shown for Monmouth, I would like to see Ocean County area MLS #s, reduction, DOM, etc.(Lavallette - Point Pleasant). I am very wary to believe the realtor info. Thanks.

Monday, February 20, 2006 9:52:00 AM  
Anonymous rbyzell said...

dear anonymous who is serious. i don't know if you're interested, but houses in south central n.j. seem very reasonable at this time. i saw a great house in mays landing for $250,000 and it has been on the market awhile. it's just a thought for you.

Monday, February 20, 2006 11:45:00 AM  
Anonymous Anonymous said...

Dear rbyzell - If it were up to me I'd be happy to consider all reasonable priced areas, but with children in school, it no longer is an option. I appreciate the tip though! It seems I am doomed to an outrageously priced a bungalo with outdoor plumbing.

Monday, February 20, 2006 2:29:00 PM  
Anonymous rbyzell said...

dear anonymous, well, if i were you, i would hang on. a friend of mine who is big into shore r.e., says that listings in spring lake, belmar, and ocean grove are at an all time high. that and a few more rate hikes and you will get a deal and we will all get some peace! no more sounds of hammers and nails. let's all hope!

Tuesday, February 21, 2006 8:23:00 AM  
Anonymous Anonymous said...

Thank you rbyzell. Info for little silvered - I am actively looking in the shore area every day, and I will bring you all info and feed back I can from this area. Today when I asked about market conditions, one realtor said, if she "were to sell her own house (Wall Twp) today, she would rent a year before buying, to see where prices go in the next year". You can be sure I will check in with this site, give any MLS, etc. and get your feedback before I buy. Any info I get in the process, I will bring to you.

Tuesday, February 21, 2006 2:17:00 PM  
Anonymous Anonymous said...

What if I could give you a great money books for your home library collection. Great books on money books and home repairs ...

Monday, February 27, 2006 11:12:00 PM  
Blogger jay lassiter said...

i found you by the NJ blog carnival. wow, what an invaluable resourse your site it.
It's always nice to learn something interesting. thanks for that.
I hope housing prices cool off. my partner and i pay 13,ooo/year in prop tax in cherry hill (no joke)
If the market cools and the prices go down, do the taxes go down commensurately?

Wednesday, March 01, 2006 5:55:00 PM  
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