Sunday, April 30, 2006

"This is not a market that is going to collapse,"


[Media reports nationwide are warning of a potential real estate collapse, but county and state experts say those reports are not representative of what the facts show.

"This is not a market that is going to collapse," said Jeffrey Otteau, president of the New Jersey-based Otteau Appraisal Group, which did a study comparing this year's real estate trends with last year's and presented it to The New Jersey Homebuilders Association last week. "This is not a time to stop buying. It's a time to negotiate a little tougher and take advantage of (61/2 percent) interest rates that will surely be increasing."

New Jersey's most recent real estate market collapse occurred in 1989 when three factors created a so-called perfect storm, Otteau said. Homes were becoming less affordable, New Jersey builders overdeveloped at a rate of 50,000 new homes per year and the economy slipped, resulting in widespread job loss.]


Friday, April 28, 2006

South Jersey Realtor Provides Useful Info.

This Realtor, Andrew Scrivani, on Realty Times (an otherwise useless website) has some relevant and timely comments about the real estate market in Wildwood. Also look what he has to say about Cape May and Sea Isle City.

"80 properties sold in Diamond Beach, North Wildwood, Wildwood, Wildwood Crest, and West Wildwood....30 more then the 50 or so that sold in the month of Feb.

Sold prices ranged from $103,000 to $2.3 million.
About 50 of these properties were condos, a dozen were single family, and about 14 were townhouses. The rest were commercial or misc.

Currently there are about 2,050 homes for sale in the Wildwoods...a number that keeps going up every month."

Full report...

Take Away Insurance...

...and people won't build houses where they shouldn't. If tax payer subsidized insurance was cut back, some Jersey Shore property owners would probably, eventually, lose their houses to the wind and sea and would not be able to rebuild.


[According to The Star-Ledger, members of Congress are preparing to back legislation to target "repetitive-loss" structures. Solutions said to be under consideration are said to include buying and demolishing homes that flood repeatedly, requiring their owners to floodproof them, taking away subsidized coverage and boosting premiums to more closely reflect actuarial realities. "As it stands today, the flood insurance program provides coverage for thousands of repetitive-loss properties, vacation homes and, perhaps, a considerable number of structures that should never have been built," said Sen. Richard Shelby, D-Ala., whose committee held hearings on the troubled program.

Among the states with the worst record on repetitive claims is New Jersey. New Jersey's 7,376 flood-prone structures, half of them on the barrier islands off Atlantic and Cape May counties or in the Passaic River basin, represent less than 4 percent of the 200,000 properties owned by the program but account for more than 50 percent of the $334.2 million worth of claims paid since 1978. Of these buildings, 1,115 have had four or more $1,000-plus claims or two or more claims that, together, exceed the current value of the structure. Only Louisiana and Texas are home to more of these "severe repetitive loss" properties.]

Full article...

Comments From a Small Jersey Shore Bank

Boardwalk Bank, a small community bank in south Jersey, reported their first quarter results and made the following comment about the local real estate market.

["Management has been alert to changes in the market as we enter the second quarter. South Jersey appears to be in transition. The casino industry and Atlantic City are thriving which creates solid forward momentum in the local economy. Offsetting this dynamic development is a decidedly cooler real estate market. While Boardwalk Bank is a minor player in residential real estate lending, the full ramifications of this change are yet to be understood. So far no changes in real estate have been reflected in the Bank's loan portfolio. We continue to enjoy very high credit quality with no non-performing loans and a delinquency ratio of .0053%. Both higher interest rates and the ultra-competitive banking industry in this area add yet more factors into the mix. Management is optimistic but watchful."]

Full press release

Mortgage Rates to 6.58%

"WASHINGTON — Rates on 30-year mortgages rose for the fifth consecutive week, hitting their highest level in nearly four years, a nationwide survey of rates reported Thursday.

Mortgage giant Freddie Mac said rates on 30-year fixed-rate mortgages averaged 6.58 percent this week, compared with 6.53 percent last week.

The new rate was the highest since 30-year mortgages stood at 6.63 percent the week of June 20, 2002."


Wednesday, April 26, 2006

Spring Lake “Extreme” Over Supply

Today’s Wall Street Journal had an article about the national housing market. In summary, the article pointed out that “hot” markets like Boston and San Diego are cooling and that “cool” markets like Dallas and Atlanta are heating up. The article also made this reference to New Jersey, and specifically Spring Lake. I don’t have a link.


“In New Jersey, a market highly dependent on people who commute to other states, prices are likely to be flat to slightly higher this year, down from the double-digit pace of recent years, says Jeffrey G. Otteau, president of Otteau Appraisal Group in East Brunswick, N.J. Next year, he thinks prices could fall 5% or so in the state.

"We think that we're going to be in a flat holding pattern for the next several years," Mr. Otteau says, though at the top end of the market, there is "an extreme oversupply" of houses. In Spring Lake, N.J., known for expensive homes, there is a three-year supply of homes at the current rate of sales, and Upper Saddle River has a 21-month supply, Mr. Otteau estimates. He blames the state's loss of high-paying jobs in such industries as telecommunications and pharmaceuticals.

MLS for Eastern Monmouth up to 3822

The rate of inventory growth seems to have finally pulled back in the past week. During March and the first two weeks of April, we were seeing about 100 new listings added each week, however, this week, the number of new additions to the MLS seems to have slowed a little. Inventory still continues to grow though and it does not look like the Spring bounce that some were hoping for will be high enough to clear out a significant amount of inventory going into the summer months, when sales are historically slower.

It’s Too Early to Talk About a Soft Landing

A consistent talking point of Realtors and homebuilders and speculators is that that the housing market is not crashing. Instead, the housing market is headed for a “soft landing” or that is has already landed, “softly.” Calling the recent miniscule decreases or flattening of housing prices evidence of a soft landing is extremely premature considering the gains of the past four or five years. We are barely three or six months away from the all time highs of last year and the real estate industry wants to declare victory as if their assertions that “real estate never goes down” has already been proven true.

-Lereah said in a prepared statement. "This is additional evidence that we're experiencing a soft landing. We may see some minor….

-The situation is a “soft landing” in prices, said Linda Small, mortgage loan officer for Community Bank of Santa Maria.

-"It's pretty self-evident the (residential) market has cooled," said Kevin Kronk of Brentwood Homes, president of the Volusia County Home Builders Association. "But the language we hear is the market is coming in for a soft landing, not a crash. The builders aren't worried about it," he added. "Nobody is panicking."

-Unlike the coasts, however, "the Illinois market isn't overheated, so there won't be a collapse, which is good news," Swonk said. "We're headed for a soft landing."

-Economists said that housing is experiencing a 'soft landing' and not the drop previously forecast," stated Sonja Rudd in Wall Street News Alert's daily

-“The good economic backdrop [in Arkansas] is providing a soft landing scenario for the housing market,” Yun said.

-"The anticipated degree of decline in starts for 2006 (6 percent to 7 percent) still qualifies as a 'soft landing' for the housing market, following unsustainable exuberance in 2005," David Seiders, chief economist for the National Association of Home Builders, wrote in his April 19 column.

Tuesday, April 25, 2006

Interest Rates Up

As of Monday, the futures market was pricing in an 87% chance the Federal Reserve would raise rates in May by another 25 basis points. Also as of Monday, the futures market was pricing in a 45% chance that the Fed. will raise rates by an additional 25 basis points in June, which would bring the fed funds rate to 5.25%. Now that the NAR has released the existing home sales data for March, the futures market thinks that there exists a 56% chance of the fed increasing rates in June by another 25 basis points.


The Increasing Supply in Jersey City and Hoboken

I occasionally make the point that people who live in Hoboken or Jersey City or Manhattan now will probably have to buy in the suburbs eventually. I also like to point out that inventory is growing in those areas, which indicates to me that condos are not selling there, and therefore, those sellers are not going to be Jersey Shore buyers anytime soon.

In any event, it does not look like condo sales are going to get any better up there because it looks to me like a huge supply of new construction is nearing completion in Hudson County. In Hoboken there are three huge Toll Brothers projects that will be completed starting late this year that will probably dump at least 700 condos on the market in the “Mile Square City” (aka Hoboken.) Jersey City will probably be worse as far as supply absorption is concerned since there is so much room to build there. Already, Trump says he plans to put up some new luxury building and Hovnanian recently announced plans to build another huge tower on the Jersey City waterfront.

Monday, April 24, 2006

How Fast is the Housing Bubble Deflating?

It seems to me that the housing bubble is deflating pretty rapidly and some areas of the country could start to experience periods and pockets of panic selling in the next few weeks.

Tomorrow, Existing Homes Sakes for March are going to be released at 10AM and I guess we will see just how quickly the bubble is bursting.

$4.00 Gas

A popular topic on the housing bubble blogs is what will be the effect of expensive gasoline prices on real estate demand and prices. As far as the Jersey Shore is concerned, I think that over the long term high gas prices will persist and will depress demand in some of the areas that are furthest from NYC (but still within commuting distance.)

Ocean County has become a lot more popular over the past 10 years as a place to live and as far as I can tell, plenty of people commute to NYC each day from some of the more northern towns of Ocean County. Commuting from Brick or Jackson, I would imagine, must have seemed relatively cheap if you bought a home there three years ago, however, the cost now, with gas at over $3.00 has got to be pretty painful. I doubt too many people would pack up and move further north to shorten the daily commute and reduce commutation costs. On the other hand, there are probably families in Jersey City or Staten Island that have been thinking of moving to Toms River or Brick but are putting those plans on hold because of the increase in the cost of commuting caused by high gas prices, or the threat of higher gas prices.

Friday, April 21, 2006

"Not Your Father's Housing Market"


"This week, as mortgage rates rose to their highest level in more than four years, real estate insiders reassured the public that higher interest rates would not hurt the housing market. Their claims were based on the fact that even though rates had risen, they never-the-less remain low in historic terms. While this may be true, it is completely irrelevant to today's historically unprecedented real estate market."

Full article...

Thursday, April 20, 2006

Mortgage Rates Climb, Again

NEW YORK (Dow Jones)--Long-term mortgage rates rose to their highest levels in nearly four years, Freddie Mac, the congressionally chartered housingfinance agency, said Thursday.

The average for 30-year fixed mortgage rates for the week ending April 20, 2006, was 6.53%, up from 6.49% a week earlier, Freddie Mac said in its weekly primary mortgage market survey. The 30-year fixed mortgage rate has not been higher since July 2002, when it averaged 6.54%, Freddie Mac said. One year ago, the 30-year fixed-rate mortgage averaged 5.80%.

No link

Homebuilders See Higher Cancellation Rates

A few homebuilders have reported first quarter 2006 results already and a number of them have reported that they are seeing higher cancellation rates than normal. Put simply, more people are walking away from commitments to buy new houses than in the past.

Looking at the earnings schedule, Toll Brothers plans to report give an update for its second fiscal quarter on May 5th. This should be an interesting conference call since the CEO, Bob Toll has been pretty insistent that the market is still in good condition.


"We are keenly aware that the homebuilding environment has weakened," said CEO and Chairman Larry Mizel in a statement. "Because the level of our success in 2006 will hinge largely on our ability to generate net home orders in this environment over the balance of the year, we are not in a position to predict whether our revenues and earnings for the full year 2006 will exceed our 2005 performance."



[Ryland said new orders in the first quarter fell 21 percent from a year earlier, to 4,021. The value of the new orders fell nearly 17 percent, to $1.18 billion.

"People are unable to sell their existing homes for what they thought they might, and are unable to go through with their anticipated purchase of their new home," said Raymond James and Associates analyst Rick Murray. "So, they end up canceling their contract."]


Wednesday, April 19, 2006

Inflation is Under Control, No its Not

The past two days have been pretty volatile for the bond market. Yesterday the fed suggested that it would stop increasing interest rates soon. Today though, the inflation data came in higher than expected, which spooked bond traders into thinking the fed won’t be in a position to not raise rates through the end of the summer. Personally, I think the fed will raise rates two more times and pause at 5.25%. That would probably bring the 10 year treasury rate to at least 5.50% and mortgage rates to about 7.00% by about July.

If you had a monthly mortgage payment budget of $3000, then you could afford a $500,000 mortgage at a rate of 6%. However, if you had the same $3000 budget then you could only afford a $450,000 mortgage if the rate were increased to 7%. Basically, a 100 basis point increase in mortgage rates lowers the value of a $500,000 property by $50,000 or 10%.

Shore Inventory is Up to 3773

Last week there were 3698 houses for sale on the MLS for eastern Monmouth County. The week-over-week increase is 2% and seems generally consistent with the rest of the state as well as many other parts of the county.

Part of the reason the there is so much inventory is because sellers do not seem to be budging on asking prices. One house that I am sort of interested in has been priced at the same level since October. You would think that if a house has not been sold in six months than it would be time to lower the asking price. I would not even consider stepping foot in that house, although I sort of like it from the outside, until I see the asking price dropped at least 10%

Tuesday, April 18, 2006

Long Island Update

Newsday has an article about the housing market on Long Island. Long Island is a lot like the Jersey Shore. It has beaches, many residents commute to NYC etc. so I think it’s a good proxy for our own market.

“Say one last farewell to the housing boom.

In the clearest evidence to date of a housing market shift, the latest Long Island data showed Nassau County's median home price rose only 4.4 percent from March 2005 to March 2006 - the smallest annual price gain since May 1998.

Nassau's median home price stood at $470,000, the same level it was in June 2005, according to the Long Island Multiple Listing Service. Suffolk County reported a 6.2 percent yearly jump, to $396,800. Queens is still far stronger, with a median price of $475,000, a 13.1 percent gain from March 2005.”


Monday, April 17, 2006

The Bond Market Likes Bad News

The National Association of Home Builders released there sentiment index today and the bond market rallied slightly on the weak index results. The index came in at 50, which was considerably lower than what the street was looking for, which was 55. Bond traders like it when there are strong signals that the housing bubble is bursting because it implies that the fed will stop raising interest rates sooner, rather than later.

“U.S. home builder sentiment declined in April to its lowest level since November 2001, the National Association of Home Builders reported on Monday.

The drop was in response to rising mortgage rates, continued affordability issues and subsiding demand from investors and speculators, the NAHB said.

The NAHB/Wells Fargo Housing Market index slid to 50 in April, seasonally adjusted, from March's downwardly revised 54. It was the lowest reading since November 2001, when it stood at 48.”

McMansion Discounts

I was looking through one of those house listing catalogs yesterday and saw an ad for the Tradewind’s McMansions built by Kara Homes in Sea Bright. The ad said that you can get a $200,000 credit for upgrades. I’m not sure how long this credit offer has existed, but it’s the first time I have seen it.

When a builder offers a credit on upgrades, or says they will cover closing costs or will throw in a free car, that is the equivalent of a price reduction. Builders don’t like to just lower the price because the people who bought earlier will get angry that the builder is selling houses for less than what they paid for their house.

Thursday, April 13, 2006

Fiscally Fit

Terri Cullen writes the “Fiscally Fit” column for the Wall Street Journal. She usually has practical advice and insight concerning personal money matters. In today’s addition of the WSJ she writes about a new housing development that is being built near her home in Monmouth County and what effects the development will have on the local area. (She does not say exactly where she lives or where the new development is going to be, however, from this article I would guess it’s the new Kara Homes on rte. 36 in Middletown or the new homes being built by Centex (?) on rte. 35 near the Whole Foods.) Regardless, she made this reference below about the Shore.


“Another wildcard is the local real-estate market. While the Monmouth-Ocean region of New Jersey has seen some of the biggest home-price increases in the nation -- the median price of existing homes has doubled in the last five years to $377,800, according to the National Association of Realtors -- rising interest rates and a sharp increase in the number of homes on the market have already forced homeowners in our area to offer price reductions.”

Sorry no link.

Also, here is her e-mail if you want to send her a link to this blog.

Mortgage Rates Hit New 4 Year High

Here are some Dow Jones Headlines from earlier today.

DJ Freddie Mac 30Yr Fixed Rate 6.49%, Highest Since July 02

DJ Freddie Mac 5-Yr ARM Rate Rises To 6.13% From 6.11%

Some housing bulls like to try to panic the populace into buying by telling them to buy real estate before rates go higher. This is of course ridiculous since an increase in rates will reduce the overall price of the property. At this point in the housing cycle, I would rather buy a house at a reduced price and a higher interest rate since I will eventually be able to re-finance at a lower interest rate.

Wednesday, April 12, 2006

Inventories Hit 3698 in Eastern Monmouth

By tomorrow morning the number of listings should be above the 3700 level. The number of new listings hitting the Multiple Listing System seems to be on a sharper trajectory within the past two weeks compared to March and February and before that. There also seem to be quite a few FSBO houses out there which are not necessarily counted on the MLS.

The growth in inventory is not just happening at the Shore, its happening in other parts of the country, but most importantly for Shore sellers, in Hudson County and in NYC as well. This chart shows the increase in the number of co-ops and condos for sale in NYC, which can’t be good for our local market.

House sellers are going to have a difficult weekend I suspect since there probably won’t be any open houses on Easter Sunday. Let me know if you do see an open house on Easter Sunday, since that would be a real sign of desperation.

5.00 + 1.40 + .25 + .90

With real estate sales transactions slowing down, you hear many Realtors and real estate bulls explaining the slowdown as a return to “normal” market conditions. This got me thinking, what if interest rates returned to normal? More specifically, where would mortgage rates be if the yield curve, which is currently flat, returned to its normal slope?

As it stands now, with the flat yield curve, mortgage rates are about 6.40%, or about 140 basis points higher than the yield on the 10 year treasury of about 5.00%. If the Fed raises short term rates only one more time to 5.0%, which it is expected to, then there is a strong possibility the market would push the 10 year rate to about 5.10% assuming the yield curve remained flat. However, if the slope of the yield curve returns to “normal”, then over the course of the next 6 to 12 months, we should see the 10 year treasury yield widen by about 90 basis points to short term rates, which is the average spread between the 2 and the10 year bond over the past 20 years. At that point, the 10 year rate would approximate 6.0% and assuming the spread between mortgage rates and 10 year yields was constant at 140 basis points, mortgage rates would then be about 7.4%.

Tuesday, April 11, 2006

Sales Slow in Northeast

This article link to Inman will likely disappear. In the meantime, here is an excerpt.

[Only a few months ago, at midnight on Dec. 31, Joseph and Kianna Jackson gently clicked their champagne glasses together in their New Jersey apartment and made a resolution for the coming year: They vowed to make an offer on their first home by March 15 -- their daughter's second birthday.

But like so many other New Year's resolutions, their promise has so far been unkept. As mortgage rates crept higher in the first two months of 2006 and sales in their local market slowed, the Jacksons decided to postpone their home-buying plans because they think prices could be a lot lower in the summer or fall than they are today.

"A year ago, the market was super-hot and it was hard to find a Realtor or builder who would even return our calls," says Joseph Jackson, a self-employed computer-programmer.

"But now, I'm getting a couple of calls a week from people who want to sell me a home," Jackson says. "I just tell them to call back in a few months, and I'll let them know whether I'm interested in buying again."]

Check out the housing bubble blog for more info on this article.

Monday, April 10, 2006

Year-Over-Year Price Declines on the Way

The number of house sales in the Jersey Shore area and other parts of the country is clearly down, and have been, in various areas, for at least six months. That has not stopped the many of the housing bulls from trumpeting the fact that sale prices have continued to rise. The bulls most consistently cite the fact that prices, on a year-over-year basis, are still higher for the month being compared. The quote from bulls that you usually see is something like “…although the number of houses that sold last month were down xx% compared to last year, selling prices are up xx% from the same period last year.”

In a few more months though, positive year-over-year comparisons are going to end. This is only evident in a few markets, like in Massachusetts, so far, but it is spreading. According to the bubblemeter blog, the market in Washington DC is starting to see year-over-year price declines, although they are small so far.

I doubt that Realtors will be as motivated to point out price declines as much as they have been to point out price increases, however, I think that the public will eventually notice and that those who are selling houses will lower their asking prices more than they already have.

Sunday, April 09, 2006

This is Why Sales are Slow at the Shore

There are a ton of condos for sale in Hoboken as shown by this cool post on the bubbletrack blog.

These condos are being sold by families trying to move to the burbs, including the Jersey Shore. Until the Hoboken condo is sold, there is no point buying a house in Middletown.

Saturday, April 08, 2006

More About Asbury Condos

The huge half built building on the waterfront in Asbury is going to be demolished to make room for new condos. At this point in the housing cycle I would be surprised if the new condos actually get built.

"ASBURY PARK — The steel skeleton known as C-8, a symbol of a decade when then-bankrupt developer Joseph Carabetta held the city's waterfront hostage, is to be imploded April 29, Dean S. Geibel, president of Metro Homes, said Friday.

The implosion will clear the way for Hoboken-based Metro Homes to start building the 224-unit Esperanza high rise between Third and Fourth avenues. The company is the third developer brought in by master developer Asbury Partners, which purchased Carabetta's development rights and Asbury Park properties in 2001."

Full article...

Friday, April 07, 2006

It's A Menace

A Good Article, with graphs.

"By Dean Baker

An unprecedented run-up in the stock market propelled the U.S. economy in the late nineties and now an unprecedented run-up in house prices is propelling the current recovery. Like the stock bubble, the housing bubble will burst. Eventually, it must. When it does, the economy will be thrown into a severe recession, and tens of millions of homeowners, who never imagined that house prices could fall, will likely face serious hardships."


I’m Giving Up on the Asbury Park Press

Just about everyday I check the Asbury Park Press to see if they have any local real estate stories relevant to this blog. Day after day after day I have to wade through inane headlines about people filing false police reports in Dover or the homeless Dutch teenager problem in Lincroft. In short, the APP carries a lot of crappy stories that about eight to ten people care about at anyone time and this makes it ponderous task for me to find the occasional story that is relevant to this blog. Therefore, from now on, if the APP carries a real estate story of any kind, send it to me or post it in the comment section or just say check today’s APP. I’m not saying I won’t check the paper myself, only that I probably won’t be as thorough.

Thursday, April 06, 2006

Tomorrow is Supposed to be Important for Bonds

Yields on the 10 year note reached over 4.90% today ahead of an important data release tomorrow. Tomorrow the nonfarm employment report for March will be released and the consenus is that it will show an additional 187,000 jobs were added in March. If it is stronger than expected, then the market can be expected to take yields on treasury notes higher, and with it, mortgage rates.

Here is a story describing today’s treasury action.

Mortgage Rates Up Today

I wonder if the steady increase in mortgage rates will result in a buying rally. Many people seem to think that buying when rates are low and houses are expensive is a winning proposition. I think at this point I would wait until rates are higher and prices are lower since I can always refi, when rates do finally move lower, but I can only over pay for a house once.

"CHICAGO (MarketWatch) -- U.S. mortgage rates continued to push higher in the week ending Thursday, with the national average rate on the benchmark 30-year loan hitting 6.43%, its highest level in 31 months.

Freddie Mac in its weekly mortgage survey said the 30-year climbed from 6.35% a week ago. A year ago at this time, the loan average 5.93%. The 30-year hasn't been this high since Sept. 4, 2003, when it stood at 6.44%."


Wednesday, April 05, 2006

Real Estate Reminds Me of Cigars

Way back in the late 90s an old fad emerged that had probably been dormant for 75 years. The reborn fad was cigar smoking. Famous celebrities and politicians were on the cover of Cigar Aficionado shown smoking big cigars and before long every 20 something, hipster-poseur working in mid-town was buying expensive cigars and pretending to enjoy them in the various bars around NYC.

Eventually though, the cigar fad petered out. Cigar bars slowly closed or shifted focus, humidors were no longer the perfect gift, having a professional cigar roller at your wedding or corporate function was no longer essential. In short, the faddish twenty year olds stopped pretending they liked to smoke cigars and the fad faded away. Reading some of the comments by people in their twenties regarding real estate, I get the feeling that their interest in real estate will be as temporary as their interest in smoking cigars. Just as the apparent coolness of smoking a $12 cigar at the W Hotel Bar on Lexington Ave. has been eclipsed by other fads and trends, interest in flipping and “investing” in Hoboken new construction or downtown NYC office conversions seems about to be eclipsed too.

3589 Homes for sale on the MLS

Each week we look at the MLS for eastern Monmouth County to see where inventory levels are. Today, there were 3589 homes for sale compared to 3509 last week. Inventories are growing rapidly here at the Shore. As a number of news stories have mentioned and the other blogs keep pointing out, inventories of unsold homes are growing all over the country at a pretty rapid pace.

This past winter, many housing bulls were predicting that sales activity would increase in the traditionally busy spring selling season, while I guess that could still happen here, I don’t think it is happening in parts of the country where spring starts early. I have not seen any indications that sales in Florida or other warmer states have picked up with the arrival of spring and warmer weather in those places.

Tuesday, April 04, 2006

Lenders Believe in Bubble

It looks like lenders think a bubble exists. No link

NEW YORK (Dow Jones)--About two-thirds of lenders believe a housing bubble exists in the U.S., and half think it has begun to burst or will blow up in the next six months, according to a new survey.

A Phoenix Management report, released Tuesday, found 66% of the 92 lenders who took part in the survey believe the country is currently in a housing bubble, up from 46% a year ago.

"In the minds of lenders, the housing bubble has moved from Loch Ness monster myth status to an economic reality that could have a significant economic impact on the lives of many Americans," said Michael Jacoby, managing director and shareholder of Phoenix Management, an advisory firm that provides turnaround, crisis and interim management and investment banking services.

When asked when the bubble might burst, 77% said they believed it would happen within the next 12 months: 30% believe the bubble is already starting to blow up, 20% predict it will happen in the next one to six months, and 27% forecast it in seven to 12 months.

If a housing correction occurs, 50% of respondents said they believe prices would decline up to 10%, 43% expect a 20% price decline, and 7% see prices falling up to 30%.

The survey found 30% of lenders believe the Northeast region would be hit hardest by a housing correction while 27% believe the West would be affected most.

Despite their concerns about a housing bubble, most lenders do not see real estate as the greatest threat to the health of the U.S. economy. Instead, 38% named the deficit, 18% listed the war in Iraq, 14% named the current trade deficit, 12% listed the sluggish job market, and 9% named a low household savings rate. Only 3% named a potential real estate bubble as the biggest concern.

The survey questioned 92 lenders from commercial banks and commercial
finance companies across the country in January and February.

- Janet Morrissey; Dow Jones Newswires; 201-938-2118

(END) Dow Jones Newswires

Monday, April 03, 2006

“If the House is Priced Correctly, it Will Sell Quickly”

Over the past few months, as the housing bubble has shown signs of deflation, any number of Realtors has commented that “if the house is priced correctly, it will sell quickly.” They say it like it is tried and true wisdom acquired through years of experience or some sort of special professional insight. In reality, the quote is a hackneyed cliché and only shows that the speaker has a firm grasp of the obvious. It is the stock broker’s equivalent of telling a client that to make money in the market you should “buy low and sell high.” Most stock brokers still in the business got away from peddling this kind useless advice years ago, even before regulators told them to stop, and before electronic trading made for an easy and cheap end-round-run from the typical smart ass broker.

Don't Fight the Fed

If you are a housing bull, you have a few macro-economic conditions working against you. First and foremost, interest rates are on the rise. Think back to last summer, I remember the many prognosticators, pundits and economists were predicting that the fed would stop raising interest rates by the end of 2005. That was 100 basis points ago and rates keep getting pushed higher.

“U.S. Treasuries are off to their worst annual start in seven years and may drop further after the Federal Reserve signaled that interest rates will rise.

U.S. government debt of all maturities lost an average of 1.2 percent this year, compared with a 1.6 percent decline in the first quarter of 1999, according to Merrill Lynch & Co. index data.

Treasuries fell 0.3 percent after the central bank last week lifted rates by a quarter point for a 15th consecutive time, to 4.75 percent, and said ``further policy firming may be needed.''
Economists at Barclays Capital Inc. boosted their forecast for the central bank's interest-rate target by 75 basis points to 5.5 percent. Credit Suisse Securities USA LLC and Barclays joined Bear Stearns & Co. in predicting 10-year note yields this year will exceed 5 percent for the first time since 2002.”


Sunday, April 02, 2006

Who's Side are You On?

He is a good story from the Asbury Park Press about the conflicts of interest of Realtors who represent both the buyer and seller.

"Michael Avallone, a real estate broker, was jogging in Monmouth Beach one day in August 2004 when he saw a house for sale that appealed to him.

He said he went to the real estate agent who listed the home, identified himself as a fellow broker and said he would offer more than the $2.1 million asking price.

"(The agent) says, "I'm sorry it's sold, it's a done deal," Avallone, 51, of Monmouth Beach, said last week. "I said, "Really? It's sold? The sign went up two days ago.' He says, "There's really nothing to talk about.' "

Avallone thought the reason was simple: If the agent could find a buyer on his own, he would get the full sales commission. If he sold it to Avallone, he would have to split it, costing him thousands of dollars. The case wound up in court."

Full article...

Open House Observations - April 2, 2006

I'll try and post some of my weekend open house observations over the next few days. One house that I visted in the "Two Rivers" area was kind of interesting. It was a smallish cape cod in and would have been worth maybe $250,000 back in 2002. In any event, the Realtor showing the place said that the house had been marked down a few times and that it was priced to sell. Although the house was fully furnished, I did not get the impression people were living there so I made a point of mentioning to the Realtor that the owners should be willing to negotiate since they are now carrying two mortgages. The Realtor said yes, that there was some room to negotiate and added that this problem of move-up sellers not being able to unload their own property is becoming more common in the area.