Fed Funds Rate at 5.25%

As most of you have seen already, the Fed raised interest rates again for the 17th straight time. The Fed Funds rate is now at 5.25%. Most of the action in the bond market immediately after the announcement pointed towards the belief that the Fed would pause at 5.25%. I think later in the day though the bond market started pricing in another 25 bps increase at either of the next two, but not both, fed meetings between now and September.

The effect of the increase by the Fed on mortgage rates should be noticeable tomorrow or by next week. I would expect to see mortgage rates above 7% relatively soon. Interestingly, the yield curve is still slightly inverted. In other words, the yield on the two year note is a little higher than the yield on the ten year note, or about 5.26% for the two year compared to 5.23% for the ten year. If the yield curve returns to its normal slope, then the ten year note would be priced to yield about 6.1% to 6.2%, all else being equal. In that case, mortgage rates would probably be in the 7.75% to 8.00% range. In short, even if the Fed pauses indefinitely, I think there is a good chance long bond rates will continue to rise, which will in turn push up mortgage rates.

Eastern Monmouth MLS at 4,400

Last week the count was 4355

It will be interesting to see if inventories decline a little bit in the first week of July. It is my understanding that the bulk of listings usually expire at the end of each month. If that is the case, then I would not be surprised if some home owners decide to not re-list going into the summer and instead wait until fall.

Slowdown at the Southern NJ Shore

Thanks to a reader for sending in the link.

snip..

"Jay Lamont, the host of "All About Real Estate" on WPEN-AM (950), who has studied and owned real estate in Ocean City for about 40 years, said, "I have never seen anything even close to this debacle. Many legitimate and qualified buyers are waiting for fall, for the lender REO [real-estate-owned] listings and foreclosure sales on failed developer loans."

Weekly sales reported to the Ocean City MLS are 80 percent to 90 percent lower than they were in spring 2005, with seven or eight sales a week, he said."

Full article...

Realtor Says 10%

I visited a few open houses over the weekend. Prices on some houses are definitely starting to drop but, in my opinion, it won’t be until next spring at the earliest that I would consider putting a bid on a house. In any event, I asked a Realtor at one of the open houses I attended this weekend how far prices had dropped since last summer. The Realtor guesstimated that prices in many towns were about 10% lower than last year’s peak, which sounds about right to me.

The Rumson House is for Rent and for Sale

That house in Rumson that we have been following for over a year now and which has had multiple asking price drops is now for rent and for sale. I’m starting to see a number of houses in the area that are both for sale and for rent, which is a clear indication how slow the real estate market currently is.

Springsteen at Tradewinds

Back in the day, Springsteen used to occasionally play unannounced at either Donovan’s, or the Rum Runner or Cheers in Long Branch and Tradewinds, among a few other places. After hearing a rumor that he would be at Cheers one Sunday night, and spending way too much time there listening to an overrated local band called the Outcry while waiting for him to show up, I reached the conclusion that local bar owners start the Springsteen rumors just to drum up business on a slow Sunday night in the winter at the Shore.

The latest Springsteen rumor that I heard was that he bought one of the huge Kara Homes McMansion’s in Sea Bright where the Tradewinds used to be. As I said, it’s only a rumor, but I can’t help but think that some Realtor took a page from the Shore bar owners’ book of “How to Drive Bar Traffic at the Shore in December” and once again started the rumor that Springsteen will be at the Tradewinds.

Another Rent Vs. Buy Scenario

This article clearly articulates why it is now better to rent than to buy. At today’s real estate prices, and once you exclude the possibility of double digit gains continuing for years to come, most people would be better off renting now than buying.

“As real estate prices spiraled upwards over the last ten years, artificially low interest rates and lax lending standards were not the only factors helping to maintain housing affordability. Just as important were the expectations of future price appreciation and the suppression of the rental market. With these two factors largely reversed, the housing market is much more vulnerable than most people understand.”

Full article…

Fed Funds to 5.50% by August

Only about a month ago it looked like there was a decent chance that the fed would pause in June. That is no longer the case. A 25 bps. increase in the federal funds rate is assured next week and it is starting to look like there will be a very strong chance that rates in August will be raised another 25 bps. A 50 bps point increase in the fed fund rates to 5.50% could easily put mortgage rates above 7.25% by September compared to the current level of about 6.70%.

From the Wall Street Journal, no link.

“U.S. Treasury prices were under slight pressure Friday, with the market unable to sustain earlier gains.

The 10-year Treasury note was down 3/32, or 94 cents for every $1,000 invested, at 99 11/32, to yield 5.21%. The 30-year Treasury was lower by 3/32 at 88 30/32 to yield 5.24%. The five-year Treasury was off 1/32 to yield 5.19%, while the two-year was down 1/32 to yield 5.24%. Prices and yields move in opposite directions.

Sentiment in Treasurys remains lackluster, with many investors waiting for next week's Federal Open Market Committee meeting. That event, combined with high expectations of a further rate increase in August, was limiting overall moves in prices Friday.

"Treasurys tried to bounce a couple of times, and couldn't hold it," said Michael Cloherty, fixed-income strategist at Banc of America Securities. "We look for the market to consolidate and wait for fresh news before the next leg of the bear trend continues."

Analysts expect a quarter-point increase in the benchmark federal funds rate at next week's FOMC meeting, lifting it to 5.25%. Beyond that, traders have priced in odds of another quarter-point rise in August at 90%. Such a backdrop casts a bearish pallor over rates.”

Eastern Monmouth MLS at 4355

Last week the count was 4306.

First Out the Door

The housing boom began with easy money and is ending with tight money. From a personal standpoint, I would note that each time the fed raises interest rates 25 bps, it becomes more unaffordable for me to own a house, but more profitable for me to keep my “down payment” in a money market, which is now yielding about 4.7%.


Snip…

``It is difficult, if not impossible, to recall a time when so many central banks were so crystal clear about their desire to withdraw liquidity from the system,'' wrote Tim Price, a strategist at Union Bancaire Privee in London, in a research note. ``As always when leveraged investors are invited to the party, everyone thinks they can be first out of the door when they hear the chimes at midnight.''

More…

Already in the Red ..... Bank

Here is a story about a flipper who bought at the top of last year's market and has yet to even put the house on the market. These stories are starting to become a dime a dozen.

Snip...

"And now here she is a year later, with a house bought at the top of the market still unfinished, hoping like crazy that her new crew—"Elks Lodge guys who I feel safe with," she calls them—will enable her to finally get it on the market by month's end.

It's what you might call an object lesson for any amateur who ever thought flipping a property was easy.

Swanson, a voluble 40-year-old from Manhattan, worked for 10 years in TV & film production, a business that lives and dies by tight budgets and schedules. She's also been an office manager. But for a long time, she's yearned to test interior design skills that she says have been her passion since childhood."

Full article...

Housing Stocks as a Leading Indicator

The decline in housing equities may be indicating we are heading for a recession in 2007 according to this ex-Value Line employee. I wonder if Mrs. Buttner would agree?

"Charts provided by Value Line (where I used to work) showed an interesting head and shoulders pattern for the housing stocks. As a fundamental analyst, I must warn that technical analysis is not my forte. On the other hand, as a long-term investor, I am well equipped to monitor a pattern that actually took several years to unfold, and therefore might have been missed by people looking at patterns over a period of say, 200 days."

More...

Price Are Sliding in Hot Markets

"San Diego County housing prices took their biggest-ever spring stumble last month as the median sales price fell to $490,000, down $15,000 from the previous month.

The median price was just $2,000 higher than it had been a year earlier and was down 5 percent from the record level of $518,000 it reached in November, according to DataQuick Information Systems."

More...

Eastern Monmouth MLS at 4306

Last week the count was 4280. Inventories have yet to show a weekly decrease since about February.

FYI - Blogging will be light to non-existent over the next few days as I will not be near a computer.

Open House Experience

I went to one open house on Sunday. The house that I saw was in one of the nicer sections of Long Branch and has been on the market for about a year. The Realtor that was showing the house commented that it was originally listed too high and that owner had been chasing the market down since last summer. Since last summer, the home’s asking price has fallen a little more than 20%. As I have been finding with Realtors over the past few months, compared to last fall, there is some resignation that the market is not going to recover anytime soon. I have been waiting for a Shore Realtor to tell me this spring that “real estate never goes down”, but I have yet to encounter a legitimate gung-ho bull. I think many Realtors are realizing that there time and energies are better spent trying to get sellers to come down on price rather than trying to persuade buyers to pay up.

“What if you can't sell your property”

Snip…

“When a market starts to turn, it doesn't have to be quick. It's more likely to be slow and painful – like boiling a frog. (The idea goes that a frog would jump out if it were thrown into a pot of boiling water. But if it's put into a pot of cold water and then the heat is turned on, the frog could not judge the threat.) In fact, economist Gary Shilling wrote in Forbes magazine last September, "History also suggests that a housing boom does not have to end violently.”

More…

Flippers in Bradley Beach

The housing bubble blog covered this story pretty well already so most of you have probably already seen it. If you haven't it's a good read.


[It wasn't a pretty picture when Charles Kovach and his wife, Brenda Connolly, first took a look at an octagonal-shaped house on LaReine Avenue in Bradley Beach, a block-and-a-half from the beach.

The home was run-down. It had no insulation or closets.

"It was a disaster," said Connolly, a real estate agent at Diane Turton Realtors in Avon.

But Kovach, who buys residential properties, fixes them up and resells them — also known as "flipping," — saw something and bought the house for just under $500,000 last August. He spent about $200,000 for renovations and other costs, completely transforming the structure. Now he hopes to sell it for $849,000.

But the house has been on the market for three months. A year or two ago, it probably would have already sold.

While home prices are still edging up, they are not rising at the furious double-digit clip of the past three years. And that is starting to put a damper on the real estate market for investors —some would call them speculators — who have had a hand in driving up prices in recent years.]

Full article...

The Pre Historic E-Mail

Back in about early 2002 I had signed up with a Realtor to receive new listings via e-mail. At some point later in 2002 I probably asked to be taken off of their e-mail list and never got another listing or notification, and never noticed or cared. Just yesterday though I was checking my personal e-mail at home and noticed that amid the junk and spam there was a listing from the Realtor that I hadn’t gotten any e-mails from in about four years. I wasn’t annoyed or anything with the Realtor for receiving the e-mail. Instead, I think its pretty telling how weak the market is that a Realtor would dig up some old archived file with my e-mail on it and start sending me listings. It’s really grasping for business in my opinion.

MLS for Eastern Monmouth at 4280

There were 4280 homes for sale on the MLS for Eastern Monmouth today. I said a few weeks ago that I thought that listings would likely flatten out by late May, early June, but it looks like inventory is continuing to build.

The Northern NJ blog points out that inventory is continuing to grow in North Jersey too. The 6.7% increase in inventory in Hudson County looks like a sure sign that Jersey City condo dwellers having a hard time escaping from that area – probably due to all of the new construction (supply) coming on-line there.

Otteau Report is Out

The Otteau Report, which describes the state of the real estate market in Jersey is published quarterly.

The report, which contains lots of useful information, makes it clear that the real estate bubble is deflating in New Jersey and here at the Shore. Looking at the “Projected Absorption” in months of each Monmouth County Town, it looks like the towns directly on the beach have the most unsold inventory. For example, Spring Lake has a projected absorption of 43 months and Sea Girt has 28 months. Meanwhile, the total market for all of Monmouth County is 8 months.

Monmouth

Ocean

Atlantic

Cape May

Eastern Monmouth Weekly Inventory

The chart starts on 6/15/2005 at 2728 homes listed for sale on the MLS. Year-over-year, inventories are up about 54%. Click to see the larger image.

No Deal According to The Real Deal

The Real Deal has a number of articles, graphs and charts that describe the state of the real estate market in NYC. The slowdown in condo and co-op sales in the City is very important for Monmouth County since sellers of NYC apartments are the natural buyers of Monmouth County single family houses (among other suburban locations.)

"The moment of truth is coming sooner for New York real estate sellers, and sometimes it's not pretty. Real estate agents are increasingly finding that sellers who hoped to make a killing on their properties need to inject their visions of profits with a dose of reality when they price their apartments, or go through the time-consuming process of marking them down.

That doesn't mean that you'll find a Brooklyn brownstone or a Soho loft in the bargain basement, but many sellers may be disappointed to find that their property probably won't attract the bidding wars -- or even competing bids -- of years past."

Full Article...

More Graphs and Charts from The Real Deal.

Major Price Cut on the Rumson House

Old price = $749,900

New price =$699,000

This house has been on the MLS for over a year. It originally started out at $940,000. To read older posts about this house that won't sell, look at this post.

Also here is an early posting from the Spring of 2005.

What Hov. Said Today

From Hovnanian's conference call today.

"We don't believe that the current slowdown in housing is driven by interest rates. Rates have moved up, but the increases have been moderate, and mortgage rates remain very attractive by any historical measure. The slowdown is also not driven by the lack of job growth. The economy continues to prosper and add significant jobs. It's also not driven by an abrupt reversal of population growth. The trend continues to be very positive in demographic terms. Rather, it seems to be that the slowdown is being driven by two primary factors. First, investors. Investors have largely withdrawn from the market, thereby reducing demand. In addition, they have added to the supply of available homes by listing their recent purchases for resale. This has resulted in a significant growth of the resale listings in many markets. Second, buyer sentiment. Buyers have been bombarded by the media predicting a housing bubble, and now they are seeing builder advertisements touting a variety of concessions and incentives. Not only has the buyer urgency receded, but buyers now believe that a more cautious, slower approach toward a new home purchase may result in a better opportunity. The question is, how long will this excess inventory and buyer sentiment prevail?"

Don't Feed the Sea Gulls...

...and other rules for Shore vistors. (not real estate related)

I found this list of rules for people who are visiting the Jersey Shore this summer. Some locals might even call the vistors "bennies."

6. Don't Feed The Seagulls. This is in italics because it is especially important. Not only are you teaching them a behavior that is un-seagullish and can't be replicated so as to keep them alive the other eight and a half months a year, but as with all living creatures . . . you eat, you poop. Except that seagulls have this reaction almost instantaneously, most likely right over the family next to yours on the beach. Don't Feed The Seagulls.