"There is a major housing slowdown,"
From today's Asbury Park Press
[For the first time in a decade, home prices in the region that includes the Shore have declined, although the drop in second-quarter prices was slight, the National Association of Realtors reported Tuesday.
The median sales price for an existing home in the region that encompasses Monmouth, Ocean, Somerset and Middlesex counties was $393,600 in the second quarter, down 0.1 percent from $394,100 in the second quarter of 2005, according to the association. The median means that half the homes in the area sold for more and half for less.
It's the first time that the association has seen a percentage decrease since prices in the region fell from $148,600 to $148,500 from 1993 to 1994. They have climbed ever since.
"There is a major housing slowdown," said James W. Hughes, dean of Rutgers University's Edward J. Bloustein School of Planning and Public Policy. "It is surprising that prices have behaved as well as they have."]
posted by Little_Silvered at 8:29 PM
36 Comments:
Slowdown? An honest, or at least forthcoming, realtor confirmed as much for me today: "Prices are coming down due to rising inventory. Pricing will come down even more over the next year then level off." He didn't predict declines in terms of overall percentages--more the result of caution, rather than obfuscation, I s'pect.
Nevertheless, I think he might be a bit off on the duration of the decline--this one could go a few years, once panicky and overleveraged sellers start racing each other to the bottom.
Still, heartening to find a realtor who's candid about the markets. I hope he's telling his sellers the same thing, otherwise it does nobody any good to have buyers expecting reductions and sellers expecting stable prices. He probably is, but the sellers just aren't in a listening mood.
Should be interesting. Hopefully, the forthright realtors will be the last men standing...
-Jamey
Code of Ethics
The Code establishes time-honored and baseline principles that come from the collective experiences of REALTORS® since the Code of Ethics was first established in 1913. Those principles can be loosely defined as:
Loyalty to clients;
Fiduciary (legal) duty to clients;
Cooperation with competitors;
Truthfulness in statements and advertising; and non-interference in exclusive relationships that other REALTORS® have with their clients.
Anyone care to take a guess at when we may see significant price delclines? I am hoping w/in 6-8 months.
Might see some price drops in the dead of winter, but if there's another lame spring/summer season in '07, then in the fall of '07 it will get ugly, just my opinion. Smarter folks will take losses early. Those holding on for hope will get crushed.
It all depends on where you want to shop. Quality towns with limited supply rarely see widespread price deflation.
Do not be confused about price deflation. When someone posts an offer that has been lowered, that has absolutely nothing to do with price deflation. You have to look at year over year sales and then break it down further by town and even to the level of price per bedroom. Simply because someone threw out a high offer and now has lowered it to a reasonable level, means nothing.
If you are looking in an area where there are lots of new tract housing with lots of overhang the answer will certainly be different.
If the inventory is held in strong hands, then price declines and their magnitude are unclear.
In areas where there is inventory held by weak hands, small builders and speculators, the price declines will probably be greater.
As for the timing look at when the overhang was completed. If a builder put up 30 new homes 12 months ago and he is not well capitalized, his carry costs are egregious. He will most likely be willing to bargain very soon. If the entire inventory is held in existing homes by lots of small speculators then some will have to bail but others may be able to hold on for a while.
Any town like a Summit or a Westfield, you won't see drastic declines, didn't in 1991 (post 1987 market crash) and won't now.
If you are serious about buying do the legwork, talk to every broker who will answer you in a town you are interested, watch the papers. Get a feel for the market.
Anyone who tells you "the market is going to get crushed" or some other generic response to your post doesn't know what they are talking about.
You have to do the homework and look. Some markets may get destroyed and others may surprise you with their resilience. If rates though remain fixed 5.25 - 5.75 most likely there will be a softer landing for real estate.
Mr. Rant
"Simply because someone threw out a high offer and now has lowered it to a reasonable level, means nothing."
In the context of this housing bubble, the "high offer" does mean something.
Whereas at this time last year an unreasonably high offer would have gotten a bid, in this market, the offer will not. The fact that last years high offering prices attracted buyer interest and this year no bids are to be found is very meaningful and evidence that mania, rather than fundamentals drove the market for about three years before the Summer of 2005.
The transactions count. The high offer that turned into a sale becomes fact. You then compare that to this year’s actual completed sale.
If we used only offers and not actual sales, why not use bids also? People’s decisions to bid or offer are indicative of their collaboration with brokers and their views. While this is indicative of sentiment, in the end transactions are where the rubber meets the road.
If we use estimates of where the seller wants to see their home sell for, why not use management’s predictions of how well their company is going to perform? In the end when decomposing balance sheets and income statements, cash is king and nothing management can say changes that, same in real estate.
The high offers coming down are telling in that it portends that the appreciations have either, slowed, halted or reversed. The final tally to which of those is true, shows up in the cash changing hands.
Empirical evidence from sales will be the determining factor as to the existence, breadth and depth of a mania. Everything else is speculation.
Mr. Rant
hey Mr Rant, it's nice to see some civil conversation from you.
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"Empirical evidence from sales will be the determining factor as to the existence, breadth and depth of a mania. Everything else is speculation."
At the point the empirical evidence becomes available, it is too late, it is academic.
Since this a blog and not an academic journal, evidence of trends that do not necessarily meet the rigors of the scientific method, are allowed and encouraged.
Understanding the real estate market and all its intricacies requires an understanding of the human mind along with math, micro and macro economics.
Those wishing to understand the activity at the shore need to approach this from a top down view.
First, how is the economy doing in the US, second what are rates, third how are companies and their employees doing, fourth what areas of the Jersey Shore are most prone to price deflation, fifth what has happened historically in both the Jersey Shore and other parts of NJ and other finally what is the marginal value of second home at the New Jersey Shore.
Understanding the holders of real estate and their actions in the face of slowing markets helps educate the readers of this blog, therefore the example used in Summit and Westfield is totally valid.
After you throw everything in, what really drives the decision to buy or sell is the reward from doing so. In 1991 when the real estate market was in the perigee of a downturn after the 1987 market crash, I was looking for my first home in Westfield. There was no panic selling and in fact, homes that came to market that were reasonably priced, actually attracted more than one bid, while the year over year prices were relatively flat.
Why was that? I believe that inventory was in strong hands. Many homes and condos in the Jersey City and Hoboken areas were at fire sale prices that year, when just a few years earlier that market had been exploding.
Back to the shore we have the same question. Is the town under review a Summit or a Hoboken of 1991? Some will be Hobokens and some Summits. Once again I go back to you have to know your towns and what is going on.
In my neighborhood in Loveladies, zero for sale signs. One house was listed this year and sold in a few months for about 8% less than the offer. The sale was completely in line with a home that sold about a year ago. No one here is even waiting for the market to pick up. Out of about 24 families on the block, and I know almost everyone, there is no financial situation that would force a sale. Everyone works or has their own business, and all is well. Many of these families are from towns just like Summit and Westfield. Many of these families are baby boomers. Interestingly enough, most of these homes had been owned greater than 7 years. We having owned 7 years are just beginning to not be the new kids.
If a mania and a bubble is one where prices rise precipitously and then decline the same, then the second half of that isn’t happening here. That doesn’t mean that it isn’t happening elsewhere down the shore.
You just have to know how people think. So understanding the mindset of people regardless of the town is of paramount importance.
Mr. Rant
I have been watching the market in Wildwood Crest for a little over one year now. Same growing inventory. About 3,000 listings on the entire island. The Wildwoods are mostly second homes. Wildwood Crest has about 4,000 year round residents. With all the new construction one would think the prices would be dropping dramatically. Instead, its been VERY SLOW. A couple thousand at a time. What are the waiting for? The frantic race to the very end? The realtors are Still saying the homes are FAIRLY priced! No doubt the are flippers themselves. DENIAL is not just a river in Egypt!:)
NJCOAST-
As far as Allenhurst and Deal go, I have noticed that the majority of houses for sale are rediculously overpriced for their location....a good example is a street in allenhurst where a rundown but large house was for sale for 4 million. Meanwhile, a much newer and in great shape house 1 house away from the beach was offered 4 million and it wasn't even for sale.
Also, I know the Syrian community quite well. And for very prime properties they are still paying maxed out prices. I do think there is a bubble, but I think one has to look at these towns in a different light, it is a phenomenon. I do think prices will drop, but the demand of this group will keep them just a bit insulated.
NJCOAST-
Another funnny thing you might like, as I take it you dont like realtors. A house on Spier ave in allenhurst went up for sale recently, it is 1 house away from the beach and big and good condition. The owner who put it up for sale by owner, then took the sign down to possibly go with a realtor....after a a week of dealing with them, it is now fsbo again....a 6 percent commision on a million dollar house for what? Especially in that area where most deals dont even happen when a house is listed!!!
One thing that is without debate is that the market has cooled considerably. Now what happens?
I have invested in real estate, mostly commercial, and only once did I buy and flip a home.
So today I did a MLS search on LBI and found 47 homes for sale (seemed way too low for the island) but at least of the homes I pulled up I knew the areas they were in. In my opinion, probably 1/3 was offered at unreasonable prices, 1/3 I could not figure out whether it was fair or not and the other 1/3 were reasonable.
One house I know intimately, it is a multi million dollar bay front that the owner has listed with an agent and has turned down a bid that was 300K less than the offer. They just refuse to negotiate. Interestingly enough, it is being shown to two couples for second and fourth times this weekend.
Yet if you look at some of the other offers, you just know the crack pipe is at work there.
That is why I only look at sales to understand the market; simply looking at what someone dreams of selling something for really is meaningless until it turns into a transaction. Then you have to compare year over year sales to get real deal.
I know a lot of people with a lot of money and I don’t know a single person long a second home willing to sell right now or even waiting for an up tick in the market. Does anyone?
Does anyone actually know people with speculative homes with interest only loans right now?
Who actually out there knows anyone in dire straights with real estate? I do know one builder who was getting worried with 3 speculative homes he owned in Short Hills, but now has bids on two at reasonable prices.
Mr. Rant
Interesting thing about Deal, in 1999 when my wife and I wanted to buy, that was our first choice, but like NJCOAST said, the inventory was hard to find. We did find it a mildly closed community.
Cest la vie
LBI rocks.
Mr. Rant
Mr. Rant,
I have lived in Allenhurst on Cedar avenue my whole life. Although Deal may seem closed, it really is not. Although the vast majority of people in the town are Syrian there is also a good number of people who are not. Also i think 99 percent of real estate transactions occur privately. The MO of this community is to find a house they want then offer the owner a huge price to move as quickly as possible. Neigbors across the street have lived in Allenhurst for 20 years. They just put an addition on the house and had no plans to move. Then someone offered them 4 millions dollars and they were out of there!!!
I have been reading this blog for the last couple of months, and I must say I really enjoy it! Many of the comments are very intelligent and cut through a lot of the nonsense that brokers would have one believe. Keep up the great work!
From what I have seen Dwek owned 2 properties in Deal. I have alot of communication within the community. Dwek's situation actually has not really had an effect on the community other than giving it a bad name. You have to remember that this community is very secretive. The wealthier members of the community are still buying to get the choicest properties. A vacant ocean front lot near me sold with a 6.8 million dollar bid. I definetly agree with you that some of the less desirble properties are not selling as quickly but you would be astounded with the prices they are willing to pay.
continued from above.....of course this shows no reflection on the market as a whole....there was a NYT article about the syrians buying habits in brooklyn....calles "Paying anything to live here." it is amazing.
http://www.nytimes.com/2006/06/25/realestate/25cov.html?ex=1156132800&en=911d2faa9ef9394e&ei=5070
I havent thats why i agreed with you before, but also Syrians moving into allenhurst is a relatively new thing, I think that alot of old Allenhurst families are starting to see that they will make a substantial financial gain by selling their house now, even if prices were 35 % less then they are now...Interlaken is really not part of the picture in the sephardic community so i think that town is more representitive of the overall market...
Allenhurst is slowly turning into Deal south....New sephardic restaurants are opening on main street in allenhurst.
Again: Realtors on LBI concede that inventories are rising and prices are falling--and we've yet to see a selling period under what we all can agree are a new set of market conditions.
Properties at the lower end of the scale on LBI's north end above Surf City--ones priced below $1 million are showing the same signs as those south of the causeway--longer stays on the market, with some price reductions. Elsewhere on the shore, places like Seaside Heights and Seaside Park, where I just visited the other day, are filled with For Sale-Reduced! signs.
Rant may be onto something--that really small towns with more high-ticket "trophy" homes and fewer recently condo'd or otherwise subdivided SFHs might be somewhat less succeptible to market conditions.
I don't doubt Rant's story, but I do have some questions about the reliability of his neighbors accounts. People get weird about money, especially when they're experiencing uncertain economic horizons. Most business owners I know are oftentimes circumspect:
"Things are slow, but I'm expecting them to pick up," or "we've seen the worst of it..." But that doesn't mean that they haven't looked at tapping into the value of their vacation pile, or consulted a realtor on the q.t. This is what happened in my family, when I was a kid.
But forget about the vicissitudes of the market, or that there are some "cities on a hill" on the ruler-flat LBI real estate landscape. The real reason investors should be wary about LBI was best articulated by Captain Bob, an LBI native who currently pilots the water ferry at Martel's Tiki Bar (the one on Barnegat Bay) , and an all-round great guy: "There's one way on and one way off. People think a big one can't happen, but I was there in '62." Is it only a matter of time till a private ferry service is de rigeur for ownership on Long Beach Archipelago?
-Jamey
After all these, I realize how lucky I am. My mortgage on the primary is only 60% and second home 18% of a reasonable resale. I could not imagine getting my family into a tight bind by over extending myself.
The Dwek case is even more interesting in that his commercial properties sold well without problems. They in fact, drew a bidding war in the courtroom.
Do a search on "dwek drug" on Google to see the Asbury Park Press article.
What annoyed me about that was that the judge was selling the best properties first and rule of thumb in workouts is get rid of the hard to sell stuff first.
The loans on the home in Deal that Dwek had won't even make a change in the banks balance sheet. So if they decide to auction them, we will have a solid idea as to the downside limit for comparable homes. Remember those auctions always bring in the smart money.
Any Dwek home that goes to auction, following that sale will be indicative of where people, who are smart, are willing to enter the market. Having that information will help in ascertaining the change in prices.
Anytime you speak to someone who has been on LBI for more than twenty years, they tell you it is overdone. They said the same thing to me in 1999 when I bought. We become our fathers complaining of when hot dogs were 2 for a buck. We recoil at the cost of concerts, who doesn’t have that beer soaked Led Zeppelin ticket stub with a price of $10.50 on it from 1976?
As for the island washing away, I am going to say two things, hasn’t happened in the 400 years we know the island to exist, and if a big one does come, at least my 4 off the beach house will move closer to the beach!
Mr. Rant
Todays Star Ledge has an article about a practice illegal in some states but legal in NJ whereby a realtor takes a listing off the market and immediately relists it at a lower price, erasing its history under the new MLS number.
The goal of course is to hide the sellers pricing.
That history if you search by residence reappears.
Now I think that it reprehensible that brokers do that for others but if I was selling I would want it done for me! :-0
Mr. Rant
Rant: T'aint bemoaning the fact that places like LBI aren't what they were when I was a kid--A doubling in the number of LBI's Country Kettle Fudge shops is DEFINITELY progress in my book. And I was nine in 1976, so a $10.50 ticket stub is nothing more than a quaint artifact.
But you do have a different set of pressures driving the island's economy, ca. 2006--more speculation begets a higher-ticket grade of amenity (or the demand for same), etc. And the higher things rise, the farther they have to fall--before long, overstretched paper-millionaires will start to cut back on day spa treatments...
And no one's suggesting that the island is going to wash away--any more than anyone is suggesting that Earth will cease after humankind perishes. But Katrina showed us all how vulnerable roadways and buildings can be in the face of a natural disaster. Or to put it another way, where's the railroad that used to run north and south on LBI and connect the Island and the mainland?
I think I'll buy in Spring Lake Heights and wait for the ocean to come to me... ;)
-Jamey
Can eany experienced NJCoasters offer opinions on Ocean Grove? Seems the bubble never fully expanded there the way it has so obviously in surrounding towns. I recently started looking there - most $$ home is around $1.3 and apparently highly negotiable. I know the town's history and the parking predicament. What am I missing? (One of the finer homes on the mkt currently has not sold in about a year and has been marked down consistently...)
There seems to be a lot of houses for sale in Ocean Grove. I heard that the taxes there are very high. Parking can also be problem since most of the houses do not have driveways. I was looking last year and noticed that nothing was priced under $400,000 including cottages. Right now there are several homes there priced in the $300-400 range. It's a very charming town.
Does the 99 year lease reset with each new owner in Ocean Grave, I mean Grove? Thanks.
Darn it, I missed the drug addicts and mental patients, I would have fit in!
Mr. Rant
I learned that the house I'm interested in last traded hands (at least acc to assessor records) in the low 200K's (Ocean Grove) in early 2000. Now asking 900 after marking down from 1.15m original ask starting from last year. What's the right price now if for a long term family beach home type investment?
I don't know what the right price is, but on a personal basis, I never buy without the rights to the land.
It is also a dry town.
Mr. Rant
do you think that Ocean Grove is that dependent on Asbury? I agree with you that Asbury's lift off has been about as inspiring as the speed of the planes that fly over its beaches...but all neighboring towns aside from OG have FULLY participated in the bubble. Loch Arbor, Allenhurst, Long Branch (I know not contiguous..) and then there's OG, with prices running about 40% less near the shore (dunno about inland a bit).
From the WSJ 8/25:
"The developer put these 18 townhouses up for sale last sumer when the Jersey Shore was hot-but now it's not. The 3 and 4 bedroom units are within walking distance of the beach"
Auction: Sheldon Good mid-October
North Wildwood (Delaware and Surf)
$500,000-$650,000
"Never the less many undesirables wander into OG from Asbury."
I've never wandered into OG from Asbury. I usually skulk in.
Mr. Rant
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