Category Archives: Market Conditions

A Word of Caution

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/salesperson, Prudential New Jersey Properties, Montclair Office

The New York Times had a very good article on May 27th ” Home Prices Start Easing To The Relief Of Experts” which affirms what I have been saying about the advantage between buyer and seller in the current market.

As REALTORS our natural instinct is to represent this market as a bull market where sellers can be more confident they will get their fondest, wished-for price.  Our training also encourages this position.  The truth is more nuanced.  Since the beginning of the housing recovery the pundits have been worrying that home prices would rise too quickly, too suddenly and create an unsustainable recovery.  That certainly seemed to be happening in the recent past as prices posted double-digit gains, fueled, in part by historically low interest rates.

In places like Montclair and Glen Ridge we all licked our lips in the last year or so as we saw the return of multiple offers and prices driven up by competition.  It reminded me of what I call “the good old days” when prices rose 20+% a year and sellers only had to think a price to have their dreams come true.  We all rode that gravy train enthusiastically (yours truly included) until it crashed, beginning in 2006.

Sellers are now thinking they are back in 2004 and in the cat-bird seat.  That may have some truth in certain locations but, overall, it’s not true to the extent that sellers hope.  As The Times article points out, the rise of prices has slowed, buyers have pulled back since the mortgage rates started to increase a little and the year over year price increase numbers are slightly lower with some segments posting decreases.

Experts are gratified and relieved that these market trends point to a more sustainable home sales market and I will take credit for predicting (in the depths of the slump) that when housing recovered the resulting market would be more normal and less overheated.  I believe the ups and downs we are experiencing point to that more “normal” market where prices rise normally (more slowly) and buyer and seller have a pretty equal advantage.

Probably no one will greet this news with any great zeal.  Buyers got used to having the advantage in the Recession and sellers are grasping at the advantage since it ended.

Many factors will, in my view, cause this market to advance normally rather than overly bullishly until this up-cycle ends in a couple of years and we experience a gentle correction.

Household sizes have increased.  That is the number of people in each dwelling unit.  Family members are consolidating into 1 dwelling, people are doubling up with roommates and adult kids are coming home to live.  College graduates have heavy student debt which will prevent home buying for some time.  These trends will naturally decrease the number of buyers in the market for a new house.  Here’s a good article that speaks to this:

“Why The Housing Market Is Still Stalling The Economy” or “Postponing The American Dream”

The rental market far outstrips the residential sales market in terms of demand and new housing starts are more often rental units, thereby also depressing the number of people looking to buy vs. rent and the buying choices they have.

Buyers have started to disappear since the interest rates inched up.  Rates are still historically low but any increase at all will throw a dose of panic into prospective home buyers and make them retreat from the process.

The giddy relief of the end of The Great Recession is over.  Economic recovery is becoming standard news and the so-called “pent-up demand” will naturally wane over time.

People are still unsure about their job security and it’s becoming painfully apparent that wages are stagnant and the biggest employment opportunities are in the low paying service segment of the economy.

The nation’s overall economic recovery is anemic and somewhat spastic.  One month good news, the next month not so good.  Sustained, robust growth is necessary in jobs and the overall economic outlook before big-ticket items like houses sell with any consistency.

This doesn’t mean we should retreat from the process or postpone entering the market.  For sellers waiting is not a successful strategy.  Who knows what the market will be like in the future?  It’s not a good idea to wait and hope your equity will improve.  It won’t because while you’re waiting you’re paying mortgages, equity lines, property taxes and insurance on your house, all of which are eroding your equity.  Wait too long and you’ll get caught in the next downturn.  A buyer who waits will probably pay more for a loan as the economy improves.  It’s also been my experience that you find that perfect house once and if you pass it up chances are what you settle for later won’t be quite as perfect.

So, what to do?  What to do?  Do what I have always advised my clients:  Buy or sell when it suits your life.  It will make sense when you’re ready regardless of the market you’re in which brings me to my final piece of advice:  know the whole truth about the market you’re entering, either as buyer or seller and don’t rely on what you’re hoping for – rely on the facts.  Consult someone who spends every day observing and interpreting the market.  I research market facts and numbers every day and have been doing it for years.  You may not like the facts but you’ll never succeed without them.

In the meantime, in June of this year Prudential New Jersey Properties will become Berkshire Hathaway Home Services New Jersey Properties, part of the amalgam of companies owned by Warren Buffet. The Montclair office where I work will also move to a brand new office space in Montclair at the same time. I’ll have more to share on this transition as we approach the event. The one thing that won’t change is me. Whatever letterhead I’m using, you can expect the same level of service – and the same opinionated rants you enjoy in this blog.
Berkshire Hathaway

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The Wait Is Over

by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

Let’s take it by the numbers.

I’ll show you, with raw market data, that prices are AT THE BOTTOM in our marketplace.  There’s little point in waiting any longer for prices to drop .  You’ll see comparisons from 2011 to 2010 that will prove we are at the beginning of the upswing in real estate values.  If you look at real estate for the last 50 years in the US you’ll see 5 year cycles of boom and bust.  We had an artificially elongated boom cycle from 1996 to 2006 because of 9/11.  The loosening of regulations that resulted from the government panic brought on by that tragedy gave us another 5 years of boom.  The market should have deflated in 2001.  Instead, it did so in 2006.

Most people think the “bubble” burst at the end of 2008 with the overall financial crisis in the US.  Actually, if you tracked the numbers, town by town, in the market every month (which I’ve been doing in my market area for the last 10 years) you would have seen prices slipping during 2006, the amount of inventory rising and the differences between asking and selling prices moving downward.  Those trends continued during the period 2006-2008 and the financial crisis made it more obvious and accelerated the downward spiral.  It’s a very clear 5 year cycle: 2006 to 2011 and, now, as you’ll see, the real estate market has been improving for the last year – not dramatically and there’s still lots of distressed properties weighing on prices – but improving nonetheless.  The graph at left shows existing home sales for from the National Association of Realtors (NAR). It shows a very clear upswing lasting from 1996 to 2006.  It also shows the very clear dip beginning in 2006 and the beginning of another upswing now.  The consensus of this graph is for sales of 4.80 million at a Seasonally Adjusted Annual Rate (SAAR) for late 2011.  If you click on the graph you’ll see a more readable full-sized version.

 I understand that different parts of the country are performing differently.  On February 1st there was an article in The New York Times about the Atlanta, Georgia market which is still experiencing a depressed downward slide in prices.  There are other hot spots (cold spots?) in the country like Las Vegas and Phoenix where their lofty highs in real estate made them the first to fall and the hardest to recover.   The figures I’m going to present are for Essex County, NJ.  This data is from the Garden State Multiple Listing Service.  It’s not conjecture.  Let’s see the numbers:

Town

  Avg. Sales

Avg. Sales

Sales Price
    Price 2011

Price 2010

% Change
         
Bloomfield  

$260,102

$291,230

-10.69%

Caldwell  

$399,051

$389,581

2.43%

Cedar Grove  

$463,011

$467,615

-0.98%

Essex Fells  

$799,580

$845,799

-5.46%

Fairfield  

$443,031

$500,872

-11.55%

Glen Ridge  

$609,263

$551,086

10.56%

Livingston  

$574,620

$648,104

-11.34%

Montclair  

$630,787

$625,957

0.77%

North Caldwell  

$831,572

$740,701

12.27%

Nutley  

$329,211

$362,032

-9.07%

Roseland  

$479,471

$503,985

-4.86%

Verona  

$386,059

$408,120

-5.41%

West Caldwell  

$431,056

$446,060

-3.36%

West Orange  

$367,941

$393,782

-6.56%

         
Totals  

$430,735

$446,967

-3.63%

This is a comparison of average sales prices for all of 2010 vs. all of 2011.  You’ll notice Caldwell, Glen Ridge, Montclair and North Caldwell all had IMPROVING prices year to year.  Cedar Grove, Essex Fells, Nutley, Roseland, Verona, West Orange and West Caldwell had drops, but not by much, some less than 1%. certainly not the town by town 10% to 15% drop in prices we’ve seen year to year over the last few years.  Only Bloomfield, Fairfield and Livingston did not fare well.  Bloomfield has a lot of diverse neighborhoods from upscale suburban to heavily urban which translate into lackluster overall performance.  Fairfield and Livingston are slow markets, even in the best of times.  The overall year to year price comparison was a loss of 3.63%.  I regard this small number as a sign of stability.  It’s well below the recent average 6% to 7% declines.  It’s certainly not the gloom and doom we hear every day in the media.  Even in The New York Times – which I believe hates real estate based on its coverage – there have been stories of improving consumer confidence, rising numbers in new construction of housing and glimmers of hope in real estate in general.  As lately as January 21st The Times Business Section ran a Reuters piece called “Markets End Day With Slim Gains”  where it was said, “In economic news in the United States, home sales hit an 11-month high in December and the number of properties on the market was the fewest in nearly seven years, pointing to a nascent recovery in the housing sector. The National Association of Realtors said on Friday [January 20th] that existing-home sales increased 5 percent to an annual rate of 4.61 million units, with all four of the nation’s regions recording gains. Sales of both multifamily and single-family homes rose…There were 2.38 million unsold homes on the market last month, the fewest since March 2005.  That represented a 6.2-month supply at December’s sales pace, the lowest since April 2006 and down from a 7.2-month supply in November.” (Copyright 2012, The New York Times and Reuters).

Don’t forget, markets are partly psychological.  When more people feel good about purchasing homes, an improving market becomes a self-fulfilling prophesy.  The market will improve, and is doing so now, based partly on the positive perception we’re beginning to see in the media.  When you consider, also, that whatever you see or read in the media about real estate has already happened, you see that the confident trend is not just starting but is well under way.

Let’s read our next set of tea leaves:

Town

 

# Sales

# Sales

   

Closed 2011

 Closed 2010

       
Bloomfield  

218

236

Caldwell  

59

46

Cedar Grove  

85

86

Essex Fells  

20

17

Fairfield  

48

36

Glen Ridge  

84

76

Livingston  

247

266

Montclair  

305

317

North Caldwell  

56

56

Nutley  

185

187

Roseland  

65

51

Verona  

131

140

West Caldwell  

79

83

West Orange  

371

367

       
Totals  

1953

1964

The numbers of closed sales between 2010 and 2011 are an obvious sign of improvement.  Most towns had more sales or an almost identical number and even in the slowest town markets, where there were less sales, the difference was slight.  This is not dramatic improvement, as I said before, but it’s no longer a downward trend.  Think of the market cycles like a roller-coaster (and there has never been a more apt comparison).  The car shoots downward to the bottom of a curve and then slows, stops and begins to slowly ascend the next curve.  These numbers of sold units show the roller-coaster car slowing at the bottom and beginning, slowly, to trudge up the other side.  I believe the sales prices in the previous graphic show the same thing.

Here are some more telling numbers:

Town

 

Avg.

# Listings

Avg.

# Listings

    DOM 2011

12/31/2011

DOM 2010

12/31/2010

           
Bloomfield  

97

291

79

285

Caldwell  

87

33

116

42

Cedar Grove  

123

69

71

85

Essex Fells  

141

19

115

29

Fairfield  

97

96

195

90

Glen Ridge  

65

36

67

30

Livingston  

56

144

69

144

Montclair  

83

181

73

196

North Caldwell  

95

70

97

64

Nutley  

98

170

79

194

Roseland  

114

45

97

55

Verona  

83

110

76

115

West Caldwell  

82

58

62

39

West Orange  

103

397

92

452

           
Totals  

80

1,719

74

1,820

The DOM or days on market numbers are about the same or a little higher in 2011 which can be a continuing reflection of consumer reluctance and non-awareness of  the continuing improvement in the  market or the fact that there has been more protracted negotiation in housing sales.  The significant issue is the number of listings on the market.  For the most part, these numbers are shown to be in decline or virtually the same.  Over the last few years the number of listings on the market has steadily increased, inflating the overall inventory and increasing the time it would take for that inventory to be absorbed through sales and putting more pressure on price.  Now there’s a sign of stability and decrease in those numbers which will bring down the absorption rate and will be another factor contributing to the stability and, then, rise in prices.

Here’s my favorite set of stats:

Town

  List Price/Sales
    Price Ratio – ’11
     
Bloomfield  

96%

Caldwell  

97%

Cedar Grove  

95%

Essex Fells  

95%

Fairfield  

95%

Glen Ridge  

99%

Livingston  

96%

Montclair  

97%

North Caldwell  

95%

Nutley  

96%

Roseland  

95%

Verona  

96%

West Caldwell  

96%

West Orange  

95%

This is the percentage of what sellers got in sale price in 2011 vs. what they asked in listing price.  In fairness, these percentages may reflect the final sales price as compared to a price reduction.  There’s no way to ascertain how much of a factor price reductions play in these percentages.  It’s also unlikely that every sale used in these averages had a price reduction.  That aside, no town’s sellers got less than 95% of what they asked, even in the worst performing markets.  The overachiever, Glen Ridge, had a whopping 99%.  In the good old days we’d see lots of numbers in the 100% to 105% range in the best towns.  What’s interesting, however, is that underperforming towns could be in the 75% to 85% range in the best of times and now are joining their better performing brothers and sisters in the mid 90’s.  This, to me, is a sign of overall strength where all results are about the same.

If you want to see results on a national basis go to: http://www.realtor.org/wps/wcm/connect/b810d08049dae5a8972adf7393f1335d/RELEHS.pdf?MOD=AJPERES&CACHEID=b810d08049dae5a8972adf7393f1335d where the National Association of Realtors has published a chart of existing home sales and sale prices since 2009 with a detailed recap of the last year.   All the results for numbers of units are in the plus column with the exception of the Midwest and the sales prices, while showing declines, are no more than 3.2%, except, again, in the unfortunate midwest.

Well, there you have it.  If your butt is sore from sitting on that fence maybe it’s time to jump off and get on with your hopes and dreams.  There has never been a better time to be a housing consumer and there may never be a better time if these trends continue resulting in higher prices and less inventory.  Certainly this trend can be halted or reversed with some political, financial or natural disaster but assuming normal conditions (normal being current conditions) there’s no reason to believe this improvement won’t continue.  We’re not falling anymore so time spent waiting is time spent watching your purchasing power decrease.  You may think you’ll wait another 6 months and maybe prices will fall another 1% to 2%.  I don’t believe that will happen, over all, and, in 6 months, when everyone is finally convinced that we’re at the bottom, there will be more competition for less inventory.  Competition always means higher prices which can negate any falling prices, assuming those decreases occur in the first place.  Also, I hope mortgage rates stay low forever but, normally, improvements in the economic picture lead to higher rates.  Mortgage money is available for well qualified buyers and has not been this cheap for 60 years.  There are even reports that lenders are loosening their underwriting standards in order to lend more.

As is the case with most trends of this nature, we don’t become fully aware of them until they have matured and burst into view.  Wouldn’t it be smarter to take the knowledge these statistics provide and act before the herd gets wise and tramples this opportunity?

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Uncertainty

by Jim Stefanile,  ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

My parents bought their one and only home in 1951 with a 3% mortgage.  My mother was so concerned about defaulting on that loan that she made my father pay it off early.  The reason she was worried was because my father was an independent contractor and his continued employment was always uncertain.

Fast forward to 2011.  My parents no longer have to worry about their mortgage (or anything else, for that matter).  A short term mortgage is about 3.5% and a 30 year fixed is, as of this writing about 4.5%.  These are the lowest rates since my parents became homeowners.  Buyers should be nibbling at my toes, right?  And how about this: there is more inventory and more pressure on price than ever before.  Even the most stubborn sellers are beginning (after 4 years of a down market) to be practical on price and more inclined to make a deal.

Homebuyers should be beating down my door, but, as we are all aware, they are not.  There is some improvement in raw numbers of sales since the depths of the recession but nothing I would call an upward trend.  The reason is the same as what worried my mother – uncertainty.

With recession often comes re-organization and re-trenchment in the private sector which is bad news for the sitting workforce.  The uncertainty of employment is a real damper on spending, especially on big ticket items such as housing.  The pressure on organized labor in the face of shrinking resources also erodes confidence in the future among that membership.  The debt debacle in Washington and the recent downgrading of  the United States’ credit rating is throwing more uncertainty into an already tense environment.  The country is struggling to shake off a recession of epic proportions which shook the country’s confidence in its banks and government.  What recovery there has been has been slow, fitful and, for the most part,  jobless.

The fractious national political environment makes it all but impossible for our leaders to impart strong re-assurance.  Lining up the strength and resources of the government  is much more complicated than when the WPA was launched along with other safety net programs. In the 1930’s the government was the solution to the excesses of the market and the suffering of the citizenry.  Today, we hear echos of Ronald Reagan proclaiming the “government is the problem.”

The loss of confidence in our government, our standard of living, our very place in the world is one of the factors holding the housing market in a vice grip of  inactivity.  The great irony is that there has not been better buying conditions since my parents were house hunters and that’s going to waste while we worry and fret over our jobs, our savings and the direction the country is taking (whatever that means).

I’ve seen a dramatic upturn in the rental market lately.  What that tells me is the so-called “pent up demand” for housing is taking a detour.  Instead of buyers bursting onto the scene to take advantage of the selection and cheap credit they are hedging their bet by renting instead.  People need housing, as always.  How they choose to get it tells the tale.  Many of the prospective tenants I help have 800 credit scores.  They could buy if they wanted to, but, rather, they are sitting on the rental fence in the form of a 1 year lease.

As a REALTOR I feel the need to encourage people to jump off the fence and get on with their lives.  At the same time I understand the uncertainty that makes them hold on to that fence with a white knuckled grip.  I’d hate to see credit get more expensive and the opportunities disappear for so many qualified potential homeowners.  The over all housing market changes over time.  Six months after I bought my home the interest rates peaked at 18% and lenders weren’t even lending after a certain point in each month.  We are now in a perfect confluence of credit prices and selection.  The only thing missing is demand.  This is enough to make real estate practitioners shake their fists at the sky and scream “very funny!” at whatever fates you believe in.

I refer to the early 2000’s boom as “the good old days”.  Wouldn’t it be weird if, in 2 years, when interest rates are 8% again and the foreclosures are flushed out of the market and the housing selection is limited, we look back on 2011 as “the good old days”.

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