2009 Jan 10th

So Just How Bad Is The Hoboken Economy?

By Lori Turoff 

 

Is A Market Turn Around in Sight For Hoboken?

I attended a week-long real estate conference last week put on by Inman News.   Thursday a panel of preeminent journalists, economists and bankers discussed the state of today’s real estate market and various proposed solutions to the credit crisis and the economy in general.  They did not paint a pretty picture.  Nor could they agree on much other than the fact that things are probably going to get worse before they get better but they will eventually get better.  

When Does Trickle Up Begin?

An interesting comment was made about how to know when the real estate market has hit bottom and will begin to recover.  That happens, it was suggested, when in a given local market a typical first-time home buyer earning an entry level salary can afford to buy a home.  That creates a push in demand at the low end of the market which will initiate the change.  The demand will then trickle up to the higher priced properties.

Who Can Afford A Hoboken Condo?

That got me thinking about Hoboken.  The basic Hoboken starter condo in Hoboken sells for about $300,000.  You know the unit – about 600 square feet, 10 unit walk-up building with two long, narrow units on each floor.  Most of the units at this price-point have been renovated but would not be considered luxurious.   The building probably has a common yard, washer/dryer and storage in the basement.  You probably can’t live on Hudson Street for $300K but Willow, Park, Adams, Grand, Madison and Monroe are lined with these types of properties. 

A first time home buyer purchasing a primary residence can get a 30 year fixed-rate mortgage today for as low as 5% and that may soon drop down closer to 4%.  To qualify for the low rate, the buyer has to have a credit score of over 760, verifiable documented income to service the debt, and has to put 20% down, but we’ll get back to that part later.

So lets say our young Hoboken buyer works in Manhattan in an entry level job in finance, fashion or media.  He or she probably earns $60,000 to $65,000 annually.  In a 25-33% tax bracket, that means about $3,300 a month take home or more. 

Hoboken Condo Math

 Let’s crunch the numbers (just estimates) for the buyer thinking about buying that $300K condo:

Total monthly outlay = $1,750

Rent or Buy?

In my experience, that is about the going rate for a rental of one of the type units described above.  So on a cash flow basis, the choice to buy is equal to what it would cost to rent.  The buyer would also get a tax savings of about another $400 to $500 per month bringing the net cost of owning a starter condo to about $1,250 a month.  Not bad at all.  There are many other benefits to owning over renting but that’s the subject of another post.

Brother Can I Borrow a Dime?

Where is the rub?  Well, we’re talking about a generation of post-boomers brought up in a world of easy credit and no savings.  How does the first-time buyer come up with the $60,000 downpayment?  Sure, wealthy parents willing to help out may be a solution but not all buyers are that lucky.  In all the years I’ve been selling real estate in Hoboken, I would estimate that 99% of my buyers bought a condo with a downpayment no more than 5 to 10%.  To avoid paying “PMI” they took out a  “home equity loan” or “piggyback mortgage” on the home they did not yet own for the balance and wrapped it into the mortgage. A year ago, getting 95% financing with no documented income and even so-so credit would not have been a problem.  

Show Me The Money

Even if Hoboken condo prices were to fall another 10% or 20%, (which I don’t believe is highly likely) the problem of the lack of savings among first time buyers remains.  Many of these 30-somethings are still paying off school loans, have car loans, and max out their credit cards to buy designer clothes, hi def TVs and the like.  In fact, we are now a country with a negative savings rate.  So how does this problem get resolved?  New legislation provides a federal housing tax credit of $7,500 for first time home buyers through July 2009 but I believe it will take more than that to get the ball rolling.

Help Me Out Here

Let me know what you did or plan to do if you’re a first-time home buyer.

What do you think? Do you have an idea for a solution to the mess we’re in?

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  1. frink

    Lori, I find the theory you describe of the real estate inflection point interesting and unique. It does require these renters to be employed though. I would be interested to get a look at Hoboken’s current employment (or lack thereof) statistics, perhaps this could contribute to the determination.

    My little tikes condo (which you describe to a t) was the product of:
    1) Zero credit card debt.
    2) Good credit earned through college loan & car payments.
    3) Four years of heavy mutual fund investment.
    4) Pooling of incomes with my soon-to-be wife.
    5) Not wasting my money on crap.
    6) A decent commitment to taking risk.
    7) An outlook fixated on the future.
    8) …and keeping my employment safe.

    Thanks for compiling & publishing the information you do, it is extremely informative and helpful!!

  2. Lori Turoff

    I wonder if there is really that much change in the employment levels in Hoboken. Maybe it’s coming but I haven’t seen it yet – that’s just my feeling with no stats to back it up. Don’t know where I’d get those, maybe Hoboken411 will post them eventually.

    I bought my first condo in ’89 in Manhattan when prices were a fraction of what they are now. I had a financial help from my grandmother, some savings, no other debt besides school loans and a nice start up bonus from my law firm. They also handled my closing for free. My husband had a similar story. But then we are children of Depression era parents and were brought up to live within our means. I feel sorry for many of the young kids out there today. Their carefree, live-in-the-moment ways may come back to haunt them.

    Glad you find this valuable. Please help spread the word.
    – Lori

  3. JCjc

    The monthly mortgage payment on $240k @ 5% = $1288 from what I came up. Just FYI so nobody can argue you are posting incorrect info.

  4. Hoboken Resident

    Lori – your comment about young home buyers putting 0-5% down is exactly what got us in this mess. You want the government to help people come up with more of a down payment? That is like saying since there is a huge (fill in your drug of choice here) problem we should give addicts money to buy drugs.

    The government should pass a law you need 25% down to buy any home and then we wouldnt worry about these messes in the future.

    Realtors got our country in this mess and comments like these show me how delusional many of them are.

  5. Frank

    You are nuts lady, Hoboken condos are overpriced by 50+%. 1 bedroom starter condo is worth no more than $150K given the current state of NYC economy. So stop the nonsense.

  6. JC

    I think government needs to focus on keeping folks from being foreclosured upon, as the absolute first priority. Incentivize these homeowners to not mail their keys back to the banks. Secondly, make certain banks are lending appropriately(what banks are supposed to do) especially those that took TARP money. Third, keep interest rates low for the rest of us who can still qualify to make purchases and those that want to refinance into a low rate.

    I bought my first place 6 months ago. I have owned real estate as investments for the past 3 years but never owned by own home. My decision was based on mostly one thing; my lifestyle. It was just time to feel proud of ownership, time to renvoate/decorate the way I wanted, time to take a big step with my fiancee, and time to start growing roots in hoboken in which I knew I would live here for 5 years. (In my opinion a homeowners should live in their house for a minimum of 5 years in order to spread out the closing costs and come out ahead of renting)

    Nobody can time the market at the top or bottom. I have been searching the websites and going to open houses for 2 years and never fell in love with a place until I found the place I’m in now. I was willing to go above list for it (yes, bidding war in June 2008) because it all comes down to priorities and lifestlye.

    Personally, I dont think of my home as an investment. I dont want to lose money, but I dont expect to make money. I just want to spend less over the course of my time here then I would if I rented. If I end up making some money later on its just gravy. However, as stated above I do have real estate investments for the sole reason of building long term wealth….NOT getting rich quick.

    Easy credit has make home ownership into an investment class based upon appreciation only and not cash flow like it should be. I am too young but wonder if home buyers in the 1980’s and 1990’s viewed their home purchases as investments the same way we do today. Was it ever just a home? Sorry, I’m rambling and got a bit off topic. Lori, when you bought your first home did you have grand visions of selling for a big profit or was it just simply buying a home to live?

  7. Lori Turoff

    JCjc,
    Just to be clear – my numbers are approximate. Only intended to illustrate a point. Whether it’s $1200 or $1288 doesn’t significantly change anything.

  8. Lori Turoff

    I bought my first condo with 20% down and a 30 year fixed mortgage. In fact, we’ve never done anything but at least 20% and 30 year. My intention was for it to be my home and I lived there for about 8 years. What motivated me was the idea of it being my home and not a landlord’s. Over time I’d build up equity and have some security. Any improvements were up to me and for my benefit. I still own it, mortgage free, and rent it out.

    Nowhere in my post did I advocate that buyers SHOULD put nothing to 5% down, I simply stated that is what they’ve been doing. Their down payment amount is not up to me, it’s up to the lender.

    Frank, when you find that 150K condo in Hoboken (assuming it is habitable), let me know and I’ll buy a few.

  9. Frank

    I know you will because 150K is the market price, until then nothing will sell in Hoboken.

  10. Tiger

    For me Lori it was plain and simple: Work hard, and Save! I lived over 10 years in Hoboken, 6 of which as a student / graduate student. I learned how to survive on a mini budget, graduate student assistant salary ($1750 a month!) with zero credit card debt, yet had loads of fun. Hence, when I started making real money, it wasn’t a big lifestyle change to start saving, eventually I put most of that money in a down payment and bought last April.

    I think the way I did it was good budgeting. There are many books about this; but in a nutshell, all you need to do is split your salary into monthly expenses, rent (or mortgage), and savings. Even if you put away a $100 a month; they do add up.

  11. Lori Turoff

    I remember the days working in the city when I’d eat a cup o soup and a knish for lunch because it was under $2. Kudos to all of you with the foresight to live within your means and save for bigger things. In the long run, it does pay off.

  12. Tiger

    Thanks Lori! I read a report saying that career centers at colleges are seeing a surge in college recruiting. Apparently some companies are replacing expensive experiences employees with entry level college graduates who wouldn’t cost them much. So I guess even with tough economic times, we will see a stream of new young professionals this summer

  13. Doug

    What is Frank talking about. We should all hope that Hoboken condos do not go down to $150K b/c that would mean the country is in worse shape than during the Great Depression.

    Frank, just curious, if you think Hoboken condos should be worth $150K, than what do you think places in Michigan, Arizona, etc. should be worth? Actually, look at places in our own backyard of NJ, what would they be worth?

  14. Doug

    Frank’s comment also made me think of something else…why do people always feel the need to polarize themselves with R/E? When things were going well, a lot of people were saying “We can’t lose!” Now, that things aren’t going well, a lot of people want to to say “If you buy a home you are crazy…prices are 50% too high! (like there is any sound reason for chosing 50%)”

    I learned a long time ago that you can usually tell the bubble is about to burst during a bull market is everyone says “You can’t lose…its impossible not to make money” I’m beginning to wonder if the opposite is true…are too many people starting to think like Frank, so the bottom may be here soon?

  15. Lori Turoff

    It isinteresting how once we start talking about the market some people become very adversarial. I think that’s because in real estate, like in the stock market or gambling, there are winners and losers. Maybe the losers are angry that they lost. My goal is to provide objective information and facts. When I do express a personal opinion, I try to identify it as such. I don’t censor or edit comments on this blog. So different people are going to have different opinions. Albert Einstein said “Great ideas often receive violent opposition from mediocre minds.” Nonetheless, this forum is available for the exchange of free ideas.

  16. Mark

    Hi Lori,

    Very interesting theory. I’m thinking of buying exact 1 bedroom you describing and i tend to agree with your points. However, i wonder how much the price will get impacted by:

    1. Many relied on bonus or pay increase this year to get that 20% down – it may not happen
    2. With strict board rules in NY, Hoboken had an advantage when you can put 5%-10%. Now the credit crunch and strict bank rules leveling the play and it looks like the city has the advantage (i know couple of people who looked at hoboken and now checking out brooklyn/ny/queens instead)
    3.Most in Hoboken work in the city, 2008 had a very small impact for NY – some 20k job loss. The prediction for 2009 is about 170K…
    4.Its going to be very hard for college grads to get a job, we get resumes from people with 3-5+ years of experience willing to work for the same money as fresh out of school. Maybe the days of internships are back?
    5. Arent the jumbo rates suppose to hit this year? Not everyone can refinance with great 5% due to bad credit or too much money borrowed.

    I wonder if these factors will force people to drop their asking prices so they can get away with some profit before they are forced to sell at a loss.

    You think next month or so will show a trend?

    Thanks!

  17. Bishan Colon

    To frank’s comment about Hoboken’s home price “Hoboken condos are overpriced by 50+%”-The average price of $300,000 for a 1b home in Hoboken is a MARKET PRICE which means that at this price the buyer is willing to buy and the seller is willing to sell. You should understand that buying a home is VERY EMOTIONAL to many buyers, especially the first-time buyers. Buying a home also means buying into a life style. The price you are willing to pay not only represents the physical real estate you will own, but also, if not more important, represents a big part of your life, as many postings sugguested here. So…don’t be upset by the everage Hoboken home price. If the demand is weakening, the price will come down (which I highly doubt…just look at the big and small new homes being built around cornors).

  18. dkzzzz

    I thought I share some of my thoughts on RE.
    1. It is very easy to time bottom in RE market, as oppose to Stock Market, RE market’s bottoms last for years.
    2. Nothing is going to move UP in Hoboken until people feel secure to make such investment, regardless of their income or money. Such time is many years away frm us at this point.
    3. Bitter losers are those who closed on a home in a last 6 months, imho. They stand to loose 40-50% of their money in next 5 years.
    4. People who need serious counseling are those who shop for RE currently. Those people have a serious misunderstanding of economic cycles.
    5. RE is all local. So to answer previous poster: It does not matter what RE prices are in Arizona or Ohio.
    6. Bottom in Hoboken will be probably around 280-300/sq.ft. for 1br. condos 400-800sq/feet and $400sq.ft. for the rest of the market sized 800sq.ft.
    7. If we slide into depression with dollar’s buying power falling sharply ; then all bets are off and bottom that I suggested would fall even further.

    P.S. Gov. does not need to mandate down payments.:) US Gov. should stop selling our future to Chinese and Russians. For all these years US gov. was leveraging it’s debt with foreign governments using RE values. If Chinese and Russians stop buying our debt US gov. will effectively become insolvent.

  19. Lori Turoff

    There was much talk by the economists of an “L” shape recovery – similar to what happened in Japan in the mid 80’s when it took a good ten years before the “L” began to look like a “U”. Their opinion (not of Hoboken, but the US in general) was that the bottom would be in the next year or two with a long flat period to follow. If you’ve heard of the Case-Shiller Home Price index, Robert Shiller, Yale Professor of Economics, was the lead speaker of the panel. Only time will tell who is correct.

  20. Kevin

    I think the point made before about the college grad job market is an important one.

    I feel like Hoboken for the last 10 years has relied on some sort of cycle – lots of entry level job opportunities that cause people to move to Hoboken (or NYC) to initially rent (how many people buy their first year out of college?). A couple of years out of school, that same group can potentially buy a a basic 1 BR condo. A couple more of years and maybe a marriage causes a 2 income household to be able to afford a higher end 1 BR or 2BR condo – and so forth – until they choose to move out to the suburbs and become rich enough to buy a high end place in Hoboken. And the finance industry lent itself well to that since salary levels moved at a decent pace raise and bonus wise.

    At this point though, this cycle is pretty much frozen. Most companies have scaled back or eliminated campus recruiting. For those still employed, they saw much smaller bonuses and little to no raise (and i’m not talking about big money traders or hedge fund guys that have lots of money on the sidelines, more referring to the larger population that works in middle/back office jobs – ops, IT positions, etc.).

    Until this cycle gets kickstarted again, I think the market is going to continue to slow down sales volume wise. Some price drop is inevitable as people may have to sell if they can’t afford to carry their house, but I think the bigger issue with be the length of overall sales cycles (at any price).

    The other interesting point here is that low downpayment programs actually worked generally well for the stereotypical Hoboken resident (vs. say property flipper in Florida) since they tend to occupy their place and they were in fast paced careers with salaries accelerating at faster than normal paces. When that type of career progression becomes standard again, it will also help out the market.

  21. Tiger

    I agree Mark that the cycle will probably slow down. Even those with jobs and money are probably hesitant to make a commitment. I guess the next couple of years are going to be rough on everyone, so if you don’t have to sell, don’t. Renting out seems to be a good option now, especially if you did your homework and you’re not being an insane amount of mortgage every month.

  22. Lori Turoff

    I wonder what proportion of Manhattan owners and potential buyers will be priced out the the Manhattan market as a result of the economic problems we are experiencing and will see Hoboken as a more affordable alternative?

  23. Tiger

    You know they will see instant 10% savings compared to the city (city tax) :-)

  24. joe

    Do you really think prices will sink below $400/sf??

  25. Bishan Colon

    I want to point out that Hoboken buyers have become more and more diverse. I just sold my condo to an India couple in July. My husband’s coworker (Indian too) bought a condo through auction in June at the market price. You might have noticed that more and more Indian and Chinese people started to move into Hoboken (not sure if they are spill-over from Newport ares). Also, a lot of residence here aren’t in financial industry. I happen to know many who are in medical, pharmaceutical, IT, and consulting. It would be interesting to see some accurate stats on residence composition. The layoffs in Manhattan may not have as much impact as everyone thought. Also, Hoboken’s location, history, and charm might attract more diversed future buyers. I think it’s all for the good.

  26. AL

    I am sorry for those delusional people who just bought in the last year and write on this blog. The only way that it might work out for them is that inflation gets out of control and real assets are the place to hide. Apart from this for still remote possibility, you are going to see your investment lose value. I apologize for calling your purchase an investment instead of calling it “home” … it’s just that in the past you were the overexcited guys saying that a house purchase is the biggest investment of your life.

    Anyway, data is king and you can go to the OFEHO Internet site (http://www.ofheo.gov/hpi.aspx), play with the data and see the house bubbles that took place in the past in the US (Texas, South California, New England, New York …). I wonder why people don’t mention this public information. All these past bursts of housing bubbles were connected to regional job losses (oil bust in Texas, army restructuring in California, …). These were localized housing bubbles and not a full-blown national one like the current one. You will see from the data that historically it take years (up to ten) before the house prices return to the previous peak levels and before that happens, you need job losses to reverse. This time could be even worse given the scale of the problem and given the fact that job losses have just started and are expected to reach high levels.
    And there is no place to hide. Vacancy rates are on the rise nationally and it will happen also in the NY MSA (then that real estate investor might lose some money if he can’t rent out his place fast enough). Moreover, the restriction in credit, the layoffs of financial companies in New York and the reduction in bonus pools will have a huge impact.
    How can you think that Hoboken is going to be the safe haven of real estate? If New York goes down so does Hoboken. The places that have gone up the most during the last 8 years will be the one that will fall the most. This is what is happening (see California, Florida, Arizona and Nevada / not an opinion but based on Case Shiller data). The ones that will not suffer in the next year are the ones that did not have a bubble (http://www.forbes.com/realestate/2008/12/16/cities-ten-homes-forbeslife-cx_mw_1216realestate.html).
    According to the latest Case Shiller Index the NY MSA is now the one that has experienced the highest appreciation since the beginning of 2000 (+94%). Why would this remain the case when New York is the financial capital of the world and this mess is affecting the financial world (see 1987 crises in the OFEHO index and you will see what happened)?
    The correction will not be 50%. That is unreasonable. But a widespread correction in the NY MSA of 10 to 20% is to be expected both in historical terms and in comparison to the corrections in the other areas of the country.
    I don’t see any reasons why someone should buy now instead of buying in 1 or 2 years when price WILL be lower. I understand real estate agents, they need to make a living and often the sellers are they customers, but the reality is that they should try to convince sellers to bring down their prices since the world has changed since September 15th 2008 (Lehman bankruptcy). I would try to convince sellers to reduce their prices 10% now instead of selling later 20% lower, and I would not try to convince young emotional first-time home-buyers to jump in. This is not the right time for them. They should wait 1 or 2 years. If they mess up and lose their job after buying a “home”, then they will have a foreclosure on their credit records for many many years. It’s not worth it. It’s a matter of what our parents taught us: be responsible (= wait, don’t buy now, you might lose your job and get foreclosed on your property because you are not able to sell due to the price decline).

    Lori, you do an amazing job with this site.

  27. Lori Turoff

    My thanks go out to all of you for your interesting and diverse points of view.

  28. Laki

    First of all – I love this website. good Job Lori. I also love Hoboken.

    Now what I came here to say:

    Unfortunately, Hoboken will behave like the rest of the New York MSA. There is just no way around that. The local economy here is driven by New York City. If prices in New York drop by X %, same will happen in Hoboken. So the question becomes what will X equal to?

    Well, I’m not sure how many people are aware of this, but there is a housing derivative market out there:
    http://www.radarlogic.com/rpxtrading.html

    Last time I checked open interest is in billions of dollars, and people daily trade hundreds of millions of dollars worth of contracts.

    This market is based on forward contracts on the RPX index that measures the median price per square foot of all the residential real estate transactions that take place within a given region (there are 25 regions that RPX tracks). For those of you that don’t know what forward contracts are look here:
    http://en.wikipedia.org/wiki/Forward_contract

    So based on these forward curves prices per square foot in New York MSA will drop by another 20+% by 2010. You might disagree with this but this is the forward market price. This is the consensus market opinion of all the people who are trading these instruments. Not some analysts on TV that have spent only 10 minutes researching stuff or people who’re telling you what someone else told them, or realtors who are inherently biased, but people who’re risking their own capital.

    So this is what the market is telling you. My personal opinion on the other hand is that the prices will go down more than 20%. Why? Well, if you were to look at NYC and look at 2 ratios over last 50 years lets say. Ratio 1: Median Home Price divided by Median Income. Ratio 2: Median Home Price divided by Median Rent Price. You will realize that both are completely out of whack compared to long term historical trends. In order for these to revert to historical equilibrium prices would have to drop by more than 30%. And if the correction overshoots – watch out down 50% is not completely out of question.

    Another thing i don’t understand is why people think that there is no way prices half from here? The prices tripled over the last 2 decades… so they could certainly go down the same way they went up.

    Also, rentals in New York have been getting killed as of late. Place that used to go for 7K a month you can get for 4K. Not a joke, they’re out there. They ask 5K for it, you put in a 4K bid – and its yours! That is how bad things are getting.

    One last thing – commercial real estate bonds are pricing in Armageddon. CMBS securities are telling you that OVER HALF of the strip malls, office rentals, and other commercial space will default in the next couple of years! Again this is not my opinion, this is where the bonds backed by these cash-flows are trading. The market could be wrong, but if someone is strongly convinced that this scenario has no chance of playing out – i would tell that person to take his or her money and invest in these bonds and make a fortune. But before you do so – do some research, and you just might realize that the market is telling you something.

  29. dkzzzz

    I mostly agree with AL except for his statement regarding RE prices . They will go down 50% or more and yes in Manhattan as well. You obviously read on this subject, so you know that home appreciation historically trails inflation. Thus, if prices went up 94% in 6 years (2000 through 2006) then what is going to happen to prices? They are not going to slide 20% or 10% they are going to go down 50%+ in some areas they will go down under the values of 2000 and will stay there for a while.

  30. Lori Turoff

    Great analysis. But how does supply & demand fit in? Hoboken is still bound by water on three sides and a cliff on the fourth so there can only be so many housing units. Does that make any difference with regard to tracking the futures market? Just trying to understand the complexities of it all.

  31. Doug

    The one thing people don’t seem to understand is that Hoboken is vastly different than what it was in 2000. So, even if prices revert back to 2000 prices…they would be what they would have been in 2000 if Hoboken was like it is now. For example, as someone mentioned, Hoboken is much more diversified, both in terms of ethnicities and employment. Also, Hoboken has gotten more upscale with restaurants, much less of a “college town” and has a much better reputation in general. Hoboken’s residences are now MUCH better and there are few “bad” places like there were back then (people are moving futher and further back.) Plus, and I think this is most important, much more families are moving here and view Hoboken as a viable place to raise young children. This is a huge change to the area. And, it still has unbeatable transportation/access to the city.

  32. Laki

    Sure i agree with all the posts about how great Hoboken is. But that has to be secondary in any realistic analysis. I might love the Ferrari, but i’m not buying one unless i can afford it.

    Go to this website:

    http://analytics.radarlogic.com/radar-logic-home/historical-data.aspx

    Select “Manhattan Condominium” as the MSA. You will realize that prices in Manahttan DOUBLED since 2002. They doubled in 6 years! Manhattan hasn’t changed all that much in 6 years. Why can’t the prices go down 50% to go back to where they were in 2002 in pre-bubble years?

    Lets talk supply and demand. In my opinion the demand will vanish to such an extent that even the most pessimistic people out there will end up looking like optimists in hindsight. Who will be able to afford the New York City metro area apartments at these prices? We’re coming from an environment where a junior guy with 5 years of experience at Goldman for example was making $ 300K a year and a smart guy with 10 years of experience was making half a mil or more. Guess what, one of those two has lost his/her job, and the other one has 100 K base now with no bonus. And this will be the reality for many years to come as the entire economy undergoes a delevering process. The prices in Manhattan will collapse, and if this is not followed by a price collapse in Hoboken, well then the two will be equal, and on a competitive basis people will choose Manhattan over Hoboken (this is just reality – even though I prefer Hoboken myself). So Manhattan price collapse which is imminent in my opinion will be followed by price collapse in Hoboken regardless of all the positive things one can say about Hoboken.

  33. stan

    I see no reason for declines to be limited to 10-15 %. Massive job losses, the cannibalization of younger buyers who bought before the ordinarily would have been able to because of cheap credit, which ate up future demand, tighter standards now in place…. How many people have 20% down who haven’t purchsed yet? How many are willing to purchase In a declining environment? Not enough to keep the party going.

    Fewer first time buyers, no bonuses of consequence this year, tough 2009. Without a doubt. 20% + losses is a certainty, unfortunately….

  34. Doug

    Supply and demand…yes, R/E is about supply and demand. Yes, the economy, job losses, etc. will greatly affect the real estate marketing, however supply and demand is key. The difference between NYC (and Hoboken) and many of the other markets is supply and demand. NYC (and Hoboken) are both surrounded by strict boundaries – you CANNOT create new supply beyond a certain point w/o getting rid of existing buildings. This is vastly different than many other markets where supply is virtually endless (Vegas, Flordia, CA, Phoenix, etc.) So, because supply is so limited (especially in “key” areas) you cannot expect NYC R/E to act like many of the other markets. Another important point is that people in NYC (and the general area) have a completely different mindset than most of the rest of the country about prices. There is not as much of an issue spending 50%+ of their income on housing, whereas this is unheard of in other markets. Yes, a dip in prices is most likely a given…but a huge dive in prices (like many here are suggesting) is completely unrealistic.

  35. Tiger

    This thread is hot :-). Well it seems that there are many scenarios on how things will go; but unfortunately -and it is scary to think- no one can tell for sure.

    It is important IMHO not to think of R/E in isolation of what’s happening, worldwide. We are facing a global economic crisis of massive scale. So basically yes R/E is supply and demand, but it seems to me that most reasons for R/E prices going down in our area has to do with people becoming ‘poor’ in our area, or not making enough money to afford the prices. I find this interesting because the original R/E bubble in 2007 has to do with developers building, and people buying, places that no one simply wanted hoping to flip it (plus of course HELOC and overspending).

    Same goes for falling rent rates; it’s not like people no longer want to live in or around NYC, they simply can no longer afford it. I guess what I’m saying is that while it might take years for R/E to pick up again, that does not make this area any less desirable.

  36. Lori Turoff

    One point of interest I learned from the Inman conference is that in certain markets, like Southern California, Las Vegas, Phoenix and even Florida, prices have declined to the point where the actual number of transactions is way up over last year. A large part of the sales involve distressed properties, (REOs, short sales & foreclosures) but buyers are seeing value at the price at which they can buy these homes. For example, a large number of Germans are buying distressed vacation home properties in both Florida and Phoenix. I wonder how that will play out in our market.

  37. patk14

    Some very good points on both sides of this issue. As far as supply and demand, while the supply of condos in Hoboken is relatively fixed (after a rapid expansion over the last decade), demand is not. As has been pointed out, the financial firms have only just begun cutting jobs (1st phase was reducing bonuses) so the number of people willing to pay $1,000/square foot in Hoboken, NJ is going down. Sure, not every job in Hoboken is directly tied to the financial markets, but many lawyers and consultants will find that they getting less work.

    I know someone who bought a very nice condo in Hoboken in 1987 for $130,000. By 1992, similar condos in that building were selling for $90,000 (a drop of almost 31%). When he sold in 1996, he rec’d $130,000 (exact price he paid 9 years earlier). By late 2000, that unit was sold for $280,000, an increase of 115% from 4 years earlier! I’d guess that same unit would sell for something like $500,000 today. Would I be surprised to see it fall to $350,000 in a couple of years, absolutely not. Hoboken has a history of rapidly rising and rapidly falling real estate tied to NYC and the finacial industry.

  38. Lori Turoff

    Patk14 – Where do you get $1,000 / square foot for Hoboken? The most recent numbers are closer to half that. Just curious.

    I do think that there is one important point which has only been touched upon very briefly and that is that many feel a large reason for appreciation in Hoboken had to do with what I’ll call ‘structural’ changes in the neighborhood. By that I mean that Hoboken has simply become a much more attractive place to live due to changes that have taken place in the past decade. Just as one small example, when I moved here 10 years ago, there was no supermarket but the C-town.

    I think of it as being a bit like measuring changes in stock prices. Part of any move in price certainly is correlated to the market as a whole, what’s typically called the beta. For a technical explanation of beta see: http://en.wikipedia.org/wiki/Beta_(finance)

    But for any asset, some of the change in the price of that asset is independent of the market. It has to do with the specifics of the company. Might Hoboken not have a lower correlation than other areas?

  39. Laki

    Yes people are buying distressed properties in Florida and Phoenix at 30-40 cents on the dollar. They’re not gonna start buying them in New York for 90 cents on the dollar today! (Even if they wanted to they cannot afford it). You can buy very nice condos in Miami fresh off the foreclosure for 150K or so. In New York you need a million for the same type of an apartment! Where are all these millionaires gonna come from?

    To people who say that supply is “limited”. This is extremely deceiving. Manhattan, Brooklyn, Queens, Hoboken and Jersey City have so many apartments built already. Imagine if 10% of the workforce gets fired and leaves the area (cause without an income you CANNOT live here for any period of time). How many apartments will that free up? Think about it. The supply will be absurd. The rental market is telling you that this is already happening. If the supply is limited, why are the Manhattan rentals going down so fast? Because people are leaving. Financial firms alone will have fired in excess of 100,000 people here. Who will step in to fill the hole?

  40. John

    The Hoboken housing market is going to correct by >40%. Rents in Hoboken will correct similarly with prices (already well on their way). The unemployment rate will exceed 10% this year. Overly levered consumers will become truly distressed.

    Hopefully the new administration will put forward new legislation to appropriately regulate realtors and their associations from making irresponsible sales pitches and promotional advertising. There is no reason why realtors shouldn’t be subject to such oversight when many industries experience much more intense scrutiny, such as the brokerage industry. It is irresponsible of realtors to advertise the merits of home ownership vs renting by using overly simplistic models of the financial costs of each decision. It is in this over-simplicity that leads many to gain a false sense of the affordability of home ownership. It is this false sense that is largely responsible for the current malaise of this country. It is time to hold realtors responsible for their messaging.

  41. Willy

    I don’t see how Hoboken’s pricing can keep from going down AT LEAST 20%! Putting aside all the macro-economic distress on Metro NYC, this city’s infrastructure and funding dilemma are a parallel to that of any distressed corporation’s stock. Real estate prices are a representation of Hoboken’s stock.

    I find that most RE brokers don’t understand this credit crisis at all, and mistake it with past economic recessions. Therefore, their conclusions are misplaced.

    My wife and I have owned investment properties in the past. We will become first time Hoboken owners in the DISTANT future and our down payment will be well above your historical experience.

    In the meantime, we intend to pad our equity while saving by RENTING.

    Enjoy your blog – but lose the rose-colored glasses!

  42. Lori Turoff

    Sorry guys – I put my money where my mouth is and have for about 25 years. With no regrets. I believe in home ownership. Not flipping, not speculation, but the old-fashioned American dream of owning one’s own home for the long haul. It’s good for families, it’s good for communities, period. No one is forcing you to buy if you don’t want to. Way too many people jumped on the band wagon and got in over their head in the hope of making a quick buck. Others were misled. Take a look at the story in The New Yorker Magazine a few weeks ago about a poor elderly woman in the Mid-West who was tricked into refinancing repeatedly and now is facing foreclosure. That is just plain wrong.

    As for oversight – realtors already are regulated, albeit at the state level. I believe our industry needs much more transparency. There is way more that can and should be done, however, to provide that transparency to the consumer by the state real estate board that governs us. More stringent entry requirements would also be nice. Unfortunately, I don’t make the rules.

    Blaming the current state of the economy on any one group or industry is silly. The reasons we are in the mess we’re in are many – such as consumers who used their homes as a credit card to live beyond there means, dishonest mortgage brokers, banks seeking returns without taking on the risk, lax regulation and enforcement, the Fed asleep at the wheel, and so on. Those are just a few, there are many more.

    I hope we all learn some lessons from this so we can do better going forward. In the meantime, I will continue to provide as much information as I can with the goal of doing my part to educate and inform you in an objective manner so you can reach your own conclusions. From the feedback I’ve received since I began writing this blog almost a year ago, and the level of discourse evidenced by this single post, I believe it is a step in the right direction. So I again thank you all for your well considered opinions and respect for each others.
    – Lori

  43. AL

    Hoboken is not the only area around Manhattan that has improved during the last decade. Brooklyn and Queens have become very attractive for young professionals and have improved too. The same happened to Manhattan as well, where there are areas that have improved incredibly and prices have more than doubled in the last ten years. So the success of Hoboken is not the exception in the NY MSA.
    When I moved to Hoboken 5 years ago I checked also Brooklyn and Queens. This is to say that the Hoboken market is not an isolated market but is part of the larger NY real estate market. The demand and supply have to be evaluated at the level of the NY market (suburbs included) and not just Hoboken. If they overbuilt (oversupply) or the demand disappeared in Brooklyn, also Hoboken would be affected because prices would go down in Brooklyn and people would choose Brooklyn over Hoboken.

    I bought in 2004, sold in 2007 and now I rent because I expect prices to go down. But it seems to me that many people on this blog have a too gloomy picture.

    I think that the right time to buy is at the end of 2009 or in 2010 after the FED and all the other central banks in the world have thrown in so much liquidity (lower rates and quantitative easing) that they created the seeds for inflation. At that point real assets will be safe good choices and good investments (and then also good homes).

  44. Tiger

    I see a lot of numbers being thrown, ranging from 10% to 50%. But I guess my question is what is everyone’s guess about when things will start reverting back to normal? Obviously the days of double digit appreciation are way behind us, but what about average appreciation? in 5 years? 10 years? I’m curious to know what people think.

  45. Tiger

    Very interesting article about NYC real estate in CNN Money, it actually states all, the good, the bad, and the ugly:

    http://money.cnn.com/2009/01/06/real_estate/Manhattan_market_softens/?postversion=2009010610

  46. Laki

    My opinion on timing: Bottom in 2011. From there it depends on the government actions. If the policies create an inflationary environment, nominal prices will start going up as soon as they hit the bottom (but not real prices). If there is no inflation, i think home prices stay flattish for another 3-4 years after the 2011 bottom and in 2014-2015 they start going up at a 2% real annual rate. Just my opinion.

  47. Ran

    Two years ago, if anyone dares to predict 2007 housing bubble, people will say he is a fool, because US house price has never gone down since Great Depression.
    Today, if anyone dares to predict 2009 housing recovery, people will say he is a fool, because US economy is such a wrack.
    Let us wait and see who is right.
    BTW, buy Jan 2011 put option on DOW REIT index (goto finance.yahoo.com and search ticker IYR) will not be a bad idea to hedge your real estate exposure for the next 2 years.

  48. Lori Turoff

    This comment is from Heidi – she had some technical problems with the site in posting so she emailed it to me to post:

    Not long ago you had a comment about some units you’d seen and how they measured up (or didn’t). The reason I bring that up is that I’ve seen some occasional listings that seem to be high or low (well usually low since that’s what causes me to take notice) at first glance and I wonder if those are really low or just the pictures and details don’t give away some underlying negatives. (e.g. the recent listing for a 1200 sq ft 2 BR at 2nd and hudson for only 599k seemed surprising). anyway, what could be interesting to the extent you can offer some comments is to share your perspective on what you’re seeing. there’s such variety in the different units it would be interesting to hear a bit more color about whether the nicer (or not so nice) places are still looking about the same or if you’re noticing trends on a condo-by-condo basis. Or even if you took a building with lots and lots of sales over the course of a year to see how that has trended over tim! e. Just a thought. Love your blog as always!

    Hm. I’m really surprised at the magnitude of the gloom and doom perspective here… I’d just add a couple things… Firstly, I agree that Hoboken is part of the metro NY area. However I think Lori had a nice post with a graphic from some months ago that showed the disparity in prices ($/sq ft I think) between Hoboken and Manhattan. As you would see, a very large gap has opened up over the last years such that now Manhattan is over twice the price per sq ft versus Hoboken. Moreover, Hoboken prices have remained flattish to declining (depending on the area) since 2005 or so. Meanwhile, Manhattan prices per sq ft have risen until only the most recent data. The reason for stating this is that, yes, they are linked, but they’re not the same. I like Lori’s market metaphor – they’re both going to be impacted by the trends of the industry but like any two companies in the same sector, some fluctuation in the share price is market risk, some is company-specific r! isk.

    And regarding comparisons to other areas, it happens to be that my company is planning to relocate to San Francisco – another market that’s been living through the housing crisis for a while – so I’ve been learning a bit about that market. I don’t proclaim to be an expert on SF real estate by any means, but IN GENERAL, there are places well outside of SF and not on a metro/train line that people consider ‘bedroom communities’ that have had huge declines. In contrast, the towns that are perhaps the same distance away but on the metro line, have good schools, etc, which have become a little less expensive in the downturn but nowhere near the magnitude of what’s been seen in those other communities. I’ve seen a similar trend in the DC area – I have family just outside the district in Maryland where there are excellent schools, desirable neighborhood, beautiful houses, etc and while prices have softened there, it has been more modest compared to areas furth! er away and/or without the same qualities. In any event, to say that the NYC area – given all the circumstances of geography, desirability, industry, etc – that other have outlined is nevertheless going to behave like those distant commuter communities in CA, FL and so forth seems a bit overstated.

    Lastly, I’d echo an earlier comment to note that Hoboken isn’t just a suburb of wall street and exchangeable for Manhattan. It’s still less than half the price per square foot than Manhattan. There are no co-ops (or at least I’m not aware of them) which from what I have read are becoming even more stringent entry requirements. There will always be couples having children who want more space but the proximity to the city and might look here (as well as Brooklyn and the other boroughs). There’s no NYC city tax. There’s a very different residential feeling compared to most parts of Manhattan. There are a lot of us who work in entirely non-financial sectors, possibly in more distant parts of NJ. There are a lot of reasons this area will be desirable and I think will help to provide some level of support in the current declining environment.

    What I think we do need to do is make sure we do what we can to keep it that way – the immediate example of course is to figure out how to reverse the crazy tax increase and make sure our city becomes a fiscally responsible entity going forward, so at least others will hopefully find the same positive qualities that we did when we moved here…

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