2009 Sep 23rd

The Weekly Wednesday Wrap Up – Hoboken Condo Sales and Inventory for the Week of September 22nd.

Hoboken Condos Inventory & Sales – Week of September 22th

Maybe it’s just the post-Labor Day influx of new listings but inventory has taken a leap upwards. Unfortunately, sales activity has not improved to match it. So the pressure stays on the sellers to keep the price movement downwards while the buyers out there have lots of options if their negotiations don’t go their way. In a few weeks I will be doing the 3rd Quarter analysis which, I believe, may provide some better insights into the market and how it compares to past performance.

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Here are this week’s numbers:

Here is the Weekly Wednesday Wrap Up from: September 15th, September 8th, September 1st, August 25th, August 18th..

Studio & 1 Bedroom Hoboken Condos:

22 new listings

183 total active

2 dabo. 93 average DOM.

4 sold

20 price reductions.

Two Bedroom Hoboken Condos:

19 new listings

304 total active

3 dabo’d. 25 average DOM

8 sold

21 price reductions.

Three Bedroom and Larger Hoboken Condos:

75 active

4 new listings

No dabos

4 sold

5 price reduction.

Hoboken Condo Open Houses

If you are in the market for a Hoboken condo, our Hoboken Open House Google Map is your single best source for locating every open house in Hoboken. It’s posted on Friday every week. The info is updated weekly. If your google search seems to pull up an older version, click on the title link to get the most current map. Like this report, to receive the map with the actual links, you will have to request it.

Want to Receive New Listings & Price Reductions Daily?

If you would like to be emailed the new listings and price reductions each weekday in either 1br, 2br or 3br categories just email us at info@hobokensbest.com letting us know which size(s) you would like and we’ll add you to the daily email list.
You can always contact us at 201 993 9500.
Thanks for reading and, as always, we welcome your comments!
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  1. homeboken

    561!? That is a pretty huge jump in inventory. Looks like a lot of first time listings.

  2. JC

    There must be at least 15 listings for 1325 Adams.

  3. thoughts

    wow – from some of these sales figures and the inventory, it looks like the recovery is still not here. i thought it was. that said, i think we’re close enough to the bottom if you want to buy.

    i think the U shaped recovery theory is right!

    thoughts

  4. homeboken

    Im not sure I agree with the U shaped recovery theory. I think we are in for an L shaped recovery with a low angle / in about 24 months.

    The units at 1325 are kind of odd. Very nice, new units, and on a great street.

    BUT, is that the new movie theater I see in the left of the frame of the first picture? I love the idea of a new movie theater in town, but this will most certainly be a teenage hangout on the weekends. I for one, would not want to live right next to this new theater.

  5. Andy

    Its fall, I would think we’re going to have high inventory and few sales through winter. If the markets stay up through the end of the year which looks promising then you’re going to see one of the best spring seasons in a long time. Jobs are coming back in even the most unlikely of sectors(GM is hiring 2600 people back) and we’re officially out of the recession. People who were able to keep their jobs and save their cash this past year are in great shape to snap up deals all over the tri state area.

  6. stan

    People listing now are most likely doing so because they have to for some reason. Why else would they list now, when they know that fall is the slowest time of year?

    100 +/- listing increase in two weeks?

    unemployment has ectually increased to 9.7% in NJ I believe and is over 10% in NYC

  7. Fred Davis

    The market will go substantially lower, in real terms. That I am sure of. I have no clue as to the timing though.

    On an aside, I recently saw a bunch of condos coming on for auction in the NYC area. There will be more of that and all things taken together will force prices to where they should rationally be. I’ve also heard anecdotal evidence of Hamptons properties not moving at all. Usually that’s the first thing people try to get rid of instead of primary residence.

  8. Andy

    I actually read an article on NYTimes.com about the Hamptons and how those homes are actually moving again after 2 quarters of a complete standstill. Not sure where you read the opposite.

    On the market, we’re due for a mini correction but its going to hover around this level if not a little higher for the rest of the year. Almost every sector is raising their estimates on future forecasts. Employers are slowly hiring again. I think all that institutional money that missed the 60% increases are pissed that they sat this one out and will need to make budget by the end of the fiscal year. Thats a market floor if ever I’ve seen one.

    Housing will catch up esp in the tri state area. I think sellers are watching the rest of the economy stop the free fall and if they can hold out they will. If they were able to hold on financially this long they don’t want to crystalize that loss in market value unless they absolutely have to. Fear is slowly receeding from the economy.

  9. Randy

    Fred, where would i find active auction listings?

    Very interesting to see such a large jump in inventory. Next few months should be very interesting.

  10. hmmm

    This is the shadow inventory that everyone has talked about and nothing more. As soon as the market showed some life, more people will decided to dump causing more price cuts.

    I think decline in housing crash happens in two stages, the accelerated decline that we had in the begining of the year and the slower and longer one that we’ll experience from now till who know when.

  11. Fred Davis

    This was the largest asset bubble in history. What does one think will happen in the aftermath?? Prices go down 10% and stabilize?!? I guess most, because of denial or something else, don’t welcome Cassandras.

  12. potential_buyer

    I agree with Fred – I have been watching the market for quite some time and believe that folks are still in tremendous denial. Just the other day I asked my neighbor what he thinks my rental property is worth (he owns, I rent), he said he thought 700k would be ‘fair’ for an 1100 sqft place without parking or balcony, but had a nice view of the city. I looked up the tax records – both his place and the one I am renting were bought for 635k in ’07. Pure insanity, but the guy was being dead serious.

    That highlights the speculative fervor that people still buy into. “Recession is over, jobs are coming back, market is on the rebound. ‘Boken prices are on the upswing”. Reality check people, Hoboken prices still have downward pressure on them and don’t be surprised if the inventory continues to rise (I won’t be). Additionally, if we have indeed exited the recession, don’t be surprised if we flirt or bounce back into it Q1 of next year (couple of good articles describing just that phenomenon have come out).

    I haven’t commented on the board in some time, but I do love the discussions. Thanks again Howie & Lori – you guys rock (though I will stop short of saying ‘go jets’!

  13. D

    I recommend you read the report on the website of NYS Dep’t of Labor. It projects job losses in the tri-state area through 2012, and a significant reduction in income. Plus, NY Dep’t of Taxation studies state that historically NY area comes out of recessions 9-12 months after the rest of the country. Here, arguably NY’s position is much worse, because banking got hit the hardest.

  14. Randy

    here is an excellent graph of housing prices through 2006 – so since 2006 we are down what, 10%? 20%? Based on this graph, it has a lot more to go.

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

  15. vreporter

    As far as everyone’s assumptions about the rising stock market fueling real estate prices – that’s more than a bit of a stretch!

    Secondly, the stimulus increments will now be negative as the exit strategy has begun (Fed and Treasury). The stock market and the dollar will now reverse course from their mini bubble of the last few months – induced by our big brothers so as not to have us all claim the end of the world.

    “L” is the realistic “assumption” for a positive scenario! That Deutsche Bank report that seemed extreme? Well, we’ll see now…

  16. Andy

    Lions Tigers and Bears, oh my. You guys are pessimists all around. Did you guys short the market in March as well?

  17. Lori

    Randy – that chart is created by Shiller. He uses only single family homes in his anaysis from what I understand. It’s one person’s opinion. As is pretty clear from all the comments here, opinions differ. Thanks for posting it. The NYTimes also does a very cool interactive map of home sales in various cities. New York does not look nearly as horrific here:
    http://preview.tinyurl.com/ydzs4ma

  18. JC

    Single family, existing homes, no new construction. The chart still represents very well the irrational exuberance in housing we experienced.

    No one has found a precise way to measure changes in house prices because no two homes are exactly alike, changes in the price of one won’t necessarily be matched by a house across the street, and certainly not the next state over.

    Some indexes track price changes in the same set of houses over time, those can be distorted by major improvements in some of the houses and deterioration in others. The publicly recorded transaction prices, used to create indexes, often are distorted by incentives given to buyers that aren’t tallied in the price. All of these charts and indexes are ok references but shouldnt be used as absolutes.

  19. JC

    Andy and Fred…here you go regarding Hamptons.

    http://online.wsj.com/article/SB10001424052970204518504574417302619367922.html

  20. Andy

    Thanks JC. Got my papers mixed up. It was WSJ not NY times. But either way places are moving again out there and in a ultra lux market thats a positive sign. Plus, if you read through the article a little you’ll see the part about people on Wall Street making moves because they know they will be getting a good bonus this year. Its certainly not going to be everyone across the board who will get a good pay-out this year but there will be plenty of people who got nothing last year compensated accordingly this year. Its not what people want to hear especially given the raw feelings of those against Wall Street but the payouts will be there. The G20 talk is just talk and posturing by politicians regarding compensation. I think Europeans are more apt to put these restrictions in place but I sincerely doubt Americans will follow suit or talented Europeans will be joining American banks in droves. At best you’ll maybe see a very watered down version of compensation reform.

  21. vreporter

    Hoboken and the Hamptons, both begin with “H.”
    Hence the certain similarity in market performance, I’m sure. The Hamptons activity has ramped up because of LOWER PRICES! Bidding wars are relative.

  22. stan

    I wouldnt say pessimistic, just realistic.

  23. Andy

    You guys are overlooking the fact that bidding wars are taking place at all period. Lori has mentioned that bidding wars have occured recently as well in Hoboken. If a place is priced under what the perception of the prospective buyers think it should there will be bidding wars. I’m not saying this will spin out of control and people will be having bidding wars on railroad apartments again but its certainly a positive sign in a wilderness of negative sentiment. You guys are all entitled to your opinion but you’re apt to trivialize any positive news.

  24. thoughts

    i have to agree with Andy. most of you are doom and gloom. certainly the market went down, but there was no collapse. that said, most of you keep (and keep and keep and keep) predicting a collapse. well, where is it? except for some properties, which are less desirable, nothing is being given away. you can keep hoping, but if you want to stay in a certain location for a minimum 5 years, right now is the perfect time to buy. 20% off the highs and low interest rates – the doom and gloom crowd may miss out. by the way, ask people in their 50’s and 60’s (people who have experienced different markets) whether right now is the perfect storm for a purchase. by the way, as discussed, hoboken today IS NOT the hoboken of 10 years ago – that has something to do with the rise in prices besides the bubble….

  25. thoughts

    homeboken – quick question. if you’re renting and have no desire to purchase in hoboken, why do you follow the market so closely? are you really looking to buy and just trying to scare Sellers to lower prices?

  26. homeboken

    thoughts – I never onced believe that anything I say or do on a blogs chat board will impact the market in any way.

    I work in the multi-family housing industry, this should tell you that I am keenly aware of all the potential benefits of owning real estate.

    Hoboken is my home, so I find it interesting to know a little about the real estate market in my home-town.

    Don’t try to bait me into an argument.

  27. JC

    Zillow charts has Hoboken down only 17% from the top in march 2006. After a 150% increase in the last 10 years this equates to about a double in 10 years or 7.5% per year from 2000 – present.

    By the way zillow has:
    Jersey City waterfront: topped March 06 down 22%
    Hudson County: topped June 07 down 28%
    North Bergen: topped Dec 06 down 36%
    Miami and Phoenix: topped Dec 06 down 46%

    I’m not even sure what the takeaway is here. I’m upbeat on the fact that the markets listed above had a vicious quick correction while Hoboken didnt, and that could signify strength. I thought that our area (NYC included) was 9 – 12 months behind the rest of the country but as you can see Hoboken topped out in line or even before the markets I menioned.

  28. JC

    for reference over the last 10 years according to Zillow:

    Hoboken up 150% corrected 17%
    JC waterfront: up 160% corrected 22%
    JC: up 210% corrected 24%
    Hudson County: up 172% corrected 28%
    North Bergen: up 182% corrected 36%
    Miami: up 230% down 46%
    Phoenix: up 150% down 46%

  29. Randy

    The constant argument of whether prices have already bottomed or have a long way to go, or is somewhere in the middle is impossible to predict. There are many experts with all different types of opinions in different directions.

    All I can say is we are in uncharted territory when it comes to real-estate. And as far as I know, nobody can predict the future.

    I know I want to buy in Hoboken within the next 10 months but am very hesitant when seeing growth of somewhere near 80-100% with a decline of only 20%-25% (i have no idea what the real numbers are). So I follow this board like crazy to learn as much as I can. I wish there was some sort of guide that could help predict what would happen in the next few years.

  30. jc

    There is but not for Hoboken, only the US. Ticker symbol UMM and DMM. Robert shiller’s new project, let’s the market decide on a daily basis. It was only launched a few months back and no idea if it will be accurate. I THINK the market is predicting a 4% move up over the next 5 years for the US.

  31. bz

    What you want to know is what everybody wants to know. As you have pointed out that there’s no way to get the answer. That’s why there are arguments back and forth among loggers here and among experts in the media. One can look at the data in a million ways. But ultimately one can only come up with one answer which fits his/hers personal situation the best.

    But of course, you can talk about your thoughts and bounce ideas with other loggers here. It definitely helps you handle your hopes, concerns, and fears. And…it also makes your work days go by faster:).

    My point is…don’t take anything here too seriously. If you have no control over certain thing, don’t stress out about it.

    Have a great weekend, guys.

  32. thoughts

    Homeboken – I found it interesting.

    Randy – In regard to Hoboken’s value, I think one of the best gauges to determine how much it may go down or up is the value of real estate in NYC and places in NJ like Summit.

    Obviously, if all of the real estate markets fail, so will Hoboken. That said, as long as NYC and Summit are retaining their very high values, Hoboken will be a bargain and will have demand.

    How much is a nice two bedroom in the city?
    How much is a nice house in Summit?

    Thoughts

  33. Fred Davis

    Thoughts,

    If you don’t see the crash coming–don’t worry-you will.

  34. vreporter

    The misunderstanding and denial about a continued down-market is in the expected rate of decent. In this area it will be slow and protracted, whereas most take a crash to mean one swift drop. That’s not how a deleveraged market (no debate about that now) will pan out. Hence the long, drawn-out deflationary forces at work as well. There will be plenty of buyers and mini upcycles (bottom pickers) along the way – only to see their equity vanishing despite after-tax considerations. we have been programmed to expect that from previous downcycles. This IS and WILL BE different. Therefore, comparables from 2000-2003 will play a very relevant role in converging back to “normal” when one considers valuations of properties. Developers are out of their minds but they get rewarded for the behavior – our tax code promotes it.

  35. Randy

    vreporter, why ” This IS and WILL BE different.”?

  36. Lori

    Let’s say for the sake of argument the pessimists are right and the market declines further before rebounding. Fred – vreporter – Homeboken: I’m curious to know how long you think it will take until it changes direction? Do you see 3, 5, 10, 25 year cycles?

    JC – go to Zillow and read the really tiny fine print about where they get their numbers. I found it pretty interesting. Like Shiller’s index, Zillow is an estimate based on an algorithim as I understood it. Not real numbers, no?

  37. thoughts

    Freddie –

    Do you have any stocks that you can recommend to buy or short sell? You seem to have the power to predict the future. It’s amazing. I want to become rich!

    By the way, a crash in the market or not will have no affect on me, as I bought years ago at a great price, great interest rate and I’m not moving in the next 7 or so years. That said, I’m sick of your “great crash” theory that has yet to appear. I’ve spoken with a number of professional people with more years of life experience than us. They say, it’s a great time to buy (whether or not it goes down a little more) – I think buyers should know that.

    Question – Where is the crash? Is this LV or Miami? I think not.

    Thoughts

  38. jc

    Lori: yeah, thanks. In our area it says zestimates have an error deviation of 11%! I know my place is way off. Hopefully as info gets more transparent and more transactions occur zillow will be more accurate.

    I think it’s still a decent info source to compare markets in the same areas.

  39. homeboken

    Lori – 10 years. That means anyone that purchased from 2004 – today will have to (on average) hold for 10 years in order to see any gain in their investment.

    Thoughts – You own your home, right? Why do you spend so much time on this website tracking the real estate market? Are you trying to inflate real estate prices or scare renters into thinking they may be “priced our forever?”

  40. Fred Davis

    Thoughts,

    I don’t disclose names of stocks or other investments to my clients, whose money I manage. I have no interest in giving you, or others, any information on that front. You should be happy that I’m enlightening you and others on your board.

  41. thoughts

    homeboken – i have a number of friends looking to buy in hoboken right now, so it is a very common discussion among us.

    freddie – you’re not that funny.

  42. Laki

    Somebody was asking for market expectations of the future.

    http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforJuly2009.pdf

    Page 20. Look at the New York chart and the table in the bottom. The dashed blue line is the expected future price per square foot of a median place in New York MSA (area around NYC) based on the forward market. These contracts trade over the counter and the market is supported by many different dealers (Goldman, JPM, Morgan Stanley, etc.). You can trade 10s of millions of dollars without moving the market (so one CAN express his views here with real money). This market expect the New York MSA real estate to go down 28% from current levels. Maybe the expectation is wrong, but it offers a superior investment to buying a representative house in the New York MSA. If someone just wanted to speculate on the housing market buying the forward here is 28% cheaper than buying a house. You buy a forward, home prices go down say 20% in a year – you still made 8% in profit. But if you bought a house you’re down 20%.

    PS. This market expects Miami to go down another 37% from the current levels. Think about what this means and how that compares to the main stream media reports that housing has bottomed already! If you really think the housing has bottomed in all regions (New York included), you should find a way to go long these individual indices and you will make a fortune. Unfortunately they’re not offered to retail guys, so you would have to go through a hedge fund. If you care about the real estate pricing/trends/expectations you should at least follow the indices and the forward markets that are based on them for sure. They offer more information than any article you might read in any newspaper.

  43. Hmmm

    Fred,

    I think the market, both housing and stock, will be stagnant/down in real (notice this is not the same as nominal) terms for the next 10 and more years unless there are major changes in our government. In nominal terms, I believe both the stock market and housing market will provide the protection for our savings over the fixed income securities due to cyclical movement. This is why I’m buying and this is the same reason some of my friends in my age group is also buying. I’ve been one of the biggest opponents among friends and family in buying in the last leg of housing bubble between 05 to 07, so I’m not a bull before and is not a bull still. Here’s my reasons.

    1. Interest rate will be corrected upward early next year once the Fed stop their purchases. This is instantly slow down buying activities.

    2. FHA has tighten the rules because the losses are mounting and they can’t risk asking for more money when there aren’t much left in our empty treasury. This will reduce a lot of activities in that market.

    3. Heavy amount of shadow inventory will continue to appear once inventory start to dwindle down providing amble amount of supply for any increase demand in a economic recovery.

    4. Heavy deficit spending will continued to be a drag on our currency, putting the dollar out of the commission as the reserve currency. The dollar will continue to decent against the world currencies in general.

    5. Real Unemployment/underemployment will stay permanently above 10% because of all the “encouragement” by our government to stay home and not do anything. Among the unemployed, I can accept that maybe 10 to 20 percent was really unemployed due to extraordinary conditions and can’t find employment of any kind, the others, I will attribute to number of negative factors that is affecting our population in general. There is plenty way to educate and train yourself to be useful in the world, sitting down and collect unemployment for close to 2 years and waiting for something to happen is not one of them.

    Now, the positives.

    6. US has some of the best technologies in the world in pretty much every field/industry/sector, that technology know-how can be leveraged and sold to keep the country “afloat” while the government/consumers work out their finances.

    7. Same can be said of brand and images that many of the companies have in the US. This is at long as all the multi-nationals continued to be based in the US and all the research and development is done here.

    8. Corporations/businesses have gotten leaner and more efficient after all these rounds of firing and layoffs. They also have stock pile of cash on hand to seize on opportunities when they become available. Same can be said of consumers who started to save and actually understand the importance of saving money for the rainy day.

    9. Hopefully after all the mess in the last couple of years, the people come away with a big lesson in finance to not listen to just anyone and make the best judgment in their own interest. I’m hopeful that the last two lessons (stock/housing) are big enough that we won’t have another bubble in awhile.

    So in my opinion, the crash already happened, the prices might trend upwards but it will only at the rate of inflation / deflating currency.

    Also Fred, if you decide to contribute, please do so, but don’t try to sound superior just because you are in a certain position to do so. It is not necessary to look down on anyone in this board.

  44. Lori

    JC – I agree with you and also wish Zillows numbers were better and that there was a transparent market from which we could get better data.

    Homeboken – 10 years from today or 10 years from 2004?

    Laki – very interesting information but those guys (and women) at Goldman, JPM, Morgan Stanley – are they always 100% correct about markets???

    Great contributions from all – thanks!

  45. Laki

    Lori – Nobody knows what the future brings, but these prices are the best estimate of the future that one can TRANSACT on… If I was to ask you – what’s a bushel of corn going to cost a year from now – your best bet would be to look at one year corn futures contracts and quote that price. That would be the market consensus since people are using that price to lock in a delivery of corn a year from now and that is the price where the seller and the buyer meet today. So forward/future prices are REAL, even though they might not reflect the actual price a year from now. So you gotta look at them. If you disagree with them with conviction – you can make good money by going against the market.

    My whole point though is this: These prices are the market consensus of the participants in the financial industry. If the market consensus was different, the prices would be different. Investment banks do not control these prices, they simply make the market. If there was enough participants thinking that these forwards are ridiculous and that markets are going to stay flat lets say – they would be buying these until there was not profit to be made and the prices would be pushed up. But they’re not. The forwards for the US composite index went up a lot in the last several months – for New York, they haven’t moved at all.

    I frequently disagree with forwards in various markets. But i never ignore them.

  46. vreporter

    Lori,
    I can’t disagree with the 10 year theory (from homeboken) until prices recover. We will simply languish slowly in an L-shaped type of price behavior. That is partly due to one of the largest price discrepancies anywhere in the country. ie. LV, Phoenix and Miami have removed the pain sooner rather than later. The employment gauge is the biggest factor here. And it is dismal for the foreseeable future. That creates an even larger lag in recovery, let alone spending. That means lower sales and lower prices here for a very long time. Much longer than the holding period for a home anyway. Renting is the new wealth strategy despite realtor conflict. That is why I emphasize the misunderstanding of a property recession due to DELEVERAGING. Investors need to do their homework there before understanding the cyclical nature of RE. NYC will be profoundly affected, obviously. The stock market has not finished with its painful cycle and deflation (RE’s greater enemy) is more alive than ever. The only way out is a serious dollar devaluation but locals don’t understand or care about the rate to other currencies. Our first real RE buyers will be foreigners at that time. that’s not much to hope for.

  47. Lori

    Having owned a travel company since 1992 you don’t have to tell me about the devaluation of the dollar. It has been devastating the industry (as if 9/11 wasn’t enough) for a number of years now. The Euro was introduced at just under 80 cents and is up to over $1.45, no? I don’t see that improving any time soon unless interest rates shoot up but that brings on a whole other set of problems. Maybe the conception of what the proper ‘holding period for a home’ needs rethinking. Assuming you are right and prices stay low or even get lower, what does that do to rents???

  48. Andy

    Look, dollar deval is a boon to foreign investment in the US especially in RE. And for those who think your cash will buy less and less in the future having a portfolio that includes a hard asset like RE and commodities is essential to a diversified portfolio. I completely agree our cash will buy less in the global economy in the coming years. The problem is that the world is not independent of the US economy whatsoever. That was abundantly clear in this past cycle. All the talk about decoupling in emerging markets was completely wrong.

    Fred/Vreporter, I hope you feel comfortable advising your clients to short the markets and keep their money in cash which is loosing value. I don’t mean to be snarky but you don’t seem to offer any alternatives. I for one would not want to have missed 50% gains this year. Nor would I want to give up tax breaks for home ownership while building equity.

  49. hmmm

    Reading back my comment, I was pretty tired to have so much grammar mistakes.

    Andy, I agree.

    For those that argue to park strictly in cash, you will be left in dust in the upcoming cycle.

    For those looking to invest but only domestically, sector allocation and stock picking will be very important. This is on top of diversifying using real estate and commodities if you can afford to do so.

    For those that can look/invest globablly, I favor globally diversification over a US only model.

  50. Lori

    What happens if interest rates shoot up? How likely is that?

  51. hmmm

    interest rates as in the mortgage interest rates or fed rate? mortgage interest rates will be absolutely be higher but the question is always how high, right? i’m guessing it will trend towards 8 to 10% in 10 years time. No guesses/estimates for me in the short term but I’m deciding on the strategy to lock for a place next year…

  52. thoughts

    Lori or anybody –

    On a side note now that the mayoral election is set, does anybody have an answer to the following question:

    Which mayoral candidate is most likely to have a property reassessment completed as soon as possible? And, if so, when?

    My friends and I can’t get an answer to this question from any hoboken sire out there….

    Thanks in advance.

  53. vreporter

    Lori,
    Rents will be under equal pressure as inventories move over from the sale side chasing income. The renter is in a win-win situation with lower comparable cost of living (to buyers) and continued competitiveness for rental renewals for a prolonged period. Meanwhile, property tax pressures will remain on owners who will not be able to pass the cost on in any net effect. NY and NJ are in the worst such tax situation (budget-wise) than ANY OTHER STATE in the country. Condo maintenance fees will continue to escalate as operating cost gaps of empty units add their burden to the shared pool despite any service cuts. Hoboken has an unprecedented number of “unapproved” short sales. They are part of the “shadow” inventory that is running out of time. I’m talking about $1MM+ units of the past four years. Tag those at $850k when all is said and done.

  54. vreporter

    For the foreseeable future, interest rates stay low and go lower. That’s part of the deflationary pressure allowing the Fed to continue to stimulate. the 50% gains in stocks did NOTHING for RE. In fact that’s the argument to stay out of RE and in equities. But that too has about run its course. yes, I would begin to short equities again before year-end. But RE has only one direction in majority. wealth that’s been destroyed or sidelined in cash is NOT coming back. It has been destroyed or retrained for risk averse attitudes. RE is at the bottom of that desired list of options so your argument only strengthens the debate for a continued down cycle in property prices and most other hard-er assets as well.

  55. vreporter

    Andy,
    You obviously know little about what’s going on with the RE market and investors overseas. There is NO rescue coming for RE from any deval of the USD. Only industry and commercial investment can benefit, and will. It seems everyone has forgotten everything that got us here. Maybe the White House HAS done its job well. I’m 50/50 on that since there was too much to fix from the previous administration but even Obama won’t be able to support the mid-term election candidates as unemployment rises toward 10% and while PRODUCTIVITY grows. We have part-timers who are out of their full-time jobs waiting in line first so all your kids graduating in the next few years? Get their old rooms ready at home!

  56. Hmmm

    vreporter, as negative as I’m on US prospects, I really can’t foresee the doomsday scenario that you are describing. Like I mentioned previously, there are definitely some positives that our country still have in surviving and revitalizing our economy. It does however take genuine effort on everyone’s part which I don’t see happening anytime soon. Productivity only comes at the sacrifice of the dwindling workforce which will eventually force the companies to rehire again. While unemployment/underemployment may not go below 10% anytime soon, I believe we can have a recovery without it.

  57. Andy

    Hmmm, you’re absolutly right about having a recovery w/out unemployment falling below 10%. We had 10 years of exporting good jobs overseas and a reliant economy based on American consumerism. So now that capacity(excess jobs) was cut back to match demand(low consumerism) its entirely possible to continue moving forward without reabsorbing the unemployed. Should we count the job losses of building McMansions as jobs that should come back to our economy? No they were part of a culture of excess that may or may not return. Its not what people want to hear but its a very strong possibility that many of these jobs in parts of the country were unnecessary and will never return. I feel for all of these people because its entirely unfair what happened and the remaining businesses continue to ship jobs to India and China.

    Vreporter- Were you on vacation when Europeans came in droves to America with empty suitcases to buy goods at half the price litteraly half and then fly home? Thats what helped keep NYC tourism afloat in 2007-2008. The pound was strong against the dollar but as the dollar continues to decline Europeans continue to benefit from buying American investments on the cheap(from devaluation and currency perspectives). My brother-in-law is English and many of his friends are eyeing NYC area to buy a condo at a deep discount even though they lost much of their purchasing power w/ the devaluation of the pound. But at the end of the day its a very attractive investment for them to own rental property because they look to the long term and the NYC area will always command a premium to the rest of the country just like London/Tokyo/Paris will always be the most sought after places to live in the world.

    As for laid off fulltimers who have experience taking entry level jobs from college grads, I sincerely doubt to any signficant percentage you’ll see these people taking jobs away from a kid making maybe 50k out of school. A company is not going to hire a guy with 10 yrs experience and pay him 50k. Both the company and the guy w/ 10 yrs know he’s worth tripple that due to his experience and most likely the guy will quit after a year because he’s disgruntled about pay. Thats the problem that no one wants to talk about. Unless you are going for a career change the odds of you getting hired back into your old career at an entry level position are very low.

    Lastly, since you are dead set against real estate Vreporter, I’m curious what you are doing w/ your money?

  58. vreporter

    It’s been in equities and fixed income most of this year. It’s been shorting equities and commodities and long dollar vs AUD, NZD, CAD recently and likely that direction for the foreseeable future (6 months). Sold all but one Manhattan property two years ago and we live in a rental. I am not a fan of cash!

    Here’s an interesting tidbit: those that refuse to believe how the nature of this particular asset and credit recession has altered the consumer approach towards the household budget, should really have a read of Clip-and-Save Renaissance that made its way onto page B1 of last Thursday’s NYT. Coupon usage is up 23% from a year ago and the survey found that the income group that is now using coupons the most are the highest ($70k and up). Do Apple and Starbuck’s issue coupons yet?

  59. JC

    How about starbucks diving into the instant coffee market? That qualifies as a coupon in my book.

  60. hf12358

    The only way out of this hole for the U.S. is to monetize its debt — print as much $ as the rest of the world is willing to digest. In a world full of central banks competing with their printing presses, the concept of being “conservative” or “careful” is turned on its head. Cash or treasuries will most likely be the worst places for storing your wealth.

    Buying RE right now, while locking in a 5% 30yr mortgage on as much you can get your hands on, would make that mortgage all but worthless after 10 years of 10%+ inflation. You’d effectively be building equity by being paid to borrow money in real terms. Needless to say what inflation (and accompanying higher int rates) would do to a cash + treasuries “conservative” investor.

    Just something to consider.

  61. lori

    hf12358 – Could you please explain the last paragraph a bit more? I’m not sure I follow. Are you saying locking in a large mortgage at a low rate right now is a good thing because the value of the asset (the property) is going to rise due to inflation while the nominal value of the liability stays the same and is paid in deflated dollars?
    Many thanks.

  62. hf12358

    lori,
    Yes. All real (hard) assets go up during rampant inflation (some more, some less, depending on which sector is being flooded with the printed money at each particular moment — like stocks, especially, banks over the last 6 months), as everyone races to translate their evaporating cash wealth into something tangible, trying to chase and predict the waves of liquidity distribution by the government + Fed.

    A $2000/month mortgage payment today would be worth $850/month in today’s money in ten years after 10% inflation (devaluation) a year. And this doesn’t include the nominal “gain” in the inflated value of the property itself. It’s weird world out there when one has to keep running just to be able to stand still. ;^)

  63. Randy

    So when do i buy, this winter? next summer? or just rent for the next few years. based on everything i’m seeing, it looks like the safest bet is for me to wait till next summer

  64. hf12358

    Randy, people often miss the forest for the trees. Inflation is coming. It is the most powerful, yet sublime, vehicle for wealth transfer (blatant robbery) from savers to borrowers. Real estate has been and still is THE asset that allows retail people (mortals) to leverage and borrow at multiples of equity higher than anything else.

    The “forest” question is which one would you rather be, a beneficiary or a victim of this (both ongoing, and even larger impending) transfer? The “trees” question is whether you should buy+borrow this winter or next summer.

  65. vreporter

    I’ll keep saying it… you inflation buffs are going to be dropped on your heads. They (Feds) aren’t going to make that mistake again. Hard assets are dead money, worse than cash. This is stabilization objective and nothing else. One of your clues will be a major rally in the USD from here. I’ll be able to get a 4% mortgage and RE prices will still be dropping while you’re wiping out your equity in fine style… see you then! I’ll be renewing my rental lease again this coming year.

  66. hf12358

    vreporter,
    The mistakes have already been made — a cumulative load of them over the past few decades — and it has been out of the Fed’s hands for a while now. Here’s what you’re going to need to get a 4% mortgage next year:
    A lot of pea-brained Martians landing on Earth, which you would then need to convince into buy couple of $trillion worth of 20-30yr Treasuries (that the Chinese, the Japanese, and finally, the Fed would have stopped buying). It may work if you really put your mind to it.

  67. Laki

    hf12358 – Allocating assets so that you make a fortune if you happen to make the correct macro call (inflation vs deflation for example) is very dangerous. If you’re wrong you’ll lose a fortune. The real skill is how to allocate assets so that you BOTH make money in majority of outcomes and so that the expectation of your P/L is positive. If you can do this you’re the man (or the woman?). Very few people allocate their assets like this. It requires patience and it is difficult. Most people make directional macro calls and sometimes they’re right and sometimes they’re wrong. The ones who guessed right – they end up being thought of as smart and insightful and the ones that were wrong end up being called losers who missed what was obvious. But the reality is much different. Out of the ones who “got it right” last time around – 99% are just lucky.

    So in your example, telling people to go into an asset class (i.e. real estate) with 5 times leverage (20% down) because of the “10 year 10% inflation” macro call is dangerous. Works great if you’re right. If we’re on a verge of a deflationary spiral however (deleveraging of the entire system)- somebody following your advice loses 100% of their investment (houses go down 20% easy, their equity is wiped out).

    A person who is not wealthy should NEVER buy a house in order to protect him/her self from inflation. They should buy a house if they need a place to live, can afford it with a big margin of safety, and prefer owning to renting due to personal preference or if it just otherwise makes sense to them.

    Now don’t get me wrong, I think inflation is possible (maybe even probable down the line), but even if this is true, buying a house in the north east today is definitely an inferior investment. In fact, it is so inferior that if the market was complete (i.e. if you could go short a house) you could arb the profit out of it. (short a representative basket of houses, go long housing derivatives, go long out of the money put on the counter-party).

  68. hf12358

    Laki, I’m in complete agreement with you. It wasn’t my intention to address optimal allocation of one’s nest-egg across all global instruments.

  69. Andy

    HF12358, I think you made some compelling arguments. Even if we see lower inflation (more likely) since our Govt is basically out of options for anyone to buy our debt. China and Japan are done wasting thier $$ on US treasuries. But I trust that our Govt is able to spread out the damage so that we don’t see 10%/year inflation. I think it will be more subtle so as not to alarm the general public.

    As for asset allocation, I firmly believe you should have RE, Commodities(Oil and/or Gold), Equities, and Fixed Income in your portfolio.

  70. Laki

    hfr12358 – good to hear we’re in agreement :) But the point I missed to verbalize is that most people buying real estate today (especially in the expensive areas such as north east) end up having to allocate their entire wealth or a significant portion of it in order to make the purchase. So buying a house in essence amounts to allocating most of your wealth to a single illiquid asset in a leveraged fashion! If the utility of owning a house is ignored – this asset allocation strategy sounds like a very bad idea to me. If due to personal preference the utility you get out of the house overwhelms the drawdowns of the inferior asset allocation proposition, then one should consider buying. But asset allocation arguments simply cannot be used for most as an argument to buy.

    Now don’t get me wrong – if you’re wealthy and the price of the house represents only a portion of your net worth – you’re in the clear and the arguments i present above don’t hold. But how many such people are out there today? I would guess that at least 80%+ of home buyers in the north east have overwhelming majority of their net worth parked in their house after they purchase it.

  71. JC

    Laki/Hfr12358…What type of investment vehicle beside the actual bricks and mortor could folks who want RE exposure buy? Homebuilder ETF? REIT?

  72. homeboken

    Regarding the inflation argument – Have we considered how the major holders of US debt (ie Japan and China) will react if we hyper-inflate and essentially wipe out their investment?

    I am curious to find out if anyone has any ideas on the political/military fall out from hyperinflation of USD.

  73. TS

    Laki,

    I agree with your comment about sinking your entire net worth (or more) into a house being a bad idea (unless you have some very strong convictions about the market direction of housing prices, rents, etc.)

    However, I can’t agree with any of these comments:

    “Allocating assets so that you make a fortune if you happen to make the correct macro call (inflation vs deflation for example) is very dangerous. If you’re wrong you’ll lose a fortune”

    Since when can’t you hedge macro positions to limit losses?

    “The real skill is how to allocate assets so that you BOTH make money in majority of outcomes and so that the expectation of your P/L is positive.”

    No, that’s not how you optimize a portfolio. In fact, it’s really bad investment advice if I understand it correctly.

    “Most people make directional macro calls and sometimes they’re right and sometimes they’re wrong… Out of the ones who “got it right” last time around – 99% are just lucky.”

    I think it’s time to give up the efficient market theory, which is what leads you (and many) to make comments like these. And why isn’t making consistently good macro calls a “real skill”?

  74. Laki

    “Since when can’t you hedge macro positions to limit losses?”

    You can do that – but most don’t do it. I don’t know anybody who has a hedge on their house for example. And most regular folks have most of their wealth in their house. So I was just trying to point out that they’re all making a mistake from an asset allocation point of view. I wasn’t pointing out what is possible and what could be done. I was simply stating what most people do.

    “And why isn’t making consistently good macro calls a “real skill””

    Take all the people who analyze the markets. The ratio of those that are successful (time and time again) to those that are not is the same as it would be if people were not analyzing the markets at all but flipping coins to decide on the macro call. This is a fact. And this mathematically DOES NOT imply that markets are efficient either. You can have inefficient markets which exhibit this pattern.

  75. Laki

    JC,

    I wouldn’t touch homebuilders or any old REITs that have legacy assets. Way too risky. They could all go to 0 if you ask me. If you have institutional type of money buy RPX forwards or distressed mortgage bonds. If you’re just a typical guy sitting at home with his etrade account – it’s much harder. You have way fewer options available to you. If this is the case, and you still want RE exposure, i would advise buying one of the newly IPOed REITS that are buying distressed mortgages. They have a clean slate and can pick up some cheap bonds, and there is plenty of such bonds out there. I would pick a couple out of the ones that ipoed over the past couple of months. Some of the ones that I recall are: PMT, IVZ, STWD, CLNY. They’re not all equal, so do some research before you buy anything. But remember these things will not give you any explosive upside. More likely, in case the real estate truly bottoms, they will give you 12-15% per annum for several years. Not more than that.

    Good luck.

  76. TS

    “You can do that – but most don’t do it.”

    Yes, that’s the case but you didn’t qualify that originally, which is probably the source of disagreement.

    “Take all the people who analyze the markets. The ratio of those that are successful (time and time again) to those that are not is the same as it would be if people were not analyzing the markets at all but flipping coins to decide on the macro call. This is a fact. And this mathematically DOES NOT imply that markets are efficient either. You can have inefficient markets which exhibit this pattern.”

    Actually, it does seem to imply efficient markets insofar as you’re claiming, essentially, that markets are martingale (your coin toss illustration). Although it’s not entirely clear what you’re saying so perhaps this is, again, a disagreement due to lack of mutual understanding.

    That aside, you still haven’t answered the question. Why don’t people who consistently make the right macro calls have a “real skill” – I would think if there are so few of them, as you say, that this in fact would be as “real” and valuable a skill as any.

  77. TS

    Laki,

    Ok, I just understood your point. You’re basically arguing that the % of people who make consistently good macro calls is the same % as those who would turn out consistently right if they made their decisions by a coin toss. So you’re saying this “skill” of consistently good macro calls is just chance.

    To this I have to say:
    1. This is the efficient market hypothesis to the core.
    2. This is not established fact; in fact there is a vast amount of literature on each side of the debate with their own empirical evidence.

  78. Lori

    How can markets be truly efficient when we have unequal information, access and timing (i.e., the whole recent debate over split second trades or whatever it is called)?

  79. Laki

    I’m not arguing on market efficiency. In fact I do believe that market is inefficient. However though mathematically speaking:

    markets are efficient => coin toss outcomes

    but

    coin toss outcomes DO NOT imply market efficiency

    This is not … it is one way =>

    So I’m saying we have toin-coss outcomes when it comes to directional macro bets, but we don’t have an efficient market by any stretch of imagination. The market is not even close to being efficient as can be seen from bubbles and busts and even arbitrage opportunities that persist out there for years sometimes.

  80. Laki

    … was meant to be

  81. Laki

    well the equivalent sign (iff) this message board for some reason doesn’t like it so it goes away.

  82. homeboken

    Efficient market hypothesis is great in a class room, useless in the real world.

    Lori you are thinking of program trading. It costs retail investors billions each year.

    The problem is that the best and brightest financial minds are (were?) not banging down the doors of the SEC to go to work. They are all trying to get into GS, JPM, C etc.

  83. TS

    Laki,

    You’re all over the place.

    “So I’m saying we have toin-coss outcomes when it comes to directional macro bets”
    “The market is not even close to being efficient as can be seen from bubbles and busts…”

    Weren’t some of those bubbles and busts due to incorrect macro calls/views held marketwide??

    Secondly, we might be speaking past each other here but the (dominant) mathematical formulations of the various versions of EMH definitionally state a market is martingale iff it is efficient. But maybe I’m missing something here, I’d really like to see an example of an inefficient martingale market (I don’t believe it’s theoretically possible).

  84. TS

    Laki,

    Ignore my first point.

  85. lori

    OK kids – it’s Friday night. Time to go have a little fun – off line 😉

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