2010 Jun 9th

The Weekly Wednesday Wrap Up – Hoboken Condo Sales & Activity for the Week of June 8th

Hoboken Condos Sales & Activity – Week of June 8th

Here are this week’s numbers vs. last week:

I tried something new this week. One of my clients mentioned how many price changes it takes to get things sold. I realized that perhaps because I only list the transactions with price changes it might be a little misleading. So I listed ALL the transactions under the “dabo” and “sold” categories even if they went under contract or sold without the need for a price reduction. I’m hoping that gives a bit more balanced picture. Let me know if you like it better.

While we don’t advertise our services or listings here (we have an agent website, HobokensBestHomes.com, for that) we just wanted you all to know that as of yesterday, we joined Century21 Innovative Realty at 220 Washington Street. All our contact information stays the same. We now have a bigger office with more agents, more support staff, better resources and better ability to provide outstanding service. Feel free to stop in and say hi.

Studio & 1 Bedroom Hoboken Condos:

6 new listings

200 total active

5 Dabos

5 Sold

11 price reductions

Two Bedroom Hoboken Condos:

15 new listings

266 total listings.

8 Dabos

13 sold

15 price reductions

Three Bedroom and Larger Hoboken Condos:

4 new listing

56 active listings.

1 Dabo

2 sold

7 price reductions

Hoboken Condo Open Houses

If you are in the market for a Hoboken condo, our Hoboken Open House Google Map is your best source for locating every open house in Hoboken. It is the single, most complete listing available and we were the first ones to do it. We compile the information by hand from all possible sources to provide you with all the information you need in one spot. It’s posted on Friday every week.

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.

For more information you can always contact us at 201 993 9500.

Thanks for reading and, as always, we welcome your comments!

  1. Lori Turoff

    Is Trulia’s methodology biased against Manhattan? (And Zillow’s, Case Shiller, etc.)? Well, if they look at home sales and not just coop and condo sales then I would argue, yes, they are. Manhattan and a few other unique cities like perhaps Chicago and SF are comprised of primarily condos. When you use single family homes to get your data it gives a false picture of the market. That’s my problem with it, in a nutshell.

  2. FN

    Case Shiller have a Condo index for NY too shows 14% drop in price Peak Feb 10 v/s 22 % for NY in single family home

    http://www.standardandpoors.com/spf/docs/case-shiller/CS_CondoIndices_052506.xls

    It also shows that prices are 2.6x what they were in 1995. I would assume rent have only gone up by inflation or 2% a year or 1.3x in 14 years. So the own to rent has ratio has increased by 2x as per Laki’s link sort of triangulates.

    Will that ratio keep climing or keep at this level or normalize down ? That the million dollar question

  3. homeboken

    Craig – I don’t think that the S&P claims that any of their research is “fact”, actually, they implicity state that it is research.

    Having said that, I put a lot more weight behind detailed analysis that likely took hours to produce and has been thoroughly vetted, than I do when someone says “it’s different here” or “Hoboken is immune”
    Those are statements of amateurs that clearly have no interest in retaining their hard earned money.

  4. Craig

    @FN – if you think rents in unregulated market rate housing has only gone up by 2% each year for the past 14 years, you must have only lived in rent-regulated housing your whole adult life. Hell, even rent stabalized tenants in NYC would have killed for only 2% annual increases the past 14 years.

    @Homeboken – I get that it’s research. But thee question is how trustworthy is analysis based on speculation rather than facts backed by actual data? How exactly did they vet the research when they have no idea how many properties are distressed?

    No one said Hoboken or NYC are immune. Both areas have taken losses like the rest of the country. But it is in fact different here. I don’t think you are prepared to argue that this market mirrored the catastrophic losses incurred by Miami, Las Vegas, parts of Cali, and Phoenix are you?

  5. Laki

    Craig – “There is no accurate method of measuring the amount of distressed properties as a source of so-called shadow inventory because unless foreclosure proceedings have been filed in court, such info is not a matter of public record.”

    This is completely untrue. In fact the opposite is true. Vast majority of mortgage data is released publicly and can be accessed. Mortgage market is $15 trillion dollars in size – you think people would be buying and selling bonds without being able to analyze the collateral?

    The fact is that as soon as someone is behind on their mortgage payment by more than 30 days – this becomes known. One might not be able to identify who the particular individual is, but you will know that someone in such and such zip-code, who has such and such mortgage, with such and such $$ amount, with such and such Loan-to-value ratio is 30 days delinquent.

    You can look at these remit reports (that is what they’re called) on the servicer’s websites (usually you need to obtain username/password as an investor), Or if you’re a professional trader and you trade in size you can pay $200K per year or so to a little company called Loan Performance. These guys maintain the biggest Consumer Loan database out there. Using their data you can pretty much by zip-code come up with the complete statistical breakdown of all the mortgage holders – FICO scores, Loan to Value statistics, size of mortgages, delinquency data (borrower can either be current on their payment, 30-60 day delinquent, 60-90 day deliqnuent, 90+ day delinquent, Forclosed on, bank owns the property, filed for bankrupcy), etc etc. There is TONS of data available. And there are no estimates here. All the numbers are derived from mortgage servicers who make this info available.

  6. FN

    Craig :- I did not live in USA my whole adult life hence I did say “I assume” as I really donot have any data points so I used inflation. Though my ancedotal evidence since moving to USA 10 yrs ago on newport and hoboken (the two places we have rented) is that we have had 1% to 2% rent growth [may be 5% for the first 5 years and 0 to -2% in the last 5] too few data points to make it a trend I am sure landlords like Lori and L&S can may be give a better idea on that.

    If somoebody has data points on rent growth in NYC/Hoboken I would love to know. I have always assumed inflation because in theory it make sense

  7. L&S

    Laki – How would you use LPC for the New York area. I would assume a mtg trader like you would know that LPC is mostly subprime and alt – a data and to smaller extent jumbo rmbs. The majority of the New York metro is not subprime/alt – a and furthermore prime jumbo rmbs was retained by the banks and only the crap was sold to the securitized mkts so not really representative of the overall mkt.

    On a seperate topic, how would you react if I tell you that your view is very biased due to the product you trade. Also, the biggest joke in the securitized mkt is that banks sold all the crap to the clueless securitized mkt which is why bank loan losses rates are a fraction of the ABS mkt?

  8. Lori Turoff

    FN – here are some data points on rent growth numbers in NYC/Manhattan. My first rental apartment in NYC (at Zeckendorf Towers on Union Square, a brand new, luxury doorman building) in 1990 I paid about $1,600 for a 1BR. That same unit in Zeckendorf now rents for about $3,200 unrenovated (the building is now about 25 years old) or $3,800 renovated. It’s still a beautiful building and 25 years later I walk in and the doorman knows me by name. Impressive.

  9. laki

    L&S,

    I wouldn’t react at all if you thought my view was biased. What I care about are facts. Not someone’s opinion about my opinion. You can think whatever you want and I’m A OK with that.

    But the fact is that this whole line of arguing is becoming pointless. Now I’m supposed to describe to you how one can use Loan Performance? What types of loans are out there? What percentage of tri-state mortgages are securitized? Where to get Jumbo data? What other databases and research exists that covers non-securitized mortgages? I’m not going there. That is just a waste of time. None of these things are on the web anyway, so even if I described in great detail my methodology someone would come back and say “B.S. – show me a link on the web”.

    What I’ve tried to do is post some factual data, post my sources, post a logical analysis hoping that we can have a healthy debate. I welcome all the responses rebuffing my facts/analysis with any credible data. But what I don’t want to do is enter into endless debates with people who’re constantly questioning what I’m writing while not contributing any credible facts of their own that we can stack up against my analysis. If you want to rebuff me – don’t ask me questions. Instead provide answers to those questions yourself – and then we can debate.

    But i will say one last thing before I drop this entire argument all together for good – If you think that securitized products are so much worse than non-securitized I would point you to the federal reserve data release which keeps track of delinquencies of non-securitized mortgages that sit on banks balance sheets as loans (http://www.federalreserve.gov/datadownload/ select “charge-off and delinquency rate”). You will notice that as of Q1 2010 10.18% of whole loan mortgages on banks’ balance sheets are delinquent. These are all non-securitized. This doesn’t even count all the borrowers that got modified and are re-classified as “current” for the time-being but will re-default eventually (we’re seeing a 50% re-default rate on all modified loans within the first year). And this also excludes all the losses that were already taken through charge-offs in the last several years.

    All is well with non-securitized mortages. Right.

  10. laki

    Lori, even though it is just one example, if you assume 1,600 –> 3,800 in 20 years that is 4.4% annualized growth rate. Slightly higher than average inflation in that time-period. Growth in real estate prices in Manhattan in that same time-period is significantly greater than 4.4% annualized which again adds another piece of evidence that buy-to-rent ratio has expanded over the last 20 years.

  11. laki

    FN

    Case-Shiller numbers you’re looking at are not for Manhattan. CS looks at the NY MSA which includes the entire tri-state area. I was making a Manhattan-specific argument. Tri-state area as a whole has not seen the ratio expansion like Manhattan has. (The ratio did expand just not as much as Manhattan).

  12. laki

    I stand corrected. Delinquency rate on non-securitized residential mortgages in the entire banking sector is actually 11.36%. (the 10.18% is the number if you look at both residential and commercial real estate loans together).

  13. Lori

    Laki – aren’t “non-securitized” residential mortgages going to be the ones that don’t meet the Fanny/Freddie guidelines – i.e., there is something risky about the building (environmental issue, litigation, too much commercial space)?

  14. FN

    Laki/Lori, we should consider unrenovated and hence rent growth ouver 21 years is 3.3% and CPI inflation (which included rent btw) was 2.8% so if I add 0.5% to inflaiton to rent growh over 15 years we get rents are 1.5 times 1995 levels and prices ar 2.67 so Own to rent is 1.8x what it was in 1995

    Laki, I agree the condo is for NY MSA But I assume the numbers are skewed by NY boroughs NJ gold coast, than Single Family homes and may be a better representation of Manhattan than single family home.

    Laki, the one argument that I have heard about Manhattan is that in some housing markets is correlated to wealth and not income (ie rent) A prof at the grad school I went to touts this theory and belives SF, NY belong to that category. Which imples that the housing value grows @ growth in wealth or say 3% real a year. I buy that argument for penthouse over looking central park but not for a standard 2b/2ba being discussed here.. just a thougth

  15. FN

    Laki, I would encourage you to post your views. We were in contract for a Condo last month but the deal fell through as the Condo was not approved by Fannie Mae standard. I would rather hear views on why I am making a mistake in trying to buy than hear that the bottom is in.

  16. Laki

    Lori not necessarily. Mortgage bonds typically belong to one of the 3 top sub-asset-class categories (there are some exceptions but I don’t want to bore you with details)

    1) Agency Mortgages (freequently called MBS). These are secularized mortgages where all the credit risk is assumed by fannie, freddie, and other agencies. In most broad terms investors here are making bets on the timing of mortgage prepayments and are not taking any credit risk (as long as fennie and freddie don’t go bust). Agency mortgages had to conform to specific criteria that these agencies set for them (Loan-to-value, certain documentation, loan balance limit, etc etc.) Loan balance limit specifically stated that mortgages bigger than 400-something thousand dollars cannot be guaranteed by the agencies. So more expensive houses did not end up beeing pooled as agency mortgages. Agency mortgages in the 90s made up a huge percentage of the entire mortgage market, but by 2006-2007 that was not the case anymore.

    2) Non Agency Mortgages (often called RMBS) these are also securitized mortgages but the credit risk here is very often assumed by the investor. The exception to this would be if an insurance company insured the credit risk, but this wasn’t the case for vast majority of these mortgages. At the peak of mortgage origination in 06-07 the Non Agency Mortgages made up the majority of the origination. Some of the mortgages in these non-agency pools were eligible to be agency mortgages, some weren’t. So just because a mortgage is not an agency mortgage does not mean that it was not eligible to be an agency mortgage. The originator could’ve decided to “stick” it in the agency pool but for whatever reason they put it in a non-agency pool (probably because there was demand from investors for this type of credit risk). To be fair at least half of these mortgages didn’t qualify to be in agency pools but a lot of them did.

    3) Whole Loans. These are non-securitized mortgages that banks kept on their balance sheets as loans. Some of these were also eligible to be agency mortgages, some weren’t. Some were held on banks balance sheets for some time, then later securitized into RMBS pools. The major difference between these mortgages and other 2, is that these were never traded. A Bank would issue a loans and it would keep all the risk for itself. Federal reserve data that I provided with 11.something % delinquency rate references delinquency rates of these mortgages that are on banks balance sheets as loans…

  17. Laki

    FN, when I look at Manhattan I don’t look at single-family home activity nor do I look at Case Shiller. I look at Manhattan condo transactions specifically. There are a few indices that track those very well (radar logic RPX being the one I look at the most because they normalize everything by square foot and because some financial derivatives are tied to them)… Not only do they have Manhattan indices, but they have Manhattan neighborhood sub-indices as well, so you can see the count and median price per square foot of all the transactions that occured in Financial district for example or Upper west side, or whatever…

  18. Lori

    Laki – So what is the current trend with respect to the default/delinquency rate of these three categories? Moving up or slowing down? How does that rate compare to 2005 – 2006?

    If banks are getting so much stricter in their lending standards (and without a doubt I see that every day) so that the risk of the underlying mortgages is decreasing isn’t the risk of the mortgage bonds less? Or is there no correlation between the risk/performance of the collateral loans to the risk (and yield) of the associated securities?

    If there is a trend and the movement is towards less risk won’t that help undo the mess that was created by too much risk?

  19. UPennAlaskan

    Lori, more strict standards do not lower the risk profile in the near team. It just ensures new deals are less risky. Existing deals are what they are. It’s like a medical school with low standards for 5 years graduating lots of dangerous doctors. Then, with a policy change..it now requires more qualified applicants. This does nothing to the less qualified professionals that are already in the pipeline since they already graduated. The better lending standards won’t have an meaningful impact until 5+years min, my guess.

    I’m not an expert on MBS/CDO. I do have 10 years in another asset class. Valuation departments (sub group of Accounting/Finance) no longer are using Mark-to-Market for these instruments. Accural accounting only. So losses are trickling in each month, every month. Foreclosures are happening at such a slow pace. NYT had an article recently about this. National average was ~18 months. Difficult to see case where the banks don’t bleed money for the next yr or two at a min. No lump sum pain, just oozing/leaking. Hopefully, it won’t gush out.

  20. laki

    These are total numbers (roughly)

    In America there are roughly:

    88 milion units (houses/condos/apartments/etc.)
    50 milion mortgages
    8 million borrowers who are currently delinquent

    So that tells you that 16% of all mortgages are not paying. That number is still growing because the rate at which people are going delinquent is still larger than the rate at which liquidations are occurring. A liquidation is a sale of a foreclosed property where a mortgage investor (or a bank or fannie/freddie depending on what mortgage you’re talking about) takes a loss and the mortgage stops existing.

    2-3 years ago subprime mortgages were going delinquent at a very fast clip. Since then this rate has slowed down because so many of them have gone delinquent and been liquidated that there is very few left (and those that are left are getting modified right now). In 2007, 2008 and 2009 subprime borrowers were going delinquent at a 2%-4% per month rate! Right now roughly half of all subprime borrowers are delinquent but the number of outstanding subprime mortgages has gotten so small due to liquidations that this doesn’t really make much of a difference in $ terms going forward.

    But what has happened since then is that prime borrowers have started to go delinquent at a relatively fast clip. Right now depending on the month 0.5% to 0.8% of primish mortgages (people with high fico scores who put 20% down when they originally bought) are turning delinquent every month. The liquidation rate is still lower than this so the total number of delinquencies is still growing. And this rate, while smaller than what the suprime rate looked like at the peak, is applied on a MUCH larger number of mortgages. So in $ terms it is worse than subprime.

    The fed website i gave you where you can download that excel sheet shows exactly what these numbers look like for non securitized mortgages. There is a quarterly data series that extends for at least 2 decades that fed publishes that shows total delinquencies and total liquidations (they call liquidations charege-offs). You can verify yourself that both of these are increasing. So, despite the ever-increasing liquidation rate the delinquencies are still going up. In other words, the pipeline of future foreclosures is growing faster than the current foreclosure rate.

    This trend holds for all mortgages regardless which bucket they belong to. The exception is that mortgages on banks balance sheets are marginally better than agency mortgages which are marginally better than non-agency mortgages. But still more than 1 in 9 of non-securitized mortgages are delinquent and they’re supposed to have the best quality.

    Right now Non-agency and whole loan mortgage markets are virtually non existent. It’s all fannie/freddie/fha. Like 99%. So the government is taking ALL the risk now. All the loans that banks originate they immediatelly stick in fannie or freddie pools or insure with FHA…

    Also the rate of new mortgage origination (excluding refinancing) is at multi decade lows. So brand new mortgages, even if they do have more conservative underwriting are just a drop in the ocean compared to the old ones that are in trouble. Majority of outstanding mortages are from 05, 06 and 07 and most of these people are under water.

    As far as bonds go, as someone already said, it doesn’t matter to you if the new standards have gotten better. You as a bond holder are stuck with whatever loans happened to be backing your pool. So if you bought a bond that was backed by 2,000 mortgage loans issued in 2006 – you’re still stuck with whatever portion of those 2,000 are outstanding. It doesn’t help you much if new mortgages are “good”, you’re stuck with the old ones.

  21. laki

    Lori,

    “If there is a trend and the movement is towards less risk won’t that help undo the mess that was created by too much risk?”

    In theory yes. But it will take many years even in the absolute best case scenario.

  22. FN

    Laki,

    Are any of these Manhattan indexes free or cheap or publicly avaialbe ? Radar logic is 3k a year too expensive

    I would like to know in your opinion for owner occupied condo if
    the rent is 40k a year
    Property tax – 10 k a year
    HOA/maintance reserve/insurcase – 8.5k a year,
    Net Yeild – 22.5 k a year

    What range of price is fair I come up with 400k [assuming 0 growth in pricing] to 500 k [2% growth in condo prices for 10 year] ?

    Would the assement of fair price change if mortagage rate move up to 1990s average of 8% or 1980s average 13% mortgage rate or does it remain same as higher rates imply higher inflation and hence rate of growth in condo prices [which I assume is equal to inflation] ?

  23. laki

    FN,

    i don’t know anything good that is free… you were able to get several years of radar logic data for free back in a day, not sure about now.

    I’m not a good person to ask about any specific apartments. There are so many variables here that it’s impossible to really know. But what I can comment on is on averages/medians.

    The pricing you came up with seams reasonable for that apartment if it was a representative apartment all else being fixed and equal forever into the future. If all else is not equal into the future (which is a given) you then have to throw in some other variables in your fundamental analysis.

    1. Median income in the region and expectations of future median income
    2. Current inflation and expectations of future inflation
    3. Current yield curve (closely related to the 2nd point)
    4. Opportunity cost (you could be doing something else with your money that would give you more bang for your buck)

    Lots of inputs here but once you formulate your opinions on these items, you can come up with a better pricing estimate using a more complicated fundamental model than just rent vs own. For example: If short term rates were to go up to 8% as in your example, and the yield curve wasn’t inverted then that apartment becomes really really expensive by any fundamental metric relative to renting. (i.e. buy and rent out gives you (40K-10K) / 450K = 6.6% rate of return… but risk free rate of return in a more liquid instrument is 8%+. Fundamentally makes no sense to invest in a risky illiquid asset that yields less than risk free rate of return.

  24. laki

    Oh I didn’t realize you had 8.5K of expenses in your example.. I was using 40K-10K but I should’ve been using 40K – 18.5K = 21.5K of income. So, that makes the apartment pricey relative to renting in my opinion in today’s environment (all else being equal). In the 8% interest rate environment (all else being equal) this then becomes an awful investment of epic proportions from a fundamental point of view.

  25. FN

    I have no way to predict Macro so I take today’s consensus for 10 years wage inflation = inflation = 2% and 1.2% real rate For Cost of Capital I assume 10% cost of capital if levered 80% mortgage and 6% if not

    The financial numbers were for typical 2bed/2ba Hoboken Apt with parking in eleve bldg.

    Here is where I seem to have an issue the net yeild of 21.5 should grow @ rate of inflation as rent should grow at that rate and prop tax/expense should too @ rate of inflation [although I will conceed that in Hoboken in the last 10 years proptax and HOA have grown at 2x inflaiton]

    21.5/450 = 4.8% yeild v/s TIPS yield 1.1 % seems there is reasonable risk premium especially if you add tax advantage and low cost leverage to it for owner occuiped ?

    If the 21.5 k yeild will not grow @ rate of inflation than you are right 450 is also too high a price

  26. laki

    The cost of leverage while low compared to the historical standards is NOT really low in this situation because the asset’s unlevered yield is low. If you can get a 4.8% mortgage, and your investment yields 4.8% you do not get any benefit of the leverage when it comes to cashflow. The leverage can help you if your asset starts going up in value, but it can hurt you if the asset goes down. So it is a double edged sword. But cashflow-wise it doesn’t do anything for you.

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