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:

  1. (valid email required)

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 [email protected] 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. whynot

    a lot more DABOs and sales this week than last week – it’s a trend hugely upward!!!

    shortsequalmarket – that was a joke! 😉

  2. Andy

    Not making any crystal ball predicts here but the 2bdr seems to average to only a 10-15k price differential from the list price. Seems that those places that were overpriced had to reduce before they had accepted offers but the low ball bids seem to be a thing of the past. Caveat I’m not a realtor and don’t know each building specifically so i’m making generalizations although there is a sliver of optimism on the horizon.

  3. Craig

    Any quality property that is properly priced for the current market is going to sell within a reasonable percentage of asking price (say 95% or so). Sure, some properties are sitting awhile, but when they do eventually sell it’s not at a 20% discount. If you do see huge discounts like that, it’s the few outliers left who originally tried to price their property like it’s still 2007.

    While no one can predict the future with certainty, it would seem the huge drop in the market has already happened. We already got the 10-20% discounts we were looking for. There will not likely be another 10-20% beyond that. So if anyone is waiting for the day where a condo currently valued at $500k will sell for $400k before they buy, I say good luck with that.

  4. homeboken

    Andy one thing to note is that the “list” price in MLS is only the LAST listed price.

    If you compare the DABO to the first asking price(as Lori does in the narrative) you can see that multiple price cuts are still pretty common.

  5. Craig

    Perhaps the W should have tried multiple price cuts as part of their sales pitch. I guess the 2 million plus price tag was a tougher sell than they thought. It appears they are now renting the unsold units. You can get into a never lived in W apartment for just $7800 a month. So let’s see: to get into this place you have to write a check for the broker’s fee, first month’s rent and 1 1/2 month’s security. So you have to show up with $27,300 at lease signing and then pay close to $100k in rent for a year. Wow, what a bargain!


  6. shortsequalmarket

    It says privately owned. Is that a failed flipper (flopper) at the W?

    Still 12 months of inventory on the market with 10-12 Dabos per week. Hasn’t been in indicator or rising or even flat prices historicallY

  7. Craig

    You’re right, it is privately owned. I missed that. So someone bought a 2 million dollar condo in Hoboken and never intended to live in it? I wonder if that $7800/mo. rent even begins to cover the owner’s expenses. Whoever can afford that place would be better of buying something, no?

  8. shortsequalmarket

    Monthly interest on 2,000,000 is $11,500. Interest is only deductible up to $1MM of home value. This does not even include maintenance and taxes.

    I do not know why this person bought, but probably put a deposit down thinking they would flip it for a profit. Then they closed in order to not lose their deposit. Now they are trying to rent while losing $6,000 a month ($13,000 if not rented). Once the market “recovers” people will be lining up to pay $2.5MM, right?

    And not buying would be much worse. How can you simultaneously argue the owner is not covering their expenses and someone would be better off buying?

    Security is refundable, closing costs are sunk.

  9. shortsequalmarket

    There was a lot of discussion on price to rent ratio. One question, what is the adult occupancy on a rental 2BR versus an owner occupied 2BR in Hoboken. I know a lot of 2/2 rental with 3 or 4 adults. If the owner rate is much lower the Price to rent should be adjusted.

  10. Bill

    shorts….that makes no sense. People are going to live how they live regardless if they rent or buy.

    Do you think a married couple will take on a roommate if they are renting but not if they are owners?

    You have to do it on a unit level…thats the only way

  11. shortsequalmarket

    it makes perfect sense. If it is less likely that a married couple, owner, will have an extra roommate then their is less income to pay the monthly payment.

    If in Hoboken the renters are 3+ incomes and the owners are less (maybe less then 2) then the owners have less income to spend on housing.

    I am not sayin it is the case but it is something to consider using price to rent.

    On the other hand in NYC you need to remove people on rent control from the ratio.

  12. bill

    rent vs own is a comparison of “all else being equal”

    How is taking the top bunk “being equal”

    The concept of adjusting rent vs own calculations to account for over crowding of renters is just plain silly.

    In fact taking incomes into the equation at all is pointless (possible exception of calculating potential tax shelter).

  13. Lori

    I see thousands of 2 BR units and the only ones with 3 or 4 people living in them are 2 adults and their children. I’ve never seen more than 2 roomates share a 2 br in a condo building in Hoboken.

  14. bill

    I think Shorts is comparing 2br condos with 2br rental units…..

  15. Lori

    There are few rental building with 2br and 2 baths that will allow 3 or 4 persons to live there (these would be the high-end rental buildings like the Applied properties). The rental units that I’ve seen that do have someone crashing in the living room are the unrenovated, rent-controlled dumps in little walk-up 100+ year old row houses (and there are fewer of those than ever before as those buildings condo convert). I’m sorry, but you can’t compare those units to condo units. There is just a qualitative difference.

    And if you admit you have to take rent controlled units out of the equation in NYC then why not in Hoboken? Almost all units other than the new, big, high-end rentals are subject to rent control in Hoboken. It’s an artificial market. How does that calculate into a rent v. buy analysis?

  16. shortsequalmarket

    Fair enough on the rent control piece. I guess one of the key piece is comparing the same across the market. Outside of the NE it is far more comparable because there is less market manipulation by government.

    Therefore if you look at a 2/2 in the Shipyard or 800 Madison and they are renting to two people, and then they have the GF or BF move in, and their parents throw in rent money too they have a lot more to spend. By comparison if a newly married couple buys in the Shipyard they may not have that roommate (although they could have parental money). My point is that on similar units like the above is there more money available for rental versus purchase. If so in Hoboken the PE ratio should be lower to reach long term equilibrium.

    The ratios are also based on parts of the country that have lower taxes which should also push down the ratio in Hoboken.

  17. shortsequalmarket

    Even more to the point if that young couple has a kid they may have one adult income versus three to four in the rental situation outline above.

  18. shortsequalmarket

    What the building allows versus what actually occurrs can be very different

  19. Lori

    I still don’t buy the “have the boyfriend or girlfriend move in” premise. That’s just not the reality I see. In fact, I would be surprised if the lease in buildings like The Shipyard allow anyone other than the signees to reside in the unit.

  20. bill

    Even if it is true(boy friends / girlfriends moving in)…it has no place in a rent vs own calculation….

    FWIW…in the first unit I co/bought with a friend in Hoboken, my girlfriend moved in.

    My friend/ co owner’s girlfriend maintained her own apt but basically lived there…..so it works both ways….but that still doesn’t change the fact that this has no place in a rent vs own calculation…

  21. L&S

    Shorts – Not sure what arguement you are trying to make.
    I get $3,200 as rent for my place. Its mkt price is anywhere from $580-$620K. Mid point of $600 give me P/E of 12.5x. Why do I care if three roomie spilt it up or a couple pays me the $3,200? If you are saying 3 roomie will be able to afford a higher rent so they might pay me $3,400, that just makes the P/E more depressed and frankly a much better value to invest in the current mkt.
    On the downside, a couple renting a place tends to take more care of it since they view it as a home rather than a couple of frat boys using it.
    – For disclosure: I rent my place to a couple and will always resist renting to a couple of roommates for a few $ more

  22. Tiger

    From my experience, no one that can afford to live on their own in Hoboken live with roommates. shorts, the ‘single income’ parent you mentioned in your example could be making drastically more money than the 3 or 4 roommates, as chances are they are still starting up in their careers.

  23. shortsequalmarket


    I think you get most of my argument. The fact is that rental rates could be higher than the equivalent purchase rates since in many cases the renters may have multiple adult incomes to support the payment. Now if Hoboken has become strictly an investment market, not a owner occupied market then the ratio would hold. Your couple may have paid your rate, but if there had not been 3 “frat boys” bidding on the other rentals, setting the comps they may have paid less.

    Once again I find it interesting that when I ask a question how many people jump to tell me I am absolutely wrong (L&S you did not).

    I know there are many individual exceptions (Tiger), but if it only happens 25% of the times it impacts the market.

    Lori, do you really believe that there is no difference between what the Shipyard, 800 Madison, individual owners, etc want to allow versus what actually happens. The illegal tenant may not get a key fob but does not mean they are not moved in. I had a manager at lease signing in a complex tell me, “If someone moves in with you, you must let us know, even though there is absolutely no way we could monitor”

  24. Lori

    In a doorman building I have no doubt that they know who is living in a unit and who is just visiting.

  25. shortsequalmarket

    How does that apply to Vanguard at Shipyard, 800 Madison, 1000 Jefferson, etc. I still think you give doormen to much credit, looking for overoccupancy is probably not in their union contract. In addition they would get bigger holiday tips keeping their mouth closed.

  26. FN

    L&S – 3200 rent @ P/E of 12.5 gives home value @ 500k not 600k also you cannot compare direcly the multiple to stock market as there is carrying cost/ transaction cost/illiquidity premium for real estate

    Shortsequalmaket – how would be in theory think about a good multiple ?

    here is how I think assume
    1. 20% down 5% mortgage
    2. 3.3% HOA/Maintanance/Property Tax/insurance
    3. Cost of Capital for my down payment is 10%
    4. 3% cost to buy and 6% cost to sell hold for 10yrs
    5. 28% tax benefit on interest


    1. If I assume price remians flat for 10 year then my math says pay upto 11x as a home owner
    2. If prices goes up at current inflation expectation of 2% a year for 10 year then my math says pay 13x.

    Your thoughts ?

  27. L&S

    FN – bad typo on my part. I don’t think of the house in p/e multiples, guys were using it on the board so i used that as example. I look at it purely on cash flow basis.

    Comment on your assumptions –
    5% mtg – very hard for a investment property with only 20% down.
    cost of capital @ 10% seems high. Its much higher than the risk free rate and good luck getting 10% in the equity mkt currently
    interest tax deduction – 28%..investment properties are NOT tax deductible

  28. Lori

    Look at the instructions to the IRS Schedule E. There are plenty of tax advantages to owning rental property.

  29. L&S

    My very simplistic knowledge of rental property tax is that is is based upon: Revenue minus Expenses = Income
    Income is taxed at your marginal tax rate, if a loss then the amnt that can be deducted from depends upon your AGI
    Revenue = rental income
    Expenses = interest cost, taxes, condo fees, depreciation, and other misc expenses.

  30. FN

    L&S – 10% I came up with as I would say for a 5x levered asset having anything less than 10% hurdle does not appeal to me.

    Yes I was using the numbers as if I am an home buyers not an investor as investors the numbers multiples come out 15% lower but even as a home owner in my math 15x seems too high which has been discussed on this blog as being a good number for buying so am a little puzzled ?

  31. FN

    I think Lori means Depreciation (a deferrement of tax) and deferrement of capital gain until you get of real estate investment are tax advantages for an investors

  32. shortsequalmarket

    My point was not to set what the correct P-R is rather to go back to the previous weeks discussion on if the P-R was indicating potentially falling prices. If owners typically have fewer adult incomes than renters of 2/2 apartments the market may only be able to sustain a lower p-r ratio

    Why p-r should be lower in Hoboken
    Renters have more adult incomes (just a theory and could be wrong)
    Property taxes are higher in NJ

    Why p-r should be higher in NJ
    The ratio includes a lot of below market rent control.

  33. Lori

    I really don’t see how you can do any analysis on this when our entire rental market is skewed due to the fact that Hoboken has one of the highest proportions of rent controlled and subsidized housing anywhere! How do you account for all the people who live in Church Square or Marine View Towers? Or any of the other subsidized Applied housing around town?

  34. shortsequalmarket

    OK, then we should not use p-r at all.

    That being said an example like L&S is important to consider. While L&S is careful not to rent to unrelated people there is a benefit as those unrelated people renter groups push up the market rent. Are we absolutely certain that buyers have as many incomes (or as much) to tap as potential renters in this town. Are potential renters really hurting and be unwilling to pay that much forever. Three guys are likely to live together but are unlikely to buy a condo together.

  35. whynot

    Laki –

    Just to go back to the other day, you (or someone) posted an article that NYC price to rent ratio was 33! Then, when I called you out on your comments on the issue, the price to rent ratio was (all of sudden) 19! I can aurgue with you if you just change the facts each time to support your position.

    Weird and Odd.

  36. whynot

    i meant – i “cannot” argue….

  37. FN

    L&S – I redid the numbers and reduce cost of captial to 6% but with no leverage (ie I buy it 100% cash) the numbers come out similar 9.5x rent for flat housing price and 11.8x for housing going up at rate of inflation

    We saw a place that sold for 605k rent for 3250 and a place listed for 615k rent for 3200 we were willing to pay 3k for a place that is listed at 550k. So I agree with your numbers which imples in hoboken people are paying 15.6x rent today but what I donot get is why one should pay 15x rent; to me it seems on based on a theoritcal calculation people should be paying 11x-13x as home owners and 9.5 to 11.5 x as investor ?

  38. homeboken

    Pulled from ZeroHedge.com

    The NAHB Home Builder Survey reported a massive 5 point drop, reaching 17, on expectations of 21. The reason for the plunge – concerns about the end of the tax credit. Not even Goldman could spin this news favorably: “Housing market index 17 in June vs. median forecast 21. The National Association of Home Builders reported a 5-point drop in its housing market index for June, pushing it back below the 20 level that had been the low prior to the latest housing market recession. The main driver of the decline was the assessments of current home sales, which dropped 6 points; assessments of future sales and of buyer traffic were down less substantially (-4 and -2, respectively). All four regions suffered declines, but the biggest by far was in the Northeast, where the index had surged to 35 in May only to come back down to 18.”Metric by metric, the double dip become increasingly more appreciated.

  39. laki

    whynot – you’re not reading my posts carefully at all. You keep wanting to throw punches, but without being able to come up with a credible argument you pick numbers out of context in order to present an argument which states the obvious. So let me break it down for you.

    You’re looking at 2 different studies that use different methodologies. They measure different things – and guess what – that gives you different results.

    I first showed a link with trulia’s study which used ONLY 2br 2ba apartments and looked at average asking rent and average asking to buy, both adjusted for various factors that they felt should be adjusted for (tax/insurance related mostly). After they adjusted the numbers they came up with a ratio and showed how 50 biggest cities in US stack up today according to their methodology. New York City was by far the most expensive.

    Then I made a statement that his ratio in New York City used to be half of what it is today (I’ve looked at and done tons of studies on this so I know this to be true) but people started questioning this, so i showed another link WITH A DIFFERENT STUDY that didn’t disclose their methodology on the web. They could’ve been looking at all apartments not only 2br 2ba?. They might not have looked at the asking price but transactions instead? They might not have done any tax adjustments? They might or might not have used the present value of cashflows (interest rate adjusted)? I don’t know what this particular study did or did not take in account. But what this study did enable me to do is to cite an example of how the ratio under this study fared over time. And this study revealed that the ratio increased 2.34 times in some 15ish years or so USING THE SAME METHODOLOGY OVER TIME.

    I was never arguing that these studies are measuring the same thing or that one is better than the other. Nor was I even arguing which ratio makes more sense to use or why.

    What i was saying is that today Manhattan is the most expensive place in US to own vs rent (according to study 1) and that own-to-rent ratio used to be 2.34 times lower in Manhattan (according to study 2).

    If it is still not clear to you what I am/was saying – well I’m not sure if there is even a need to argue any further.

    Also you keep asking for proof for everything. Let me ask you to come up with a proof that own-to-rent ratio did not drastically increase in Manhattan over the last 15ish years. Please show me anything that suggests this is the case.

  40. whynot

    Blah Blah Blah – You’re really reaching! First, it’s 33 to 1, then it’s 17 to 1 (**you forgot to mention that one**). now, its a ratio of 2.34.

    I’m sure everyone realized all of your very techincal differences. You can always find a stat to back you up – and you did!

    Just terrible!


  41. L&S

    whynote – you need to do better than that. I might not agree with Laki’s view point or direction of the mkt but I think Laki has been very clear

    Laki – The counter arguement to your theory I believe is supply and demand. NYC is limited in space people really want to own and live in the city.
    I do not know if we have this data but would love to the stock of units in Manhattan that are owner occupied vs rental i.e is the stock of rental units so much greater that it has kept rental rates low.
    Finally, compensation during this time frame has skyrocketed making it much more easier to buy a $1mln home.
    Finally, real estate is NYC rebounded strongly from its lows it 1990 that people really believe that NYC real estate will not got down. I know its a stupid reason to purchase a house but it is what it is.

  42. whynot

    L&S – very simply. the ratio was first 33 to 1. then, 17 to 1. huge difference in ratio. that said, 17 to 1 for NYC is NOT terrible at all and is not out of wack. just like hoboken is about a 15 to 1.

  43. Lori

    I have big issues with the algorithms used by both Trulia and Zillow to calculate sales prices and the like. Ratios based on Trulia’s numbers have little weight in my mind. JMHO

  44. L&S

    Whynot – Those ratios are not comparable. Different methodolgies were used to calculate the ratio. What is comparable is the change in the ratio over time. So 2 different methodolgies arrived at 2 different absolute levels but the same relative change. Laki is pointing out the relative change, which I guess is 2.34x.

    Lori – You might not like the methodolgy but the relative change over time is difficult to argue against.

    Laki – As a trader you would know that mean reversion does not have to be true, plus their could be several factors that breakdown the correlation of assets and finally not sure if you time sample of 15yr is accurate…consumer behaviour/home ownership has changed drastically since then and yes it could revert back but does not have to..

  45. FN

    whynot, I have to side with Laki- even if one disagrees with his thesis what is putting his argument has merit that in 15 years even with the current adjustment the rent to own is 2x what it was. Comparing 17v/s 33 v/s 15 without adjusting for the metholodgy does not make sense but the change in same ratio over time is a valid comparision

    L&S – Supply/demand and income growth should impact rent in the same way it impacts housing price no ? I would think on the margin there are enough apartments that move supply between owning / rental to take out the arbitrage atleast in the middle range 2b/2ba

    The question then is; Was NYC real estate cheap in 90s and fair today or was it fair in 90s and expensive today ?

  46. Lori

    Trulia has not even been around for 15 years.

    NYC real estate was expensive in the ’90’s and is still expensive today by many people’s standards. After all, NYC is and always has been expensive place to live. I still contend that the vast supply of rent controlled and rent stabilized housing skews the market and makes all this talk of ratios a bit less meaningful. The other big change I’ve seen (and I was born and lived in NY most of my life) is that incomes are way higher now than they were in the 90’s. Look, for example, at the starting salary of a new lawyer at a big Wall St. firm. Didn’t it go from 30 or 40k to about 5 times that today? That has to be similar for the financial jobs. That’s starting salaries – what about the top earners? Is it not true that there are more, richer people in the US than ever before? Would there not be a higher proportion of those multi-millionaires in Manhattan than elsewhere? Just a thought.

  47. FN

    L&S – starting typing my comment before seeing your response but you nail it comparision over time is difficult to argue with

  48. homeboken

    While I am enjoying the rent:price discussion, I was wondering if anyone else caugth the latest report from S&P regarding shadow inventories of real estate.

    NY Metro – Including NY, Long Island, NJ has an estimated shadow inventory of 103.1 months. This is a 3.3% increase YoY. The full report can be found here:


  49. laki

    whynot – I guess there is no need to argue anymore. I see that no matter what I post you refuse to acknowledge facts and logic.

    Lori – I never claimed that Trulia’s study is the word of god. But unless you think that their methodology is biased against Manhattan (is it?) it can still be cited to show relative ratios across the country. If something is wrong with their methodology it is likely to be equally wrong for all the cities. So knowing that Manhattan’s ratio is twice that of Atlanta for example, under the disclosed methodology, it is a valid data point. Also the more general analysis that I’m presenting is not based on these 2 studies. These were just links I was able to find on the web to show examples of what I’m talking about to those who are questioning my logic. I’m basing my analysis on tons of proprietary research that I and others have done to arrive to this conclusion over the years.

    FN – “Was NYC real estate cheap in 90s and fair today or was it fair in 90s and expensive today” I would argue that it is expensive today even if it was cheap in the mid 90’s it way over-corrected. This is just my opinion though, and this could be argued. (Unlike 33 = 17 = 15, which doesn’t even make sense to argue).

    L&S – mean reversion: It doesn’t have to occur I agree, but I believe it will in this case. Again this is my opinion.

  50. Craig

    Homeboken posted an interesting study on shadow inventory, but I don’t put much stock into it because their “facts” are all estimated and theoretical. 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.

    That being said, even if their numbers are assumed to be accurate, this study has no way of knowing which NYC metro area properties are distressed and that can make a difference. If they are mostly single-family homes in the ‘burbs, that will have no effect on the pricing of Manhattan’s and Hoboken’s almost exclusively condo markets – it’s a different pool of buyers. I believe that the Hoboken, Manhattan, downtown Brooklyn, and Jersey City condo markets are tied together in the metro area. But in my opinion, any shadow inventory in CT, Westchester, Rockland, Long Island, Queens, Staten Island, or the Bronx would have no effect on Hoboken prices. Our market simply isn’t competing with those parts of the metro area for buyers.

  51. 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.

  52. 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


    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

  53. 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.

  54. 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?

  55. 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.

  56. 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

  57. 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?

  58. 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.

  59. laki


    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.

  60. 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.

  61. laki


    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).

  62. 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).

  63. 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)?

  64. 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

  65. 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.

  66. 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…

  67. 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…

  68. 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?

  69. 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.

  70. 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.

  71. laki


    “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.

  72. FN


    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] ?

  73. laki


    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.

  74. 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.

  75. 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

  76. 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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