November 16
...serving up your daily dish.
... is the real estate market a bubble about to burst? Baristanet reader Grim has a blog dedicated to that proposition. Its subtitle: "Keeping a watchful eye on our small part of the largest asset bubble in history." The Bubble includes a regular feature, "Price Reduced," tracking dropping house prices in the region; yesterday's post included a home in Montclair.
Similar issues were addressed in this week's newsletter by realtor Roberta Baldwin.
...sellers continue to push the envelope with asking prices. Real estate agents who caution that an asking price might be too high, may lose a listing to someone who promises things are just fine and multiple offers are a God-given right. So, the upward pricing spriral continues, at least for the moment.
Higher prices, fewer nibbles – it ends up as a prescription for a market correction.
Translation: Last year's $600,000 is this year's $500,000. Or as they say, Caveat venditor.
November 16, 2005 in Controversy | Permalink
I heard the bubble was going to burst in 2002 and in 2003 and 2004 and this year. There is too much immigration to the east coast for it to burst. Believe it or not there is still not enough supply to outpace demand.
Posted by: realhawker | Nov 16, 2005 1:50:36 PM
There is no cabalistic secret to the bubble's bursting: it is happening simply because that after 6 years of renting in this area, we finally bought a house in lower Baristaville.
This has happened before: in Massachusetts in the late 70s (when the 'Massachusetts Miracle' was exposed as a card trick), and in Texas in the mid 1980's, when the price of oil fell through the sub-basement. People who know me also know not to follow me through a check-out line: I invariably get behind the guy with the bogus $100 bill or the one who wants to cash a third-party, post-dated, out-of-state, temporary check.
So, I apoligize if I have ruined your neighborhood property values; but let us rejoice that we will probably be neighbors for some time, now that none of us can afford to move away.
Posted by: Conan the Grammarian | Nov 16, 2005 2:01:11 PM
Conan, I can relate! We bought our house two weeks before the market collapse in 1987! It took about 7 years to even come back to the value we bought it at. Luckily the current "bubble" has raised the value substantially and I doubt we'll ever get to the point of losing money on the house...but after 18 years it would have been nice to have gained more than we did!
Posted by: mauigirl52 | Nov 16, 2005 2:55:14 PM
Can you please post your source for net immigration into this area? Can you please post sources that prove housing prices are being supported up by out-of-state buyers? Can you please post whatever data you are using to judge whether or not there is sufficient supply to meet your demand?
Or did you just make that up?
Grim
Posted by: grim | Nov 16, 2005 3:02:00 PM
On the plus side, the real estate boom has totally reinvented the neighborhood I live in. (Packanack Lake - Wayne)
Many people who bought the homes in my area in the mid 90's for $250K - $350K sold them in 2002/03 for $350K - $500K. The people who bought those homes completely renovated or demolished the homes to build architecturally-pleasing new ones and again sold them to mostly Manhattanites for $500k to $1.2 million.
While Mercedes & BMW's have replaced the Toyota's and Chevy's... and while the Starbucks & Wild Noodles on Route 23 are now known as the 'cool destination' for teen's rather than old Miranda's Cafe... the neighborhood has still kept its friendly image, clean streets, well-kept homes, and friendly neighbors.
Unfortunately, some neighborhoods in North Jersey have not been as luck as us in Wayne, Montclair, Glen Ridge, Ridgewood, etc.. (Think some neighborhoods that have gone down hill in Paterson, Clifton, Belleville, etc...)
Posted by: Court | Nov 16, 2005 3:03:45 PM
I do also believe the real estate boom has lead to a revitalization in my neighborhood. Even though if I sold my house here in Lyndhurst, I still wouldn't be able to afford the prices of homes in towns north or west of here.
Posted by: Inge | Nov 16, 2005 3:19:39 PM
I am pretty sure that Baristaville will safely avoid a major bubble popping sound. Economists are unanimous that, unlike stock market downturns, there is great variety in a so-called real estate bubble bursting. Yes, homes around here could take a 10-15% hit. But I really can't picture more than that. I'd be real real worried if I bought 3 or 4 Miami condos in the last year.
Start worrying when you wake up one day and NYC is no longer the financial, commercial, and cultural epicenter of the planet.
As long as people are paying 1.3M to buy 1400 sf apartments in Chelsea with views of a dank unlit back alley, I'm not sweating it.
Posted by: montclair_is_crazy | Nov 16, 2005 3:39:58 PM
I also agree that it's unlikely that the real estate market will callapse. It's not like stock where you are trading paper. Land always has value ( albeit maybe a little less than last year ).
And what distinguishes this boom from the late 80's is the fact that the supply side of housing has not been a major factor. Most new development has been on a much smaller scale in this part of the country as land has become so expensive. The 80's crash was a direct result of supply of new houses far outstripping demand, and extremely high interest rates. Nobody is predicting a repeat of those two factors.
Posted by: Todd | Nov 16, 2005 5:26:14 PM
I am hedging by buying property within 1000' of Bloomfield schools, with the intention of selling to wealthy registered sex offenders. Bubble shmubble.
Posted by: alan greenspan | Nov 16, 2005 5:51:41 PM
I love a spirited discussion!
Let's look at the truth behind net immigration into the united states. First, lets take the Domestic Migration Report out of the last census, this report was issued in Augest of 2003, it covers the period between 1995-2000, the beginning of the bubble period.
http://www.census.gov/prod/2003pubs/censr-7.pdf
Let's first go to the table on Page 3, we'll see that the Northeast had a loss of population over this period, if you scroll down a bit, you'll see NJ, NY, and Penn all had a negative net migration over this period.
On to page 5!
This wonderfully colored chart is a beautiful illustration of population movement within the U.S. Take a look at NJ, I'll give you a hint, it's one of the green states.
Yes sir, negative net migration over the period between 1995-2000.
Taking a look at more recent data:
http://quickfacts.census.gov/qfd/states/34000.html
You'll see NJ population increase from 2000-2004 (3.4%) was less than seen across the US (4.3%). No huge net inmigration here, in fact, likely another negative net immigration over this period.
How can the housing bubble be a supply shortage problem if this area has seen a negative net immigration in comparison to the rest of the US? In fact, I'd argue that this points to an even higher likelyhood of a bubble in our area.
grim
Posted by: grim | Nov 16, 2005 6:15:03 PM
Sounds to me like we have a demographer in our ranks.
Posted by: montclair_is_crazy | Nov 16, 2005 6:19:09 PM
Correction: first line should read "within" not "into" the United States.
grim
Posted by: grim | Nov 16, 2005 6:21:44 PM
Grim,
Why would you expect that migration statistics for even NJ as a whole would represent Baristaville? Seems to me that the migratory pattern for our area should essentially be a flatline, as there really is no meaningful increase or decrease in housing stock, and certainly little apartment or multi-unit dwelling scenarios. I would venture a wild ass guess than Montclair's population is little changed over the past 40 years. If I've wrong, let me know.
Posted by: montlclair_is_crazy | Nov 16, 2005 6:23:38 PM
I never did, I was simply debunking the myth put on the table by realhawker earlier in the thread.
I don't have town statistics handy.. But I've got the same census stats for county, so for this little thought experiment, let's just say Baristaville is Essex County.
Net population change in Essex over the period of 1990-2000 was a meager 2% versus 8.6% for all of NJ. Over the period of 2000-2004 it was 0.6% versus 3.4% for NJ.
So, with that, there has been only very minor population increase in Baristaville over the past 15 years or so.
I'll say it again, how is what we're seeing today a result of a supply shortage? There has clearly been no significant increase in population over these years. So why would there be a shortage of homes?
grim
Posted by: grim | Nov 16, 2005 6:40:15 PM
It's not a shortage, at least in Baristaville. It's just classic supply and demand. If everyone in Baristaville woke up tomorrow and had a craving for pistachio ice cream, presumably the Farms on Grove St. could raise the price of pistachio cones from 2 to 6 bucks and still make a killing. The increase in price would have nothing to do with a shortage of ice cream.
Posted by: montclair_is_crazy | Nov 16, 2005 7:06:43 PM
Grim,you should check out www.otteau.com and verify the information I am aboout to provide. As far as migration figures go, about 41,000 people from NY move to NJ each year. That doesn't include immigration,whose numbers are higher, I believe. The current absorbtion rate (number of months to sell inventory) is about 4 months. Essex county is faring better than the state average of 5 months. 4-5 months absorbtion and you have a balanced market, anything higher and it shifts to a buyers market.
The reason a lot of homes in Montclair and Glen Ridge are sitting or seeing price reductions is b/c many have a 20% price increase tacked on to last spring's prices.It is not the doom and gloom that you and other pundits make it out to be.
In my opinion, this area, even with the increase in housing prices over the past few years offers an incredible value compared to other NY metro suburbs - Westchester, Conneticut, Long Island.
Posted by: ubercute | Nov 16, 2005 7:47:29 PM
In my comments quoted above, I used the word correction to describe what appears to be happening...not collapse...not crash...certainly not a typical drop of $100,000 on a really good house. (In fact, those really good houses continue, in Baristaville, to sell over-asking in many instances.) On a not-so-great house priced $100,000 above where it should be in a realistic world -- that's a different story. That is what's being corrected. Even so, the appreciation has been magnificent for anyone owning and maintaining a home in Baristaville over the last 5-10 years. So, who can complain without seeming just a tiny bit ungrateful?
Posted by: Roberta Baldwin | Nov 16, 2005 7:51:37 PM
In December, Baristaville's population will grow slightly because we just purchased a charming home in Montclair. I think many people are not bidding as aggressively may be due to the fact that it is not just the over-inflated list prices but also the taxes are quite a jump from what we currently pay in the city. To many, that is a scary reality that was behind the bubble's shadow.
Posted by: jayonyxx | Nov 16, 2005 8:27:20 PM
Property taxes and the unchecked school spending will cause prices in Montclair to drop.
Then there is the reality of the school system; you don't get what you pay for, you pay for the PR, not results. Although I like to call the PR 'cool-aid."
The migration out of those who do not use the schools and the continued loss of ratables (commercial property) will bring more people who burden the system.
All causing a property tax implosion.
Posted by: kevin Lee Allen | Nov 16, 2005 9:10:36 PM
History will repeat itself
It has no choice
We are on that gerbil wheel
called life
pay your taxes
then die
A beautiful young couple
moves into your past abode
The future is theirs to spend........
On mortgaged time.
Posted by: PAZout | Nov 16, 2005 11:10:49 PM
It's been a great discussion everyone! Have a good night!
grim
Posted by: grim | Nov 16, 2005 11:15:11 PM
Can you imagine, we had an intelligent conversation over the course of hours on an issue of public policy, and not once did it degenerate into a knee jerk response by some partisan nut about how evil Republicans are, how stupid Democrats are, who's really to blame, etc. Remarkable.
Posted by: montclair_is_crazy | Nov 16, 2005 11:58:17 PM
Grim is correct about the population trends. Even if you go to www.census.gov and check the Population of Montclair (it will show you 1990, 2000 and 2004), the increase is insignificant.
Of course, I'd argue that population increase is not the only reason for price increase. Inflation and wages acct for it too. The increase over the past 5 years, however, is beyond explanation.
Basic point is that mortgages and rental rates should be in line, almost 1:1 (although i believe it runs around 1.2:1 historically in the NY Metro area). It's nowhere near that, and that spells trouble.
Posted by: Stan | Nov 17, 2005 12:13:15 AM
