Sunday, December 04, 2005

Trip to Central New Jersey

Last night, I drove up to central New Jersey for a friend's birthday party. It was an 80's style event as my friend and I are children of the 80's. Oh, the later 80's housing bubble. Ok I'm 25.

There is a bubble here in New Jersey.

New Jersey Bubble
Northern New Jersey Real Estate Bubble

The house across the street from my friend's has been sitting on the market for about 3 months. See below picture.



My hosts, who have been home owners, here in East Brunswick concur about the bubble. It snowed 3 inches last night. :-)

I'll be back in Maryland later tonight.

5 comments:

  1. The house looks pretty good- although I see no price-after 3 month of not being sold, it is probably overpriced.
    Of course the latest spin on the economy is; Economy is strong, the existence of a 'housing bubble' is theoretical' and will have little influence on the economy. Have you noticed lately that the housing bubble has been more less pooh poohed. And the economy will see smooth sailing for the forseeable future.

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  2. "Have you noticed lately that the housing bubble has been more less pooh poohed. And the economy will see smooth sailing for the forseeable future."

    Now that youy mention it; I do see that."

    However, the recession is coming in 2Q or 3Q 2006. The consumer spending party / housing bubble orgy party will have a hangover.

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  3. Yes sir, the bubble is alive and well in New Jersey. If you think mid and south Jersey were bad, just take a look up the north eastern counties.

    I know many people that have resorted to buying in mid Jersey, as well as out west in Sussex and Warren, to be able to afford a nice home. These folks seem to be content having 1.5 hour commutes each way (without snow of course).

    grim
    Northern NJ Real Estate Bubble

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  4. Actually I read a piece on CNN business last night that said the employment growth will begin to slow dramatically nexy year, starting in the third quarter-

    Some experts, such as University of Maryland business professor Peter Morici, are more skeptical than others.

    "The cooling housing market is very significant," Morici said. "People have been using equity from their home to prop up their spending."

    And while gasoline prices at the pump have retreated considerably from their post-Katrina highs, they're still up some 15 percent from a year ago, he said. "That takes a considerable bite out of the household budget," Morici added.

    Although he doesn't expect consumers will buckle over the holidays -- he's predicting a "decent" season with total sales up about 5.5 to 6 percent overall -- watch out for the post-holiday blues, when people realize that they're poorer in the new year than they were a year ago.

    "We'll likely see problems in the first-quarter," he said. "The savings rate is negative, there's high credit card delinquencies, home equity is not there at the same levels as before and home prices will fall further. Basically, people are spending much more than they are taking in."


    Any pullback is likely to be felt quickly since consumer spending fuels about two-thirds of the world's largest economy.

    "The economy will slow next year," Morici said. "On the plus side we have falling gas prices but that decline won't be enough to offset falling home prices."

    He predicts the economy will slow as the year progresses, with gross domestic product growing 3.6 percent in the first quarter, 3.5 percent in the second quarter and 3.3 percent for the rest of the year -- versus a 3.8 percent reading for the third quarter.

    He sees consumer spending growing about 3 percent next year, adjusted for inflation, down from about 3.5 percent this year.

    "Consumer spending has been pulling the wagon for a while now," Morici said. "That won't be the case next year."

    Experts say the nation's housing market has made consumers feel wealthier, acting as a bulwark against the summer's rising energy prices.

    When interest rates were falling and home prices were rising, Americans quickly refinanced their mortgages at the lower rates, effectively turning their homes into piggy banks, and raiding them for cash.

    In 2004, home loan refinancing activity contributed about 7 percent of total disposable income, up from 5 percent the year before, according to Nariman Behravesh, chief economist with Global Insight.

    Now, with interest rates rising and home prices softening, refi activity is slowing, according to the Mortgage Bankers Association. The group's index of refinancing applications recently dropped 3.4 percent, its third consecutive weekly decline, to the lowest level since early April.

    Two other measures of the housing market -- housing starts and building permits -- fell in November, raising worries about the housing market and the strength of home prices in the long run.

    Behravesh at Global Insight thinks refi activity in 2006 will decline further, contributing just 2 to 3 percent to consumers' total disposable income, or money that is spent on such items as clothes, shoes, DVDs and home furnishings.

    Behravesh, too, foresees some slowdown in consumer spending. "Consumers as the major growth engine will no longer be the driving factor for the economy," he said.

    Instead, he points to increased business spending on the back of "strong corporate profits" and a surge in exports as two factors that could support the economy, even if the consumer starts to wilt.

    "It's not as if the consumer will collapse," he said. "The labor market is adding about 180,000 jobs every months. That's quite decent and it's help retail sales. Interest rates are rising gradually and that's a bit of a brake on the economy.

    "Housing prices are cooling but they're not falling. Even if housing prices fall 10 percent, that will reduce (growth in) consumer from 3 to (about) 2 percent. Even that wouldn't be a recession scenario," he said.

    Steve Cochrane, managing director with Economy.com, agreed that a stable labor market has helped to spur spending.

    "I won't say that the labor market has hit a home run but the unemployment rate has not gone up, which is important," he said.

    But as housing activity slows, there's a risk that construction and other real estate-related jobs will suffer, especially in the hot markets in California and along parts of both coasts.

    In addition to troubling refi trends, University of Maryland's Morici said he's also carefully watching personal income levels.

    "Weakening refi activity is not as imperative as a fall in disposable income," he said.

    "Until last month, wage growth hasn't been too great. Most people don't have any control over this. You can't go into your boss' office and pump your fists asking for a raise. Lower wages means people have less money overall to spend."

    The economy has been humming along at a surprisingly strong clip but that's still tough to see in the nation's job market.

    Part of the problem is the ongoing impact of Hurricane Katrina, which caused payrolls to shrink for the first time in more than two years in September, and was a drag on job growth in October.

    But even if Katrina's impact is diminishing, there are other clouds hanging over the labor market. Many economists say the nation's real estate market will slow next year, which would probably put a big crimp in hiring, and they note that rising imports will also slow job growth at home.

    Some economists, in fact, said that the labor market still hasn't seen a true recovery.

    "Anecdotes, including purchasing manager surveys and regional and national Fed indices, do little to support the consensus view of a 210,000 gain," said Jeoff Hall, chief U.S. economist for Thomson Financial, who recently cut his forecast to a gain of 135,000 jobs from his earlier estimate of a 195,000. "Moreover, the market has a tendency to overestimate November payrolls."

    Others economists suggest that the traditional numbers are underestimating what they see as growing strength in the labor market.

    "Something boosted consumer confidence and I would suggest it's an improvement in the labor market," said Drew Matus, economist with Lehman Brothers. Consumer confidence surged in November thanks to falling gas prices and an improving job outlook, the Conference Board reported Tuesday.

    But even some economists with relatively strong employment forecasts say the job market could get hit by a slowdown in home building and real estate in the coming year. Mark Zandi, chief economist of Economy.com, who is looking for a 225,000 gain in November, is one of those pointing to that when he sees tougher times ahead.

    "I don't think employment effects will be immediate. It won't be until this time next year we see the effects," said Zandi. "But by then, the underlying employment growth will have gone from the 200,000 we see now down to about 150,000."

    Zandi said that real estate, home building, mortgage finance and other home-related industries together accounted for 9.7 percent of total domestic employment in the second quarter of 2005, up from 9.0 percent in the fourth quarter of 2001.

    But home builders have been cutting prices and scaling back their applications to build, suggesting that they see a downturn coming in the home market.

    Confidence among builders tumbled in November, the National Association of Home Builders reported last month, citing rising mortgage rates, among other factors.

    And economists at the National Association of Realtors say rising mortgage rates mean existing home sales have topped out and will cool off next year. Both the realtors and the Office of Federal Housing Enterprise Oversight expect an end to the rapid gains seen in home prices in recent years.

    The higher rates and the inability to convert home values into ready cash through home equity loans are expected to cramp consumer spending in the new year. Higher energy costs this winter could hurt, too.

    So the employment picture will be substantially weakened sometime next year due to the cooling off in housing, some economists said.

    You're going to see very soft numbers for employment and significant ripple effects from housing," said Asha Bangalore, economist with Northern Trust Co., who is predicting only 120,000 to 140,000 new jobs a month in 2006. She said that housing- and real estate-related jobs accounted for 36 percent of private sector job growth over the last four years.

    Zandi said that rising imports will also continue to weigh on U.S. employment, although maybe not as severely as in the past.

    "It's not that they (U.S. manufacturers) will be adding jobs, just that they'll be losing less jobs," said Zandi.

    But there could still be some spikes in employment in the short-term, especially as clean-up and rebuilding efforts get underway along the Gulf Coast.

    Online job search firm Monster Worldwide said Thursday that there was strong growth in job postings last month in the West South Central region, which includes New Orleans and Texas.

    Areas such as sales, construction, and a category that includes installation, repair and maintenance saw the biggest gains, according to Steve Pogorzelski, group president at Monster Worldwide.

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