Jersey City & Hoboken Condos

Single family homes went up nationwide this past February.  As national markets do have an effect on us, this is good news for Jersey City condo owners as well!

NY Times Article

Oh fer god’s sakes.  Now we’re getting bike lanes.  I have been using that as an excuse to be heavier than I should be – if I live in a bike-unfriendly town, I can eat Cheetohs.  Such unfriendliness is coming to an end in JC.  The city has initiated a program that will give us 35 miles of bike lanes and another 20 miles of shared lanes.  As well, changes in zoning rules are being proposed requiring some bike storage for some styles of construction and grants to enable bike racks to be installed to aid merchants.  I have to say, I’ve heard many times from Jersey City condo buyers:  ”Is there bike storage?”  While most larger buildings are catching the drift and installing them, smaller converted brownstones do present a little bit more difficult problem.  Many seem to be converting the shared space under the stoop stairs into bike storage, which not only keeps an extra large thing out of the apartment, it keeps those living on the top floor from lugging them all the way upstairs.  Even I, at the tender age of 53, have taken to riding almost daily – hoping this makes it easier!!

Household formation is on the rise in the US according to the US Census Bureau.   Americans formed 1.15 million households in the 12 months ending in September.  That’s a huge jump from the 615,000 average during the previous four years.  It’s only slightly less than the usual 1.25 million household formations per year in the US.

To all my landlord friends:  it’s looking up – you’ll probably have to raise rents about 10% annually for three years or so to stay at market rate.  Renters, the good news here is that interest rates are likely to remain low for much of 2013 before they begin to take a hike upwards.  And for all you renters who want to see what the financial ramifications are for renting instead of buying, here’s the estimated personal net worth increase on a typical $375,000 condo in downtown JC versus renting at $2200 per month:

I don’t think we need to be any clearer on that score.  If you want to see the whole spreadsheet, email me and I’ll get it to you.

Hopefully we’ll get sellers to start their own “moving on” process soon so that we don’t see a rapid increase in prices – slow and steady is better for the market.  I feel that in any case, we’ll be back to 2007 prices in 2015 or 2016 – the longer sellers wait to make their move, the sooner they’ll be gifted with height-of-the-market pricing from days of yore.  But then, they’ll be paying more for the house they’re moving into as well….

The city agreed to allow another tall (42 story) building to go into the Journal Square Area.  Construction is a long way off, but this building will join the multiple towers being slated for the Journal Square Area.  I caution clients against buying on this data – there are no timetables yet on any of the construction.  Without knowing how long it will take, such property becomes an “infinite” time horizon property in your portfolio.  Still, it is likely that revitalization will take place, and is certain to change the character of the JSQ area.  In the satellite photo above, Jersey City has approved a condo building in the red square, a parking garage on the blue square, and a new 0.8 acre park on the green square.

I hate to be an always rosy picture painter, so at the end of this post, I’ll post a little bit of a turd for everybody.  But first, the good news.

Nationally (and we do know how I keep saying “think local, think local, think local”), the Pending Home Sales Index rose 5.2% to 104.8 (100 is a normal market)  in October from 99.6 in September.  This meshes pretty well our Jersey City and Hoboken condo/multi-family market.  The index went up 5%, and I’ve seen an increase in my own business of 50%.  That’s about 4% growth per month, and it started sometime mid-last year.  Nationwide our pending sales (that means the contract is done, but it’s not closed yet) is at the highest point since March 2007.

For all you homeowners, this is good news.  As demand goes up (and especially with inventory down right now – way down) so goes prices.  But now, let me propose le turd:

With all the refinancing that’s going on (and who wouldn’t?  Seriously 3.4% on a 30, 2.6% on a 15?) and the subsequent demand there will be for investment dollars in the system as the economy improves (especially for capital investment in retooling, new machines – purchases that businesses have put off for a long time) we may very well see interest rates begin to move.  Bernanke can buy all the mortgage backed securities he wants; I just don’t think he can buy enough to stem a rising interest tide.  So this is not the best of news for either buyers or sellers.  Buyers will see the monthly cost of purchasing go up, but what they qualify for won’t be going up unless they’re getting a big raise.  So whereas in January they may qualify for a $500,000 condo, come November they may only be qualified to make the payment on a $440,000 condo.  That’s a little extreme – you can figure about qualifying for about 10% less in purchase price for every 1% rise in interest rates.  Still, if interest even goes up a half point, the qualified amount for that couple buying the $500k condo goes down to $450,000.  And, yes, $50,000 makes a huge difference in the type of condo/home you get.

So yes, sales are doing well, and as the economy improves will do much better.  That said, those buyers who buy later in the interest cycle will get less for their dollar.  Remember, it’s going back to 6% sometime – that’s the historical average.  Once that happens (and that will likely take a few years), someone who qualifies for a $500k condo today is buying a $369k condo tomorrow.  Wowzers!  There is a huge difference between a $500k condo (2 beds/2 baths, balcony/deck/yard/parking)  and a $369k condo (1.5 beds/1 bath, no outside space or parking).

Let’s hope the sellers wake up in spring (as they see their next house drifting up out of their reach) and help increase the inventory, as buyers have already awaken – and they need to be earlier rather than later.

The last Tuesday of the month is like Christmas for me – except I get it every month.  As nerdy as it sounds (and I’m well aware that it does sound nerdy), I look forward to the Case-Shiller Index report each month.

For those of you who don’t know about the Case-Shiller Index, it’s like magic.  When I report that condominiums in Jersey City and Hoboken are going up, I usually mean the median price is rising.  That’s an aggregate market view of a specific location and product line.  Pretty important number.  That said, Case-Shiller is tres important too.  It looks at repeat sales of the same homes.  In other words, they track the sale of 123 Mulberry St in New Rochelle over years of time.  And 321 Dogwood Avenue in Mahwah.  They actually check the individual sales, and come up with a broad brush number of how much prices have risen.  I certainly don’t know the methodology, but it’s a pretty doggone cool index.  Although you can’t really extrapolate what is happening with the price of your home specifically – it’s a big broad number this index – you can see the trend as well as the velocity.  The number indicates affordability as well as price trend.  You don’t really need to understand all this – that’s why you have your favorite realtor.  So here’s the skinny (as my grandfather used to say, what am I 80?):

Affordability:  Condo affordability (price in relation to median income ) numbers have been edging up about a half point per month.  That’s not price, that means as the number edges up, condos become less affordable (or to put it another way, how much of chunk of your income is going to go to housing in specific area).  That is a broad number that encompasses the entire New York area – halfway across Connecticut to nearly all the way to Philadelphia and partway down the Jersey shore.  Big area.  But trends, trends, trends.  Since January of last year, it’s edged up 7%.  This is the 7th month straight the number has edged up.

Pricing:  Again the index edges up.  Nationally, we are back to mid-2003 pricing and are up about 3.6% over last year.  In the NY Metro region, we dipped a little from last year – January and February were down a bit and then everyone jumped into the market.  I hear from realtors I know across the entire US that inventory is really low.  And that problem started happening this spring.  Well, I’ll be damned if we didn’t start ticking up pricing levels again in spring (remember last year – we were up 5% over the previous year median – speaking of downtown Jersey City and Hoboken condos for sale only).  So, starting in April we’ve been ticking up steadily in the New York metro area – a few percent since then.  Trends.  Does it tell you the value of your home?  No.  It tells you the trend.  And unlike trends in fashion, this geek is all over this one.

The National Association of Realtors reported that housing starts rose again in October from September by 3.6%.  I find it curious that housing starts are continuing to increase while entering the winter months.  Looking year over year, this October’s housing starts are up 30%  from last October.  Seasonally adjusted we are at 894,000 starts annually nationwide – which sounds like a lot.  It’s not, really – there is plenty of room for that number to continue to expand.  The “keep even” (assuming headcount per house stays the same) is about 1.5 million annually.  All regions saw a double digit jump over last year, with the Northeast leading the way with a 42.2% jump.

The bad news, we’re not keeping up and we have some lost time to make up for.  That should continue to drive housing prices up as the aggregate economy and income improves.  The good news, there will be plenty of construction jobs moving forward.  And the more jobs, the better the economy.

Zillow’s home value index reports that home values rose 1.3 percent in the 3rd quarter compared to the second of this year.  This will help cure the negative equity position of  many US homeowners.  In the 2nd quarter of 2012, nearly 31% of all US homeowners had negative equity (the home is worth less than the mortgage owed on it).  In the third quarter this number dropped to 28.2% – a nearly 3% drop.  Should this trend continue, all negative equity should disappear in about 2 years.  Likely it will take less than that given that consumer confidence has risen this year, industrial confidence has risen this year, homebuilder confidence has risen this year, and an additional round of quantitative easing is in progress.  It is estimated that GDP growth, settling at just barely over a paltry 1% this past quarter, will rise to 2.5% during 2013.  The “fiscal cliff” will be resolved, if not before 12/31 shortly thereafter, keeping Bush era taxes the same for the middle-class (the driver of the housing market) and increase rates on income over $250,000.

The downtown Jersey City condo market appears to be following the trend.  The average sold price rose from $450k to $470k over the past year – an increase of about 4.2%.  So far this year, 373 condos have sold in the downtown market, while 363 sold in all of last year.  The median days on market was 54 last year, while this year posts a median of 44.

The real predictor of what will happen in the Jersey City market (and indeed all Jersey City real estate is affected by, and follows, the downtown market) is in the inventory figures.  In total units for sale in 3rd quarter there were 375, down from 452 last year – a drop of 17%.  But those figures don’t tell the whole story – the real key is how many are active at any one moment, not over an entire quarter.  Since 2009, downtown JC has quite usually had 350 condos for sale at any one moment.  Currently there are 99 – a precipitous drop of about 2/3.

When inventory draws down, and sales volume increases it leads to only one thing:  an inclined ramp in sales price.  The good news in all this is that sellers, newly righted from negative equity, will be able to move on to that new place they’ve been waiting years to buy.  And though demand is currently outpacing supply, the new positive equity position will make it more likely that additional sellers will enter the market over the course of 2013.

That said, as prices begin to increase and sales volume continues its upward move, it is just as likely that money will be drained from the lending system raising interest rates.  And though the Fed has embarked on a quantitative easing program, keep in mind it is only about $40 billion per month, a small amount in a $15 trillion economy.  As well, with interest rates likely to hit bottom in January or February and begin rising, banks are currently hiring or transferring thousands of employees to contend with an onslaught of refinancing now enabled by positive equity positions newly acquired by millions of homeowners.  2013 will be a very busy year for lenders, and that is certain to drain money out of lending, as well as sidelined cash throughout the system will likely be demanded for capital expenditures for all companies (long put off purchases), which will put further demand on cash reserves – all affecting the interest rate.

It is likely that 2013 will be an extraordinarily robust real estate sales year, with a variety of factors coming into play:  the release of pent-up demand, the ability for homeowners to purchase their next house due to positive equity, rising rents (about 12% over last year in the downtown Jersey City area), rising prices (which causes people to move sooner rather than later), and rising interest rates (which has the same effect).  The price pull will likely be painfully quick due to the lack of construction financing (Jersey City and Hoboken both are far below construction levels to meet demand – a structural problem that will likely persist for years) and the increase in household numbers.  The household number increase is first felt in the rental markets (roommates and college grads feel comfortable getting a place of their own, which drives up rents), and then as rents rise, the effect is to move renters into the buyer column, moving prices up there too.

All of these effects combine to create an odd market:  it’s both a good time to buy and a good time to sell.  With prices moving up, it’s better to upsize now, and the ability to do so is there due to positive equity.  As well, with interest rates low and prices still not recovered (wait until 2015 or so to find us back at 2007 levels) it’s a good time to buy.  In fact, this spring may be the best time ever, before both prices and interest move up substantially.  It means that lenders and real estate agents should get a lot of sleep in December, as from January on will be crushing.

The Homebuilder Confidence Index is up to a six year high reports Bloomberg.  November numbers were launched by the biggest jump in sales in a decade.  The confidence level was listed at 46, up five points from October.  A reading of 50 means that builders think the market is neither good nor bad.  While still on the low side, it’s moving in right direction.  The important component of this is not the number, but the trend.

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 46, the highest level since May 2006, from 41 in October, figures from the Washington-based group showed today. The median forecast in a Bloomberg survey of 49 economists called for no change. Readings below 50 mean more respondents said conditions were poor.

More buyers, faster hiring, and fewer foreclosures seem to be ensuring a sustained rebound.  I have always felt that housing was the first in the ditch, and it will lead us out.  It is truly the brightest spot in the economy right now.

“Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Florida, said in a statement. “Many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today’s favorable prices and interest rates.”

As well, resales of existing homes went up 2.1% while median prices went up due to shrinking inventory.  Jersey City and Hoboken condo inventory has shrunk to the lowest level in four years over the course of November.