Lori Turoff

What is an Under Water Hoboken Condo Anyway?

There was an article in the NY Times last week about the housing fiasco that struck a chord. There were many innocent home buyers swindled by unscrupulous mortgage brokers, others who have adjustable-rate mortgages with payments that have ballooned and they can no longer afford, and still other home owners with good intentions who have fallen on bad times. It has always seemed to me that something was missing at the heart of the explanation of why we are in this mess. This column by David Leonhardt insightfully addressed those home owners who are said to be "under water". Now in Hoboken, an under water condo may have a literal meaning every time we have a heavy rain. In this case, however, that's not what is meant by an under water Hoboken condo. Homeowners whose properties have lost enough value so that the property is worth less than the underlying water is said to be "under water" or have negative equity in their home. That is what the article addressed. It's also what has always made me feel unease about the mortgage crisis.

Do Property Owners Get To Choose Not To Pay?

If you read about the mortgage crisis, it is often assumed that just because an owner is under water, he or she cannot afford to make the mortgage payments. That is simply not always the case. A property owner with negative equity often has a choice to make. Many of them could continue to pay their mortgage in a timely manner. Just because the value of a Hoboken condo has gone down on paper, that does not necessarily mean that the condo owner cannot afford the payments. Nor does the owner always have to sell the property. There are home owners with negative equity who could stay put and keep paying and many do. These people might like their condo, want to stay in Hoboken or feel a moral obligation to keep their side of a bargain. After all, many of them knowingly and willingly with the representation of counsel chose to enter into a contract and agreed to make the payments. Nothing in that agreement provides them with an automatic out if the value of the underlying property falls. That would be similar to buying stock on the premise that if the price goes up the owner can sell at a profit but if the price drops the corporation is somehow obligated to absorb the shareholder's loss. While some of us might wish that were true, that's not the deal. Why should it be any different with a mortgage? In fact, when stocks bought on margin decline in value, the owner gets a margin call and has to put more money down. Why not do that with real estate, too? As the article aptly points out, there are home owners who look at their purchase purely as an investment vehicle that may not pay off. They choose to walk away from the mortgage and the real estate because they can. With the prospect of a homeowner bailout, these owners may not have to worry about their credit rating being hurt, declaring personal bankruptcy or even taking a loss. With help from the federal government by way of your and my tax dollars, the condo owner who could make the mortgage payments but chooses not to will get the same relief as those who truly cannot pay and face foreclosure. Many of the home owners who would receive help by choice rather than by necessity are likely to be investors. The Hoboken condo buyers who may have bought pre-construction as a speculative investment with the hope that the market would continue to skyrocket often planned to flip the property. They bought with little or no money down and no intent to ever live in the condo. With a primary residence somewhere else they often have no ties to the community. Is that who we should be helping? What do these condo buyers contribute to the future health and prosperity of Hoboken?

There Are No Easy Answers

Of the $700 billion bailout fund the Treasury Department has structured, it seems that because of reasons like these, little of that money will go directly to homeowners regardless of their need or circumstances. I always believed that if you make a promise you should do your best to keep it. To me, that includes paying your mortgage when you can afford to do so regardless of the value of your home.

Warren Buffett is a Smart Guy - He May Know a Thing or Two About Hoboken's Condo Market

My morning ritual is to take my dog to the dog run, sit down with my go-cup of coffee and open to the NY Times Op-Ed Page. The other day, Warren Buffet wrote a piece about his take on our current financial mess. He said something that struck me as very wise for the times in which we find ourselves. He said "be fearful when others are greedy, and be greedy when others are fearful." He was referring to his recent purchases of US company stocks. His words, however, rang true to me when thinking about the current state of the Hoboken real estate market.

Fear Can Lead to Buying Opportunities

Over the past few weeks I've seen huge price reductions on Hoboken condos. Some of these properties were vastly overpriced and should have had the asking price slashed. Others, though, were not. Fearful sellers cut prices in reaction to the negative headlines. For example, let's consider a beautiful 3 bedroom condo with a private yard in the best part of town. It's in mint condition in a stable condo building with good financials, not often the case in Hoboken. The sellers were within inches of a deal on Sunday, September 14th. Monday the 15th Lehman Brothers went under and the panicked buyers walked away from the deal. Since then, the list price has been reduced by almost 10% . Perhaps this type situation too, presents a chance to buy a slice of America's future at a marked-down price.

Sometimes There Is Innate Value in Real Estate

Some buyer who follows Mr. Buffett's wisdom will buy a beautiful home at a considerable discount from what it would have sold for just a few months ago. The home has not changed - just it's perception of value has. And unlike stocks, real estate, the actual bricks and mortar assets, are of finite supply. This condo is large enough for a family. A buyer seeking a home, and looking to live in it long-term, may be getting a great deal. Mr. Buffett says he cannot predict short term movements of the stock market. Nor do I presume to know what is going to happen in the Hoboken condo market over the next month or even year. But like Mr. Buffett, I believe that in the long term, the Hoboken real estate market, like other markets, will rebound. Today's unafraid buyer may just turn out to be tomorrow's happy seller.

Market Statistics for 2008 Through September for Hoboken Condo Sales with Year over Year Comparisons

These figures includes only sales on the MLS and do not include for sale by owner or new construction sold directly by the developer such as Toll Brothers sales at Maxwell Place.

Do not forget to visit hobokenrealestatenews.com every Wednesday for the Weekly Wednesday Wrap Up. This weekly market report will include weekly sales, properties under contract, new listings, active listings and more. Click on any listing for full listing information including sales price and time on market. This is the most comprehensive and up to date market report on the Hoboken real estate market. Also, every Friday, the Hoboken Open House Google Map with every MLS listed open house on an interactive Google map with a link to each listing. Brought to you at Hobokenrealestatenews.com.

Today's New York Times has an interesting front page article on the housing market. In addition to citing economists' predictions of when the national housing market will hit bottom, it also points out that average interest rates on the 30 year fixed mortgage jumped to 6.75% from 6.06% in just one week.

The article goes on to talk about "price to rent ratio" as a tool to measure where housing prices stand relative to historic norms. Price to rent ratio is the average cost of ownership divided by the average annual cost of renting. The average price of a Hoboken condo has been hovering at about $530,000. It's much harder to know what average annual rent might be in Hoboken since there is no central listing place for rentals. Non-subsidized rents typically range from a low of $1,200 per month up to well over $4,000 a month for premium buildings like the Shipyard or 333 River Street. It's probably fair to say, though, that the the bulk of Hoboken rentals probably fall in the $1,800 to $2800 a month range. So just for kicks, let's say the average is about $2,200 a month or $26,400 annually. That would put Hoboken's price to rent ratio right at about 20, higher than New York's current ratio, according to the article, of 15 although the article is not clear if "New York" refers to the city or state.

Typically, price to rent ratio is analyzed over time. We can assume that 10 years ago, both rents and sales prices were considerably lower in Hoboken than they are today. Back then Hoboken condos were selling for an average price of around $175,000 and rents were dirt cheap. After all, the luxury Hoboken rental buildings and most new construction Hoboken condos hadn't yet been built. When we moved to Hoboken and rented a full floor of a very large row house for $1,700 a month, locals told us we were crazy. Coming from Manhattan, we thought we'd got a deal.

Let's say for the sake of argument that the average rent back then was only about $1,000 a month or $12,000 annually. The price to rent ratio would have been 21 - higher than it is today. Changing that assumption just a tiny bit, however, to $1,200 a month or $14,400 annually the ratio plummets to 12. So without accurate historical data, it's practically impossible to determine where Hoboken stands today.

Brett Favre Needs A New Home and Hoboken Would Be Just Perfect

Dear Brett,

We are thrilled you've decided to join the Jets. We need you. Badly. We hear that you don't like big cities much. So I've got the perfect solution for you. Buy a condo in Hoboken. Aside from being near to the Meadowlands, Hoboken has lots to offer. It's a friendly place like Mississippi, so you'll feel comfortable here, it has great views of Manhattan, and is filled with families with small children. It has a real small town feel. You might have heard that Eli lives here. That's right, Eli Manning, star quarterback of the Superbowl Champion NY Giants - the other team in town. There have been rumors that A-Rod bought a unit (or two) at Maxwell Place. Well, I can get you a place way better than theirs. With a better view and more space. So call me. J - E - T - S - BRETT BRETT BRETT!