Market Conditions in 07304>Question Details

Mike, Home Buyer in Cedar Grove, NJ

IS THE JERSEY CITY MARKET JUST A BUBBLE?

Asked by Mike, Cedar Grove, NJ Wed Aug 15, 2007

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yes of course it is.while other markets are back to 10 years ago,jersey city is back to 5 years ago.bankers and gay comunity have nearly all left to hoboken.now jersey city that only was partially gentrified,becomes seedier by the day,half of the city is for sale,historic downtown totally overpriced,frustrated owners try to sell their homes 20 to 30 percent above market value.reality hasn't settled in yet.businesses are dieing like flies.should we slip into a depression,expect houseprices to drop 100 percent.if we are lucky and have stagflation,prices will drop another 40 percent.while other areas have bottomed,jersey city has not.
1 vote Thank Flag Link Thu Jun 9, 2011
A lot of hoopla has been floating around the news media lately about the "bubble" theory of real estate. That is, the theory that the real estate market is going to burst. In my opinion, the theory has no merit.

First, understand that there are three basic premises that undermine the discussion of a real estate bubble:

There is no national real estate market . The real estate market doesn't explode or crash
The market has limited relevancy to the home owner that wants to keep their home and doesn't plan to sell immediately. It also has little relavancy to the investor/landlord, which is making his mortgage payments based on rental income. The real estate "market" is based on local economies. What is happening in Texas has little to do with JC. When people speak of the real estate economy, they are using nationally-based statistics. For example, Fortune magazine reported recently that since the early 1960s, average residential real estate values have never had a down year. This statement is true. But while these numbers are measurable, they do not reflect the intricacies of local real estate markets.

The stock market is based on the national, even the world economy. The real estate market is based on local, and, in many cases, micro-local economies. True, certain factors such as interest rates affect all the markets. There really is no broad barometer to measure the entire housing industry in the U.S. Average prices, average new homes sold, and average homes built nationally have little relevance to your market.

And, within a particular city that is doing well, there may be certain neighborhoods doing poorly for a variety of reasons, such as over-building of new homes. So while statistics, calculations, and economic factors are relevant, so is common sense: Take a look around and see what's really happening.
Talk to real estate agents, investors, and lenders in your area for a better picture of what is going on.

Don't look at broad nationwide, statewide, or even city-wide statistics. Be concerned with the average prices in the particular neighborhoods in which you buy houses, the average time on the market, and the changes in sales prices from last year to this year.

Real estate markets do not "crash" We all remember October 19, 1987, known as "Black Monday." The stock market lost 22% of its value in one day--what investors call a "crash." There have been times when real estate values have taken 22% hits in certain cities and in pockets within cities. However, no real estate market dropped 22% in one day, one week, or even one month. In fact, the real estate "crash" of the late 1980s took several years to bottom out in most markets.

There is no direct comparison to real estate market to stock market. You can sell hundreds of stocks at the click of a mouse in the stock market. The same is not true in real-estate; you simply can't sell of hundreds of homes in 5 minutes.

At its core, the housing market, like the stock market, is all about supply & demand; when more people want to buy than sell, prices go up, and vice-versa. However, the stock market is much more whimsical than the real estate market. People often buy into stocks at the top of the market based on future potential, not inherent value. True, people are buying some properties in some markets for top dollar hoping it will go even higher, but real estate still has inherent value because you or someone else can live in it. If the neighborhood in which you live goes down 10% in value, are you going to move? Not likely, you'll just be bummed about it. The transaction cost and headache involved in moving is not worth it for most people. Contrast the stock market where a zillion investors can sell off in minutes by a click on their computers.

Supply and demand also work differently in the housing market. Right now, demand outstrips supply in some hot real estate markets like LA and New York City. But, people are starting to realize that even if they sell for top dollar, they will have to pay top dollar to stay in the same market, so why bother?

This phenomenon is causing limited supply and even HIGHER prices. In other words, the price increases are not necessarily about "irrational" demand, but rather limited supply. While the old expression, "Trees can't grow in the sky" is applicable, so is the old adage, "They ain't making any more of it."

More people are moving into the U.S. than moving out, and so long as that trend continues, we're eventually going to run out of room. Likewise, if your city has limited space and more influx than out, prices are likely to stay where they are. JC offers strong

Danger in interest-only loans?

A lot of people are worried that if interest rates rise, many people who bought with interest-only or adjustable rate loans will lose their homes. Certainly, there are some people who are playing a very dangerous game with buying more house than they can affor
Web Reference: http://www.sashagonta.com
1 vote Thank Flag Link Mon Aug 27, 2007
Ok 4 years later I understand real estate much better. Real estate as a whole was in a bubble back then. Jersey City was definitely a hype even though the downtown area is still beautiful and retained value. The hype was created by the downtown though. Due to the downtown rebirth as well as the real estate buble, crappy properties in Greenville were selling for 300-400K or more. Years later they are still trying to fill the commercial water front properties as it is overbuilt and to expensive (but beautiful). Conclusion, real estate in general was in a bubble 4 years ago.
0 votes Thank Flag Link Thu Jun 9, 2011
I'm a Bayonne Realtor, but I also sell homes in Jersey City, and so I'm very familiar with this market. I'll expand on the answer I gave earlier.Jersey City is not one market, but about 5 or 6 "micro-markets"
based on neighborhoods and areas. Some of these are in a major price drop, of 50% or more, others are 35% and others only 10%. So there is no one price drop uniformly across ALL of Jersey City.

No, Jersey City is not a housing bubble. There are 5 areas of Jersey City, : Downtown Jersey City, Journal Square Area, West Bergen, Bergen Lafayette, Greenville and the Heights. The prices in Greenville, for the homes I sold recently, have been down over 50%. I sold a house at $210k only to sell the same house 2 years later, when my former buyer became a distressed seller, for $75k two years later as a short sale. This has been done a number of times and I had 3 or 4 sales where houses what were between $210k-$250k going under $100k, or over a 50% drop. The sub-prime lending has targeted the Black Community very hard. So Greenville area for example, is down by 50% or more in terms housing prices. The Bergen Layfayette area is doing about a 35% to 50% price drop. The Heights area, next to North Bergen and Union City is about a 35% price drop from a couple of condo sales I did, when my buyers became sellers a couple of years later. So essentially, not all of Jersey City is one market. It's a 5 separate micro-markets and the ethnic mix that makes up each "micro" market was a big factor in the kind of market rates and lending that was given to people in that particular micro-market.

They say that "redlining" is dead. I say, given the majority of sub-prime loans, from Saxon Mortgage in particular, that happened in the Greenville section, I would say that redlining is alive a well. So what applies to the Greenville section of Jersey City may not apply to an upper income area like Downtown Jersey City and therefore, it's hard to speak in a very generalized way about Jersey City as a whole.

The Journal Square section has many immigrants from India and many from Egypt. Some of them, not all of them, come with deep pockets and as a result, can buy a house for cash, or nearly cash, and therefore, this has kept the Journal Square area, high in demand, and therefore, more financially stable than Bergen Layfayette for instance. So each area of this very big city, the biggest in Hudson County and the biggest in the entire state of NJ as a different ethnic mix, much like there are Irish, Jewish, German and Polish neighborhoods in NYC, the same is true in Jersey City. It's a big, big city, and not one marketplace,
but several different micro-markets in my opinion.

So to answer your question overall, here's what I can say: At its core, the housing market, like the stock market, is all about supply & demand; when more people want to buy than sell, prices go up, and
vice-versa. However, the stock market is much more whimsical than the real estate market. People often buy into stocks at the top of the market based on future potential, not inherent value. True, people are buying some properties in some markets for top dollar hoping it will go even higher, but real estate still has inherent value because you or someone else can live in it. If the neighborhood in which you live goes down 10% in value, are you going to move? Not likely, you'll just be bummed about it. The transaction cost and headache involved in moving is not worth it for most people. Contrast the stock market where a
zillion investors can sell off in minutes by a click on their computers.

Supply and demand also work differently in the housing market. Right now, supply outstrips demand, but it's not equally true on all micro-markets in Jersey City. In some micro-markets, there's over 29 months worth of inventory not selling. In other parts of Jersey City, there's only a limited 5 month backlog of supply. In these areas,this phenomenon is causing limited supply and even HIGHER prices. In other words, the price increases are not necessarily about "irrational" demand, but rather limited supply. While the old expression, "Trees can't grow in the sky" is applicable, so is the old adage, "They ain't making any more of it."

More people are moving into the U.S. than moving out, and so long as that trend continues, we're eventually going to run out of room. Likewise, if your city has limited space and more influx than out, prices are likely to stay where they are. JC offers strong transportation, and strong employment. It has two rivers that supply jobs and goods into the city, an excellent transit system and a ton of public services.

So in sum, Jersey City will stabilize, but not as one combined market, but as a series of micro-markets.
Web Reference: http://ganmanagement.com
0 votes Thank Flag Link Thu Jun 9, 2011
Hey Mike,
Awesome question. Jersey City is no bubble market. Usually bubble markets are created by pure speculators. These are not the average homebuyer's. The main reason Jersey City will continue To Get Stronger is because of 3 of the most biggest factors in Jersey City Real Estate...........

(drumroll please:) ............Location,Location,Location because of the proximity to NYC. And the fact so many financial heavyweights haved moved to Jersey City. Hudson County's best kept secret is out of the bag. More buyer's than ever are buying in this town. Hope this helps.
0 votes Thank Flag Link Tue Sep 11, 2007
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