nj re updated charts aug 2011

8/6/2019 NJ RE Updated Charts Aug 2011

1/15

1

NeanderthalEconomistResearch

Residential Real Estate AnalysisNew Jersey / New York MetroAugust 2011

August 2011 Update


2/15

2



CS NY/NJ Metro Index Price

150

175

200

225

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006

2007

2008

2009

20102011

Year over year


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3



NY/NJ Metro Home Price - Nominal vs Inflation Adjusted

0

50

100

150

200

250

300

350

400

450

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

Jan-

11

Jan-

13

Jan-

15

Case Sh iller Inde x NYMetro, NSA

Case Sh iller NYMetro Rea l(May- 10 = 100)

Case S hiller NYMetro Rea l(Sha dow Sta ts CPI)

Inflation adjusted vs nominal prices


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NYMetro Case Shiller Price to Rent Ratio

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

Dec-

82

Dec-

84

Dec-

86

Dec-

88

Dec-

90

Dec-

92

Dec-

94

Dec-

96

Dec-

98

Dec-

00

Dec-

02

Dec-

04

Dec-

06

Dec-

08

Dec-

10

Dec-

12

Dec-

14

CS NYMetro P rice / NJ OE Rent Inde x

Prices to rent are normalizing.


5/15

5



CS NY Metro Home Prices to NJ Median Household Income Ratio

2

3

4

5

6

7

Jan

-84

Jan

-85

Jan

-86

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

CS NYMetro Pric e to NJ Me d HHInc ome

Home prices remain high, as a percentage of income, partially because mortgage financing costs areat all time lows.


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6



Mortgage Rates and Home Prices

0

50

100

150

200

250

Ja

n-75

Ja

n-77

Ja

n-79

Ja

n-81

Ja

n-83

Ja

n-85

Ja

n-87

Ja

n-89

Ja

n-91

Ja

n-93

Ja

n-95

Ja

n-97

Ja

n-99

Ja

n-01

Ja

n-03

Ja

n-05

Ja

n-07

Ja

n-09

Ja

n-11

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.010.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0


30 YrFR Mortgage Rates

%

Home prices vs mortgage rates


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7



Neanderthal Total Home Cost Affordability Index

0

50

100

150

200

250

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

0.00

0.10

0.20

0.30

0.40

0.50

0.60

NY Case Shiller Index

Neanderthal Total Home Cost Affordability Index

Historically low interest rates and home prices that have dropped 25% create record home priceaffordability, as a percentage of NJ median income. Assumes a mortgage with 20% down payment,property taxes are not included in the analysis.


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Case Shiller NYMetro - %Crash from Bubble Peak - Nominal Terms

-25%

-20%

-15%

-10%

-5%

0%

0 4 812 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100

104

108

Nominal % Drop fr om Sept 1988 Peak

Nominal % Drop fr om June 2006 Peak

Number of Months

Nominal price correction bouncing off of 25%


9/15

9



Case Shiller NY Metro - Real %Crash from Bubble Peak

-40%

-30%

-20%

-10%

0%

0 4 812 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100

104

108

Real % Drop f rom Feb 1988 Peak

Real % Drop f rom June 2006 Peak

Number of Months

On a real inflation-adjusted basis, the current price correction exceeds 30%


10/15

10



Case Shiller NY/NJ - Contributors of Growth

-

50

100

150

200

250

300

350

Jan-43

Jan-46

Jan-49

Jan-52

Jan-55

Jan-58

Jan-61

Jan-64

Jan-67

Jan-70

Jan-73

Jan-76

Jan-79

Jan-82

Jan-85

Jan-88

Jan-91

Jan-94

Jan-97

Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

Jan-15

Jan-18

Jan-21

Case Shiller NY/NJ

NJ PopulationNJ Median HH Income

S&P500 Index

Total Consumer Credit

Contributors of Home Price Growth. For the last century, residential home prices increased 1 or 2 percentage points above inflation on average with

the exception of the period starting in 1998 through 2006, where NY/NJ homes price grew by a total of 160%, the equivalent of 12% per year, farexceeding annual inflation which averaged a mild 4% per year. By glancing at the chart above, it becomes obvious that drastic increases in homeprices coincide with similar spikes in consumer credit and stock market values instead of steady fundamental growth in income and population. (Note:If set to an equal scale, the Total Consumer Credit line would go up 5 times higher, but is reduced to stay on the graph.)


11/15

11



Case Shiller NY Metro

0

50

100

150

200

250

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Case Shiller Index NY Metro, NSA

1988-1999 Crash Recovery Scenario / Frank

JPM / Grim / John / Gary

Deutsche Bank / BC / MIW

Clot / Kettle / 3b

Stu / Shore

Neanderthal

Jeff Otteau / Skeptic

*See details/quotes on next page.


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12



NJREReport Forecasts - NY/NJ Region

1988-1999 Scenario / Frank Assumes the 2006 bust will be short lived, and eventually resume growth in theexact same manner as the one experienced from September 1988 to 1999. Prices collapsed a total of 18% from1988 peak to 1991 but stabilized quickly and only took a decade for prices to return to the heights of the 1988bubble.

Jeffrey Otteau / Skeptic Prices have bottomed and will increase from here, in a similar fashion as they didduring the mid 1990s

Neanderthal Economist 30% nominal correction from 2006 to the bottom, resuming growth in late 2015. See

details on later pages.

JPM / Grim / Gary / John JPM US Fixed Income Strategy Report (Nov 2009). We expect home prices tocontinue falling albeit more modestly. The report goes on to call for an 8.1% price drop from June 2009 to June

2010 and a 7.5% price drop from December 2009 to December 2010. This forecast calls for another 14% declinefrom the end of 2009 and a total 2006 peak to 2015 trough of 33% on nominal terms, which would retrace pricesback to late 2002 or early 2003. Grim reiterates his 33% correction, peak to trough.

Stu / Shore 40% crash from peak, nominal.

Deutsche Bank / BC / MIW Prices in the New York area will fall 40% from the March 2009 price level. Fromtheir June 2009 Research Report. The forecast represents a 52% crash from peak and would bring prices back to

where they were in the middle of 2000.

Clot / Kettle / 3b Clot predicts, Ten years from today, I expect home prices in NJ to be at around 1995-96levels, with ownership rates at around 35-40%. There will be tens of thousands of households permanently barredfrom housing ownership because of bankruptcy. This bold outlook represents a 63% drop from 2006 peak. Kettleslightly more optimistic with a 57% nominal correction from peak, more on a real, inflation adjusted basis.


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13



CS NY Metro Home Prices vs CS Long Term Home Price Growth

0

50

100

150

200

250

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

CS LT Price G rowth (CPI+1.3%/Yr)


NeanderthalForecast

Neanderthal:30-33%% totalcrash by 2013

Neanderthal Forecast - Long Term Growth Rate

Under this forecast methodology, we view the (red line) as the average home price if prices grew each year at its long term rate of CPI + 1.3%. From this we can draw theconclusion that prices are likely to bottom and stabilize in the beginning of 2013, with a total peak to bottom decline of roughly 30-33%, representing another 5-8% dropfrom August 2011 and represents the equivalent of prices eventually retracing back to early 2003/late 2002.

In real terms, adjusted for inflation, Neanderthal Economist maintains the possibility that prices continue to decrease through 2018. This model, we assume that CPI-U willbe a low 2.0% per annum going forward.


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NJ/NY Home Prices - vs Inflation

0

50

100

150

200

250

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21


CPI-U Inde x, NSA (1982 -8 4=100)

N e a nde r t ha l F or e c a s t

CPI-U Predicted (2.0% per year)

Charting the long term relationship between price growth and inflation.


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Case Shiller NY Met ro - Neanderthal Economist Linear Regres sion Forecast

y = 0.428x - 384.76

R2 = 0.8614

0

50

100

150

200

250

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

CS NYMetro Inde x

Line ar (CS NY Metro Inde x)

The results of a linear regression seems optimistic, reflecting the assumption that future price growth mimic longerterm price growth patterns

nj re updated charts aug 2011

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