Is the Housing Market Making a Jersey Comeback?
Many indicators are strong, but foreclosures and a Sandy-wracked Jersey Shore need to be considered
New Jersey housing-market watchers have reason to believe that the housing crisis may, at long last, be easing up.
Figures released by the National Association of Realtors (NAR) this month show growth in the state’s median home prices in the majority of markets, the first since after the peak of the housing boom in April 2006. And sharp demand created by job growth and short supply attributed to homeowners’ ongoing reluctance to sell is spawning bidding wars not seen in years and cautiously raising expectations for an increasingly healthy sector.
Despite the good news, however, there are still some disquieting considerations that will likely temper any irrational exuberance. For example, a glut of foreclosed houses is starting to reach the market, adversely affecting the median housing price index. Meanwhile, the rest of the country is, on average, watching foreclosure rates drop. What's more, when Hurricane Sandy pulverized much of the Jersey Shore, the real estate market in that region also took a beating.
But with those caveats duly noted, the numbers for the state's housing market are strong, sometimes surprisingly so.
According to the NAR, the median New Jersey home sold for $273,900 in the first quarter of 2013 and $292,200 in fourth quarter 2012, indicating -0.5 percent and 5.3 percent growth over the respective quarters one year prior. Though 2013’s overall numbers are down, most individual markets, with the exception of Allentown-Bethlehem-Easton, Atlantic City, and Edison, are up. The Trenton-Ewing market showed the most growth at 12.6 percent at the end of 2012, although it slowed to 6.4 percent for 2013’s first quarter.
“It’s a good sign,” said New Jersey Association of Realtors (NJAR) president Tina Banasiak. “Five out of our eight markets improved on a steady basis, which is what everybody would like to see. It shows that the market’s stabilizing.”
Speaking at a real estate seminar earlier this spring, Jeff Otteau, who, as president of East Brunswick’s Otteau Valuation Group is one of the state’s most influential real estate analysts, predicted that this year’s home prices will settle three percent higher than last. But he added, “It would not surprise me to see a five or six percent rise.”
Translating the numbers into actionable advice, Otteau said now is the time to buy.
“This is a once-in-a-generation opportunity for a person to buy at the bottom of the market with once-in-a-lifetime mortgage rates,” he said.
Those who wait a year or more, he cautioned, risk being forced to lower their expectations by thirty percent.
“This is a buyer who will have to make do with a home that’s a third smaller or an extra 40-minute drive from where they work,” he said.
Despite slightly rising prices, home values have recovered only to 2003 levels, and according to CoreLogic, the national home price index remains 26.3 percent below levels reached during the market’s peak. Otteau predicts that the state’s market won’t reach those heights again until 2019.
The boost to the housing market stems from a job market that’s recovering slowly, and mortgage interest rates that averaged 3.53 percent yesterday for a 30-year fixed loan, as reported by Mortgage News Daily. That news, however, was tempered yesterday by a report by the Mortgage Bankers Association that average mortgage rates for the week ending Friday had hit 3.9 percent for loans under $417,500 -- the highest they’ve been in a year. April’s national unemployment rate fell to 7.5 percent, with New Jersey’s rate dropping to 8.7 percent -- the lowest it’s been since March 2009.
Last week, however, Chairman Bernanke told Congress’s Joint Economic Committee that he intends to leave short-term rates near zero until the national unemployment rate falls to 6.5 percent or inflation exceeds 2.5 percent a year. He predicts that happening no earlier than 2015.
But in New Jersey, low interest rates can only do so much. Otteau says housing inventory remains at its lowest levels in eight years and has declined 20 percent since last year. On average, homes sell within 6.2 months, with Hudson County outpacing the state at 4.2 months. Northeast Jersey homes sell more quickly than their counterparts in the rural south, he said, thanks to their proximity to New York City’s job market. By contrast, he said, Salem County homes are sitting on the market for 16.5 months.
One delay is a hefty backlog of distressed properties that accumulated in New Jersey as the state’s mortgage industry halted foreclosures while it muddled through questions of impropriety over so-called robo-signings of related documents. Now, those properties are being processed and put on the market but Otteau says that for the most part, they’re selling at just five percent less than non-distressed sales.
The foreclosure rate is climbing in New Jersey while other states are experiencing a decline. Nationwide in the first quarter, foreclosures fell 26 percent from last year, but in New Jersey the year-to-year numberover last year. Another trend is that the number of negotiated short sales is accounting for a larger share of total foreclosure sales, which typically results in a higher selling price than would occur at auction.
Otteau says 6,904 homes were in foreclosure in New Jersey in the first quarter of 2013, an increase from 4,646 one year earlier. Once again, he says, banks are stalling foreclosures, this time because they were barred from seizing houses devastated by Hurricane Sandy.
At the Shore, Otteau says Sandy has had a dramatic effect on the housing market with fewer home sales and declines ranging from a few thousand dollars to as much as 30 percent to 40 percent in the worst cases when homeowners sell under duress.
Banasiak says most Sandy victims she knows are either fixing up their homes for habitation or rental or they’re selling them as is. Of those who lost their homes, she says, some have or are entering the market but in numbers too small to influence demand or prices by any significant amount.
As for why other would-be sellers across the state are reluctant to put their houses up for sale, she says, “There are still a lot of people concerned about their jobs and the economy. But we do see a turn in the market.”