Inventories
up as state mirrors national trend
Tuesday, July 11, 2006
BY SAM ALI
Star-Ledger Staff
The "For Sale" sign has been up for three months. You've had
a handful of showings and open houses. But your four-bedroom colonial in
your quaint middle-class suburban neighborhood is just not selling.
In America's
cooling housing market, it's a story many home sellers in New Jersey can
relate to these days.
Housing activity is slowing across the state, and the inventory of
unsold homes is expanding.
"You have this standoff between buyers and sellers who tend to be
as much as three-quarters of a year behind the market," said
Jonathan Miller of Miller Samuel, a real estate appraisal firm in New York.
"Sellers have been trained over the past five years to stick with
their prices and be firm, and yet now you have buyers on the other side
saying they want a deal."
As of June, the supply of homes on the 12-county northern New Jersey
market is 69 percent higher than it was in June 2005, climbing from
23,584 homes to 39,829, according to Jeffrey Otteau of East
Brunswick-based Otteau Appraisal Group, who also authors a series of
widely followed quarterly market reports on the New Jersey real es tate
market.
Middlesex
County saw the
largest year-over-year surge in inven tory, with the supply of homes on
the market climbing 99 percent, to 4,739 homes, from June 2005 to June
2006.
The number of months it would take to sell the existing inventory of
active listings at the present sales pace stands at seven months, up from
three months a year ago, Ot teau said.
Historically, a 5 1/2-month supply of unsold inventory has been
considered a "stable" market.
In the late 1980s, when the residential real estate market last hit
the skids, that number ranged from nine months to 24 months.
"Certainly the record home prices achieved in 2005, when coupled
with lagging salary increases, rising interest rates and slower
population growth, are solid reasons for a market slowdown," Ot teau
said.
But the changes that have enveloped the residential real estate market
over the past 10 months extend beyond market metrics, he said.
Otteau also believes "the chorus of voices predicting this
collapse and the attention they have received from the media" are
playing a big role in bringing the housing market to its current state.
"As always, perception becomes reality," he said.
The market currently has a six- month supply of homes priced below
$600,000. For homes priced between $600,000 and $1 million, there is a
10-month supply, and for homes priced above $1 million, there is a nearly
13-month supply.
Home-sales volume also is slowing in the state, declining 18 percent
through May from one year ago.
In northern New Jersey,
the slowdown has been more marked. Comparing the first six months of 2005
with the first six months of this year, sales volume declined 20.9
percent, falling from 3,682 homes in 2005 to 2,911 homes this year,
according to the Garden State MLS, a listing database of homes for sale
in Bergen, Essex, Hudson, Hunterdon, Middlesex and Morris
counties.
It's a story that's being played out across the country
Last week, the National Association of Realtors lowered its forecast
for home sales in 2006.
In its monthly forecast, the Realtors association said sales of
existing homes should fall 6.8 percent, to 6.60 million this year, from
the 2005 record of 7.08 million. Sales of new homes should decline 13.4
percent, to 1.11 million, from a record 1.28 million in 2005.
Experts believe the current situation -- fewer home sales and rising
inventories -- will continue for the next several years and will
ultimately start to hit sellers where it hurts.
As the supply of unsold homes continues to grow, Otteau ex pects some
of the increases in home prices that occurred over the past few years
will likely be reversed as motivated sellers make a trade-off: lower
prices for quicker sales.
Ironically, this may not be good news for home buyers, be cause rising
mortgage rates will likely offset any savings derived from lower home
prices, he said.
In fact, some home buyers will actually lose purchasing power despite
a downward drift in home prices. Thus, buyers should consider whether the
current combination of rising mortgage rates, higher inventory levels and
sellers willing to negotiate are reasons to buy now rather than wait.
Rates on 30-year mortgages rose to an average 6.79 percent, from 6.78
percent last week, the highest level since May 2002, according to a
survey released by mortgage finance company Fred die Mac on Thursday.
"This is fairly consistent with our economic
outlook, which continues to forecast that the interest rate for the
30-year fixed-rate mortgage will gradually drift upward but should remain
under 7 percent for the year," said Frank Nothaft, Freddie Mac vice
president and chief economist. Last week, the Fed raised interest rates
by a quarter percentage point for the 17th straight time, from 5 percent
to 5.25.
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