To Pounce or Be Patient?

As buyers lick their chops, sellers get cold feet. But while the housing market has dipped (and hasn’t hit bottom), some towns are escaping the pinch. Welcome to the new state of real estate in New Jersey.

The “For Sale” sign is back on the front yard of Jim and Christy Quinn’s century-old Craftsman-style house in Riverton.

“I’ve gone through several revolutions of frustration,” says Jim. The couple first put the three-bedroom, one-and-a-half-bath residence on the market in January 2006 for $379,000. That April, with real estate prices softening, they dropped the price to $349,000. No takers. They pulled the house off the market that summer.

But with prices still slipping, Jim decided last spring to get back in the game with a new agency, Riverline, and a lower price, $339,000. A buyer offered $305,000, but after price negotiations and disagreements over an inspection report, the deal fell through. The house is currently listed at $299,000. Despite open houses, there have been no new offers.

“I guess I’m holding on at this point,” Quinn says. “But very soon I will have to retrench and see what my options are.”

This is a scary time to sell a house, especially if circumstances are forcing your hand. The profits that longtime homeowners came to expect during the boom years of 1998-2006 are eroding, even if they haven’t entirely disappeared. The Quinns bought their house in the Burlington County riverfront town ten years ago for $155,000. People who bought more recently are really feeling the pinch.

Across the state, the total number of houses sold declined 8 percent in the last year, from 91,928 in 2006 to 84,291 in 2007.The end is not in sight. Prices are expected to keep dropping—while inventory continues to grow—well into 2009, and possibly even 2010. Buyers, on the other hand, are flexing their newfound muscle or are sitting on the sidelines, biding their time.

With the United States dipping toward recession, recovery in the Garden State “is going to be long and slow,” says James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. “We’re looking at the middle of the next decade before New Jersey gets back to its old peak.”
Hughes is one of the few experts whose opinion is free of vested interest. Realtors will tell you the market has merely undergone a necessary correction. Builders are congratulating themselves on their conservative business practices and are grateful they were not operating in more overheated markets like Florida, where speculative frenzy led to overbuilding and where scads of new houses now sit unsold.

Mortgage bankers and brokers boast of low mortgage rates while trying to deflect blame for a glut of loans to subprime borrowers, many of whom are unable to repay.

How bad is the subprime crisis in New Jersey? Last year foreclosures in the state averaged 240 a month—a 31 percent jump over 2006. But the situation is much worse elsewhere. Last November (the most recent month for which statistics were available), one in every 8,319 New Jersey homeowners lost their homes through foreclosure. That same month, the foreclosure rate in Ohio was one in every 739 homes; in Colorado, one in every 678 homes. The national average for November was one in every 2,683 homes (or 46,438 total homes)—more than three times the rate in New Jersey.

A burst bubble is not really the right metaphor for the housing market. In terms of prices, it’s more a series of geographically defined balloons, some deflating more slowly than others, a few holding steady. “The parts that are still doing best are anything within a 50-minute commute to the city—Hoboken, Jersey City, along the 78/287 corridor, even in Monmouth, where you can take the ferry from Middletown into New York,” says Diane Dilzell, president-elect of the New Jersey Association of Realtors. “This is where you have your higher paying jobs, and it’s still less expensive than living in New York City.”

The Jersey Shore has fared relatively well. Diane Turton, whose agency, Diane Turton Realtors, is prominent in Monmouth and Ocean counties, says sales in Spring Lake grew from $92.5 million in 2006 to $117.7 million in 2007, with the average price inching from $1.1 million to $1.33 million. In the same period in Sea Girt sales shot from $50.2 million to $81.3 million and in Bay Head from $32 million to $48 million.

“It wasn’t realistic in 2005—it was a wacky world,” she says. “But people are still making a great profit on their homes here. Even those who bought in 2005 are breaking even. At the Shore, you’re selling a lifestyle. And there’s only so much waterfront.”

Overall, Monmouth County saw a 2 percent increase in its housing market in 2007 and Cape May County an 8 percent increase. Ocean County declined 3 percent. (Increase or decrease is determined by looking at sales revenue, number of houses sold, and remaining inventory.)

Drew Fishman, president of the New Jersey Association of Realtors, says he expects the next wave of tourism in Atlantic City—spurred by a reported $15 billion in casino improvement and construction—to stimulate the housing market throughout Atlantic County, as well as neighboring counties like Cumberland and Gloucester.

Yet the number of building permits issued has declined across the state about 30 percent from 2006 to 2007, according to the state Department of Labor. In some areas, the falloff in new construction is particularly dramatic. From 2005 to 2007, building permits issued in Atlantic, Cape May, Gloucester, and Salem counties dropped by 50 percent or more. Areas where farm or commercial land has been developed at a rapid rate have also experienced dramatic declines in new building. In Gloucester County, where some of the state’s fastest growing municipalities are located, West Deptford issued 410 building permits in 2005 but only 13 in 2007. Woolwich went from 387 in 2005 to 85 last year; Wildwood Crest, from 357 to 8.

The premier number cruncher in Jersey real estate is probably Jeff Otteau, whose Otteau Valuation Group in East Brunswick provides the most comprehensive real-time snapshot of the market. More than 10,000 industry professionals subscribe to his service. To determine a region’s relative health, Otteau compares the number of houses under contract and their prices with the number that remain unsold.

Using this formula, Otteau found that Morris County experienced a 3 percent decline in 2007 over 2006, while Somerset County slipped 2 percent, and Monmouth increased 2 percent.

Hudson County experienced a 4 percent slide from 2006 to 2007. Burlington County was down 18 percent; Salem 19 percent; Camden and Gloucester are down 17 percent each; and Sussex, down 10 percent.

Statewide, unsold inventory at the start of 2007 was 59,069 homes, climbing to 72,156 by June, then dropping back to 60,516 homes by year’s end. Some of the drop-off is explained by frustrated sellers pulling their houses off the market.

Another important indicator, Otteau says, is how long homes sit on the market. Otteau estimates it will take 15.6 months for all houses now listed in New Jersey to sell. At the end of 2006, that number was 10.6 months. In industry jargon, the “months supply” has gone from 10.6 to 15.6.
Sellers at the higher end will have to wait even longer. For houses priced $1 million to $2.5 million, he estimates months supply to be 23.7 now, compared to 19.2 at the end of 2006. For houses listed over $2.5 million, Otteau’s estimate is 67.8 months now, as opposed to 34.6 months at the end of 2006.

“We’re in bad shape here,” he says. “It’s as if somebody pulled the plug out of the bathtub and the demand is all draining out.”

Let’s pause for some perspective. For the last half century, housing in New Jersey has been the most reliable of all personal investments. As in much of the nation, New Jersey experienced a housing construction boom that coincided with the baby boom.

“We built 1,000 units per week, for 1,000 straight weeks, yielding 1 million new housing units from 1950 to 1970,” says Hughes, dean of the Bloustein School.

The current slump is not unprecedented. Following the post-war boom, construction leveled off and prices dropped as New Jersey hemorrhaged manufacturing jobs. With the rise of the corporate corridors in the 1980s and the influx of jobs at those swanky new headquarters, the market perked up. From 1980 to the peak in 1988, housing prices grew by 145 percent.

A sudden downturn—spurred by the Savings & Loan crisis and a softening job market—saw home prices drop by nine percent over the next four years. The market didn’t fully recover until 1998. From there until the latest peak in late 2005 to early 2006, housing values in New Jersey spurted 135 percent, Hughes says. As he sees it, when the current slump bottoms out in 2009 or 2010, values will have slipped about 9 to 10 percent—about the same as in earlier downturns.

That still leaves a lot of upside for longtime owners. “Senior citizens who have owned their homes for 20 or 30 years are getting a 350 to 900 percent profit ,” says Fishman, president of the New Jersey Association of Realtors.

A seller’s sorrow, of course, is a buyer’s boon. If you are buying with no property to unload, your time has come. Even if you are selling one house and buying another, the loss (compared to what you might have gotten at the peak) will be more or less offset by the extra house you can afford to buy. And with mortgage rates at near-record lows (assuming you are a good credit risk, not a subprime borrower) you can translate favorable financing into yet more house for your money.

Jeff Brito was able to take advantage of the down market. He had been renting a house in Toms River for two years when a realtor friend showed him a three-bedroom ranch last June that was “everything I wanted”—on an inlet of Barnegat Bay in Toms River, with a boat lift and a brand- new in-ground pool. The house had sold in 2003 for $835,000 (with additional property). It was now being offered in a “short sale”—an attempt by the owners to satisfy their lenders and salvage their credit rating. The asking price was $649,900. Negotiating with the owners and the two lending institutions, to whom the owners owed more than the property was currently worth, Brito watched the price go down and then offered $530,000. One lender, Citibank, accepted his bid immediately; the second, Countrywide, held up the sale for two months before accepting it.

In the intervening time other bidders offered more, but the owners decided to stick with Brito. In the end, he got a house in move-in condition. “I didn’t even have to lift a paintbrush. I was not actively seeking a house,” he says, “but when a deal like this comes along, realizing the market’s in a downswing, I had to capitalize on it because it’s not going to last forever.”

Jessica Rimmer and David O’Brien, just a few years out of college, plan to get married. To save money, they’ve been living with their respective parents. Last summer they started house shopping. In November they saw an attractive two-bedroom, one-bath ranch on an acre in Howell. The town had assessed it at $385,000. The listing price was $319,000. They offered $300,000.

“We put an offer in of what we could afford,” Rimmer says. “If it didn’t happen, it didn’t happen. We had nothing we had to get out of and no time restrictions.”

Their bid was accepted.

For sellers, the best advice is to take your medicine now unless you can wait out the sluggish market. Howard and Vanessa Rudd were unwilling to do that.

Last May they listed their 4-bedroom, 3 ½-bath, 2,900-square-foot house in Point Pleasant Beach for $1.1 million. They felt they were asking a fair price—less than what the town had recently assessed the house and the 100-by-110-foot corner lot for. The house attracted interest but no offers. In October, the couple pulled the listing and put plans to move to Rumson on hold.

“We were reluctant to start playing the game of dropping, dropping, dropping,” says Rudd. “Once you start that, everybody just waits for the free fall.”

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