From the Asbury Park Press:
Expect at least another 18 months for the state’s economy to heal from the bursting of the subprime mortgage bubble. But demand for homes could start to creep up again in six months.
That’s the forecast of Joel Naroff, chief economist for Commerce Bancorp, who spoke to about 75 people at an Ocean County Business Association luncheon here Thursday.
“Really, it’s the issue driving a lot of the factors causing the economic problems in the country and local areas,” Naroff said.
Since mortgage lenders started overextending themselves by handing out loans to people who couldn’t afford to pay them off, the housing crisis has been working its way through a corrective cycle, Naroff said.
We’re in a sellers’ denial phase, in which homeowners are reluctant to sell based on a false hope that the price will go up, he said.
“We’re beginning to see a softening as prices come down,” he said. “But they’re not coming down nearly enough, because sellers can’t come to terms with dropping prices enough to clear the market.”
The median sale price for an existing single-family home in Monmouth, Ocean, Middlesex and Somerset counties was $385,100 in the second quarter of 2007, down 0.1 percent, or $200, from $385,300 in the same quarter last year, according to the National Association of Realtors.
Once prices become sufficiently low, the next phase kicks in: buyers’ denial, in which those looking to purchase wait on the hunch that the prices will continue to fall.
A glut of homes will be left on the market, a lot of supply with little demand. The next phase is working off the inventory brought on by foreclosures.
“What that tells you is this cycle has a very long time to run its course. How long depends on the specific market,” Naroff said. “But nationally, I’ll not be surprised to see problems into spring 2009.”
“I think 2008 should be a sluggish year, but not a terrible year,” Naroff said. “I see a cautiousness, not a recession.”
In the meantime, as banks and the government realize the error of their capricious lending behavior, New Jersey is experiencing a credit crunch.
“So when you came into a financial institution in June and they said, “OK, we’re willing to take a risk with you,’ now they won’t even look at you,” Naroff said.
Such a reversal to caution has stunted business growth. This is compounded in New Jersey by a series of financial hangups — particularly a state budget deficit competing with pressure to lower taxes — that won’t allow it to invest, as other states have, in an infrastructure that generates commercial prosperity, Naroff said.
Business owners at Thursday’s luncheon said they have witnessed this stagnancy.