From the Courier Post:
An economist and a consultant painted a less than rosy picture of the fiscal health of New Jersey and the people who call it home during an annual look at the recent economic outlook at the Atlantic Builders Convention.
The genesis of the crisis followed the 2001 recession and the aftershock of 9/11, when the federal interest rate reached 1 percent, the lowest ever, spurring a boom in the housing market.
“That fueled a boom with its irresponsible lending and borrowing on a national scale. The market promised to keep going and going and going like the battery bunny,” said Joseph Seneca of the E.J. Bloustein School of Public Policy at Rutgers University.
The increase in income came nowhere close to the increase in home sales, putting things out of joint, Seneca said. “In the long run, they need to be equal.”
At the same time, employment growth in New Jersey was tepid, gaining an average of 23,300 new private sector jobs between 2004 and 2007, a third of the annual gains between 1992 and 2000.
By the end of 2005, first-time buyers stopped buying. “The market came to a screeching halt,” said Jeffrey G. Otteau, of the Otteau Valuation Group Inc.
If newcomers don’t buy a starter home, the seller has no money to buy a larger home and up the food chain it goes, Otteau said. Inventory rose, prices fell.
“What began as a housing slowdown in 2006 turned into crisis by the end of 2007,” Seneca said.
The result was a rise in foreclosures and mortgage payment deficiencies, as well as credit paralysis, where worthy borrowers cannot obtain credit even with falling home prices. Camden had the highest rate of foreclosure in the state between 2005 and 2007.
The last time the housing industry fell this much — in 1988 — it took 10 years to recover. The housing market is not close to the bottom of the cycle, Otteau said.
“The pace of home sales in 2008 is the weakest in the last four years. And a correction still has a year to run at least,” he said.
In New Jersey, there are 70,000 houses for sale now. Four years ago at the same point, it was 30,000. Otteau shattered the myth that the upper end of the market is immune. “The deepest decline in pace and sales strength were the brightest parts a year ago,” he said.