Based on the contracts volume for June, I’m very tempted to make a bottom call with respect to volume (but not prices) for Northern NJ.

History buffs will note that this blog started in September of 2005, with my call of a market top. While I was darn close on the volume and inventory predictions, the price prediction was off. While some areas saw price peaks during the Summer of 2005, many other areas saw prices continue to rise well into 2006. That said, take my calls with a grain of salt.

Based on the behavior we’ve seen in this area, it is clear that price and volume are not correlated. Therefore, just because we may be forming a volume with respect to sales, doesn’t necessarily mean we’re forming a bottom in prices. Remember what happened in California months back, prices cratered as contracts jumped. Seller capitulation? Large levels of low-priced distressed inventory hitting the market? Who knows, but we need to be vigilant.

The reason I’m hesitant to call a bottom is because my gut is telling me we may be seeing a late surge of buyers who held out for lower prices earlier this year. Recent fence sitters who sat out the Spring market hoping that prices would drop, but eventually making a move as Summer came.

Why?

First quarter Northern NJ contracts (GSMLS) were down 21.8% year over year, a very strong decline. The first month of Q2 saw some improvement, a smaller decline of 5.1% YOY. The final two months of Q2 saw good year over year gains, 6.1% and 14.4% (May and June respectively). My hesitation is because year over year contracts in the first half of the year were still negative, down 6.6%. So if I had to sum up my thoughts about this year, I’d say the Spring market started very weak, and finished very strong, but was still down on the year. So even though contracts are up sharply in June, we’re still seeing fewer buyers than last year.

If we see strong contracts again in July and August, I think it will be clear we’ve hit the bottom from a volume perspective. Barring some kind of significant economic dislocation (sharp spike in unemployment, significant credit event, etc), I think we might be close to the volume bottom.

It is worth noting that if we are bottoming, we’re bottoming at a volume level that is significantly under peak levels. Frankly, I don’t see volumes rebounding anytime in the near future. In my opinion an echo bubble in housing is extremely unlikely.

Also worth noting that many areas that saw increases in contract volume also saw significant drops in price (as defined by the last list price at the time of the contract).

The biggest contract jumps in June were in Sussex County, with contracts up 43.5% and in Passaic County, with contracts up 35.2%. Contract prices in Sussex were down to $274,922 in June 2009, from $359,405 in 2008, a decline of approximately 23% year over year. Contract prices in Passaic County were down to $334,737 in June 2009, from $386,827 in June 2008, a decline of 13% year over year. This behavior of increasing contracts along with declining prices is similar to what other states have been reporting.

Do not mistake my post as a sign that it is a “good time to buy”. Frankly, I don’t believe that to be the case and expect prices to continue to fall through the remainder of the year.