From the Otteau Group:
NOVEMBER SALES SUGGEST HOUSING MARKET BEGINNING TO STABILIZE
November home sales declined only slightly from the October pace reflecting more of a seasonal trend than a slump for the New Jersey housing market. In November, contract-sales declined by 10% from the prior month suggesting that the housing market is beginning to gain traction and may be nearing the end of its current slide. By comparison, the month-to-month decline in contract-sales one year earlier in November 2005 was 17% which went beyond a normal seaonal decline and reflected the housing slump that has been gripping the market for the past year.
Upon comparing the November sales pace to November 2005, contract-sales were off by only 6% which is the lowest decline for all of 2006. By comparison, monthly home sales were off by 19% from January through October and a whopping 23% during April through September, which were the worst months of the market correction.
From an Unsold Inventory perspective, the number of homes being offered for sale declined for the 3rd straight month with a reduction of 5,000 homes in November alone. Despite these encouraging signs however, Unsold Inventory now stands at 9.1 months based upon the November sales pace, indicating that home prices will not increase any time soon. By comparison, there were 6.3 months of Unsold Inventory one year ago and 10.4 months in September 2006. Therefore, the improvements in the housing market over the past two months signal more ‘bottoming-out’ than ‘recovery’.
There is however cause for cautious optimism as continuing low mortgage rates, new job creation and rising salaries are creating additional demand for home sales. Based upon these factors, coupled with the improved market performance of the past two months, it appears that the adjustment in the housing market will be more Correction than Crash. However, new home-builders and home-sellers alike would be wise to recognize that recent improvements are driven primarily by lower home prices which have restored a measure of affordability for home buyers. Thus, any attempts to increase prices during the early phases of market recovery will likely be unsuccessful. Therefore, Right-Pricing! will remain essential to successful home marketing.
I recieved this email last night and could’nt wait till you posted, the comments on his comments will be interesting.
The downturn from Oct to Nov was less than usual so that’s an upturn?
KL
Contracts are still moving downward, albeit at a lower pace. I think it is important to note that we are still trending downward, and not just because I’m cherry picking the negative. Jeff’s graph clearly represents this.
Yes, I agree that the pace of the decline is beginning to moderate, but we are still trending downwards. You can’t compare contracts year over year unless you take into account cancellation rates. While I’ve seen anecdotal evidence that points to higher resale contract cancellations, I’ve not been able to put together a meaningful dataset to support the argument that cancellations are higher this year, so take that with a grain of salt.
I’m sure I’ll be making the stabilization call sometime mid-year next year. However, I’m not going to make that call until I see at least a quarters worth of closed sales equal with the prior year. Or contract-sales equal year over year for the same length of time, with the caveat that the cancellation rate isn’t significantly higher than the prior period.
Just a note, this is sales volume only, nothing to do with pricing.
jb
There is however cause for cautious optimism as continuing low mortgage rates, new job creation and rising salaries are creating additional demand for home sales.
That’s a mighty big “if” scenario.
Rates are 50/50 in either going up or down.
Job creation? In New Jersey? Maybe a job at the mall.
Will salaries rise THAT much to meet the median home price?
The sales slow down started last year around October. The question is what would be a “normal” amount of sales for November? 1999, 2000, 2001..?
Bergen County SFH, Condo, Co-op & Twnhse
Year Sales UnderContract
1999 739 698
2000 703 735
2001 639 788
2002 691 744
2003 778 784
2004 851 861
2005 761 703
2006 604 715 as of 12/07/06
Rich
The main question really needs to be – are prices affordable for the standard first time buyer in New Jersey? They are the only ones who can jump start the housing market.
I would say no.
“are prices affordable for the standard first time buyer in New Jersey?”
if by saying the standard first time buyer you mean median income households i would say absolutely not. unless of course you are willing to buy something pretty nasty.
then there is the matter of those that make somehwere above the median income who just cant come to terms with buying the overpriced shack. Homeownership needs to be appealing and affordable.
#4
i agree first time buyers are priced out and can only hope to afford by using arm/io type loans and if we see a tightening of lending standards or a consumer who begins to realize these mortgage products are risky it could cool nj markets even more
does anybody know what the historical ratio is for median income to median price is? in nj of course
So the prospect of a stabilization in the housing market a year or so off might suggest (to call up some foggy Econ 101) a real shift in the demand curve, setting a long-term equilibrium at a new (and higher) equilibrium? That is, “this time is really different,” as many of the bulls would suggest? It would seem that a return to historical benchmarks –either as measured by rent/own ratios, housing against the inflation rate or housing against purchasing power–would require a fall in prices in real terms over 3 to 5 years. Comment?
James Bednar Says:
Just a note, this is sales volume only, nothing to do with pricing.
grim: EVERY SINGLE article I’ve see has completely ignored this important aspect. Whether it is intentional of not, I have no evidence.
Trolls around here accuse us of groupthink. Calling the bottom of the NJ RE market [or any market] soley based on the “cherry picked” metric of VOLUMES reeks of the same “confirmation bias”.
#5 – Yes I would mean median wage households. Lets say $75k ish and looking for something in the range of $300k which is 4 times annual salary, a bit high but typical of this area.
Thing is, those homebuyers are right now scared of buying in and having prices drop further. Therefore they are looking for houses they can live in comfortably for a large number of years, not for entry level trade up houses and I/O’s are losing their appeal to this group (at least the semi sensible ones),
$300k currently gets a condo or a 70 year old 1 bedroom shack that needs another 150k of work to make it habitable, neither of which fits the parameter. And I’m not focusing on “top towns’ either, just removing the horrible ones.
That would suggest to me that there is still quite a way to go.
Is worst over for housing?
Vote: http://www.msnbc.msn.com/id/16381406/
2007 will get worst !!!
Subprime Meltdown!
http://www.paperdinero.com/BNN.aspx?id=78
New Home Sales: Northeast Meltdown Continues!
Today, the U.S. Census Department released its monthly “New Residential Home Sales” report for November showing continued weakness to the nation’s new home market most notably in the Northeast region where sales were down an astounding 42.4% as compared to November 2005.
Generally reported as showing “strong” signs of market “stabilization”, the report does, in fact, show an increase to the median and average price for a new home but as we all are well aware, the significant incentives that home builders have been offering are NOT reflected in this report so the price movement is a bit of a “red herring”.
Additionally, the report showed significant increases to inventory and months supply on a year-over-year basis.
http://paper-money.blogspot.com/2006/12/new-home-sales-northeast-meltdown.html
I suppose I’m just too simplistic in my thinking. I am renting a beautiful waterfront place that would cost me at least twice as much per month/year to own, all tax considerations included, at the same time as its sale value is flat. Now, that’s benefit to me.
Bitter renter? Not likely, since I bought my first house in 1972 and, after owning continuously, sold my sixth in 2005.
What I have not seen to date is any rational argument for buying a house when sale prices are not rising and the cost of renting is half or less. Until there is such, or until prices reach the long-term mean, I’ll remain a renter.
“James Bednar Says:
Just a note, this is sales volume only, nothing to do with pricing.
grim: EVERY SINGLE article I’ve see has completely ignored this important aspect. Whether it is intentional of not, I have no evidence.”
Actually – the NAR November ’05-’06 data released this past week shows not just sales volume but also prices, which in the NE rose in November.
I’ve posted graphs and a link to the spreadsheet at my site:
(Edited, link removed, advertising is prohibited)
Actually – the NAR November ‘05-’06 data released this past week shows not just sales volume but also prices, which in the NE rose in November.
Don,
True, prices have made a small jump from the previous month, but year over year they are down (as are sales). Many housing “bulls” have pointed out at the beginning of this downturn that one month of data does not mean the market is dropping. We’ve had a few months of price drops and “bears” have said “here we go”. I feel both are wrong simply by using history as a guide. Historically, it’s too early to call the beginning of the decline or the bottom of the decline, let alone a market rebound.
Though you’ve only been in real estate a whole “decade” I’m sure you remember what the market was like five year prior to your career choice. You do remember…?
Rich