From the Press of Atlantic City:
Public payroll swells, private sector shrinks, housing prices fall
A huge loss in high-paying private sector jobs in New Jersey could affect home sales along the shore while a corresponding rise in government jobs is also bad for the housing market because it drives up property taxes.
Those conclusions come from Jeffrey Otteau, whose Otteau Valuation Group Inc. tracks housing trends for the real estate market. His latest report, the 2007 Real Estate Forecast, contains some dire news about job trends.
“New Jersey has added 59,700 jobs since December 2000 of which 53,700 have been government jobs,” Otteau said.
The private sector has lost about 120,000 of the higher paying jobs in professional and business services, manufacturing, information and financial employment. From a real estate perspective, Otteau said this job loss equates to 31,000 home sales at $750,000 per house or 23,000 at $1 million per structure.
While the private sector overall added 6,000 jobs between December 2000 and November 2006, most of these are low-paying jobs. They don’t pay for second homes, although Otteau noted entry level housing for first-time home buyers is one of the few bright spots in his forecast.
…
The shore is at great risk here because it is the higher paying jobs that account for vacation-home purchases. New Jersey is losing these jobs, which will greatly reduce demand for vacation homes. A large portion of housing demand is second-home buyers,” Otteau said.
He tracked a 9 percent increase in government jobs, from 594,000 in December 2000 to 647,700 in November 2006. The average pay for the jobs is $53,941 per year.“The concern with the growth of government jobs is the cost of government, which passes through to property taxes. It further reduces housing affordability and holds the potential to drive more jobs out of the state. It sort of becomes a vicious circle,” Otteau said.
There is some good news for the shore. While there is a migration out of northern New Jersey, Otteau said Atlantic County is enjoying “an in-migration” due to the casino industry and southern Ocean County due to a population jump from seniors moving into age-restricted housing developments.
“South Jersey has a better forecast than North Jersey,” Otteau said.
His report also puts the housing market at “near bottom,” but he predicts first-time buyers reentering the market this year and affordable homes leading a recovery.
…
Otteau said New Jersey is not attracting businesses to locate here due to the high cost of living. This hurts the housing market. Otteau said another disturbing trend is college students from New Jersey are not coming back to live here.“That’s a big concern, because that’s the future of the housing market,” Otteau said.
He welcomes initiatives to reduce business and property taxes, but his report also notes high housing costs are part of the problem. He said housing affordability is chasing out jobs.
Housing costs have jumped 87 percent in the past five years while salaries rose 16 percent. The report says first-time buyers are being priced out of the market. Otteau projects somewhat of a correction with a drop in home prices of 3 percent this year.
The report shows contract sales were down statewide 17 percent in 2006 and building permits declined 18 percent. Unsold inventory and foreclosures rose. The state has the second highest housing costs and highest property taxes in the nation.
The forecast calls for fewer trade-ups and more remodeling. New homes will be smaller and rental demand will be stronger. He predicts fewer real estate agents.
The deepest price declines, Otteau predicts, will be luxury homes, urban condominiums, and age-restricted townhouses. He said the vacation home demand has been overestimated.
JB
This should be required reading for all
blogers.
What a disgrace this state is. an increase
in public jobs in the middle of all this
Property Tax relief talk. What a joke.
It’s no wonder that their is an exodus in
NJ. NJ, Welfare and you. Together.
I’m giving the real estate market till the end of this year to come down to reality. After that, I’m moving my family down south where I can make almost the same money and get a nice house for a reasonable price. I was just away in Jacksonville on business. Not that I’d want to move there, but what really struck me was how many young people were there. I’m 41. Coming back to work here, all I see is baby boomers who bought their houses 15 years ago. The next up and coming generation has already beaten us getting out of NJ.
x-underwriter,
I’m in a similar situation. My wife and I are expecting a child in 2 months. We are going to stick around until the end of ’07. If conditions don’t improve significantly by then, we are going to start looking down south. We checked out the Cary – Raleigh area. For $275 we can get a brand new house with about $3000 in property taxes. I would take a 10% salary cut, but on balance I come out way ahead
RentinginNJ and x-underwriter,
I hate to be bearer of bad news but prices will not crash. It will be a slow erosion of nominal price along with inflation eating at the price. Unless the ARM and subprime loans totally collapse the market, in which case you might be out of a job due to the chain reaction in the job market.
2010-2013 will be the time to buy at the bottom if the last bust was any indication.
Near bottom my @ss. Nobody was predicting when the top was going to occur nor did they expect it to go on for so long. I’m going to start low-balling towards the end of this year. Wait until you see how many fights I get into with realtors.
Credit is stretched beyond belief, the boomers will sell enmasse, the dollar will continue to weaken, the $1,000,000,000,000 in BS loans in 2007 alone will drive people to panic and he predicts we’re near bottom? Keep toking, pal.
Metro,
No one really knows for sure what is going to happen with prices. Although, I do tend to agree with you. I think 2007 will be frustrating for both buyers and sellers. So while I’m not expecting a crash this year, I’m not waiting forever to buy, but refuse to overpay in NNJ.
On the other hand, I just read an analysis from Gary Shilling from Jan. 07, who does expect a crash in 07.
I am with Shilling. The 1.3 Trillion Dollar ARM resets question has to play out, what we have gone through last year was just half of that amount.
I see 2008 going south though, that is when psychologically, reality will set in. I also think interest rates are going to go up due to the perceived risk in lending that is already in the bond market. But I am no finance expert, so just take what I say with a grain of salt.
Here’s my take… On one side you’ve got Shilling and Booya Bob and the other is Learah and the NAR. What’s actually going to happen is probably somewhere in the middle. For all the hand wringing we do here in NJ, it’s not even the most bubble prone market. Prices have always been high here and there are plenty of immigrants coming in from wherever that live several families per house. California, Nevada, D.C. and Florida are the places that are tanking right now. That’s where you had people making $30,000 going out and buying five houses at a clip. In NJ, the market’s always been so tight that you couldn’t do that kind of speculative activity. You couldn’t buy five houses if you tried. I think the real action, if any, is going to be in early summer. If people aren’t buying, sellers will start to get nervous as summer approaches and that’s when the price reductions are going to happen. Until then, the sales numbers will probably continue to be lower than last year but average prices won’t be coming down that much. So, analyzing the s**t out of the current numbers won’t amount to anything. Right now, they don’t really support a drastic decline in home prices but, I think they will eventually go down. Hopefully it will be later on this summer. If not, it’s adios!!!!
What are you blokes waiting for?
The sooner you leave NJ, the better your financial life.
I suspect your stress would go down as well.
Overall, NJ is a sad….sad.. state of affairs.
You young folk gotta leave this state, so the baby boomers (I am in that camp), can all circle the drain alone with this state.
SAS
I think the real action, if any, is going to be in early summer.
Shilling predicts the “crash” (his words, not mine) in June. He doesn’t believe the current consenus opinion that speculators have left the market. Rather, many saw 2006 as an anomoly, pulled their listing and will relist this spring. If the market is bad by June, he expects the panic to set in.
I, however, believe that reality, as you say, will fall somewhere between Shilling/Booya’s devistating crash and Liareah’s soft landing.
What are you blokes waiting for?
Family, mostly. Besides, we want to be close to our families when we have our first kid. After all, we are new at this.
Other than that, I promised my wife that we would try to make it work here first. She really wants to stay. We agreed that this time next year would be decision time.
RentinginNJ Says: We checked out the Cary – Raleigh area.
I hear ya. Everything I hear about Raleigh is good. If I look on Monster.com though, I’m not seeing a ton of jobs except in high tech. There’s plenty of that. I know Atlanta is a mixed bag nowadays but my wife’s parents just moved two hours outside of there. I just got an email from a headhunter there for the exact same job I’m doing now for the exact same pay. We’re going down in April to scout around. Alpharetta looks pretty good. $300K gets you an $850K NJ house. That place is a prime example of what happens when builders overbuild. There’s such a glut of homes on the market that I don’t know if it will ever catch up.
“Housing costs have jumped 87 percent in the past five years while salaries rose 16 percent.”
………What else do you need to know. Along with the burdensome taxes and quality high paying jobs fleeing, this camels back is broke. Real pain in 2008. The herd will get the message when they go thru another dismal spring selling season.
“In NJ, the market’s always been so tight that you couldn’t do that kind of speculative activity”
X-Underwriter,
I disagree. This speculation/mania was not a function of selling price but rather “basically” free money. As long as you can sell for 20% more it does not matter what the original price was. As a matter of fact, higher prices brings on more speculation. Would you rather flip a 600k house at a 20% profit or a 300K at a 20% profit. The work/time and $ put into the house is the same. I argue that higher prices bring on more speculation. It’s not like they had to put down 20%. What did the flippers care, get 110% financing, spend 45-60 days,paint, granite countertops and flip. That being said, I don’t think NJ is as bad as Fla and San Diego in that respect. However the flippers in NJ were rampant. How many houses that are currently listed are empty???
The drop in condos is already occurring, as are fringe (poor location) areas – true?
For those looking to buy a SFH prior to the bottom (whether the bottom is 2007 or 2010), it’s all about trying to get in after the greatest drop. There may be additional slide, but time is money too and there is some payback to amortization.
I think the first big drop (15-25%) has occurred in condos and new construction (with incentives) and the resale stickiness (and the still-buying uninformed or I-dont-care-what-I-pay buyer)is only masking what the general buyers want to pay – 25% less right now – therefore the stalemate.
So prices HAVE dropped – just noone is buying. Will there be another 25% drop in SFH’s or is the next drop more like 10% – bringing the total to 35% (or 2003ish)? I think we will see the realization of the initial drop this year – after inventory increases and the homes still sit.
To wait for an additional reduction of 10% – over 5-8 years – it may make sense to just get in for people who want to move ahead with their lives. In addition, you want to enter at a point when there is enough inventory to be able to pick and choose (something not possible for the last 3 years) – we are getting there now, but we need a 50% increase in inventory to really have choices. Summer 2007!!
An added bonus of this market is that the builders/remodellers/ home improvement providers are hungry increasing competion and choice to improve the great needs-some-work home you get that may need work. This will tighten up in 5 years when half go out of business.
Sorry for all the words but ome of you may have some similar thoughts.
X-underwriter,
I used to live in Hotlanta. Let me give you some warnings. Parts of Atlanta are awful, Alpharetta is quite nice though as is nearby Roswell. If you need a pizza fix, the only place I found in the three years I lived there, that was any good,(by NYC standards) was in downtown by Fairlee Poplar: Rosies. Southern food will make you fat and give you diabetes (but it is very good).
I too could relocate and find more money elsewhere but family and the inertia involved with two careers is somewhat difficult. My parents are talking of leaving just because of the fact that they are retired and are paying $15K a year in taxes.
I have my resume out to various potential employers in Nashville, TN. (Start redneck jokes now). Just waiting for the phone call to come on down for interviews. I will gladly take a 15% – 20% cut in salary to get out of the People’s Republic of New Jersey. I was watching Inside Trenton today on PBS. All on the panel were in agreement that nothing is ever going to change in this state. The only thing I can cnage is me.
Escape from NJ
I hope you like country music. Also it is a very different lifestyle in the south. Alot slower in the service sector. Just a warning that you may find culture shock.
Everything I hear about Raleigh is good. If I look on Monster.com though, I’m not seeing a ton of jobs except in high tech.
x-underwriter # 12,
Even in hi-tech, there’s a lot fewer opportunities than there are here in the greater NYC area. I was recently looking for a new job and had Monster/Hotjobs/Dice agents set up for this area and the Raleigh-Cary area. Note that my agents were based on a narrow specialty within IT. The ratio of ‘hits’ was about 10:1 between the two regions. Made me wonder.. I wouldn’t want to have to move back here after getting laid off down south. I’ve known people who have had to do that.
Metroplexal,
Last time I was in Nashville I had a great time at a Rock and a Jazz Club. The service was slow but I loved it. It is refreshing to find wait staff that pay attention to your needs. And it was culture shock, significantly less a-holes.
syncmaster Says:
I wouldn’t want to have to move back here after getting laid off down south.
I agree. I set up a Monster agent in Atlanta and nothing really came in. I’m in IT also. Here in NJ, I get 3 or 4 good hits per day. They’re mostly in NY though. I’m just not up for doing the 1.5 hours train ride. I work as a contractor at Chase Mortgage. They just went through a huge round of layoffs in IT. I guess since I’m still there, I’ll make it through the rest of the year…hopefully. Someone I know who just got laid off at the end of the year already found another job. I don’t think it would have been that fast anywhere else.
Escape from nj,
That is fine if you are in a restaurant but in a checkout line it will drive you nuts. Conversations get carried on in spite of it being your turn to get checked out.
As for Atlanta, the people are friendly too, until they get behind the wheel of a car.
Someone I know who just got laid off at the end of the year already found another job. I don’t think it would have been that fast anywhere else.
I agree, that’s the #1 thing holding me back. I have never had to spend more than 6 weeks looking for a job in NJ/NY. My friends/family/colleagues in the south, OTOH.. can spend months. Maybe with a tiny mortgage the 3-6 month long period of unemployment won’t matter much though.
I am a sidelined buyer but I have nearly given up hope on an NJ housing dip… but not entirely.
I went to college for business & economics so I get market dynamics.
Before I bore you with the details of my thinking let me just say I think that this market could go either way this summer – because much depends on how the media spins the sales numbers.
Real estate markets appear to be run by the “herd” not logic.
Logic would have halted price increases about 15% lower. My calculations are telling me if I look at my absolute (actual) tax rate of 18.6% – the tax benefit I get from owning a home doesn’t make up for the extra cost vs. renting.
The only incentive to own right now is the blind hope that housing appreciation doesn’t moderate to historical norms.
That is a bad bet in my opinion.
That wave may create the illusion of a bottom.
Calculate it yourself here:
http://www.dinkytown.net/java/MortgageRentvsBuy.html
remember to look at your W2 and figure your actual tax bracket – not the tax bracket from your tax form.
Also remember the more money you make the better option home ownership is… the less you make the less beneficial it is (excluding appreciation).
Sidelined Buyer,.
just my opinion,
The arm reset this year are the real indicator. if sellers are in trouble due to bad loans all bets are off and prices will come down because there will not be enough demand. I predict October to November is the telltale time and January of 2008 will carry the news either way. Personally, I think the market is going to be worse than the early 90’s and it will crash harder. BTW in 1994 I saw a 3bdrm house in Randolph from the 1970’s, splitlevel and 2 baths going for $169,900. So if you plan to stay in NJ, I believe prices will “correct”. How far is hard to say. But keep in mind that NJ is not and will not be what it was, sad to say…
The ARM resets will not be the big buzzsaw unless we get rates up at least 150 bps. on the back end of the curve. When the Ten clipped 5%+++ in 2006, I thought we were well on the way. I was wrong, but I may yet be right.
EDITS TO PRIOR NOTE:
I am a sidelined buyer but I have nearly given up hope on an NJ housing dip… but not entirely.
I went to college for business & economics so I get market dynamics.
Before I bore you with the details of my thinking let me just say I think that this market could go either way this summer – because much depends on how the media spins the sales numbers.
Real estate markets appear to be run by the “herd” not logic.
Logic would have halted price increases about 15% lower. My calculations are telling me if I look at my absolute (actual) tax rate of 18.6% – the tax benefit I get from owning a home doesn’t make up for the extra cost vs. renting.
The only incentive to own right now is the blind hope that housing appreciation doesn’t moderate to historical norms.
That is a bad bet in my opinion.
Calculate it yourself here:
http://www.dinkytown.net/java/MortgageRentvsBuy.html
remember to look at your W2 and figure your actual tax bracket – not the tax bracket from your tax form.
Also remember the more money you make the better option home ownership is… the less you make the less beneficial it is (excluding appreciation).
P.S. I think we could see a wave of buyers hit the market this summer… there is a pent up desire for home ownership by many people… just like the many people that have posted hear.
There will also be more homes listed this summer. It’ll be an interesting study of supply & demand.
I’m most curious as to what happens after that wave of pent up buyers completes real estate transactions… then what??/
Realtors’ economist stayed sunny all year
Commentary: David Lereah saw bottom in first quarter, second quarter …
By Rex Nutting, MarketWatch
Last Update: 5:31 PM ET Jan 25, 2007
WASHINGTON (MarketWatch) — There are two universal truths at the National Association of Realtors: 1) It’s always a good time to buy or sell a home; and 2) We’ve seen the worst of the housing market correction.
The second truth was in the script used throughout 2006 by David Lereah, chief economist for the NAR, even as sales plunged by 8.4%, the fastest decline in 17 years. See full story.
With annual sales of 6.48 million, 2006 was the third best ever, but after five years of steady increases, it was a rough year for the industry. Through it all, Lereah never stopped smiling.
At the beginning of 2006, Lereah was projecting home sales would fall about 4.4% to 6.79 million. In the end, however, the decline was about double what he’d projected. For 2007, Lereah is currently projecting a decline of about 0.9% to 6.42 million.
Here’s what Lereah was saying throughout 2006 and into 2007, and what the market was doing.
January 2006
Lereah’s forecast: “The market is in the process of normalization.”
Actual sales: Fourth-quarter sales fell at an annual rate of 12.6% to 6.94 million annualized.
Lereah’s post-mortem: “The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead.”
April 2006
Lereah’s forecast: “Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau.”
Actual sales: First-quarter sales fell at an annual rate of 8.6% to 6.79 million.
Lereah’s post-mortem: “This is additional evidence that we’re experiencing a soft landing.”
July 2006
Lereah’s forecast: “The market should even out just below present levels.”
Actual sales: Second-quarter sales fell at an annual rate of 6% to 6.69 million.
Lereah’s post-mortem: “The market is stabilizing.”
October 2006
Lereah’s forecast: “We expect sales activity to pick up early next year.”
Actual sales: Third-quarter sales fell at an annual rate of 22.2% to 6.28 million.
Lereah’s post-mortem: “This is likely the trough in sales.”
January 2007
Lereah’s forecast: “The good news is that the steady improvement in sales will support price appreciation moving forward.”
Actual sales: Fourth-quarter sales fell at an annual rate of 2.3% to 6.24 million.
Lereah’s post-mortem: “It appears we have established a bottom.”
Conclusion
It’s unfair, of course, to single out Lereah’s forecasts. He wasn’t the only economist who was surprised by the extent of the collapse in housing in 2006; some were just as wrong on the other side by predicting the housing bust would bring down the whole economy.
But Lereah was the only one who presented his opinions alongside an economic indicator that’s treated as an objective gauge of the housing market. Along with his bully pulpit comes extra scrutiny.
Lereah was traveling on Thursday and unavailable to comment. The senior economist at the NAR, Lawrence Yun, said in an interview the most recent sales trends show almost no movement up or down since August or September.
“In hindsight, we did not anticipate how strong the demand from speculators had been,” Yun said of their 2006 forecast. “Now, with the speculators out of the market, and with low mortgage rates and steady job growth, we anticipate an improvement in sales.”
It’s possible that Lereah may be right, finally. The bottom must come some time, why not now, some 19 months after the bubble peaked?
But it’s also possible we could be far from the bottom, as in the housing bust of 1978-1982, when it took 42 months for the market to recover.
If so, it could be a long year for David Lereah.
Rex Nutting is Washington bureau chief of MarketWatch.