From the Otteau Valuation Group:
SALES REBOUND IN MAY BUT STILL LAG LAST YEAR
Contract-sales in New Jersey increased by 1,090 homes in May, a 14% increase, above the April level as the housing market continues to struggle with low buyer confidence and an increasing inventory of unsold homes. Despite the increase in May sales however, that was 6% less than May 2006. So far in 2007, year-to-date contract sales are running 4% lower than the same period last year which equates to 1,800 fewer home sales.
Compounding the lagging sales pace is that unsold inventory now exceeds 71,000 homes, the highest on record for New Jersey. The prior record was 68,000 reached in September 2006. Based upon seasonal housing patterns it is likely that unsold inventory will continue to increase for several more before receding later in the year. The present supply of 71,000 represents an 8-month supply as compared to a 7-months one year ago.
The New Jersey housing market has been stalled for several months now following increasing sales earlier in the year. That this is occurring in the face of low mortgage interest rates, a reduction in home prices, increasing worker salary and fewer new home construction starts is evidence that the current slowdown is deeply embedded and not likely to reverse soon. Part of the reason is that concerns about sub-prime mortgage delinquency are sending shock waves through the housing market by causing mortgage lenders to tighten loan approval standards and at the same time creating uncertainty in the mind of potential home buyers. As a result, many buyers are either unable to obtain affordable financing or have put their home-buying plans on hold out of concern about this issue. The facts however suggest that the ‘bark is bigger than the bite’ on this topic as actual foreclosures in New Jersey are few in number and have been steadily declining over the past several months. 270 in March, 162 in April, 147 in May. Even more compelling is to consider these figures within the context of 71,000 homes for sale and you can see that any real impact on the housing market to date is insignificant. The problem comes from the counting of foreclosure activity which has been dramatically overstated, casting a dark shadow over the housing market. Some relief on this issue will come later this month, largely as a result of criticisms in this newsletter, as counting methods will be revised to reflect more accurate figures (read more about this story at the following link – RealtyTrac to revise formula).
Any benefits of the recounting however will likely come too late to avoid a further decline in home prices as the housing market now faces the additional challenges of rising mortgage interest rates and the likelihood of a further slowing of sales pace during the approaching fall and winter selling seasons. As a result, any significant recovery will likely be pushed off until 2008 at the earliest. Given the current situation, home sellers should understand that Right-Pricing! will take on even greater significance in coming months. From the buyer’s perspective, rising mortgage rates and increasing seller flexibility will present significant opportunities during the 2nd half of the year that will likely disappear in 2008.