No, really, which way is up?

From the Trenton Times:

Housing’s mixed bag

No doubt, the New Jersey housing market has seen better days.

But while home prices across the country continued to plunge during the last three months of 2007, New Jersey has shown surprising resiliency, according to quarterly housing data released yesterday by the National Association of Realtors.

Atlantic County was one of only 11 metro areas in the country (out of the 150 areas surveyed by the NAR) that showed a double-digit annual price gain, rising more than 10 percent in the fourth quarter, to $278,800, compared with last year. And Mercer County was one of only 12 that showed an increase of 6 percent or more.

“We have the second-highest income in the country, which creates a higher level of earnings,” said Jeff Otteau, president of the Otteau Valuation Group, a leading real estate research firm based in East Brunswick. “The demand for housing in New Jersey, even in a down market, is much higher than other parts of the country because we have the highest population density in the world.

“And we are at Manhattan’s doorstep.”

Nationally, existing-home sales — which generally account for 85 percent of all home sales — dropped nearly 20.9 percent in the quarter from October through December, while the median price of a home dipped 5.8 percent, to $206,200, from $219,300, according to the National Association of Realtors.

It was the steepest price drop ever recorded by the national real estate trade group, which has been compiling the report since 1979. In the Northeast, home sales fell 18.2 percent during the fourth quarter, and the median price of a home fell 4.8 percent.

But while New Jersey looked strong in the report issued yesterday, there are some skeptics. Otteau said the housing picture in New Jersey is not quite as rosy as the NAR numbers seem to reflect.

A few weeks ago, Otteau released his own market data, which showed home prices in New Jersey were flat in the fourth quarter of 2007 compared with last year.

To confuse matters even further, the S&P Case Shiller Home Price Index, another popular and widely used home price metric, painted an even gloomier picture of New Jersey’s housing market.

According to that index, for example, home prices in Atlantic County and Mercer County actually fell 6.5 percent and 7.66 percent respectively during the third quarter, while the NAR showed a rise of 5.6 percent and 6.16 percent during that same time. (The S&P Case Shiller index lags the NAR numbers by one quarter)

“How does that old saying go? A man with two clocks never knows what time it is,” said James Bednar, a real estate expert and author of the popular housing blog the New Jersey Real Estate Report. “It seems the current issue is which index should we use to measure the market. They all seem to be telling a different story.”

Sean Maher, a housing analyst with Moody’s, said the S&P Case-Shiller index is constructed by matching the prices of homes sold in the latest month with their sales prices when they previously sold in the past. The NAR index simply aggregates the median home sales price and is influenced by underlying mix of properties being sold.

As a result, the two indexes measure two very different things, Maher said.

“Basically, the NAR data looks stronger because you are not comparing the same basket of houses from year to year,” Maher said. “Lower-income households are in less of a position to buy right now, so only the more expensive homes are really selling.”

Still, while New Jersey’s housing market has seen better days, it has generally faired much better than the national average.

Home prices in the Newark-Union area, which includes Essex, Hunterdon, Morris, Sussex and Union counties, for example, rose 5.3 percent, to $435,800, according to the latest home-price data released by NAR. And in the Edison area, which includes Middlesex, Monmouth, Ocean and Somerset counties, home prices rose 0.5 percent, to $370,300.

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9 Responses to No, really, which way is up?

  1. Nom Deplume says:

    I am considering buying, but with great trepidation. As a tax attorney, and one that works on muni bond finance, I know that NJ has a ticking debt bomb, and that, despite what we hear from Trenton, property taxes have nowhere to go but up, and likely up sharply in the coming years. This comes about as munis get less state aid from Trenton, and unfunded liabilities (pensions, debt service) continue to grow and come due.

    Further exacerbating the problem will be the fact that NJ will likely lose higher net worth taxpayers (right now, everyone that works in Trenton lives in Bucks Co. PA) as taxes and retirements cause capital flight to NY, PA, CT or beyond.

    The rational buyer would, therefore, demand price concessions to offset the future tax effect on the overall cost of housing, or stay in rental housing so as to avoid the effects of a market downdraft and higher RE taxes. But if NAR is to be believed, buyers are not doing that, particularly in the Newark area. And when we see that Bednar’s Lowball Index has skyrocketed, it is hard to believe the NAR data.

    Just my $0.02

  2. Jay says:

    Nom, I hear you. My sentiments exactly. Buying in NJ means willingly taking on a portion of the state’s current and future liabilities. A scary prospect.


  3. anon says:

    so…if one was looking to buy now, is there any way to hedge against future tax increases?

  4. curiousd says:

    yes, sell real estate in nj, buy in delaware.

  5. Mitchell says:

    My guess is the next bubble to burst will be the reality that you cant bank on your salary always increasing especially when an economy is in or close to a recession.

  6. RentinginNJ says:

    so…if one was looking to buy now, is there any way to hedge against future tax increases?

    Get a government job. If taxes go up, Govt workers in NJ will complain about the cost of living and demand raises to keep up with the cost of living. So far they have been very sucessful.

  7. IVV says:

    Wait… “highest population density in the world”? Well, NJ is the state with the highest population density in the nation. So, I guess it’s the US state with the highest density in the world, but… ain’t no way its density is greater than Monaco or Singapore. Or Manhattan, even. Weird statistic.

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  9. Sidelined home buyers frozen by fears
    By Julie Haviv
    Sat Feb 16, 7:16 PM ET

    NEW YORK (Reuters) – Home prices have plunged by 10 percent or more in some parts of the United States and interest rates on mortgages are at enticing levels, but many potential buyers are waiting for prices to fall further.


    This psychology is helping prevent the hard-hit home market — suffering one of its worst downturns in history — from recovering, just as the spring, the peak home buying season, gets underway.

    Rochelle Getzler, a housewife in Nassau County, outside New York city, and her husband, Abraham, have been on the fence for nearly a year, waiting for an opportune time to buy.

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