_[This monthly market report is provided by Jeffrey Otteau of the [Otteau Appraisal Group](http://www.otteau.com/) in their November eNewsletter. Jeff also authors a series of widely followed quarterly [market reports](http://www.otteau.com/The_Otteau_Report/the_otteau_report.html) on the New Jersey real estate market. This information is collected from various sources including Boards of Realtors and Multiple Listing Systems in New Jersey.]_

I have known Jeff for many years and consider him one of the leaders in the real estate appraisal profession. He has taught me a lot about quantitative real estate market analysis. _-Jonathan Miller_

OCTOBER SALES TREND HIGHER

The New Jersey housing market improved in October as home buyers took advantage of recent declines in home prices and lower mortgage rates. In October, contract-sales jumped 10% after being down by 20% through the first 9 months of 2006. That this improvement occurred at a time when seasonal trends traditionally bring a decline in purchase activity is significant. Also, the number of unsold homes on the market declined by more than 4,300 houses in October, reflecting a 6.4% decline overall from the September inventory level.

According to Freddie Mac’s Primary Mortgage Market Survey® (PMMS®), the 30-year fixed-rate mortgage (FRM) averaged 6.14 percent for the week ending November 30, 2006, which is lower than the 6.26 percent rate of one year ago. Also contributing to the October sales performance was continued job creation with more people now working in New Jersey than at any time in history, falling energy prices which affect both home heating and commuting costs, and rising wages resulting from the tight employment market.

A closer look at Unsold Inventory indicates an overall supply of 8.9 months, down from 10.4 months in September. One year ago, Unsold Inventory reflected a 5.5 month supply. When analyzed by home price, the market continues to show the greatest strength below $600,000 with a 7.9 month supply as compared to 19.4 months above $1 million and 45.2 months above $2.5 million (see table at right).

The improvement in the housing market is a direct result of the gain in housing affordability outlined above and makes a strong argument that the current housing slump is more correction than crash. Housing affordability suffered greatly from 2000 to 2005 during which time salaries in New Jersey rose only 16% as compared to an 87% increase in home prices. Given the recent gains in housing affordability outlined above it appears that the market may be approaching the balance point at which recovery will begin. Look for first-time buyers purchasing starter-homes to be the first segment to recover, following which the recovery will spread to the other market segments. However, the current sensitivity to both home pricing and housing affordability will prevail well into the recovery cycle ensuring that home prices will remain relatively flat once the decline subsides. Therefore, Right-Pricing! will remain essential to successful home marketing well into 2008.

_Here are 2005 annual stats._


One Comment

  1. Rich In NNJ December 6, 2006 at 9:53 am

    I think Mr. Otteau may be slightly over-optimistic. Especially when he refers to the economy and New Jersey’s specifically.

    “Also contributing to the October sales performance was continued job creation with more people now working in New Jersey than at any time in history, falling energy prices which affect both home heating and commuting costs, and rising wages resulting from the tight employment market.”

    Everything I’ve been reading has shown that nationally wages have not kept pace with the cost of living (not sure about NJ) and jobs in NJ are not increasing but have been on the decline. (I REALLY should have links to articles as some form of data should be supplied to back up statements… but I don’t have time.)
    Opinion: I believe that any job growth has been in low wage service jobs.
    Also, the statement “more people now working in New Jersey than at any time in history…” wouldn’t that be true due to the population? If Mr. Otteau said it was a percentage of the population the statement would have more weight with me.

    But I believe Mr. Bednar gives a better critique in the comments section of his “coverage” of the stats over at his New Jersey Real Estate Report.
    NJRER: 2006 October Otteau Report
    Scroll down to the comments section.

    Sincerely, Rich

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