We Will See A Decline In Home Prices

Interesting piece from NJBiz, a somewhat in-depth discussion with Mr. Jeffrey Otteau:

Housing’s Summertime Chill
A stagnant market for homes could send prices downward
By Shankar P.

If anyone doubted that the state’s runaway housing market of recent years has turned into the Big Slowdown, the latest data from industry watcher Jeffrey Otteau should put such ideas to rest. His Otteau Appraisal Group reported last week that there were 71% more homes on the market in New Jersey at the end of April than at the same time last year. That left the state with a seven-month supply of unsold homes, more than twice the inventory on hand a year ago.

“Even I was surprised,” says Otteau, whose East Brunswick consulting firm has tracked the state’s housing market for 30 years and provides data to clients ranging from banks and Fortune 500 companies to local governments and relocation specialists. “The numbers do cause concern,” he says, “and if they continue, we will see a decline in home prices.”
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According to Otteau, 62,000 homes were listed for sale in the state on April 30, compared with 36,000 a year ago. While his data show a 10% increase in median home prices since April 2005, all of it came in the second and third quarters of 2005. Since then, “Home prices have been flat for the past nine months,” Otteau says.

He says they could start to fall this summer if the inventory of unsold homes continues to swell. Price erosion is already setting in at the higher end of the market. “The more expensive homes will stay longer on the market and [when sold] will lose value over the next five to six years,” Otteau says.
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Adding to high-end inventory is the fact that about 25% of all new home construction in the state is priced at $1 million and above, according to Otteau. However, he notes, the state has lost 119,000 high-paying jobs over the past five years. “Our economy is no longer creating those upwardly mobile, 35-year-olds with large salaries to buy these homes,” he says.
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Markets with the largest inventories of unsold homes include Cumberland, Middlesex, Somerset and Cape May counties. Cumberland had a five-year supply of homes priced from $600,000 to $1 million. Bergen, Burlington and Atlantic counties comprised the next largest tier of areas with unsold up-scale homes.

Otteau says homes priced in the $600,000-to-$1 million range have an average of 10 months of inventory across the state, while those above $1 million have an inventory of 14 months. For homes priced below $600,000 the supply of unsold units averages about six months.
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Otteau doesn’t foresee a repeat of the 1989 to 1991 housing bust when home prices fell an average of 15% statewide. If jobs and incomes grow, he says, home prices should stay unchanged over the next three years. But without such gains, he adds, prices could drop from 5% to 10% over the period.

Caveat Emptor!
Grim