Steady Progress in Homes Market

October 10th, 2009 by Don Sherblom

Three major forces are shaping the Hunterdon County, NJ homes market.

Interest rates on mortgages - The FED has been buying mortgage-backed securities to keep rates artificially low. (They were below 5% last week.) That program was to expire but the FED has extended it until March 2010, through the early Spring market.
Affordability of homes – Homes are 100% affordable when a median income household can purchase a median priced home. In 2006, the affordability of Hunterdon homes was only 81%. Today, the median income household earns 109% of what they need to buy a median priced home. That’s primarily the result of falling home prices and low rates. Affordability is key to any market.
Greater confidence about the economy - The sheer terror at another Great depression has been replaced with relative calm and a few small signs of economic recovery. For one, there was a very small increase on private sector jobs in New Jersey over the summer.

The inventory index is now better than anytime since the great real estate slump began in 2006, as you can see in the graph:

The Hunterdon inventory index shows the absorption rate for homes. It answers the question: At last month’s sales pace, how many months before every home was sold? The inventory is still too high for buyers to bid up home prices but it’s the lowest it’s been since 2005!

It’s not surprising that sales are slightly above previous Septembers, apart from 2005.

The noted, often quoted, appraiser Jeffrey Otteau’s current projection for when New Jersey home prices will reach bottom is shown in the graph below. He expects prices to be flat next year as we continue to work off inventory and to rise but very slowly in 2011 and the years ahead.