Eileen Monesson
PRCounts, llc

The economists who presented the Economic Forecast at the 2012 Atlantic Builders Convention delighted the audience with their upbeat forecast on New Jersey’s housing market for 2012 and 2013. Anika Kahn, Senior Economist, Residential Construction, with Wells Fargo; JoelNaroff,Ph.D. President of Naroff Economic Advisors; andJeffrey Otteau, President of Otteau Valuation Group, Inc. all agreed that the housing market is improving at a modest pace. Otteau stated there was a 10.3% increase in the demand for houses selling at a price under $400,000 in the second half of 2011 and a 33% increase in the first two months of 2012. He projects a 25% increase in new home starts by 2013 and a full, but modest, recovery in New Jersey by 2015.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index revealed that U.S. housing starts in February were on pace for nearly 700,000 annually compared to 518,000 in 2011. Kahn added that “housing starts are expected to reach 800,000 next year, a nearly 15 percent increase, but still below the 1.5 million housing starts needed for a full recovery.” Nationwide, new home sales are up 11% as of February compared to the same period in 2011, according to the Commerce Department.

“Year-to-date home sales in New Jersey are stronger than in the past four years and are outpacing purchase contracts in 2010 when homebuyer tax credits were available. This suggests that the demand for housing is rising and should be long lasting. February 2012 purchase contracts in the Garden State increased by 28 percent compared to the same period in 2011,” stated Otteau. Furthermore, unsold housing inventory in New Jersey is at its lowest point in three years (12.3 months compared to 16.8 months in 2011).

“Home buying will be fueled this year by growth in the job market, as well as more affordable housing prices and mortgage rates below 4 percent,” added Otteau. He predicts that home prices will be flat in 2012, after falling almost five percent statewide in 2011. Otteau does not expect home prices to return to their 2006 market peak until 2020. The average price of a home in New Jersey fell 26 percent from its high in 2006 and is currently at the same level as in 2003.

As of March 1, 2012, The Department of Community Affairs (DCA) and New Jersey Housing and Mortgage Finance Agency (HMFA) can offer qualified first-time homebuyers and Urban Transit Area borrowers a 3.75 percent fixed-interest rate for a 30-year mortgage (no points). On the open market, the average commitment rate for a 30-year fixed rate loan is 4 percent. HMFA has $170 million to lend which will fund approximately 1,000 conventional mortgages. In addition, HMFA will lend members of the New Jersey Police and Firemen’s Retirement System (with at least one-year of creditable service) money to purchase an owner-occupied principal residence at 2.88 percent for a 30-year mortgage.

Nevertheless, Fannie Mae and Freddie Mac announced that they plan to raise the fees on mortgage applications in April. These government-controlled mortgage buyers own or guarantee about half of all U.S. mortgages and 90% of new loans.

Though the housing market is somewhat stronger, the health of New Jersey’s housing market ranks near the bottom (47 out of 49 regions), in the nation as stated in the Healthiest Housing Index from LendingTree LLC. The health of each state’s housing market is determined by its unemployment rate, foreclosure percentage, debt-to-income ratio, home ownership and vacancy, percentage past-due, loan-to-value ratio and equity. New Jersey’s higher unemployment rate (9 percent compared to the national average of 8.3 percent) played a significant role in its ranking. “A very weak job recovery and increased job insecurity reduced consumer confidence and stalled spending,” added Naroff. “Now the cycle is beginning to turn positive as people become more secure in their jobs and credit is becoming more available.”

Data issued by the Philadelphia Federal Reserve Bank indicated that New Jersey’s economic growth has improved at a slightly faster pace than the nation in the fourth quarter of 2011 (0.8 percent compared to 0.7 percent). New Jersey had a net gain of 33,400 private-sector jobs in 2011 and has already gained 17,400 jobs in January and February 2012.

Knowing the significant impact that the foreclosure crisis could have on the housing recovery, the New Jersey Builders Association (NJBA) formed a Foreclosure Task Force to develop a solution. NJBA worked with Senator Raymond Lesniak and Assemblyman Jerry Green to introduce the “New Jersey Residential Foreclosure Transformation Act” which would establish the Foreclosure Relief Corporation as a temporary entity within HMFA. The new corporation would help municipalities meet their affordable housing obligations through the expedited purchase of abandoned, foreclosed homes by municipalities using their previously collected, but unspent, COAH funds. This idea is supported byfair housing advocates, municipalities and the environmental community.

There are signs that a recovery in the housing market has started. The Mortgage Bankers Association reported in early April that commercial and multifamily mortgage originations were up 55 percent in 2011 compared with the previous year, with lenders closing on a total of $184.3 billion in loans. However, there are also some barriers that may impede a recovery. The Associated General Contractors of America, for example announced that producer prices for construction materials increased by 1.4 percent in March and are 3.8 percent higher than in March 2011. Contractors have not been able to pass the costs along to developers or homebuyers, putting a greater number of companies and jobs at risk.

The terms bull market and bear market describe upward and downward trends, respectively. The construction industry has been in a bearish or down-ward moving secular market for the past five years. Has the market hit the bottom suggesting the end of a downturn and the beginning of an upward moving trend or bull market? Many economists think so but caution that a recovery is largely reliant on what happens with the foreclosure market, consumer confidence and job growth. Programs such as the New Jersey Transit Hub Tax Credit will help.(Developers or owners must make a minimum $50 million capital investment in a single business facility located in one of the nine designated Urban Transit Hubs. In addition, at least 250 employees must work full-time at that facility.)Even so, New Jersey is known for being a highly regulated state, especially in real estate development and construction. The State’s policies have a significant impact on the homebuilding industry. Continued regulatory reform and initiatives such as the Permit Extension Act could sway the recovery in one direction or another.

There is some light at the end of the tunnel.Yet, time will tell if our State’s economy has the strength and conditions to recover.