Tide Turns For Sellers in New Jersey as Housing Market Cools

If nothing else, 2006 will be remembered as the year the New Jersey housing market came back down to earth after five years of record growth.

According to the Asbury Park Press, local home prices, which nearly doubled in the first half of the decade, rose more modestly in ‘06 and, in at least one quarter, declined.

Homes that would have been snared in a matter of weeks a year earlier, sat on the market for months. Realtors and home builders alike struggled to attract buyers, who sensed that things were turning in their favor and were oftentimes content to sit on the sidelines.

And then in October, in the most graphic example of how quickly the market had declined, Kara Homes Inc., one of the state and region’s largest home builders, went into bankruptcy, seeking protection from creditors who were owed $270 million in loans, bills and back wages.

Among the creditors were about 300 customers, each of whom had made a hefty down payment on their home in the recent past, and now wondered if they would ever move in or recoup their deposit.

Economist James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, summed up the shifting market this way:

“The psychology changed dramatically from “I have to get on board the housing train before it leaves the station’ to ‘Am I going to be a peak-of-market buyer and is the market way, way overpriced?’ We switched from that fear or greed of not being able to participate in the boom to fear that the market is going to slide downward.”

The change in housing costs was evident in the numbers:

The median sales price for an existing home in the region that includes Monmouth and Ocean counties rose 9 percent in the first quarter, fell 0.1 percent in the second quarter before increasing 7.3 percent in the third. Those were down considerably from double-digit increases in the previous five years.

Economists pointed to rising New Jersey mortgage rates earlier in the year and said that personal income levels had not kept pace with the increases in home prices.

The number of unsold homes on the market increased in Monmouth and Ocean counties. In the third quarter, 6,919 homes were up for sale in Monmouth County, up 51 percent from the 4,594 on the market in the same period in 2005. In Ocean County, 6,870 homes were on the market, up 53 percent from the 4,499 on the market in the third quarter in ‘05.

It amounted to an 11-month supply of houses in both counties. At the same time last year, the market only boasted a five-month supply. Meanwhile, the number of homes sales fell…

• In Monmouth County, the average number of monthly new home sales in the third quarter was 621, down 29 percent from the average of 871 homes sold in the same period in 2005.
• In Ocean County, there were an average 654 sales a month in the third quarter, also down 29 percent from the average of 915 sold in the third quarter of ‘05.

Many home builders felt the sting of the slowdown in the housing market. Some buyers, unable to sell their current houses, canceled their contracts on homes or demanded price reductions or incentives before they would make a commitment on a home mortgage loan.

Builders felt the heat. When it filed for Chapter 11, Kara Homes of East Brunswick also blamed the housing slowdown, saying it ran out of cash needed to keep building new homes.

The bankruptcy filing has left prospective Kara home buyers, some of whom had put down tens of thousands of dollars as earnest money deposits, in limbo.

Myriad woes in the New Jersey housing market were not the only big business stories in 2006, but they were among the most debated - and certainly among the most interest to Garden State residents.