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From The Garden State: The Otteau Report: November 2006

[This monthly market report is provided by Jeffrey Otteau of the Otteau Appraisal Group [1] who also authors a series of widely followed quarterly market reports [2] 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


NOVEMBER SALES SUGGEST HOUSING MARKET BEGINNING TO STABILIZE

November home sales declined only slightly from the October pace reflecting more of a seasonal trend than a slump for the New Jersey housing market. In November, contract-sales declined by 10% from the prior month suggesting that the housing market is beginning to gain traction and may be nearing the end of its current slide. By comparison, the month-to-month decline in contract-sales one year earlier in November 2005 was 17% which went beyond a normal seaonal decline and reflected the housing slump that has been gripping the market for the past year.

Upon comparing the November sales pace to November 2005, contract-sales were off by only 6% which is the lowest decline for all of 2006. By comparison, monthly home sales were off by 19% from January through October and a whopping 23% during April through September, which were the worst months of the market correction.

From an Unsold Inventory perspective, the number of homes being offered for sale declined for the 3rd straight month with a reduction of 5,000 homes in November alone. Despite these encouraging signs however, Unsold Inventory now stands at 9.1 months based upon the November sales pace, indicating that home prices will not increase any time soon. By comparison, there were 6.3 months of Unsold Inventory one year ago and 10.4 months in September 2006. Therefore, the improvements in the housing market over the past two months signal more ‘bottoming-out’ than ‘recovery’.

There is however cause for cautious optimism as continuing low mortgage rates, new job creation and rising salaries are creating additional demand for home sales. Based upon these factors, coupled with the improved market performance of the past two months, it appears that the adjustment in the housing market will be more Correction than Crash. However, new home-builders and home-sellers alike would be wise to recognize that recent improvements are driven primarily by lower home prices which have restored a measure of affordability for home buyers. Thus, any attempts to increase prices during the early phases of market recovery will likely be unsuccessful. Therefore, Right-Pricing! will remain essential to successful home marketing.

Here are 2005 annual stats.