A strongly improving real estate market is helping pull the region, state and country out of a recession, speakers said at an annual economic forecast session Tuesday. But growth is expected to remain tentative.
The growth is dependent on increasing wages and younger workers being able to afford homes, attendees were told at the Atlantic Builders Convention session held as part of the New Jersey Builders Association’s convention being held this week in Atlantic City.
Jeff Otteau, the president of the Otteau Valuation Group, delivered the strongest message, telling those gathered at the Tropicana Casino and Resort that the housing market has grown rapidly — perhaps too rapidly — driven by historically low prices and low interest rates.
At the same conference in 2009, Otteau elicited audible groans as he described the state’s massive housing oversupply and the price drops that were to come.
On Tuesday, Otteau said housing affordability levels now mean a person who would ordinarily be able to buy a $300,000 home can qualify for a $400,000 home.
“This is a once-in-a-generation opportunity for a person to buy at the bottom of the market with once-in-a-lifetime mortgage rates,” he said.
He said rising home values and expected mortgage rate increases mean that a buyer who waits a year or two will “have to lower their price range by 30 percent. To express this another way, this is a buyer who will have to make do with a home that’s a third smaller or an extra 40 minutes drive from where they work,” Otteau said.
Sales have increased in 21 of the past 22 months, Otteau said, even in November 2012, when New Jersey was crippled by widespread power outages after Hurricane Sandy. He joked that potential buyers drove around, saying, “‘We’ll worry about electricity later, lets go buy a house!’”
Price increases are driving down the number of unsold homes, and if they keep up, Otteau said, it could revive the stagnant home construction industry.
The inventory of unsold homes is at its lowest in the state in seven years, with some northern New Jersey towns essentially having no unsold inventory. At the same time, unsold homes remain the highest in southern New Jersey. Otteau said the latest available figures show on average homes in Atlantic County took 16.1 months to sell, while Cape May homes took 17.6 months and Cumberland County 17.8. Only Salem County, at 21.8 months, had a colder housing market.
Otteau doesn’t know who will buy the homes, as many of the jobs that have been created pay less than those before. And he worries that a 10 percent housing price increase seen around the state would price many people out of the market.
“The Shore housing market has been decimated” by Hurricane Sandy, he said.
Instead of people anxious to buy shore homes, Otteau said, more people are paying their mortgage late, prime waterfront properties are selling for distressed prices, and values have dropped 30 to 40 percent since the storm.
The New Jersey Builders Association’s convention is expected to draw 6,500 people from around the region as it continues today and Thursday at the Atlantic City Convention Center.
Other speakers Tuesday took on the economy more broadly. Anika Kahn, senior economist for residential construction with Wells Fargo bank, predicts the economy over the next two decades would be characterized by sluggish growth of about 2 to 2 1/2 percent. She expects growth to be held back in part by fiscal uncertainty from Washington’s elected leaders.
“A gradual recovery with speed bumps,” is how she described it.
She also anticipates the Federal Reserve will keep interest rates at current levels over the next several years, and said economic problems in countries that use the Euro may lead to problems here.
She said she expects unemployment to slowly decrease to about 6.5 percent by 2015.
Joel Naroff, president of Naroff Economic Advisors and a part-time Margate resident, echoed some of Khan’s ideas.
“The only thing the economy has to fear is Washington itself,” he said, saying cutbacks in defense spending and Washington antics reduced what could have been three percent growth in the final quarter of 2012 to 0.4 percent.
If not for the sequestration cutbacks, Naroff said he believed the economy could grow between 3 and 3 1/2 percent is year. He said, “But we won’t get overtly strong growth until Washington gets out of the way and stops playing the games they play.”
In New Jersey, he said rising home prices are great because they are helping underwater homeowners sell their homes.
But he cautioned that while there has been economic growth, it has not been broadly shared, with corporate profits increasing at the expense of wages. If wages rise, many people could seek better prospects, he said.
“There’s an awful lot of unhappy workers out there,” Naroff said, “who are just biding their time, waiting for a time to move.”
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