New construction in South Jersey is a story of opposites.
Seven years after the national recession and the home-mortgage crisis, one would hope to see signs of improvement in the new-housing market. But economists, builders and building suppliers agree that new construction is in the doldrums across most of South Jersey.
About the only hammering in most mainland towns these days is by woodpeckers. But resort towns have seen a surge in investment interest since Hurricane Sandy. Ocean City, Stone Harbor and Avalon in Cape May County and Long Beach Island in southern Ocean County have never been busier since the recession, builders say.
Building permits are seeing only modest increases across most of Cape May, Atlantic and Cumberland counties.
The Press of Atlantic City examined some of the factors that are driving or hampering the residential construction industry.
Since Hurricane Sandy made landfall three years ago today, hundreds of millions of dollars o…
Atlantic County ranked No. 1 in the nation in foreclosures in August, according to RealtyTrac.
“New Jersey has been in the Top 5 every year we’ve been ranking foreclosure since 2008,” RealtyTrac spokeswoman Ginny Walker said.
It takes an average of 1,206 days to foreclose on a property in New Jersey — longer than anywhere else in the nation, she said. This means properties often sit in limbo for years while banks or embattled homeowners try to get them back on the market.
Right now, the state is seeing the first property victims of Hurricane Sandy winding through the foreclosure system, she said.
Most of these homes were not investment properties but places where the owners lived.
“You have the double whammy of casinos closing. Until we see some serious job growth, we’ll continue to see New Jersey plod along,” Walker said. “New Jersey is very resilient. It will be interesting to see what the rebuild is like as we move forward.”
New Jersey also has the distinction of having more homes valued at less than what the owners are paying on their mortgages.
Nearly 12 percent of New Jersey homes still have “underwater mortgages,” according to second-quarter figures from CoreLogic.
Banks are less likely to offer loans for new construction when values in the neighborhood are depressed, builders said. Banks look at comparable sales and decide a loan for a new $400,000 home doesn’t make economic sense when homes on the same street are selling for just $325,000.
But builders said costs for materials and labor have not made new homes any less expensive to build. The only recourse is to steer customers to neighborhoods that have held their value.
“When you talk about the Jersey Shore, there are multiple markets,” said Kevin Gillen, an economist and senior research fellow at Drexel University.
Wealthy shore investors were less susceptible to the recession than primary homeowners who ended up in foreclosure.
Gillen said more middle-class buyers of vacation homes are pooling resources with family or friends to get their slice of the shore.
“Second homes are a luxury good,” he said. “The price of a shore home has been climbing faster than incomes. You see more people pooling money with family members to buy a home.”
The mainland housing market is less resilient and more susceptible to changes in local employment, he said. Gillen said the next five years will be better than the past five for South Jersey’s construction industry. But he expects a slow and uneven recovery.
“I travel a lot. After the Rust Belt, New Jersey is probably the most moribund for housing,” he said.
It is often said that perception is reality, but nothing could be further from the truth whe…
The Sandy effect
Scott Rote, 50, of Brigantine, is always looking for a good deal.
Since Sandy struck in 2012, the owner of Haven Homes Builders in Brigantine has been buying distressed properties to tear down.
“I found one in Brigantine on a double lot. I paid $250,000 for it. The one next to it is easily $1.1 million,” he said.
“I have two houses side by side that were destroyed and sat for about 18 months,” he said. “I took them both down and subdivided and got three lots. I upped the value on that street.”
Shore homes that have been rebuilt since the storm tended to be older, less valuable properties, Gillen said.
“House prices will go up after a hurricane. That’s exactly what’s happened here,” he said. Older, smaller homes are replaced with newer, bigger and more expensive ones.
“Sandy disproportionately affected older homes that were more depreciated and weren’t built to today’s more stringent building codes. Those were the homes that were knocked down and rebuilt into million-dollar homes,” he said.
Rote said he is finding a decent market for new single-family homes in Gloucester County. But around here, he sticks to the shore and keeps an eye out for bargains.
“If I lose a bid, it’s no big deal. I know I’ll find another one a week later,” he said.
The Builders League of South Jersey has found a spotty recovery from the recession and 2008 mortgage crisis.
“South Jersey is still struggling to get back to normal, whatever that is,” spokesman Rick Van Osten said.
But many outliers are propping up the industry, particularly along the shore, he said. For example, Avalon has gained $100 million in property value in the past two years.
“Avalon is bulletproof. If you bought a house in Avalon in 1980, $1 in value would be worth $24 today,” he said. “The economy doesn’t seem to matter to that market.”
The same might be said of Stone Harbor, Ocean City, Margate and Long Beach Island and to a lesser extent Sea Isle City, Ventnor and Wildwood Crest, all of which have seen property values stabilize faster than other towns in South Jersey.
There are a few delays hindering the Wednesday morning commute in the South Jersey area.
Coastal builders busy
Coastal builders in New Jersey have weathered the recession and downturn in the housing market, said Dean Adams, owner of Dean Adams Custom Builder LLC in Ocean City. His company has at least three projects nearing completion on the island.
“We stay very busy right here on the island,” said Adams, 42, of Ocean City.
“I always consider our industry to be one of the main drivers of the economy. The ancillary businesses far and wide really ride on our coattails: materials suppliers, the tradespeople, insurance brokers, title companies, Realtors, banks. Plus, a new home is a new ratable for the city.”
Adams said investment interest remains strong, even as loans have been harder to obtain.
“The lending has definitely tightened up to the point where risky projects are not being funded,” he said.
But since banks take first position on loans, there is much less risk for them in strong shore markets, even if the borrower defaults, he said.
Building suppliers in New Jersey rely on new construction for most of their business. So when the mortgage crisis hit South Jersey, they were among the first to feel it.
“We’re downsizing. We’re making it work. What are your options?” said Sam Phillips, co-owner of Somers Point Lumber.
“I don’t see it improving much in the near future,” he said. “There’s just too many foreclosures, so it’s got to run its course.”
Phillips, 60, of Somers Point, said renovations after Sandy helped the industry. But the amount of work available does not compare to 10 years ago.
“It’s a roller-coaster ride. Five years ago, I thought it would last three or four years. There’s still no relief in sight,” he said.
But just across the bridge in Ocean City, contractors are busy on virtually every city street.
Richard Young, co-owner of Shoemaker Lumber in Ocean City, said as much as 70 percent of his business comes from new construction.
“Hurricane Sandy kick-started things for us,” said Young, 67, of Upper Township. “It’s still spotty for mainland towns. I can’t predict what will happen, but the fall looks very good.”
Bucking the trend
Mike Seddon, a real estate agent, knew all the reasons he shouldn’t build a new house. He did it anyway.
Seddon, 48, decided to buck convention and build his dream home last year in Galloway Township despite the obstacles he knew he would face.
“You have to be very confident in your job and the area,” he said. “The average family still can’t get approval for loans because lending restrictions are so tough.”
Seddon saved money on his project by managing it and hiring his own subcontractors. And he feels good about his decision, especially with signs of economic improvement such as the growth of Stockton University and the expansion of AtlantiCare Regional Medical Center.
“When I started weighing my options, building something I could design and make changes to was very appealing,” he said.