Home affordability better than ever before, experts say

Danielle Cressey and Justin Zelenak at their Absecon home.

The five-year housing slump has taken the market to never-before-seen levels of home affordability, in New Jersey and nationwide.

And if home prices increase and record-low interest rates start rising as forecast, this could be the peak of affordability, a year unmatched for the ease with which buyers can fit the cost of home ownership into their budgets.

Economist Joel Naroff said he believes Atlantic City area home prices already have bottomed and interest rates will start to rise later this year.

"It appears that affordability is about as high as it is going to get," said Naroff, who is president of Naroff Economic Advisors and has a home in Margate. "Thus, this is probably the best time to buy, especially when you look at the risks of higher rates and prices later this year and especially next year."

U.S. housing affordability in January reached the highest level since the National Association of Realtors began tracking it in 1970.

The NAR's Housing Affordability Index hit 206, with a level of 100 defined as where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent downpayment and 25 percent of gross income devoted to mortgage principal and interest payments.

The same index for New Jersey reached 162 for the fourth quarter of 2011, likewise by far the highest level since the state index was started in 1999.

"We've never seen it this high. It's incredible," said Gary Large, president of the N.J. Association of Realtors. "Prices have corrected, probably close to 2003 levels, and interest rates are at historic lows. Put those two together, and you've got great affordability."

Jeffrey Otteau, whose Otteau Valuation Group in East Brunswick researches the state's housing market, said that a typical prospective home buyer now has nearly a third more income than needed to buy the typical home.

"Granted, that home buyer will need to have verifiable income, enough savings to account for a down payment and closing costs, and a high credit score," Otteau said. "But for those who fit this description, 2012 is the opportunity of a lifetime to join the ranks of homeownership."

Better for less

Danielle Cressey, 24, and her boyfriend, Justin Zelenak, 25, have seized that opportunity.

And even though Cressey was tipped off about the buyer's market by her mom who works in title insurance, she was still pleasantly surprised.

"We were able to get something a little above what we originally were going to spend, because the payment was so affordable," Cressey said. "We were able to get, not more house, but a nicer house at a lower price."

The house was built by Iva Callio, 92, and her late husband Basil 40 years ago, said Richard Valenti, the agent with Zona Real Estate in Absecon who handled the sale.

"Mrs. Callio was glad to see a young couple getting the home," said Valenti, of Galloway Township.

Cressey said she and Zelenak started looking in the $160,000 to $175,000 range, but were able to handle paying $202,000 for the home on Ambassador Drive in Absecon - and saved enough money with their 4 percent mortgage rate to renovate the kitchen and bath before moving in recently.

"This was the perfect time for us to buy a house," said Cressey, who works at Borgata Hotel Casino & Spa.

The buyer's market for houses will surely last a while, but maybe not quite at this level of perfection.

The National Association of Realtors current forecast is for the median price of an existing home in America to rise from $166,100 last year to $172,000 next year. And NAR predicts the average 30-year mortgage rate will jump to 4.9 percent next year from an expected average for 2012 of 4.3 percent.

Naroff said mortgage interest rates have probably already bottomed.

"Once mortgage rates start to rise back toward normal and prices stabilize, those who are sitting on the fence waiting for better rates or lower prices are going to have to jump off. That could lead to a faster rise in prices," he said.

Gary Large, who lives in Denville and manages a branch of Prudential New Jersey Properties in addition to his duties as state Realtor president, said he doesn't speculate on when the housing market will turn and discourages others from doing so, but "we're somewhere near a bottom."

"All markets are cyclical, including real estate, and at some point people will realize there is optimism and hope, and then figure they'd better get going to take advantage of this opportunity," he said.

More buyers

Marsha Mangiello, who represented Cressey and Zelenak and is one of four co-owners of Re/Max Atlantic with offices in Northfield and Absecon, said some people have already figured that out.

"We're seeing a lot of activity in the local market," said Mangiello, 64, of Egg Harbor Township. "I'm seeing second home buyers, definitely young couples, and we're seeing move-up buyers too, which we haven't seen in a while. It's definitely heating up."

While she's optimistic about the spring real estate season, she said the market needs time to prove its stability and benefit from further gains in consumer confidence.

Meanwhile, though, people in the market are getting surprised in a good way for a change.

"I have a woman who lived in Galloway Township and moved to Florida, and decided to come back," Mangiello said. "She was absolutely shocked she could purchase a house for less than she sold hers two years ago. She wasn't happy when she sold, but now she's thrilled."

Oliver Cooke, an economics professor at the Richard Stockton College of N.J., said three factors that have weighed down the regional housing market may continue to do so.

Unemployment in the region remains well above 10 percent, the highest levels in the state; population growth remains weak; and lending is significantly tighter than before the housing bubble burst, he said.

"The regional economy - despite some very modest improvements lately - remains fairly depressed," Cooke said.

The state Realtors share those worries, Large said.

"If there's one factor that's been holding people back, it's been the job situation," he said. "If you're not comfortable that you're going to have a job in the future, purchasing a home is not something you want to think about."

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