Housing bust in Jersey hits cities hardest
Urban residential sales fall 34%, due in part to subprime debacle
Sunday, November 04, 2007
BY JOE MALINCONICO AND ROBERT GEBELOFF
Star-Ledger Staff
New Jersey's five-year housing boom has given way to a market with
flat prices and considerably lower sales volume, a Star-Ledger
analysis has found.
The new reality has hit hardest in urban areas, where the number of
residential sales during the first six months of 2007 is 34 percent
lower than volume during the same period in 2006, according to state
figures.
Overall, there were nearly 20 percent fewer transactions statewide
and the median price was up just 1.5 percent, after double-digit
growth each year since 2002.
Experts attribute some of the slump to fallout from the subprime
mortgage mess, particularly in urban areas where subprime loans have
fueled the housing market in recent years. East Orange, for example,
had a 59 percent drop in sales volume, Paterson a 57 percent
decrease, Plainfield 46 percent, Elizabeth 41 percent and Newark 37
percent.
"Every upswing has a downswing," said James Hughes, dean of the
Edward J. Bloustein School of Planning and Public Policy at Rutgers
University. "And we're in the downswing."
Real estate experts say it was inevitable that the years of double-
digit price increases would come to an end. In normal times, real
estate grows in value an average of 5 to 8 percent, said Bill Hanley,
president of the New Jersey Association of Realtors.
"We expected to see things even out," Hanley said.
Statewide, the median sale price for homes in the first half of this
year was $335,000 -- only $5,000 more than in 2006, but still more
than double the median price at the beginning of the decade.
In some counties, there was a slight dip in median prices -- 3.3
percent in Morris, 2.7 percent in Somerset and 1.3 percent in
Hunterdon. Essex County real estate managed to buck the trend,
registering a 10.1 percent rise.
The Star-Ledger's analysis was based on home sales reported to the
state Division of Taxation, which monitors real estate values for
administrative purposes. The state database contains all home sales,
including newly built and existing homes, that officials deem to be
made on the open market. Intrafamily transactions, for example, are
excluded.
The analysis found 43,179 such sales from January through June of
this year -- a far cry from the 62,816 homes sold over the first six
months of 2004, during the housing boom's peak. The drop in sales is
not from a lack of houses on the market, real estate experts say. New
Jersey's inventory of homes for sale reached record levels this year,
soaring to more than 72,000 in June, they report.
MAKING ADJUSTMENTS
Real estate brokers say it's a buyer's market. But there are plenty
of buyers who have been unable to find a place that matches their
needs. Take, for example, Bruce Gaylen of Wayne. He said he has
looked at at least 40 two-family houses over the past year. In all
but three instances, he didn't make an offer.
"I don't understand how they are asking that much for some of these
places," said Gaylen, a first-time buyer.
Indeed, some sellers -- especially investors looking for a quick
profit -- are still living in the past, experts said, asking for
prices as if the market remained as robust as it had been several
years ago.
"Those are the houses that are not selling," Hanley said. "But people
who have adjusted to the market, their properties are being sold in
60 to 90 days."
Buyers also have become increasingly patient, brokers said, waiting
for the market to hit bottom before they pull the trigger.
"Nobody wants to buy something for $500,000 when they think that if
they wait a while they can get it for $450,000," said Lawrence
Perlaki, a broker at Joseph A. Del Forno Inc., a real estate firm in
Jersey City. "Nobody wants to look like a sucker. Everybody wants to
say they got a great deal."
Of course, many prospective buyers had no choice but to move slowly
into the housing market after the collapse of the subprime mortgage
business. It's no longer so easy for many to borrow money to a buy a
house.
"The industry has become more rational about how we're lending
money," said Michael Borodinsky, assistant vice president for Wells
Fargo Home Mortgage. "The industry is scrutinizing borrowers like we
should have been before."
News about subprime mortgage foreclosures also has revised people's
perception of the housing market, experts said.
"The whole subprime debacle has changed the psychology of the housing
market," Hughes said.
Borodinsky said some folks are not even trying to get mortgages
because of "an inordinate fear" that financing is not available.
"That's not true," he said. "In some cases, we're still giving 100
financing or zero-down loans. But we're being more careful about whom
we're giving them to."
LESS LUSTER
In some pockets of New Jersey, the subprime mortgage collapse has had
a negligible impact on the real estate market.
Along Jersey City's Gold Coast, the 34-story condominium known as
"the A," opens in December with 80 percent of its units sold, said
Louis Dubin, president of the Athena Group, the developer. One-
bedroom units start around $500,00.
Another Jersey City luxury project -- the Beacon, the massive
makeover of the old Jersey City Medical Center -- has sold 90 percent
of the 315 units in its first phase, with prices ranging up to
$800,000, said George Filopoulos, president of the developer,
Metrovest Equities.
"Sixty percent of our customers are from Manhattan," he said.
"They're priced out of the city and they come here and their jaws
drop when they see what they can get for their money."
Still, there are signs that even the Gold Coast has lost some of its
luster. Overall sales volume in the city is about half of what it was
in 2004 and 2005, and the 2007 median sales price of $347,000 is only
2 percent more than in 2006.
Perlaki has been selling real estate in the city for more than 30
years, back before it was "even the Bronze Coast." During the peak of
the real estate boom, Perlaki said, developers of the luxury housing
projects would ignore his inquiries on whether they wanted his help
selling their unit.
Now, he said, the developers are holding parties for local Realtors
to enlist their help.
"Every day, I get e-mails from them," Perlaki said. "It's crazy."
Joe Malinconico may be reached at [EMAIL PROTECTED] or
(973) 392-4230; Robert Gebeloff at [EMAIL PROTECTED] or (973)
392-1753.
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