Sturdy Savings Bank CEO’s economic forecast: Inflation slowed, but costs are not falling
OCEAN CITY — Don’t expect housing prices to come down, affordability problems for young couples to ease or mortgage rates to fall significantly.
Even though the rate of inflation has dropped, prices remain high and will continue to go up. And despite the belief the state’s taxes and business climate are driving people away, the population actually is growing.
These were among the predictions shared Jan. 23 by Sturdy Savings Bank CEO Greg Matuson in the annual economic forecast during the Ocean City Regional Chamber of Commerce meeting at the historic Flanders Hotel.
He spoke about the larger national picture of the economy before turning to what is happening in New Jersey and Cape May and Atlantic counties.
Matuson said it is too early to tell the real impact of economic policies under newly sworn-in President Donald Trump, but the president’s focus on deregulation in general should be a positive for businesses. He said the growing push into artificial intelligence (AI) also should provide opportunities for business.
Matuson talked about the “shocking” debt levels in the country, how the U.S. government does not have to have balanced budgets, like most businesses, and is now paying $1 trillion annually on the debt that has been increased by president after president including George W. Bush, Barack Obama, Trump and Joseph Biden.
“Everybody has been an equal-opportunity offender,” he said. “This is not a Democrat problem, this is not a Republican problem, this is a U.S government problem.”
The Department of Government Efficiency (DOGE) is looking at reducing wasteful spending. He said any efforts to do so are important. Because China’s economy is doing poorly, Matuson expects that nation to work with the U.S. on trade and tariffs.
In New Jersey, the Sturdy Savings leader said the impression has been that taxes are high and it’s not pro-business, leading people to believe there was an exodus from the state. In actuality, he said, there has been a 2.3 percent growth with an additional 211,000 new residents since 2020. There is now a population of 9.5 million, there are 4.4 million jobs in New Jersey and 284,000 employers.
“Overall, I thought this was a positive. It gave me a little bit of a different sense of how New Jersey is doing,” he said, and that the population is increasing and the number of jobs and employers has been increasing over the last two or three years as well.
Matuson was critical of the fact that New Jersey’s government has tied increases in the minimum wage and gas tax to inflation.
The governor phased in significant increases in the minimum wage over four or five years to get it to $15 and this is the first year it increased again, this time tied to inflation.
What the government likes to do now is instead of having to go back and explain to taxpayers why there should be an increase in the minimum wage or why the state needs an increase in the gas tax, they built in automatic inflation indicators, he explained.
“So every year the tolls are going up, gas is going up, and minimum wage is going up. And they don’t have to do anything or talk about it. This is an inflationary thing that we should be very much aware of,” he said.
Matuson noted minimum wage is a hotly debated topic. There is a school of thought that increasing it can be harmful for the strain it puts on small businesses and how it may reduce employment opportunities for younger low-skilled workers.
Matuson noted having the sixth-highest minimum wage in the nation is probably hard for some small businesses, especially the seasonal ones prevalent locally because of the tourism focus in the economy. He added New Jersey’s unemployment rate was a little higher than the national rate, but still at historically low levels.
He also noted that although inflation is going down, that isn’t making things more affordable.
“The important thing to remember … when we look at inflation, even though inflation has gone down significantly” from 7 percent to 2 percent, “things aren’t getting cheaper. (Inflation) is still going up. Everything is still getting more expensive. It’s just not going up as much as it was in the years prior,” Matuson said.
He noted the same thing is going on in the housing market.
While there had been 10, 15 and 20 percent increases in the price of housing, and those increases have slowed to 4, 5 or 6 percent, “prices haven’t come down. They’re still at those elevation levels. They’re just not going up at the high rate that they were,” he said.
The problem with the housing market that has substantially slowed sales, including locally, is the change in interest rates since the drop during the COVID pandemic. Homeowners with a low mortgage rate are reluctant to sell if they have to buy another home at a much higher mortgage rate.
“So your mortgage is 2.5, 3 percent, you’re looking at a house that has increased significantly in value,” he said. “Your home also increased in value as well, but do you want to buy at the top of the market and have to get a mortgage at 7 (percent)? A lot of people run that calculation.
“This is going to take many years to work through, and we’re still working through it, and I think it’s the primary reason that we’re seeing housing activity at lower levels because there’s a lack of supply, because people are unwilling and in some cases unable to give up those low-rate mortgages in favor of higher. They just can’t afford it,” he said.
A more recent phenomenon adding challenges to the home market are high net worth individuals coming in and paying cash.
“So that makes it very, very difficult for normal folks who want to buy a home that would have to get a mortgage, when somebody comes in with cash and just pays at the market or above market,” Matuson said.
“I think we’re range-bound between 6.5 and 7 percent and I think we’re likely to stay there indefinitely” with mortgage rates. “I don’t see anything changing unless you were to have a significant event like COVID or something like that that isn’t on the radar at this point. I think interest rates are going to stay at the rates that they are.”
He pointed out there has been an increase in terms of delinquency in mortgage payments, with more stress in southern New Jersey, especially Cumberland County, than other parts of the state.
Matuson said not only are housing prices up 10 percent on average, affordability is another factor because of the lack of homes in the $250,000 to $300,000 range — starter homes for young couples making a good living.
In Atlantic County, he said, through November 2024, compared to the same period in 2023, single-family listings had grown less than a percent with median prices rising from $345,000 to $380,000, and townhouse-condo listings increasing 1.1 percent with median prices up from $205,000 to $235,000. Closed sales of homes were down 3.6 percent and down 10.4 percent for townhouses and condos.
In Cape May County, new listings from 2023 to 2024 were up 10 percent for single-family homes, with median prices rising from $513,500 to $582,495, but sales were down 6.5 percent. Townhouse-condo listings were up 1.3 percent, but actual sales were down 3.6 percent as prices rose from $629,450 to $700,000.
In Ocean City in particular, there were 831 units sold in 2023, but a drop of 14 percent to 712 in 2024. New construction jumped from 114 to 164 units last year and demolitions increased from 86 to 144.
“I think the overall market here in Ocean City is very, very healthy. Prices are stable, they’re elevated but not out of line. And so, overall, it seems like while it actually is certainly less than it has been, in general, we have a good housing market,” Matuson said.
He believes housing prices will rise moderately.
A concerning trend in Atlantic County revolved around casinos, he said. Although they won $5.7 billion in 2024, up from $5.2 billion in 2023, there was a 1.1 percent decline in in-person gamblers, with more revenue coming from online betting.
He said executives blame a “perception problem” for declining visitors, including severe beach erosion and a drop in beachfront events, including the canceled air show and no beach concerts.
Matuson pointed out casinos are important to the region because of the jobs they provide and activity for small businesses that cater to them.
Matuson said it is too early too tell, but most people in the banking industry and in business are optimistic about the new administration’s economic policies with regards to lower taxes and deregulation.
“I think most business owners are encouraged by what we’re hearing from Washington at this point,” he said.
Matuson believes the Federal Reserve “will mostly be on the sidelines this year. I don’t think you’ll feel much from the Fed. I don’t think they’re going to help much. I think in our budget for this year we include one cut by the Federal Reserve some time in the third quarter. If we get that we’ll be lucky, but again, I don’t think that the Fed will do much this year.”
He pointed out the Fed does not control interest rates in general and if people are hoping they’ll come down, not to expect that.
He believes the stock market will continue to trend higher, but there will be periods of volatility with the early deployment of AI.
– STORY and PHOTOS by DAVID NAHAN/Sentinel staff