Hey Tom: I'm afraid you've been scared by the boogieman! Yes, housing is in the dumper. No, NJ is not California or 3000 miles near California.
Yes prices are down BUT THEY ARE DOWN IN VARYING AMOUNTS, NEIGHBORHOOD BY NEIGHBORHOOD.
NJ is doing "relatively well, especially when compared to what were the "hotâ€ markets, such as Southern California, Florida or Los Vegas. The big problem, as I see it, id that there is STILL very limited credit and very little enthusiasm for purchases of ANY sort. With the constant dirge of lay-off notices, people are afraid to add to their fixed expenses. Do you blame them? It seems that you are more than a little skittish yourself.
Can I tell you that all will be well next month and I'll be able to say, as a mother would to her child who skinned his knee, "All better now"? Nope. Warren Buffet, the financier who can see around corners, or so it was said just last night in his introduction on TV, said himself in the interview, words to the effect that he has no idea when things will improve but it won't be a quick fix.
So, what exactly is your question about? If you are planning to sell, you won't get what you could have in 2007. On the other hand, you won't pay what you would have then for a new house, either. So, it's a good swap, if you're moving up. Mortgage rates are VERY low, if you can find one and I hear that more are to be found then last month. Those rates will last on a purchase you make today for the rest of the time you own the place but won't last forever in terms of availability. Act now in that regard.
If you are worrying about the fact that the home you now own is worth less than you paid for it, don't sweat it. You bought a residence not a day trade in the stock market. You don't have to cover a short sale. (Unless, of course, you have lost your job and can no longer afford the mortgage.) If that's the case, take courage, the good mortgage companies (I hope you worked with one) are renegotiating terms and the government may weigh in further on that issue as well.
In the long run, as Mr. Buffet said so precisely, the fundamental US economy and our national capacity to produce and grow remains strong. That means that housing VALUES will rebound. I bought my first home for $10,000 and even in today's market I could sell it at an order of magnitude greater than that today. (Subject to finding a courageous buyer who could get a mortgage.)