It’s not good news for home prices in New Jersey through most of 2012. Economists predict a downward trend, mostly due to foreclosures.

Home prices have fallen for the past eight months, dropping 34% since the housing bust, back to 2002 levels.

Patrick O’Keefe, economic analyst at J.H. Cohn in Roseland, NJ, compares the housing recovery to climbing up an icy hill. “After we see a bit of progress, there seems to be a slide, especially in terms of home sales in New Jersey. The prices remain very low here still.”

He says that should remain the scenario for at least the first half of this year. “Prices will continue to trend downward because the slight uptick in the economy hasn’t been enough to keep home prices stabilized.”

O’Keefe says the housing market still faces a cloudy outlook in New Jersey because of the potential backlog of foreclosed properties.

“Until we work through that inventory of distressed properties, there will remain downward pressure on housing prices in the state.”

He says the good news is that interest rates remain low and although growing at a slow rate, New Jersey’s economy is improving, both of which should help the housing market overall.

Homes are the most affordable they’ve been in decades. And mortgage rates have never been cheaper. Much of the optimism has come because hiring has picked up. More jobs are critical to a housing rebound. A rise in prices could lead to a positive cycle of better sales, as well.

“Households sometime in the near future will be able to afford higher priced housing, but for right now in the near term…and I’m talking about five or ten years… I see a price structure well below where we were at the height of the housing bubble” said O’Keefe.