Every year and sometimes twice a year my team attends the The Otteau Group’s Housing Market Workshop for insight into what is happening in the NJ housing market, and national and local markets as well. Jeff Otteau is somewhat of a guru for NJ realtors, appraisers and developers. He is an expert in real estate valuation and provides advisory services to banks, governments, developers and investors. We depend on his seminars to keep us abreast of important trends and validate or invalidate what we are seeing on a micro level.
Here are some key takeaways from Otteau’s recent workshop.
The US economy is strong.
- US job creation is on pace for it’s 8th straight year of grow with over 2.4 million jobs created in 2018
- US weekly unemployment claims are at their lowest level since 1972!
The economic indicators in the state of NJ are finally looking positive after lackluster results.
- Job creation in the state is at its highest level in 19 years, particularly in the “professional and business” and “education and health” sectors. Wage growth is accelerating in the state as well.
- In NJ, the pace of home sales increased by 11% in 2017 and by about 1% year-to-date (YTD) in 2018. Home purchase contracts in NJ are slightly ahead of 2005 levels meaning we have reached a peak again in sales volume.
- Homeownership rates among millennials are climbing. The rate of ownership in NJ is 66%. The rate approached almost 70% in 2005-2006 and dropped to 62% in 2016.
- The impact of last year’s tax reform did not sink the NJ housing market despite some dire predictions. The mortgage interest deduction was grandfathered for existing homeowners. The reduction in the ability to deduct state and local taxes is largely offset by lower tax rates. NJ always had a limit of $10,000 for deductions of property taxes.
- Home prices in the US overall are up 16% from the recession. In NJ prices are actually 8% lower than pre-recession prices – a 24% advantage to NJ.
Yet, we have seen the market losing some momentum due to a combination of factors.
- Low inventory (2018 had the lowest inventory levels in the last 14 years!)
- Rising interest rates that are at their highest rate in 7 years (just under 5% for a 30 year fixed rate loan)
- Home prices that have been climbing year after year (they are up over 4% in NJ YTD) have begun to erode affordability.
Sales have decreased in NJ in 3 of the last 6 months year over year. This is particularly noticeable in the starter home market of homes under $400,000 where the number of sales declined by about 1% from 2017. The luxury market is actually over supplied with 19 months of unsold inventory in the $2.5 million plus category. In Essex County home sales were down by 4% year to date and unsold inventory was up by 3%.
We have absolutely seen this on the local level. I can point to more than a few homes that sold just a couple of years ago with strong interest, that are now selling for less or sitting on the market. Buyers do seem to have lost some urgency. This is likely due to the rise in interest rates, but it’s also being complicated by general anxiety over the midterm elections, problems with NJ Transit and “burn out” after months of stiff competition in the market.
Some of our local towns continue to be among the strongest markets in the state with the fewest months supply of homes available including Maplewood, Glen Ridge, Montclair, Bloomfield, Cranford and Verona.
The weakest markets in NJ will surprise you – outer ring suburbs with large homes and acreage and beach towns are not faring well. Some of the towns with the biggest supply of inventory are Colts Neck, Beach Haven, Loveladies and Far Hills. So if you are looking for a place at the beach or in horse country now is the time to buy.
What’s the market forecast for the future? We have been in the 2nd longest housing upswing on record, yet Otteau sees the strong housing market continuing through 2022 when we could see the next recession. The job market in NJ has improved, consumer confidence is high and so is the stock market. Home sales volume will be strong with millennials buying and boomers selling.
But buyers who choose to wait for prices to correct may do so at their own peril. Home prices may not be rising as much as they did, but they will still be rising. Conservative predictions are that NJ home prices will be rising about 2% per year in 2019 and 2020. This, in combination with rising mortgage interest rates will take a BIG bite out of what a buyer can afford– a double whammy for home buyers AND something that potential sellers must understand will impact prices negatively in the future.
The charts below are courtesy of The Otteau Valuation Group and illustrate well the issue buyers will be facing. In sum, if you are thinking of buying or selling, RIGHT NOW is a great time to beat the impending effect of the interest rate hikes on your purchasing power and potential sales price.
If you have any questions about the housing market, buying/selling or investing in property, I am always happy to consult with you.
The Allison Ziefert Real Estate Group is a top producing real estate team based at Keller Williams Mid-Town Direct in Maplewood, NJ. We are local market experts, specializing in real estate and homes in Maplewood, South Orange, Millburn/Short Hills and West Orange, NJ and the surrounding towns. We are driven by earning great testimonials and referral business from happy clients. You can read our testimonials at www.azhomesnj.com/testimonials.