Residential Real Estate
Somerset County’s Real Estate Market Conditions March 2019 – Canal Walk Edition
Get ahead of the residential real estate market drivers in Somerset County, New Jersey with Coldwell Banker Residential Broker sales associate, Joe Peters. Joe’s monthly report walks people through the economic and human behaviors that influence local markets. You will come away knowing what is happening and why to be better informed to make home buying and selling decisions.
What is happening
Based on the last full month’s contract sales, statistics show a supply of approximately four months. Normal market conditions average four to five months in Somerset County. Units going under contract averaged 58 days on the market. 322 properties went “under contract” in February compared to 256 in the prior month. Newly listed properties in the same period totaled 447.
Somerset County Inventory Breakdown By Price For Last Month:
Somerset County Sales Breakdown Overview:
- 69% of sales in houses < $500,000
- 27% of sales in houses > $500,000 and < $1,000,000
- 04% percent of total sales (or 13 in total) in houses >$1,000,000
Somerset County Inventory Breakdown By Municipality For Last Month:
Somerset County Sales Breakdown Detailed:
Only two areas in Somerset County reported no sales in the past month
- Rocky Hill
One area reported one or two sales each last month
- Bernards – 41 sales
- Bridgewater – 38 sales
- Franklin – 60 sales
- Hillsborough – 48 sales
- Montgomery – 17 sales
These hotspot areas equaled 61% of the sales last month. The average new listing coming on the market last month neared $616,414 The average price of a unit going “under contract” neared $456,198 (26% less).
Canal Walk Statistics:
- Canal Walk offers one floor units, town houses and various models of single family units
- There are 6 homes currently for sale in Canal Walk as of this writing with an average list price of $485,133.
- One of the 6 is an Enclave single floor units and two are townhouses.
- There were three new listings this month with an average list price of $410,967.
- Two units have gone under contract in the past 30 days with an average list price of $459,950 with the average days on the market of 67.
- Giving us 3 months of inventory
- Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
- The actual price per unit varies by type, model, location and upgrades
- Call for more details…
Note: To get an accurate price point for your property based on its location and price point, contact me. Coldwell Banker’s big data technology capabilities will put you at a unique advantage. I can show you the latest age and earnings breakdown for your particular area, show you where people are moving into that area from and how I can market to those specific areas and demographics directly. The result is in you receiving the maximum selling price with a shorter time on the market. Houses priced and marketed accurately sell faster, especially with a real estate industry veteran and local expert helping you navigate the process.
Why it is happening
New Jersey’s Economic Drivers:
New Jersey Home Sales:
For the first time in three years, we have seen an improvement in the inventory situation over the past six months (but is still below what is needed). Let’s hope that it is the beginning of a trend.
The still low inventory numbers lead to a bit of softening in the price appreciation on existing homes and a slowdown in growth. It is turning the tide back to a buyers market (or at least neutralize it to being a normal market).
We saw an increase of 6% in home sales in NJ in January based on interest rates lowering further during that month.
Activity still concentrates in the under $400,000 market where Millennial buyers are transitioning into home ownership.
During the same period, all housing sales above $400,000 showed modest increases across all other price points showing confidence in the changes made on taxes and deregulation. There has also been an improvement at the very high end in towns where rail service to Manhattan is available.
At the same time, the number of homes offered for sale in New Jersey remained low (but rising slightly by 3% last month). The supply increased by nearly 900 homes, compared to a year ago. Currently, ~38,000 fewer homes (-52%) are on the market compared to the 2011 peak.
Current unsold inventory in New Jersey varies widely by county with a total of only 4.5 months (down from 4.7 months last year). All of NJ’s counties presently have less than eight months of supply.
We still have an acute shortage of inventory in both Hunterdon and Somerset county in our more popular price points and locations.
Hunterdon and Somerset County have about 7 to 8% more inventory that we had a year ago, but about 6 to 7 % less than two years ago.
And, we have seen some “pull back” in 2018 as a reaction to what is considered “price sensitivity” towards some of the existing inventory.
Also, we are now seeing some millennials coming back into our local markets and buying homes (good news).
Interest rates are rising as a result of our strong economy.
The economy is strengthening, and Interest rates have fallen in recent weeks to just over 4.35 for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 3.8% mark. Five-year arms are just under the 3.85% range.
Consumer fears of further rises in interest rates and slowly rising home prices are driving the current market demand. The Fed appears to have interest rates on hold for the first two quarters. We will probably see another .25 to .50 rate hike in the second half of 2019.
The fear of increasing interest rates coupled with steadily increases in prices is current market activity.
National Job Front:
US unemployment rate has remained ticked up slightly to 4.0% as discouraged workers are re-entering the job market and the addition of 304,000 jobs in January. This trend is expected to continue as a result of the recent tax and jobs reform.
On the national level, the US added over 2,600,000+ jobs in 2018 and is trending towards 4+ million jobs being added bu added jobs by year-end based on initial numbers.
At the end of January, there were 7.3+ million openings compared to nearly 6.3 million unemployed persons.
Consumer confidence is the highest since 2004.
Great news for the housing industry if this trend continues!
New Jersey Job Front:
The NJ unemployment rate stands at 4.0% as well (the lowest it has been on over ten years, bolstering consumer confidence in NJ as well. In effect, NJ is rising with the national tide of nearly full employment.
NJ added 62,000+ jobs in 2018 as compared to 47,100 for the same period in 2017.
The level of jobs created was at a much higher level than in the past several years (a silver lining as these additions to our job market will be able to afford to buy houses eventually).
It also should be noted that these jobs are mostly in the northern half of the state.
Rental Market Trends:
We still have an extremely tight (but improving) rental market.
Rental prices in New Jersey rose nearly 6% in 2018, averaging nearly $1,600 per unit. Current vacancy rates in New Jersey have fallen to 4.1% statewide. This rise resulted in part by a rapid increase in building in this sector.
The drop in New Jersey’s homeownership contributes to rental demand. A 12+ year trend shows a decrease from 71% to 66%. This 7% decrease compared to an 8% national decrease contributes to the slower recovery of home prices in the state and adds over 20,000+ additional renters in our state. However, the 71% level was a result of the loose lending standards of the early 2000s and is actually at a good level. Households with no children stand at 65%, reflecting the decline in our school population.
One article states that the average homeowner who is 65+ has an average net wealth of over $318K while the same for a renter is only just under $8K. It also offers a stable place to live, an evident hedge against inflation and a way to build wealth (a strong argument for home ownership).
However, the number of renters has increased by 7% over the past 25 years with the less educated leading the way. And, we are now seeing more educated millennials moving east into higher rent and cost of living areas that eat into their discretionary income (including savings). Makes one wonder where this all is heading.
New Jersey Foreclosures:
New Jersey continues to face high but falling foreclosure rate filings at 2.4%. Other states have begun to, or already have recovered. In a tight real estate market, these foreclosures sell at a small discount.
Note: Figures vary by local market, especially those walloped by Hurricane Sandy three years ago and rural and urban areas. We rank #4 in the country, led by NY with 3.0%, MS with 3.0% (mostly hurricane-related) LA with 2.6% and trailed by ME, FL, DE, MD, PA, and AL. The national baseline number sits at a little under 1.7%.
Foreclosures in NJ in 2018 were the lowest in the state in over four years. And, 2019 looks to be even better with a forecast of under 50,000 foreclosure filings.
Tax cuts and Jobs Act effect:
Three specific areas had appeared as concerns. State and Local Taxes (SALT), Mortgage and Interest Deductions (MID) and Home Equity Line of Credit (HELOC) Loan interest deductions.
In a nutshell, these changes appear to be having little impact to date, but there will be some very high-end people affected, and that will, in turn, affect that segment of the market. That effect might slow the price growth in higher priced homes in NJ and even turn into a deficit in some most affluent areas.
As most people are readying to do their taxes using the new tax codes, we should know more as to actual future impact within a few months.
Real Estate Market Recap
- Nationally, 2018 was the eighth straight year of 2 million + job gains.
- We are in our second longest economic expansion period in America’s history and will be in the longest in just another three months.
- The GDP is still rising (although its rate of increase seems to me slowing).
- At 4.0% unemployment, NJ is now equal to the national average which is also currently at 4.0%
- Leading economic indicators in NJ are now surpassing the nation by almost two-fold.
- The best paying and most attractive jobs are in NYC pulling many or our millennials in that direction.
- Interest rates rose .5% in 2018.
- And, house prices have risen around 3% in the more popular housing price points and areas further exasperating the situation (although this appreciation now appears to be slowing).
- Baby boomers are choosing to “stay put’ and update rather than “move up” to their dream house as it is no longer considered a sound investment (and a lot of times is simply not available) which is causing most of the housing shortage. This situation may loosen up as many new listings have come on the market over the past few months.
- And there is no entry level construction going on in our area, just larger homes and new rentals.
- As a result of the previous two points, we are experiencing the current housing inventory shortage (the shelves are empty in our starter housing price points).
- Foreclosures are on the decline.
- There is continued confidence that the new tax and jobs act will further stimulate the economy with more jobs as the economy remains robust.
- The new tax rules appear only to affect our very high-end buyers.
Changes in lifestyle:
- Average age at marriage is now in the mid to late ’30s (up seven years from just a decade ago).
- Families usually have only one to two children due to costs and the ability to choose.
- 70% of all NJ homes have no children of school age, and 50% do not have more than one person in them. This factor minimizes the need for larger housing.
- Demand for larger houses has diminished not only in NJ but everywhere.
- As a result of the job situation, buyers are gravitating to areas within 15 miles of NYC with good mass transportation systems.
- 80% of consumers still perceive homeownership as part of the American Dream.
- It is just what they want to buy (or rent) that has changed.
- Builders have been thinking larger 4 BR center hall colonials on 1+ acre in the country (based mostly on local building codes).
- Buyers are thinking smaller luxury hi-rise close to mass transportation and work in the east (truly a mismatch).
- And, for the first time in history, Hunterdon County (which has been declining in population) has reported more deaths than births in 2017.
- We experienced a sales slump in late 2018 due to interest rate hikes.
- We are now entering the next phase of the housing cycle which is still active, but less robust. Sort of a cool down from 2018. Or, maybe back to normal.
- And, we are starting to see some warnings of an economic slowdown starting in late 2022 as the fed raises interest rates to curb inflation.
- The effect on housing is seen to be limited to curtailing the growth of price appreciation and not in any loss in value.
- But, in general, homeowners are sitting with more equity than ever (NJ reports 92% with positive equity) and are no longer using their homes as an ATM. So, the effect of any slowdown on housing should be minimal (if at all).
- Consumer confidence remains high nation-wide based on the job and stock market increases.
- There is a bit of offset to this from the discord that we see in our national politics.
- This confidence is reflected in buyer traffic being up at open houses. However, with a lack of inventory, there are fewer houses for sale.
- Affordability will never be in this good of shape as interest and price increases start to eat into what you can afford.
- Millennials make up about 25% of our current homeowners with much more room for expansion at the lower end of the market when adequate inventory supply materializes.
- Central New Jersey’s trend for 2017 and early 2018 showed an increase in home sales but price increases only in houses clustered in < $400,000 market where the first-time buyers and Millennials are focused.
- The >$400K market holds steady to diminishing slightly, depending on location and price. Often when a >$600K property goes on the market, it’s competing with a >$700K that needs to sell quickly (etc.).
- Minimal new construction, lack of entry-level new housing and COAH restrictions add additional value to the current inventory.
- Analysts five-year forecast indicates slow and steady (but diminishing) price growth at an annual average of 2 to 4% (depending on location and price point). This price growth will remain higher in the under $400K market.
- There is an acute shortage of inventory in both Hunterdon and Somerset County in our more popular price points and locations holding back sales. In general, we have only about 50% of the inventory that we had in 2011.
- It is simple, We could sell more houses if we had more inventory on hand, And, as we have started to see small inventory increases over the past six months, 2019 can be a boom for resales.
- In 2017 prices rose ~ averaging just over 3.5% and depending on price points and locations. 2018 promised to be even stronger and closer to 5+ % (without factoring in any tax impact). The following two years will see less in % but should still show modest growth (depending on price point and location).
- Mortgage delinquency is normalizing.
- The economy will continue to prosper with no recession currently in sight for the next 36 + months. And, there most likely will be only an impact on the rate of price appreciation if this happens.
- Interest rates will Climb to about 5 % in 2019 further decreasing buying power.
- Home prices will rise by an average of another 2 to 3% during that same period (this will depend on your price point and location) further decreasing buying power.
- While improving, supply will remain tight in the more popular price points in the residential real estate.
- Many new jobs seem to be resulting from the Tax and Jobs act (just look at the help wanted signs).
- For the first time in memory, the US is reporting 7.3+million open jobs and only 6.3 million unemployed. We are at full employment if you consider that 3 % unemployed is the normal level.
- We now need to match the skills of the unemployed to the job openings to prosper further as many four-year degrees currently being obtained, are not useful in the current job market. It has also opened up the need for inward migration of workers to out the economy.
- The affordability index shows that there is room for much more sales; we need an increase in inventory. The most affordable time to buy appears to be now!.
- Some high-end fall-out could result in the residential real estate from the SALT and mortgage interest changes in the Tax and Jobs act.
- The commercial real estate market is flourishing as a result of creating more buying demand.
- People in their home > 10 years have very positive home equity built up, and a more significant portion of payments applies to principle. Increases in selling prices should eventually motivate people to make changes in their lifestyle by investing in summer homes or even start a new business with the extra equity cash.
Note: Presented as a public service by Joe Peters of Coldwell Banker Residential Brokerage. I took reasonable precautions for presenting this information. Please consult with a professional sales agent and take no actions based on my opinions, gathered trends, and statistics. I assume no liability.
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