Hunterdon County’s Real Estate Market Conditions January 2020

Get ahead of the residential real estate market drivers in Hunterdon County, New Jersey with Coldwell Banker Residential Broker sales associate, Joe Peters. Joe’s monthly report walks people through the economic conditions and trends that influence our local markets.  You will come away knowing what is happening and more importantly, why it is happening. As a result, you will 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 six months inventory. Normal market conditions average four to six months in Hunterdon County.  Units going under contract averaged 77 days on the market. 106 properties went “under contract” in December, down from 165 in the prior month. Newly listed properties in the same period totaled 77.

Our total inventory number decreased by nearly 10% over the same time last year.  Yet, sales are up due to strong buyer demand.  And, the weather has cooperated with a mild winter so far for this year.

Hunterdon County Inventory Breakdown By Price For Last Month:

• 76% of sales in houses < $500,000
• 24% of sales in houses > $500,000
• 03% percent of total sales (or 3 in total) in houses >$700,000

Hunterdon County Inventory Breakdown By Municipality For Last Month:

Four areas in Hunterdon County reported no sales reported in the past month:

• Califon
• Flemington
• Franklin
• Hampton

Nine areas reported 1 or 2 sales each last month:

• Bloomsbury
• E Amwell
• Frenchtown
• Kingwood
• Lebanon Boro.
• Milford
• Stockton
• Union Twp.
• W Amwell

Hotspots:

• Clinton/Clinton Township – 18 sales
• Raritan Township – 16 sales
• Readington Township – 11 sales

Hotspot areas equaled 42% of the sales last month. The average new listing coming on the market last month neared $441,323. The average price of a unit going “under contract” neared $380,476 (14% less).

Note: To get an accurate price point for your property based on its location and price point, contact me at (908) 238-0118. 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:

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 4% in sales in November and year to date; we are ahead of 2018 by 4% as well.  While this is not state-wide, 18 of the 21 counties have benefited with an increase in sales.  NJ is on pace the have a record number of home sales in 2019 with more than 4,000 additional sales to date.

Increases in inventory have occurred in all price points above $400,000 with the $400,000 to $600,000 range seeing the largest jump (+4%) followed by the $600,000+ with very slight increases.

The under $400,000 range saw a 21% drop in inventory.

Activity still concentrates in the under $400,000 market where Millennial buyers are transitioning into homeownership.  But, this price point only saw an 8% increase vs. 2018 YTD due to lack of inventory.  The $400 to $600K range also saw a little under 1,500 increase in units sold YTD while dropping 13% in inventory levels.

During the same period, all housing sales above $400,000 and below $1 million showed very modest increases 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.  Houses above $1 million showed a small increase as well.

At the same time, the number of homes offered for sale in New Jersey remained low. Currently, ~30,000 fewer homes (-54%) are on the market compared to the 2011 peak.

Current unsold inventory in New Jersey varies widely by county with only 3.7 months in some and none being above 8.0.  The state is averaging just under four months.

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 9% & 11% less inventory than we had a year ago, respectively, and the inventory is 22% less in Hunterdon & 25% less in Somerset as compared to two years ago.

The market has changed from a seller’s to a buyer’s market above $500K market due to the additional inventory coming on to the market affecting the selling prices for those properties.

Also, we are now seeing some millennials coming back into our local markets, with 26% thinking that it is the right time to buy (good news).

Interest Rates:

Interest rates have risen slightly over the last month.

The economy is strengthening, and Interest rates have fallen in recent weeks to just under 3.75% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just over the 3.18%  mark. Five-year arms are just under the 3.45% range.

Consumer fears of further rises in interest rates and slowly rising home prices are driving the current market demand. The Fed has made several downward adjustments, and more may still be in order.

The fear of increasing interest rates, coupled with steadily increases in prices, is still driving the current market activity.

National Job Front:

On the national level, the US added over 2,700,000+ jobs in 2018.

US unemployment rate slowed in November came in with 228,000 jobs added.  And unemployment fell slightly to 3.5%.

At the end of November, there were 7.3+ million openings compared to nearly 5.9 million unemployed persons.

The forecast is showing 2,200,000 jobs to be added in 2019 based on these numbers.

New Jersey Job Front:

NJ added 39,000+ jobs in 2018 as compared to 47,100 for the same period in 2017.

The NJ unemployment rate rose to 3.4%, maintaining consumer confidence in NJ as well.  In effect, NJ is rising with the national tide of nearly full employment.   Based on the first eleven month’s results for 2019, the state is on course to add only 34,000 jobs.

The level of jobs created has been at consistently higher levels 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:

Rental prices in New Jersey rose nearly 5% in 2018, averaging just over $1,600 per unit. Current vacancy rates in New Jersey have held just over 2.7% in central NJ.

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 resulted from 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 homeownership).

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).  It makes one wonder where this all is heading.

The pace of new rental construction has increased to meet this demand and now seems to have caught up.

New Jersey Foreclosures:

New Jersey continues to face falling foreclosure rate filings dropped to  2.1%. Other states have begun to or have already recovered. In a tight real estate market, these foreclosures sell at a small discount.

Note: Figures vary by the local market, especially those walloped by Hurricane Sandy three years ago and rural and urban areas. We rank #5 in the country with 2.0%, led by MI with 2.5%, LA with 2.3% (mostly hurricane-related)  ME with 2.0%.  The national baseline number sits at a little under 1.3%.

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 just under 40,000 foreclosure filings.

Overall Economic conditions:

• Nationally, 2019 appears to be the eighth straight year of 2 million + job gains.
• We are now in our longest economic expansion period in America’s history with 100+ months of positive job gains.
• The GDP is still rising (although its rate of increase seems to be slowing a bit).
• At 3.4% unemployment, NJ is now near to the national average, which is currently at 3.5% & leading economic indicators in NJ are now surpassing the nation.
• The best paying and most attractive jobs are in NYC, pulling many of our millennials in that direction (although this trend is diminishing).
• And, wages are up significantly at the same time.
• Interest rates have increased to just under 3.75%.
• 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 who were 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 inventory is not available) which is causing most of the housing shortage are now finding available inventory. This situation has loosened up as many new listings have come on the market over the past few months.
• And there is still little, if any, 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 of under $400K).
• And, some empty houses are starting to appear at out higher price points.
• Foreclosures rates have almost normalized.
• There is strong continued buyer confidence. The robust job situation is supporting the our national economic situation.

Changes in lifestyle:

• The 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 not only in NJ but everywhere.
• As a result of job opportunities, 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 as 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 of smaller luxury hi-rise close to mass transportation and work in the east (truly a mismatch).
• 60% of all new housing starts in 2019 in NJ were in the rental sector.

Market conditions:

• It appears that we are now entering the next phase of the housing cycle, which is still active, just less robust in price appreciation. Sort of a cool down from 2018. Or, maybe back to normal.
• And, the warnings of an economic slowdown seem to be on hold for the present.
• Should we eventually see a slowdown, we may see fewer sales and less price appreciation as a result. The effect is not predicted to result in any loss in value in our popular price points.
• But, in general, homeowners are sitting with more equity than ever (NJ reports 95+% 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.
• Most consumers still see homeownership as a sound investment.
• There is a bit of offset to this encouraging news from the discord that we see in our national politics and trade policies.
• This confidence is reflected in buyer traffic being up at open houses. However, with a lack of inventory in our lower price points, 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 35% 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 in 2019 shows 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.
• Prices in the >$400K to $600K market have increased slightly as we have seen additional new inventory in this range.
• The over $600K market is challenged price-wise depending on the location and the higher the price-point.
• Minimal new construction, lack of entry-level new housing, and COAH restrictions add additional value to the current inventory.
• The five-year forecast indicates slow but steady price growth (but at reduced rates) 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. And, little depreciation is forecasted except in the higher-end inventory.
• There is an acute shortage of inventory in both Hunterdon and Somerset County in our more popular price points and locations, which is holding back even more sales. In general, we have only about 65% of the inventory that we had in 2011 but are selling current inventory at faster rates.
• 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 2019 prices rose ~ averaging just over 3% and depending on price points and locations. 2020 promises to be more normalized with at least 2 to 3% growth in prices. But it depends on your price point and location. The following two years will also see less in % but should still show modest positive growth.
• Mortgage delinquency is now approaching more normal levels.

Forecast:

• The economy will continue to prosper with no recession currently in sight for the next 12 months. And, there most likely will be only a slowdown impact on the rate of price appreciation if this happens.
• Prime Interest rates have dropped several times already recently.
• 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. And, the most bullish projections show at least a 6 to 7% increase over the next few years.
• 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 (look at the help wanted signs).
• For the first time in memory, the US is reporting 7.3+million open jobs and under 6 million unemployed. We are at full employment if you consider that 3% of 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 the economy. In some areas, this is happening via people immigrating from outside of the US to areas with the skills needed to fill open positions.
• The affordability index shows that there is room for much more sales; all we need an increase in inventory. The most affordable time to buy appears to be now!.
• Some high-end fall-out has resulted 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.
• And, thirty-seven percent of all homes in the US have no mortgage at all.
• Small investor activity in the market is up. In many cases, these are flippers buying-low end unsaleable inventory and bringing it up to marketable status.