This market report aims to utilize my local Somerset County expertise to clearly explain what is happening in our local real estate market. My monthly market update will guide you through the economic conditions and trends that impact our local markets. The update also provides hyper-local statistics that are not readily available elsewhere. By the end of the report, you will not only know what is happening in the Somerset County market but also understand why (the reasons behind it). This will enable you to stay informed and make informed decisions when buying or selling a home in 2023.

You can also find a version of the report covering Hunterdon County here.

“What’s” Happening in Somerset County’s Real Estate Market?

251 Under Contract Listings      $649K Average List Price       27 Average Days on Market

“The pace of home sales has continued to slow”

The existing strong economic indicators in employment and inflation, particularly following recent increases in interest rates, are causing concerns about the possibility of the Federal Reserve deciding to raise interest rates a bit further (although they held steady in November).

Although interest rate hikes had experienced a rise until now, it was anticipated that they would decrease due to inflation being controlled, not reaching the levels of two years prior. However, this expectation has not materialized, resulting in a growing hesitancy among sellers to list their homes on the market and make a move, especially for those seeking lower interest rates on their current homes.

The market is currently witnessing a reduction in housing inventory and just under 20% in sales compared to the previous year.

In a broader sense, the market shows signs of returning to a more typical state. There are fewer offers exceeding the asking price, and bids are now including contingencies such as mortgage approval, home sale, and inspection. The inventory of newly listed properties has increased 0nly slightly compared to the previous month, contributing to an overall decline in total inventory. Nevertheless, the demand continues to outpace supply, keeping prices stable in our region. However, in higher price brackets, there appears to be pressure on prices as those segments of the market move toward a balanced or even buyer-oriented market.

For those contemplating a decision to buy or sell, the answer lies within this analysis. Presently, the market strongly favors sellers due to swiftly moving inventory, which is helping to maintain price stability in our locality. However, there is a gradual shift toward a buyer’s market in the higher price ranges. Over the past years, prices experienced significant increases—nearly 12% in 2020, 18% in 2021, and 9% in 2022. While modest growth was anticipated for early 2023 (surprisingly still occurring), homes priced at $1,000K and above are seeing decreased inventory, impacting their supply and demand dynamics. Conversely, prices below this threshold continue to rise, although the rate of increase has decelerated.

Market Statistics for Somerset County:

• Last month, the market saw an increase in new inventory, with 162 new listings, compared to 165 in the previous month. This decreased from the 295 new listings seen in the same month in 2022.
• As of the beginning of this month, the available inventory has increased to 327 units from 330 units last month. However, this is still much lower than the 592 units available in the same month last year.
• The number of units that went “under contract” last month was 251, which is a decrease from the previous month’s 311 and a decrease from the 323 units in the same month last year.
• Over the past month, the average number of days on the market has remained at 27 days.
• Currently, the month’s supply of inventory stands at just over 1.3 months, indicating a strong seller’s market. This trend holds true for properties priced under $1,000K.

The present market conditions exhibit an optimal supply and demand curve that favors our sellers. Therefore, waiting until later in 2023 or early 2024 to sell may not be a wise strategy. The current market is probably at its peak, and it’s unlikely to witness any significant price increases or sustain the high price points for much longer. It’s advisable to take advantage of the current market situation and list your property for sale now.

New Jersey Residential Real Estate Market Forecast

The late summer and early fall seasons of 2023 brought about solid listings and sales, despite not being as strong as the previous year, which was above average (called a unicorn year). This was attributed to the increased move to the West (urban flight), pent-up demand, challenging mortgage rates, and sellers entering the market as COVID-19 concerns waned.

Although inventory levels remain low, new listings are selling quickly, resulting in strong sales and prices for sellers. However, the most significant uncertainty in 2023 is finding a more suitable home and an affordable mortgage.

On the buyer side,  as a point of comparison, a buyer with an income of $100K putting 10% down used to qualify for about a $380K purchase price at 2.75% mortgage interest.  Today it would only qualify for a $285K purchase price, at 7.2% mortgage interest.  That is a 25% drop in buying power. Trade-up buyers are experiencing similar effects. Both of these comparisons allow for a qualifying monthly mortgage expense of 30% of income. Recent numbers are showing that this proportion is creeping up to nearly 25% which means that something else has to give in a buyer’s monthly budget.

This has resulted in many first-time buyers being priced out of the market and most trade-up buyers being reluctant to make a move. Nonetheless, if possible, it is an excellent time to purchase a home as the terms have stabilized due to the lack of competition, and refinancing is always an option as interest rates decrease in the future.

And, interest rates are still predicted to rise and not pull back at all for the balance of 2023.

Somerset County Real Estate Market Inventory Breakdown By Price For Last Month:

• 47% of sales in houses > $500,000
• 43% of sales in the $500,000 to the $1,00,000 range
• 11% percent of total sales (or 10 in total) in houses >$1,000,000

Somerset County Real Estate Market Inventory Breakdown By Municipality For Last Month:

One area had no sales last month:

• Millstone

Two areas had 1 sale each last month:

• Far Hills
• Rocky Hi;;

Hotspots:

• Bernards/Bernards Twp. – 27 Sales
• Bridgewater – 34 Sales
• Franklin Twp. – 55 Sales
• Hillsborough – 33 Sales
• Warren/Watchung – 18 Sales

These hotspot areas equaled 67% of the sales last month. The average new listing coming on the market last month neared $763,963. The average unit price going “under contract” was $648,728 (15% less).

Bridgewater Township Statistics:

• There are 31 homes for sale in Bridgewater Township as of this writing.
• Of the 31 homes for sale, 14 are community properties (such as townhouses and condos) and seven are in our 55+ communities
• The average list price for all listings in Bridgewater Township is $853,052.
• There were 14 new listings in Bridgewater Township last month with an average list price of $772,164.
• There were 34 homes that have gone under contract in the past month with an average list price of $666,880 and 23 days on market.
• Giving us under 1 month of inventory

Note:

If you want to obtain a competitive price for your property based on its location and uniqueness, you can contact me at (908) 304-4660. By leveraging Coldwell Banker’s big data technology and Artificial Intelligence capabilities, you can gain a unique advantage in the market. I can demonstrate the latest age and earnings breakdown for your area, including where people are moving from and how to market directly to those specific areas and demographics. This approach will maximize the selling price while reducing the time on the market. Accurately priced and marketed homes tend to sell faster with the assistance of a seasoned real estate industry veteran and a local area expert.

“Why” is it happening…

New Jersey’s Economic Drivers:

New Jersey Home Sales and Inventory levels:

• The pace of sales across NJ has continued to slow in 2023.
• October did see a smaller decline of only 2% in sales statewide, but statewide, the YTD number was about 19%
• Sales have now declined for 24 consecutive months on a YOY basis.
• There are early signs of some pullback in pricing at the higher price tiers, but the lower tiers are still seeing price increases, just not as aggressive as in the past.
• First-time buyers are cooling down considerably due to higher pricing (price resistance), inventory shortages, and rising interest rates.
• Potential sellers find it challenging to locate suitable housing and are hesitant to list until they do. They are also dismayed by interest rates that are higher than they currently have in place on their current homes and for the most part are not willing to make a move unless they have an urgent issue such as a job transfer.
• Current mortgages show that nearly 71% of all mortgages are under 4%.
• The current month’s supply of inventory in Hunterdon County remains just under two months, and in Somerset County, around 1.25 months due to the rapid sales of new listings, which is called velocity. However, the market remains active.
• Hunterdon and Somerset County have considerably less inventory than a year ago. The unsold inventory in New Jersey has steadily decreased since reaching a peak in July of over 20,000 to about 13,000 today.
• Inventory reductions have occurred in all price ranges, with the under $400,000 market experiencing the most significant impact with 37% fewer homes and the $400K to $600K price tier seeing a decrease of 28%. The $600K to $1,000K price tier saw a decrease of 21%.
• New housing development has simply not kept up with population growth and is now focused on the rental market.

Interest Rates:

• Interest rates peaked at 7.8% in the last week of August, which was a 21-year high.  Fortunately, they have continued to rise slightly since.
• The economy is adjusting, and the average interest rates for a 30-year conventional mortgage have climbed slightly to just over 7%, while a fifteen-year conventional mortgage is around the 7% mark.
• It was anticipated that rates would drop as inflation improves, but not come anywhere near the rates we saw just two years back as those were artificially bought down to create demand.
• Many buyers are considering attractive ARM rates and other buy-down plans as alternatives.
• Additional activity to ease or temper the amount of mortgage-backed securities that the Fed buys each month is now being seen, negatively affecting rates in the future.
• Based on the current rates, first-time buyer mortgage applications have dropped, but restructuring debt and paying down high-interest items remain active.
• The Fed’s efforts to slow things down have resulted in the above.
• The Fed did not raise the rate in November.

National Job Front:

• Total nonfarm payroll employment increased by 150,000 in October, and the unemployment rate rose slightly to 3.9 percent, the U.S. Bureau of Labor Statistics reported. Employment continued to trend up in government, health care, social assistance, and construction.
• At the same time, job gains for the previous two months were revised downward by over 101,000 jobs. This gets little exposure on the network news channels but is not a strong indicator of the market.
• A large portion of the new jobs was part-time which could indicate that people are finding “side hustles” to help account for inflation.
• It’s important to note that natural job growth of about 175K per month is included in this number.
• The analysts also state that many new jobs were lost as small businesses failed and those people reentered the labor force.
• The labor force participation rate dropped to 62.7 percent. This rate is calculated by dividing the sum of all workers employed or actively looking for a job by the working-age population. It may have risen due to people taking a second job to make ends meet.
• Many people are resigning to pursue new career paths due to perceived health risks, the desire for more remote work, and a better work-life balance. New technology-based jobs are affecting this trend.
• In the under $50K earners, there is even some incentive not to work and collect benefits, contributing to the current unemployment rate.
• There are an estimated 8.9 million job openings, while about 5.3 million people remain unemployed. This means 1.7 jobs are available for every job seeker, increasing wages.
• The lower end of the job market has benefited the most from this trend, with higher starting pay rates competing for the lack of workforce. Jobs starting in the mid to upper $20 per hour are already being offered.

New Jersey Job Front:

• The unemployment rate increased in NJ for August; it was 4.4%, a little above the national rate.
• NJ has added about 50,000 YTD through September.
• Revisions to prior months showed a slowdown starting in June and July.
• NJ has recovered all the jobs lost during the early months of the pandemic.
• Job losses are still prevalent in industries such as construction, food services, and accommodations, with retail and wholesale trade also experiencing a downturn in some states. Even health care, social assistance, and manufacturing are shedding workers.
• NJ was hit harder than most states in the early months of the pandemic, but it has made a remarkable recovery since then.

Rental Market Trends:

• Rental prices in New Jersey have continued to increase in 2023, with a year-over-year average of over 3.6%, and are currently averaging just over $2,200 per unit. However, recent data shows a slight decrease in these prices.
• The vacancy rate in central New Jersey is currently at 3.4%, indicating a limited rental supply and leading to a rise in rental prices.
• The rental market typically includes some low-end buyers who opt to rent due to a shortage of available inventory. However, the recent constraints in the mortgage market have also contributed to the increase in this sector.
• NJ is on track to add 30K new apartment units in 2023.

New Jersey Foreclosures:

• The delinquency rate in NJ has decreased, which is a positive development.
• NJ’s current foreclosure rate remains low at 1.2%.
• Nationally, there is $11 trillion in equity to protect homeowners during a potential recession.
• The average FICO score of mortgage holders is over 750, higher than during the 2008 financial crisis.
• A slowdown and recession could still cause job losses and put mortgages at risk.
• Only 18% of mortgages in forbearance are at risk due to unresolved forbearance issues.
• A housing bust is not predicted to occur since there is a lot of positive equity in houses, thanks to recent appreciations.

Real Estate Market Recap

Forecast:

• The COVID-19 pandemic has seen a few new cases recently and seems to be all but over, but the economy is now facing a slowdown, with the GDP trending down for the last two quarters.
• Supply chain shortages have affected inflation, and concerns remain that undersupply could cause further price increases.
• Inflation (while dropping) continues to cause havoc on auto, finished goods, and energy pricing and is the enemy of long-term interest rates.
• Mortgage rates have risen and are now back up to 7.8% + as the Fed is tapering its current level of investment in mortgage-backed securities.
• The local inventory supply has held at about the previous month’s levels, and the housing affordability index has improved slightly, but mortgage payments are now nearing 30% of gross ( which causes a slowdown in spending in other sectors).
• Due to COVID-19 and recent unrest in NYC, interest in living in more suburban counties such as Hunterdon and Somerset has disappeared.
• Many people have found that working from home (in total or part) is a reality, and we will see less commuting and traveling in general as things start to open up again.
• Retailing and using vacant industrial space will transform to meet the new altered demands and lifestyles.
• The local market will have to adapt to the new suburban renaissance of where people will be working and what they will need to adapt.
• The lingering question has been, “Can we keep this momentum up with low to slightly rising inventory?” as predictions for slower sales and price increases in the balance of 2023 have already been made. Current forecasts are for about a 5% increase in 2023.
• Depending on their location and price points, local property values saw at least 18%+ appreciation in 2021 and another 12% in 2020, with the 2022 appreciation coming in at 9%.
• Days on the market in our area have held, showing buyers are becoming seasonally less active.
• But change is resulting in a back towards a more normalized environment if inventory continues coming onto the market and the first-time buyer fatigue that we have seen continues.
• Younger (millennial) buyers are coming of age in the pipeline for at least the next four to five years, which will continue to put more demand on the first-time buyer market, usually under $400K.

This is a substantial amount of information, and the situation is evolving daily. Nevertheless, it appears to be moving in a positive direction for now. If you require further clarification or have any concerns about how this could impact your individual circumstances, please don’t hesitate to reach out to me at (908) 304-4660. I’m always available to chat and assist you in gaining a better understanding.

Note:  Presented as a public service by Joe Peters of Coldwell Banker Residential Brokerage. Although reasonable care has been taken to provide this information, it is advised that you seek the guidance of a professional sales agent and avoid making any decisions solely based on my views, gathered trends, and statistics. I am not responsible for any consequences that may result from the utilization of this data.

Housing Market Forecast for the Rest of 2023 [INFOGRAPHIC]

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