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 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 three months, indicating a seller’s market. Normal market conditions average four to six months in Somerset County. Units going under contract averaged 47 days on the market. 329 properties went “under contract” in February compared to 356 in the prior month. Newly listed properties in the same period totaled 360. And, many of the sales and new listings that were seen were already in the pipeline form January and February.
Our total inventory number decreased from 1359 to 1009 units nearly 26% less than the same time last year. Yet, sales were only slightly off due to strong spring buyer demand so far. In March, we started to see the onset of the COVID-19 pandemic effect. And, many of the sales and new listings that were seen in March were already in the pipeline form January and February.
Looking forward to April, we expect to see fewer listings and sales. Just how many fewer is anyone’s guess. But we are already seeing existing listings restricting showings and new listings hesitant to list just yet because they do not want people in their house. And, most buyers are hesitant to view listings as well. It will take time to understand and adjust to virtual showing and open house methodology to know better just how much of an effect these issues will have. I will try to cover the possibilities under the Why it is Happening section.
Somerset County Inventory Breakdown By Price For Last Month:
|Condos/Town Houses *||110||118||305||3|
|Over 55 Communities*||5||14||36||3|
|$000K to $199K||11||24||39||4|
|$200K to $299K||53||76||115||2|
|$300K to $399K||59||68||160||3|
|$400K to $499K||48||44||144||3|
|$500K to $599K||48||47||129||3|
|$600K to $699K||39||22||99||3|
|$700K to $799K||24||14||74||3|
|$800K to $899K||20||19||57||3|
|$900K to $999K||16||4||47||3|
|$1,000K and Up||42||11||145||3|
|Totals for March||360||329||1009||3|
|Average Days on Market||47|
|* Included in $ breakdowns|
- 48% of sales in houses < $500,000
- 41% of sales in houses > $500,000 and < $1,000,000
- 12% percent of total sales (or 11 in total) in houses >$1,000,000
Somerset County Inventory Breakdown By Municipality For Last Month:
|Active Listings||Under Contract||Month’s Supply|
|Far Hills Boro||13||1||13|
|Rocky Hill Boro||3||1||3|
|South Bound Brook||11||5||2|
No areas in Somerset County reported no sales in the past month:
Only four areas reported one or two sales each last month:
- Far Hills
- Rocky Hill
- Bernards Twp & Bernardsville – 47 sales
- Bridgewater – 40 sales
- Franklin – 67 sales
- Hillsborough – 37 sales
- Montgomery – 23 sales
These hotspot areas equaled 65% of the sales last month. The average new listing coming on the market last month neared $615,388. The average price of a unit going “under contract” neared $464,825 (25% less).
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 and inventory levels:
- After record-setting increases in January and February, we have seen a 25% decline in sales in March over the same month last year.
- This 25% decline in sales was felt statewide.
- At the same time, the unsold inventory in NJ dropped by 10,000 homes vs. this time next year.
- We have not only seen some sellers reluctant to list in this troublesome time, but we have also seen some homes removed from the active inventory.
- Current unsold inventory in New Jersey now averages 7 months as compared to 3.3 months just last month which is a major change already.
- Hunterdon and Somerset County have about 22% & 26% less inventory than we had a year ago, respectively. This is a big drop.
- Decreases in inventory have occurred in all price points with the under $400,000 market seeing the largest drop which was about a 25% decline.
- Most business transacted in March was in the pipeline for 30 to 60 days prior. It will be interesting to see what occurs as the current pipeline dissipates.
- Interest rates have been all over the place over the last month.
- The economy is adjusting, and Interest rates are just over 3.5% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 3% mark. Five-year arms are just under the 3.35% range.
- Mortgages may be harder to get based on which industry you are employed in. This could affect the size of the buyer pool.
- And, mortgage forbearance is causing unforeseen issues in the mortgage market which may cause a drop in the amount of funds that are available.
- As said, the last few weeks have been a rollercoaster. Yet, we expect the rates to fall further giving buyers a once in a lifetime opportunity to buy at rates they probably will not see again.
National Job Front:
- On the national level, the US added over 2,100,000+ in 2019 v. 2,700,000 jobs in 2018.
- US unemployment rate slowed in January came in with 225,000 jobs added. An additional 325,000 were added in February which put the US on pace to add 3 million + jobs in 2020. Then COVID-19 appeared and we saw nearly all of the jobs created in the past five years erased.
- Fortunately, the economy was very strong going into this, but the effect is devastating and raises unemployment nationwide to 4.4% almost overnight.
- And, it appears to be only the beginning of what is surely more to come.
New Jersey Job Front:
- In 2019 NJ added 39,000 jobs once again. NJ added 39,000+ jobs in 2018 as compared to 47,100 for the same period in 2017.
- The NJ unemployment numbers were at 3.5%, just a month ago.
- 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).
- But, this too has ended as 371,000 people have filed for NJ unemployment over the past three weeks. The new unemployment rate for NJ is yet to be published.
- We are barely at the outset of this local unemployment issue in NJ.
- Food services and accommodations are again the leaders in job losses, though more states are now citing pain in retail, wholesale trade and construction, according to the U.S. Department of Labor. Health care, social assistance, and manufacturing are shedding workers, too.
- This will certainly have a huge impact on the buyers market in or crucial spring period.
Rental Market Trends:
- Rental prices in New Jersey rose again in 2019, averaging just over $1,600 per unit. Current vacancy rates in New Jersey have held to around 2.6% in NJ. vs. 3.8% state-wide.
- 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 by nearly 5 fold to meet this demand.
New Jersey Foreclosures:
- New Jersey continues to face falling foreclosure rate filings at about 1.9%. 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 1.9%, led by NY with 2.5%, MI with 2.4%, LA with 2.3% (mostly hurricane-related) and MW also with 1.9%. The national baseline number sits at a little under 1.2%.
- Foreclosures in NJ in 2018 were the lowest in the state in over four years. And, 2019 was even better with a number of just under 38,000 foreclosure filings (the lowest since 2012). With only one month in, NJ looks to be on track for a 40,000 foreclosure number in 2020. Obviously, this could change depending on how long it takes workers to get back on their feet from the COVID-19 pandemic.
Real Estate Market Recap
Overall Economic Conditions:
- In early March:
- We were at our longest economic expansion period just a month ago in America’s history with 125+ months of positive job gains.
- The GDP was still rising (although its rate of increase seems to be slowing a bit).
- And, wages are up significantly at the same time.
- Interest rates have decreased to just under 3.5%.
- Foreclosures rates have almost normalized.
- COVID-19 has now changed all that !
- In early April:
- We have seen a sharp spike in unemployment
- The GDP is threatened
- Wage growth is threatened.
- Interest rates are bouncing around (but holding).
- Inventory levels are down by 25% as listings are being deferred.
- The balance of 2020 real estate is now under extreme pressure as a result.
- Current Real estate values may be short-lived.
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.
- We may see a reversal of the above after the NYC area has become a COVID-19 hotspot.
- 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 of smaller luxury hi-rise close to mass transportation and work in the east (truly a mismatch).
- 60% of all new housing starts in 2020 in NJ were in the rental sector and 2020 numbers will surpass that. This is contributing to the lack of new construction.
- What a difference a month makes!
- Consumer confidence is now on hold (at best) until the total effect of the COVID-19 pandemic plays out and is better understood.
- This will affect how many listings and new buyers we see during the next few months and surely will have an effect on prices.
- Most consumers will still see homeownership as a sound investment.
- And, 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.
- The total effect will hopefully be helped by our having such a strong economy and real estate going into the pandemic.
- It is going to take time to tell and how much time is the question. In the meantime, real estate is predicted to be pretty much on hold.
- Yet people buy and sell homes based on life events. This will no change. Life events will go on.
- And never before seen interest rates will help this situation once it stabilizes.
- We are hoping to see a strong spike up as things are better understood and people get back to a normal life.
- It may be that the spring market starts to appear more mid-summer and lasts until late in 2020.
- Last month I said setting virus fears aside, the economy will continue to prosper with no recession currently in sight for the next 12 months. That is now off the table. The effect of the COVID-19 pandemic is now upon us.
- The economy is suffering from the recent spike in unemployment numbers and we are only three weeks into this crisis (at this writing). There will most certainly be more unemployment effects.
- And, this will affect the following:
- Current and future real estate values
- The amount of inventory available
- The ability for some buyers to get a mortgage
- More possible foreclosures
- Prime Interest rates have dropped several times in the past month in order to stimulate the economy and as of yet have had not had any downward effect on mortgage rates.
- Inventory supply will continue to diminish over the next few months.
- But, once we have a stronger confidence level in having things under control, the housing market should have a strong bounce-back or upward spike due to:
- The economy and housing market both being very strong going into the current COVID-19 issue.
- Pent up demand and a spring market being pushed out till further in 2020.
- Lower than ever mortgage rates.
- Life events (as mentioned earlier) will still happen. This will drive the pent up demand.
Wow. That is a lot to digest. And it is changing daily. For clarity and understand, I am always available if you want to talk and better understand how this might affect your particular situation.
Note: Presented as a public service by Joe Peters of Coldwell Banker Residential Brokerage. I took reasonable precautions in 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. You can contact me at (908) 238-0118.