Somerset County’s Real Estate Market Conditions April 2022

I strive to bring certainty in understanding our Somerset County real estate market. My monthly market update walks you through the economic conditions and trends that influence our local markets. It also offers hyper-local statistics that you will not be able to find elsewhere. You will come away knowing “what” is happening in those markets, and more importantly, “why” it is happening. As a result, you will keep informed to make home buying and selling decisions in 2022.

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

Our local real estate market is very strong and moving fast.  Houses that used to take four to six months to sell are now selling in four to six days. and, the total days on market have been steadily dropping as well.

Fast-moving inventory and rising interest rates have resulted in a strong seller’s market. We saw a nearly 20% rise in prices in 2021. Although further increases will persist, we expect the rate of increase to diminish in 2022.  If you will be selling in 2022, waiting for later in the spring is not a good strategy.  The market is at its strongest now!

Contract sales increased month over month in Somerset County in March.

Based on the last month of contract sales, statistics show a fast-moving supply of inventory of just under 1 month (down 25% from the previous year). The units going under contract dropped to 27 days on the market. Four hundred units went “under contract” in March, up from 287 in the prior month. Newly listed properties in the same period totaled only 249 up from 309 in the preceding month.

Our inventory decreased from 521 this time last year to 389 units (25% less) due to the mentioned fast-moving market. But the inventory numbers were up 51 units in Somerset County vs. the prior month as well (a good sign for buyers).

Our sales decreased from 446 this time last year to 400 units (10% less). But sales were up 113 units over the prior month.  We did see a slowing of first-time buyer activity (or their ability in finding affordable inventory). It is still an optimum supply and demand curve for our sellers.

New Jersey Residential Real Estate Market Forecast

Because of the continued move to the west (urban flight), pent-up demand, still relatively attractive mortgage rates, and sellers coming on the market as Covid fears still seem to be diminishing, we expect solid listings and sales thru the winter season. Just, not as strong as in 2021.

The new listings are selling extremely fast. So, even though we still have low inventory levels, sales are very strong. In 2021 we witnessed many homeowners facing financial and/or life uncertainty and holding off on listing their properties. In 2022, their biggest uncertainty is finding another more suitable house.

We are actually seeing fewer open houses in 2022 due to the fast pace of sales

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

• 52% of sales in houses > $500,000
• 34% of sales in the $500,000 to $1,000,00K range
• 14% percent of total sales (or 54 in total) in houses >$1,000,000

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

Two areas had no sales last month:

• Millstone
• Rocky Hill

Three areas reported 3 sales or less each last month:

• Far Hills
• Raritan
• S. Bound Brook

Hotspots:

• Bernards/Bernards Twp. – 76 Sales
• Bridgewater – 36 Sales
• Franklin Twp. – 70 Sales
• Hillsborough – 31 Sales
• Warren/Watchung – 36 Sales

These hotspot areas equaled 62% of the sales last month. The average new listing coming on the market last month neared $706,478. The average unit price going “under contract” was $752,927 (7% less).

Note: To get a competitive price point on your property based on location and uniqueness, contact me at (908) 238-0118. Coldwell Banker’s big data technology capabilities will give you a unique advantage. I can show you the latest age and earnings breakdown for your particular area where people move from into that area and how I can directly market to those specific areas and demographics. 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:

• The rebound that started in June 2020 has continued through early 2022.
• We have seen some signs of it cooling down, mainly due to a lack of inventory and buyer empathy, and affordability factors.
• Many possible sellers are experiencing difficulty in finding other suitable housing themselves.
• The current month’s supply of inventory in Hunterdon and Somerset County is still just over one month, and this is due to the extremely quick sales of new listings as they come on the market. The market does remain very active.
• Hunterdon and Somerset County have about 14% & 25% less inventory than we had a year ago, respectively.
• Unsold inventory in N.J. has also decreased state-wide year-over-year by 14%.
• Decreases in inventory have occurred in all price points, with the under $400,000 market seeing the most considerable impact and the $400K to $600K the second largest.
• However, we have seen increases in sales across most price points, with the under $400K range witnessing the largest decrease of 21% due to lack of inventory.
• New housing has not kept up with our population growth.

Interest Rates:

• Interest rates have been increased over the past few weeks but are threatening to inch up further.
• The economy is adjusting, and average Interest rates are nearing 4.4% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at the 3.625%  mark, and five-year arms are under the 3.375% range.
• As said, rates in the last few months have been inching up based on the 10-year note yield.  For the past couple of months, consumer prices (inflation) have run above the 30-year mortgage rates for the first time in 50 years. As this is unsustainable, either we will need to see inflation come down a lot, mortgage rates rise, or both.
• Also, we are now seeing plans to ease (or temper) the amount of mortgage-backed securities that the Fed buys each month, which will negatively affect rates going forward. In effect, the rates have already inched up a bit due to this.
• Based on the rising rates, we are seeing a drop in feasibility for refinancing, but still active in restructuring debt and paying down high-interest items.

National Job Front:

• In January of 2022, the U.S. added 467,000 jobs. in February the U.S. added 678,000. And in March the U.S. added 431,000, bringing the unemployment rate to 3.4%. This is about where this percentage was pre-pandemic.
• We have to keep in mind that we have natural job growth of about 175K per month which this number includes.
• The current US unemployment count is 5.9 Million.
• Also, we are seeing many resignations as the workforce repurposes itself. These are due to people switching careers due to the desire to pursue new career paths, perceived health risks in their current jobs, the desire for more remote work, and better work-life balance.
• We currently have 5.9 million wanting a job, while there are an estimated 11 million job openings at this point.
• The lower end of the job market has benefited the most from this phenomenon as we see higher starting pay rates competing for the lack of workforce. We are already seeing jobs starting in the mid to upper $20 per hour ranges being offered.

New Jersey Job Front:

• The NJ unemployment numbers were at 3.5% pre-Covid are now higher than the U.S. at 4.6% for the last month reported.  The net result is that we still have nearly 215,000 people unemployed in NJ.
• Construction, food services, and accommodations are again the leaders in job losses, though more states are now citing pain in retail and wholesale trade. Health care, social assistance, and manufacturing are shedding workers, too.
• N.J. was hit early and hard by the pandemic with almost twice the national rate of job losses.  So, where it is currently is quite remarkable.
• But, the job losses will undoubtedly impact the lower end of the buyer’s market in 2022.

Rental Market Trends:

• The drop in New Jersey’s homeownership since 2008 contributes to rental demand. The 14+ year trend shows a decrease from 71% to 66%.  This decrease adds over 20,000+ additional renters in our state. However, the 71% level resulted from the lax lending standards of the early 2000s, and 66% is considered acceptable.
• Rental prices in New Jersey rose again through 2021, averaging 15+% higher year-over-year or just over $1,900 per unit.
• One article states that the average homeowner with 65+ has an average net wealth of over $318K, while the same for a renter is only just under $8K.  Homeownership also offers a stable place to live, an evident hedge against inflation, and a way to build wealth (a strong argument for homeownership).
• The central N.J. vacancy rate now stands at 3.8% resulting in a minimal rental supply.
• The rental market sector reflects some low-end buyers now renting due to inventory constraints and job losses in the under $400K market that have hit that segment the hardest.

New Jersey Foreclosures:

• Foreclosure rates in January 2022 were the highest since the beginning of the Covid-19 pandemic.
• Nationwide we saw one in every 5,922 housing units having a foreclosure in January of 2022. In NJ this was one in every 2,336 units which was the highest in the nation.
• The forbearance numbers will affect foreclosures as that program comes to an end. About 2.6% of mortgages are now 90+ days delinquent and are headed in the wrong direction. But, this is not yet shown in these numbers and will affect future years’ statistics.
• However, this effect will be nowhere near the last housing crisis since the is a lot of positive equity in houses today.  But delinquencies have been rising.

Real Estate Market Recap

Changes in Lifestyle (Non-Covid):

• The average age at marriage has risen to the mid-thirties.
• Due to costs and the ability to choose, families usually have only one (or maybe two) children. The national births per woman is now nearing 1.5 children per family, while the number needed to maintain our current population level is 2.1. If this continues, the result will be a fore-coming population implosion.
• And, the fact that people are living longer helps support the workforce with many seniors still in the job market.
• In many job markets, immigration is now also supplementing the workforce numbers.
• As a result of prior job opportunities, buyers once gravitated to areas within 15 miles of NYC with sound mass transportation systems.
• Starting several years ago, we were beginning to see a reversal of the above as late millennials were looking for more space and a place to raise their upcoming families better.
• This trend was sure to continue as 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 built most of the affordable land. Affordability is affected by local zoning, safety, and environmental constraints.
• While first-time buyers are typically looking for smaller sub $400K single-family or luxury hi-rise properties, builders target much larger and more costly projects in scope or rentals.
• 70% of all NJ homes have no children of school age, and 50% do not have more than one person in them, and this factor minimizes the need for larger housing.
• The majority of all new housing starts in 2021 in NJ were in the rental sector, and the 2022 numbers look to surpass that contributing to the lack of new construction and inventory.
• Also, builders are encountering severe supply chain issues causing delays and erratic increases in pricing.
• The recent trend of moving further away from the city to more rural areas is helping Hunterdon and Somerset counties.
• And, we could see additional work from home job opportunities as we see more emerging/disruptive advances in technology which allows this westward move to happen.
• In effect, Covid-19 has caused the speed in the evolution of these technologies to increase.

Changes in Lifestyle (Covid Related):

• The “Great American Move” to more rural areas is a term that we are starting to see for this new lifestyle exacerbated by the pandemic and civil unrest in metropolitan cities.
• Many workers now only have to go to the office only on occasion, allowing them to live further out n the “burbs”.
• But, this move is primarily among the more educated and skilled workers that can use technology to adapt to a work-from-home environment.
• Many professionals such as medical and first responders as well as many lower-skilled/educated service sector workers cannot work remotely from home.
• There is an open question of how many workers will continue to gravitate away from (or return to) the city as they adapt to work from home environments and as buyers need a live/work/play/learn environment.
• Many people have rethought their lifestyles, and are changing jobs and work locations to accommodate their new thinking.
• Also, workers can now find more competitive wages in the lower end of this job market, allowing them to consider more rural options.
• Open floor plans, the list-topper for the past twenty years, seem no longer important as buyers gravitated towards more compartmentalization within the home.
• Live/Work/Education/Exercise (or play) areas are now vital.
• Touchless technologies are now in.
• Also, backyard recreation facilities such as recreational areas and pools are now preferred, and backyard oasis environments add value to the above lifestyle.
• There is also an interest in properties with outbuildings and studios/Lofts.

Market conditions:

• What a difference we have seen in consumer thinking since the pandemic started. And it is still evolving.
• Consumer confidence was put on pause in early 2020 and then started to fast forward in June of 2020 and has not slowed appreciably since.
• A 2021/2022 winter slowdown hardly appeared in the real estate market.
• Yet, it appears to be slowing down due to higher prices and shortages of inventory.
• Consumers still see homeownership as a sound long-term investment based on affordability.  It is just that their shopping list as to what they want has changed.
• 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 average equity in NJ rose by $58K over the past year due to price increases.
• In 2021/22, many strong equity homeowners will decide to sell or trade to take advantage of the buying surge as they rethink their housing options.
• Some moved to their second homes or out of state as they no longer needed to commute.
• Others pushed up their retirement plans.
• The current seller’s market has resulted as we still have many more buyers than sellers.
• People usually buy and sell homes based on life events and will not change. Life events have gone on (sometimes even moving faster).
• And never before seen (but slowly rising) low-interest rates plus the move west has helped the migration pattern towards NYC reverse.
• We are seeing a continued downtrend in new cases as the vaccines are starting to become a reality and things are better understood, and people get back to a new normal lifestyle.
• The new virus variants now seem to be diminishing.
• But it is anticipated that the new lifestyle will be much different from the old as we adopt the best of the two cultures.
• Nation-wide we sold more houses in 2021 than in 2020.  And 2022 is seen as being even more robust.
• The current shortage is for a different reason than in 2020.  People who want to list their homes in 2021 are now hesitant due to finding new housing themselves. The problem is feeding on itself.
• As a result, we see many offers with competitive terms like waiving appraisals and inspections.
• Because of the above point, we are now starting to see buyer fatigue.
• But, we anticipate a hectic spring/summer season in 2022.

 Homeownership: A Hedge Against Inflation:

A few interesting statistics:

• The national average home appreciation over the past 5 years in our area, has been 45%.
• The national average home appreciation over the past 30 years in our area, has been 219%.
• The home as an investment seems to speak for itself.

Forecast:

• The effect of the COVID-19 pandemic now seems to be almost under control.
• The economy is recovering (but at a slower pace) from the recent cooling in employment numbers.
• Supply chain shortages have been affecting inflation. There are even some concerns that we may be oversupplied and this could suddenly reverse.
• Inflation is causing havoc on auto, finished goods, and energy pricing.
• The recent invasion of Europe has shed some doubt on market predictability.  In effect, we have never seen a pandemic followed by a war. The near future is somewhat unpredictable.
• Mortgage rates continue to slowly rise and are now at 4.4% as the fed is tapering its current level of investment in mortgage-backed securities. It looks like this is certain to rise further.
• Inventory supply continues to decrease as we move further into 2022.
• The housing affordability index is better than ever, with mortgage payments at just over 21% of gross.
• But, we are starting to see the consumer sentiment index wain and that is concerning.
• Due to the COVID-19 and recent unrest in NYC, we are starting to see more interest in living in more suburban counties such as Hunterdon and Somerset.
• Also, many people have found that working from home (either in total or part) is a reality, and we will see less commuting and traveling in general as things start to open up once again.
• What were once “bedroom” communities are changing to” live, work, play & learn” communities bringing lots of change to our local economies.
• It is only a matter of time before we see more jobs (or remote capabilities) following workers into our suburban areas.
• Retailing and using vacant industrial space will transform to meet the new altered demands and lifestyles.
• More attention is now given to houses with pools and backyard spas and less open areas which lend themselves to working and studying at home.
• And, the local market will have to adapt to the new suburban renaissance of where people will be working from and what they will need to adapt to this.
• The lingering question is, “Can we keep this momentum up with low to falling inventory?”. Some predictions are for slower sales and price increases in the balance of 2022.
• Also, what will be the effect of continued inflation on the economy? It is already affecting mortgage rates. And retail sales are not advancing faster than inflation. This is also concerning.
• Jobs opportunities will surely follow the workforce and housing then follow jobs.  It seems out of logical sequence but will sort itself out as we progress.
• Depending on their location and price points, local property values saw at least 18%+ appreciation in 2021.
• And 2022 will see a cool down with a forecasted 5% increase in prices. (but didn’t we say that last year as well?)
• Days on the market in our area are still diminishing.
• But this could change back towards a more normalized environment if inventory continues coming on to the market and the buyer fatigue that we have seen continues.
• We still have many younger buyers 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.

Futures:

• Remote work demands have caused technology t0 to evolve quickly and offer many new options in the Live/Work/Plan/Learn environments. Areas to watch are:
  • Virtual Reality (a form of VR is where you can virtually walk thru a house while sitting at your PC or Tablet (see example)
  • Augmented Reality (where you can place a piece of furniture in a 3D rendering of a room in your home or try on glasses, makeup, or clothes)
  • Artificial Intelligence (which will utilize computer analysis of data to help make decisions). I use this to understand where buyers are moving from to an area and then advertising when listing a new house to those zip codes (see short video).
  • Robotics (we see this today via vacumes, lawnmowers, and pool cleaners)
  • Increased 5G availability (having the speed to do more things remotely)
  • 3D printing (having the ability to deliver an item remotely)
  • Autonomous driving (eliminating the need for delivery drivers, for example)
• As the demand for remote capabilities increases, these technologies will meet the challenges, and the convergences of several of them will offer capabilities that we have never even envisioned in the past.
• They will also eliminate many jobs as we know them today. One estimate states that 80% of all jobs we currently know will disappear over the next ten years and be replaced (in part) by new occupations (many of them being remote).
• Resulting unemployment will require retraining and repurposing many employees.

All of this has been taking place in the past. But the requirement for remote capabilities and lack of workforce has significantly sped up their development cycle.  In essence, we have pushed 5 years of advancement in these technologies into the past year. And, it looks like it will continue.

Wow.  That is a lot to digest.  And it is changing daily but seems to be heading in the right direction for now.  For clarity and understanding, I am always available if you want to talk and better understand how this might affect your particular situation. You can contact me at (908) 304-4660.

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 ask me a question or request a monthly copy of this newsletter here.