Residential Real Estate
Somerset County’s Real Estate Market Conditions August 2018
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 and 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 six months in Somerset County. Units going under contract averaged 55 days on the market. 423 properties went “under contract” in June, down from 429 in the prior month. Newly listed properties in the same period totaled 459.
Somerset County Inventory Breakdown By Price For Last Month:
|New Listings||Under Contract||Active Listings||Month’s Supply|
|Condos/Town Houses *||151||123||397||3|
|Over 55 Communities*||8||12||27||2|
|$000K to $199K||27||31||87||3|
|$200K to $299K||92||97||221||2|
|$300K to $399K||85||81||217||3|
|$400K to $499K||69||56||167||3|
|$500K to $599K||44||49||144||3|
|$600K to $699K||34||31||130||4|
|$700K to $799K||25||20||133||7|
|$800K to $899K||21||15||89||6|
|$900K to $999K||25||20||94||5|
|$1,000K and Up||37||23||265||12|
|Totals for July||459||423||1547||4|
|Average Days on Market||55|
|* Included in $ breakdowns|
Somerset County Sales Breakdown Overview:
- 63 % of sales in houses < $500,000
- 32 %of sales in houses > $500,000 and < $1,000,000
- 05 % percent of total sales (or 23 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||16||1||0|
|Rocky Hill Boro||6||0|
|South Bound Brook||21||4||5|
Somerset County Sales Breakdown Detailed:
Two areas in Somerset County reported no sales in the past month
One area reported one or two sales each last month
- Far Hills
- Bernards – 45 sales
- Bridgewater – 64 sales
- Franklin – 74 sales
- Hillsborough – 49 sales
- Montgomery – 21 sales
These hotspot areas equaled 60% of the sales last month. The average new listing coming on the market last month neared $551,835 The average price of a unit going “under contract” neared $493,468 (11% less).
Note: To get an accurate price point for your property, contact me. Coldwell Banker’s big data technology capabilities will put you at an advantage. Plus, we can now tell you where people are moving into your area from and market to that area directly. Houses priced and marketed accurately sell fast, 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:
An increase of 1% in home sales in NJ in Year to Date helped to record over 12,000 sales which is a record.
Activity concentrates in the <$400,000 market (which pulled back a little in June due to lack of inventory) where Millennial buyers transition into home ownership. During the same period, all housing sales showed 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 and had recently decreased. The supply decreased by ~ 4,000 homes, compared to a year ago. Currently, ~30,000 fewer homes are on the market compared to the 2011 peak.
Current unsold inventory in New Jersey varies widely by county with some having only 2.7 months. No county presently has more than eight months of supply. The average is at 3.7 months compared to 3.9 months a year ago.
We 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 1 and 6% less inventory respectively than a year ago. And, those counties have about 12 and 18% less inventory respectively than two years ago.
The fear of increasing interest rates based on future increases and the Fed’s slightly loosening lending standards are driving the current market activity.
The economy is strengthening, and Interest rates at the end of June fall slightly to around 4.53% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just over the 4% mark. Five-year arms are just under the 3.875% range.
Consumer fears of steadily rising interest rates and slowly rising home prices are driving the current market demand. The Fed already instituted several initial increases in rates and are talking about additional ones. Industry analysts forecast to be nearly 5% by the end of 2018, and 5.5% by the end of 2019. If the rate increases from 4% to 5%, buyers will lose 9% of their buying power and have already lost 6% with rate increases over the past few months.
Combine this with the steadily increasing prices and consumer confidence, and you have what is driving our current market activity
National Job Front:
US unemployment rate has risen a bit to 3.8%, the lowest it has been in eighteen years! This trend is expected to continue as a result of the recent tax reform.
On the national level, the US added nearly 1,300,000+ jobs in January thru June of 2018 and is trending towards 2.6 million added jobs by year-end.
At the end of May, there were 6.5+ Million openings compared to nearly 6 Million unemployed persons, with unemployment being the lowest since January 2001.
And the GDP is predicted to keep expanding.
Consumer confidence is the highest since 2004. Great news for the housing industry!
New Jersey Job Front:
The NJ unemployment rate fell slightly to 4.3%, bolstering consumer confidence in NJ as well.
NJ lost 500 jobs in June, and 32,700+ jobs have been added in NJ in the first four months of 2018 which was a significant improvement over 2017, and if it continues, NJ could add over 45,000 jobs by year-end.
The level of jobs created was at a much higher level than in the past several years (a silver lining?).
It also should be noted that these jobs are concentrated in the northern half of the state.
Rental Market Trends:
We still have an extremely tight rental market!
Prior restrictive mortgage standards nudged Millennials to postpone home ownership in life later than previously seen. These potential buyers live with parents or share rentals. We are starting to see them now re-enter the rental and first-time buyer markets. The average age of our first-time buyer changed from 29 to 37 years over the past five years. Older Americans impacted by underfunded retirement plans due to the economic downturn rent houses too.
Rental prices in New Jersey rose ~ 5% in 2017, averaging nearly $1,500 per unit. Current vacancy rates in New Jersey rose to 3.8% with the in northern and southern NY and Philadelphia at 4+%.
We have seen a 2Q2018 rise in rental prices in Central NJ of 2.8% alone. With the demand being what it is, we see new construction in this sector rise almost 400%.
The drop in New Jersey’s homeownership contributes to rental demand. A 12+ year trend shows a decrease from 71% to 64%. This 7% decrease compared to an 8% national decrease contributes to the slower recovery of home prices in the state and adds over 230,000+ additional renters in our state. Households with no children stand at 65%, reflecting the decline in our school population.
New Jersey Foreclosures:
New Jersey continues to face high foreclosure rate filings. 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 #2 in the country at 3.0%, led by only FL with 4.3% (mostly hurricane-related) and followed by NY, LA, MS, ME, TX, DE, MD, and PA. The national baseline number sits at ~ 1.7%.
2017 foreclosure filings decreased slightly to 70,150+ or -5%, putting pressure on home prices in concentrated areas. Base on the first five months of results 2018 could fall another 6% to around 66,000 filings.
Real Estate Market Recap
- 2017 was the seventh straight year of 2 million + job gains.
- Although improving in 2018, the NJ job situation had been declining for the past two years.
- At 4.4% unemployment, NJ is almost 10% above the national average which is currently 4.0%.
- The best paying and most attractive jobs are in NYC luring the millennials in that direction.
- Interest rates have already risen .5% in recent months are forecasted to rise another .5% by year’s end, taking almost 10% away from buyers buying power.
- And, house prices are rising 6+ % in the popular housing price points further exasperating the situation.
- 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.
- 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.
- Foreclosures are on the decline and to some extent are helping to offset fewer listings.
- Also, there is confidence that the new tax and jobs act will further stimulate the economy with more jobs.
- The new tax rules appear only to affect our very higher-end buyers.
Changes in lifestyle:
- Average age at marriage is now in the mid to late 30’s (up 7 years from just a decade ago).
- Families usually have only one to two children due to costs and ability to choose.
- 65% of all NJ homes have no children of school age.
- 50% do not have more than 1 person in them.
- Demand for larger houses has diminished.
- 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 4 BR center hall colonials on 1+ acre in the country.
- Buyers are thinking luxury hi-rise close to mass transportation and work.
- And, for the first time in history, Hunterdon County (which has been declining in population) has reported more deaths than births in 2017.
- We are starting to see some warnings of a slowdown in 2020, and this needs to be monitored.
- But, in general, homeowners are sitting with more equity than ever and are not longer using their homes as an ATM. So, the effect of any slowdown on housing should be minimal (if at all).
- Consumer confidence remains extremely high nation-wide based on the job and stock market increases.
- This confidence is reflected in buyer traffic being up at open houses. However, with lack of inventory, there are fewer houses for sale.
- Millennials make up 24% of our current homeowners with more room for expansion at the lower end of the market when adequate inventory supply materializes.
- Central New Jersey’s trend for 2016 and early 2017 showed a surge in home sales but price increases only in houses clustered in < $500,000 market where the first-time buyers and Millennials are focused.
- The >$600K 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.). The extreme high-end market has also seen some appreciation in 2018 so far.
- 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 price growth at an annual 3 to 4%.
- There is an acute shortage of inventory in both Hunterdon and Somerset county. In our more popular price points and locations, this holds back sales. In general, we have only about 50% of the inventory that we had in 2011.
- In 2017 prices rose ~ averaging just over 3.5% and depending on price points and locations. 2018 promises to be even stronger (without factoring in any tax impact).
- Mortgage delinquency is normalizing.
- The economy will continue to prosper with no recession currently in sight for the next 18 + months.
- Interest rates will Climb to about 5% by year-end further decreasing buying power.
- Home prices will rise by an average of another 3% during that same period (this will depend on your price point and location).
- 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.
- For the first time in memory, the US is reporting 6+ million pen jobs and only 6 million unemployed.
- We now need to match the skills of the unemployed to the job openings to prosper further.
- The affordability index shows that there is room for much more sales, we just need the inventory.
- Some decrease in moderate prices home ownership could result in the raising of the standard deduction.
- 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 will flourish as a result.
- Mid-term elections effect is a total unknown at this point.
- 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 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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