Residential Real Estate
Somerset County’s Real Estate Market Conditions February 2019
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 five months in Somerset County. Units going under contract averaged 72 days on the market. 256 properties went “under contract” in January, the same as in the prior month. Newly listed properties in the same period totaled 374.
Somerset County Inventory Breakdown By Price For Last Month:
|Condos/Town Houses *||56||144||302||2|
|Over 55 Communities*||6||15||38||3|
|$000K to $199K||21||32||67||2|
|$200K to $299K||69||69||194||3|
|$300K to $399K||70||44||166||4|
|$400K to $499K||37||30||126||4|
|$500K to $599K||28||18||107||6|
|$600K to $699K||32||16||77||5|
|$700K to $799K||23||17||58||3|
|$800K to $899K||23||15||65||4|
|$900K to $999K||17||4||53||13|
|$1,000K and Up||54||11||183||17|
|Totals for January||374||256||1096||4|
|Average Days on Market||72|
|* Included in $ breakdowns|
Somerset County Sales Breakdown Overview:
- 68% of sales in houses < $500,000
- 28% of sales in houses > $500,000 and < $1,000,000
- 04% percent of total sales (or 11 in total) in houses >$1,000,000
Somerset County Inventory Breakdown By Municipality For Last Month:
Somerset County Sales Breakdown Detailed:
|Municipality||Active Listings||Under Contract in Last Month||Months Supply|
|Active Listings||Under Contract||Month’s Supply|
|Far Hills Boro||15||0|
|Rocky Hill Boro||2||0|
|South Bound Brook||14||6||2|
Only three areas in Somerset County reported no sales in the past month
- Far Hills
- Rocky Hill
Two areas reported one or two sales each last month
- Bernards – 25 sales
- Bridgewater – 36 sales
- Franklin – 53 sales
- Hillsborough – 30 sales
- Montgomery – 16 sales
These hotspot areas equaled 63% of the sales last month. The average new listing coming on the market last month neared $629,471 The average price of a unit going “under contract” neared $469,479 (25% less).
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Why it is happening
New Jersey’s Economic Drivers:
New Jersey Home Sales:
For the first time in three years, we have seen an improvement in the inventory situation over the past six months (but is still below what is needed). Let’s hope that it is the beginning of a trend.
The still low inventory numbers lead to a bit of softening in the price appreciation on existing homes and a slowdown in growth. It could turn the tide back to a buyers market (or at least neutralize it to being a normal market).
A decrease of 9% in home sales in NJ in December and the same remains flat to slightly lower year to date being held back by a lack of inventory (the shelves are empty at the entry levels).
Activity concentrates in the under $400,000 market where Millennial buyers transition into home ownership. This segment has shown a decline in sales due to lack of inventory.
During the same period, all housing sales above $400,000 showed modest 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 (but rising slightly by 4% last month). The supply increased by nearly 1,300 homes, compared to a year ago. Currently, ~39,000 fewer homes (-53%) are on the market compared to the 2011 peak.
Current unsold inventory in New Jersey varies widely by county with a total of only 4.2 months (down from 4.3 months last year). Eighteen counties presently have less than eight months of supply.
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 6 to 7% more inventory that we had a year ago, but about 10% less than two years ago.
And, we have seen some initial gentle “pull back” in 2018 as a reaction to what is considered “price sensitivity” towards some of the existing inventory.
Also, we are now seeing some millennials coming back into our local markets and buying homes (good news).
Interest rates are rising as a result of our strong economy.
The economy is strengthening, and Interest rates have fallen in recent weeks to just over 4.45 for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 3.88% mark. Five-year arms are just under the 3.9% 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 had forecasted to be nearly 5% by the end of 2018 fell a little short, 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.
The fear of increasing interest rates coupled with steadily increases in prices is current market activity.
National Job Front:
US unemployment rate has remained ticked up slightly to 3.9% as discouraged workers are re-entering the job market and the addition of 312,000 jobs in December. And, there are forecasts that it will drop further again. This trend is expected to continue as a result of the recent tax and jobs reform.
On the national level, the US over 2,600,000+ jobs a year to date and is trending towards 2.5+ million added jobs by year-end (a twenty-seven percent increase over the prior year) and the 8th consecutive year of 2+ million job gains.
At the end of November, there were 6.9+ Million openings compared to nearly 6.0 Million unemployed persons, with unemployment being the lowest since December of 2000.
And the GDP is now just under than 4% and 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 stands at 4.0%, bolstering consumer confidence in NJ as well. In effect, NJ is rising with the national tide of nearly full employment.
NJ lost 1,900 jobs in November and 2,600 in December, and 61,900+ jobs have been added in NJ year to date 2018 as compared to 47,100 for the same period in 2017.
The level of jobs created was at a much higher level than in the past several years (a silver lining as these additions can 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:
We still have an extremely tight (but improving) rental market!
And, Trulia states that on average it is 26% less expensing to own vs. rent.
Prior restrictive mortgage standards nudged Millennials to postpone home ownership in life later than previously seen. These potential buyers live with their 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 the late ’20s to the mid-’30s 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 $1,600 per unit. Current vacancy rates in New Jersey have fallen to 4.1% statewide. This rise was assisted by a rapid increase in building in this sector.
We have seen a 2Q18 rise in rental prices in Central NJ of 4.7% 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 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 was a result of 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 way to build wealth (a strong argument for home ownership).
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 to their discretionary income (including savings). Makes one wonder where this all is heading…
New Jersey Foreclosures:
New Jersey continues to face high but falling foreclosure rate filings at 2.5%. 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 #4 in the country holding at 2.6%, led by NY with 3.1%, MS with 3.0% (mostly hurricane-related) LA with 2.7% and trailed by ME, FL, DE, MD, PA, and AL. The national baseline number sits at a little under 1.7%.
Two thousand seventeen foreclosure filings decreased slightly to 70,150+ or -5%, putting pressure on home prices in concentrated areas. Base on the year to date results for 2018 could fall another 13% to around 60,000+ filings.
Tax cuts and Jobs Act effect:
Three specific areas had appeared as concerns. State and Local Taxes (SALT), Mortgage and Interest Deductions (MID) and Home Equity Line of Credit (HELOC) Loan interest deductions.
It would appear that the overall concern was unfounded. The SALT fears were unfounded being offset by the lower tax brackets.
The higher income luxury market is probably most at risk. It appears that you have to earn $400K and own $1 million property. And, there are some people in NJ that do, and they will be affected. But, how it affects the overall incentive to own a home is still unfolding. As people start to go through preparing their 2018 tax returns, this may change. But, most higher end probably have mere than likely done pro-formas in advance and to better understand their possible consequences of the changes to the tax code.
In a nutshell, these changes appear to be having little impact to date, but there will be some very high-end people affected, and that will, in turn, affect that segment of the market. That effect might slow the price growth in higher priced homes NJ and even turn into a deficit in some most affluent areas.
As most people are readying to do their taxes using the new tax codes, we should know more as to actual future impact within a few months.
Real Estate Market Recap
- 2018 was the eighth straight year of 2 million + job gains.
- Although improving in 2018, the NJ job situation had been declining for the past two years.
- At 4.0% unemployment, NJ is now equal to the national average which is also currently at 4.0%
- The best paying and most attractive jobs are in NYC pulling many or our millennials in that direction.
- Interest rates have already risen over .5% since the first of the year but appear to be holding.
- And, house prices have risen 6+ % in the popular housing price points further exasperating the situation (although this appreciation now appears to be slowing).
- 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. This may loosen up as many new listings have come on the market over the past few months.
- 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 (as stated earlier, the shelves are empty in our starter housing price points).
- Foreclosures are on the decline and to some extent are still helping to offset fewer listings although we have seen recent news of an upswing in NJ.
- Also, there is confidence that the new tax and jobs act will further stimulate the economy with more jobs as the economy remains robust.
- The new tax rules appear only to affect our very high-end buyers.
Changes in lifestyle:
- 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.
- 65% of all NJ homes have no children of school age.
- 50% do not have more than one person in them.
- Demand for larger houses has diminished not only in NJ but everywhere.
- 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 larger 4 BR center hall colonials on 1+ acre in the country (based mostly on local building codes).
- Buyers are thinking smaller luxury hi-rise close to mass transportation and work (truly a mismatch).
- 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 an economic slowdown starting in late 2020 as the fed raises interest rates to curb inflation.
- The effect on housing is seen to be limited to curtailing the growth of price appreciation and not in any loss in value.
- But, in general, homeowners are sitting with more equity than ever (NJ reports 92% 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.
- This confidence is reflected in buyer traffic being up at open houses. However, with a lack of inventory, 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 25% 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 for 2017 and early 2018 showed a surge in home sales but price increases only in houses clustered in < $400,000 market where the first-time buyers and Millennials are focused.
- The >$500K 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 (but diminishing) price growth 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.
- 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. However, an improvement in inventory has been seen over the past four months.
- It is simple. We could sell more houses if we had more inventory, And, we have started to see small inventory increases over the past four months. As a result, 2019 can be a boom for resales.
- In 2017 prices rose ~ averaging just over 3.5% and depending on price points and locations. 2018 promises to be even stronger and closer to 5+ % (without factoring in any tax impact). The following two years will see less in % but should still show modest growth (depending on price point and location).
- Mortgage delinquency is normalizing.
- The economy will continue to prosper with no recession currently in sight for the next 24 + months. And, there most likely will be only an impact on the rate of price appreciation if this happens.
- Interest rates will Climb to about 5 % in 2019 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) further decreasing buying power.
- 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 (just look at the help wanted signs).
- For the first time in memory, the US is reporting 7+ million open jobs and only 6 million unemployed. We are at full employment if you consider that 3% 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 out the economy.
- The affordability index shows that there is room for much more sales, we need an increase in inventory. The most affordable time to buy is now!
- 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 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.
Note: Presented as a public service by Joe Peters of Coldwell Banker Residential Brokerage. I took reasonable precautions for 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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