Somerset County’s Real Estate Market Conditions for December of 2022

My goal in this market report is to bring clarity to understanding our Somerset County real estate market through my local expertise.

My monthly market update walks you through the economic conditions and trends that influence our local markets as it offers hyper-local statistics that you will not be able to find elsewhere.

You will come away knowing not only “what” is happening in our Somerset County market specifically but, more importantly, “why” it is happening. As a result, you will keep informed to make home buying and selling decisions in 2022/23.

There is also a Hunterdon County version that can be found here.

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

The Fed continues to take aim at curbing demand in an attempt to slow the economy.

As a result, we have seen an increase in mortgage rates that have doubled so far this year, representing the largest increase in nearly 50 years. This is pricing first-time buyers out of the market and pausing decisions to rightsize as the new rates are much higher than most homeowners are paying currently (usually causing the loss of two sales).

The buyers that were moving west from the New Your City area have all but disappeared along with their higher wages and offers.

As a result of these items, we are experiencing a significant slowdown in traffic at open houses and in showing activity, and we are not seeing very many offers above asking. This has facilitated the return of a more normalized market with offers containing terms such as a mortgage, home sale, and inspection contingencies once again.

Newly listed inventory trended lower from last month’s numbers, and our total inventory is also down. Demand still outpaces supply (just under two months), resulting in prices in our area still holding their own until you get into the upper price points but no longer rising the way they were earlier this year.

Sales year to date is down over the same time last year by about 19%.

Should I consider buying or selling based on this? You will find the answer here…

Fast-moving inventory has resulted in a strong seller’s market, keeping home prices stable in our area (just not rising as in the recent past). We saw a near rise in prices of 12% in 2020 and 18% in 2021. We expect any rate of increase to rapidly diminish over the balance of 2022, and we are now forecasting to still see a total possible 5% appreciation this year.  And future years may see some pullback in values. The cost to own has risen from an average of 24% of gross income a year ago to over 30% today. This has knocked most of the first-time buyers out of the market.

Market Statistics for Somerset County:

• New Inventory: One hundred sixty-eight new listings came on the market down from 195 in the prior month and over 175 for the same month in 2021.
• Total Inventory: Our available inventory is four hundred thirty-two units and had decreased from 501 this time last month and is down from 422 the same month in the previous year.
• Sales: two hundred sixty-three units went “under contract” in October, down slightly by 309 in the prior month and down from 368 in the same month in 2021.
• Days on Market: The average days on market have decreased from 46 to 38 days over the past month showing an increase in buyer demand.
• Month’s supply: We are still sitting with 1.6 months’ supply of inventory which represents a strong seller’s market

This represents an optimum supply and demand curve for our sellers. If you will be selling in 2023, waiting is not a good strategy.  The market is at its strongest now as we will most likely not see further increases in pricing and probably pullback in the higher price points!

New Jersey Residential Real Estate Market Forecast

Because of the increased slowing move to the west (urban flight), pent-up demand, still relatively low (but slowly rising) mortgage rates, and sellers coming on the market as Covid fears seem to be diminishing, we saw solid listings and sales thru the fall season. Just not as strong as in 2021.

As previously mentioned, the new listings are selling fast. So, even though we still have lower inventory levels, sales are 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 and a mortgage at an affordable price.

On the buyer side, it is estimated that the buyer of a median-priced house will need to earn $30 to 35K more than just a year ago in order to qualify for a mortgage as their mortgage as a percentage of their income has risen. This has priced many first-time buyers out of the market. But, if possible, it is an optimum time to buy as terms have normalized due to lack of competition. You can always refinance as rates drop in the future.

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

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

• 54% of sales in houses > $500,000
• 33% of sales in the $500,000 to $1,000,00K range
• 13% percent of total sales (or 41 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
• Peapack/Gladstone

Two sales or less each last month:

• Far Hills
• Rocky Hill

Hotspots:

• Bernards/Bernards Twp. – 32 Sales
• Bridgewater – 33 Sales
• Franklin Twp. – 60 Sales
• Hillsborough – 23 Sales
• Warren/Watchung – 21 Sales

These hotspot areas equaled 64% of the sales last month. The average new listing coming on the market last month neared $699,946. The average unit price going “under contract” was $616,126 (12% less).

Note: To get a competitive price point on your property based on location and uniqueness, contact me at (908) 304-4660. Coldwell Banker’s big data technology and Artificial intelligence 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 that you receive 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” is it happening

New Jersey’s Economic Drivers:

New Jersey Home Sales and inventory levels:

• The rebound that started in June 2020 has continued through late fall of 2022 and is now slowing to a more normal to declining pace, making it look more kike the pre-pandemic market (but, when you have been going at 85 MPH returning to 65 MPH seems like it has slowed down considerably).
• We have seen strong signs of first-time buyers cooling down due to higher pricing (price fatigue),  inventory shortages, and the rising interest rate factors pushing many of them out of the market.
• Many possible sellers are experiencing difficulty in finding other suitable housing themselves and now adjusting to the higher interest levels. They sort of get in their own way in not wanting to list until they can find and justify it.
• The current month’s supply of inventory in Hunterdon and Somerset County is still just under two months, and this is due to the extremely quick sales of the fewer new listings as they come on the market, which is called velocity. The market does still remain active.
• Hunterdon and Somerset County have about 7% l and 2% less inventory, respectively, than we had a year ago.
• Unsold inventory in N.J. has slowly but steadily decreased state-wide since peaking in July at over 20,000 to just over 17,000 today.
• Decreases in inventory have occurred in many price points, with the under $400,000 market seeing the most considerable impact with 27% fewer homes.
• New housing has simply not kept up with our population growth.

Interest Rates:

• Interest rates have risen greatly over the past few months and are threatening to inch up even further.
• The economy is adjusting, and average Interest rates are holding for now at just around 7% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at the 6%  mark, and five-year arms are under the 5.8% range. Many buyers are considering attractive ARM rates as well as other buy-down plans as alternatives.
• As said, rates in the last few months have been steadily climbing 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 additional activity 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 also moved up due to this.
• Based on the rising rates, we are seeing a drop in first-time buyer mortgages but are still active in restructuring debt and paying down high-interest items.
• The CPI index is up nearly 8% over last year nationally and nearly 6.7% in NJ.
• The fed’s efforts to slow things down are resulting in the above. As inflation starts to ease, so will interest rates.

National Job Front:

• The unemployment rate was unchanged at 3.7 percent in November and has been in a narrow range of 3.5 percent to 3.7 percent since March. The number of unemployed persons was essentially unchanged at 6.0 million in November.
• We have to keep in mind that we have natural job growth of about 175K per month, which this number includes.
• The labor force participation rate decreased by 0.1 percentage points over the month to 62.1 percent but is 1.2 percentage points below its February 2020 level. Note: This number is calculated by dividing the sum of all workers who are employed or actively looking for a job by the working-age population.
• 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. New technology-based jobs are now affecting this trend.
• There is also a lot of focus on a trend called “quiet quitting,” where the employed are doing the bare minimum to remain employed. Obviously, this affects the productivity levels, which have dropped nearly 2.5% from a year ago.
• In the under $50K earners, there is even some incentive not to work and collect benefits for an advantage over wages.
• And as a result, we currently have about 6.0 million unemployed, while there are an estimated 12 million job openings at this point. That is two jobs available for every job seeker driving wages up.
• 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 are now lower than the U.S. at 3.5% for the last month reported, which was October.  NJ has now fully recovered all of the jobs lost in the initial months of the pandemic.
• 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:

• Rental prices in New Jersey rose again through 2022, averaging 8+% higher year-over-year, and are averaging just over $2,000 per unit (showing recent decreases).
• The central N.J. vacancy rate now stands at 3.2%, resulting which is a minimal rental supply and driving up rental prices.
• The rental market sector usually reflects some low-end buyers now renting due to inventory constraints. This sector has now risen due to mortgage constraints as well.
• The construction pipeline for rentals has risen to over 38K units which should bring some relief.

New Jersey Foreclosures:

• This is a bright spot for NJ.
• The delinquency rate in NJ has decreased again.
• Current foreclosures in NJ are at 1.6%, which is good news.
• On a national basis, there is sufficient equity ($11 Trillion) to protect most homeowners should we encounter a recession (which seems inevitable).
• And we have an average FICO score of mortgage holders of over 750 vs. the under 700 number we saw with the last bust in 2008.
• Yet, a slowdown and recession could cost jobs and put more mortgages at risk in the future.
• Only 18% of mortgages in forbearance are at risk nationwide due to forbearance issues not being resolved.  So, a housing bust is not predicted to be anywhere on the horizon.
• However, this effect will be nowhere near the last housing crisis since the is a lot of positive equity in houses today as many homeowners have more equity due to the past several year’s appreciations.

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.
• Yet, it is the 25 to 55 population that is spending $ in order to improve their lifestyle. The 56 and old crowd starts to age in place, reducing spending, and this number is steadily increasing.
• In many job markets, immigration is now also supplementing and supporting 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, which was helping Hunterdon and Somerset counties, has now slowed.
• We also see the formation of multi-generational housing due to the difficulty in finding new housing.
• 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 of 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 in the “burbs.” And they were bringing their NYC salaries with them helping to drive up prices.
• 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. Also, it has subsided to a great extent.
• 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. This trend has already slowed greatly slowed as well.
• 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 at 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.
• Smart home 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 and, to some extent changing back.
• Consumer confidence was put on pause in early 2020 and then started to fast forward in June 2020 and did not slow appreciably into early 2022.  But now, with talks of slowdown and recession, this too has reversed itself. Consumer confidence has plummeted recently.
• The preliminary third-quarter GDP numbers look promising, bringing into question the probability of a recession.
• If we do realize a recession, it will mean fewer jobs, less spending, fewer sales, and higher unemployment. Although the last quarter showed improvement here, the newer layoffs that we are seeing are concerning.  And the post-holiday layoffs in the retail sector are not going to help.
• We are already seeing a slowdown with fewer people moving westward, fewer home sales, less multiple bid situations.  But, with just under/over two months’ supply, it is still a seller’s market.
• 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 ATMs. The average equity in NJ rose by $60+K 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 strong seller’s market has resulted as we still have more buyers than sellers (which results in home values in our area not seeing much pressure as of yet until you get to the upper prices).
• People usually buy and sell homes based on life events such as births, deaths, marriages, divorces, and empty nest syndrome and will not change. Life events have gone on (sometimes even moving faster).
• And never before seen (but now steadily 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 newer improved 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 continuing to diminish.
• But it is anticipated that the new lifestyle will be much different from the old as we adopt the best of the two cultures.
• Nationwide we sold more houses in 2021 than in 2020.  And 2022 was seen as even more robust but is now looking like it will show a 10 to 20% pullback across our two counties.
• The current shortage is for a different reason than in 2021.  People who want to list their homes in 2022 are now hesitant due to finding new housing and financing themselves. The problem is feeding on itself and being exacerbated by the higher interest rates.
• As a result, we have seen many offers with competitive terms like waiving appraisals and inspections. This now has all but disappeared.
• Because of the above point, we are now starting to see a lot of buyer price fatigue in the under $400K market as first-time buyers are getting priced out of the market.
• In Hunterdon and Somerset counties, the buyer of an average-priced house now needs to earn about 25% more just to qualify for what they were able to buy just a year ago.
• But, we anticipate an active but less hectic late fall season in 2022. It really looks like we are headed back to more normal pre-pandemic market conditions.

Forecast:

• The effect of the COVID-19 pandemic now seems to be almost under control (let’s hope).
• The economy is facing a slowdown and/or recession.
• Supply chain shortages have been affecting inflation. There are even now some concerns that we may are oversupplied, and this could suddenly reverse, causing massive price reductions and possible lay-offs.
• Inflation is continuing to cause havoc on auto, finished goods, and energy pricing. And, as said, it is the enemy of long-term interest rates.
• The continued 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 rise and are now over 7% 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 has now started to pull back as a result of strong sales as we move further into 2022.
• The housing affordability index is rising, with mortgage payments nearing 30% of gross.
• But, we are starting to see the consumer confidence index wain due to inflation, and that is concerning.
• Due to COVID-19 and recent unrest in NYC, we have started to see more interest in living in more suburban counties such as Hunterdon and Somerset. That has all but disappeared.
• 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.
• Job 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.
• 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 and what they will need to adapt to this.
• The lingering question has been, “Can we keep this momentum up with low to falling inventory?”. This seems to have waned as predictions 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 very concerning.
• Depending on their location and price points, local property values saw at least 18%+ appreciation in 2021 and another 12% in 2020. The 2022 appreciation forecast is looking as if it will be under 5%, and future years could face possible pullback.
• Days on the market in our area are rising steadily, showing buyers taking longer to decide.
• But change is resulting in a back towards a more normalized environment if inventory continues coming onto the market and the buyer fatigue that we have seen continues.
• We still have many younger (millennial) 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 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 advertise when listing a new house to those zip codes (see short video).
  • Robotics (we see this today via vacumes, lawnmowers, and pool cleaners). Drone usage is another good example.
  • The Internet of Things (IOT) is allowing us to connect more and more things to our smart homes.
  • 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 in 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 five 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 action based on my opinions, gathered trends, and statistics.  I assume no liability.

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