Somerset County’s Real Estate Market Conditions for January of 2023

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 2023.

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

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

The Fed has lightened up on its rate hikes.

Home loan rates have improved nicely from their peak in 2022, and inventory has increased in many parts of the country. Furthermore, sellers have become more realistic in pricing, and many are eager to make deals. This poses a wonderful opportunity for a would-be home buyer.

We are still experiencing a slowdown in traffic at open houses and showing activity, and we are not seeing 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. But demand still outpaces supply (at just 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 20%.

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 hold its own in early 2023, and we are now forecasting to still see a total possible 5 to 6% appreciation for 2022.  The new calendar year may see some pullback in values in the higher-priced homes.

Market Statistics for Somerset County:

• New Inventory: Ninty-six new listings came on the market last month, down from 168 in the prior month and over 109 for the same month in 2021.
• Total Inventory: Our available inventory is three hundred eighteen units and had decreased from 432 this time last month and is down from 303 the same month in the previous year.
• Sales: Two hundred units went “under contract” in the last month, down by 263 in the prior month and from 273 in the same month in 2021.
• Days on Market: The average days on the market have decreased from 38 to 43 days over the past month, showing a decrease in buyer demand.
• Month’s supply: We are still sitting with 1.6 months’ inventory supply, representing 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, and we saw solid listings and sales thru the fall season. Just not as strong as in 2021 (which was not an average year).

As previously mentioned, the new listings are selling fast. So, even though we still have lower inventory levels, int the seller side, sales are strong. In 2023, 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:

• 52% of sales in houses > $500,000
• 37% of sales in the $500,000 to $1,000,00K range
• 11% 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

Two sales or less each last month:

• Far Hills
• Peapack/Gladstone
• Raritan
• Rocky Hill

Hotspots:

• Bernards/Bernards Twp. – 24 Sales
• Bridgewater – 33 Sales
• Franklin Twp. – 35 Sales
• Hillsborough -17 Sales
• Warren/Watchung – 14 Sales

These hotspot areas equaled 61% of the sales last month. The average new listing coming on the market last month neared $644,287. The average unit price going “under contract” was $617,752 (4% 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 get in their own way in not want 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 more inventory than they 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 under 15,000 today.
• Decreases in inventory have occurred in many price points, with the under $400,000 market seeing the most considerable impact with 10% fewer homes and the $600K to $1M price tier seeing the largest increase of 33%.
• New housing has not kept up with our population growth.

Interest Rates:

• Interest rates have improved nicely from their peak in 2022.
• The economy is adjusting, and average Interest rates are holding for now at just under 6.5% for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests around the 5.7%  mark. Many buyers are considering attractive ARM rates as well as other buy-down plans as alternatives.
• 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 current rates, we are still seeing a drop in first-time buyer mortgages but are still active in restructuring debt and paying down high-interest items.
• The fed’s efforts to slow things down have resulted in the above. As inflation starts continue to ease, so will interest rates.

National Job Front:

• Total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate dropped to 3.5%. Essentially that is the smallest gain in some time and is viewed as good news that the fed rate hikes are working. The number of unemployed persons rose slightly to essentially unchanged at 6.1 million in December.
• 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 increased by 0.1 percentage points over the month to 62.3 percent but is 1.1 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 3.4% for the last month reported, which was November.  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 3.7%, 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 1.5%, 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

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.
• Mortgages have ceased to rise and are now under 7% as the fed is tapering its current level of investment in mortgage-backed securities.
• 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.
• 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 continued effect of 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 around 5%, and 2023 could face some 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 first-time 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.

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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