Somerset County’s Real Estate Market Conditions March 2019 – Canal Walk Edition

Residential Real Estate

Somerset County's Real Estate Market Conditions February 2019

Somerset County’s Real Estate Market Conditions March 2019 – Canal Walk Edition

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 to 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 58 days on the market. 322 properties went “under contract” in February compared to 256 in the prior month. Newly listed properties in the same period totaled 447.

Somerset County Inventory Breakdown By Price For Last Month:

Somerset County Sales Breakdown Overview:

  • 69% of sales in houses < $500,000
  • 27% of sales in houses > $500,000 and < $1,000,000
  • 04% percent of total sales (or 13 in total) in houses >$1,000,000

Somerset County Inventory Breakdown By Municipality For Last Month:

Somerset County Sales Breakdown Detailed:

Only two areas in Somerset County reported no sales in the past month

  • Millstone
  • Rocky Hill

One area reported one or two sales each last month

  • Peapack/Gladstone

Hotspots:

  • Bernards – 41 sales
  • Bridgewater – 38 sales
  • Franklin – 60 sales
  • Hillsborough – 48 sales
  • Montgomery – 17 sales

These hotspot areas equaled 61% of the sales last month. The average new listing coming on the market last month neared $616,414 The average price of a unit going “under contract” neared $456,198 (26% less).

Canal Walk Statistics:

  • Canal Walk offers one floor units, town houses and various models of single family units
  • There are 6 homes currently for sale in Canal Walk as of this writing with an average list price of $485,133.
  • One of the 6 is an Enclave single floor units and two are townhouses.
  • There were three new listings this month with an average list price of $410,967.
  • Two units have gone under contract in the past 30 days with an average list price of $459,950 with the average days on the market of 67.
  • Giving us 3 months of inventory
  • Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
  • The actual price per unit varies by type, model, location and upgrades
  • Call for more details…

Note: To get an accurate price point for your property based on its location and price point, contact me. Coldwell Banker’s big data technology capabilities will put you at a unique advantage. I can show you the latest age and earnings breakdown for your particular area, show you where people are moving into that area from and how I can market to those specific areas and demographics directly. 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:

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 is turning the tide back to a buyers market (or at least neutralize it to being a normal market).

We saw an increase of 6% in home sales in NJ in January based on interest rates lowering further during that month.

Activity still concentrates in the under $400,000 market where Millennial buyers are transitioning into home ownership.

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 3% last month). The supply increased by nearly 900 homes, compared to a year ago.  Currently, ~38,000 fewer homes (-52%) are on the market compared to the 2011 peak.

Current unsold inventory in New Jersey varies widely by county with a total of only 4.5 months (down from 4.7 months last year).  All of NJ’s 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 7 to 8% more inventory that we had a year ago, but about 6 to 7 % less than two years ago.

And, we have seen some “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:

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 4.35 for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 3.8%  mark. Five-year arms are just under the 3.85% range.

Consumer fears of further rises in interest rates and slowly rising home prices are driving the current market demand. The Fed appears to have interest rates on hold for the first two quarters. We will probably see another .25 to .50 rate hike in the second half of 2019.

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 4.0% as discouraged workers are re-entering the job market and the addition of 304,000 jobs in January.   This trend is expected to continue as a result of the recent tax and jobs reform.

On the national level, the US added over 2,600,000+ jobs in 2018 and is trending towards 4+ million jobs being added bu added jobs by year-end based on initial numbers.

At the end of January, there were 7.3+ million openings compared to nearly 6.3 million unemployed persons.

Consumer confidence is the highest since 2004.

Great news for the housing industry if this trend continues!

 

New Jersey Job Front:

The NJ unemployment rate stands at 4.0% as well (the lowest it has been on over ten years, bolstering consumer confidence in NJ as well.  In effect, NJ is rising with the national tide of nearly full employment.

NJ added 62,000+ jobs in 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 to our job market will be able to 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.

Rental prices in New Jersey rose nearly 6% in 2018, averaging nearly $1,600 per unit. Current vacancy rates in New Jersey have fallen to 4.1% statewide.  This rise resulted in part by a rapid increase in building in this sector.

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 a 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 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 2.4%. 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, led by NY with 3.0%, MS with 3.0% (mostly hurricane-related)  LA with 2.6% and trailed by ME, FL, DE, MD, PA, and AL.  The national baseline number sits at a little under 1.7%.

Foreclosures in NJ in 2018 were the lowest in the state in over four years.  And, 2019 looks to be even better with a forecast of under 50,000 foreclosure 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.

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 in 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 

Economic conditions:

  • Nationally, 2018 was the eighth straight year of 2 million + job gains.
  • We are in our second longest economic expansion period in America’s history and will be in the longest in just another three months.
  • The GDP is still rising (although its rate of increase seems to me slowing).
  • At 4.0% unemployment, NJ is now equal to the national average which is also currently at 4.0%
  • Leading economic indicators in NJ are now surpassing the nation by almost two-fold.
  • The best paying and most attractive jobs are in NYC pulling many or our millennials in that direction.
  • Interest rates rose .5% in 2018.
  • And, house prices have risen around 3% in the more popular housing price points and areas 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 situation 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 (the shelves are empty in our starter housing price points).
  • Foreclosures are on the decline.
  • There is continued 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.
  • 70% of all NJ homes have no children of school age, and 50% do not have more than one person in them. This factor minimizes the need for larger housing.
  • 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 in the east (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.

 

Market conditions:

  • We experienced a sales slump in late 2018 due to interest rate hikes.
  • We are now entering the next phase of the housing cycle which is still active, but less robust.  Sort of a cool down from 2018. Or, maybe back to normal.
  • And, we are starting to see some warnings of an economic slowdown starting in late 2022 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.
  • There is a bit of offset to this from the discord that we see in our national politics.
  • 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 an increase in home sales but price increases only in houses clustered in < $400,000 market where the first-time buyers and Millennials are focused.
  • The >$400K 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.).
  • 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 holding back sales.  In general, we have only about 50% of the inventory that we had in 2011.
  • It is simple, We could sell more houses if we had more inventory on hand,  And, as we have started to see small inventory increases over the past six months, 2019 can be a boom for resales.
  • In 2017 prices rose ~ averaging just over 3.5% and depending on price points and locations.  2018 promised 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.

 

Forecast:

  • The economy will continue to prosper with no recession currently in sight for the next 36 + 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 2 to 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 7.3+million open jobs and only 6.3 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 appears to be now!.
  • 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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Somerset County’s Real Estate Market Conditions February 2019 – Canal Walk Edition

Residential Real Estate

Somerset County's Real Estate Market Conditions February 2019

Somerset County’s Real Estate Market Conditions February 2019 –  Canal Walk Edition

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:

January January Total  
Somerset County New Under Active Months’
Listings Contract Listings Supply
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 Price $629,471 $469,479 -25.4%  
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
Bedminster Twp 52 19 3
Bernards Twp 123 25 5
Bernardsville 81 8 10
Bound Brook 20 8 3
Branchburg Twp 55 9 6
Bridgewater Twp 119 36 3
Far Hills Boro 15 0
Franklin Twp 141 53 3
Green Brook 26 4 7
Hillsborough 101 30 3
Manville Boro 29 6 5
Millstone Boro 2 0
Montgomery Twp 77 16 5
North Plainfield 56 10 6
Peapack Gladstone 16 2 8
Raritan Boro 15 5 3
Rocky Hill Boro 2 0
Somerville Boro 29 2 15
South Bound Brook 14 6 2
Warren Twp 84 11 8
Watchung Boro 39 6 7
Totals 1096 256 4

 

Only three areas in Somerset County reported no sales in the past month

  • Far Hills
  • Millstone
  • Rocky Hill

Two areas reported one or two sales each last month

  • Peapack/Gladstone
  • Somerville

Hotspots:

  • 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).

Canal Walk Statistics:

  • Canal Walk offers one floor units, town houses and various models of single family units
  • There are 5 homes currently for sale in Canal Walk as of this writing with an average list price of $521,560.
  • One the 5 is an Enclave single floor units and one is a townhouse.
  • There were three new listings this month with an average list price of $506,267.
  • Two units have gone under contract in the past 30 days with an average list price of $514,450 with the average days on the market of 31.
  • Giving us 2.5 months of inventory
  • Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
  • The actual price per unit varies by type, model, location and upgrades
  • Call for more details…

 

Note: To get an accurate price point for your property based on its location and price point, contact me. Coldwell Banker’s big data technology capabilities will put you at a unique advantage. I can show you the latest age and earnings breakdown for your particular area, show you where people are moving into that area from and how I can market to those specific areas and demographics directly. 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:

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:

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 

 

Economic conditions:

  • 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.

 

Market conditions:

  • 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.

 

Forecast:

  • 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.

 

 


Presented as a public service by:

Joe Peters Logo
 


 

Somerset County’s Real Estate Market Conditions January 2019 – Canal Walk Edition

Residential Real Estate

Somerset County's Real Estate Market Conditions January 2019

Somerset County’s Real Estate Market Conditions January 2019 – Canal Walk Edition

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 64 days on the market. 256 properties went “under contract” in December, down from 275 in the prior month. Newly listed properties in the same period totaled 190.

Somerset County Inventory Breakdown By Price For Last Month:

New Listings Under Contract Active Listings Month’s Supply
Condos/Town Houses * 56 87 277 3
Over 55 Communities* 6 9 28 3
$000K to $199K 16 40 70 2
$200K to $299K 43 66 183 3
$300K to $399K 30 47 162 3
$400K to $499K 21 28 129 5
$500K to $599K 16 30 98 3
$600K to $699K 14 10 82 8
$700K to $799K 11 9 59 7
$800K to $899K 10 11 70 6
$900K to $999K 7 6 48 8
$1,000K and Up 22 9 163 18
Totals for December 190 256 1064 4
Average Price $633,306 $433,543 -31.5%
Average Days on Market 64
* Included in $ breakdowns

Somerset County Sales Breakdown Overview:

  • 70% of sales in houses < $500,000
  • 26% of sales in houses > $500,000 and < $1,000,000
  • 04% percent of total sales (or 9 in total) in houses >$1,000,000

Somerset County Inventory Breakdown By Municipality For Last Month:

Active Listings Under Contract Month’s Supply
Bedminster Twp 50 13 4
Bernards Twp 114 16 7
Bernardsville 58 8 7
Bound Brook 20 5 4
Branchburg Twp 57 11 5
Bridgewater Twp 125 26 5
Far Hills Boro 13 3 4
Franklin Twp 154 53 3
Green Brook 28 4 7
Hillsborough 96 44 2
Manville Boro 27 8 3
Millstone Boro 2 0
Montgomery Twp 78 15 5
North Plainfield 45 20 2
Peapack Gladstone 17 2 9
Raritan Boro 13 0
Rocky Hill Boro 4 0
Somerville Boro 26 6 4
South Bound Brook 10 4 3
Warren Twp 91 13 7
Watchung Boro 36 5 7
Totals 1064 256 4

Somerset County Sales Breakdown Detailed:

Only three areas in Somerset County reported no sales in the past month

  • Millstone
  • Raritan
  • Rocky Hill

One area reported one or two sales each last month

  • Peapack/Gladstone

Hotspots:

  • Bernards – 16 sales
  • Bridgewater – 26 sales
  • Franklin – 53 sales
  • Hillsborough – 44 sales
  • Montgomery – 15 sales

These hotspot areas equaled 60% of the sales last month. The average new listing coming on the market last month neared $633,306 The average price of a unit going “under contract” neared $433,543 (31% less).

Canal Walk Statistics:

  • Canal Walk offers one floor units, town houses and various models of single family units
  • There are 5 homes currently for sale in Canal Walk as of this writing with an average list price of $496,580.
  • None the 6 is an Enclave single floor units and one is a townhouse.
  • There was one new listings this month with an average list price of $550,000.
  • Two units have gone under contract in the past 30 days with an average list price of $447,000 with the average days on the market of 59.
  • Giving us 2.5 months of inventory
  • Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
  • The actual price per unit varies by type, model, location and upgrades
  • Call for more details…

Note: To get an accurate price point for your property based on its location and price point, contact me. Coldwell Banker’s big data technology capabilities will put you at a unique advantage. I can show you the latest age and earnings breakdown for your particular area, show you where people are moving into that area from and how I can market to those specific areas and demographics directly. 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:

For the first time in three years, we have seen a small improvement in the inventory situation over the past four 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 small decrease of 3% in home sales in NJ in November and the same remains flat 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 last month). The supply increased by nearly 2,000 homes, compared to a year ago.  Currently, ~35,000 fewer homes (-47%) are on the market compared to the 2011 peak.

Current unsold inventory in New Jersey varies widely by county with some having only 3.3 months.  No county presently has more than nine months of supply.  The average was at 4.8 months 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 10% 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:

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 4.6 for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 4..1%  mark. Five-year arms are just under the 3.98% 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 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 at a 49 year low of  3.7% after the addition of 155,000 jobs in November. And, there are forecasts that it will drop further.  This trend is expected to continue as a result of the recent tax and jobs reform.

On the national level, the US over 2,500,000+ 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 October, there were 7.1+ Million openings compared to nearly 6.1 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 dropped to 4.0%, bolstering consumer confidence in NJ as well.  In effect, NJ is rising with the national tide of nearly full employment.

NJ lost 1,800 jobs in October, and 64,600+ jobs have been added in NJ year to date 2018 as compared to 47,100 for the same period in 2017, and if it continues, NJ could add over 60,000 jobs by year-end.

The level of jobs created was at a much higher level than in the past several years (a silver lining 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 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 $1,500 per unit. Current vacancy rates in New Jersey have fallen to 2.8% with the in northern and southern NY and Philadelphia slightly higher.  This rise is being 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 2.6%. 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 #5 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 61,000+ 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.

 

Real Estate Market Recap 

 

Economic conditions:

  • 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 almost 710% above the national average which is currently 3.7% (and forecasted to go down further).
  • 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 are forecasted to rise another .25 by early next year, taking almost 10% away from buyers buying power.
  • 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.
  • 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.

 

Market conditions:

  • 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 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 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 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 3 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.

 

Forecast:

  • 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+% in2019 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 7.1+ million open jobs and only 6.1 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.

 

 


Presented as a public service by:

Joe Peters Logo
 


Somerset County’s Real Estate Market Conditions December 2018

Residential Real Estate

Real Estate Market Conditions

Somerset County’s Real Estate Market Conditions December 2018  Canal Walk Edition

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 five months. Normal market conditions average four to five months in Somerset County.  Units going under contract averaged 61 days on the market. 276 properties went “under contract” in November, down from 332 in the prior month. Newly listed properties in the same period totaled 299.

Somerset County Inventory Breakdown By Price For Last Month:

New Listings Under Contract Active Listings Month’s Supply
Condos/Town Houses * 92 103 339 3
Over 55 Communities* 16 14 37 3
$000K to $199K 22 27 86 3
$200K to $299K 77 85 225 3
$300K to $399K 65 54 201 4
$400K to $499K 26 38 155 4
$500K to $599K 28 24 130 5
$600K to $699K 25 15 112 7
$700K to $799K 9 10 77 8
$800K to $899K 12 8 84 11
$900K to $999K 9 5 54 11
$1,000K and Up 26 10 203 20
Totals for November 299 276 1327 5
Average Price $523,947 $439,979 -16.0%
Average Days on Market 61
* Included in $ breakdowns

Somerset County Sales Breakdown Overview:

  • 63% of sales in houses < $500,000
  • 28% of sales in houses > $500,000 and < $1,000,000
  • 09% percent of total sales (or 26 in total) in houses >$1,000,000

Somerset County Inventory Breakdown By Municipality For Last Month:

Active Listings Under Contract Month’s Supply
Bedminster Twp 69 14 5
Bernards Twp 144 28 5
Bernardsville 71 9 8
Bound Brook 21 4 5
Branchburg Twp 64 13 5
Bridgewater Twp 150 30 5
Far Hills Boro 16 2 8
Franklin Twp 188 66 3
Green Brook 36 4 9
Hillsborough 133 32 4
Manville Boro 33 3 11
Millstone Boro 1 0
Montgomery Twp 104 9 12
North Plainfield 64 17 4
Peapack Gladstone 20 0
Raritan Boro 13 5 3
Rocky Hill Boro 4 2 2
Somerville Boro 28 8 4
South Bound Brook 15 9 2
Warren Twp 108 16 7
Watchung Boro 45 5 9
Totals 1327 276 5

Somerset County Sales Breakdown Detailed:

Only two areas in Somerset County reported no sales in the past month

  • Millstone
  • Peapack/Gladstone

Two areas reported one or two sales each last month

  • Far Hills
  • Rocky Hill

Hotspots:

  • Bernards – 28 sales
  • Bridgewater – 30 sales
  • Franklin – 66 sales
  • Hillsborough – 32 sales
  • Montgomery – 9 sales

These hotspot areas equaled 60% of the sales last month. The average new listing coming on the market last month neared $523,947 The average price of a unit going “under contract” neared $439,979 (16% less).

Canal Walk Statistics:

  • Canal Walk offers one floor units, town houses and various models of single family units
  • There are 7 homes currently for sale in Canal Walk as of this writing with an average list price of $455,414.
  • Of the 7, one is an Enclave single floor units and two are townhouses.
  • There were 3 new listings this month with an average list price of $439,633.
  • Seven units have gone under contract in the past 30 days with an average list price of $448,543 with the average days on the market of 38.
  • Giving us one months of inventory
  • Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
  • The actual price per unit varies by type, model, location and upgrades
  • Call for more details…

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:

For the first time in three years, we have seen a small improvement in the inventory situation over the past four months (but is still below what is needed).  Let’s hope that it is the beginning of a trend.

The still low inventory numbers have 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 modest increase of 1% in home sales in NJ in November and the same remains flat 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 6% decline in sales due to lack of inventory (-1,500 vs. a year ago).

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 last month). The supply increased by nearly 600 homes, compared to a year ago.  Currently, ~33,000 fewer homes (-45%) are on the market compared to the 2011 peak.

Current unsold inventory in New Jersey varies widely by county with some having only four months.  No county presently has more than nine months of supply.  The average was at 4.3 months supply.

We still have an acute shortage of inventory in both Hunterdon and Somerset county in our more popular price points and locations which is the under $400k market.

Hunterdon and Somerset County have about the same 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:

Interest rates are rising as a result of our strong economy.

The economy is strengthening, and Interest rates at the end of July rose slightly to just over  4.9 for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just over the 4.3%  mark. Five-year arms are just under the 4.15% 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.

The fear of increasing interest rates coupled with steadily increases in prices is current market activity.

 

National Job Front:

US unemployment rate has remained at a 49 year low of  3.7% after addition of 250,000 jobs in October. And, there are forecasts that it will drop further.  This trend is expected to continue as a result of the recent tax and jobs reform.

On the national level, the US over 2,250,000+ jobs a year to date and is trending towards 2.6+ 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 July, there were 7+ Million openings compared to nearly 6 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 dropped to 4.1%, bolstering consumer confidence in NJ as well.  In effect, NJ is rising with the national tide of nearly full employment.

NJ added 17,400 jobs in September, and 66,500+ jobs have been added in NJ year to date 2018 as compared to 41,400 for the same period in 2017, and if it continues, NJ could add over 70,000 jobs by year-end.

The level of jobs created was at a much higher level than in the past several years (a silver lining 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 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 $1,500 per unit. Current vacancy rates in New Jersey rose to 3.9% with the in northern and southern NY and Philadelphia slightly higher.  This rise is being 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 has a net wealth of over $230K while the same for a renter is only around $5K.  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 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 #5 in the country holding at 2.6%, led by NY with 3.2%, FL and MS with 2.9% (mostly hurricane-related)  LA with 2.7% and trailed by ME, FL, DE, MD, PA, and AL.  The national baseline number sits at ~ 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 11% to around 62,600 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 have been for the most part eliminated.

It would appear that the overall concern was unfounded. The SALT fears have been offset by the lower tax brackets.  It would appear that this was an unwarranted fear.

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.

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.

Real Estate Market Recap 

Economic conditions:

  • 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 4.1% unemployment, NJ is almost 11% above the national average which is currently 3.7% (and forecasted to go down further).
  • The best paying and most attractive jobs are in NYC attracting the millennials in that direction.
  • Interest rates have already risen over .75% since the first of the year are forecasted to rise another .25 by year’s end, taking almost 10% away from buyers buying power.
  • 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.
  • 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.
  • 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.
  • 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.

Market conditions:

  • 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 will probably be limited to curtailing the growth of 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 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 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 24% 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 2016 and early 2017 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 3 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, a slight 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 will still show modest growth (depending on price point and location).
  • Mortgage delinquency is normalizing.

Forecast:

  • 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+% 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) 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 (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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Canal Walk, NJ Real Estate Market Conditions August 2018

Somerset County’s Real Estate Market Conditions November 2018 – Canal Walk Edition

Residential Real Estate

Real Estate Market Conditions

Somerset County’s Real Estate Market Conditions November 2018 – Canal Walk Edition

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 60 days on the market. 332 properties went “under contract” in October, up from 301 in the prior month. Newly listed properties in the same period totaled 404.

Somerset County Inventory Breakdown By Price For Last Month:

New Listings Under Contract Active Listings Month’s Supply
Condos/Town Houses * 114 107 374 3
Over 55 Communities* 10 16 34 2
$000K to $199K 31 31 84 3
$200K to $299K 81 99 232 2
$300K to $399K 75 59 214 4
$400K to $499K 52 35 172 5
$500K to $599K 53 46 149 3
$600K to $699K 22 16 121 8
$700K to $799K 22 19 94 5
$800K to $899K 24 8 91 11
$900K to $999K 11 6 70 12
$1,000K and Up 33 13 237 18
Totals for October 404 332 1464 4
Average Price $549,094 $470,429 -14.3%
Average Days on Market 60
* Included in $ breakdowns

Somerset County Sales Breakdown Overview:

  • 67 % of sales in houses < $500,000
  • 29 %of sales in houses > $500,000 and < $1,000,000
  • 4 % percent of total sales (or 13 in total) in houses >$1,000,000

Somerset County Inventory Breakdown By Municipality For Last Month:

Active Listings Under Contract Month’s Supply
Bedminster Twp 67 13 5
Bernards Twp 173 34 5
Bernardsville 91 10 9
Bound Brook 23 12 2
Branchburg Twp 75 15 5
Bridgewater Twp 167 39 4
Far Hills Boro 18 1 18
Franklin Twp 208 56 4
Green Brook 33 11 3
Hillsborough 141 30 5
Manville Boro 26 15 2
Millstone Boro 1 0
Montgomery Twp 116 19 6
North Plainfield 65 26 3
Peapack Gladstone 23 2 12
Raritan Boro 14 4 4
Rocky Hill Boro 5 1 5
Somerville Boro 30 9 3
South Bound Brook 14 7 2
Warren Twp 121 26 5
Watchung Boro 53 2 27
Totals 1464 332 4

Somerset County Sales Breakdown Detailed:

Only one area in Somerset County reported no sales in the past month

  • Millstone

Two areas reported one or two sales each last month

  • Manville
  • S Bound Brook

Hotspots:

  • Bernards – 34 sales
  • Bridgewater – 39 sales
  • Franklin – 56 sales
  • Hillsborough – 30 sales
  • Montgomery – 19 sales

These hotspot areas equaled 54% of the sales last month. The average new listing coming on the market last month neared $549,094 The average price of a unit going “under contract” neared $470,429 (14% less).

Canal Walk Statistics:

  • Canal Walk offers one floor units, town houses and various models of single family units
  • There are 7 homes currently for sale in Canal Walk as of this writing with an average list price of $437,917.
  • Of the 7, one is an Enclave single floor units and three are townhouses.
  • There was 1 new listing this month with an average list price of $562,000.
  • Two units have gone under contract in the past 30 days with an average list price of $502,950 with the average days on the market of 32.
  • Giving us a little under four months of inventory
  • Close to 50 units changed hands over the past 12 months ranging from the low $300’s in to the low $600’s
  • The actual price per unit varies by type, model, location and upgrades
  • Call for more details…

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:

For the first time in three years, we have seen an improvement in the inventory situation over the past three months (but is still below what is needed).  Let’s hope that it is the beginning of a trend.

This is leading to a bit of softening in the price appreciation on existing homes.  A slowdown in growth.

A decrease of 6% in home sales in NJ in September and the same remains flat Year to Date. This is 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. 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 dropping slightly last month). The supply decreased by ~ nearly 200 homes, compared to a year ago.  Currently, ~31,000 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 four months.  No county presently has more than nine months of supply.  The average was at 5 months compared to 4.7 months a year ago.

We still have an acute shortage of inventory in both Hunterdon and Somerset county in our more popular price points and locations which is the under $400k market.

This is leading to a bit of softening in the price appreciation on existing homes.  A slowdown in growth. It could turn the tide back to a buyers market (or at least neutralize it to being a normal market).

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:

Interest rates are rising as a result of our strong economy.

The economy is strengthening, and Interest rates at the end of July rose slightly to around 4.86for a 30-year conventional mortgage. A fifteen-year conventional mortgage rests at just under the 4.3%  mark. Five-year arms are just under the 4.14% 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.

The fear of increasing interest rates coupled with steadily increases in prices is current market activity.

 

National Job Front:

US unemployment rate has remained at a 49 year low of  3.7% after an addition of 250,000 jobs in October. And, there are forecasts that it will drop further.  This trend is expected to continue as a result of the recent tax and jobs reform.

On the national level, the US over 2,000,000+ jobs year to date and is trending towards 2.7 million added jobs by year-end (a twenty percent increase over the prior year)

At the end of July, there were 7.1+ Million openings compared to nearly 6.2 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 stayed steady to 4.2%, bolstering consumer confidence in NJ as well.  In effect, NJ is rising with the national tide of nearly full employment.

NJ added 1,000 jobs in September, and 49,100+ jobs have been added in NJ year to date 2018 as compared to 34,500 for the same period in 2017, and if it continues, NJ could add over 62,000 jobs by year-end.

The level of jobs created was at a much higher level than in the past several years (a silver lining 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 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 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 20’s to the mid 30’s 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 3.9% with the in northern and southern NY and Philadelphia slightly higher.

We have seen a 2Q2018 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 2000’s 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 has a net wealth of over $230K while the same for a renter is only around $5K.  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 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 #5 in the country at 2.6%, led by NY with 3.2%, FL and MS with 2.9% (mostly hurricane-related)  LA with 2.7%, ME, DE, MD, PA and AL.  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 year to date results for 2018 could fall another 7% to around 65,000 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 are for the most part eliminated.

It would appear that the overall concern was unfounded. The SALT fears were offset by the lower tax brackets.  It would appear that this was an unwarranted fear.

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.

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.

Real Estate Market Recap 

 

Economic conditions:

  • 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 4.2% unemployment, NJ is almost 12% above the national average which is currently 3.7% (and forecasted to go down further).
  • The best paying and most attractive jobs are in NYC attracting the millennials in that direction.
  • Interest rates have already risen .75% since the first of the year are forecasted to rise another .25 to .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 (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.
  • 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.
  • 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 30’s (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 4 BR center hall colonials on 1+ acre in the country.
  • Buyers are thinking 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.

Market conditions:

  • 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 will probably be limited to curtailing the growth of appreciation and not in the 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 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 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 24% 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 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 (but diminishing) price growth at an annual average of 3 to 4%.  This is 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.
  • If we had more inventory, we could sell more houses.  It is simple.  And, we have started to see inventory increase over the past three 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 be less in % but will still show modest growth (depending on price point and location).
  • Mortgage delinquency is normalizing.

Forecast:

  • 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+% 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) 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 (look at the help wanted signs).
  • For the first time in memory, the US is reporting 67.1+ 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 may also open 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 will flourish as a result of creating more buying demand.
  • 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 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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