2017 Spring Housing Update for New Jersey

With Q1 coming to end soon, here are the latest updates and predictions for the 2017 New Jersey Real Estate Market.

Overall Outlook

• The Recession that was projected last spring for 2018 is not coming to fruition.
• Home sales and prices will continue to rise over the next few years
• Mortgage delinquency in New Jersey is fading. It was down to 5.7% in 2016 from a high of      11.3% in 2012.

Employment:

• Job creation is improving which is the biggest predictor of housing.
• Higher job creation in 2016 will help New Jersey have a better housing market this year.
• The New Jersey economy seems to be poised for expansion.

Home Prices:

• Prices in the rest of the country have recovered to the 2005/2006 levels, but New Jersey home prices still remain lower than they were during that peak except in transit towns where prices have fully recovered.  This is good news, as prices in our state will continue to rise and not decline as they may in the rest of the U.S. 
• Nationally home prices are up 7%.  In contrast, New York is up 4.5% and Pennsylvania is up 5%.  New Jersey saw a big increase in 2013 when prices rose 4.2%, but then only 1.4% in 2014, 1.5% in 2015 and just .7% in 2016.  New Jersey saw strong appreciation in Q4 2016 when prices rose 1.3%, which is indicative of a solid upward trend for 2017.
• The slowing price increases are a result of weak income gains in NJ.  This limits a buyer’s ability to pay more for the same house.  Nationally incomes rose 3.9%. New York rose 3.3% while New Jersey rose only .4%.  Additionally, property taxes tend to go up each year more than .4%.

Home Sales and Inventory:

• Home sales are up 17% Y/Y statewide.
• Residential transaction volume is the highest it has been since 2012 with $34.7 billion dollars of residential real estate sold in 2016 statewide. 
• 2016 holds the all time record for home purchase contracts in New Jersey at 109,471.  The prior record happened in 2005, when it was 105,468.
• Inventory is still low.  There are 24,000 fewer homes on the market than the peak in 2008.  This will lead to more home price increases.
• The top 5 counties with the lowest absorption rate (number of months it would take to sell out of current inventory) are:

1.     Hudson – 2.9 Month Supply

2.     Essex – 4.0 Month Supply

3.     Union – 4.1 Month Supply

4.     Morris – 4.2 Month Supply

5.     Middlesex – 4.2 Month Supply

           

Note:  A balanced market is 5-7 months.  Anything over 7 months is a buyer’s market.  Anything lower than 5 months is a seller’s market.

• Luxury and vacation home sales are strengthening although homes over $2.5M have a higher absorption rate except in train line towns with employees who commute to New York City due to the Wall Street effect on the luxury market. 
• The Gateway Project will positively impact homes sales for NYC train line towns in New Jersey.  This project will double the rail system capacity in New Jersey by building a new NJ Transit hub in the old post office building across from Penn Station in New York City.  The project has been approved and initial work is underway.  Commute times will be significantly reduced for towns with longer commutes now.

Interest Rates:

• Rising Interest rates are occurring more rapidly than they have since the recession.  After increasing them .25% today, the Fed has promised to raise them 2 more times in 2017.  This impacts affordability for buyers and they must lower their price range in order to stay within their budget. 
• We have retained more affordability in our state which is great for 2017 because rising interest rates will not prevent a slow down in the housing market.
• Promised tax cuts and less regulation from the current administration could impact the economy, but right now experts are not sure whether it will be positive or negative. 
• Interest rates are projected to be 5% on average by the end of the year.

Investment Opportunity:  Newark

• Everyday 50,000 employees go to Class A office space and then leave in the evening.  Tax Abatement Pilot Programs (Payments in lieu of taxes) for developers in areas determined for re-development will help to change that.
• Renovated properties and new construction of lofts, condos, and apartments will create a great investment and first time homebuyer opportunities.
• Re-inventing Newark as a tourist destination will bring needed revenue to the area to restaurants and retail stores already present and new ones coming into the area.  See the Vogue article that recently came out at: http://www.vogue.com/article/newark-new-jersey-travel-guide-tips

Initial 2018 Forecast:

• Job Expansion shifts into 2nd gear.
• Household income continues to rise.
• Millennial Home Buying is in Full Swing.
• Financial Sector expansion crosses the river.
• Political chaos worsens with 2018 mid-term elections.

This is intended as a quick update.  If you have any questions or would like to discuss any of these topics in more detail, please contact me at:  973-307-0023 or cheryl@thedarmaningroup.com

If you know anyone that would like to buy or sell real estate, please pass along my information!