2018 Spring Housing Update for New Jersey

2018 Spring Housing Update for New Jersey

With Q1 coming to an end, here are the latest updates and predictions for the 2018 New Jersey Real Estate Market.

Overall Outlook

• More NJ homes were sold in 2017 than in any year on record, and that trend is expected to continue throughout 2018.
• It is 10 years after the worst recession since the Great Depression.  The next recession is predicted to be at least 2-3 years away.
• While Tax Reform changes are causing the Spring Market to lag, an acceleration is expected as people come to understand their individual impact.  
• Rising Interest rates will have the biggest impact on the housing market.
• Unsold inventory is near record lows. It is down 53% from the peak and 11% year over year.

Employment and the Economy:

• 2017 was the 7th straight year with 2MM+ job gains nationwide which means more people are working and incomes are on the rise.
• We are currently in the 2nd longest economic growth period on record.
• Unemployment is currently at 4.1%.  The last time we saw a number that low was 18 years ago.
• The Fed is predicting that GDP will have a 5.4% growth rate which we haven't seen since 2003.  
• The Northeast is at a competitive disadvantage because of higher business and living costs.

Home Prices:

• New Jersey home price index is underperforming the US by 21% due to taxes and the high cost of living. Despite that, home prices are slowly rising.  
• Last year was the largest price increase in NJ since the Great Recession.  Prices overall in NJ are projected to increase 3.5%. Direct train line towns will see larger increases.  I can provide exact percentage projections for a particular town if you are interested in getting that information.  
• Mortgage delinquency is normalizing and is mainly found in urban and distant rural areas in New Jersey.

Home Sales and Inventory:

• Home sales in New Jersey increased by 5% in 2017 with a over 115,000 residential properties being sold.  It is the highest increase since the housing crash.
• January 2018 homes sales were the highest in 13 years.  Note:  those homes were under contract before the tax reform laws were passed.
• Residential transaction volume grew 10% in 2017 with $38.3 billion dollars of residential real estate sold in 2017 statewide. 
• Sales increased for all price ranges year over year.  In the <$600,000 range, sales increased by 5%.  From $600K to $1M, sales increased by 7%.  In the $1M to $2.5M range, sales increased 8%.  In the luxury market ($2.5M +), sales increased by 11% which is the biggest gain in years.
• Inventory is still historically low.  There are 27,000 fewer homes on the market than the peak in 2007.  That is 53% down from the peak and 11% yoy.  One reason is that home building never recovered. There were less than 10,000 new home building permits requested in 2017 compared to 22,000 in 2005.
• The top 5 counties with the lowest absorption rate (number of months it would take to sell out of current inventory) are:

1.     Middlesex – 3.2 Month Supply

2.     Hudson – 3.4 Month Supply

3.     Union – 3.4 Month Supply

4.     Monmouth – 3.9 Month Supply

5.     Essex - 3.9 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.

• Going forward, 95% of all home sale transactions will be millennials buying and baby boomers selling.

Interest Rates:

• Interest rates will continue to rise in 2018 due to economic growth.  
• For every 1% rise in interest rate, a homebuyer needs to reduce their purchase price by 9%.  Buyers who have been on the fence need to move forward.  If buyers wait and interest rates go up, their second choice house will be more expensive.  Sellers can expect that by the end of 2018, buyers will be able to afford less than today.

Investment Opportunity - Residential and Commercial Rental Units

• Multi-family units and commercial apartment buildings are attractive due to rising rent prices.  
• Newark is still evolving and is a great place to invest in residential and commercial rental units.
• Direct train line towns will provide rental opportunities due to easy access to NYC and Philly.

Initial 2018 Forecast:

• The Economy continues to be strong.
• The 2018 home market will be sluggish at first, but we should see steady increases in sales transactions later in 2018 and into 2019 and 2020.
• Interest rates rise by 1%.
• There is a strong demand for commercial real estate.
• Mid-term elections could create volatility toward year-end.
• Rental Rates will rise as new buyers can no longer afford the house/town they want because of rising interest rates and home prices. This is a great opportunity for investors with multi-family units.

This is intended as a brief update.  For a complimentary home evaluation, buying consultation or investment discussion please contact me at:  973-307-0023 or cheryl@thedarmaningroup.com.  

If you know anyone that would like to buy or sell real estate in New Jersey or around the globe, I can help!  Please pass along my information!