The red hot residential real estate market is beginning to cool slightly and is expected to continue that trend for the rest of the year.The frenzied buying New Jersey saw in the second half of 2020 and the first half of 2021 were driven largely by low interest rates, low inventory and buyers looking to leave urban areas, like New York City, for more space in the suburbs.But now New Jersey has seen four consecutive months where home buying demand is running at a “significantly slower pace than last year,” said Jeffrey Otteau, a real estate economist and president of the Otteau Group.“It’s not that it’s collapsing,” he said.“It’s normalizing.” Contract sales were down statewide by 12% in June, 22% in July, 16% in August, and 22% for the first three weeks of September, according to Otteau’s data.The reason sales are down, he said, is because home prices have risen so much that they’re becoming unaffordable even with low interest rates.And urban flight during the thick of the pandemic that drove city-dwellers who wanted more space to the suburbs has ended.
“Migration from the city to the suburbs is now reversing as cities start to reopen,” Otteau said.“As employers are telling employees to come back to the office, we’re starting to see housing shift back in toward the city.” Contract sales are up 35% in Hudson County, year to date, according to Otteau’s data.And in New Jersey Realtors’ August report , it said closed sales in Hudson County were up 17.1% in August alone — even while, statewide, closed sales were down 10% overall.Irene Barnaby of Compass in downtown Jersey City said she’s seeing buyers who were renting in the area and want to take advantage of low interest rates, international buyers and some cases where people who fled the congestion of Hudson County now want to come back.One couple she worked with sold their three-bedroom in downtown Jersey City and moved to Maplewood in May 2020.About 6 months ago they called her and said they sold their Maplewood home and were coming back to Jersey City.“They missed the vibrancy and being in the middle of the action — and having access to New York City,” Barnaby said.
Those who are shopping in Hudson County still want space, she said.Most are looking for two or more bedrooms and want some kind of outdoor space.“One-bedrooms are tougher to sell,” she said.Another factor slowing home sales overall is that home prices rose 12% in 2020 and are on pace to rise 17% this year, Otteau said, adding that prices grew an average of about 3% for each of the prior 7 years.“House prices can only rise as fast as salaries,” he said.“After a few years of that (faster than salary growth) banks won’t lend buyers enough money to afford a house.Anytime home prices go up faster than salaries there must be a correction to follow.” Otteau is predicting price growth of 5% in 2022 and a decline of 5% in 2023.
But, he said, it’s still a good time to buy.“You’re going to get a lower interest rate now than in the future,” he said.U.S.
Federal Reserve policymakers may begin raising interest rates next year, according to Reuters .The strongest segment of the housing market now is homes in the $1 million to $2.5 million sales range, which is responsible for about 45% of sales, followed by the $600,000 to $1 million range which has 30% of sales, according to Otteau’s data.Those buyers are trading up and, in the process of buying, they’re also increasing the inventory of homes on the market because they’re selling their existing homes.Last year, trade-up buyers were not selling, Otteau said, because people were worried about job security so they didn’t want to take on a bigger mortgage.And they were concerned about having strangers parade through their homes in the middle of a health crisis.But the trade-up market hasn’t taken off completely.
Missy Iemmello, office manager for Weichert Realtors in Morris Plains, whose 120 agents do business in Morris, Sussex, Warren, Bergen and Essex counties, said they saw a spike in inventory the second week in September that quickly fizzled.“We were all excited.We thought this is what they’ve been predicting all year,” Iemmello said.“Then, all of a sudden, it was just a short blimp.” Iemmello said she thinks the trend was halted by Hurricane Ida .“People got water where they never had water before,” she said.
“I think in the next few weeks we should start seeing the inventory numbers go up.” If you’re a buyer, seller or work in real estate, we want to hear from you.
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