The hot residential real estate market is starting to cool slightly and is expected to continue this trend for the rest of the year.
The frenzied buying New Jersey experienced in the second half of 2020 and the first half of 2021 was largely driven by low interest rates, low inventories, and buyers looking to leave urban areas, like New York, for more. space in the suburbs.
But now New Jersey has had four straight months where home buying demand is proceeding at a “significantly slower pace than last year,” said Jeffrey Otteau, real estate economist and chairman of the Otteau Group.
“It’s not that he’s collapsing,” he said. “It is normalizing”
Contract sales fell 12% statewide in June, 22% in July, 16% in August and 22% in the first three weeks of September, according to data from Otteau.
The reason sales are dropping, he said, is that house prices have risen so much that they are becoming unaffordable, even with low interest rates. And the urban flight in the midst of the pandemic that pushed city dwellers who wanted more space to the suburbs has ended.
“The city’s migration to the suburbs is now reversing as cities begin to reopen,” Otteau said. “As employers tell employees to come back to the office, we are starting to see housing moving towards the city. “
Contract sales have increased 35% in Hudson County since the start of the year, according to data from Otteau.
And in the August New Jersey Realtors report, he said closed sales in Hudson County were up 17.1% in August alone – even though statewide closed sales were down 10% overall.
Irene Barnaby of Compass in downtown Jersey City said she sees buyers renting in the area and wanting to take advantage of low interest rates, international buyers and some cases where people who have fled congestion in the Hudson County now want to return.
A 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 told her they had sold their house from Maplewood and were returning to Jersey City.
“They missed the drive and being in the middle of the action – and having access to New York City,” Barnaby said.
Those who shop in Hudson County always want space, she said. Most are looking for two or more bedrooms and want some sort of outdoor space. “One bedroom apartments are more difficult to sell,” she said.
Another factor slowing home sales overall is that house prices rose 12% in 2020 and are expected to rise 17% this year, Otteau said, adding that prices have risen on average by about 3% for each of the previous 7 years.
“House prices can only rise as fast as wages,” he said. “After a few years of this (faster than wage growth), banks won’t lend enough money to buyers to afford a house. Anytime house prices rise faster than wages, there has to be a correction to follow. “
Otteau predicts a 5% price growth in 2022 and a 5% decline in 2023.
But, he said, it’s always a good time to buy. “You’re going to get a lower interest rate now than in the future,” he said.
Policymakers at the US Federal Reserve could start raising interest rates next year, according to Reuters.
The strongest segment of the housing market is now homes in the $ 1 million to $ 2.5 million sales range, which accounts for about 45% of sales, followed by the $ 600,000 to $ 1 million range. which represents 30% of sales, according to data from Otteau.
These buyers trade and in the buying process they also increase the inventory of homes on the market because they are selling their existing homes.
Last year, swap buyers weren’t selling, Otteau said, because people worried about job security and therefore didn’t want to take out a bigger mortgage. And they feared strangers would march through their homes amid a health crisis.
But the trading market has not fully taken off.
Missy Iemmello, manager of the Weichert Realtors office at Morris Plains, whose 120 agents do business in Morris, Sussex, Warren, Bergen and Essex counties, said she saw an increase in inventory in the second week of September which quickly turned fizzled out.
“We were all excited. We thought that was what they had predicted all year, ”Iemmello said. “Then all of a sudden it was just a little airship.”
Iemmello said she believed the trend was halted by Hurricane Ida.
“People have water where they never had it before,” she said. “I think in the next few weeks we should start to see inventory numbers increase.”
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Allison Pries can be contacted at [email protected].