But Not Everywhere! Will Your Town Defy Gravity?
By The Tamima Team
What do spy balloons, clouds, and home prices in NJ “rail towns” like Montclair and Glen Ridge have in common?
They all defy gravity.
That’s the assessment of NJ housing market guru Jeffrey Otteau, who presented his spring 2023 market outlook to a group of agents last week.
Otteau expects home prices in NJ overall to fall 4 pct in 2023, as higher mortgage rates make the cost of borrowing prohibitive for many would-be home buyers, and as the exodus from New York buyers fleeing Covid comes to an end.
Overall NJ home values rose 12 pct in 2020, 16 pct in 2021, and 8 pct in 2022.
“Purchase demand is down and that’s certain to continue until interest rates moderate. We’re not going to see a pick-up in sales any time in the immediate future,” Otteau said.
As the U.S. Federal Reserve struggles to bring inflation under control by raising rates, average mortgage rates have climbed from historic lows around 2.7 pct in 2021 to around 6.5 pct currently.
Every one percentage point (100 basis points) increase in interest rates translates into higher borrowing costs and reduces the price of a home a buyer can afford by 9 pct.
“We are seeing home prices beginning to decline and that will continue as long as we have higher rates,” Otteau, president of The Otteau Group, said.
Higher rates are also preventing people from up-sizing and down-sizing. “Trade ups are frozen. Existing home owners can’t trade up easily because trading up will mean increasing costs with higher mortgage rates,” Otteau said. “People don’t want to give up their low interest rates.”
But as the effects of the Covid pandemic recede, more companies are requiring employees to return to the office.
As a result, towns like Montclair and Glen Ridge that have good transportation links to New York City will see home prices continue to rise or remain stable on the back of strong demand and limited inventory.
Glen Ridge’s home inventory stands at a low 0.7 months, while Montclair inventory is at 1.1 months.
Another housing sector immune to gravity is shore towns in Northern New Jersey.
“Northern Jersey shore market counties are doing well because they’re close to New York City via ferries. There’s been a huge increase in appetite for second homes as a result of the pandemic,” Otteau said.
While Otteau believes Interest rates will peak by the end of 2023, that will not restore NJ home prices to an upward trend immediately.
He expects overall NJ property prices to fall a further 2 pct in 2024, before turning positive in 2025.
The good news: foreclosures and underwater properties are not going to be a problem as they were in 2008 during the “Great Recession” thanks to tighter lending standards, while a shortage of inventory will put a floor on prices.
“Today fewer buyers and less inventory to choose from has a mitigating effect on how much home prices will decline.”
Curious how home prices in your town are likely to fare in 2023 and beyond, or considering a home purchase and want to understand the market better? Give me a call at 201.306.0267 or email me at Tamimafriedman@gmail.com.