Sellers’ Market Persists in New Jersey
War Puts a Stop on Mortgage Rate Declines, Affordability Hurts Buyers
By The Tamima Team
It’s an all-too familiar story. War erupts in the Middle East, oil prices surge, sending interest rates higher.
To wit, 30-year mortgage rates, which recently had been trending lower – to 6 percent in February from 7 percent at the start of 2025 – are reversing course, hurting affordability for many would-be NJ home buyers, dampening inventory, and keeping NJ home prices high.
“We were expecting full-on (interest rate) relief and it’s not going to happen because of the war in Iran, higher oil prices and higher interest rates,” Jeffrey Otteau, president of The Otteau Group, told a group of industry professionals this week. “There’s high probability the 30-year mortgage will see an uptick in the coming weeks.
Currently, 30-year mortgage rates are trending higher at 6-6.2 percent, compared with 5.98 last week.
But Otteau believes the up-tick in rates will be temporary, likely keying off of Trump’s recent statement the Iran war will end ‘soon’.
Otteau predicts rates on the 30-year will start falling again starting in June, ending 2026 at around 5.8 percent – still well above the 5.1 percent he originally predicted before the U.S. attack on Iran.
“What we thought would be a normalized (balanced) housing market this year will have to wait until next year,” he said. “When oil prices go higher, so usually does inflation and so also go interest rates, and so the recovery we were expecting, because we thought interest rates would continue to decline, has now been put on hold.”
While NJ home prices in general will continue to climb – Otteau predicts NJ home prices statewide will rise by 5 percent this year – the up-kick in rates and mounting buyer affordability challenges will slow price increases and potentially push the spring market sales surge to mid-summer.
“Buyers are increasing having a voice on what the negotiated purchase price will be,” he said. The list price to sale price ratio, or how much over the asking price a home sells, was 5 percent over-asking in 2024, 4 percent in 2025 and just 1 percent in 2026 so far.
Meanwhile, year-on-year sales of the number of NJ homes are down 7 percent and unsold inventory is at a low 13,198 units, compared with nearly 40,000 units in 2020.
This reflects the “lock-in” effect, where home owners looking to trade up or down don’t want to give up their old, low-rate mortgages for financing at current higher interest rates.
“Most people in New Jersey sell a home after 7 years, trading up or down. But if you have a 3.5 percent mortgage, you don’t want to trade into a 6 or 7 percent mortgage,” he explained.
In Essex and Bergen Counties alone, year-on-year contract sales are down 13 percent, while unsold inventory is down 5 percent in Essex and flat in Bergen.
“I think (the spring market) will get pushed out to somewhere around Memorial Day because of the temporary rise in interest rates and return to normal market which was expected to happen this spring and summer has been pushed out to next year” he added.
Meanwhile, buyers, whose wages are not keeping pace with inflation, are having difficulty affording homes in a state where the median home priced at $549,000 costs more than five times the median income of $104,000. A buyer would need an income of around $150,000 to comfortably afford a median priced home.
“Even if your household income is in the middle of all people, you can’t afford a house that sells in the middle price point in your county. Affordability constraints continue to be a big issue.”
Positive trends for sellers, particularly in Northern NJ rail towns, include the growing requirement that workers return to their offices, the Gateway Tunnel Project at Port Authority, and multi-billion-dollar investments companies like Netflix and Paramount are making in the state.
“These are all very important for New Jersey and our real estate market,” he said.
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If you’re curious how home prices in your town are likely to perform this year, give me a call at 201.306.0267 or email me at tamimafriedman@gmail.com!