The Northern New Jersey housing market finished strong in the final quarter of 2016, with sales up sharply even while pricing continued to struggle. But with inventory levels falling throughout the region, we expect that sustained buyer demand will drive meaningful if modest price appreciation in 2017.
Sales were strong throughout the region. After a relatively slow third quarter, regional sales surged back, rising almost 11% and up sharply in every county in the report: rising 11% in Bergen, 14% in Passaic, 12% in Morris, 11% in Essex, and 18% in Sussex. This strong fourth quarter helped the region close the 2016 year up almost 11% in sales, reaching the highest yearly transactional total in over ten years, since the height of the last seller’s market. Indeed, regional sales are now up 63% from the bottom of the market in 2011.
Inventory continues to tighten. We determine the “months of inventory” in a market by measuring the number of homes for sale, and then calculating how long it would take to sell them all given the current absorption rate. The industry considers anything less than six months to be a “tight” inventory that signals the potential of a seller’s market that would drive prices up. Well, the months of inventory for the Northern New Jersey region has now crossed over that line, dropping down to 5.3 months. Moreover, inventory was down in every individual county in the Rand Report, and is now below or nearing the six-month level: Bergen single-family homes at 3.6 months and condos at 6.1 months, Passaic at 8.3, Morris at 7.3, Essex at 7.0, and Sussex at 11.3. Certainly, if inventory continues to tighten, and demand stays strong, we are likely to see upward pressure on pricing.
Even with sales up and inventory down, though, average prices have been flat or falling throughout the region. Basic economics of supply and demand tells us that after five years of steadily increasing buyer demand, we should expect to see some meaningful price increases. But prices languished, with the regional price down just a tick from last year’s fourth quarter, but down almost 2% for the year. Moreover, the average prices for the year were down in almost all of the individual counties, rising only for Bergen condos, with just a tick up for Sussex. And maybe that’s the tell it might be that the market is simply stronger at the lower end, so lower priced homes (like Bergen condos and Sussex properties) are making up a larger percentage of the mix of properties sold.
Going forward, we remain confident that rising demand and falling inventory will drive price appreciation in 2017. Sales have now been increasing for almost five years, which has brought inventory to the seller’s market threshold in much of the region. The economic fundamentals are all good: homes are priced at 2004 levels (without even adjusting for inflation), interest rates are still near historic lows, and the regional economy is stable. Accordingly, we continue to believe that better days are ahead, and that we are likely to see modest but meaningful price appreciation in 2017.