So What’s Going on in the Market?: The Rand Quarterly Market Report for the Northern New Jersey Region for 2015Q4
The Northern New Jersey housing market finished 2015 in a flourish, with sharp increases in sales and emerging signs of meaningful price appreciation. As 2016 begins, the region seems to be moving into a fully-realized seller’s market that will be characterized by declining inventory, increasing sales, and rising prices.
Sales were up over 8% for the region, rising in every county in the Report. Closings have now been trending up for about five years, ever since the market stabilized after the correction precipitated by the financial crisis of 2008-09. Although we are not yet at transactional levels that we saw during the last seller’s market of the mid-2000’s, the number of homes sold in 2015 was about 40% higher than at the bottom of the market.
Although prices were basically flat, they showed signs of emerging “green shoots.” The regional sales price was up less than 1%, but it did mark the third straight year of rising prices, even though the increases have been marginal. On the other hand, pricing is now about 8% higher than at the bottom of the market, so the trend is generally positive. Interestingly, pricing was stronger in the middle of the market, with mid-priced counties like Passaic generally faring a little better than higher-priced areas like Bergen or Morris.
Most importantly, we are starting to see a tightening of inventory. The industry measures the impact of inventory by calculating the “months of inventory” remaining on the market: i.e., the number of homes for sale divided by the average monthly transactions. So, for example, if we have 1,000 homes for sale and we close about 100 sales a month, we say that’s about 10 months of inventory. According to industry standards, six months worth of inventory signals a balanced market: any less, and we are likely to see too many buyers chasing too few homes, which will tend to lead to multiple offer situations, then bidding wars, and ultimately higher prices. Well, right now, we’re starting to see markets that are under 10 months of inventory, with some trending toward six months, signaling that we are moving into a tighter market.
Going forward, we believe that we are heading for a seller’s market. Sales have now been increasing for almost five years, and at some point that increased buyer demand is going to start driving down inventory and driving up pricing. 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 expect that the region will experience rising sales and prices through a robust spring market and throughout 2016.
Editor’s Note: We are delighted to present this comprehensive Report on the Northern New Jersey housing market for the first time. Although we have been providing reports to our clients on the Bergen, Passaic, and Morris County markets for several years, we are now expanding our focus to also cover Hudson, Essex, and Sussex Counties.
So What’s Going on in the Market?: The Rand Quarterly Market Report for Westchester and the Hudson Valley Region for 2015Q4
The Westchester and Hudson Valley regional housing market finished 2015 strong, with another surge in activity that drove sales up almost 17% for the year. And although this sustained increase in buyer demand has not yet had its expected impact on pricing, declining levels of inventory are now signaling that meaningful price appreciation is imminent.
In other words – welcome to the seller’s market! As we have noted before in this Report, our housing market tends to run in approximately 15-year cycles from the beginning of a seller’s market to the end of a buyer’s market. We saw this cycle play out from 1981-1997, with prices and activity rising for about seven years through most of the 1980s (the “seller’s market”) and then falling for about eight years from 1989-1997 (the “buyer’s market”). And we saw it again in another 15-year period from the seller’s market that started in the late 1990s, ran through the crash of 2008-09, and then transitioned to the buyer’s market that ran through the past few years.
Well, as we come into 2016, we are now on the cusp of a new cycle, a seller’s market that has been slow to develop over the past few years, but is now showing real signs of taking off. Here are some of the reasons why:
First, sales activity has now been generally up for over four years. Year-on-year sales have now gone up for 14 out of the past 16 quarters, culminating in almost 13,500 single-family sales this year – the highest total we have seen since the height of the last seller’s market in 2005. By comparison, yearly regional closings routinely fell below the 10,000 sale mark after the market correction in 2008.
Second, inventory levels have dropped significantly, with some markets going below the crucial six-months-of-inventory mark. We measure inventory levels by looking at the “months of inventory” available at any given time on the market, which we calculate by taking the number of homes on the market and dividing them by the average number of homes that are selling every month. So, if we have 1,000 homes on the market, and we are selling about 100 homes on average every month, we say that we have about 10 “months of inventory.” According to industry standards, about six months of inventory signals a “balanced” market: anything less, and buyers chasing scarcity are likely to create bidding wars that will drive prices up. And for the first time in about 10 years, we’ve seen one of our markets go under six months of inventory, with Westchester single-family homes at about 5.1 and condos at about 3.9. The other markets are above six months, but they are definitely trending downward and are hitting levels we have not seen since the last seller’s market.
Third, as a result of declining inventory and rising demand, we are starting to see some “green shoots” in pricing at the county level. It doesn’t look like much, particularly since the overall regional price fell this year due to some regression in Westchester, but we are seeing a slight upward trend in most of the counties over the past several years. It takes time for changes in activity to impact pricing, but basic economics tells us that four years of rising sales coupled with a declining inventory should drive prices up.
Going forward, we expect that 2016 will mark the clear beginning of a fully realized seller’s market. The economy is in reasonably good shape, interest rates are still near historic lows, and homes are now priced pretty attractively given that they’re still at 2003-04 levels without adjustments for inflation. So we see no reason why buyer demand would fall off from its current levels. And unless we see a flood of new inventory hitting the market, those buyers are going to be chasing a declining number of homes for sale, which is likely to drive prices up in a robust spring market and through the end of the year.
It’s hard to believe 2015 is already at a close. But it’s happening, and everyone’s getting ready for the new year and preparing their resolutions. In the real-estate industry, we’re excited for the trends that are predicted to take place in the coming year. This is a business that’s used to big and rapid changes, so we’re looking forward to what the new year has in store for us.
As we enter the new year, there are plenty of agents out there who want to help you with any real estate to-dos you may have.
“2016 looks to be a very lucrative year for real estate,” said Frank DiCocco, manager of Better Homes and Gardens Rand Realty’s office in Closter/Alpine, New Jersey. “There is plenty of business out there for our agents. Agents need to hone their skills, and put themselves out there. The years of sellers and buyers falling in our lap are over. It’s the presence, so let’s make one!”
There is also going to be a potential increase in affordable single-family housing. Before 2016, builders were working more on higher-priced homes, which didn’t meet the financial criteria of entry-level buyers. However, with a decrease in new-home prices and improving credit access, builders will be focusing more on constructing homes that are more affordable for new homebuyers. If you have a family, this news couldn’t be better, so if you’re looking for a new home in 2016, keep searching for low home prices throughout the year to see if any fit your financial requirements.
One source’s prediction says home prices may start to decrease, which will influence potential buyers to revisit the market and see if there are any properties they will be able to afford. A lowered price is the best thing a buyer could be given, so 2016 is a year where you’ll want to take advantage of the lowered prices and search for your dream home. With this, you must keep an eye on the market, and also consult with your agent about their views on the industry. Once you have a better idea of the market’s current state, it will be time to dive in.
Although some people believe home prices will lower in 2016, Better Homes and Gardens Rand Realty’s third-quarter market report details that home prices will rise in the new year, therefore creating a seller’s market. Because of these increased prices, this will cause more home sellers to list their properties. Home sellers will want to receive as much money as possible from their property, so they will be eager to place their homes on the market.
The real estate industry is more technological than it has ever been before. With smartphones, tablets, computers, and social media, we are given countless options when it comes to exploring potential real-estate investments. It has become difficult to think how we would have managed this in the past without the availability of these digital-age tools. However, despite the tremendous help modern technology provides for those searching for real estate, you can’t forget it’s the human touch that has been in the real-estate industry since the beginning. After all, you’ll be dealing with an agent the entire time, so it’s important to establish a friendly connection with them as you traverse through the ever-changing real estate market. Having someone to speak with who can provide firsthand knowledge of the real estate market is a wonderful service when buying or selling, so you should value the human factor as much as the technological one.
Parking has been an important factor for real-estate clients for decades. After all, who wants to buy a house without a proper place to park their car? However, it may be surprising to know parking will be seen as less of a concern among homebuyers in the new year. Lately, it has appeared an increasing number of buyers are forgoing cars and are instead using public transportation, cycling, and ride-sharing apps, such as Über. This is especially understandable for those looking to live in the city, seeing as parking normally costs extra and is rather difficult to find.
We will also see a greater solidification of generational buying trends. It has been evident lately that millennials make up a significant portion of current homebuyers, and that doesn’t show any sign of stopping. Nearly two million sales in 2015 involved millennial consumers, which equals about one-third of homebuyers. Despite the attention millennials are receiving in regard to the housing market, it should be noted there are two other demographics that will make an impact in the 2016 housing market: Generation Xers recovering from the financial crisis, and retiring baby-boomers who are looking to downsize. With these three very different generations looking for homes in the new year, we will see a surge in both the buying and selling markets, which will surely make for an interesting and lucrative year in the real estate industry.
A new year includes new beginnings, so whether you’re planning on buying or selling a home, these are a few trends you’ll want to keep track of. The start of a new year is a perfect time to be optimistic, so let that optimism carry you throughout the year as you work to accomplish any real estate goals you may have. With that being said, I wish you all a wonderful and prosperous 2016!