NEW JERSEY - While the rest of the state economy slowly returns to pre-pandemic levels, the New Jersey real estate market reportedly experienced “a year we’ve not seen before” with no immediate signs of slowing.
Two state real estate experts with national credentials participated in a TAPinto panel discussion Tuesday about the “Current State of the New Jersey Real Estate Market and Future Outlook,” sharing takeaways from 2020 and expectations for the rest of the year.
Charles Oppler, CEO of Prominent Properties Sotheby’s International Realty and 2021 President of the National Association of Realtors, told attendees that New Jersey experienced a 7.5% statewide gain in units and a 15% increase in median sales price this past year. Demand is up so much that half of all state home sales in 2021 so far have closed above asking price.
“Which is an incredible statistic,” Oppler said during the virtual event. In Montclair, for example, nearly every home sold for more than it was listed. “Demand is so strong that buyers have to be willing to go above asking price.”
Amid record-low inventory, there is no shortage of qualified millennials ready to buy their first home. The generation represented 70% of all recent home contracts, according to Jim Brown, Senior Vice President of Residential Lending for Investors Bank. That strong demand helped correct a short-term downturn early in the pandemic.
“And the New Jersey real estate market turned on a dime to become a bright spot in the economy the second half of the year,” Brown said. “I cannot remember a time when consumers had more options for where they can apply for a mortgage loan.”
Here are 3 more takeaways from TAPinto’s virtual discussion with Oppler and Brown:
- 2020 was different for these reasons
Closings in parking lots. Hazmat suit showings. Record single-family home sales in markets dominated by condominiums and townhomes — especially in Bergen and Hudson counties.
2020 real estate activity was unprecedented in a way that sometimes thwarted pre-pandemic real estate trends. For example, communities geared toward residents 55 years old and up once stagnated on the market, according to Oppler, but these units have suddenly become more attractive to buyers looking to downsize. Half of these age-restricted units can be found in Ocean County, where the median sales price (+13%) grew three times more than units sold (+4%) in response to increased demand.
Even those who didn’t move benefited from the unique market last year, Brown said. Homeowners who once paid double-digit interest rates refinanced their properties to save $160 per month, on average, by taking advantage of interest rates that were 3% or lower.
Why we’re in a seller’s market
Limited inventory, lots of buyers and historic interest rates provide the ingredients necessary to produce this high-demand market, Oppler said. And sellers are benefiting from home appreciation rates that peaked as high as 20% in some areas of New Jersey.
The number of New Jersey homes for sale is roughly one-third of what constitutes a healthy real estate market. Oppler attributes several reasons for the inventory shortage:
People are moving less often, once every 10 years or more
Builders produce half as many new homes as they used to produce
Expensive capital gains taxes disincentivize home sellers from entering the market
While unprecedented, there is no sign of relief for this inventory shortage for at least another 18 months, said Oppler, who later estimated it could be 4 more years until housing inventory stabilizes.
Consequently, sellers can’t underprice their homes — but they can still be overpriced. That is why Oppler recommends still using a trusted real estate agent even though sellers currently have the upper-hand.
As for buyers: good luck, according to Brown. First-time homeowners especially struggle to compete against cash offers and large down payments when engaged in a bidding war.
“A 20% offer might not cut it,” Brown said.
So when does the bubble burst?
Despite 11 years of year-over-year real estate growth, there are no indicators to suggest a Great Recession-level drop in activity. Because more protections have been put in place to avoid bad home loans, there is little risk of a similar downturn, experts say.
“The 2008 bubble really was unique,” Brown said. “The credit standards today are not easy.”
And even if interest rates inevitably increase, he doesn’t expect rates to exceed high 3% to low 4%. “Still historically low.”
As more businesses embrace virtual commerce and workplaces, commercial spaces could be converted to residential uses to overcome inventory shortages, Oppler said. And despite demand for large-lot homes, urban cities still stand to benefit most. For example, Hoboken and Jersey City saw the greatest volume of sales activity in the state this past year.
“People still want to live here, as expensive as it is,” Brown said.