NJ’s slow recovery: Home prices back to peak levels by 2023?
There has been a fairly robust increase in the pace of home sales across New Jersey for the past two years, but the price of homes is climbing more slowly, according to Otteau Valuation Group in East Brunswick.
President Jeffrey G. Otteau says home prices are rising slower in New Jersey than anywhere else primarily because of the state's sub-par economic performance.
"New Jersey has been one of the slowest states in recovering jobs that were lost during the recession. In fact, the state still has not regained all of the jobs that were lost from 2007 to 2009, and in addition to that, median household income in New Jersey is rising slower than in an any other state in the country," said Otteau.
Based on those factors, Otteau noted that while the number of home sales has been increasing at a double-digit pace for more than two years, the price that home buyers can afford to pay isn't rising very much because they can't afford to pay very much.
There is an oversupply of luxury-priced homes across New Jersey, and according to Otteau, a common measurement for the housing market is the months of supply of unsold housing that's currently for sale.
"Statewide we have a five month supply of housing across all price ranges, meaning that the homes that are currently for sale will take five months to sell out completely. In the luxury price points, that inventory rises to three years," Otteau said.
The strength in the housing market today is in towns that are located nearest to New York City, Otteau explained.
"One of the big trends that we've seen since the recession ended seven-and-a-half years ago is that New York City's economy has been growing rapidly while New Jersey's economy has been lagging behind, and so there is a population shift that's occurring, whereby our residents are increasingly leaving outer-ring suburbs and rural places and relocating closer to New York City or to train lines that connect to New York City in order to be able to get closer to those job opportunities," said Otteau.
"The weakest performing markets would be rural places, the outer-ring suburbs, and certainly many parts of the Jersey Shore market where demand has been rather weak," Otteau said.
While there are some lingering effects from Superstorm Sandy four years ago this month, Otteau pointed out the primary shift that we're seeing is that the state economy is no longer creating high-paying jobs that can afford to own a second home at the shore.
New Jersey home sellers in lower price points are benefiting.
"The strength in the housing market today is not only in towns that are near to Manhattan, but also in house prices that are below $600,000, and in some places below $400,000. And so for the home sellers who have a home to sell that fits that description, it's a very robust market and prices are rising," Otteau said.
He added, in large part it's not good news for home buyers in those lower price points, "because it means they're going to need to pay more."
New construction no longer exists for lower-priced, single family homes and a strong demand with very limited supply has resulted in first-time buyers having a smaller selection to choose from.
"The most significant reason that lower-priced home sales are increasing is that we are now finally seeing the transition of millennials from rentership to homeownership and that's bringing that additional demand into the market. So, good news for sellers. If you're a buyer, it means that you have less bargaining power, but it also means that the sooner you buy as a first-time buyer, the less you'll pay," said Otteau.
Otteau Valuation Group projects home prices will recover to their 2005 price levels in New Jersey in 2023, and Otteau provided one reason behind the 18-year cycle.
"Not only are home prices rising slower in New Jersey than anywhere else, but also we're likely to see a next recession occur somewhere in the next two or three years, which typically causes a setback for the housing market. This next recession is likely to be very mild and very short in duration, and there may not be any home price declines associated with that next recession, but we are likely to see home prices rising while that recession is in place, and that's going to slow down or extend the recovery period as to how long it will take to get back to the 2005 peak prices," Otteau said.
Generally, areas in New Jersey where home prices are recovering faster tend to be in towns in the northeastern part of the state, including the counties of Bergen, western Essex, Union, Somerset and Morris, according to Otteau.
"Those markets are all outperforming in terms of home price recovery and year to year price increases because they're closer to New York City and they have a high concentration of jobs," Otteau said. He added, a second area of strong price recovery is along the Northeast Corridor train line through Mercer, Middlesex and Union Counties because of the accessibility to Manhattan.
Jersey's Gold Coast — from Fort Lee in Bergen County all the way down Hudson County to Jersey City and Bayonne — is doing well because the real-estate world considers that "the sixth borough" of New York City, Otteau said.
"Because the Manhattan economy has done so well all along that Gold Coast, prices are now at all-time record highs, not only having recovered pre-recession peaks, but now exceeding those peaks," he said.
The increase in home sales and in home prices has been universal across the country with the exception of New Jersey, according to Otteau.
Otteau says it costs more to live in the Northeast than anywhere else. Companies are leaving their suburban locations in those places to move into cities, and restrictive zoning laws in those places prevent builders from constructing modest-income housing in most places in the Northeast.
The alternative form of residency, renting, probably has experienced its biggest shift over the last five years, according to Otteau. He pointed out there has been a dramatic rise in rentership, coupled with a decline in homeownership.
"In fact, the homeownership rate in New Jersey has declined by more than anywhere else in the country, and what that means is that rents are rising faster than home prices," he said.
Otteau says that the state is transitioning to a European model in which "households start to make changes to their style of living ... more people rent than own housing; more people use public transportation, or small, efficient scooters to get to work than drive cars; more people live in smaller-size spaces than larger spaces; household size is small and birthrates are very, very slow."
He added that in New Jersey, 7 out of every 10 households have no children 18 years of age or younger.
Contact reporter Dianne DeOliveira at Dianne.DeOliveira@townsquaremedia.com.
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