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The runaway housing prices we’ve seen over the past few years in New Jersey should finally slow down in 2024, real estate experts say. And the market is expected to normalize.
Falling interest rates should lead to more houses being listed for sale, helping prices level out. Recent statements from the Federal Reserve indicate that inflation is slowing and interest rate cuts could start happening in March or June.
The real estate market could see changes by Memorial Day or in the second quarter of 2024, said Jeffrey Otteau, a real estate economist who heads the Otteau Group.
“After rates start to move closer to 5.5% or get below 5.5% we’re going to see existing homeowners more willing to put their house up for sale,” Otteau said. “With more inventory and increased sales activity, we’ll probably see home prices flatline.”
Jack Binder Jr. of Ferguson-Dechert in Avalon says he’s already seeing improvements in the market there.
“I’m seeing demand come back in a major way,” he said. “I have new leads at a faster clip than I saw in all of 2023.”
And this isn’t a time of year when he’s normally busy, Binder said. “People are down in Florida or thinking about their kids’ school. That busy season tends to start after President’s Day weekend.”
Homes prices in New Jersey increased about 7% in 2023, following a 9% increase in 2022 and double digit increases in 2021 and 2020.
Experts thought that prices would slow down or even fall in 2023 because interest rates more than doubled from the year before. But low inventory made the few homes that did hit the market in high demand.
The segment of the market that was hardest hit was first time homebuyers. The least affected was the luxury home market, because those buyers are less sensitive to interest rate fluctuations.
Many first-time buyers were knocked out of the market when their already high prospective monthly payments increased by hundreds of dollars because of the higher interest rates.
“There was not a lot out there, or they would be overpaying,” said Cheryl Towey of Weichert Realtors, who works in Morris, Sussex and Warren counties.
A $350,000 house, if you could find one, at an 8% interest rate, with a 20% down payment and $7,000 per year in taxes would have a monthly payment of about $2,700. At a 6% interest rate the monthly payment would drop to $2,400 Towey said.
“I don’t think rates are down enough to bring the craziness back,” she said. “I think if they put a (5% interest rate) in front of it, people will start to get back in the market. In the mid-fives sellers might think, ‘OK, I missed the boat, but lets jump on this one.’”
First time buyers are critical to the real estate market because there is a ripple effect that comes from their purchase of a home, Otteau said.
“The entry level buyer drives the entire housing market because for each first time buyer buying a home, typically four other homes sell in the housing chain,” he said, as the seller of that $400,000 home trades up to a $600,000 home and the seller of the $600,0000 home buys an $850,000 home and the seller of that home buys a $1 million home.
The 2023 market “scared a lot of people,” said Beth Kimmick, of ERA Central Realty in Cream Ridge, who works in Ocean, Monmouth, Mercer, Burlington and Middlesex counties.
“Inventory came to a real abrupt shortage. It scared sellers because where did all the buyers go when interest rates went up,” she said. “And if there’s no inventory, how are they going to buy a house. It made people take a big pause and that’s what’s going on right now.”
Housing inventory has been trending downward for the past decade. In July 2011, there were 71,194 unsold homes on the market in New Jersey, according to data from the Otteau Group. By July 2016, there were 51,010 and in July 2021, there were 20,729 unsold homes on the market. At the end of 2023 there were just 11,000 homes for sale in New Jersey.
“I don’t think there’s going to be a flood of inventory or of buyers,” Kimmick said. “People are watching everything and when they feel comfortable they’re going to come back to the market.”
The process of buying or selling a house will feel more normal in 2024, she said.
“If it’s priced wrong or not in great shape, it’s going to sit on the market. Buyers are more critical,” Kimmick said.
She also said buyers won’t be waiving inspections or appraisals. “It will be more traditional in that buyers and sellers will have a balance throughout the transaction.”
Are you an agent, buyer or seller who is active in this changing market? Do you have tips about New Jersey’s real estate market? Unusual listings? Let us know.
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Allison Pries may be reached at apries@njadvancemedia.com.
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