From the Otteau Group:
The number of home sales in New Jersey over the first 2 months of 2018 totaled more than 16,000, setting an all-time record. Still, the 2% year-to-date increase over the same period last year was the smallest recently. This is due largely to misinformation about tax reform, which will actually result in a majority of NJ households paying less in federal income taxes, as lower rates more than offset the reduced mortgage interest deductions (MID) and State and Local Tax (SALT) limits.
While the number of home sales has increased for nearly all price ranges this year, the largest gain has occurred for luxury homes priced over $2.5-Million, rising by 32%. This impressive gain is somewhat misleading, however, given the smaller sample size of sales within this price point. Also noteworthy is that the improvement has been primarily concentrated in towns with direct rail service to Manhattan. Contracts for homes priced under $400,000 remain unchanged due largely to the shortage of supply within this range, while homes within the $400,000-$2.5-Million price ranges have seen modest increases.
Shifting to the supply side of the equation, inventory remains constricted, which is limiting choices for home buyers. The number of homes being offered for sale today in New Jersey has fallen to its lowest point since 2005, having declined by 4,500 (-11%) over the past year. This is also about half the amount of homes (37,000 fewer) on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to 4.1 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 4.7 months.
Currently, 20 out of New Jersey’s 21 counties (95%) have less than 8.0 months of supply, which is a balance point for home prices. Middlesex County has the strongest market conditions in the state with 2.8 months of supply, followed by Essex, Hudson, Monmouth, Union, Somerset and Morris Counties, which all have 3.5 months of supply or less. The counties with the largest amount of unsold inventory (6 months or greater) are concentrated in the southern portion of the state including Cumberland (6.4), Cape May (6.7), Atlantic (6.8) and Salem (8.0), however, these counties have shown significant improvement and are beginning to exhibit strengthening conditions.
Demand for rental apartments remains strong in NJ with statewide occupancy rates being among the highest in the US. The Central NJ region has the lowest vacancy rate in the state at 2.5%, up 10 basis points (bp) from the prior quarter. Vacancy in the Philadelphia/Southern NJ region remained unchanged for the 3rd consecutive quarter, standing at 3.9%. Although vacancy in Northern NJ declined by 20 bp to 4.0%, this region continues to have the highest vacancy rate statewide due to the staggering pace of new construction deliveries in key markets like Hudson County and other towns offering convenient accessibility to Manhattan. Nationally, the average vacancy rate stands at 4.5% for the second consecutive quarter.
A driving force for the apartment market sector is that the percentage of New Jersey households with children living at home has steadily declined to 35% today, with continued declines likely in the future.This trend, which is rooted in New Jersey’s economic conditions, is anticipated to drive future housing demand increasingly toward smaller homes including multi-family housing in more urban locations. At the present time, 65% of households within the state have no children under the age of 18 living at home.