From Otteau Group:
MarketNEWS August 2018 Edition
The number of home purchase contracts in New Jersey increased by 4% during July compared to the same month last year. There has however been a noticeable change in the mood of the market in recent months as the pace of home sales has declined in about 1/3 of all markets on a year-to-date basis. As a result, the number of year-to-date purchase contracts (January-July) in New Jersey is up marginally by 1%, or roughly 800 contracts. While this is partially attributable to an under-supply of housing inventory, a growing affordability gap due to rising prices and interest rates is a significant factor.
While the number of year-to-date home sales has increased by 1% overall, that is not the case for all price ranges. Contract activity for homes priced under $400,000 have stagnated due to supply shortages, with unsold inventory having dropped by 9% year-to-date. Recording a 1% decline, are contract sales for homes priced between $1-Million to $2.5-Million (26 sales). This is somewhat misleading, however, given that this price range accounts for a much smaller share of sales. At the opposite end of the spectrum, contract activity for luxury priced homes over $2.5-Million has increased by an impressive 12% (208 in 2017 vs. 232 today).
Shifting to the supply side of the equation, inventory remains restricted, 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 725 (-2%) over the past year. This is also 41% less than the amount of homes (30,000 fewer) on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to just 4.1 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 4.3 months.
Currently, 95% of New Jersey’s 21 counties 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 just 3.0 months of supply, followed by Essex, Passaic, Union, Somerset, Burlington, Hudson, Camden & Monmouth, which all have fewer than 4.0 months of supply. The counties with the largest amount of unsold inventory (6.5 months or greater) are concentrated in the southern portion of the state including Salem (6.5) and Cumberland (8.7).
Demand for rental apartments continues to expand in NJ with statewide occupancy rates being among the highest in the US. Statewide vacancy increased somewhat from the prior quarter, rising by 20 basis points to 3.8%. The rise in vacancy is attributable to the rapid growth in pipeline supply, which has increased from 7,600 apartments in 2008 to 32,000 today. Nationally, the average vacancy rate increased by 10 basis points to 4.8%. Still, statewide and national vacancy rates remain well below their 2010 peak having fallen by 140 bp and 320 bp, respectively.
Consistent with national trends, the homeownership rate in New Jersey declined precipitously with the onset of the Great Recession. The homeownership rate in NJ has declined from a peak of 71.3% in 2005.Q1 to 66% in 2018.Q2, which is 170 basis points higher than the national rate. This equates to a 7% drop in the homeownership rate, at both the state and national level. Because of this shift, there are approximately 208,000 additional renters in New Jersey.