From the Record:
Buoyed by strong job growth, the housing market in the new year will continue to climb out of its worst downturn in generations.
As the unemployment rate has dropped to 5.3 percent in New Jersey and 5 percent nationwide, people are increasingly getting the confidence to move into their own places or trade up to more expensive homes. Mortgage rates will rise, but not precipitously, experts predict. And builders will ramp up activity to help meet the demand — though new home construction will continue to fall short of long-term averages.
“Given the continuing economic recovery, this year will be a good year for housing,” said Jeffrey Otteau, an East Brunswick appraiser who tracks the housing market statewide.
On the downside, many people will struggle to afford apartments or houses, as home prices and rents continue to grow faster than incomes.
Housing prices are expected to continue recovering from the 25 percent to 30 percent plunge they sustained in the housing crash. Most predictions for home price increases this year are in the neighborhood of 3 percent to 5 percent — not huge, but still ahead of inflation.
Along with higher mortgage rates, these price increases will make homes less affordable. That’s expected to create special challenges for first-time buyers, who have been missing from the housing market’s recovery.
As young households are priced out of cities, they will increasingly look to inner-ring suburbs, especially those with walkable neighborhoods and downtowns, said Svenja Gudell, chief economist for Zillow.
Even with the affordability issues, there’s a lot of pent-up demand for homes because many people delayed setting up their own households in the years when unemployment was high, analysts say.
“This hesitancy has begun to diminish as the economy has shown a more consistent improvement and jobs are being added,” Crowe said.
Millennial households are expected to move into homeownership in larger numbers, as they begin to marry and have children.
“There’s a heavy correlation between marriage and homeownership and an even stronger correlation between having children and homeownership,” Crowe said.
On the seller side, as values rise, more homeowners who have been underwater on their properties — that is, owing more on the mortgage than the home is worth — will be able to sell without suffering a loss. That is expected to loosen up some of the gridlock in housing sales activity, by bringing more inventory to the market.
Rents nationally are expected to rise by 4 percent to 5 percent this year, continuing recent trends. Demand for rentals is on the rise as more people become confident enough about their jobs to move into their own places, but either prefer the flexibility of renting or can’t afford to buy homes.
In North Jersey, a number of new apartment buildings have been constructed to meet the growing demand for rentals. But most are high-end properties with monthly rents that can start at $2,000 and up, offering little relief to low- and middle-income households in the region, which has always been a high-rent market.
Nationwide, the worst of the foreclosure tsunami has passed, but New Jersey is still dealing with a backlog of distressed properties that built up while the mortgage industry answered accusations of abusing borrowers’ rights.
That overhang of distressed properties put downward pressure on prices, because foreclosed properties tend to sell at a discount, O’Keefe said.
As the state continues to resolve more foreclosure cases this year, distressed properties will be less of a weight on the market, O’Keefe predicted. That will allow home values to rise, which in turn will enable more homeowners to sell without taking a loss.