By: Kevin Kern

Spring 2023 Market Forecast

As Pollock Properties Group’s Economics Captain, I’ve been tasked with giving everyone an update periodically on our local market and how it’s behaving in the moment. I am also the Team Captain for Cincinnati Sports, Having Lots of Kids, and Wearing Knit Ties but I have sadly not yet been asked to write reports on those topics. For now, my contemplations on local real estate economics will have to suffice.

In this first installment I’d love to give a very basic overview of what we at PPG look at daily so that we can all be your local economists of choice. We meet on Zoom or in person at least four times a week so we can use our collective knowledge to help our current and future Buyers and Sellers. The most important point here is that, as one of the top teams in the entire GSMLS, our agents are writing tons of offers for Buyers and seeing all the multiple-offer information from our myriad listings.

The main point I want to make today is that ours continues to be a Seller’s market and that does not look to be changing anytime soon. Economics is the study of limited resources which have alternative uses and, as the real estate saying goes, the one thing they’re not making any more of is land! What NJ has done with its limited space is another matter entirely.

SEARCH FOR HOMES

There’s a great take on the recent history of our state’s real estate journey from the President of the Federal Reserve Bank of Philadelphia. His contention matches most experts’ that at its root, the story of our current market is one of Millennials looking for more space in which to grow their families. This chart on US Household Formation and this chart on NJ Population Growth are also helpful in understanding that tale.

As you can see, the US birthrate rose through the 80’s and peaked around 1990. Since the traditional time most people buy their first house is 33 years old, we are just this year hitting maximum velocity as it were. Add to that the way the pandemic fundamentally changed the way most people work outside the office and the fact that many Millennials waited till well after 33 to buy their first home, the demand for housing in NJ continues to be strong.

Which brings us to the million pound elephant in the room. Ok Kev…sure…all these crazy kids are finally getting priced out (or literally squeezed out) of their one bedroom apartments in Brooklyn and Jersey City. BUT WHAT ABOUT INTEREST RATES???

GET YOUR HOME VALUE

You have definitely been in a cave somewhere if you haven’t heard about interest rates going up. I don’t even have to share any charts on this one because I’m sure all the current info is burned into our brains by all the news we’ve seen on TV, websites, blogs, podcasts, billboards, messages from carrier pigeons, those banners pulled by an airplane at the beach!

Interest rates are higher and as a result, buying power is down. For every .5% increase in mortgage rates, buying power decreases by about 5%. But is that the end of the story?

The average sale price for the 267 homes sold in Maplewood in 2022 was $865,000. With a 3% interest rate, the buyer of that average home would have a monthly payment around $4500. A different buyer with today’s 6.8% mortgage rate would pay more than $6000 a month for the same house. Put another way, for that 6.8% buyer to get the same $4500 monthly cost as his 3% friend, they’d have to buy the same house for $560,000.

Here we finally come to the question that I know is on the minds of everyone we talk to: With interest rates higher and buying power lower,

The good news for Sellers is that even though buying power is lower, statistics show us that Buyers are still willing to spend much more per month to get the home that they need. That average $865K Maplewood house sold for closer to $811K in December of 2022. But as all-things-real-estate come back to monthly costs, while home prices may have settled a bit, the 6.8% Buyers have been willing and able to raise their monthly budget from $4500 to around $5800. What this means for Sellers is that the sharp rise in interest rates has not led to a correspondingly drastic decline in prices.

On our own recent listings and from the information we are seeing as our agents make offers for their Buyers, multiple offers are still the norm. That said, because of the decrease in buying power, Buyers are acting a bit more cautious with their Best and Final offers. “The Good, the Bad, and the Ugly” has given way to “Little House on the Prairie.” It’s still sort of the Wild West but it’s a bit easier to digest now! (I had to get at least one movie reference in).

So there you have a thumbnail sketch of where we stand at the moment. As I said, I’ll be making regular visits with you to let you know what our team is seeing as we head into, what we believe, will be a very busy Spring market. If you would like your own personal market checkup then we’d be happy to swing by and meet with you.

Your home is usually the biggest investment you make. Even if you are not planning on selling anytime soon, our team would love to help you keep track of your “Real Estate Portfolio” as well as help you update and upgrade your home in the most efficient and stylish way possible.

Have a great day and hope to see you around!