This topic has caused quite a stir, with some forecasters predicting ‘Armageddon’ and that the ‘The Sky is Falling’! Contrary to these claims, our analysis indicates that most existing homeowners and homebuyers in New Jersey and New York will realize a net tax savings under the new tax code. Even more surprising is that those who will be adversely affected consist primarily of high-income households in the luxury home market.
As with all major policy changes there will be winners and losers, but the big picture is that the housing market will remain viable in the years ahead. The hysteria that has ensued due to misinformation is however likely to cause home sales to be sluggish during the early part of 2018 resulting in a delayed Spring-Surge. Because of this, Right Pricing! marketing strategies are more important than ever in the coming months to offset this adjustment as normal marketing times lengthen and unsold inventory increases. Looking ahead, while home sales are expected to regain their footing by late Spring once the facts about the tax reform become known, rising mortgage interest rates will serve to limit the number of home sales in 2018. All of this is likely to result in fewer home sales in 2018 following last year’s record breaking performance.
Over the longer term, the changes to the tax code will have some adverse effects on local housing markets by weakening the financial incentives of home ownership and reinforcing out-migration patterns for people and businesses from high tax states like New Jersey and New York. But these are largely self-induced problems rooted in policy that will take years to address. In the short term, the local housing markets will remain viable and home prices are expected to continue to rise.
After two consecutive months of increases, home purchase contracts in New Jersey were basically unchanged in December. This is compared to a 4% increase one year ago in December of 2016. Despite a stagnant end to the year, purchase contracts in New Jersey hit a 12-year high in 2017, with 115,237 contracts recorded. This reflects a 5% increase compared to the 109,471 home sales that occurred during 2016. It is anticipated, however, that the hysteria that has ensued due to misinformation on the Tax Reform is expected to cause sluggish home sales in the early part of 2018 resulting in a delayed Spring-Surge. Looking ahead, home sales are expected to regain their footing by mid-year once the facts become known, but it is also likely that mortgage interest rates will rise faster in response to continued economic growth. All of this is likely to result in fewer home sales in 2018 following last year’s record breaking performance.
While the number of home sales has increased across all price ranges in 2017, the largest gain occurred for luxury homes priced over $2.5-Million, rising by 11%, while homes priced under $600,000 experienced the smallest increases. It’s important to note that home sales in excess of $2.5-Million are increasing for the first time in more than a decade. The improvement has however been primarily concentrated in towns with direct rail service to Manhattan.
Shifting to the supply side of the equation, the supply of homes being offered for sale 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 of the past 12 years, having declined by 5,000 over the past year. This is also about 40,000 (-55%) fewer homes on the market compared to the cyclical high in 2011. Today’s unsold inventory equates to 5.0 months of sales (non-seasonally adjusted), which is lower than one year ago, when it was 5.8 months.
Currently, 17 out of New Jersey’s 21 counties have less than 8.0 months of supply, which is a balance point for home prices. Essex County has the strongest market conditions in the state with 3.0 months of supply, followed by Middlesex, Hudson, Somerset, Bergen, Passaic, Morris and Union Counties, which all have 4.5 months of supply or less. The counties with the largest amount of unsold inventory (8 months or greater) are concentrated in the southern portion of the state including Cumberland (9.3), Atlantic (9.3), Salem (10.1) and Cape May (12).
Sales of residential real estate in New Jersey rose to $38.3-Billion in 2017, which is a 10%increase from the prior year. Also noteworthy is that this was the highest residential transaction volume since 2005. Single family dwelling transactions accounted for the largest share in 2017 with $29.5-Billion in sales or 77% of all transactions, followed by Condo/Townhouse properties, which accounted for 19%, and Age-Restricted dwellings, which accounted for only 4%.