Home buyers during the pandemic have been willing to take on long commutes in exchange for lower prices, a new analysis shows.

In some of the nation’s most expensive metro areas, home prices rose faster in areas with longer morning commutes to business districts compared with neighborhoods with short commutes, according to an analysis from Zillow Group Inc. and HERE Technologies.

That is a reversal from prior years, when home prices in those metro areas accelerated faster in neighborhoods close to job centers.

Analysts say the change reflects that commute length has declined in importance for home buyers, as many workers expect to travel to their offices less often going forward. At the same time, rapidly rising prices have made affordability a bigger concern for many buyers.

“It’s been a big change,” said Ed Pinto, director of the AEI Housing Center at the American Enterprise Institute, who expects the shift in home-buyer demand to be long-lasting. “There’s a huge group of people who can work from home, and they’ll continue to work from home when things go back to…normal.”

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The current housing boom will flatten in 2022—or possibly early 2023—when mortgage interest rates rise. There is no bubble to burst, though prices may retreat from panic-buying highs.

The boom produced some frantic buying, bids in excess of asking prices, and plenty of worry among would-be homeowners. But this has not been a bubble. A bubble is not simply rising prices, but demand not justified by fundamental economic factors. The key to the buying boom has been low mortgage rates plus a shift in desired housing type.

Mortgage rates hit what was then an all-time low of four percent in 2011, and then remained in that neighborhood until the pandemic, when they hit three percent. The decline in mortgage rates in 2020 dropped the monthly payment on a house by 12 percent, enabling many people to buy houses now rather than later.

In addition to the low mortgage rates, some people saw a future of remote work and wanted more space, which often means moving out of an apartment into a single family house. Others found urban living less fun, so they headed into the suburbs where houses are more common than apartments.

The increased demand for houses drove prices up, quite predictably. Yet the supply could not adjust as fast as demand. Home builders ramped up production in the second half of 2020, but after a few months they ran into supply constraints. Ready-to-build lots were all bought up, labor for construction was hard to find and social distancing made workers less productive. Now rising materials prices and goods on back-order squeeze profit margins. That’s how we find ourselves in the current housing boom.

But this boom is not a bubble, because the rise in prices is easily explained by the fundamentals of cheap mortgages and supply limitations. Recent housing starts are below historical averages, though that is justified by lower population growth. But with the shift from multifamily to single family housing, recent construction levels make sense. There need be no sudden drop in new construction to maintain a reasonable equilibrium.

When will the boom end? The two keys are satisfying the new demand and mortgage rates. Low mortgage rates allowed young families to buy houses earlier than they otherwise would have. It did not change the economics of buying for people who were never going to be homeowners. Instead, low mortgage rates enabled people to achieve their dreams earlier than they otherwise would have. In this sense, the strong housing market of 2020 and 2021 has been borrowing from the future. However, the shift in preferences from urban living to suburban living by people who previously could have bought houses is permanent new demand. At least, so long as they don’t become disillusioned about homeownership.

Mortgage rates are likely to rise when financial markets anticipate more inflation and action by the Federal Reserve to stem inflation. Although the Fed’s traditional tools impact short-term rates, with only small effect on mortgage rates, the new actions by the Fed impact mortgages directly. The Fed has been buying mortgages wholesale, depressing mortgage interest rates. The Fed has also been buying many treasury securities, which are often competitors to mortgages for institutional investors.

Mortgage rates are likely to rise a full percentage point by mid-2022, though this forecast exceeds the average prediction of my fellow economists. They doubt long-term interest rates will rise by a percentage point even out to December 2022. If they are right and I am wrong, then the housing market will remain strong longer.

Business leaders in the housing supply chain should enjoy their strong sales this year but not anticipate further growth in the coming years. Major capital projects must pencil out with sales back at 2019 levels.

Prospective home buyers should probably chill. It’s been a tough buying season. Although prices are unlikely to fall nationwide, there will probably be easier buying opportunities in 2023.

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The average price of a single family home in New Jersey has increased almost $100,000 in the past year, according to data from New Jersey Realtors.

The average home price for the first quarter of 2021 was $500,628 or 24% more than the $403,785 for the first quarter of 2020, the data shows.

“It has jumped dramatically,” said Robert White, President-elect of New Jersey Realtors and Managing broker at Coldwell Banker Realty in Spring Lake.

The price increase is being driven by low inventory and eager buyers.

“With the current inventory situation and the buying frenzy, you’re seeing … many homes selling over asking price in today’s market and that is forcing values to increase because appraisers are coming out and appraising at those higher numbers,” he said.

New listings were down 18% overall from January through March this year compared to last, but up about 8 percent in March 2021, compared to the same month last year. That’s partially reflective of the state shutting down in mid-March last year, said Spencer Freedman, an agent with Keller Williams Realty West Monmouth.

“But this time of year typically is always higher inventory,” he said. “People like to wait until their flowers are in bloom and the weather warms up.”

Despite the low inventory, closed sales were up 18%, from the first quarter of 2021 versus the same time period in 2020.

Percent of list price received was also up by 3%, from 97.6% of list price in 2020 to 100.2% of list price in 2021.

White says that number isn’t necessarily reflective of what’s going on in today’s market.

A house that’s listed for $500,000 will likely sell for $530,000 to $540,000, he said. “There’s just so much demand.”

And homes that are listed for sale are on the market for less time before selling than in the first quarter of 2020 — 47 days versus 73.

Tarah Logan, a sales associate for Berkshire Hathaway in Mullica Hill who works in Gloucester, Camden and Salem counties, said agents have to take buyers to look at a house the first day it hits the market or they may miss out.

“I can’t tell you how many times I refresh the MLS throughout the day,” Logan said.

Because of COVID-19 there are limited appointments to see homes in person. “Some agents give a couple of days for showings so they can get the best offer,” she said. “Some homeowners don’t want the showings, so they take the first couple offers and then shut it down.”

READ MORE:

The frenzied market has caused a big change in N.J. real estate — more cash buyers

The housing market in N.J. is hot. If you’re a buyer, seller or work in real estate, we want to hear from you

These are the N.J. counties that saw the biggest spikes, dips in homes sales

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More buyers in New Jersey’s red-hot real estate market are relying on an old virtue to get their offers accepted — cash is king.

Real estate agents throughout the state have said their buyers are often losing bidding wars to offers that are cash, meaning the sale is not contingent upon the buyer getting a mortgage to close. Cash buyers also run the risk of losing their deposit, so their offers are seen as more committed. And an appraisal isn’t needed for a cash purchase, eliminating another contingency.

According to a data comparison prepared by the Otteau Group, the number of cash closings in March 2020 compared to the number in March 2021 rose 4% statewide. But those sales that closed in March were likely inked in December or January, so the trend is expected to continue to emerge in closing data.

“This is a bit of a lagging indicator,” said Jeffrey Otteau, a real estate economist and president of the Otteau Group. “It’s likely to accelerate as we get to closings later in the year.”

The biggest increase in cash purchases was for homes that were above the median price of $355,000.

“These are all symptomatic or a byproduct of a sparse market in which buyers need to sweeten the offer to get the house and one of the ways to sweeten the offer is to remove the mortgage contingency,” said Otteau.

The buyers are panicked, he said, that they’re not going to be able to find a home before the prices go even higher so they’re willing to put their deposit at risk to make their offer more competitive.

Home prices increased about 12% last year, Otteau said.

“What it really is, is an indication of the desperation homebuyers are feeling now to find a home, lock up a house and get it under contract,” Otteau said.

“We are seeing it across the board at all price points. And it’s very creative,” said Robert White, President-elect of New Jersey Realtor, and managing broker at Coldwell Banker Realty in Spring Lake.

But just because the homes are being purchased with cash, doesn’t mean there is no mortgage. Some high-end buyers are borrowing from their investment portfolio to make the purchase and then paying all or part of it back with a mortgage.

“Mortgage money is so cheap and a lot of the investment advisors are recommending their clients borrow the money instead of divesting their portfolio,” White said.

The mid- and entry-level markets are also seeing an increase in cash purchases.

Pat Settar, of Berkshire Hathaway Fox & Roach Realtors in Mullica Hill, had a buyer who was trying to purchase a home in Haddon Township. The market there is very competitive, she said, due largely to investors who are flipping homes.

“I just kept hearing over and over it’s a cash buyer,” Settar said, for the reason her client’s offers were turned down. “When I told this young girl, she told her parents what was going on and they borrowed out of their 401k to give her the cash and, after she settled, she paid them back with a mortgage.”

Agents also attribute the cash buying trend to the high-prices, and low inventory market.

“Everybody is cashing in on their homes because the shortage of inventory is so severe,” Settar said. “People up north are cashing in and buying down here. I’ve never had so many cash buyers in my life.”

Brian Morganweck, the broker/owner of Power Realty in Hackensack, said 90% of his buyers in high rises are empty nesters who are selling their larger home for a big profit and downsizing to a condo with the cash profit.

“If the seller has 12 offers and one is iron clad because it’s all cash – no appraisal, they’re not going to change their mind — they edge out all the ‘what ifs’ in a seller’s mind,” Morganweck said.

READ MORE:

— These are the N.J. counties that saw the biggest spikes, dips in homes sales

— The housing market is hot for many reasons. Millenials are one of them

— Fistfights. Free tacos. This is how crazy the N.J. real estate market is, agents say.

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Typically this time of year in Randolph, there are 120 to 140 homes listed for sale. Right now there are just 23.

It’s a trend agents and buyers are seeing throughout the state brought on in part by COVID-19 concerns — and the intense competition for the few houses that are on the market.

“The inventory is ridiculously low. Unprecedented,” said Missy Iemmello, office manager for Weichert Realtors corporate sales office in Morris Plains, which has 120 real estate agents doing business in Morris, Sussex, Warren, Bergen and Essex counties.

Throughout the state, there were only 23,011 single-family homes, townhomes and condominiums, and adult community properties available for sale in the month of January. Last January, there were nearly double that amount, 41,005 listed for sale, according to a report from New Jersey Realtors.

The low inventory and high demand are pushing sale prices higher, causing houses to sell for tens of thousands of dollars over the asking price and generating bidding wars.

The median sales price for a single-family home in New Jersey in January was $504,585, a 22% increase over the median price in January 2020.

A lot more buyers have equity in their homes during this surge in the market, unlike back in 2006, said Iemmello. “They’re financially comfortable where they are. Because of the activity and the rising prices, it’s a great time to sell, but where would they go,” she said.

Those who are selling are likely retirees who are moving out of state or people who have a second home, for example at the shore, that they can go stay in and work virtually from. “That’s where we’re seeing people take advantage of this market,” she said.

Another reason for the low inventory is a moratorium on foreclosures and evictions, signed by Gov. Phil Murphy last March.

But Beth Kimmick, Broker manager for ERA Central Realty in Robbinsville, doesn’t think there will be a flood of foreclosure listings hitting the market when the moratorium is lifted.

“Everything I read and hear shows there’s going to be a small percentage of properties that actually get foreclosed on,” she said. “A majority of people will be able to make that up or sell their house and not go into foreclosure.”

So, is this a good time to buy, if you can find a property?

Eric Anderson of Alexander Anderson Real Estate Group in Hackensack says yes — if you’re buying for the long term.

“What goes up, must come down,” he said. “If you’re looking for the short term, you would be better off renting.”

Some other key findings from the latest trends, according to a report from New Jersey Realtors:

• Single-family homes are selling for 100.2% of the listing price, up from 97.3% in January 2020
• Single-family homes are on the market for just 44 days on average, down from 72 last year
• Pending and closed sales on single family homes in January are both up by 14% and 17%, compared to the same time last year

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Are you buying or selling a home in New Jersey? Tell us about your experiences. Allison Pries may be reached at apries@njadvancemedia.com.

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With well documented reports of people moving out of the crowded Northeastern cities and towns, an annual survey of real estate industry professionals predicts Northern New Jersey could be the country’s fourteenth hottest market in 2021.

The Urban Land Institute’s Emerging Trends in Real Estate 2021 also gave North Jersey real estate high rankings in other categories, in some cases beating out New York, its outer boroughs and Long Island.

“Northern New Jersey moved from 55 to 14 this year and we think that is a reflection of the move toward suburban areas,” said Anitia Kramer, senior vice president of ULI center for capital markets and real estate.

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