Double-digit price growth. Low inventory. Cheap interest rates.
Residential real estate has been in a frenzied boom since the pandemic began. Buyers have been grappling over homes by waging bidding wars and running prices up tens of thousands of dollars above asking.
But, has the market finally peaked?
Industry experts are saying, it depends from which angle you measure the peak.
“Yes, it has peaked, in terms of the number of home sales,” said Jeffrey Otteau, a real estate economist and president of the Otteau Group. “From this point forward, we’re seeing fewer home sales occur, which will continue into next year.”
Home sales were down for each of the last five months of 2021, according to data from the Otteau Group. It started in June with a 12% decline in contract sales and continued with a 22% decline in July, 16% in August, 20% in September, 16% in October and 7% in November.
But we haven’t seen the peak yet for prices. Although, Otteau said, it is coming.
“In terms of prices we believe the peak won’t occur until late summer 2022,” he said. “The reason is that the economy will continue to get stronger and that millennial generation will continue to transition from renter to homeownership, which will bring demand. The interest rates will drift higher, but they’re still historically low.”
Prices increased 12% statewide in 2020 and 15% statewide in 2021. They will likely gain another 5% in 2022, Otteau said.
The cooling off has to do with homes becoming unaffordable, despite the low interest rates.
Incomes only rise about 4 percent per year. “House prices have risen faster than salaries,” Otteau said, adding that there comes a point when the banks say, the house may be worth that much but you don’t have the income for the mortgage to be approved.
Realtors are already seeing the frenzy subside.
“The summer was a big long stretch of craziness,” said Beth Kimmick of ERA Central Realty in Cream Ridge. “As soon as a house went on the market people would jump on it and over-bid. Then people were afraid to make an offer because they were afraid it wasn’t going to be enough.”
“That frenzy is done,” she said. “But I do think we’re going to see specific houses get a lot of activity and good offers on them continue to happen.”
In Montclair, one of the state’s hottest markets, the “tsunami” is over, said Karin Diana of Compass. But she already has clients lined up for the spring. And she closed two homes this month that each sold for $60,000 over asking.
“Montclair is its own island,” Diana said. “It’s always going to have a pretty intense demand.”
The sense of urgency is slowing as more houses hit the market than there was a year ago.
“It’s going to take a while to get back where it was four or five years ago,” said Robert White of Coldwell Banker in Spring Lake and president of New Jersey Realtors. “That takes pressure off buyers fighting for a property.”
Kimmick said some of those houses that are being listed now are people who bought during the most chaotic time.
“I’ve had agents tell me a person who bought a house since the pandemic is re-listing it,” she said. “They bought it because they felt the pressure of needing a place and now they’re a little worried they overpaid and if they stay there they’re going to lose on on it.”
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Allison Pries may be reached at apries@njadvancemedia.com.