Real estate is not slowing down because a lot has changed fundamentally.
New Jersey MLS
We’ve had low inventory for quite a while. Every year it gets worse. 2020 is is the worst ever. Right now as I write to you, we have 1,910 single family homes on the market for sale. While nearly 2,000 homes for sale might seem like a lot to you, it’s not. It’s roughly half or less for what is normal.
Let’s look at the number of homes under contract – 1,839 according to the NJMLS. Contrast this with 1,910 for sale for a nearly 1 to 1 ratio. There is no doubt that we have a strong seller’s market because you reach that level at 3 to 1.
Absorption rates measure how long it will take to sell all homes currently for sale. You figure this by dividing homes for sale (1,910) by those sold over the past month (785). This comes to 2.4 months. Consider this – at 5 months you enter a seller’s market.
The Fed and Interest Rates
We have a crush of home buyers because of how the Fed has crashed rates into levels never seen before. To give you a sense of perspective, look at Freddie Mac’s graph of mortgage rates. Notice that points are shown. This is because years ago rates were so high that buyers paid points to lower the rate (1 pt = 1/4%).
Home buyers today are well educated. They understand the value of low rates. The biggest cost of homeownership is your mortgage. No one knows how much longer this will last but it beats the rise in pricing by a landslide. For so many first time home buyers it’s the only chance they have to get away from renting. Low rates are fueling this market. It looks like the Fed will keep rates low through the spring too. This means that real estate is not slowing down for quite a while.
The Move to the Suburbs
Everyone knows that you can’t social distance in a city. As a result, Covid 19 began to push people to the suburbs. Add in the deterioration of safety in NYC followed by civil unrest. This has propelled people into the suburbs.
It used to be that people went into the City as young adults. They married over time and then children came along. The next step was a house in the burbs with a yard for the kids. Or folks simply tired of city life and wanted a home. Replacing them was the next crop of young adults.
This has been disrupted. Urban flight took hold in a near panic to get out of New York City that still continues. Because the City is no longer seen as a safe, pleasant place to live, fewer people are moving in. According to Miller Samuel, August vacancy rates were the worst in 14 years at 5.1% (2019 was 1.9%). Rental amounts dropped 10% too.
Lockdown Proved You Don’t Need Manhattan
The lockdown this spring also sped up what would have happened naturally over time. Working remotely became an immediate necessity. Then something else happened.
Everyone realized this is better. Both companies and workers learned that you can run your business successfully on a remote basis. As a result how we work was fundamentally changed almost overnight. While technology increasingly led us in this direction, it wouldn’t have done this overnight.
Companies have seen that they don’t need all that office space in Manhattan. Suburban locations are cheaper with a nicer lifestyle. In this world of internet connectivity, the value of a Park Avenue address has plummeted. Workers are happier commuting less and still highly productive. Companies reduce costs with less city space.
This puts more pressure on the suburban real estate market because companies will follow workers to the suburbs. High NYC rents translate into affordable mortgages. This is a huge change that happened at warp speed.
Real Estate is not Slowing Down
The bottom line is that real estate is not slowing down in Bergen County. Fundamental and permanent change has occurred. Additionally because this happened so quickly, it’s disruptive on many levels. The question is how much longer will this market last and how should you navigate these waters.
This is possibly the best time to sell a home for the next 7-8 years. Rates simply cannot stay this low forever. I do think they’ll be in this zone through early next year. While they’ll start to go up, they’ll still be good through spring. At least that’s how it looks right now. Bear in mind that as rates rise, you will lose some buyers.
If you want to buy a house, go ahead. Rates this low most likely will never be seen again. Remember – the Fed is at zero. Not even in the Great Depression did this happen. Buy a home for the long term. Prices will go up. Prices will go down. Over the long haul you’ll be ahead. If you rent, you end up with nothing.
Take advantage of what is a very unique opportunity for both buyer and seller. You can contact me for a free market evaluation on your home or to see what options you have as a home buyer. Remember – it’s all about the rates ultimately.