Now more than ever, it is important to get a hyper-local perspective on the housing market. There is wide variation in market activity from one town to another not only in the same state, but within the same county as well. And whether you are looking to buy versus sell a home will determine how favorably you view the opportunity in the market.
Last month, I discussed the challenges buyers are facing amid “vanishing” housing inventory. This trend was evident in the second-half of 2021 and continued into 1st Quarter 2022 according to the Minken Housing Index. The MHI is a hyper-local housing index that consists of 14 top New Jersey towns spanning three counties (Essex, Morris and Union). With April home sales now reported, I was curious to ascertain what the market activity shows and what we may anticipate in the months ahead.
Dwindling Number of Homes Sold in April 2022
The frenzied housing market seen last Spring is starting to look like a bygone era compared to 2022. Nearly one-half of the New Jersey towns comprising the MHI experienced a significant percentage decrease in the number of homes sold in April 2022 versus 2021, ranging from -60% down to -27%. An additional 3 towns saw a modest decline, ranging from -20% down to -12%. Both Berkeley Heights and Chatham Borough had over a 50% reduction in the April home purchases from the prior year. Maplewood remained unchanged in the number of homes sold during April 2022 and another 4 towns saw virtually no change (+/-). The chart below shows the percentage decrease in the number of homes sold in April 2022 compared to the same period last year.
For buyers who were successful in making a home purchase last month, they most likely paid a higher sale price than if they purchased the home in April 2021. With dwindling inventory, all but 3 towns in the Minken Housing Index saw a rise in average home prices in April 2022. Below is a chart showing the average sale price during April 2022 and the percentage change from the prior year. The New Jersey town that saw the highest growth in average sales price is Montclair. The average sales price of homes sold in Montclair was $1,168,646, which was an increase of 29.6%. The highest average home sale price in April 2022 according to the MHI, however, was in Millburn/Short Hills at $2,019,020, reflecting a percentage increase of 20.3% from April 2021.
The Elephant in the Room – Mortgage Interest Rates
Any current discussion of the housing market now has a new variable to be considered – rising mortgage interest rates. Since January 2022, interest rates have been steadily climbing. Based on data provided by Freddie Mac, the 30-Year Fixed Rate Mortgage Average in the U.S. [MORTGAGE30US], here is a quick recap:
Jan 6th – 3.22
Feb 3rd – 3.55
March 3rd – 3.76
April 7th – 4.72
May 5th – 5.27
It is abundantly clear that if you are shopping for a home in May 2022, your monthly mortgage just got significantly greater compared to if you had purchased that same home back in January. The result is that your home purchasing power has been adversely affected, making each subsequent home that you look at simply more expensive if you are obtaining a mortgage. And that is, if you can find a home amid the dwindling inventory on the market.
The combination of high buyer demand, continued low inventory, and rising mortgage rates creates complexity and challenges for both sellers and home buyers. It is important to emphasize that although 30-year fixed mortgage rates have crossed the 5.0 threshold, this is still well below double-digit mortgage rates we have seen back in the 1980’s. However, 2022 is a very unique housing market. Because homebuyer demand currently exceeds the supply of homes for sale, home prices will continue to rise. The question, of course, is by how much. Based on my view of the market here in Northern New Jersey, I see a slowing in the rise of home prices.
The climb in mortgage rates since the beginning of 2022 will create a new level of buyer affordability. For example, a would-be buyer may have been looking at homes in the $800,000 range when mortgage rates were below 4.0%. With a higher mortgage rate, these buyers might shift to a lower price range based on affordability. But when you shift the price, you need to be okay with a shift in your home expectations.
Meet Me in Reality – The Market is Shifting
Buying or selling a home in the months ahead will challenge you to get real, or as I like to say to my clients “meet me in reality“. This is why knowing the numbers and what is behind the numbers is so important. Let’s say you are a home seller and plan to put your home on the market in the next few weeks. If we look at recent sales, this only gives a “look back” at the market. Many of these homes that closed here in Northern New Jersey, often take upwards of 60 days from the date of the accepted offer to the closing date. Two months earlier, buyers may have locked into a 30-year fixed rate mortgage average below 4.0%.
With today’s 30-year fixed rate mortgage average of over 5.0%, some buyers may be: looking at a lower sales price; re-evaluating the “value” that the house offers them; or possibly sitting on the sidelines and putting their home search on pause. This means that sellers need to have heightened awareness of the recently sold properties and notgo for an aspirational list price. The rise in the average fixed U.S. mortgage rates in 2022 will curb some of the frenzied selling prices offered by potential buyers during the past year. For my seller clients, I recommend a “meet-me-in-reality” list price which would be positioned ahead of the market. In other words, go lower, not higher, than the recent home sales in the neighborhood to generate buyer interest.
If you are a potential home buyer, know that there is no “perfect” home. The key is to get most of what is important to you in a home. Work with an experienced realtor to guide you through the nuances of the home buying process and the steps to take to win when there are multiple offers. Set your timetable of when you want to close on your new home. And then move fast! Your purchasing power will get diluted as mortgage rates rise, so do your market homework now and get your mortgage rate locked.
And in today’s changing real estate market, potential buyers need to know that sellers typically reserve the right to accept an offer in advance of a scheduled open house. So once again, buyers need to move fast! And if the property is announced as a “coming soon” on the local Multiple Listing Service (MLS), you may want to consider making an offer “sight unseen” without physically being in the house. This is an aggressive buyer strategy, but it might just win you an awesome house. With professional photos, video tours, floor plans, etc. available on the MLS before showings begin, you can quickly gain a good sense as to whether this home is right for you. So if you are a home buyer navigating today’s market, be prepared to move fast!
Bottom line, if you are thinking of selling your home in 2022, your list price needs to be compelling, rather than aspirational. This means you will want to price your home ahead of the market whereby you are lower than recent sales in your neighborhood. This may sound counter-intuitive, but you may be surprised that this more “realistic” price can attract multiple offers as buyers will perceive value at that lower price. The result? Sellers may get offers well above the list price and get closer to the aspirational price. Getting “real” for sellers is that you are still dreaming big, just that you are going about it using a different strategy.
And if you are a potential buyer looking to make a home purchase by the end of the year, you need to be clear about your priorities and move fast since mortgage rates are steadily rising.
Let’s Move Forward
For greater insights as to how to successfully navigate the 2022 housing market, reach out to me at 908-239-9261 or [email protected] Whether you are house hunting or selling in New Jersey or in another state, I can assist you and collaborate with my Compass colleagues located in over 300 cities across the U.S.
* The Minken Housing Index Report covers Essex, Morris and Union Counties and is comprised of 14 top New Jersey towns: Berkeley Heights, Chatham Borough, Chatham Township, Livingston, Madison, Maplewood, Millburn/Short Hills, Montclair, Mountainside, New Providence, South Orange, Summit, West Orange, and Westfield. Data is based on the Garden State Multiple Listing Service (GSMLS)
** Mortgage Rate information: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US
Did you miss last month’s article? Here is the link: Suzy Minken – Finding a Home Amid the “Vanishing” Housing Inventory in 2022
My Bird’s-eye View
The 2022 Real Estate Market is Shifting! Here’s What You Need to Know