Although mortgage interest rates remained at historically low levels just above 3%, it was projected that they would increase over the remaining 2022 year as the Federal Reserve proceeded to increase rates in an effort to control inflation. with analysts expecting a rise to above 3% by 2023. The number of homes listed for sale in January 2022 was 12,075, over a 33% decline from the number in January 2021, reflecting a shortage of supply which was a major factor in boosting sale prices.
New Jersey’s median home value is the seventh-highest in the nation, behind other expensive states Hawaii, California, Massachusetts, Colorado, Washington, and Oregon, and is nearly half again as high as the national median of $240,500. For renters, New Jersey is the fourth most expensive state: its median rent of $1,376 trails only Hawaii, California, and Maryland.
Home under construction. Image: NewJerseyAlmanac.com
- Impact of COVID-19
Like the overall economy, the market for residential real estate was severely impacted by the onset of the COVID-19 Pandemic which saw its first New Jersey cases identified in March 2020. In the first weeks of the Pandemic, home sellers and buyers understandably avoided the direct personal contact involved in showing and visiting homes, and many prospective sellers delayed listing their properties. Another factor reducing the number of homes listed for sale was the moratorium on foreclosures imposed by federal and state emergency orders issued during the health emergency; even before the health crisis, New Jersey typically has had one of the longest times of all states in completing the foreclosure process through which banks, mortgage companies, landlords and other creditors were required to reclaim their properties due to its law mandating court orders to evict defaulting homeowners and renters. The Pandemic's suspension of foreclosure and eviction proceedings thus increased the numbers of homes withheld from the market which otherwise would have been listed for sale.
As protective measures began to be more widely utilized, sales activity slowly increased, with a noted spike in late 2020 and early 2021 as vaccines protecting against the contagion gradually restored public confidence in resuming more normal interactions. Demand also surged, with analysts attributing the interest to buyers who had been unable to shop for homes during the lockdowns, along with some who may have sought to relocate from dense urban areas with multi-family housing to single-family detached homes, perhaps partially due to perceptions that homes outside the cities posed lesser health risks and to the expanded utilization of work-from-home programs by employers and employees. The low inventory, which in the first months of 2021 was running only at half the number of homes listed in the comparable period of 2020, along with high demand pushed sale prices higher, causing houses to sell quickly for tens of thousands of dollars over the asking price after sparking bidding wars. Historically low mortgage interest rates also supported buyer interest as they sought to lock up financing before potential inflation from government spending and the recovering economy pushed mortgage rates higher. * Monthly housing statistics, NJ Association of Realtors * COVID-19 pandemic ignited NJ house market and it stays hot, 4/1/2021, NJSpotlight.com * New Jersey housing market is booming. How Long will it last?, 3/1/2021, NJSpotlight.com * New Jersey Housing Data, TownCharts,com
- Availability of Land for Housing
Apart from the impact of the COVID 19 Pandemic on the supply and prices of New Jersey homes, other longer-term factors may also affect the state's real estate market. New Jersey is the nation’s most developed state, and land-use laws and regulations, along with the purchase of property for preservation and recreation, has reduced the acreage available for new housing. As of 2021, over half of the state’s total land area--nearly 2.5 million acres--consists of undeveloped land that has been protected to some degree from development.
Map depicting NJ Pinelands subject to development control under state and federal law. Image: NJ Department of Environmental Protection
The most significant measure affecting development was the enactment of the Pinelands Protection Act in 1979, which placed limits on development in some 20% of the state, but other programs have placed constraints on construction in other regions such as the Highlands, the Meadowlands, and the coastal zone, and additional legislation restricts development of freshwater wetlands throughout the state. Counties and local communities also have restricted construction through purchases of land for parks and open space, as well as through zoning restrictions and other land-use controls.
Ongoing climate change also may impact the coast and flood-prone areas; a Rutgers report published in 2020 estimated that--if there are few to limited actions to reduce fossil fuel emissions--the state may experience sea level rise of 1.5 to 3.5 feet by 2070, and 2.3 to 6.3 feet by 2100, with inland areas also increasingly prone to more severe flooding.
Split-level home built in Princeton in 1950s. Image: NewJerseyAlmanac.com
- Buying or Renting
The first decision prospective homebuyers face is whether buying or renting makes the most sense for their personal situation. Historically, the purchase of a home has been perhaps the principal way many individuals and families build wealth, but other factors need to be evaluated.
Homeowners commit large amounts of capital in the purchase of the home, in most cases incurring the largest debt of their lives. Additional financial liabilities are incurred for maintenance and repairs; insurance; taxes, and possibly condominium or association fees. These initial and continuing costs may tie up available capital to the point that other choices, such as to start a business or invest in securities or other types of assets, may be constrained. Analysts have also cited the high levels of debt from college loans--which one study estimated in New Jersey to total nearly $50 billion carried by some 1.3 million debtors with an average balance due of $33,000--as restricting the ability, particularly for first-time homebuyers, to finance home purchases or, when purchases are made, creating higher risks of default when unexpected career or financial reversals are encountered.
In addition to lower initial costs and the avoidance of mortgage debt, renters have the advantage of increased mobility, particularly attractive for younger people who may be changing jobs requiring their relocation to other towns or states; in contrast, homeowners who are presented with new career opportunities in other locations must consider the time and costs of selling or renting their house before relocating. In many areas of the state, rent levels are well above average incomes, particularly for lower-wage occupations. According to report released in 2021 by the National Low Income Housing Coalition, the average statewide fair market rent for a two-bedroom apartment was $1,662 monthly, which would require $66,468in annual income. * Out of Reach 2021: New Jersey, National Low Income Housing Coalition
Row of Victorian homes leading to beachfront in Ocean Grove. Image: NewJerseyAlmanac.com
- Finding a home The decision on where to live, while obviously subjective, is frequently influenced by such factors as the location of jobs or businesses; other family residences; or lifestyle preferences to be near larger cities like New York City or Philadelphia or the resources of the Jersey Shore.
Internet services have significantly changed the past ways in which prospective homebuyers search for available properties. These services publish online images of homes and information on home prices, taxes, and such details as number of bedrooms, lot size and such. The largest of these webs is provided by the site Zillow operated by The Zillow Group, Inc.; Zillow also operates its subsidiary Trulia, a former competitor which it acquired in 2015. Competitive services also are published under Realtor.comoriginally launched as a closed network for members of the National Association of REALTORS®, the real estate sales industry's largest trade association, and subsequently expanded into a publicly accessible website which was later acquired by News Corp. and now operates under license from the NAR. Other web services include Redfinand Homesnap.
Most brokers and salespersons also belong to a Multiple Listing Service, frequently referred to as "MLS", a nonprofit organization that brokers use to establish contractual offers of cooperation and compensation among brokers and accumulate and disseminate information to enable appraisals. The MLS database and software allows information to be shared with other brokers who may represent potential buyers or wish to work with a seller's broker in finding a buyer for the property. Most MLS systems restrict membership and access to real estate brokers (and their agents) who are licensed by the state, are members of a local board or association of realtors, and are members of the applicable national trade association. The listing data stored in a multiple listing service's database is the proprietary information of the broker who has obtained a listing agreement with a property's seller.
Upscale town home in Princeton. Image: NewJerseyAlmanac.com
- "Best" Places to Buy
Some surveys have attempted to publish rankings of the "best" places to buy or live on the basis of varying criteria, sometimes using a blend of categories like home values, income, crime, schools, cost of living, job opportunities and others. Niche.com, a Web site publishing various ratings and reviews, has posted "Best Places to Buy a House in NJ" which ranked the following as top locations (not all of which are separate municipalities) along with median home value: Princeton Junction (section of West Windsor Township, Mercer County, median home value $548,400); Robbinsville (Mercer County, median home value $430,100); Monmouth Junction (section of South Brunswick Township, Middlesex County, median home value $433,800) Beckett (section of Swedesboro-Logan Township, Gloucester County, median home value $232,900); and Mountain Lakes (Morris County, median home value $867,200). * 2021 Best Places to Buy a House in New Jersey, Niche.com * 2021 Best Places to Live in New Jersey, Niche.com * Best Places to Live New Jersey, BestPlaces.net
- Highest Sales Prices
More targeted ways to search for homes on the market include reviewing communities which have had the highest recent sale prices, such as Alpine (Bergen County, median home price $1,9 million, only 8 miles from Manhattan, residents have included prominent entertainment celebrities), wealthiest NJ municipality, Short Hills (section of Millburn Township, Essex County, median home price $1,42 million); Avalon (Cape May County, small beachfront village with population of 1,400 on Seven Mile Island, which it shares with Stone Harbor on its southern border, median home price $1,12 million); Englewood Cliffs, (Bergen County median home price $1,04 million, with a population of just over 5,000); Rumson, (Monmouth County, located just inland from Sea Bright beaches, ranked 12th wealthiest community in US by Bloomberg.com with average household income $337,696, median home price $895,750). * The Most Expensive Homes Ever Sold in New Jersey, 2/26/2019, PropertyShark.com * New Jersey Luxury Homes for Sale, Zillow * These are the richest towns in every N.J. county, 2/8/2020, NJ.com
Homes in need of rehabilitation in Trenton. Image: NewJerseyAlmanac.om
- Lowest Sales Prices
More affordable places to buy homes include communities which may have experienced varying levels of distress or which have neighborhoods in need of rehabilitation. Some of these municipalities include Phillipsburg, (Warren County, median home price $140,100, former industrial center on Delaware River across from Easton, Pennsylvania); Somerdale, (Camden County, median home price $170,500); Stratford,(Camden County, median home price $179,100); Pitman (Gloucester County, median home price $185,600); Rahway (Union County, median home price $265,300, former corporate headquarters and research center for Merck & Co.); Hightstown (Mercer County, median home price $267,600, located at exit 8 of NJ Turnpike and Route 33:; Toms River (Ocean County, median home price $278,700, includes shore beaches, Community Medical Center, NJ's largest non-teaching hospital); Pompton Lakes (Passaic County, median home price $294,800, located on I-287 about 20 miles from Manhattan).
- Apart from average sale prices, prospective home buyers may also wish to consider looking for more affordable homes which need repairs or updates. New Jersey's peak period of home construction was in the post World War II 1950-70 period, and this large supply of older homes understandably may now need renovation or fixes. But a cheaper price poses risks, and buyers of fixer-uppers need to understand that projects easily can become more costly and complicated than anticipated.
Most homeowners interested in selling their residences utilize a real estate broker or other sales professional licensed by the New Jersey Real Estate Commission, a unit of the state Department of Banking and Insurance. To obtain a broker's license, an applicant must have a high school education or equivalency, and successfully complete 150 hours of education on real estate law, regulations, ethics and management and pass an examination conducted by the Commission. In addition, applicants must have been continually licensed and employed on a full-time basis as a New Jersey real estate salesperson for the three years immediately preceding their application; salespersons must complete a 75-hour pre-licensure course at a licensed school, pass the license examination and then apply for a license through a sponsoring real estate broker. The Commission is authorized to conduct investigations, hold hearings and revoke licenses and otherwise sanction individuals and firms for violations of the license law or its administrative rules. The term "REALTOR®", while often confused with "broker," is a trademark belonging to the National Association of REALTORS®, which it restricts for use by its licensed real estate salespersons who are NAR members.
Traditionally, real estate brokers charge a commission of 6% of the property sale with individual brokers commonly paying their brokerage firm a share of the commission of each sale and splitting the commission with any broker representing the buyer. In recent years, however, the 6% commission rate has come under pressure, with. more sellers seeking to negotiate discounts on the prevailing rate, and an increasing number of sellers attempting to avoid paying commissions by listing as "For Sale By Owner." or FSBO--the process of selling without the representation of a broker or agent by marketing their own property, usually with the help of a lawyer to prepare or review documents needed to implement the sale. Internet services like Houwzer.com, Rex.com, and HomeLight.com also have been launched to offer discounted commissions, sometimes after working with brokers who receive retainers or other compensation in return for lower commission rates. * New Jersey Real Estate Commission, NJ Department of Banking & Insurance * National Association of REALTORS® * New Jersey REALTORS®
Home in age 55+ retirement community in South Brunswick. Image: NewJerseyAlmanac.com
- Mortgages and Financing
Obtaining a home mortgage, like other segments of the real estate market, has grown from a business primarily dominated by local banks to a global search for available capital, frequently by using the Internet to search and compare competing programs. Mortgages, which in past decades were often held by local banks, also now are packaged into securities sold or traded on wide-scale markets, a factor often cited as one of the causes leading to the 2008 financial crisis.
Mortgage payments and the amount of interest paid will be determined, in large part, by the term or length of time to pay off the mortgage, with the most typical terms 30 or 15 years. A 15-year mortgage is paid off in half the amount of time as a 30-year mortgage, so the monthly mortgage payment will be much higher, generally 1.5X that of the 30-year term mortgage. In addition to mortgages paid at fixed interest rates over the term, adjustable rate mortgages also have become increasingly utilized, which provide for periodic adjustment of interest rates at specified periods, such as at every five years of the term.
In some situations, programs of the federal, state and local governments may also assist in financing and purchase of homes. These include:
- Federal Housing Administration Loan Assistance HOME Investment Partnerships Program (HOME) provides funding to states and localities that communities use-- often in partnership with local nonprofit groups-- to fund a wide range of activities including building buying, and/or rehabilitating affordable housing for rent or homeownership or providing direct rental assistance to low-income people. This program provides grants to state and local housing agencies for rental assistance, construction of new dwelling, housing rehabilitation, and first-time homebuyer programs. Eligibility is limited to households with incomes at or below 60 percent of median county income.
- Veterans Administration Home Loans Helps servicemembers, veterans, and eligible surviving spouses become homeowners through a home loan guaranty benefit and other housing-related programs to help buy, build, repair, retain, or adapt a home for personal occupancy. Loans are provided by private lenders, such as banks and mortgage companies, with the. VA guaranteeing a portion of the loan, enabling the lender to provide more favorable terms.
- New Jersey Housing & Mortgage Finance Agency Provides a variety of programs for prospective homebuyers, including home-buyer programs, as well as grants and loans for housing rehabilitation. The First-Time Homebuyer Mortgage Program is its foundational mortgage program that can be combined with the Down Payment Assistance Program, which provides qualified buyers with $10,000 as an interest-free, five-year forgivable second loan with no monthly payment that can be used to cover down payment and closing costs.The first mortgage loan is a competitive 30-year, fixed-rate government-insured loan, originated through an NJHMFA participating lender, with the loans restricted to maximum household income and purchase price limits.
The New Jersey residential real estate market also is impacted by the state's high property taxes, which in 2021 were the highest annual bill of all states at $9,284, a 1.9% increase over 2020 and 6.8% higher than in 2017. The state average was over $2,400 higher than that of second-highest Connecticut. according to a survey conducted by WalletHub.com. The overall burden of property taxes also was exacerbated by the enactment of federal income tax legislation commencing in the 2018 tax year which placed a $10,000 limit on deductions for state and local taxes, or "SALT". New Jersey elected officials have contended that the cap on SALT deductions has worsened the rate of migration of upper-income homeowners and taxpayers moving out of the state, which has been the highest of all states for the past three years through 2020, according to the annual study published by United Van Lines.