The 6 Factors Putting Downward Pressure on the Hudson County Housing Market
Factor 1: Rapid Increases in Housing Inventory
According to the latest Otteau Report, considered by many to be one of the most trusted sources for real estate trends in NJ and NYC; Inventory is rapidly increasing in Hudson County. Below are the year over year trends for our area:
- Hoboken Inventory Increased 52%
- Jersey City Inventory Increased 74%
- Downtown Jersey Inventory Increased 150%
- Jersey City Heights Inventory Increased 90%
- Jersey City Journal Square Inventory Increased 60%
- Hudson County Inventory Increased 28%
See the report below with explanations and graphs of the areas mentioned above:
So what is causing this increase in supply?
According to the latest development maps posted in mid-2017 by Jersey Digs, between Hoboken and Jersey City, there were 47,511 units planned and currently under construction. These units are now beginning to trickle onto our market and will continue to do so for the next 18 - 24 months.
If you live in Hudson County, I'm sure you've seen all the cranes in the sky and the brand new construction on almost every block. A Tsunami of inventory is getting ready to hit our market.
So the BIG question we need to ask ourselves is can demand keep up?
Well, let's dive back into the Otteau Report to compare Contract Sales in August 2018 vs August 2017:
- Hoboken Contract Sales Decreased 20%
- Jersey City Contract Sales Decreased 18%
- Downtown Jersey City Contract Sales Decreased 38%
- Jersey City Heights Contract Sales Decreased 5%
- Jersey City Journal Square Contract Sales Increased 36%
- Hudson County Inventory Contract Sales Decreased 10%
**Contract Sales are the number of homes which were contracted for-sale within the market area in each month. Contract Sales provide a more timely indication of market activity than Closed-Sales due to the time lag between "contract" and "closing", and therefore provide a more reliable indicator of market depth and demand. Also known as Pending Sales.**
As you can see, demand is not keeping up with supply and is actually decreasing. Journal Square did see an increase of 36% in Contract Sales in August but not enough to offset the increase of inventory of 60% year over year.
A source who worked for the Otteau Advisory Group wrote:
"Typically the data is pulled during the first week of the following month and uploaded by the 15th. The bottom row depicting the Mos. Supply Quarter-to-Date (QTD) is the most telling because it factors in all of the data points (contracts/unsold inventory) and you can really see the fluctuations in each municipality. That's calculated by taking the Currently level of Unsold Inventory and dividing it by the Avg. # of Contracts that took place in the quarter so far. At a quick glance, if we were scoring each town using a traffic light system (green = good, yellow = caution, red = "about to implode"), I'd rank them as follows:"
What do you think will happen to home prices in Hudson County as inventory continues to rise over the next 18 - 24 months? Can demand keep up?
Factor 2: Manhattan Housing Market
The second factor putting downward pressure on our local housing market is Manhattan's housing market. According to the Corcoran Q2 Report (as of writing this article; Q3 isn't out yet):
- Closed Sales fell 14% annually
- Contracts Signed decreased 9% annually
- Inventory increased 17% year-over-year
- Days on Market increased 13% from this time last year
According to a StreetEasy article, titled "A Wave of New Inventory Pushes Home Price Cuts to Record Levels"."
"The wave of new listings seems likely to push inventory to highs not seen since the 2008 financial crisis, giving buyers an upper hand in negotiations and forcing many sellers make even deeper cuts to asking prices.
Price Cuts Break Record Set During the Financial Crisis
"Already, more sellers cut asking prices during the week after Labor Day than over any other week in StreetEasy history -- more even than during the depths of the financial crisis."
You are probably aware that maybe 20% - 30% of our local buyer pool comes from across the river. If the Manhattan market continues to soften, becoming more affordable, do you think that will have an impact on the number of buyers coming from NYC and the overall demand in Hudson County?
Factor 3: End of a Debt Cycle
From an article in Reuters, "Wall Street sees two more Fed hikes in 2018, three in 2019." As of writing this article, the just Fed hiked the rate in September and Wall Street anticipates one more hike in December.
The Fed held interest rates at all-time lows to spur growth after the 2008 financial crisis. The Fed is now slowly increasing rates to normalize the economy. Every 1% rise in the interest rate (we've had about a 1% increase in the last 12 months) equates to a 10% increase in the cost of a mortgage. This has a strong impact on purchasing power. What will be the impact be if rates go up another 1%-2%?
Something to keep an eye on, according to CNBC, "the Fed sounds less aggressive than expected and less confident in long-term growth." Perhaps they are worried about a recession? If so, interest rates are already historically low. Where do they go from here and would it help or cause more harm to lower rates again?
Factor 4: Jersey City Tax Revaluation
Many of you are probably aware that Jersey City recently had a tax revaluation. I spoke with a client earlier this week who owns a property in the Paulus Hook area of Downtown Jersey City. Their taxes increased over 100% from $15,000 to $32,000. They hired an attorney and appealed the taxes... and they were only dropped to $30,000! Probably not even enough to cover attorney fees.
And this is not an isolated incident. Many of my clients have experienced similar tax increases.
So not only do we have a Tsunami of new construction entering the market. We are also seeing and will likely continue to see a wave of re-sales as homeowners can no longer afford to pay such ridiculously high taxes, only putting further downward pressure on the market and increasing the supply.
And we know from what's happening in Manhattan, there will likely be a smaller pool of NYC buyers willing to take on the higher tax burden.
The tax reval not only looks to increase inventory but it directly impacts the value of homes by making them more expensive to own.
Factor 5: Buyer Fatigue
According to the MLS data, we have seen an increase in home prices by around 45% in Hudson County, over the last 5 - 6 years. During the same period, according to DATA USA, wages in Hudson County have increased by 13 - 15%.
2013 Hudson County Annual Wages: $56,079
2016 Hudson County Annual Wages: $63,808
** 2017 / 2018 Census Data not yet available **
If wages can't keep up with the increase in housing costs. Is this sustainable?
Factor 6: Top of a Real Estate Cycle
The last factor is simply that we are likely at the top of a real estate cycle. Historically speaking, cycles generally last anywhere from 7 - 10 years. The last correction being 10 years ago in 2008, statistically speaking we are due soon.
What Should I do
Price look to be trending downward over the next few years as these 6 factors play ourt. Schedule a consultation with an expert from our team ASAP. We can talk about the market in your specific price point and give you all the information you need to make an educated decision on what's best for you and your family.