But Not in “Train Towns”, Where Sellers Still Rule
By The Tamima Team
Following a nationwide trend, New Jersey’s real estate market is moving from a seller’s market to a neutral, “balanced” market, where buyers will have more properties to choose from and thus a greater say in determining home sales prices.
“The tide is starting to turn now. What will play out between now and next year is that we are shifting into more of a balanced market. Most homes will be selling for less than asking price, and sellers will have to re-set expectations,” Jeffrey Otteau, president of The Otteau Group, told a group of industry professionals earlier this week.
That being said, areas of New Jersey within New York City’s orbit, including Montclair, Maplewood, and South Orange, will continue to have under-supplied housing inventories due to high demand and limited supply.
Montclair homes, for instance, are expected to increase by 6 pct next year, more than the state-wide average of 5 pct.
Otteau sees overall NJ home prices rising 5 pct this year, 3 pct in 2026 and 2 pct in 2027, for an annual average 3.3 pct per year, down steeply from an annual average of a 9.7 pct increase per year between 2022 and 2024.
Historically, NJ home prices have risen by around 5 pct a year.
Driving this shift are a cooling economy, falling employment, and, most importantly, declining interest rates.
Rates on the average 30-year mortgage have dropped to 6.3 pct from highs around 7.8 pct in 2023, making mortgages more affordable. That’s prompting many would-be sellers who’ve been wanting to up- or downsize but who’ve been waiting to sell due to high borrowing costs, to list their homes.
Indeed, unsold inventory of homes in New Jersey is up 15 pct year-on-year.
“This month (September) the number of homes on the market has gone to 17,700 from 15,500 in (September) 2024. By next summer we’ll be fully out of a seller’s market and into balanced market where sellers can no longer dictate terms,” Otteau said.
The Fed last cut interest rates on September 17, 2025, lowering the federal funds rate by 25 basis points to a range of 4 to 4.25 pct to address a cooling labor market. This marked the first reduction of 2025.
“The average fixed rate (on a 30-year mortgage) has been steadily dropping. We’ll probably be on the verge of seeing (mortgage) interest rate fall close to 5 pct or below 5 pct by this time next year,” Otteau forecast.
This will be a boon for buyers, because every 100-basis point drop in mortgage rates reduces the cost of borrowing and increases by 9 pct the price a house a buyer can afford.
As an example, the decline in mortgage rates to 6.3 pct from 7.8 pct puts $40,000 more in the pocket for a buyer purchasing a starter house, Otteau said.
“Buyers are going to get more for their money as interest rates fall,” he said.
However, lack of affordability for entry-level home buyers will remain a problem. The median NJ home price is now $518,000, while median income in NJ is $99,000, meaning a starter home is selling for five times income.
“Someone with a $99,000 salary only has one-third of the income needed to purchase a starter home. 31 pct of all households in New Jersey don’t make enough money to afford home,” he said.
Lack of affordability has seen the number of sales for NJ homes priced under $599,000 fall by 616 contracts in July-Sept. this year versus the same period last year. That’s compared with strong rises in contract sales for homes $600,000 and above at a gain of 746 contracts.
“The top of the market is already reacting in a positive way to the fact that interest rates are starting to fall. But we’re not seeing that in the lower price points because (home) prices are unaffordable to people with lower incomes.”
Expected further drops in mortgage rates in the coming year should help improve affordability, he added.
Moving forward, sellers are going to have to temper their sales price expectations as the number of homes coming to market is seen increasing to 100,000 in 2027 from a forecast 86,000 this year.
“By setting a lower asking price you have the best chance of getting the best selling price,” he said.
“The rate of rising in home prices is starting to normalize, which is a good thing.”
The exception: Towns with good transportation connections to New York, such as Montclair, will continue to favor sellers more than buyers.