But Don’t Look for Prices to Fall, Especially in Essex Co.
Key takeaway: Essex County housing supply currently stands at 1.7 months, with towns like Glen Ridge at 0.7 months and Montclair at 1.2 months, which are considered “undersupplied,” keeping prices high and perpetuating tough competition for buyers looking to enter these markets.
By The Tamima Team
Cooling inflation will bring lower interest rates this year, which will increase the number homes on the market, which in turn will see the rise in New Jersey home prices slow, creating a more “balanced” market in some counties.
That’s the assessment of Jeffrey Otteau, president of The Otteau Group, who spoke to a group of industry professionals earlier this week.
“We expect interest rates will go steadily lower and with that home sales will increase year after year. We also expect home prices will continue to rise, although at a slower pace than before,” he said.
The Consumer Price Index (CPI), a major gauge of inflation, has tumbled from around 9 pct during the Covid era to around 3 pct currently, after going as low as 2.4 pct last summer.
Otteau blamed Covid-related government stimulus programs such as the PPP program for stoking inflationary pressures.
“In the end the federal government ended up doing too much. All of that stimulus caused hyper-inflation in the economy which pushed interest rate higher and reduced home sales. We’re moving into a cooler economy because the Federal government is no longer pouring gasoline on the fire. “
On Wednesday, the US Labor Department announced CPI ticked up a seasonally adjusted 0.2 pct in February, less than the 0.3 pct predicted by Wall Street, putting the annual inflation rate at 2.8 pct.
The Federal Reserve is looking for inflation to fall to 2 pct before further cutting interest rates.
The US economy expanded an annualized 2.3 pct in Q4 2024, the slowest growth in three quarters, down from 3.1 pct in Q3.
According to various economic forecasts, GDP growth is expected to slow to around 2.1 pct in 2025, with a further potential slowdown to around 1.8 pct in 2026.
Mirroring lower US growth, Otteau expects the 30-year fixed-rate mortgage rates to decline to the 5.9 pct by the end of 2025, from 6.68 pct currently.
“The economy is continuing to slow down, and that gives us further reason to expect interest rates will continue to decline steadily in 2025, which means there will be more homes offered for sale and more home sales will occur,” Otteau said.
At the same time, housing inventory in New Jersey will still remain relatively tight. In 2024 there were 11,400 homes on the market, compared with 12,500 currently, but still way below the “normal” 30,000-40,000 homes, he added.
Housing inventories are accumulating in some NJ counties, such as Monmouth County, where many are moving to be closer to New York City as work from home policies come to an end. Home sales rose by 6 pct year-to-date in that county. West Long Branch Borough, for instance, has 7.5 months of supply.
In Essex County, however, home sales fell by 1 pct during the same period. Housing supply in Essex County stands at 1.7 months, with towns like Glen Ridge at 0.7 months and Montclair at 1.2 months, which are considered “undersupplied,” keeping prices high and perpetuating tough competition for buyers looking to enter these markets.
State-wide, Otteau predicts NJ home prices will rise 4 pct in 2025, compared to 8 pct last year, as lower interest rates bring more homes to the market.
Long term, he added “We think (New Jersey) home prices will rise (an aggregate) 9 pct over the next three years.”
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Want to know how home prices in your town are expected to perform this year? Give Tamima a call at 201.306.0267 or email her at tamimafriedman@gmail.com.