May, 2023
What Is Going On In The Housing Market?
(Charts courtesy of Keeping Current Matters)

It almost seems every day there is an “update” on where the housing market is going. And to someone looking
to buy a home, or an existing homeowner contemplating selling, the news can be confusing, resulting in more questions than answers. What is happening with the economy? Will there be a recession? How will a recession effect
the housing market? Why are home prices still going up when mortgage rates are rising? Why are there so few
homes on the market?
These are the types of questions asked when talking with those looking to buy a home, and those looking to
move and put their existing home on the market. And they are great questions. This Market Watch will not attempt
to answer all the questions buyers/sellers have regarding the market, but it will provide insight into two areas key
areas of home buyer/seller concern.
1. Will there be a recession and what effect will have on the housing market?
2. Why are home prices continuing to increase when mortgage rates have increased?

Will there be a recession and what affect will it have on the housing market?
There is concern within the business and consumer sectors that a recession is on the horizon. The Federal Reserve has already increased their Fed Fund Rate to 5.25 percent, with the last .25 percent increase authorized during their meeting in May.
And experts predict that the Fed won’t cut rates anytime soon for two key reasons. Inflation remains sticky, and
the economy has stayed strong. So with the latest increase, the question being asked is has the Federal Reserve
pushed the economy into a possible recession? In the March Fed meeting summary published last month, the Fed
said “Given their assessment of the potential economic effects of the recent banking sector developments, the
staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery
over the subsequent two years.” With that statement, the Fed basically acknowledged that a recession is probable
later this year.
What does a likely recession mean for the housing market? Well, there will be some downsides. Unfortunately,
workers may get laid off reducing the population of home buyers. Interest rates (not necessarily mortgage rates,
which historically decrease during a recession) could increase raising the cost of household expenditures and reducing disposable income for down payments. Banks and other institutions may enforce stricter lending requirements, raising the bar and rates for some home buyers. And it could slow home purchases and price appreciation
(not depreciation) due to its impact on overall affordability.
However, what it doesn’t mean is overall falling home prices. A recession does not mean a housing crisis.

Looking at the last six recessionary periods, four of the six periods actually had home price appreciation. The one large drop in
pricing during the 2008 crisis, was due to very low loan standards
and an over abundance of supply. Two factors that are not present
in today’s market. So, it is expected that prices will, worse case,
hold, and more than likely increase in a possible recession.

Why are home prices continuing to increase when mortgage
rates have increased?
This is a fair and reasonable question considering the arguments in the press and on talking head news shows. The logic in
these arguments that prices should be decreasing is simple. When
rates go up, affordability goes down and home sellers will have to respond with lower pricing. Well, not so fast.
Yes, mortgage rates have increased. 30 year conventional mortgages have more than doubled what they were a
year ago. If logic followed, home pricing should be decreasing. And in some sections of the country, they probably
have. But if you are a home buyer in the Somerset, Hunterdon County area, housing prices have not dropped. Instead they have continually increased to the dismay of buyers
and delight of sellers. So, what is missing in this argument? Simply, the lack of a supply of homes.
At the end of April, Somerset County had only a 1.71 month’s
supply of homes, Hunterdon County 2.05. That compares to 1.73
month’s supply for Somerset County at the end of March, and
1.65 month’s supply for Hunterdon. Looking just at Bridgewater,
the Township had only a 1.2 month’s supply of homes at the end
of April, up slightly from 1.13 month’s supply at the end of March.
How critical is this? In a neutral market, one that does not favor
sellers or buyers, the month’s supply of homes should be 6 to 7
months. With such a shortage of available homes, even with affordability sliming the number of buyers, demand is
still high for listings and competition fierce, putting upward pressure on prices. Until the supply of homes increases
substantially, buyers should not expect any relief from home pricing.
Then the next question that should be asked is why? Why is supply so limited. The answer is basically two-fold.
First is from a seller’s perspective, if I sell in this market, where do I go. A seller does not want to be in a situation
where they put their house on the market, it quickly sells and they have no place to go. Granted, if they are moving
out of state, for example, or they have already bought a new home, this scenario goes away. But if the seller is only
looking to downsize, for example, and stay local, the options are very limited. It is just easier to stay in their existing
home.
The second factor is existing mortgage rates and past refinancing. Home owners may not want to face a new 6
to 7 percent mortgage when they have refinanced their home to a 3 percent mortgage, or do not have a mortgage
at all. Why pay more for less of a home, may be the question potential home sellers are asking. Looking at the chart, 23.6 percent
of existing mortgages have rates under 3 percent, while 38.5 percent have a rate between 3 and 4 percent and 20.4 percent have
a rate between 4 and 5 percent. When together, 82,5 percent of
active mortgages are under 5 percent. Add to those with mortgages, home owners without a mortgage, and it is easy to understand
why existing home owners are reluctant to move on. Thus a lack
of supply and a strong seller’s market that shows no indication of
easing.

August, 2023

2023 Bridgewater Review – First Six Months

There were 184 homes sold in Bridgewater during the first half of 2023, down 23 percent from the first half of
2022. The large majority, 129 or 70.1 percent were single family units. The remaining 55, or 29.9 percent were condos or town homes.
For the first half year 2023, the average selling price for a home (condo, town home, single family) was
$603,341. That is an increase of approximately 2.5 percent from the first half 2022 figure of $588,588. Similarly, the
median selling price for 2023 jumped 4.6 percent, going from $550,000 in 2022 to $575,312 the past six months.
During just June 2023, the average selling price for a home was $630,512 and the median price was $617,500. The
average price was a 2.6 percent decrease from the 2022 June price of $646,782 while the median price rose 1.2
percent over the prior June median price of $610,000.
One of the biggest surprises came in the larger room sized homes. For homes with five plus bedrooms, the average price for the year decreased1.9 percent, going from $952,930 in 2022 to $935,176 for 2023. The median price
showed a more significant decrease, dropping 10.7 percent from $885,000 in 2022 to $790,000 in 2023. During
June 2023, the average and median price for a five plus bedroom home was $836,500 and $695,500. That is a
significant decrease from the June 2022 average and median price of $983,156 (14.9 percent) and $880,000 (20.9
percent, yep, both correct).
Homes with four bedrooms did show yearly gains. The average selling price for a four bedroom home during the
first half of 2023 was $745,153, an increase of 4.8 percent from the average 2022 price of $711,104. The median
price rose 3.6 percent, going from $717,800 during the first half of 2022 to $743,500 during 2023. During June
2023, a four bedroom home had an average selling price of $768,431 and a mean selling price of $785,500. That is
a 5.6 percent decrease from the June 2022 average selling price of $813,994 and a 1.8 percent decrease in the
median selling price of $800,000.
Three bedroom homes increased with an average selling price of $540,871 during the first half of 2023, a 10.4
percent increase from the 2022 average selling price of $489,600, while the median price increased 8.0 percent,
going from $500,000 during 2022 to $540,000 this past half year. In the month of June 2023, the average selling
price was $551,056 compared to $529,020 the year prior, a 4.2 percent increase. The median price in June increased a modest 1.0 percent, from $550,000 in 2022 to $555,000 in 2023.

For two bedroom homes (mostly condos and town homes) the average selling price for the first six months of
2023 was $371,526, an increase of 13.7 percent over the 2022 figure of $326,567. The median selling price
showed a 13.4 percent rise, going from $325,000 during 2022 to $368,500 during 2023. During June 2022, the average price for a two bedroom home in Bridgewater was $401,966 increasing a dramatic 26.0 percent from
$318,917 in June 2022. Similarly, the median price jumped 24.7 percent. The June 2023 median price was
$418,000 while the 2022 price was $335,000.
The time homes stayed on market, or days on market (DOM), stayed the same during the first six months of
2022 and 2023. DOM refers to the time a home is first listed till it finishes the attorney review period. It does not
mean till the closing date. During the two time periods, the average days on market was 29. This compares to 2021
when DOM was 35 days. Days on market for five plus bedroom homes dropped from 46 the first half of 2022 to 39
in 2023. Four bedroom homes saw an increase going from 29 to 32 days. Days on market for three bedroom
homes decreased from 28 in 2022 to 23, while two bedroom homes saw its time on market go from 41 days down
to 29 days. During June of 2023, DOM for all homes stood at 26, a decrease from the 2022 DOM of 30.
Sale price to list price (SP/LP) and sale price to original list price (SP/OLP) showed a slight decrease between
the first six months 2022 and 2023. Homes sold at 103 percent of final list price (SP/LP) during the first half 2023,
compared to 104 percent during 2022. This compares to 101 percent during the first six months 2021. Similarly,
homes sold at 103 percent of SP/OLP in 2023, down from 104 percent during the half year prior. Three bedroom
homes sold at the highest, SP/LP at 106 percent during the first half 2023 versus104 percent in 2022. Two bedroom homes sold at 103 percent in 2023 versus 104 percent the first six months prior. Four bedroom homes followed going from 104 percent in 2022 to103 percent in 2023. Five plus bedroom homes decreased from 103 percent during the half year 2022 to 100 percent to 2023. SP/OLP in each bedroom group showed similar movements.
During the month of June for 2023 SP/LP and SP/OLP for all homes sold were both 105 percent. This compares
to 104 percent and 103 percent for the month in 2022. Three and four bedroom homes sold at the highest SP/LP
ratio at 109 percent and 105 percent. Two bedroom homes sold at 103 percent for SP/LP while five bedroom
homes sold at 101 percent. For SP/OLP, two bedroom homes sold at 102 percent, three bedrooms at 109 percent,
four bedrooms at 104 percent and five bedrooms at 100 percent.
At the end of June 2023, the supply of available homes was still below one month’s supply. There was only a .98
month’s supply. This compares to 1.62 month’s supply at the end of June, 2022, 1.53 month’s supply at the end of
June, 2021 and 3.94 month’s supply at the end of June, 2019. The importance of month’s supply of available
homes has been discussed at length in Market Watch. Month’s supply is a key contributor to the seller’s market that
has characterized the Bridgewater housing market for the past 40 or so months. And it will continue to overshadow
the market unless a significant amount of homes are made available for resale or built. Remember, a balanced
market where supply matches demand has a six to seven month’s worth of available homes. Right now we are far
from balancing that equation.

October, 2023

Trends In The Housing Market

(Charts courtesy of Keeping Current Matters)

      Do I wait or buy/sell now? Are home prices expected to go up or down? What about mortgage rates? Why can’t buyers find homes to buy? And who is selling right now and why? Just some questions that clients are asking and that this version of Market Watch will try to answer, or at least shed some light on.

What Is Going On With Home Prices And Should I Wait Out This Market?

If you are a home buyer and looking to wait out this market for prices to tumble, at least in the Bridgewater area, you may be waiting for a long time. There are just too little inventory available and too much demand for what is available for home prices to fall. That is not to say that homes will appreciate similar to that of 2021, but don’t expect prices to fall 10, 15 or 20 percent as some analysts predict. It is not going to happen. They normally predicate their expectations by stating that new construction will take care of demand, foreclosures will provide new housing opportunities or that supply will suddenly increase due to home sellers having to put their homes on the market. None of which characterizes the local market.

The simple truth is home prices will continue to appreciate, but at more historic rates,. By how much? Taking a look at six different groups, American Enterprise Institute, Zillow, Fannie Mae, Home Price Expectation Survey, Mortgage Bankers Association and the National Association of Realtors (NAR), the average of their forecasts is an increase of 3.3 percent for 2023. Yes, the NAR does see a .4 decrease but that is more than overshadowed by the other forecasts.

And what does it look like for the next five years. The Home Price Expectation Survey, a nationwide panel of over 100 economists, real estate experts and investment and market strategists, suggest prices will continue to climb.

From 3.32 percent (similar to the average above), prices are forecasted to increase each year to 4.18 percent in 2027.

Mortgage Rates Still Hammering Home Buyers

    Besides a lack of available homes driving prices upward, home buyers also face increasing mortgage rates. For the week ending October 12, rates were 7.57 percent for a 30-year conventional loan, up from 7.49 the week prior.

This has forced many perspective buyers to leave the market or settle for lower priced home. For example, when rates were 5 percent, a buyer looking at a $600,000 home with 20 percent down, would face a $2,577 monthly payment (principle and interest). At 7.5 percent, that payment would jump to $3,356, a $779 difference, and one that forces a rethinking of home plans.

Where rates go in the future depends on the Federal Reserve and inflation. If inflation remains higher than the 2 percent benchmark the Fed is shooting for, the Fed could increase its Fed Fund rate which in turn, could raise the Treasury yield and mortgage rates. If rates do increase and hit 8 percent, as some analysts suggest, affordability will become an even more issue for home buyers and many more will drop out of the market, decreasing demand, which could stabilize home prices. If the Fed eases, experts predict rates to drop back to the 5.5 percent range. If that occurs, demand could sky rocket and force prices even higher as competition grows for available housing.

A Big Issue For Home Buyers, Supply Versus Demand

    Readers of Market Watch are aware of the importance of supply versus demand in today’s housing market. It has been covered at length in previous months. And it hasn’t changed. In fact it is more important now than in previous years, because supply has decreased further, heightening competition and forcing home prices higher.

In September, 2022, the month’s supply of homes, in Bridgewater, stood at 1.49. And during that month, 63 percent of homes sold were at listing price or more, with 67 percent under contract in under 25 days. Last month, month’s supply was .91, a 39 percent drop, with 82 percent of homes sold at listing price or more, and 68 percent under contract in under 25 days. Unless supply increases or demand softens due to higher mortgage rates (see above) or higher prices, competition for available homes will remain fierce among home buyers that can afford today’s prices.

Why Is The Supply Of Homes So Low?

    One of the main reasons the supply of homes is so low is the overall success of the Federal Reserve in stimulating the economy in the face of the pandemic. At that time they lowered the Fed Fund rate to near .5 percent, which in turn dropped mortgage rates to under 3 percent. Home owners and buyers took advantage of these rates and refinanced or bought. The result is 70.7 percent of present mortgages are under 4 percent and over 90 percent are under 5 percent. In this environment, not many home owners are willing to trade in their low rate for one that may double.

Taking a look at each grouping, it is safe to say that a home owner with a 3 percent or under mortgage is unlikely to sell unless there is an overriding factor. Between 3 and 4 percent, the probability is high that the owner will not sell. Between 4 and 5 percent, and the owner would have to think hard before selling. Anything over 5 percent and the home owner would probably sell and over 6 definitely. But the point here is that the majority of home owners with mortgages under 5 percent are not going to move without an important reason.

November, 2023

The Federal Reserve Holds Interest Rates Steady For The Second Time
As has been discussed in prior Market Watch issues, the Federal Reserve does not set the interest rates that
borrowers pay on mortgages directly. Its action does, however, influence them significantly. Mortgage rates tend to
track the yield on 10-year U.S. Treasuries, which move based on a combination of anticipation about Fed actions,
what the Fed actually does, and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they
go down, mortgage rates tend to follow.
With the latest inflation report, the yield on the 10-year Treasury fell. And on November 15, investors priced in a
99.7 percent chance that the Federal Reserve will hold interest rates steady in December. So, mortgage rates
dipped to 7.44 percent on November 16, down from 7.5 percent week earlier, but still significantly higher than the
6.61 percent rate the same week a year earlier.
The good news is that rates do have room to fall further. According to Bright Multiple Listing Service Chief Economist Lisa Sturtevant, the normal spread between the 10-year Treasury yield and the 30-year fixed rate mortgage
historically was 180 basis points (past Market Watch issues went into this in detail). Right now it is 280 basis points.
So, if the spread returned to its historic norm, mortgages could fall to 6.4 percent.
Ms. Sturtevant also noted that while she expects rates will come down in 2024, they will not return to pandemic
levels. “We are in a new era for mortgage rates, where prospective home buyers can expect rates to settle above 6
percent”, Ms. Sturtevant said.
But even in that scenario, the market should see inventory increase and more buyers coming into the market.

National Association Of Realtors (NAR) Chief Economist Lawrence Yun Provides His Take On The Market
At the 2023 NAR NXT conference in Anaheim California on November 15, Lawrence Yun indicated that elevated
mortgage rates, high home prices and limited housing inventory have dominated the story lines for the real estate
market in 2023. He stated that “Twenty-year high mortgage rates have held off home buyers. There’s also a lack of
housing inventory to sell, which means fewer opportunities for sales in the marketplace”. However, this lack of inventory has kept prices stable and in many areas, including Bridgewater, rising.
He agreed with the assessment of Ms. Sturtevant above, saying with the 10-year Treasury at 4.4 percent, mortgage rates could hover around 6.4 percent with the normal spread.
Mr. Yun believes that the 30-year mortgage and Fed funds rate have likely crested. He stated, “I believe we’ve
already reached the peak in terms of interest rates. The question is when are rates going to come down?” Mr. Yun
forecasts that interest rates will drop to between 6 and 7 percent by the spring buying season and anticipates that
more sellers will enter the market. He stated that “Pent-up sellers cannot wait any longer. People will begin to say,
“life goes on. Listings will steadily show up.”
The same will hold true for buyers. Lower rates could bring home buyers off the sidelines. 2024 could be a great year for the real estate market.

November, 2022

Why Are Mortgage Rates Still Rising And How Much Higher Will They Go?

(Charts courtesy of Keeping Current Matters)

Mortgage rates are one of three key drivers of today’s real estate market. The other two being supply vs. demand and home values. And both buyers and sellers are wondering if mortgage rates will continue to climb higher and if it is the time to jump into the market, either to buy or sell. Here is where mortgage rates are as the beginning of November, and where experts believe they will be heading in the months ahead.

Why Rates Are Still Climbing In November?

    Higher mortgage rates are a response to high inflation. Inflation escalated in early 2022, with gasoline prices spiking, housing and rent prices jumping to unprecedented levels, and food and other consumer goods sharply increasing. The effect was consumers suffered, bought less, and paid more for their daily needs.

Economists suggest that the Federal Reserve recognized higher inflation in 2021. However, they thought this inflationary environment was temporary due primarily to supply chain issues caused by the pandemic. While this  was an important factor, it was not the only one.

Government spending and the Russia-Ukraine conflict also played a role. In addition, China continues to lock down commercial and residential areas due to its zero-Covid policy and inflation shot up. In response, the Fed started a series of interest rate hikes to combat inflation and ultimately reduce the amount of money circulating in the economy.

Although raising interest rates does cause financial pain for consumers and businesses, inflation would have been worse if the Fed had not started to raise rates. It would have made a bad situation even harder for people to buy necessary and discretionary goods and services. With that said, the Federal Reserve is running the risk of creating a recessionary environment by keeping interest rates too high. It can increase unemployment, and as seen, run havoc with the real estate market as mortgage rates keep pace with the Fed fund rate.

The Latest Rate Increase, November Meeting

    On November 2, 2022, the Federal Reserve raised their Fed fund rate by another 75 basis points or three-quarters of one percent. That brought the current rate to a range of 3.75 percent and 4 percent. Economists and others were expecting this level of increase, so mortgage rates did not adjust by an equal amount. During the Fed’s Chairman briefing, Jerome Powell did hint at the potential of slowing down the rate of future increases. As such, smaller hikes may be forthcoming, but a complete pausing of hikes is probably not in the cards.

The only way the Fed will probably stop hiking, or begin lowering its Fed fund rate is if the economy shows definitive signs that inflation is returning to a more acceptable rate. And that is in an annual range of 2 to 3 percent. As of October 2022, inflation had move

d to 7.7 percent compared to a year earlier.  That is down from 9.1 percent reached during the this past summer (see chart on right).

How Much Higher Will Mortgage Rates Go?

    The chart on the right shows the Freddie Mac 30-year fixed rate from January 2022 to the beginning of November. The chart shows what the real estate market has felt. Rates have been climbing dramatically this year. Although rates have ticked back slightly from its high of over 7 percent, economist believe that rates will remain in the 7 percent range for the reminder of 2022. However, what happens after this year is dependent on what the Federal Reserve does. If they slow down the pace on increases, 7 percent could be the rate well into 2023. However if they sense inflation is under control and lower rates, mortgages could fall below 7 percent. Likewise, if inflation remains stubborn and the Fed raises by another 75 basis points, or more, rates will experience upward pressure through the end of next year.

This runup in mortgage rates has slowed the overall real estate market. Some areas more than others. So far, Bridgewater and the surrounding areas have seen some slowdown but buyer demand is still there. And supply continues to be tight (see below) so there are less homes for buyers to choose from which keeps demand for those homes strong. But the rise in rates has caused some buyers to pause their plans and others to be more deliberate in their purchase.

If there is a positive spin to the rise in rates, it comes from Mark Fleming from First American, a financial company providing title insurance and professional settlement services to home buyers and sellers, when he said “While mortgage rates are expected to continue to drift higher over the coming months, much of the rapid increase in rates is likely behind us”. Although rates may feel upward pressure, buyers and sellers should not worry about rates doubling again like they have seen this year. Mortgage rates will respond to Fed decisions on inflation, but it should not be expected that the market will see exponential increases like before.

So What About Home Prices?

So what does the above mean for home prices. Refin, a large residential real estate brokerage, was quoted as saying, “For those bearish folks eagerly awaiting the home price crash, you’ll have to keep waiting. As much as demand is pulling back, supply is as well. And that’s reducing downward pressure on prices in the short run”. This means that the balance between supply, the amount of homes on the market, and demand, the amount of buyers, is the king for what happens to prices. And this is a variable that is not the same in all areas. It is highly local. What is happening in Phoenix or Las Vegas, may not be the same as in Bridgewater.

In some areas, showings are down and home price appreciation has decreased (not the same as depreciation). In others, demand is still high with multiple offers still the rule.

Currently in Bridgewater, the demand for homes, while diminished due to mortgage rates and affordability issues, is still high. The majority of homes are off the market in under 25 days and supply is still tight, only 1.71 months in October, slightly up from 1.49 in September. In addition, 66 percent of homes sold last month were above listed price. With this kind of market, there is little reason to believe homes will not continue to see price appreciation in the coming months, albeit tempered from increases in the teens during the past couple of years.

Nationally, experts have cooled slightly on the 2023 market from last month. Forecasts range from a price increase of 2.6 percent to a negative 5.1 percent. So, when averaged, they are looking at a more neutral market. But these numbers should be balanced against local conditions.

January, 2023

2022 Bridgewater Review

    There were 501 homes sold in Bridgewater during 2022, down 25.3 percent from 2021. The large majority, 365 or 72.8 percent were single family units. The remaining 136, or 27.2 percent were condos or town homes. Homes sold last year represented approximately 3.1 percent of the total households in the Township.

57.9 percent of the homes sold (290) last year, sold during the July to December time period. The remaining 42.1 percent (211) sold during the first half of the year. Interestingly, the percentages were nearly identical for town homes and single family homes. During the first half of 2022, 41.2 percent (56) of all town homes were sold, compared to 42.5 (155) percent of single family homes. From July through December, 57.5 percent (210) of all single family homes were sold, while 58.8 percent (80) of town homes sold during the same time frame.

For the year 2022, the average selling price for a home (condo, town home, single family) was $589,299. That is an increase of approximately 7.9 percent from the 2021 figure of $546,339. Similarly, the median selling price for 2022 jumped 4.1 percent, going from $528,500 in 2021 to $550,000 this past year. During just December 2022, the average selling price for a home was $581,821 and the median price was $557,000. The average price was a 5.2 percent increase over the 2021 December price of $553,087 while the median price jumped 4.1 percent over the prior December median price of $535,000.

One of the biggest yearly gains came in the larger room sized homes. For homes with five plus bedrooms, the average price for the year jumped 10.3 percent, going from $830,339 in 2021 to $915,629 for 2022. The median price showed a similar leap, increasing 10.1 percent from $800,000 in 2021 to $881,000 in 2022. During December 2022, the average and median price for a five plus bedroom home was $788,250 and $725,500. That is a significant decrease from the December 2021 average and median price of $842,250 (6.4 percent) and $860,000 (15.7 percent, yep correct).

     Homes with four bedrooms also showed yearly gains. The average selling price for a four bedroom home during 2022 was $700,579 an increase of 6.5 percent from the average 2021 price of $658,089. The median price jumped 7.2 percent, going from $650,000 during 2021 to $697,050 during 2022. During December 2022, a four bedroom home had an average selling price of $668,100 and a mean selling price of $645,000. That is a 9.2 percent decrease from the December 2021 average selling price of $735,471 and a 9.8 percent decrease in the median selling price of $715,000.

    Three bedroom homes continued the trend with an average selling price of $497,522 during 2022, a 6.0 percent increase from the 2021 average selling price of $469,459, while the median price increased 6.6 percent, going from $469,000 during 2021 to $500,000 this past year. In the month of December 2022, the average selling price was $525,806 compared to $482,071 the year prior, a 9.1 percent increase. The median price in December increased 13.7 percent, from $477,000 in 2021 to $542,500 in 2022. A complete reversal from the higher bedroom classifications.

For two bedroom homes (mostly condos and town homes) the average selling price in 2022 was $348,044, an increase of 10.5 percent over the 2021 figure of $314,971. The median selling price showed a 11.1 percent rise, going from $310,500 during 2021 to $345,000 during 2022. At the end of 2022, the average price for a two bedroom home in Bridgewater was $330,833 increasing 2.6 percent from $322,353 in December 2021. The median price stayed the same. The December 2022 median price was $310,000 while the 2021 price was $310,500.

The time homes stayed on market, or days on market (DOM), dropped from 2021 to 2022. DOM refers to the time a home is first listed till it finishes the attorney review period. It does not mean till the closing date. During 2021, the average days on market was 31. This average dropped to 27 during 2022. This compares to 2020 when DOM was 47 days. Days on market for five plus bedroom homes actually increased from 37 in 2021 to 41 in 2022. Four bedroom homes saw a drop going from 30 to 28 days. Days on market for three bedroom homes decreased from 29 in 2021 to 25, while two bedroom homes saw its time on market go from 31 days down to 21 days. During December of 2022, DOM for all homes stood at 26, a decrease from the 2021 DOM of 33.

Sale price to list price (SP/LP) and sale price to original list price (SP/OLP) also showed gains between 2021 and 2022. Homes sold at 103 percent of final list price (SP/LP) during 2022, compared to 102 percent during 2021. This compares to 99 percent during 2020. Similarly, homes sold at 98 percent of SP/OLP in 2022, down from 101 percent during the year prior. Although all bedroom groups saw an increase in SP/LP, two bedroom homes sold at the highest,104 percent in 2022 versus 101 percent in 2021. Four bedroom homes followed going from 102 percent in 2021 to103 percent in 2022. Three bedroom homes stayed the same at 103 percent for both 2021 to and 2022, while five plus bedroom homes jumped from 100 percent to 101 percent. SP/OLP in each bedroom group showed similar movements.

During the last month of 2022 and 2021, SP/LP and SP/OLP showed no change. SP/LP was 101 percent while SP/OLP was at 100 percent looking at all homes sold. Three and four bedroom homes sold at the highest SP/LP ratio at 102 percent. Two bedroom homes sold at 100 percent for SP/LP while five bedroom homes sold at 101 percent. For SP/OLP, two bedroom homes sold at 98 percent, three bedrooms at 101 percent, and four and five bedrooms at 100 percent.

At the end of 2022 the supply of available homes was still below one month’s supply. There was only a .91 month’s supply. This compares to .43 month’s supply at the end of 2021, .73 month’s supply at the end of 2020 and 2.68 month’s supply at the end of 2019. The importance of month’s supply of available homes has been discussed at length in Market Watch. Month’s supply is a key contributor to the seller’s market that has characterized the Bridgewater housing market for the past 40 or so months. And it will continue to overshadow the market unless a significant amount of homes are made available for resale or built. Remember, a balanced market where supply matches demand has a five to six month’s worth of available homes. Right now we are far from balancing that equation.

Al Fross is a Coldwell Banker Realty Sales Associate based in the Bedminster/Bridgewater office. Al has lived in the Bradley Gardens section of Bridgewater since 1993 and has been an active volunteer in many recreational and community organizations including serving as past Chairman of the Township’s Planning Board and past member of Bridgewater’s Board of Adjustment. His knowledge of the Bridgewater and surrounding areas makes him the perfect “partner” when selling your existing property or buying your new home.

October, 2022
Economic Uncertainty And The Housing Market
(Charts courtesy of Keeping Current Matters)

Will there be a recession? Will the Federal Reserve raise their rate again? If they do, by how much? Will mortgage rates increase? If so, by how much? What will happen to housing prices? Will my home lose value in the coming months? Should I sell/buy now or wait?

These are the types of questions asked when talking with those looking to buy a home in a market with rising
mortgage rates and challenging real estate prices, and existing homeowners questioning whether to take advantage of past appreciation and sell, or hold on until rates decrease stimulating more demand.

And they are great questions, all pointing to the uncertain economic climate and what affect it is having on the
housing market. This Market Watch will not attempt to answer all the issues surrounding today’s real estate market,
but it will provide insight into three areas of home buyer/seller concern.
1. Will there be a recession and what affect will it have on the housing market?
2. Where will interest rates go from here?
3. Will home prices increase or decrease in the months ahead?

Will there be a recession and what affect will it have on the housing market?

There is concern within the business and consumer sectors that a recession is on the horizon. The Federal Reserve has already increased their Fed Fund Rate to 3.25 percent, with the last .75 percent increase authorized during their September meeting. The concern is if the Federal Reserves raises further, it could push the economy into a recession.

In their attempt to bring inflation to their targeted 2 percent area, all indications are that the Federal Reserve will raise their rate by .5 to .75 percent at their next meeting, which is November 2. In all probability, that will slow the economy further, and increase the chance of drawing the economy into a recessionary period, or at least on the brink.

A movement in the rate will increase borrowing costs for both businesses and consumers from commercial loans, to credit cards, and yes probably mortgage rates. A rate increase will further slow home purchases and price appreciation (not depreciation) due to its impact on overall affordability. That would be bad for the economy because of the tremendous impact the real estate market has on the economy, not just in home sales, but also subsequent purchases such as furniture, décor etc.

Once the Federal Reserve achieves its goal of reducing inflation, it will need to pull the economy out of the recession. To do so it will reduce its fund rate and mortgage rates will fall. In fact, over the past six recessions, mortgage rates have fallen an average of 1.8 percentage points, with some dropping considerably more, from the peak of the recession to the trough. And in many cases they continued to fall after the fact, since it takes some time to turn the the economy around. It is often said that housing will lead the economy out of recession. And historically it has. The economy will not recover until housing leads the way out. Housing has that much impact on the economy. And the Federal Reserve recognizes that.

The graph below indicates the dates of the six recessions, their length, and how much mortgage rates fell. In each of the past recessions,
mortgage rates dropped, stimulating the economy. Hopefully, history this time will repeat itself.

Where will interest rates go from here?

A large part of the fear and uncertainty people have right now in the housing market is the question of where mortgage rates are going. Or, better put, will mortgage rates continue to rise? And a large part of this uncertainty is what they are seeing in the media. Almost daily they are seeing headlines such as the housing market in for another shock. Mortgage rates reach highest level since 2008. 30 year mortgage rate jumps over 7 percent. Headlines like these create fear and uncertainty and cause potential sellers and buyers to pause any plans.

So the question is, where are rates heading? The news here is not the best. The graph below is the Freddie Mac 30 year fixed rate from January of this year, all the way through the end of September. It shows that rates rose for sixth consecutive weeks (orange bars), reaching 6.7 percent. Since then, mortgage rates have continued their upward climb with 30 year rates reaching 7 percent with some
lending institutions quoting higher rates.

The reason rates have been rising is due to the Federal Reserve raising its Fed Fund rate to tame inflation. They are trying to slow the economy, and their weapon is the Fed Fund rate. Even though the Fed does not set mortgage rates, their action in raising its rate is having an impact on mortgage rates. And it is working as the real estate market has slowed.

Where do rates go from here? Mortgage rates tend to rise with the rate of inflation. When inflation is high, so are mortgage rates. Inflation is the enemy of long term interest rates, and that is exactly what is happening today. So until inflation is down significantly, mortgage rates will stay stubbornly high, and will probably hover just over 7 percent. But as for good news, Mark Fleming, Chief Economist at First American, a provider of property and mortgagerelated services, states “While mortgage rates are expected to continue to drift higher over the coming months, much of the rapid increase in rates is likely behind us”.

Will home prices increase or decrease in the months ahead?

David Ramsey, a personal finance expert and host of The Ramsey Show, said it best, “The root issue of what drives house prices almost always is supply and demand”. And this is a variable that is not the same in all areas. It is highly local. What is happening in Dallas, may not be the same as in Bridgewater.

In some areas, showings are down and home price appreciation has decreased (not the same as depreciation). In others, demand is still high with multiple offers still the rule.

Currently in Bridgewater, the demand for homes, while diminished due to mortgage rates, is still high. Homes are off the market in under 25 days and supply is only 1.49 months. In addition, 63 percent of homes sold last month were above listed price. With this kind of market, there is little reason to believe homes will not continue to see price appreciation in the coming months.

Experts predict that 2023 will see price increases ranging from 4.4 percent to a negative 4 percent, But 5 out of 6 expect price increases with the average of the 6 forecasts being 1.8 percent. So expectations are that homes will continue to gain value, just at a slower rate from the last couple of years.