October, 2024

The State Of The Bridgewater Real Estate Market

    This edition of Market Watch will take a look at the Bridgewater Market as of the end of the third quarter 2024. It will examine the active listings, those under contract and listings that had been sold. The information will be broken down by several segments so readers can gain a greater understanding of the dynamics of the Bridgewater market.

Active Listings

    At the end of September, there were 54 active listings in the Township. Of the total, 42 were single family homes, 12 were condos or townhomes. Of the 54 active listings, 8 were in attorney review, meaning an offer was accepted and the agreement sent for attorney approval. Listings in attorney review are usually not available for any more showings, and will not accept additional offers.

7 active listings had 2 bedrooms, 18 had 3 bedrooms, 14 had 4 bedrooms and the remaining 15 had 5 or more bedrooms. The average listing price for a 2 bedroom home was $423,580. Most would be condos or townhomes. Listings for 3 bedroom homes averaged $622,561, 4 bedroom homes $860,046 and 5 plus bedroom homes $1,204,769. The average for all homes active in Bridgewater during September was $821,308.

There were 10 homes listed between $200,000 and $499,000 with 3 in attorney review. 15 homes were listed between $500,000 and $699,000 with 4 in attorney review. Between $700,000 and $999,999, there were 13 homes listed with none in attorney review. And above $1,000,000, there were 16 homes listed with 1 in attorney review. In this last segment, 1 listing had 2 bedrooms, 2 with 3 bedrooms, 4 with 4 bedrooms and 9 with 5 or more bedrooms.

Under Contract Listings

There were 68 listings that were under contract at the end of September, meaning the sellers had accepted an offer, the respective attorneys had approved the contract, and the home was off the market. 14 were townhomes, the rest single family residences.

9 of the homes under contract had 2 bedrooms. There were 23 homes under contract with 3 bedrooms, and 26 homes with 4 bedrooms. 10 homes under contract had 5 plus bedrooms. The average listing price for a 2 bedroom home under contract was $453,225, and for 3 bedroom home, $603,943. For 4 bedroom homes under contract the average listing price was $838,817, and for 5 plus bedroom homes, $1,051,600.

There were 11 homes under contract that were listed between $200,000 and $499,999. 25 homes between $500,000 and $699,999 were under contract. The same number were under contract between $700,000 and  $999,999. There were 7 homes above $1,000,000 under contract.  In this last segment, 3 homes had 4 bedrooms, 3 with 5 bedrooms, and 1 with 7 bedrooms.

Sold Listings

    There were 32 homes sold during September in Bridgewater. Of the total 8 were condos or townhomes, the rest single family residences. For the year thru September, there were 342 homes sold.

Of the 32 homes sold during September, 1 home had 1 bedroom, 7 had 2 bedrooms, 7 with 3 bedrooms, 9 with 4 bedrooms and 8 with 5 or more bedrooms. The sold price for the 1 bedroom home was $385,000. The average price for 2 bedroom homes was $397,714. For 3 and 4 bedroom homes, the average sold price was $672,714 and $795,333. The average sold price for 5 or more bedroom homes was $1,148,000. The average selling price for all homes during September was $756,875.

There were 10 homes sold with prices between $200,000 and $499,999. Between $500,000 and $699,999, there were 5 homes sold. 13 homes sold between $700,000 and $999,999 and 4 homes sold above $1,000,000.

Looking at the 342 homes sold thru September, 5 had 1 bedroom and had an average selling price of $285,400. For 2 bedroom homes, the average selling price was $411,746 and there were 70 homes in that segment. There were 90 3 bedroom homes sold thru September with an average selling price of $580,014, while the average selling price for the 117 4 bedroom homes sold was $837,829. For the 60 5 or more bedroom homes, the average selling price was $1,070,240. The average selling price for all homes for the first 3 quarters was $715,470

For the month of September, the average days on market was 30. This is the time from the first day of listing till the end of the attorney review period. It is not till the closing date. For the time from the beginning of January to the end of September, the average days on market was 26.

During September, the average selling price to list price was 103 percent. For the first three quarters the same ratio was104 percent. Lastly, the average month’s supply of homes for just September was 1.53 months. For the year thru September it was 1.33.

July, 2024

The Housing Market Is “Stuck” Until At Least 2026

At least that is the view of economists at Bank of America. They warned in an interview on CNN that the US
housing market is “stuck” and are convinced it will not be “unstuck” until 2026 or later. The bank argued that home
prices will stay high, and go even higher. Also, the housing shortage will persist, and mortgage rates may not fall
much, even if the Federal Reserve finally delivers on long-delayed interest rate cuts.

Michael Gapen, head of US economics at Bank of America, indicated that the present environment “will take
many years to work itself out.” And that “there isn’t a magic fix. His message for first-time home buyers is one of
patience and frustration.”

Housing affordability is a major problem in America (and locally in the Somerset County area as well). Home
prices rose significantly during the 2020 to 2022 time period with the decrease in the Fed Fund rate and mortgage
rates. Then the Fed added to the problem when its fight with inflation sent mortgage rates surging to near, and
sometimes over, the 7 percent mark. This “one-two punch has made it a historically unaffordable time to buy a
home” according to Gapen.

“Its been a weird combination. Mortgage rates rose substantially but so did home prices. That typically does not
happen,” said Gapen. And supply is the leading factor in this. Market Watch readers know that the supply of homes
is a problem in this area. At the end of June, there was only a 1.52 month’s supply of homes in Bridgewater. That is
down from 1.96 month’s supply in May. A balanced market would call for between a 5 to 6 month’s supply. This
indicates that the supply of homes simply cannot keep up with demand. With eager buyers snapping up homes
quickly creating fierce competition, prices have had nowhere to go but up. Bank of America expects home prices
will climb nationally by 4.5 percent this year and then by another 5 percent in 2025, before perhaps dipping slightly
by .5 percent in 2026.

Lock-In Effect” Could Persist For Eight Years

One major problem, according to Gapen, hurting supply is the “lock-in effect.” Readers of Market Watch are familiar with this problem. A large majority of homeowners are effectively locked into their property after refinancing or getting a mortgage during the pandemic years when ultra-low rates were available. Research shows that as of the
beginning of 2024, 78.7 percent of mortgage holders had rates of 5 percent or less. And 59.4 percent had rates
under 4 percent. Buying now at current rates would require them to pay hundreds of dollars more per month on
interest alone. In addition, home prices have gone up since then.

The result is for many, it just doesn’t make sense to move. And because those homeowners are not moving, the
supply of existing homes on the market is limited. “Why would I sell unless I have to?” said Gapen. “Prices have
gone up and the mortgage rate is a lot higher. So, I’m content to stay where I am.”

Bank of America warns the lock-in effect could persist for another six to eight years, keeping a lid on supply during that time. That is because the mortgage rate of people who already own a home is historically low. And the rate
for new buyers is elevated. Bank of America doesn’t think that gap will shrink much for years to come.

What the lock-in effect means is that potential buyers who want to size-up to a larger home can’t, and the next
generation can’t even get their foot in the door for a starter property. Right now the move-up market does not exist,
according to the interview. Starter homes have doubled in value, and their owners would like to move up to a larger
residence. But the problem is they can’t take their mortgage rate with them. So, the housing market is stuck, for
now at least.

In theory, a flood of supply of new homes would help unstick the market. That could be new construction, However, Bank of America expects new housing starts, which is a measure of newly constructed homes, to remain flat for
the coming years. And for areas like Bridgewater and some surrounding areas, there is little land that is not developed for new construction of homes. For these towns, they are more dependent on the resale market.

Divide Between Have And Have-Nots

According to the interview, the forecast for a “stuck” market cuts both ways. The spike in home prices has padded the net worth of existing homeowners, and given them additional financial flexibility and security. But there are
many who are on the outside looking in. They’d like to buy but can’t afford to at these prices and mortgage rates.
The longer they are prevented from buying, the more time they miss out on wealth creation.

In a recent Gallup poll, just 21 percent of Americans said it is a good time to buy a house, tied for the worst reading in Gallup history. An overwhelming majority, 76 percent, said it is a bad time to buy.

Gapen, the Bank of America economist, said if the US economy achieves the soft landing that he expects, meaning that inflation cools without triggering a recession, there is a risk that home prices will rise even more than anticipated. That would be because the Fed would lower rates, which in turn lowers mortgage rate, which in turn allows
more buyers to enter the market and compete for homes, which drives up prices.

On the other hand, according to Gapen, if the durability of the recovery has been overestimated, and a recession
is on the way, home prices could tumble and affordability would ease. “But, obviously, you don’t want to go through
a recession to have better housing affordability,” he said.

Recognized For Being In The Top Ten For May 2024

I have the good fortune to say 2024 has been a good year. For May, 2024, I have been recognized as one of the
Top 10 agents in the Bedminster/Bridgewater Coldwell Banker office (actually number 4). And that is out of the 130-
plus agents associated with that sales office. I would like to thank my clients, both on the buy and sell side, who
trusted me to assist them in perhaps their most significant and life changing decision. It has been a pleasure working with you all, and I wish everyone the best in the future

May, 2024

The NAR Settlement – What Does It Mean For Buyers And Sellers
Earlier this year the National Association Of Realtors (NAR) announced that it had reached a preliminary settlement agreement related to a range of ongoing litigation pertaining to broker/agent commissions for real estate
transactions. More recently, in late April, a federal judge gave a preliminary sign-off to the approval meaning that
changes offered will become likely. As of right now, these changes are expected to become effective mid-August.
Two Key Elements Of the Agreement
There are two key elements of the agreement that will effect both buyers and sellers.
The first is Buyer Agency/Representation Agreements. A signed Buyer Agency Agreement will be required
prior to an agent showing a property listed on a multiple listing service (MLS). Agreements would need to list a set
compensation amount or rate that the buyer’s agent will receive and indicate how that amount will be determined.
No longer will the seller be able to offer compensation vial the MLS for the buyer’s agent. Once agreed to in the
Buyer’s Agency Agreement, the agent would not be permitted to receive compensation from any source higher than
the amount indicated in the agreement. Buyers would be free to negotiate with agents for different levels of services.
The second concerns Compensation Data In MLS Listings. Once this agreement is in effect, property listings
in an MLS would be prohibited from making offers of compensation to agents/brokers, or disclosing agent/broker
compensation or total agent/broker compensation within the MLS listing. MLS platforms will have to remove any
agent/broker compensation fields from a listing and can not use another listing field to share an offer of compensation. Seller-approved offers of buyer compensation would be allowed on non-MLS listing, or other non-MLS marketing material, including those posted directly on an agent/brokerage website.
These changes do present some interesting questions. These are presented below with answers offered by independent industry followers.
Does The Agreement End The 5 To 6 Percent Commission?
No. The agreement does not directly change how much real estate agents earn in commission. And the NAR is
adamant that it “does not set commissions, and commissions were negotiable long before this settlement,” according to its website.
To list a home on the MLS, agents have had to include buyer commissions. Though it has been possible to advertise a commission of less than 2.5 to 3 percent for the buyer’s agent on the MLS, listing agents have often suggested that doing so may make a seller’s property less attractive to buyer agents versus those with higher commissions.

At the same time, potential buyers have had no incentive to negotiate commissions since sellers had been responsible for that cost. It is argued that buyers do pay for commissions since they are part of the home’s selling
price. But since commissions are not directly coming out of their pockets, buyers have long been indifferent of commissions, with some believing, and some being told, that buyer agent services are free.
Under the new rules, commissions for buyer agents cannot be listed on the MLS. Buyers will have to negotiate
their own compensation via the Buyer’s Agency/Representation Agreement before they work with an agent. However, there are ways for the sellers to still cover buyer agent’s commissions.
Does The NAR Settlement Ban Agents From Advertising Commissions?
No. Agents will still be allowed to discuss and advertise commissions. They simply will not be able to do so via
the MLS.
Compensation to the buyer’s agent could be posted on the websites of the agent, the brokerage, individual property websites, social media, and other advertising resources engaged by the agent. Sellers could still use the MLS
to advertise concessions for buyers, including help with closing costs, to offset the buyer’s commission cost. But the
Buyer’s Agency/Representative Agreement is still the vehicle on compensating the agent.
Will Buyers Have To Pay Their Agent’s Commission?
Buyers will have to negotiate commissions when they sign a contract. That does not mean that buyers will have
to pay the cost though. When the buyer makes an offer to the seller, the question of who pays the buyer’s agent
could become yet another point of negotiation.
A home buyer in a hot market may find it a tough sell in convincing a seller to pay their agent’s cost. But sellers
may agree to foot the bill if they would otherwise be forced to accept a lower price or less favorable terms. It is conceivable that the buyer agent commission may become a concession offered by the seller to attract more buyers,
and therefore a higher price for the home.
One wrinkle, however, is that commissions generally cannot be financed into a mortgage under Fannie Mae,
Freddie Mac, and Federal Housing Administration guidelines. Under current rules, a buyer seeking to finance closing costs would likely need to get a personal loan. That would increase their debt-to-income ratio, which could make
it harder to get approved for a mortgage. Some believe lending rules will change to allow buyers to include commissions in their mortgages.
What Would This Mean For First Time Home Buyers?
This agreement could be hard on first time home buyers. First time buyers often struggle to save cash for a down
payment. Now, paying for the services of an agent, provides another financial hurdle in affording a home, or seeking adequate representation. They may be the group that explores agent services alternatives such as paying per
viewing of a home, or a fixed fee service for drafting an offer, or walking them thru the deal. But this approach could
leave them vulnerable to potentially costly missteps during complex processes like negotiating inspection items,
securing optimal financing terms, or handling agreements.
Will The NAR Settlement Bring Down Home Prices?
Most experts generally believe that any resulting drop in home prices would be modest at best. Perhaps more on
a higher priced home since certain marketing costs are fixed, whether you are selling a $200,000 home or a $2
million home.
But the real driver of high housing prices is the lack of supply. In addition, high mortgage rates are driving many
home owners who locked in rates in 2020 and 2021 to stay put rather than sell and take out a new mortgage at a
significantly higher rate.
Another issue is that, presently, home prices have the buyer’s agent commission built into the list price. But what
happens once that 2.5 percent or 3 percent no longer automatically goes for the buyer’s agent’s commission. Does
the seller drop the price of the home, or keep the price as is. If it is not removed, and buyers end up paying this
commission, then they will effectively have been charged twice, with the seller receiving the main benefit. If the buyer and their agent cannot convince the seller to reduce the price accordingly, buyers could wind up paying even
more for the home.

March, 2024
The Bridgewater Spring Market Is Here
Along with March and the hope of warmer weather, comes the spring real estate market. Historically, this is the time of year when there is an uptick in both available homes, and buyers looking to grab their dream home. But as readers of “Market Watch” and “Homes Sold” have come to understand, available homes are hard to come by in Bridgewater, and those that do come on the market are quickly snatched up in a very competitive arena.
Going into March there was only a 1.28 month’s supply of homes in the Township, slightly up from .88 month’s supply at the end of January. And as readers of “Market Watch” know, it takes a five to six month supply of homes for the market to be balanced between sellers and buyers.
The reason for the short supply is really two-fold. First is the “rate lock” effect. As detailed in last months edition of “Market Watch”, over 78 percent of home owners with mortgages have mortgages with interest under five percent. Very little incentive to move and have a higher rate. The second is that the new supply of available homes cannot keep up with how quickly demand is taking available homes off the market.
Going into March, there were 73 homes on the market. Five were condos or town homes, the remaining 68 were single family homes. Seems like a lot. However, 41 of those were under contract already; meaning an offer had been accepted, and the offer agreement finalized with the attorney review. They were now considered “under contract”, and unavailable for additional buyer showings.
For the majority of these, the next step is the wait for mortgage approval and the closing. So, over 56 percent of the homes on the market were basically off the market. In addition, five were in attorney review and would probably be under contract in a few days. So going into March, there were only 27 homes that were really available for potential buyers to see, and maybe make an offer.
Adding to buyer frustration was the limited availability of homes in preferred price ranges. There were only three homes priced under $400,000. And none were single family homes, all were condos or town homes. Three were three being offered between $400,000 and $499,999, and three more between $500,000 and $599,999. For buyers looking at a price point of between $600,000 and $699,999, the selection was also three. And for those looking in the $700,000 to $799,999 bracket, the choice was one. Three were available in the $900,000 to $999,999 range, and
11 were priced over $1 million. So, selection for buyers was slim.
The other factor is how quickly a home is gobbled up once it goes on the market. Of the 41 homes that were under contract going into March, 56 percent were under contract in 15 days or less. And 73 percent in under 25 days. That means, the home was listed, shown to potential buyers, received offers, decided upon an offer, and concluded the normal three day attorney review period. That is how fast homes are moving in the Township.
This spring market in Bridgewater should be great for home sellers as competition for available homes continues,
but frustrating for buyers looking for their ideal home.

January, 2024

2023 Bridgewater Real Estate Review

    There were 394 homes sold in Bridgewater during 2023, down 21.4 percent from 501 in 2022. The large majority, 272 or 69.1 percent were single family units. The remaining 122, or 30.9 percent were condos or town homes. Homes sold last year represented approximately 1.7 percent of the total households in the Township.

53.3 percent of the homes sold (210) last year, sold during the July to December time period. The remaining 46.7 percent (184) sold during the first half of the year. During the first half of 2023, 45.1 percent (55) of all town homes were sold, compared to 47.4 (129) percent of single family homes. From July through December, 52.6 percent (143) of all single family homes were sold, while 54.9 percent (67) of town homes sold during the same time frame.

For the year 2023, the average selling price for a home (condo, town home, single family) was $652,221. That is an increase of approximately 10.7 percent from the 2022 figure of $589,299. Similarly, the median selling price for 2023 jumped 11.8 percent, going from $550,000 in 2022 to $615,000 this past year. During just December 2023, the average selling price for a home was $663,896 and the median price was $672,500. The average price was a 14.1 percent increase over the 2022 December price of $581,821, while the median price jumped 20.7 percent over the prior December median price of $557,000.

Yearly price gains came in all room sized homes. For homes with five plus bedrooms, the average price for the year jumped 9.3 percent, going from $915,629 in 2022 to $1,001,121 for 2023. The median price showed a much smaller increase, increasing only 1.3 percent from $881,000 in 2022 to $892,500 in 2023. During only December 2023, the average and median price for a five plus bedroom home was the same at $862,000. That is a significant increase from the December 2022 average and median price of $788,250 (9.4 percent) and $725,500 (18.9 percent).

     Homes with four bedrooms also showed yearly gains. The average selling price for a four bedroom home during 2023 was $761,393, an increase of 8.6 percent from the average 2022 price of $700,579. The median price jumped 7.6 percent, going from $697,050 during 2022 to $750.000 during 2023. During December 2023, a four bedroom home had an average selling price of $864,667 and a mean selling price of $838,000. That is a 29.4 percent increase from the December 2022 average selling price of $668.100 and a 29.9 percent increase in the median selling price of $645,000.

    Three bedroom homes continued the trend with an average selling price of $557,974 during 2023, a 12.2 percent increase from the 2022 average selling price of $497,522, while the median price increased 10.6 percent, going from $500,000 during 2022 to $553,000 this past year. In the month of December 2023, the average selling price was $630,500, compared to $525,806 the December prior, a 19.9 percent increase. The median price in December increased 21.8 percent, from $542,500 in 2022 to $661,000 in 2023.

For two bedroom homes (mostly condos and town homes) the average selling price in 2023 was $402,069, an increase of 15.5 percent over the 2022 figure of $348,044. The median selling price showed a 11.6 percent rise, going from $345,000 during 2022 to $385,000 during 2023. At the end of 2023, the average price for a two bedroom home in Bridgewater was $433,944 increasing 31.2 percent from $330,833 in December 2022. The median price also increased. The December 2023 median price was $410,000, increasing 32.2 percent from the 2022 price was $310,000.

The time homes stayed on market, or days on market (DOM), increased slightly from 2022 to 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 2022, the average days on market was 27. This average increased to 29 during 2023. This compares to 2020 when DOM was 47 days. Days on market for five plus bedroom homes increased from 41 in 2022 to 45 in 2023. Four bedroom homes stayed the same at 28 days. Days on market for three bedroom homes decreased from 25 in 2022 to 23, while two bedroom homes saw its time on market jump from 21 days in 2022 up to 26 days. During December of 2023, DOM for all homes stood at 25, a slight decrease from the 2022 DOM of 26.

Sale price to list price (SP/LP) remained the same between 2023 and 2022 at 103 percent. Sale price to original list price (SP/OLP) showed gains between 2022 and 2023. Homes sold at 102 percent of old list price (SP/OLP) during 2023, compared to 98 percent during 2022. This compares to 99 percent during 2020. Most bedroom groups saw an increase in SP/LP, with only two bedroom homes showing a decline at 103 percent in 2023 versus 104 percent in 2022. Four bedroom homes stayed the same at 103 percent for both 2023 and 2022. Three bedroom homes jumped from 103 percent in 2022 to 105 percent in 2023, while five plus bedroom homes increased from 101 percent in 2022 to 102 percent in 2023.

Two and four bedroom homes showed a decrease in SP/OLP. Both segments went from 103 percent in 2022 to 102 percent in 2023. Three bedroom homes increased from 102 percent in 2022, to 104 percent in 2023, while five bedroom plus homes jumped from 83 percent in 2022 to 101 percent in 2023.

During the last month of 2022 and 2023, SP/LP and SP/OLP showed a gain. SP/LP was 101 percent in 2022 increasing to 104 percent in December 2023. SP/OLP saw a similar increase jumping from 100 percent to 102 percent. Three and four bedroom homes sold at the highest SP/LP ratio at 106 and 104 percent respectively. Two bedroom homes sold at 103 percent for SP/LP while five bedroom homes sold at 99 percent. For SP/OLP, two bedroom homes sold at 102 percent, three bedrooms at 105 percent, and four and five bedrooms at 102 percent and 99 percent respectively.

At the end of 2023, the supply of available homes was 1.14 month’s supply. This compares to .91 month’s supply at the end of 2022, .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 50 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 the supply of homes matches the demand for homes, has a five to six month’s worth of available homes. Right now we are far from balancing that equation.

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.