There are many reasons why New Jersey is lacking quality inventory of homes. In this article we will outline a number of causes that are having a negative impact in the market.
First, with historically low interest rates, many current New Jersey homeowners have recently refinanced. Therefore, it is more practical for them to stay in their existing home, rather than consider a move to a new home and pay a higher rate on a new mortgage. This is just one factor resulting in less new inventory for potential homebuyers in New Jersey.
Another issue impacting inventory is that more than 60% of those looking to purchase a home must sell an existing one first. Mortgage lending standards are tighter for those who must carry two mortgages, making it increasingly difficult to qualify for a mortgage while owning two homes.
There are also influences from trends affecting new, younger buyers, that keep them from being able to move out on their own and purchase or rent a home. Unemployment rates, even among this younger population, including recent college graduates, delay their parents downsizing from their existing family home. These Baby Boomers who had planned to move to a smaller home, or another state, have been unable to do so. So these adult children often move back home after college, due to joblessness, divorce, or the need for their parent's assistance with childcare in the family home. Older empty nesters have been delaying retirement. Thus preventing them from selling their home and moving to a less expensive area of the country. The full retirement age to receive Social Security benefits has been raised, which is another reason people often feel the need to work longer, and also makes moving more challenging.
A very big issue that has been hurting the market for some time is that between 17-20% of mortgage debt is still in excess of market value, which prevents homeowners from selling. Though many potential buyers have both the income and assets to move, they are unable to sell their home, due to a mortgage debt in excess of its value. Each year, only 3-5% of these situations are eliminated through an increase in home value trends. According to Zillow, almost 40% of homeowners have less than 20% equity in their home. Luckily, forecasters claim that by 2017, most homes will be back to a normalized ratio of mortgage debt to value.
Additionally, there is the issue of new construction. According to Fox News, in August 2014, the building of single-family houses fell slightly, at 2.4 percent giving potential buyers fewer options when shopping for a home.
Homeowners are also spending more time enhancing their property value through home renovation, which typically leads to staying in the home to avoid trading up. While this could help a home sell faster because of the increased value, it likely is offset by the fact that they stay in home.
Finally, many homeowners are waiting for the economy to improve further. They hope to see their homes increase in value back to what they were nearly 10 years ago. The New Jersey real estate market includes many homes that are worth approximately 20% less than they were during the market's peak in 2005-2006. The good news: forecasters predict a steady increase in home values.
If you are a current New Jersey homeowner, be patient. Start a home search earlier than you might normally, and if possible, consider expanding your search area.
NJ Lenders Corp. is a leading New Jersey and New York Mortgage Company that is privately owned and licensed as a residential mortgage banker. The company originates first and second mortgage loans in NJ, NY, CT, PA, VA, MD, and FL. Many of our NY Mortgage and NJ Mortgage Loan Originators are recognized nationally as the best in their field.