The pandemic has had a big impact on the real estate landscape in New Jersey, upending the market as buyers eager to get out of the city look for houses with more space.
Demand strongly outpaced supply last spring, and homebuyers had to deal with bidding wars that went tens of thousands of dollars over the asking price. Or they lost a home that was snapped up by a faster or more qualified buyer.
As the spring real estate season nears, New Jersey is braced for more unusual trends for buyers and sellers.
“The spring 2021 market is expected to be very busy and active, and similar to 2020 in that buyer demand is still very high, inventory is very low and home loan interest rates are exceedingly low,” said Katie Severance, a Realtor with Brown Harris Stevens in Montclair.
Severance, who is also the author of “The Brilliant Home Buyer: 101 Tips for Buying a Home in the New Economy,” shared her tips and her forecast for the spring and summer, which towns are hot right now and what COVID will mean for the market in the months to come.
Q: We saw huge demand and little supply as people wanted to get out of cities or move to less crowded areas to have more space because of COVID. What will the spring look like? Has the trend changed through the winter?
KS: It appears that the spring market 2021 — February through June — will have at least the same level of demand as last year and possibly even higher demand. Buyers are still leaving the city. And there continues to be very little inventory on the market; especially right now due to both winter and COVID, and perhaps even due to the uncertainty that always comes with a change in presidential administrations. Add to that the fact that interest rates remain shockingly low. So right now, correctly priced homes on the market are selling very swiftly — and many of them in bidding wars. And that will continue for at least the next several months.
Q: With COVID, lots of people have purchased homes sight unseen, or just on video. What should people do in these situations?
KS: It is not recommended to buy any home sight unseen but if it must be done, walk through it virtually via FaceTime with your Realtor. Don’t rely on a pre-produced video. They are produced to show only the best parts of the home.
Or send a trusted friend or family member to see the house for you. And send a trusted friend, family member, or better yet, a contractor, on the inspection.
Get a copy of the Seller’s Disclosure form if the seller has filled one out. New Jersey is one of the states that does not require it, but many sellers fill one out anyway. This gives the buyer an idea of what parts of the home may have past or present problems or material defects.
Evaluate as many comparable homes or “comps” online with the help of a Realtor to try and establish value and the right amount to offer — without overpaying.
Q: Have you been seeing bidding wars or a lot of offers on homes like we saw in the late spring and summer last year?
KS: The first month of 2021 has already seen many bidding wars, some of them abnormally frothy. For example, recently there have been a couple of houses in Bloomfield that had 29 and 49 offers respectively. Most of these competitive situations occur around homes listed under $1 million, and particularly with entry-level homes.
The current luxury market is more finicky and has been since the fall of 2016. Offers on those homes depend heavily on whether or not the house is priced well. The luxury market is very price-sensitive. While some are selling, many of these higher-end homes are sitting on the market with no offers. With medium- or entry-level homes, there are so many buyers that the pricing process is not nearly as sensitive.
Q: If the supply/demand imbalance continues, how can buyers make their offers attractive and how is it different from “normal” times?
KS: In any type of competitive real estate market — COVID or otherwise — there are always two ways to improve your offer: through price or terms. Price is self-explanatory. But there are many terms in a purchase offer including:
- Closing when the seller wishes to close;
- Being pre-approved for a mortgage;
- Putting down a large deposit (20% is standard but more is better);
- Not having to sell another property in order to buy this one;
- Modifying the inspection contingency by offering an “inspection cap”;
- Modifying the appraisal contingency by offering an appraisal “floor”;
- Allowing the seller to stay in the house for a short term beyond closing or extending the closing period. Note that this may affect the buyer’s loan lock-in rate, causing it to expire.
Q: Should sellers wait until spring or summer if they have a flexible time horizon?
KS: A lot of sellers are waiting for the COVID curve to flatten and also for winter to be over to list their homes. This may be a mistake because a listing will really stand out on the Multiple Listing Service (MLS) right now and get a lot of attention from buyers due to low inventory. We are getting bidding wars right now, and come April and May, there will be much more competition among sellers when everyone who is thinking of selling will list their homes.
A seller will still do well enough in April and May because demand will still be there, but there will be lots more houses to compete with. So there is a very strong supply and demand argument for listing right now and getting a potentially better sale price.
Also, the buyers who are looking and making offers right now, despite COVID, are all business. If they are out and looking, they are focused and serious buyers.
Q: What are the hottest markets in New Jersey right now, and why? And will they continue to sizzle?
KS: Pretty much any town with a train line to New York City is going to be included among the hottest markets. These towns are known to be “the last ones into a market correction and first ones out of it.” Historically, this is because trains connect people to jobs.
But a newer reason is that home buyers have evolved in terms of seeking a lifestyle or a living experience. They want quality of life in their outdoor amenities and fast access to nearby metro hubs for dining, shopping and entertainment, as well as their commute. Most of them will not tolerate a commute that is more than 90 minutes door-to-door. That means a train ride under one hour, so towns with Midtown Direct service under one hour are the hottest of all.
Among the perennially popular communities with Midtown Direct train service under one hour are: Chatham, Summit, Millburn, Montclair, Glen Ridge, Bloomfield, South Orange, Maplewood, Princeton, Westfield/Cranford, Hoboken, Jersey City and Rutherford/Secaucus/Clifton.
Also, towns with walkable shopping villages are very popular. Good schools are always a plus, but alone, that’s not enough. They want the experience and the good commute and they are willing to pay for it. Second homes excluded from this.
These factors are unlikely to change much even though COVID has caused people to spread out even further from New York City. And having the freedom to work remotely from home.
But, that could be a temporary dynamic. People will return to commuting to New York City at some point, if not immediately for full-time at-office work, then certainly for shopping, dining and entertainment.
Towns where rural-meets-town or are “sparse suburban” are also popular. Hillsborough in Somerset County has lots of protected land and outdoor activities, yet still has shopping and dining, plus near-by Princeton and Bridgewater. Clinton in Hunterdon County has beautiful land and outdoor recreation — room to breathe yet access to major highways. Medford has a charming Main Street.
Washington Township in Gloucester County is one of the fastest growing communities in the state. Their motto is “Where preservation meets progress.” It’s also only 20 minutes to Philadelphia. Stratford in Camden County is half hour to Philadelphia and growing fast in popularity. Bridgewater in Somerset County has loads of retail and dining plus a central location in the state. Access to everything.
Jersey Shore towns are still getting even more popular. Stone Harbor in Cape May County has big, wide, beautiful beaches, protected ecosystems, restaurants, hotels and shopping. Ocean Grove in Monmouth County has a charming town center and arts. Manasquan and Belmar, also in Monmouth County, have loads of restaurants and shopping, with great beaches.
Communities with revitalized downtown districts surrounded by rural/sparse suburban areas like Somerville in Somerset County and Haddonfield in Camden, only 15 miles to Philadelphia, are also popular.
Lake homes are also hot, like Lake Mohawk/Sparta in Sussex County. There are several lake communities in Sparta but Lake Mohawk is most well-known and most charming and historic. Getting very hot.
Q: What about rental prices through COVID? We saw rents drop in New York City. Are there trends in New Jersey and where do you expect that to be in the spring/summer?
KS: Rents in New Jersey are sort of on an even keel. Many rentals are going quite quickly but there is definitely still inventory to choose from. New Jersey rentals are faring far better than New York City but I wouldn’t say it’s on fire.
The rental market would be even stronger in New Jersey if it weren’t such a favorable time to buy in terms of interest rates). Even with prices up, the lending climate makes buying very attractive and makes rentals less attractive. And in terms of COVID, people really want their own space. They don’t want communal living if they can avoid it.
Q: What about Jersey Shore rentals for the summer?
KS: Summer rentals at the Jersey Shore are booking up super fast. People have cabin fever and are making summer plans and getting excited to get out of the house, have fun, and for a hopeful return to normal — or near normal. I spoke with one New Jersey Shore-based landlord who owns multiple rentals in the Point Pleasant area who was 60% booked by Christmas Eve. I think by now he is probably 100% booked.
Q: With many shops closed and many businesses having people work at home, how has commercial real estate fared? What will happen to commercial leases and rent going forward?
KS: We will see commercial real estate suffer more in the urban areas than in the suburban areas. The suburban consumer is still utilizing local business to a greater degree than urban.
Urban commercial real estate businesses obviously rely on the millions of people coming into the city every day to work, dine, shop and for entertainment — and they are not coming.
So we can expect to see a greater increase in both vacancies and business failures in urban locales.
This will result in increased supply which will then result in incentive packages for tenants, such as free months of rent, rent deferrals and even rent abatement.
Commercial landlords in all locations with the best incentive packages will win in terms of finding and keeping tenants.
Q: Are there opportunities for investors?
KS: Oh yes, especially in commercial real estate. But there are also opportunities in residential real estate.
There are plenty of homes that need work or are full-blown fixer uppers. Buyers today are less willing than ever before to take on “work” — more than maybe an old bathroom. It’s not that they cannot afford it. They can. It’s that they are so busy. So many are dual income families with children. They simply don’t have the time or the interest to do work. That is why they are willing to pay a premium for upgraded move-in ready homes.
Therefore, any buyer who is willing to do work is going to get a deal. These buyers avoid paying the premium for someone else’s upgrade and therefore pay less for both the house and the work they choose to do. And they make those upgrades themselves to their precise specifications and taste.
Flipping is another opportunity but that takes a high level of knowledge and expertise, and it depends largely on the market continuing to go up while the renovations are being done. This is why flips are done fast — because a successful flipper only wants to sell the property in the same or better market in which he or she purchased it. If the market drops suddenly in the middle of a renovation, the results can be disastrous.
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Karin Price Mueller may be reached at [email protected].