Housing Affordability Is an Issue for Some Buyers in New Jersey, Nationwide

Summary: The two biggest issues in housing markets across the country right now are a lack of affordability and a shortage of inventory. But once you get beyond the high-priced NYC metro area, a lot of New Jersey housing markets are doing okay in those areas. 

Rising home values and mortgage rates have made housing more expensive in New Jersey and across much of the nation. For many would-be home buyers, a lack of housing affordability creates obstacles to homeownership. This is true for many major cities across the country right now, and we are seeing it within some New Jersey real estate markets as well.

Housing affordability tends to be more of a problem in higher-price markets that also happen to be major population centers. New Jersey cities that fall within the NYC metro area fall into that category. Similar conditions are occurring out west, particularly in places like Seattle and San Francisco.

Mortgage Rates and Home Prices Have Risen in 2018

Nationwide, the monthly mortgage payment for a median-priced home is now roughly $130 higher (per month) than it was at the start of 2018. Rising mortgage rates have something to do with that. During the first week of January 2018, the average rate for a 30-year fixed mortgage loan was 3.95% according to Freddie Mac. As of mid-September, that average had risen to 4.60%.

In New Jersey, home buyers are feeling affordability pressures from rising home values as well. According to Zillow, the median home value for the state of New Jersey climbed to $318,800 in September 2018. That was about 8% higher than the same month a year earlier. The company’s economists predicted that prices within the state would continue to rise throughout 2018 and into 2019 (at least in most cities).

Housing Conditions Okay in Much of New Jersey

Once you get away from the comparatively pricey NYC metro area, New Jersey’s housing markets become much more affordable. And for the most part, local NJ real estate markets have a decent level of inventory. Things here aren’t nearly as “tight” as they are out west, or in other East Coast metros.

According to an August 2018 article from the City and State news website, residential construction in Northern New Jersey is outpacing construction in New York City:

“The [housing shortage] problem is particularly pronounced on New York’s side of the Hudson River, mostly because suburbs in New York State have added significantly fewer homes than suburbs in New Jersey recently. According to the Bureau of Labor Statistics and U.S. Census Bureau, despite adding fewer jobs than the New York suburbs since 2010, Northern New Jersey has built almost twice as many homes.”

Housing affordability is a growing problem for much of the country right now, and it affects some residents of New Jersey as well. As James Egan, co-head of U.S. housing strategy at Morgan Stanley, recently put it: “If there’s a boogeyman in the housing market today, it’s affordability.”

However, with the exception of Newark and other NYC markets, housing conditions in NJ aren’t nearly as “extreme” as they are in other parts of the country. In much of the state, home buyers have a decent amount of inventory to choose from, even at the lower end of the price spectrum. And in these more moderately-priced markets, a “typical” household earning a median income could afford the payments on a median-price home.

A Trend Worth Watching

Still, home prices continue to rise, and they’re outpacing wage growth in nearly every city in America. And that’s the big story in 2018.

The U.S. economy is generating a lot of positive headlines right now  — unemployment is down, GDP growth is up, but those metrics don’t tell the full story. Housing affordability and access are crucial elements for overall economic health. And in many parts of the country, they are lacking.