I’ve been asked by my home seller and buyer about the rising sale prices of homes in New Jersey, especially towns located along the Midtown Direct train line (South Orange, Maplewood, Millburn, Short Hills, Summit, Chatham and Madison). Nervous home buyers especially want to know, are we on our way to creating another housing bubble?. I don’t claim to have a crystal ball, but I think if you compare the rising prices associated with this market contrasted to the outrageous prices that peaked in 2006, there are quite a few key differences.
In the previous housing bubble prices rose artificially. Lenders were underwriting mortgages with very little attention to detail. Buyers who had poor credit scores were given large loans with little to no down payments. They were basically taking a very high risk and in many instances it didn’t pay off.
Contrast that with the current rising market values. Sobered by the crash in 2007, new legislation was passed (Dodd-Frank) forcing lenders be more judicious in making loans. Additionally, many of the high risk instruments mortgage companies previously offered, were taken off the table (like no money down mortgages, and mortgages with low up front payments and then balloon payments required down the road). As a result, lenders carefully scrutinize applicants (maybe a little too much) to ensure the current home buyer has a good credit history and has a large enough down payment to make a good debt to equity ratio. In a general sense today’s buyers are high quality as opposed to the high risk buyers of the previous cycle.
On the whole, while the prices are rising, the home sale prices in the state of NJ are still 14% below the peak in 2006 (per KCM). Here is how it looks by town
Town 2006 List Price Sale Price 2014 List Price Sale Price % Diff.
South Orange $677,211 $666,512 $566,619 $561,515 -19%
Maplewood $551,228 $544,590 $515,960 $521,086 -4.5%
Millburn $1,322,000 $1,281,000 $1,348,000 $1,324,000 +3.3%
Summit $1,007,000 $1,018,000 $949,272 $933,915 -9%
Livingston $664,258 $648,001 $639,000 $628,452 -3.1%
*Source: Garden state Multiple Listing Service
All of these towns with the exception of South Orange are doing better than the state as a whole. Millburn’ (which includes Short Hills) housing prices actually exceed the peak in 2006. So yes, it is an upward trajectory, but this time prices are being driven up with sound market conditions and as a real organic need.