The real estate market update for May 2017 reflects a a broad trend; a shortage of available inventory. Simply put, there are less homes for sale than buyers in the market. This very fact drives all of the trends in the residential real estate market in New Jersey since it is a commodity or supply & demand based market.
The amount of inventory is measured by a metric called “absorption.” Absorption is the number of months it would take for every house currently for sale, to sell, if nothing new were to come on the market. To calculate this, the total number of homes for sale is divided by the average number of sales per month. In general, any time time the absorption rates is above 6 months, it is a buyer’s market. Any time it falls below 6 months, it is a seller’s market.
in my analysis, you can see below that every top town from Livingston, Maplewood, Millburn, South Orange, Montclair, Summit and West Orange are in a seller’s market. This is making it very hard for buyers to compete for the available homes. With the exception of Livingston, Montclair and Millburn, this trend is also affecting the luxury end of the market as well.
As a result of the inventory shortage, the sale prices in most of the top New Jersey towns are experiencing price increases year over year.
So what is driving the housing shortage? The answer is the generational change in home ownership from Baby Boomers to Millenials. According to the US Census Bureau, “Millennials have surpassed Baby Boomers as the nation’s largest living generation.. Millennials, whom we define as those ages 18-34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51-69).”
Two primary factors account for the increasing size of the Millenial population. Baby Boomers are beginning to die off, and there is a rise in Millenial age immigrants. Everyone asks me, is this the top of the market? All I can say that from a purely demographic point of view, buyer demand should continue because the the trajectory of Millenials as a percent of the total population is expected to increase until the year 2050.
View a more detailed market update for your area here.