All commodity based markets are cyclical. And right now residential real estate is experiencing a national housing shortage across the country (according 2016 NAR research). What does a housing shortage mean for you? It all depends on your point of view. Home owners who are selling in this market, are enjoying increased sale prices. But home buyers are completely frustrated by it.
Why is There a Housing Shortage?
The housing shortage is a national phenomenon happening in all major metropolitan areas throughout the United States and especially in South Orange and Maplewood. There are 2 key factors driving it. The first is the large numbers of first time home buyers in the market for a house. They are generally in their early 30’s and they are known as the Millenial Generation — the second largest segment of the population next to the Baby Boomer generation – their parents. When a large percent of the population moves through the life cycle around the same time, the products and services they need become in high demand. And as we know when demand is high and the supply is low, prices increase.
The other reason this is happening is that Millenials have put off buying a home for as long as possible. Due to the financial crisis in 2009 and the immense amount of college debt this generation has taken on, Millenials have put off getting the “American Dream as long as possible.” Many graduated during the “Great Recession” and had a real challenge finding a job that was secure and had real advancement opportunity. Add to this their college debt – which is like having a mortgage – and you have pent up demand.
The Housing Shortage in South Orange and Maplewood
The housing shortage’s effect on the real estate market in South Orange and Maplewood has driven up property values. Since 2009:
- Average sale price in South Orange +17%
- Average sale price in Maplewood +14%
Compare to Neighboring Towns:
- West Orange’s average prices are still below 2009
- Montclair’s average sale price is up 15%
- Livingston and Millburn/Short Hill prices are both up by 16%.
What the Housing Shortage Means for Home Buyers in South Orange and Maplewood
The low inventory levels are creating severe competition amongst home buyers searching for homes in the two communities. With their mortgage pre-approvals in hand along with their market stats, virtual tours, interactive floor plans and drone photography, buyers are poised and ready to write a contract the day they see the right house. The results are bidding wars on properties that are well maintained, well priced and in good locations. These wars drive up the sale prices organically.
Only one buyer can win in a bidding war and sometimes there can be five or six bidders (that’s how many there were on my recent listing on Thornden Street in South Orange). That means the remain 4-5 buyers are frustrated, but ready to move on to the next property that comes on the market.
Two More Factors Driving the Housing Shortage in South Orange and Maplewood
Beyond the demographics and the recession, there are two other factors having a profound impact on the housing market in South Orange and Maplewood. I only know these from my own informal focus groups – having worked with a plethora of Millenial aged home buyers looking to purchase a home in our community.
The first is the Millenial’s desire to live in a community that welcomes all sorts of diversity. This includes diversity in income, race, culture – you name it. For the most part the Millenials that come to the area looking for homes to buy are very progressive. Buyers range from same sex couples to mixed race couples, and mixed religious couples. Living in a community that welcomes their unique families is essential.
The other critical factor influencing the housing shortage in South Orange and Maplewood is #1 on the Millenial buyer’s wish list – “walkability.” They are willing to pay more for a smaller home if it means they have the ability to walk to town and the train. This is because they are living in urban areas now and are used to the convenience of walking to the store, to grab coffee and to commute. They essentially want more space than their apartments in Hoboken, Jersey City and Brooklyn, but they want the same culture and urban vitality.
Because there is a shortage in South Orange and Maplewood that has continued through the summer, we are expecting a robust market this fall. If you have been considering selling your home, please contact me at [email protected]