As Interest Rates Rise, the NJ Real Estate Market’s New Twist

Interest rates have already been raised several times this year by the Federal Reserve but what’s expected to be another big hike on Wednesday will push the cost of getting a home mortgage in New Jersey even higher.

As a result, Jeff Otteau, the founder of the Otteau Group Real Estate Valuation and Consulting Co. in Matawan, and managing broker at Hudson Atlantic Realty, said the housing market in New Jersey continues to unravel.

He said over the past two years, home prices in the Garden State have increased about 35% while interest rates have increased 4.5%, making homeownership 75% more expensive — "and that’s just too much.”

The script has flipped

Otteau said more and more homes are sitting unsold on the market and sellers are no longer calling the shots.

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“That script has now flipped to the point that we are transitioning into a buyer’s market, where the buyer has more control over negotiations and is likely to offer less than asking price in order to secure a home," he said.

He said for the rest of this year into the first part of 2023 we can expect to see interest rates go even higher.

“We’ve gone from August of last year with a 2.7% 30-year fixed rate mortgage to more than 7% today, we’ll see very sluggish home sales,” he predicted.

Otteau said it’s likely as interest rates keep climbing home prices will actually begin to decline, but “we’re not expecting it to be a large drop in home prices, we are calling for about a 10% drop in the value of homes in New Jersey over the next couple of years.”

What will happen to rents?

He said in the short term, “the weakness in home sales will translate into strengthening for the apartment market because people need to live somewhere.”

He said many 30-something couples hoping to move out of their apartments and become homeowners have had to put those plans on hold because of high-interest rates.

"In the short term, it is beneficial to apartments because it keeps the demand high.”

He said while it has become more difficult to afford a home in the Garden State, the shifting playing field is actually giving those looking to buy a house some advantages.

“They will have more selection to choose from because there are more homes now on the market,” he said. “They’ll have more leverage in terms of negotiating the purchase price.”

Otteau said that “once this all settles out, which typically occurs pretty quickly, within 18 months, there’s an opportunity to refinance at a lower interest rate.”