Mounting inflation & economic recession seen hurting prices in 2023
By The Tamima Team
Overall New Jersey home prices will continue rising through 2022, but are expected to fall in 2023 as inflation and/or a possible recession take the bloom off the housing market.
That’s according to NJ real estate guru Jeffrey Otteau, president of The Otteau Group, whom we heard speak last week.
After climbing 12 pct in 2020, NJ home prices could rise as much as 15 pct this year before falling back to “a more normal pace” of 5 pct next year, he said.
Many of the near-term positive factors buoying home prices are expected to continue.
These include historically low interest rates, strong demand from Millennials switching from renting to buying, an uptick in sales of vacation homes and second homes, and continued economic recovery as the Covid pandemic gets under control.
2022, however, will see a return to more normal pace of growth, thanks in part to fewer people moving from New York, increased housing inventories as Covid concerns wane, as well as mounting buyer fatigue and wariness over overpaying.
“Home prices have gotten really expensive, so high, it’s causing some pushback from home buyers,” Otteau said. “What is going to happen to home from here is going to look more normal.”
Near term, supply is still being overwhelmed by demand, with towns like Glen Ridge and Maplewood having only 1.8 and 1.9 months of supply respectively. Otteau predicts Glen Ridge property prices will gain 15 pct this year, while Maplewood will rise 16 pct.
Looking to 2023, Otteau sees a risk of economic recession and slower growth, which could hurt home sales.
“Recessions usually happen every 10 years and we’re overdue for one.”
In addition, higher interest rates resulting from inflationary pressures could prompt mortgage lenders to raise interest rates. Otteau notes that every 100 basis point (1 percent) increase in mortgage interest rates erodes home buyer purchasing power by 9 percent.
Prices of “luxury” homes priced $1 million and higher are expected to rise fastest on the back of strong demand for second homes, larger homes with large backyards, high-tech touchless features and properties with more outdoor amenities.
“The housing market is going to stay strong for the next couple of years,” he said. “This year is good time to buy home because there is more upside room and interest rates are still low.”
Want to know the outlook for your town in New Jersey? Thinking of buying or selling a home? Give me a call or email me and let’s talk!