The fifth time was the charm when it came to interest rate hikes.
Last week, Federal Reserve Chairman Jerome Powell raised interest rates by three-quarters of a percentage point – the fifth such hike this year – as policymakers battle inflation. Powell signaled that borrowing costs will continue to rise this year.
This has put North Jersey’s resilient real estate market into partial paralysis. Buyers are hesitant due to higher borrowing costs and sellers are hesitant to put their homes on the market, fearing they won’t realize the prices they seek. Even cash buyers are adopting a wait-and-see attitude – realizing they now have the upper hand, say North Jersey property professionals.
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The average mortgage interest rate — 6.7% September 27 for people with good credit – is a far cry from what it was two years ago during the pandemic, when borrowing costs were below 3%.
“People are waiting to see where the market goes,” said Hugo Meza, realtor at eXp Realty in Montclair. “Buyers and sellers are sitting on the sidelines.”
In Bergen County, home sales fell 20% in July from the same month last year. Passaic County sales fell 15.7% while Essex County saw sales drop 20%. Morris County sales are down 18% and Sussex County sales are down 9%, according to the latest statistics from NJ Realtors Association.
Warm propertiesThese towns of Bergen stayed warm as the market cools
Meza works with buyers and sellers primarily in Clifton in Essex County and Wayne in Passaic County. Buyers who qualified for a $500,000 loan six months ago must now downsize to $400,000. Prospective buyers rescind signed contracts, as New Jersey permits attorney review, to opt out of purchases without specific reasons.
But the market is still competitive in the mid-price range if the home is in good condition and it’s a multifamily unit, Meza said. His listing for a two-family home in Clifton recently received 12 offers exceeding the asking price of $509,000. Single-family homes in Wayne and Clifton priced below $450,000 are still selling quickly, Meza said.
An overall low inventory of available property has been exacerbated by interest rate hikes, said Megan Fox, a real estate agent with Compass Real Estate’s Ridgewood brokerage firm. People who locked in 3% rates don’t want to sell now, having to take out a mortgage at twice that interest rate, she said. The monthly payment on a $500,000 loan at 6.7% over 30 years is $3,226 while the monthly payment at 3% is $2,108.
So far, the Fed has raised rates five times this year: a quarter point in March, half a point in May and three quarters each in June, July and September. Two more Fed meetings are scheduled for November and December. In projections released last week, Fed policymakers hinted at another 1 to 1.25 points between them.
Activity is much slower this fall when it comes to real estate inquiries, said Fox, which specializes in the northern boroughs of Bergen County. But homes priced below $750,000 in areas such as Ho-Ho-Kus, Allendale and Ridgewood are still selling well, she said.
Prices are not appreciating as they have the two years of the pandemic, said Jeff Fellers, salesman at KL Sotheby’s International Realty in Mendham.
“But we’re not seeing a drop in prices,” the Morris County realtor said.
Timing is everything in real estate and Tom and Carolyn DeLaurentis feel lucky to have listed their Ho-Ho-Kus home in June ahead of the series of interest rate hikes. The three-bedroom Tudor-style Dutch home sold in one day for $100,000 above the asking price of $999,000.
“The time had come,” said Carolyn DeLaurentis.
The empty-nest couple are now living in their second home on Long Beach Island while considering their next move. They plan to buy a house in Europe, taking advantage of the strength of the dollar against the euro.
Mary Chao covers real estate and Asian communities in North Jersey. E-mail: [email protected].