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Real Issues in Real Estate

Below you’ll find my take on timely topics and issues of concern to anyone involved in real estate, either as a consumer or professional.  Scroll down to see my latest postings.  You can also review past articles by clicking the “Review Recent Posts From This Blog”  or by searching the category links on the right side of the page.

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Jim Stefanile

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james.stefanile@BHHSNJ.com

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Fair Housing’s Anniversary and Peril

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

 

This article on the OpEd page of The New York Times, Monday, May 14th is worth repeating. Click the illustration or headline to read it:

 

HUD doesn’t get many headlines.  Even this story was buried in the back pages.  It’s the 50th anniversary of the Fair Housing Act of 1968 but it’s seems it’s more under siege than celebrating a milestone.

This historic legislation, hard won and emanating from the cauldron of the Civil Rights Movement in the 60’s, is, in my view, inviolable.  It was drafted to correct an inequity and to restore the civil rights of a segment of Americans suffering from long standing housing and lending practices.  Critics have called it “social engineering”.  I believe it’s simply an attempt to put in to practice an ideal this country was, supposedly, founded upon.

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Spring 2018 Housing Forecast

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

At the end of March I attended the Spring Housing Workshop hosted by Jeffrey Otteau of the Otteau Group, Inc.  Mr. Otteau is generally recognized as one of the foremost authorities on New Jersey real estate.  His seminars are always packed with facts which support his conclusions.  Looking back on his prior predictions, he is invariably correct.

JefferyOtteau

Jeffrey Otteau

Mr. Otteau was as bullish about the New Jersey housing market as he has been since the real estate boom more than 10 years ago.  It’s been 10 years of recovery since the Great Recession and the US economy has enjoyed the 2nd longest growth period on record in the last 9 years.  Current annual economic growth is 2.9% and the national average of unemployment is 4.1%.  New Jersey’s unemployment rate is now 4.7% with an estimated 99,000 jobs being created in NJ in 2018.

We are a “book-end” state with our jobs market heavily dependent on the trends in New York City and Philadelphia and our employment figures will rise and fall in proportion to the trends there.

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The graph above shows the housing sales volume in 2017 of purchase contracts from 2005 to 2017.  That period of time is used since 2005 was the peak of the boom years (the decline started in 2006 and bottomed out with the recession).  The peak of the boom in 2005 was fueled by the sub prime mortgage market which eventually exploded.  You will notice that 2017 outstripped 2005 and that was done without a sub prime mortgage market.

The numbers of housing unit contracts in New Jersey is surging but the prices of homes have not completely recovered in New Jersey.

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This graph shows that New Jersey is 21 points below the national average in price recovery.  The US has recovered 112% of housing prices since the end of the recession while New Jersey has recovered only 91%.  The reasons for this are the same as the challenges New Jersey faces with high taxes, restrictive zoning and a lack of new residential construction.  Single family building permits were at a low of about 10,000 filings in 2017, compared to 22,000 filings in 2005.

That’s also a factor in the current lack of inventory.  We brought this on ourselves by electing officials who opposed “sprawl” and imposed more and more restrictions on housing starts through zoning laws.  Additionally, when there’s a lack of new construction sellers don’t move out of their older homes and move into the new, therefore reducing the number of older homes on the market.  Other factors include more seniors aging in place and younger buyers being “zoned” or priced out of the market.

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Notice on the above graph that NJ sales are rebounding and volume is increasing differently by price point.  The higher the price point the higher the volume increase and the lower the number of increased units sold from 2016 to 2017.  The over 2.5 million segment shows a hefty 11% unit increase but that only reflects an additional 34 units in 2017 over 2016.  Unsold inventory also increases as the price point increases.  Also, numbers of buyers per 100 sellers decreases as the prices increase.

Prices in New Jersey were up 4.6% on average, statewide in 2017.  In the first 2 months of 2018 the number of pending contracts was the highest its ever been.

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This chart shows the absorption rate by county.  This is the number of months it will take to sell what’s on the market.  Notice that Essex County is one of the fastest.  The number for western Essex, minus the more urban eastern Essex cities and townships, is even lower with many townships like Montclair, Glen Ridge and Maplewood under 2 months of supply.  If you’ve followed this blog in the past you will notice the difference from past Otteau absorption rate charts.  Now almost the entire state is “in the green” which are the lowest months of supply as opposed to past charts showing trends of longer months supply.  The southern counties are bulging with supply reflecting weaker markets since the collapse of Atlantic City and the aftermath of Superstorm Sandy.

Otteau forecasts that prices in NJ will rise by 13.7% from 2017 to 2023.  The median home price in the same period is forecast to rise from $300,000 statewide to $341,000.  The following graph shows the decrease in NJ buying power:

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By 2023 a NJ buyer will have, alarmingly, 22.5% less buying power than the current year because of mortgage interest rate increases, price increases and other economic factors.  The lesson to be learned here, according to Mr. Otteau, is DON’T WAIT!  Buyers need to act before their decreased buying power forces them into smaller, less desirable houses or ejects them out of the market altogether.  Sellers, also, should not sit on their hands if there is a desire to sell.  The longer a seller waits to get a home on the market, the less buyers there will be for that home based on the factors above.

These challenges are intertwined with all of the positive trends in the NJ housing market and some of the challenges are the result of the bull market and the improving economy.  As I mentioned earlier, Mr. Otteau was very positive on the housing outlook for the foreseeable future as the housing recovery picks up steam.  We have been in recovery for 10 long years, are now in a robust but normally expanding market in the midst of a strong economic recovery.  Opportunities and challenges exist side-by-side.

 

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Spring Market Update – Coming Soon

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

I recently attended the Spring Housing Update hosted by Jeffrey Otteau.  Next month I will have some of the detailed information he shared but there’s one idea that came over loud and clear:

Don’t Wait!

The spring market will be a robust one but inventory is still critically low, interest rates are on the rise which adds some added incentive for both buyers and sellers.

Buyers will lose buying power with each interest rate hike, so time is not on their side.

Sellers will have less buyers who can afford their asking price as buying power decreases so time is not on their side either.

Tax reform is not predicted to have a big effect on the housing market, according to Mr. Otteau, so that should not be a dis-incentive for buyers or sellers.

See you next month with all the details.

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Tax Reform and the Housing Market

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

JefferyOtteau

Jeffrey Otteau

I recently attended a seminar by Jeffrey Otteau who is generally acknowledged as a principal authority on New Jersey real estate.  His company, Otteau Group Inc., holds seasonal seminars on the state of the Jersey housing market.  Mr. Otteau decided to research the details of the recent tax reform law to see its effect on the housing market and this seminar was the result of his investigation using the research capabilities of his company.

Mr. Otteau’s aim was not political.  I don’t know his political opinions and he took great pains to say that the facts will speak for themselves without embellishments based on ideology.

Otteau comments that a failure by Republican proponents to provide clarity on how the plan would affect taxpayers created an information vacuum that was shamefully filled with hysteria and a distortion of the facts by Democratic opponents.  He started by discussing the facts of the reform:

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Copyright The Otteau Valuation Group 2018

As you can see above, the standard deduction has doubled, the mortgage interest deduction has a lower threshold and the state and local taxes (your property taxes and state income taxes) are deductible up to $10,000 combined.  Personal exemptions have been suspended until 2025, the child credit has been doubled and the estate tax exemption threshold has been doubled as well.  Tax rates for most incomes have been lowered.

Mr. Otteau went on to show the tax rates for various incomes of single taxpayers and married couples with and without children:

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Copyright The Otteau Valuation Group 2018

Right away a couple of issues stand out from these two charts.  If you owned a home before 12/15/17 your mortgage interest deduction is calculated by the old rules, not the new.  This has not been generally reported in the media.  Most of the people I’ve spoken to are not aware of this concession to existing homeowners.

Secondly, the tax table above shows that higher income taxpayers are paying more (or the same) in taxes, not less, and the taxpayers with lower incomes are, indeed, paying less.  That’s quite the opposite of what’s been said about this reform.

Let me say at this point that I am not making any political points either.  However, it was an eye opener to me to see the facts against the perceptions in the court of public opinion.

So, the question is: how much of a catastrophe is this new law?

Mr. Otteau made the point that the dream of home ownership is driven by more than taxes and tax deductions.  I’ve been saying this ever since I started selling homes in Essex County.  Buyers know what they’re buying into in this area.  Taxes are no bargain and they drive the quality of life which is the point of being here.

The seminar discussed the fact that whatever debits are increased by reform may be offset by larger deductions and lower tax rates.  Ongoing improvement in the economy will continue to drive the strength of home sales, especially in desirable housing markets.

The spring housing market may slow slightly until the facts of the reform are fully understood.  In the meantime, as a result of confusion, fear, political opportunism (on both sides) and faulty reporting, the inventory in the market is predicted to loosen up a bit but there is no wholesale slide in prices predicted on the horizon.  Time on the market may increase but Mr. Otteau says that once the facts are widely known that will re-invigorate the market and offset any dip in numbers of sales.

One of the basic facts that came out of this gathering was that tax reform may not hurt New Jersey as much as feared, but it may put us further away from where we need to be. That distance is a function of the state’s ongoing problems of out-migration (business and people), high state taxes, high levels of regulation, etc.  These are core challenges that New Jersey needs to address no matter the federal tax code.

People will continue to be attracted to the Essex County market, however, because of what it offers.  Buyers have always been attracted to the county’s strength and have always understood the costs that bring those benefits.

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To Pre-pay or Not Pre-pay?

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

With tax reform looming on January 1st, homeowners with property taxes above $10,000 have just a couple of days to decide whether to pre-pay their 2018 taxes so as to be able to claim the property tax deduction under the old tax code.

Many towns, including Montclair, have extended the tax collector’s hours into Saturday, December 30th to accommodate pre-payers.

The most important thing to do is to consult your tax or financial advisor first (whose phone is ringing off the hook).  Having done that, then read this very good article from The New York Times of December 28th.  Click to read the article:

The article points out the issue of paying for un-assessed taxes.  In Essex County the 4th quarter tax bill is estimated because the Essex County budget is not released until the following new year.  There is, therefore, a risk in paying that quarter’s taxes and claiming the deduction.  You may want to speak to your township’s tax collector and, again, talk to a financial advisor or tax attorney.

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A Guest Contributor

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by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

This month I will share this space with a guest contributor, Sarah Callahan. She writes a blog at http://blog.reviewhomewarranties.com where she shares tips for home buying.  She’s been kind enough to include my blog in her picks of real estate blogs:

https://blog.reviewhomewarranties.com/best-realtor-blogs/

Our company, Berkshire Hathaway Home Services NJ Properties, partners with HMS Home Warranty, one of the biggest in the industry. Sarah advocates for home warranty purchases by home buyers and I am also always available to discuss this opportunity.

Please enjoy this article by Sarah Callahan:

Top Tips for New Homeowners!

By Sarah Callahan

I appreciate the opportunity to contribute to Jim’s blog.  He shares all the ups and downs in the New Jersey real estate market. He doesn’t focus just on selling the home, but also educating his clients on different aspects and types of home ownership. From the first time home buyer to the seasoned home investor, he has worked with them all. Knowing that there is always more to learn about the market, Jim has shown his ability to weather the real estate storm and has won numerous awards for his efforts. I featured Jim most recently in my blog as a Top Real Estate Blog:

https://blog.reviewhomewarranties.com/best-realtor-blogs/

Buying your first home is a lot like life, it doesn’t come with a manual, although your realtor is a great guide to getting to know your first home and the whole home buying process! Your realtor is there for you through the whole process of searching and buying, but did you know they are a wealth of knowledge for you after you have bought your home?!

They have seen it all! They know all too well that a happy customer is a customer comes with little surprises when it comes to their new home purchase. If your realtor can help you see all the things that come with your new home purchase, they know this will help ensure you are a happy customer when all the T’s are crossed and you have keys in hand!

Surprises when it comes to home ownership are actually terrible! Who wants to learn something the hard way with the biggest purchase of your life?! Knowing what you are getting into is the best way to avoid those unpleasant surprises.

Here are some tips to help make sure your home runs like a well-oiled machine:

  • Do routine maintenance and upkeep on your homes appliances
  • Replace filters
  • Have annual or seasonal services performed
  • Repair issues on a timely manner
  • Set up reminders in your phone or on your calendar to perform regular maintenance
  • Have air vents cleared
  • Run ‘clean’ cycles on appliances that have them
  • Keep overgrown foliage away from your AC unit
  • Look to replace seals, exterior doors, windows and appliances
  • Replace old thermostats with updated ones with climate control timers

Many of these routine things can be done by anyone whether or not they are ‘handy’! Your home definitely needs some upkeep no matter what the age is of your home. It can be hard to budget for repairs and maintenance when you have never owned a home before. For myself I found that the best way to budget for the unexpected expenses involved in home ownership can be managed by having a home warranty. A home warranty is coverage on items in your home like: fridge, freezer, microwave, stove, oven, dishwasher, furnace, washer and dryer. Many of these appliances have a life cycle that you are buying into without knowing where they are in their life cycle. This coverage is a great way to help budget for unexpected expenses when it comes to repair of these home systems and appliances.

If you aren’t familiar with the concept of a home warranty, your realtor will be happy to tell you about the service and whether or not it may be a good choice for you and your current situation. You can learn more about my home ownership experiences and mishaps by following my blog at:

http://blog.reviewhomewarranties.com.

 

 

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