How 2023 Will Impact JC/Hoboken Prices

Pavel Saikin
Jan 13, 2023
6 min read

Updated: May 8, 2024

With the onset of a new year comes the onset of new market predictions. Many people hold some form of opinion about the economy and the direction that it is headed, but very few will ultimately be right. The credibility of a market prediction relies on its justification. When considering the present economy, there are several trends in Jersey City and Hoboken that will play major roles in determining future home values. The trends that have the most impact on the Jersey City and Hoboken markets are demand fluctuations, projected supply, mortgage rates, and employment data.

Demand Will Not Fall

To better understand future demand, we have to consider the 2022 fluctuations. 2022 started the year off with strong demand, which significantly outpaced supply and led to a consistent bidding war environment. By late Spring, the demand weakened due to mortgage rates reaching elevated levels. As demand decreased in the 2nd half of 2022, many buyers still remained for several reasons - the need for a long-term home, more space, and to get away from rising rent prices. These are the key reasons that buyers are still in the market. Regardless of the interest rates or overall economy, people still need somewhere to live. When the economy is roaring, buyers adopt an investor mindset. When the economy is weaker, buyers trend towards practical living needs. Based on how interest rates change, that demand might increase or decrease, but given the current trajectory, it is not likely that demand would decrease much further, if at all. For that to occur, we would need to see a major negative catalyst, well beyond what we have experienced thus far. Below are the changes from 2021 to 2022 in JC Downtown and Hoboken on the number of homes listed, homes sold, and contracts signed.

Jersey City Downtown

Hoboken

A supply drop, as seen in the change from 2021 to 2022, will naturally cause fewer homes to sell and fewer contracts to be signed. An interesting interpretation is that the decrease in homes sold and contracts signed does not deviate too far from the number of homes listed. This shows that although demand fell in 2022, it did not fall excessively. Potential demand is rising. Renters in NYC are seeking cheaper rent prices across the river while Jersey City is expanding with new rental buildings. As the supply of rentals increases, the prices of these rentals continue to push higher. Work relocation and university dorming are picking up, which combined with the rise of demand from NYC, leads to a growing population. Whether this growing population chooses to buy now or wait until later, it is ultimately increasing the amount of potential demand. How much of that potential demand gets turned into actual demand will vary, but with more potential demand comes an increased probability of more realized demand.

Full Market Reports on SaikinTeam.com

Supply Will Remain Low

The supply in any given year is subject to people’s interest and willingness to sell, but the average turnover rate can be calculated and applied to make a prediction. The turnover rates in Jersey City and Hoboken tend to follow a similar bell curve, allowing a ballpark calculation for the number of new listings in the upcoming year. One factor to consider is how an irregular amount of transactions in a previous year could affect the following year. Such as with 2022 having fewer listings because of the high turnover in 2020 and 2021. Here are the numbers of homes listed in JC Downtown and Hoboken over the last 5 years:

Total New Listings: Jersey City Downtown

Total New Listings: Hoboken

The average number of homes listed in JC Downtown over the last 5 years is 1039. In 2022 it was 942 (9.3% less than the 5-yr average). The average number of homes listed in Hoboken over the last 5 years is 1238. In 2022 it was 1030 (16.8% less than the 5-yr average). There is an evident decrease of new listings in 2022 as compared to 2020 and 2021. So what does it mean for 2023? A reversion to the average would be the likely case if the economy improves, but the economy might not improve until the 2nd half of 2023. If mortgage rates remain elevated, some homeowners will wait for better market conditions, but others will sell for a multitude of reasons, such as work relocation or a need for more space. There is a high probability of seeing supply levels somewhere between the average, and the 2022 numbers. This will mean more supply than 2022, but nothing near what was experienced in 2020 or 2021. The supply might also start low in the first half of 2023 and increase towards Summer or Fall.

Mortgage Rates Will Not Change

Mortgage rates are practically impossible to predict, but Federal Reserve policies provide some insight. A very common misconception about the Fed rate is that it is tied directly to mortgage rates. All economic systems work in tandem with each other, but not all factors function in the same system. The mortgage rate is tied to the 10yr Treasury Yield, which is controlled by the bond market. Since the bond market is an open market, it is subject to how investors perceive the broader economy, as is the case with all securities. The goal of raising interest rates is to cool the economy when inflation gets too hot, but it is never intended to damage the economy. We are already seeing the Fed begin to slow their rate hikes since they see inflation gradually coming down. This does not mean that the Fed will stop increasing their rate or that it is going to come down right away, but it does show signs of stability. The Fed will likely enact several more rate hikes in 2023. They will also wait to see the effects of those hikes before bringing the rate back down. Inflation tends to be sticky, which means it comes down slowly. This will likely keep bond investors cautious while the dust settles, but there will still be demand for bonds since the yields are currently around their highest levels in over a decade. There is a high probability that mortgage rates will float around current levels for several months (give or take 0.5%). Since the economy is constantly changing, it is important to adjust with new data. If the current economic trajectory remains the same, then we could see mortgage rates stay at current levels until the end of 2023, which is when they could begin a gradual decline. Any domestic or global event could change the course of the Fed policy and market sentiment at any moment, but at the current trajectory, we are likely to see a slow first half of 2023 that turns into a reviving 2nd half as rates and inflation begin their real descent.

Conclusion: Prices Won't Drastically Change

Ultimately, there is too much population growth and not enough supply to justify home prices going down. There are also prevailing economic factors that will tame demand to keep prices from rising significantly. There may be more weakness in certain home categories, more than others, since the rental supply can keep that potential demand subdued. Even the weaker categories will inevitably rebound once the broader economy strengthens, likely at the end of 2023 or early 2024.

If a categorical recession occurs, nobody can predict what it will do. Historical similarities can be useful for creating a thesis, but each case in history occurred under significantly different market conditions. The 2008 crash was catalyzed by poor lending standards, which do not exist today. The 2001 crash was due to exuberant investing into hollow companies. Even though many tech companies today do not make profit, they are still real companies with real products. The higher borrowing rates do still pose a risk for more layoffs within companies that need cash to survive, but this is not a broader market concern for now. It is something worth monitoring. Although job losses can occur, the need to sell may not follow due to all-time-high home equity rates. The best way to navigate 2023 is to focus on practical living needs and make the financially comfortable housing decision. If you plan to live in an area for 5 or more years, it makes sense to buy because the equity gained over time is exponential since mortgages are amortized (more equity growth over time). And unlike rental prices, mortgage payments are mostly fixed.