Why JC/Hoboken Prices Are Rising

Pavel Saikin
Mar 9, 2023
4 min read

Updated: May 8, 2024

The dynamics of any market can vary due to a plethora of factors. Occasionally, certain market conditions can create unconventional environments for consumers. When mortgage rates are rising, demand is declining as a result of reduced affordability, which would lead to lower home prices. Then why are many homes throughout Jersey City and Hoboken getting into bidding wars?

There are several major factors influencing the Jersey City and Hoboken markets today, each factor varying in relative impact. Although the supply and demand dynamic is the ultimate answer, it’s much more important to understand the circumstances affecting this dynamic.

Demand is Piling Up

Imagine a hypothetical market with 120 new buyers throughout the year and 110 homes listed that same year. 110 of those buyers will get a home and 10 will not. The remaining 10 buyers will roll over to next year. Let’s say that affordability declines the following year, and now only 80 new buyers enter the market. Only 5 of the previous year’s 10 buyers stay in the market, so there are now 85 buyers. But, only 60 homes are listed because affordability restricts some owners from moving. With 85 buyers and only 60 homes, that leaves 25 buyers rolling over to the following year. These 25 buyers still want a home and are secure with the affordability conditions. Once the following year comes, an above average number of buyers will be added to the new demand.

This is effectively what’s occurring today. Many buyers from last year want to find a home and have budgeted for the current market, but they rarely see a good match. These buyers, combined with the new buyers entering the market, are causing competition for many homes. If supply were to increase at an equivalent pace, competition would be minimal, but supply is currently not keeping up with the backlog of demand.

How Much Supply is Needed?

The rising interest rates have already reduced buyer numbers. The prevailing demand is already aware of the affordability and they are mostly here to stay. It is impossible to truly quantify demand, which makes it equally impossible to quantify how many homes are needed to balance the market. One approach is to look at the month-over-month change in new listings relative to the change in average ‘Days on Market’. Specifically looking at the criteria garnering the most attention - Condos with 2 or more bedrooms, and 2 or more bathrooms.

Jersey City Downtown

Hoboken

The ratio helps to gauge the strength of demand relative to supply. The higher the ratio, the higher demand is relative to supply. The ratio figure is not as important as the trend because any given month(s) can have outlier data.

In both cities, we see the ratio increasing, indicating that either demand is growing or supply is shrinking. Since we can see the number of new listings staying relatively average or increasing, that means demand is growing. Or rather, piling up. To determine how much supply is needed, we would need to know how much new demand will enter the market. To know that, we have to predict future economic conditions. Nearly impossible, but it is important to look at one misunderstood metric, the jobs market.

The Jobs Market

A commonly misrepresented metric is the unemployment rate. On it’s own, it can be interpreted many ways, but when combined with the labor participation rate, a clearer picture is seen. To understand the jobs market, we have to understand the meaning of the unemployment rate and the labor participation rate.

Labor Force = People Employed + People Unemployed

Unemployment Rate = People Unemployed / Labor Force

Labor Participation Rate = Labor Force / Population

Unemployment Rate

Labor Participation Rate

The Unemployment Rate is very low, which means there are very few people unemployed relative to the labor force. Since the labor force is People Employed + People Unemployed, the overwhelming majority of the labor force is employed. We currently have a low Labor Participation Rate, meaning that the labor force is low relative to the population. A low labor force, composed of mostly people employed, designates a labor shortage. This is interesting because unlike the common fear of a jobs shortage, a labor shortage poses a different risk - More inflation. Companies need employees, but with few employees to choose from, companies need to increase wages or incentives. The cost of these increased wages is passed down to the consumer, leading to rising prices. As with all things, Real Estate would rise with inflation. Raising interest rates will help to reduce inflation, but a rise in unemployment is the true remedy. This would denote a looser labor market, which would reduce wage-based inflation.

We can never predict the future of the markets, but the more we understand the data, the easier it will be to make a major decision such as buying or selling a home.