Why JC/Hoboken Prices Won't Crash

Pavel Saikin
Nov 3, 2022
4 min read

Updated: May 8, 2024

There are many factors impacting the economy and it is impossible to truly predict the market, but a few major factors support the theory that prices in Jersey City and Hoboken will not crash. An exact definition of what constitutes a housing crash does not exist. In general, a sustained decline of over 10% would fit most people’s definitions. There are also cases where certain areas or property types crash while others do not. Many economic factors can be used to formulate a market prediction, but some of the most important are - Sale Price to Rent Price ratio, US home equity rate, and the necessity for housing based on population.

During the pandemic, while the vast majority of the US saw a massive increase in home prices, the NYC and surrounding markets saw home prices and rent price decrease due to a strong drop in demand. This drop was sustained for over a year, but by the Summer of 2021, a resurgence of the NYC area caused a large increase in rent prices, which carried over to Jersey City and Hoboken. During this meteoric rise in rent prices, sale prices did not see an equivalent increase.

To understand the extent of pricing disparity, we need to compare the Sale Price to Rent Price ratio in 2019 before the pandemic to 2022 after the pandemic. Below is a chart comparing the Jersey City Downtown and Hoboken median sale price and median rent price in 2019 and 2022.

From 2019 to 2022, there was a Sale Price to Rent Price ratio decrease of approximately 10% in JC Downtown and a decrease of approximately 7.4% in Hoboken. This decrease in ratio comes from the higher interest rates which are suppressing home values. Sale prices saw some growth, but nothing on par with the growth of rent prices. This imbalance is being propped up by the current economic conditions that cause uncertainty and make the cost of borrowing high. The short-term trajectory of interest rates is difficult to project beyond 1-2 months (and even then economists get it wrong). The long-term consensus is that mortgage rates will come back down once economic stability is achieved and money flows back into the bond market, which controls mortgage rates. When the mortgage rates eventually come down and economic concerns ease, the Sale Price to Rent Price ratio will need to come down, which will likely be in the form of home prices going up.

US home equity rates can be a very useful tool for determining the strength of the market, but they can be a deceiving figure at face value. The average equity per mortgage holder in the US is just under 300k. Due to the large rise in home prices over the last 2 years, a rise in home equity would have naturally occurred, which does indicate net strength but is not quite indicative of what buyers over the last 12-18 months would have experienced. A better metric would be to look at the median home price and compare it to the median down payment.

According to the St. Louis Fed, in 2017 and 2018, the Median Sales Price of Houses Sold in the United States was approximately $330,000 while the median down payment was approximately $14,200. This equates to a median down payment of 4.3%. In 2021, the Median Sales Price of Houses Sold in the United States was approximately $412,000 while the median down payment was approximately $24,700. This equates to a median down payment of 6%. Not only have homeowners increased equity through the growth of their property values, but new buyers are also increasing their down payments, creating more market stability throughout the US. In areas such as Jersey City and Hoboken, the median down payment is significantly higher due to higher personal incomes. With greater home equity comes a lower risk of forced liquidation, allowing homeowners to sustain ownership and keep inventory levels low.

The necessity for housing is always an important topic across the country but this necessity is even more impactful near NYC transportation. Jersey City and Hoboken are consistently in high demand due to their easy access into NYC via the Path and Ferry, which keeps demand levels sustained under most market conditions. The pandemic was an outlier market condition that caused the need for NYC transportation to sharply decline, but that demand has largely returned. There is a larger trend that is going to play a major role in the future trajectory of housing needs.

According to a study conducted by the National Bureau of Economic Research, millennials (born between 1982 and 2000) are more likely to live in urban areas and are less likely to marry by age 35. As of July 2021, the largest age demographic in the US is people aged 25-34. This age group comprises the majority of millennials. Thus, the largest age demographic in the US is more likely to live in urban areas, many of whom are still renting according to the US Census Bureau that shows the average age of homeownership has been consistently getting older. With a large population of people preferring to live in urban areas and the majority of them renting, buyer demand is geared to increase in cities over the next 5 years, especially in areas that have easy NYC transportation and walkable neighborhoods.

Nobody can truly predict the future of the market. All we can do is take a bigger picture of the overall situation and come up with conclusions on a long-term trend. The short term can have volatility due to a magnitude of factors, one of which is interest rates. The larger scale shows an overall picture of future first-time homebuyers favoring cities, a population that will shift from renting to buying once they see the right opportunity, and market stability from the financial strength of current and recent homebuyers.