Will JC/Hoboken Prices Drop

Pavel Saikin
May 15, 2023
3 min read

Updated: May 8, 2024

Home prices can drop at any time, without significant forewarning. Although, a price drop can sometimes be inconsequential. Such as a 4-6% drop caused by an above-average number of sellers choosing to list their homes in a short period of time. A quick rush of supply can cause prices to drop, but this is often coincidental and prices bounce back quite quickly. Similarly, a price spike can occur when too few homes are listed for a prolonged period of time.

Since a housing ‘market crash’ has clearly not occurred after the pandemic, widespread tech layoff, risk-asset crash, high interest rate environment, and multiple bank failures, a different approach might help decipher the market. The obvious metric for evaluating home values is the sale price. Real estate tends to be more complicated than simply observing sale price changes and ignoring all factors that play into those changes. Prices are a valuation mechanism based on supply and demand, but a comprehensive understanding of the market requires looking at relative values that factor in more economic conditions.

The Mortgage Rate Crash

Most new home purchases are mortgaged, which causes demand to be heavily influenced by changes of monthly payment, regardless of sale price.

Below is a chart outlining:

Average annual mortgage rate for a 30-yr fixed loan
Average annual US home sale price
Monthly mortgage based on a 20% down payment
Year-over-year change in monthly payment

The monthly carrying cost of an average home in the US declined for 2 years from 2018 to 2020, providing a total change of -14.4%. This drop was regained in 2021 and skyrocketed by the end of 2022.

Charting the same data for Jersey City Downtown and Hoboken:

The monthly carrying cost in Jersey City Downtown declined from 2018-2020 by -18.5%, and in Hoboken by -23%. When looking at the change in sale price for both areas, it appears that the prices barely dipped in 2020. Since the majority of residential purchases are mortgaged, this roughly 20% drop in ‘mortgaged value’ could be considered a type of market crash for Jersey City and Hoboken.

The carrying cost has increased significantly since 2020, but not by a lot relative to 2018. The difference in carrying cost from 2018 to 2022 increased in JC Downtown by 21.6% and in Hoboken 17.1%. More than average growth, but nothing farfetched for a 5-year period. Compared to the US average of 53.4%, the Jersey City and Hoboken markets actually lost relative value, enough that they may even be considered undervalued now that price-limiting factors, such as contagion and work-from-home, have mostly been removed.

Dampening By Inflation

Broader economic conditions have indirect effects on the relative value of a home. Inflation is often overlooked when considering real estate trends, but recent monetary conditions have led to larger impacts.

Throughout 2021-2022, US home values grew by 37.4%, Jersey City Downtown by 14.4%, and Hoboken by 16.6%. During those same years, inflation was a combined 12.7%. Goods and services do not all increase at the same rate of inflation, but the relative purchasing power of the dollar does generally decrease. Inflation hovered around 1.5%-2.0% from 2012-2020 and eventually became an irrelevant factor. When inflation reaches 3x-4x it’s average, the relative value dampening should be considered. This would indicate a normal price growth in Jersey City and Hoboken, but still shows excessive growth on the US average.

Reversion To The Trend

While home prices in many parts of the country will decline, not all areas will perform equally. The Jersey City and Hoboken markets have not shown outpaced changes in sale price or relative home values. A reversion towards long-term trends is likely to occur, which would lead to prices declining throughout many parts of the US. Mortgage rates are not likely to significantly decrease over the next few months, which will cause home prices to decline in many parts of the US, but Jersey City and Hoboken may sustain prices. Once mortgage rates begin to decline, the carrying cost will improve, which will soften the drop, or possibly reverse it.