Driving Today’s Real Estate Market - An Analysis
1. Interest Rates
It seems that every month interest rates are dropping and hitting new record lows. And so it is with this Market Watch. The popular 30 year mortgage rate hit a another record low, according to a Freddie Mac survey released on October 15, providing more incentive to prospective buyers to purchase a home.
The average for a 30 year fixed rate mortgage dropped to 2.81 percent from 2.87 percent with an average of 0.6 points. (A point is a fee borrowers pay, usually 1 percent of the loan, to get a better rate.) The average rate, the lowest since Freddie Mac began conducting the survey in 1971, is well below the 3.69 percent level a year ago.
The 15 year fixed rate average fell to 2.35 percent from 2.37 percent, with an average of 0.5 points. Last year this rate was 3.15 percent.
Mortgage rates have been at historically low levels since March of this year when the Fed started purchasing mortgage back securities, bundled mortgages sold to investors. Its purpose was to provide more credit in the market and has resulted in a three-quarters percent drop since spring. The Fed has said it would keep this policy in place at least to 2023, almost guaranteeing that rates will remain low for the long term.
The one negative aspect of these low rates for buyers is that they are contributing to rising home prices.
2. Lack Of Inventory
Readers of Market Watch also know of this recurring theme, a lack of inventory of available homes in the marketplace. And this is a key contributor, along with low interest rates, in the rise in home prices. Buyers are bidding up homes that are priced correctly; with multiple offers being a common occurrence and winning bids often above asking price. In Bridgewater, for example, 55 percent of homes sold in September, did so with winning offers at or above 100 percent of the listing price.
At the end of September, Bridgewater had a 1.43 months supply of homes, down from 3.67 months a year earlier. Hillsborough had a very low 1.13 months supply at the end of this September, down from 3.16 months last year. And Branchburg dropped from 5.73 months supply last September to 3.15 this September.
This trend is best illustrated by taking a look at the amount of homes on the market this year compared to last year. In Bridgewater, there were 178 homes available during September 2019. But this number dropped 37 percent with only 113 homes available in September 2020. The same holds true for Branchburg. In September 2019 there were 87 homes for sale. But in September 2020 that number had dropped by 26 percent, with only 64 homes available. The largest change can be seen in Hillsborough, where the available supply of homes dropped by 56 percent. In September 2020 there were only 66 homes available compared to 149 homes the year prior.
One would conclude that less available homes would mean less homes sold. But that is not the case. In fact the exact opposite occurred as buyers frantically bought homes as soon as they went on the market, afraid of losing a chance for a new home. For example, in Bridgewater, during September 2020, 71 homes were sold compared to 46 homes the same time last year. Sold to available homes had a ratio of 62 percent (71/113) for 2020, compared to 26 percent in 2019. Same for Branchburg. In September 2019, 14 homes were sold for a ratio of 16 percent while in 2020 there were 22 sales for a ratio of 34 percent. And Hillsborough, with 43 homes sold and a ratio of 28 percent in September 2019, saw its ratio jump to 91 percent with 60 homes sold last month.
This rush to purchase by buyers pushed the amount of days a home stays available down. Days on market refers to the time a home is listed till it is out of attorney review and considered under contract and unavailable. In September of 2019, average days on market for homes in Bridgewater was 46 days. That has dropped to 37 days this year. Likewise in Hillsborough. In September 2019, the township had an average days on market of 61 days. This year during September, the average days on market dropped to 38 days, a decrease of 38 percent. Branchburg, at first glance is an outlier. During September 2019, days on market totaled 39 days. But in September 2020, that number shot up to 69 days. But further research found that three homes located at N. Branch River Road had days on market of 440, 415 and 192 days. Removing those brought the average days on market down 27 days, in line with the other two towns.
3. Price Increases For Homes
As discussed above, the lack of inventory and low interest rates have been driving forces in the increasing prices for homes. But an accurate price differential between years is a difficult number to measure. This is because the “mix” of housing, between condos, townhomes and single family homes changes each year which can influence the average annual price of sold homes. Two ways that is used to get a sense of annual price increases is by looking at list prices and sales prices.
The question is often raised what is a better measurement, average list prices or sales prices. A simple answer is sales prices. Why? List prices are what a seller thinks is a fair price for the home being sold. It is more of a wish and hope. Actual sale prices are what the market says is the price/value of a home in a specific market; a reality check. So, sales prices are a better measurement of the added value the market places on homes.
The next question is what is better, median sales price or average sales price. Median is viewed as better since it is determined by ranking the data from largest to smallest, and then identifying the middle so that there are an equal number of data values higher and lower. In the case of real estate, this means that the median is the price where half the homes sold were cheaper and half were more expensive than the median. Median therefore gives a better representation of a central tendency than average.
Taking a look at median sales prices from January 1, to September 30, Bridgewater had a 5.3 percent gain, going from $450,000 in 2019 to $474,250 in 2020. Similarly, Hillsborough saw a 8.3 percent jump going from $373,500 in 2019 to $404,560 in 2020. Branchburg, however, decreased in median pricing by 0.5 percent, going from $420,000 in 2019 to $418,000 in 2020; probably due to the large number of condos/townhomes sold.
Another way of gauging price increases is to examine sold price per square foot. In Bridgewater sold price per square foot increased only 1.3 percent from January 1 to September 30, going from $223 per square foot in 2019 to $226 in 2020. But if you look at only September data, that variable jumped 10.8 percent rising from $222 in 2019 to $246 this year. Price per square foot increased by 6.5 percent in Hillsborough, going from $201 in 2019 to $214 in 2020. For just the month of September, Hillsborough increased 10.9 percent jumping from $201 to $223. Branchburg also saw an increase in its year to date number, rising by 11.5 percent, going from $191 in 2019 to $213 this year. For September, Branchburg sold price per square foot increased by 15.4 percent, shooting from $195 last year to $225 in 2020.
Al Fross is a Coldwell Banker Realty Sales Associate based in the Bedminster/Bridgewater office. Al has lived in the Bradley Gardens section of Bridgewater since 1993 and has been an active volunteer in many recreational and community organizations including serving as the current and past Chairman of the Township’s Planning Board and past member of Bridgewater’s Board of Adjustment. His knowledge of the Bridgewater and surrounding areas makes him the perfect “partner” when selling your existing property or buying your new home.