2 min read November 2022 — Bryan Hutchinson, CEO of Monmouth Ocean Regional REALTORS ® , talked with Invest: about the impact of rising inflation and interest rates on the purchasing capacity of buyers, chiefly first-time homeowners, and how his association works toward ensuring housing for marginalized people.
What are some of your key highlights over the course of last year?
We are real estate-driven so we provide services that contribute to the real estate environment by helping licensed real estate agents sell property. We do this by working with local municipalities as well as state and national level. Our main focus is on the east coast of the Jersey shore. In this domain, we find new construction within the affordable housing market on the lower end adjusting to rising inflation and interest rates. We are trying to find solutions to challenges to better serve our members.
How has the real estate market performed in the past year and how is this year different?
Interestingly, we have been in a place since the middle of the summer in which we still had a surplus of buyers. Some people viewed this surplus as a lack of inventory, but the reality is that our sales rates have stayed consistent. For instance, in Monmouth County alone in September, our real estate transactions amounted to $596 million. Five months prior, our sales value was at $585 million. Therefore, according to the numbers, the market has remained steady.
The only difference is a decrease in the overall number of buyers. People have less disposable income due to rising interest rates and growing inflation. These factors have also resulted in higher property costs. Thus, first-time home buyers are being pushed out of the market at a faster rate. For example, if a family’s budget was $1 million for a potential home, they now need to reassess costs. This budget of $1 million may now be reduced to $700,000 due to the difference in interest and the separation of taxes. It is important to note that taxes on properties have continuously risen even though inflation and interest are both going up.
How does Monmouth Ocean Regional REALTORS® plan to tackle rising inflation and interest rates?
Interest rates and inflation both influence the buying power of the consumer in a downward trend. Having said this, there is actually no dramatic drop in demand. The demand has fallen only marginally but we had a massive surplus of buyers. We look at the market from an economic standpoint and measure its equilibrium. Equilibrium in the housing market is three months of inventory, property selling at plus or minus 3% of the asking price and property being on the market for at least 90 days. According to our assessments, all three of these factors are still on the seller’s side.
Right now, our MLS has 1.2 months of inventory across both Monmouth and Ocean County. This inventory ratio has gone up since last year from about 0.3 months of inventory. The number of properties on the market have remained consistent as well as the number of transactions. Interest and inflation will have an impact, but the Jersey Shore is still a strong housing market and will remain so for a long time to come.
What is Monmouth Ocean Regional REALTORS ® doing to help educate buyers?
We have around 16,000 realtors and our focus is on educating them so that they can help their buyers navigate the market. Moreover, we are training the real estate agents on redefining and adjusting their sales strategies to better serve the buyers and we are working with local municipalities to curtail ordinances that are detrimental to home sales and home rentals.
Do you expect a slowdown in construction development due to supply chain issues?
I don’t think development will slow down in New Jersey since we have a high population in comparison to the number of existing properties on the market. The development will just take a turn towards remodeling and redevelopment as we encounter challenges related to land shortage and municipal ordinances over the next couple of years. The costs of renovation and challenges of meeting municipal codes are significantly lower when redeveloping an existing property that is 50-100 years old. Thus, this will make for a significant portion of our development market in New Jersey over the coming years. Development will not halt here as it is a ripe market.
There will however be a significant impact on the economy. Outside of New Jersey, in Texas, the economy has almost doubled over a three-year period. This means that a house’s property value went from $200,000 to $400,000 in three years. This massive economic shift pushed people out of the market, which in turn hurt economic development. Coming back to New Jersey, construction is still going at the same pace. We haven’t seen a falloff in new construction, but the cost of new construction has significantly increased due to the supply chain. In my opinion, the demand is still high for new construction due to the population density. Development is still underway, but the price is increasing at a faster rate than the normal economy would call for.
Have you seen a shift in attitude of potential homebuyers and sellers with regard to sustainability?
As the economy affects people’s purchasing power, people are inclined to buy a home with green elements that are energy efficient as these would reduce their monthly upkeep of utility bills. However, the tradeoff is that the initial cost of adding sustainable elements is high. So, the buyer understands that they will pay an increased amount on their mortgage to ensure lower costs on their energy bills in the long run. Obviously, it is good for the environment and it reduces the overall demand on energy since we already have significant challenges around energy policy both nationally and locally. The government has provided a lot of grants for sustainability issues and New Jersey is ahead on this. Massive investments are being made in the offshore wind industry and in solar panel production.
What is your outlook for the real estate market and Monmouth Ocean Regional REALTORS ® over the next two to three years?
Very positive. We are going to continue serving our members. The prices are going to continue increasing but not at a rapid rate. The numbers don’t indicate that there will be a reduction in the prices of homes. We will see that the housing market is going to stay strong, and as an association, we think our best days are ahead of us. Our value proposition to our members is that we are going to help them sell more, educate them, listen to them and legislate on their behalf. We think the strength of our footprint and brand will sustain and grow in this market.
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