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November 19, 2013

New Jersey’s Commercial Real Estate is Strengthening


National trends may not be terribly positive but The Star-Ledger reports New Jersey’s commercial real estate market is coming out of its slump. Quoting Kevin Thorpe the chief economist of Cassidy Turley, who noted that vacancies are down to just over 15 percent and “…North and Central Jersey markets rank among the top 10 nationally in demand for office space…” while the “National Association of Realtors (NAR) predicts vacancy rates nationwide will decline between 0.2 percent and 0.6 percent in the office, industrial, and retail markets from now until August 2014.”

What’s driving the positive trend? Jobs, which is odd given New Jersey’s unemployment rate remains stubbornly higher than the national average. However, the areas of job growth in the state are in “all of the state’s designated metropolitan areas are adding jobs at a rate that outpaces the rest of the country. The state created 49,000 net jobs last year and looks on pace to create 76,000 new jobs this year.”

Good news for Residential Market?

The state’s residential housing market showed strength as well, but with a twist: more demand than supply. In a similar article, The Star Ledger reported on a New Jersey Association of Realtors survey that found that “year-over-year, single-family home sales were up in New Jersey, but the number of houses on the market has dropped by double digits.” The average price of a house rose 7 percent to more than $400,000 and houses were on the market for less time. Concern about conditions for another housing bubble did not go unnoticed, but the Ledger quoted the real estate concern Trulia, that the New Jersey market remains undervalued, “’During last decade’s housing bubble, prices were as high as 39 percent overvalued,’ Trulia chief economist Jed Kolko said in the report. ‘We estimate that national home prices are (now) 5 percent undervalued,’ he said.”

Even the Banks are Cooperating

Mortgage loan rates, which have been at historic lows for the past few years but strengthening, spiked in August but dropped back to a four month low in October, according to Bankrate.com. The common 30-year fixed rate broke 4.7 percent in August but came back down to 4.27 percent in early October and has flattened out there. The volatility, according to Bankrate.com, was the Federal Reserve’s possible end to its quantitative easing policy this summer. The Fed chose to continue it policy due to perceived weakness in the economy.

But the site is quick to suggest the good times won’t last forever, “But don't get used to the trend. The rate on the most popular type of loan is expected to march to 5 percent next year and the volume of loans from homeowners refinancing their loans could drop by more than 50 percent, according to a forecast released by the Mortgage Bankers Association this week.” Most observers believe the Fed will slow down if not end its bond-buying policy in 2014 which will raise rates on many loans. Refinancing will be the first impacted and experts forecast, “The volume of refinance originations nationwide will drop to about $463 billion in 2014 from more than $1 trillion this year…” If refis decrease, there could be positives for new homebuyers as banks look to make up that lost revenue.

New Jersey’s real estate market is far from recovered but the commercial and residential trends are positive despite higher than average unemployment and possibly increased mortgage rates. The timing of big changes is hard to predict given the Fed has fooled the market more than once and economic trends remain unsteady. Still, the news better than it has been for a while.

 

By Smolin

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