The Northern New Jersey/New York suburbs region recorded 1,252 observed closings for 3Q14, a 10 percent increase from 2Q14. Monmouth, Middlesex, Ocean, and Orange counties had the largest numbers of closings for the region. These four mentioned counties closed more than 100 units in the Northern New Jersey/NY suburbs market for the third quarter, accounting for over 50 percent of the suburbs region observed closings.
“New-home construction for starts and closings for the third quarter has slowed down on an annualized basis,” said Quita Syhapanya, regional director of Metrostudy’s Northeast region. “The region recorded 1,138 new home starts in 3Q14, down 10 percent from 2Q14. Year-over-year comparison from 3Q13 versus 3Q14 saw a significant drop off in new-home starts activity by 32 percent. Breaking it down by product type shows that detached closings increased 10 percent to 562 from 508 the prior quarter, an increase of 1 percent over 3Q13. Starts increased by 2 percent to 581 units in comparison to the 566 closed in 2Q14, but saw a decrease of 3 percent compared to 3Q13. Attached homes saw a decrease in starts to 557 units from the 708 in 2Q14 which is a 21 percent decrease and a 48 percent decrease compared to this time last year. Closings saw a 9 percent increase to 686 from the 629 from the prior quarter, but saw a significant drop off by 35 percent in comparison to 3Q13.”
Total housing inventory is at 8,493 units, a 1 percent decrease from 2Q14. It is a slight uptick—2 percent—from the second quarter of 2013 looking at the data at this time last year. Units that are under construction stand at 3,878 and show a 2.9 percent decrease from the prior quarter. Year-over-year, looking at the third quarter, there's an 18 percent positive swing from this time last year when there were 3,267 units under construction. Finished vacant inventory increased to 4,320 from the 4,289 vacant standing units in 2Q14. Total inventory months of supply for the third quarter is at 21.6 months, which increased from 20.3 months from the second quarter.
The median closing price for a new home closed in the Northern New Jersey/New York suburbs for the third quarter was $419,400, up 1 percent from 2Q14 and 3 percent since 3Q13. The median closing price for a single-family home for 3Q14 was $482,600, which is a 5 percent increase year-over-year and a 1 percent increase from 2Q14. Pricing for new-home construction has slowed down for 2014 and is expected to continue with moderate increases.
For 3Q14 there are 8,954 vacant developed lots (VDL) in the Northern New Jersey/New York suburbs market, a 2 percent decrease from 2Q14. From the third quarter of this year versus the third quarter of last year there has been a 7 percent decrease in developed lots. This region has 22 months of supply of VDL remaining. With an annualized starts rate of 4,762, it would take 22.6 months to go through the remaining lots at this pace. This is a two-month increase from the months of supply last quarter when there were 20.8 months. A healthy market supply level for equilibrium would be 24 to 30 months. The Northern New Jersey/New York suburban market remains under supplied when it comes to finished lots.
There were 891 lots delivered into the market. This is a 27 percent decrease in lot deliveries from the 1,226 that was delivered in 2Q14. Most of the lot deliveries in the second quarter were due to the catch up in demand in the market from 1Q14 and some from 4Q13. Year-over-year the lot deliveries is actually up by 8 percent from the 824 delivered in 3Q13.
The rental market in Northern New Jersey is on fire right now and much of the development is occurring along the Gold Coast in the multifamily product. There are some who are looking at this product type in this market as being ripe for a bust. With the rental market being as strong as it is, developers seem to still be very bullish on multifamily even with warnings of some trouble in the near future. There is a strong preference for multifamily development, but there are signs that for-sale new-home construction is still on the mend and moving in the right direction.
Currently there are 71,977 lots sitting in the pipeline in various stages of the entitlement process in 3Q14. That is a decrease from the 72,877 lots in the futures pipeline for 2Q14. The pipeline is getting replenished and has actually increased 15 percent year-over-year.
Overall the pace of new-home construction in the Central/Northern New Jersey and New York suburbs market has slowed down. This is due to many factors including the significant increase in 2Q14 spurred on by developers and builders playing catch up because of stalled construction during the first quarter going back to the end of the fourth quarter of 2013. On a rolling four quarters there were 4,762 new homes started ending 3Q14. To end the second quarter the pace was at 5,311 new-home starts. It was a 10 percent decrease in pace annualized. The same can be said in the annualized closings number where there was a 7 percent decrease from the 5,084 ending 2Q14 to the 4,713 ending 3Q14.
“Development of the multifamily product in the Northern New Jersey market in particular has been the leading driver in the market,” said Syhapanya. “Although this is not news to anyone there may be a point at which paying skyrocketing rents just doesn’t make sense. You have a variety of funds that are looking to add to their portfolio who no longer see any attractive play in the rental market. They are actually looking to put on the developer hat and will look to complete a building from beginning to end because of the high prices demanded for rental properties.”
The rental market being an attractive alternative for people looking for a place outside of Manhattan in the Northern New Jersey market was once a cost-saving alternative. With rents rising as fast as they are this could be the key ingredient in getting home buying back in play in particular new-home construction, which, according to the numbers, is sluggish at best to end 3Q14.
If you exclude condo product, new-home construction numbers still show some positive headwinds. Closings are up by 15 percent quarter-to-quarter and starts are up 5 percent. Year-over-year both numbers decreased 7 percent and 1 percent, respectively. Overall there are some signs that point north, but there are other indicators that point in the other direction. However, if the job market continues to improve, so will housing.