Whether you’re buying or selling a house, it’s good to use key, objective indicators to help you decide whether this is a good time for you or not such a good time. Those same indicators can help you look into the future and predict whether home prices will rise, fall or remain constant during the next year. January is the perfect time to look back on the prior year and see what happened to those indicators for our local real estate market.
I look at four (4) key indicators every month: the number of Rumson homes sold, the number of Rumson homes on the market, the real estate absorption rate and the median Rumson home sales price. An increase in the number of homes sold indicates higher demand, and higher demand normally results in upward pressure on home prices. This is great if you’re a seller, but not so great if you’re a buyer. An increase in the number of homes on the market has the opposite effect: more homes available means a greater supply, and an increased supply tends to put downward pressure on home prices; good for home buyers, and not so good for home sellers.
The real estate absorption rate includes both supply and demand. It’s a calculation of how long it would take to sell all of the homes currently on the market if homes continue to sell at the same rate as they have in the past (I use the past 12 month time period, but some people use the past 6 months). An absorption rate of between 5 and 7 months is a “normal market”, while greater than 7 months indicates greater supply than demand (a “buyer’s market”) and less than 5 months indicates greater demand than supply (a “seller’s market”). Any significant increase in the absorption rate is good for buyers, and any significant decrease is good for sellers.
Finally, the median sales price is the price at which 50% of the home sold at a higher price and 50% of the homes sold at a lower price. I prefer the median rather than the average price, because the mathematical average can be unfairly affected by a handful of sales at very high or very low prices.
Here are the Rumson numbers for the 4 key objective indicators as of December 31st. Good news for home buyers is underlined and in italics:
Rumson Single-Family Home Sales, January 1 – December 31
2014 2015 Comment
Sales 110 107 3% fewer Rumson homes sold.
Listings/Month* 75 77 3% more homes on market.
Months Supply* 8.2 8.9 Weaker demand vs. supply.
Median Sale $1,130,000 $1,200,000 6% higher median sales price.
*based on the previous 12 months of listings
As you can see, we ended the year with 3 of the 4 indicators showing good news for Rumson real estate buyers: fewer homes sold, more homes are on the market, and the real estate absorption rate is indicating a “buyer’s market” that’s even better than it was for buyers a year ago. The one key indicator that’s not good news for home buyers is the median home sales price, which is 6% higher than it was at the end of 2014.
How can we explain a higher median Rumson home price when 3 of the 4 indicators are predicting lower home prices in the near future? There are several ways to look at this apparent contradiction. One way is to rationalize that, for many reasons, Rumson is one of the most desirable Monmouth County towns to live in, and to conclude that the median home price would have been even higher than 6% had there been more demand or less supply. Another factor may be that 9 of the 107 Rumson homes sold in 2015 were new construction, and newly-constructed homes tend to sell at significantly higher than the median sales price. A third factor may be that more of the Rumson homes that sold in 2014 had been damaged in super storm Sandy, and those homes sold at distressed prices (very few such homes are still on the market). I’ll have to drill down into my database of individual home sales to try to clarify these possibilities.
If you’re thinking of buying real estate in Rumson (or Fair Haven, Little Silver, etc.) in the next few years I’d be glad to sit down with you and discuss these indicators with you in more detail. Although the Fed has indicated it’s intention to raise interest rates slowly in 2016, the consensus is that there won’t be any dramatic increases in mortgage rates in the next 12 months. That gives you time to visit the homes in your price range, save for a larger down payment, and improve your credit rating so you’ll be able to qualify for the lowest mortgage rates. Together let’s make this a VERY good year for you!