New Jersey's Housing Market is Dimming the Dream for Many

Homeowners won’t let go of their homes.

The Garden State's Housing Inventory Drought

New Jersey has long been known for its charming suburbs, bustling cities, and proximity to major metropolitan hubs like New York City and Philadelphia. However, in recent years, the state has been plagued by a shortage of available homes for sale. This lack of housing inventory is negatively impacting both home buyers and the overall real estate market in New Jersey.

We keep hearing from Realtors and the news about ‘low housing inventory’. But what is causing it? There are several key factors contributing to the dwindling supply of homes for sale across the state:

Limited New Construction

Unlike many other states, New Jersey is running out of wide open spaces to build large new housing developments. Much of the state is already densely populated, especially in North Jersey near New York City. Land restrictions and zoning laws also make it difficult to add high-density housing in many New Jersey municipalities. Between rising construction costs and regulatory hurdles, fewer developers are taking on new projects. That means fewer new homes coming to market each year.

Surging Demand

Even as new construction has slowed, New Jersey has seen a spike in buyer demand fueled by low mortgage rates and the pandemic. Many New Yorkers relocated to New Jersey during COVID-19 in search of more space. The rise in remote work also enabled more flexibility in location for home buyers. Investors and second home purchasers flooded the market. Yet supply could not keep up with the rapid increase in demand. There simply were not enough homes being listed to satisfy all the eager buyers.

Exodus of First-Time Homeowners

Skyrocketing home prices have severely constrained inventory for first-time home buyers in New Jersey. With the median home price now over $500,000 statewide, many young adults and new families are priced out. Instead of trading up for larger homes, these first-time buyers are staying put longer. That clogs up inventory at the lower tiers of the market. Current homeowners cannot find affordable options to move into, so they do not list their starter homes. This stagnation trickles upwards through the entire housing chain.

Labor and Materials Shortage

The pandemic severely disrupted global supply chains and caused labor shortages across many industries, including construction. The costs of vital building materials like lumber shot up. Construction companies have also struggled to find enough workers, which slows down project timelines. As a result, renovations, flips, and upgrades to existing homes have become more expensive and time-consuming. With fewer updated properties being cycled back onto the market, inventory shrinks.

Investor Purchases

Seeking stable assets in uncertain times, investors have been scooping up real estate in New Jersey's most desirable areas. They often pay in cash and above asking price, pushing out traditional home buyers. Many of these investment properties do not return to the for-sale market as the owners hold them for long-term rentals. This permanently reduces the pool of homes available for primary residents. Local regulations on short-term rentals may provide some relief.

Booming Airbnb Market

Alongside investors, the short-term rental market via Airbnb and other platforms has exploded in New Jersey. In popular vacation destinations like the Jersey Shore, more homes are being rented nightly or weekly to tourists during peak seasons. They are no longer housing primary residents year-round. While the Airbnb boom generates income for individual homeowners, it also contributes to the housing shortage plaguing the rest of the market.

Deck Stacking Against Sellers

In contrast to all the above factors, the current market conditions in New Jersey strongly favor sellers over buyers. Bidding wars and houses receiving multiple offers above asking within hours or days of listing are now common. Many potential sellers see minimal housing inventory and decide to delay listing their own home until more options appear. They do not want to jump into a bidding war for their own replacement home. For current homeowners thinking of selling, the hassles of finding their next home amid fierce competition outweigh listing their current home. So New Jersey remains stuck in an inventory drought.

In summary, New Jersey's dire lack of homes available for purchase stems from several converging trends - years of lagging construction, surging demand during COVID-19, loss of first-time buyers, supply chain woes, investor purchases, Airbnbs, and extreme bargaining power of buyers over sellers. This severe housing shortage is dashing dreams and frustrating buyers across the state. It will likely take years to resolve by increasing new housing development and incentivizing current homeowners to list. But for now, New Jersey home shoppers must brace for an uphill battle as the inventory drought shows no signs of turning around anytime soon.