2009 was the end of a decade and the beginning of a new chapter in real estate. Nearly two months have passed since we turned the calendar, but pausing to look back for a moment is a good first step toward understanding what may lie ahead …
At this time last year …. The market was virtually frozen. Fear drove buyers from the market following the September 2008 collapse of Lehman Brothers, and sellers wondered when – and at what price levels - they would be back. Buyers came alive beginning around April 2009 and the market began functioning again. The market grew progressively healthier each month throughout 2009, and by Q4 we were experiencing the first signs of positive momentum in years.
What do the numbers say? …The number of sales increased throughout the year, though not enough to compensate for the brutal first quarter. Overall, the number of transactions decreased by 12% in Westchester and 13% in Putnam compared to 2008. However, Westchester single family home sales increased by 82% in the second half of the year compared to the first half. Buyers were attracted by lower prices and encouraged by the stabilizing economic environment. For the year, median single family prices declined by 11% in Westchester County, and by 10% in both Putnam and Dutchess counties compared to 2008.
Who was the buyer? …. It was a banner year for first-time homebuyers and buyers under the $1 million price point who drove most of the sales activity in 2009. Most buzz-worthy were the value buyers who entered the market in second half. They saw lower prices as an opportunity to purchase a once-unaffordable home. Meanwhile, it was annus horribilis for the luxury market. Sales above $1 million accounted for just 17% of total Westchester home sales in 2009, down from the 22-25% levels that prevailed from 2004-2008. Sales of $2 million+ homes were down 32% vs 2008 and more than 55% vs. 2007.
Let’s now talk about the decade … What an historic time for real estate and Houlihan Lawrence’s 10-Year Market Comparison charts its ups and downs. Real estate was considered a sure thing in the early part of the decade, with prices rising by 8% per year from 2000 through 2007. In the 2+ years since then, the median home price in Westchester has declined by more than 15% to $580,000. In Putnam and Dutchess, median prices have declined by closer to 20% from peak levels to reach $335,000 and $265,000, respectively. For many homes purchased at the top of the market in 2007, prices have declined by 25-30%. The peaks and valleys are what made the 2000's a not-to-be-forgotten decade.
Where is the market now? … Following the big freeze of winter 2008-09, the market hit the reset button and emerged with lower prices across the board. The good news for homeowners is that the rate of price depreciation has slowed considerably in most markets. Overall, homes in our area are now trading at 2003-04 price levels. The market in most areas is stable with a balanced equilibrium of buyers and sellers, and greater affordability. Considering where we were at this time last year, the “new normal” looks pretty good.
Where is the market headed? … We are always on the lookout for signs of strength or weakness in the market. One way we track this is through the “Active/In Contract Ratio”, which compares the number of active listings to the number of homes under contract to sell. This ratio of supply to demand helps us assess where prices are headed. A ratio of 6 is considered in balance and points to a stable market (when the ratio is lower, prices tend to go up; when it is higher, prices face downward pressure). Since I last showed this information in July, things have improved considerably. At that time, the Active/In Contract ratio was at or below 6 for only the lowest price ranges in each market. Today, almost all but the highest price ranges (above $3 million) are at or near this level. This points to stable price levels and a balanced market over the next quarter or so. What’s your take on today's market?
What is the buzz in the real estate industry? …There is one word on everybody’s lips and that is "value." In fact, it is the only thing in real estate that sells houses today, which makes pricing the sellers' most important decision. Sellers who price their homes to represent value compared to the competition will most likely sell faster and at higher prices than those who employ "wishful pricing" and hope the market comes to them.
Are we better off in 2010 than we were in 2009? …Absolutely, no question about it. With consumer confidence growing and an improved outlook on Wall Street, 2010 is shaping up to be a much healthier real estate market than 2009. Through February, sales are more than double the anemic levels of 2009. However, while prices have begun to stabilize, the long-term outlook will remain unclear until the nascent economic recovery translates into more sustainable job growth.
I will be posting monthly market updates throughout 2010, so keep checking this blog for the latest information. Meanwhile, you can follow the latest market activity in your town by accessing our monthly Houlihan Lawrence Market Reports from our homepage: www.houlihanlawrence.com