Is the Sun Finally Peeking Through the Clouds?
After a long and wet late spring it seems we can finally look forward to fair weather in the days ahead.
Likewise, as we move into summer, we are also seeing a bit of improvement in our local real estate market.
After a very sluggish first quarter, housing is showing signs of stabilization. Data from the Westchester-Putnam and Mid-Hudson Multiple Listing Services reveal that a total of 1,913 single family homes sold throughout Westchester, Putnam, and Dutchess Counties in the first half of 2009. This represents a decline of about 30% in the number of homes sold and a decline of approximately 20% in average sales price vs. the first half of 2008. (For details by County and price range, please see the data tables below).
So why the optimism?
A look at quarterly results indicates that for the April-June period, the year-over-year decline in sales moderated significantly compared to the January-March period. For example, in Westchester County home sales were down about 29% in the second quarter of 2009 compared to 2008, a marked improvement over the decline of about 40% experienced in the first quarter. Moreover, homes currently under contract and scheduled to close in Q3 reflect what has been a healthy late spring selling season.
In the short term, we expect to see continued modest improvement in market liquidity (i.e., the number of homes selling), particularly for homes priced under $1 Million, the segment of the market that has shown the highest activity.
However, homes priced over $1 Million continue to face challenging market conditions. This can be illustrated in the tables below by the column labeled “Active/In contract Ratio.” We sometimes look at this ratio to project the future direction of home prices, as it is indicative of the relative balance between supply and demand. When this ratio is at or below 8, demand is sufficient to absorb the homes available for sale within about 4-6 months.
While supply and demand are in balance at the low end of the market, note how the supply-demand ratio increases dramatically with home price. In Westchester, for example, there are 21 homes priced at $3 Million+ on the market for every similarly priced home that is under contract to sell, compared to a ratio of just 5:1 for homes priced under $700,000.
It is worth noting that the absolute number of homes for sale is not particularly large at any price level – in fact, overall inventory is flat or even down slightly compared to 1 year ago. However, the rate at which high-end homes are selling has dropped sharply, with year-to-date sales of $1 Million+ homes down 70% or more from 2008 levels across Westchester, Putnam, and Dutchess Counties.
With less competition to purchase the area’s more expensive homes, high-end buyers in particular have more relative bargaining power than they have had in many years. As a result, we are seeing deals go to contract at roughly 2002/03 price levels. As these homes pass title and the sale prices get reported to the MLS, they will likely create “market comps” that put pressure on other sellers to reduce their list prices accordingly. This cycle is likely to persist for the remainder of 2009.
It’s All About the Price
The old real estate mantra of “Location, location, location” may still hold true, but today’s market may be more aptly characterized by “Price, price, price.”
Homebuyers are seeking great values and homes priced for today’s new market realities are selling in a timely manner – sometimes within days. In fact, we’ve actually seen proper pricing result in multiple offers. We recently listed a home in Chappaqua for $1,120,000, reflecting the original 2001 purchase price of $900,000, the $500,000 cost of extensive improvements made by the seller (renovations that are now 5+ years old) and the highly competitive market backdrop. The seller understood that there are currently more $1 Million+ homes on the market than there are buyers, and was looking to differentiate his home from the rest. Realistic pricing created heightened interest and buyers reacted immediately. The seller received 6 offers within 3 days and the home is now under contract for more than the original asking price.
Not too bad for a reportedly “poor” real estate market. Or course, the flip side of this is that properties that are not priced to match the reality of today’s market will and do languish. In most cases, “wishful pricing” results in both a longer time on market, and a lower ultimate selling price as the seller chases a declining bid with subsequent price reductions. This still happens too often and the degree to which it persists will be a key driver of market trends for the remainder of the year.
[caption id="attachment_207" align="alignnone" width="410" caption="Westchester County Overview July 2009"][/caption]
[caption id="attachment_165" align="alignnone" width="410" caption="Putnam Market Overview July 2009"][/caption]
[caption id="attachment_218" align="alignnone" width="410" caption="Dutchess Market Overview July 2009"][/caption]