Sales hit all-time highs for the quarter and rolling year.
Sales spiked again in the first quarter, continuing to set records for the region. The region closed over 4,300 single-family sales in the first quarter, a whopping 50% increase off last year and a 58% increase off 2019’s first quarter. It was also the highest quarterly total in the history of the market. Single-family closings were up sharply across the region, rising 75% in Rockland.
For the rolling year, the region closed over 18,000 single-family transactions, a 21% increase over the year ending in March 2020 and a rolling year record. Even with all the public health, operational, and economic challenges of COVID, the single-family housing market was strong enough to drive record-setting sales for the year.
Going forward, we believe that demand will be strong throughout 2021. The economy is picking up, and small interest rate increases, while still near historic lows, tend to drive buyer demand from purchasers who now worry they might miss the boat.
Prices reached their all-time highs from the last seller’s market in the mid-2000s
Prices soared again in the first quarter, reaching their all-time record levels and nearing or setting records in the individual counties. Single-family home prices continued the pace of appreciation that we reached in 2020, with a 15% regional average price increase off last year. Prices were up in every county in the region. For the rolling year, the regional average price was up 21% from the year ending in March 2020.
Two factors are driving these dramatic price increases. First, buyer demand has been strong for two years now. We are in the heart of a seller market cycle, which is overcoming whatever obstacles COVID might have throw in its way.
Second, COVID is actually artificially boosting prices by changing the mix of properties sold, with a sharp increase in buyers coming out of Manhattan and Brooklyn. These are mostly higher-income purchasers who are disproportionately driving sales in the upper price points of each market – which is affecting the average prices overall.
Contracts are still way up from last year – and 2019.
New contracts of sale continue to break records, rising 36% regionally compared to last year, and up 33% from 2019. Pending sales are a leading indicator of the closings that we’ll see in the next quarter. Last year, the surge in pending deals in June was the first sign that the housing market would recover rapidly from the pandemic, and pending numbers soared throughout the summer and fall.
They’re still ahead. Pendings were still up through the first quarter, but not quite at the same pace we saw last year. Even though the pace has slowed just a little, these are extremely strong pending results. Overall, we expect pending sales in the next few months to continue stay well ahead of last year’s COVID-impacted numbers, but also think that we’ll see improvement over 2019 as well. Demand is still strong, rates are still low, and the economy is improving.
Inventory is way down, but slightly improving.
Listings fell sharply in January and February compared to last year, which drove inventory levels down to historic lows. But listings seemed to recover a bit in March, which might indicate that higher prices are starting to bring homeowners into the market. Overall, listings were down at a time when both closed and pending sales were way up, which means that the amount of inventory of homes for sales must have gone down. Our regional single-family inventory is remarkably low as we closed out the quarter 57% down from a year ago.
Going forward, we believe that inventory concerns will ease by the end of the spring. This is essentially basic economic economics of supply and demand. If inventory (i.e., “supply”) is low, and demand is high, we can expect prices to increase due to too many buyers chasing too few houses leading to multiple offer situations, bidding wars, and homes selling for near or higher than their asking price. But when prices go up, more homeowners attracted by those higher prices will be tempted to put their home on the market.
Negotiability continues to go down as homes sell faster and closer to the asking price.
We continue to see sellers gain negotiating leverage over buyers, as homes sell more quickly and for closer to the asking price.
We measure “negotiability” by looking at two metrics: the Listing Retention Rate (“LRR”) and the Days-On-Market (“DOM”). Both metrics reveal changes in the negotiating dynamic between sellers and buyers, and both show that sellers are gaining leverage on buyers.
The LRR measures the difference between the last listing price and the ultimate selling price for the home. So, for example, if the last listing asking price was $300,000, and the home sold for $270,000, the listing retention rate would be 90% — the home sold for 90% of the last listing price. In seller’s markets, the listing retention rate declines as inventory falls, demand rises, and sellers command sales prices closer to their asking price
The LRR over the last year is hitting levels that we haven’t seen since the height of the seller’s market in the mid-2000’s. For the first quarter, the single-family home retention was strong: 99.1% in Westchester, 99.1% in Putnam, 98.7% in Rockland, 99.1% in Orange, and 99.0% in Dutchess. In other words, sellers are getting pretty much their asking price (or higher) in their negotiations with buyers.
Similarly, we’re seeing homes sell more quickly, which tends to give sellers more negotiating leverage. We measure market duration by counting the days on market (DOM). The DOM is also nearing the lows of the last seller’s market of the mid-2000s. The trend is pretty universal across all the counties. If you look at the individual counties for the fourth quarter, you’ll see that homes are closing on average between 5-6 months from when their hit the market: 151 days in Westchester, 151 in Putnam, 148 in Rockland, 168 in Orange, 178 in Dutchess, and 189 in the Bronx. Given that it takes at least 45-60 days to get a deal from contract to closing, and maybe even more with the challenges of closing deals during a pandemic, you can estimate that actual market time is an average of 30-60 days in most of these markets.
Affordability is starting to tighten as both prices spike and rates creep up.
In inflation-adjusted terms, homes in our region are as affordable as they have been in at least 40 years, but that affordability is tightening as rates and prices go up.
Remember that “affordability” is not just a measure of price; rather, since most home buyers purchase a home by getting a mortgage, it’s a measure of both price and interest rates. Accordingly, we measure the “affordability” of homes by looking at the monthly mortgage payment a buyer would have to make to purchase the average-priced home in a market, based on the average interest rate available. And because we want to measure that affordability over time, we factor in the effects of inflation. The process goes like this:
- We take the average price of homes in a county for every year for which we have data.
- We take the average interest rate for a 30-year fixed-rate mortgage for each year.
- We calculate the monthly payment that a buyer would have to make for each of those years, assuming that 30-year fixed-rate mortgage with 20% down.
- And then we control for inflation by expressing that payment in today’s dollars.
Why are homes so much more affordable? Part of it is the fact that prices are only now reaching their heights of the last seller’s market, without even controlling for inflation. But the bigger reason, of course, is interest rates, which just keep breaking through floors to reach record lows. We thought rates were at record lows in the 2000s, when they hovered around 6%. Then they fell to 5%, then 4%– and as we write this, the average 30-year fixed-rate mortgage available to borrowers with good credit is around 3.2%. That’s a dramatic fall over the past 15 years or so.
Now, the affordability is starting to tighten as prices and rates go up. We’ve seen dramatic increases in prices over the past year, and now in the past quarter rates have crept above 3%. From a historical perspective, those rates are still ridiculously low, but as they creep up they start to drive that monthly payment up.
Overall, even at a time with prices going up, buying a home in our region is still a good buy from a historical perspective. And that’s good for both sellers (who can command a higher price) and buyers (who can afford a higher price without a higher payment).