The Westchester and Hudson Valley regional housing market in the first quarter of 2016 picked up where 2015 left off, with another surge in sales activity that is still not yet having a widespread impact on home prices. With inventory declining throughout the region, though, we believe that we will start seeing meaningful price appreciation before the end of the year.
In our last Rand Report, we welcomed readers to the next “seller’s market,” predicting that 2016 would be marked by increasing sales, declining inventory, and rising prices. So far, we’re right on two out of the three predictions: sales continue to go up, inventory continues to go down, but prices have not yet taken off throughout the region.
Sales. Activity continues to surge across the region. Transactions were up in every single county in the Report, and collectively rose over 23% compared to the first quarter of last year and over 18% for the rolling year. This is nothing new – we’ve been watching sales go up quarter after quarter for over four years, with regional transactions rising in 15 out of the last 17 quarters. Indeed, the region closed over 14,000 single-family sales over the past 12 months, which is the highest rolling year total since the middle of 2006 – at the tail end of the last seller’s market.
Inventory. Available inventory continues to tighten throughout the region. In the real estate industry, we measure inventory levels by looking at the “months of inventory” available at any given time on the market, and consider anything under six months of inventory as an indicator of a “seller’s market.” Well, we are not yet under six months in any of our regional markets, but we’re getting close, with Westchester, Putnam, and Rockland all under eight months. More importantly, inventory is tightening across the board, down sharply in most of the counties.
Prices. You’ll notice on the accompanying graph that regional sales prices have been ticking down for the past year, and went down again in the first quarter. How can that be? Why would prices be going down even while sales and inventory are going up? Well, the explanation is that it’s just an optical illusion. Don’t believe your lying eyes – prices are actually rising.
Here’s why: right now, the market is strongest in the lower.priced markets, which is disproportionately increasing the number of lower priced sales and thereby skewing the pricing. We see that most clearly in the countywide numbers, with sales up much more sharply in the lower priced markets. While sales in the highest priced market in Westchester are up only 9%, the other regional markets are spiking: Putnam up 21%, Rockland up 20%, Orange up 28%, and Dutchess up 29%. As a result, Westchester sales accounted for only 36% of the sales in the region in the first quarter of this year, compared to 40% last year and as much as 50% in prior years. So it follows that if higher priced Westchester sales are making up a smaller part of the overall transactional mix, then the average price for the region is going to drop.
Indeed, the average price was up in four out of the five counties in the region: rising 12% in Putnam, 3% in Rockland, 3% in Orange, and up just a tick in Dutchess. Prices were only down in – you guessed it! – Westchester, and we believe it’s for the exact same reason: strength in the lower end of the market. Even within Westchester, the demand was much stronger in the entry-level coop and condo markets, which had higher sales increases, rising prices, and lower levels of inventory. It follows that if the condo and coop markets were so strong, then the lowest end of the single.family market was probably also a lot more active than the middle or high end. So don’t read too much into the regional price drop, or even the decline in Westchester single-family homes.
Going forward, we expect a robust spring market. All the fundamentals point to a burgeoning “seller’s market,” with demand high, inventory falling, interest rates low, and a generally improving economy. Accordingly, we expect that sales will continue to go up, and that the strength in the lower priced markets will gradually extend throughout all price points.