The housing market in Westchester and the Hudson Valley surged forward in the third quarter of 2019, showing the first signs of recovery from the suppressive effects of the 2018 Tax Reform Cap on State and Local tax deductions (i.e., the “SALT Cap”). With the higher‑end starting to recover, we expect the market will continue to strengthen through the fourth quarter and into 2020.
Single‑family sales were up regionally, and in every individual county. Regional sales rose 3.4% from last year’s third quarter, the first increase since the end of 2017 and the inception of the SALT Cap. Indeed, the 4,683 single family quarterly closings in the region was the highest total since the third quarter of 2017. Moreover, sales were up in every individual county, rising 1.2% in Westchester, 9.4% in Putnam, 8.2% in Rockland, 2.7% in Orange, and 3.7% in Dutchess. This surge in the third quarter moderated some of the declines earlier in the year, with the rolling year price flat and sales down 2.8%.
Similarly, single‑family prices were generally up across the region, reflecting some rising strength in the high‑end. Regionally, the average price rose 1.4% from last year’s third quarter, the first quarterly increase of 2019. Much of that was due to the first quarterly average price increase in Westchester since the inception of the SALT Cap. Indeed, we might be seeing a long‑awaited recovery in the high‑end Westchester market: sales of super‑luxury $3M+ homes rose 23% from last year’s third quarter, to the highest quarterly total in four years. That buoyed Westchester’s average sales price, which thus boosted the regional sales price.
In other counties, though, we saw signs of lingering weakness in the high end. Outside of Westchester, the Hudson Valley counties all saw a sharp divergence between the average and median sales price trends: in Putnam, the average down 0.2%, the median up 3.8%; in Rockland, the average down 1.5%, the median up 3.3%; in Orange, the average down 0.6%, the median up 4.7%; in Dutchess, the average up 5.4%, the median up 7.1%. Why was the median so much stronger than the average throughout the region? We believe that these markets have not yet priced in the SALT Cap impact on higher‑end homes, which is reducing the number of high‑priced sales and changing the mix of homes sold in a way that affects the average more than the median. Outside the very high‑end, which is still suppressed by the SALT Cap, the average Hudson Valley homeowner is probably experiencing fairly significant price appreciation.
Similarly, the condo and coop markets were torrid, with but prices spiking from a lack of inventory. Regionally, condo sales were down almost 3% from last year’s third quarter, and down a tick for the rolling year. But this is largely due to a lack of inventory, which remains well below the six‑month level that denotes a seller’s market. At the end of the quarter, inventory levels were at 3.3 months for Westchester coops, and at 4.1 months for Westchester condos, 5.3 months for Putnam condos, 4.7 months for Rockland condos, and 2.9 months for Orange condos. This lack of inventory is having its expected impact on pricing, with the regional condo/coop average price up almost 6% for the quarter and 7% for the rolling year, and rising in every individual county. Essentially, the lower‑end of the market has never been touched by the SALT Cap, so it’s simply experiencing the unfiltered effects of a robust seller’s market: low inventory that suppresses sales and boosts prices. This is what the entire market would look like had the SALT Cap never been enacted.
Going forward, we believe that the market is poised to finish the year strong. Housing fundamentals are all positive: prices are still at attractive levels compared to the last seller’s market, interest rates are back down to historic lows, the economy is solid, and inventory remains relatively low. Accordingly, we believe that strong demand will continue to grow, and that as the lingering effects of the SALT Cap dissipate, we will see more widespread price appreciation in the fourth quarter and into 2020.
The housing market in Westchester and the Hudson Valley continued to be a “tale of two markets” in the second quarter of 2019, with more expensive single‑family home sales and prices continuing to struggle while lower‑priced condo markets soared. We attribute this divergence to the 2018 Tax Reform cap on state and local tax deductions, which is suppressing what should be a strong, growing seller’s market. Single‑family home sales and prices were down across the board. Regional sales compared to last year’s second quarter were down almost 6%, and down in just about every county. Similarly, the regional average price for a single‑family home fell 2.5% from the second quarter of last year, with prices down in every county other than Orange, the lowest‑priced market in the region. The regional average sales price was up just a tick for the rolling year, so we have not yet seen any longer‑term depreciation in the market. On the other hand, the lower‑priced condo markets are booming. Regional condo sales were up over 2% from last year’s second quarter, with average prices rising an eye‑popping 14%. Indeed, the average condo price spiked in many counties throughout the region: Westchester up 15% (and up 6% for coops), Rockland up 16%, Orange up 20%, and Dutchess up 3%. This capped an extraordinarily strong yearlong run for condos, with prices up almost 7% for the year, and rising in every county in the region. So why is the condo market booming? Well, the fundamentals of the market could not be stronger: interest rates are back down to historic lows, prices are basically at 2004 levels without even adjusting for inflation, and every national and regional economic indicator is positive. That’s why we are seeing condo sales and prices at levels we haven’t reached since the market correction ten years ago. The better question is: why isn’t the single‑family market booming? And the answer to that is simple: the 2018 Tax Reform cap on state and local tax deductions (the “SALT Cap”), which is having a disproportionate impact on middle‑ and higher‑end home buyers. Why? Because taxpayers in those markets are more likely to itemize their taxes rather than take the standard deduction, which means they’re more likely to feel the pinch of the $10,000 SALT Cap. That’s why we have a “Tale of Two Markets.” The SALT Cap is suppressing sales and price appreciation in the higher‑priced markets but having little or no impact on lower‑price markets – including single‑family counties like Orange, and condos throughout the region. The SALT Cap hasn’t caused anything like the devastation of the market correction in 2008‑09, but it is still hampering the growth of what should be a robust seller’s market. Going forward, we still believe that the market is still poised for growth in the summer and fall. At some point, the impact of the SALT Cap will get priced into the market, and the single‑family market will start behaving like the condo market. Again, the seller market fundamentals are very strong: the economy is growing, interest rates are near historic lows, inventory is relatively low, and homes are still priced at attractive levels well below their historical highs.
Right now is a really great time to be buying a home in Westchester or the Hudson Valley.
Man, do I hate saying that. As I’ve explained before, I hate the phrase “great time to buy” for a couple of reasons.
First, people have different needs, and a market that’s great for one person might be terrible for another person.
Second, while markets tend to move together, we do see micro-markets (i.e., towns and villages) that defy larger trends. So while it might be a great time to buy in Village A, it might be not so great in Town B.
Third, and most importantly, though, “it’s a great time to buy!” just seems like a hack thing to say, the kind of thing that TERRIBLE real estate agents have said for generations to get unsuspecting and gullible people to buy an overpriced home. And I think that most people get suspicious when real estate agents talk like that.
So I understand if you’re skeptical. And that’s why I don’t want to just TELL you it’s a great time to buy, I want to SHOW you why it’s a great time to buy.
Specifically, I want to make this specific point: the monthly payment you need to buy an inflation-adjusted average priced home in Westchester and the Hudson Valley is as low as its been in a generation.
Think about what I’m saying for a second. I’m NOT saying that homes are cheaper than they’ve ever been. That’s not true. Depending on the year, homes have appreciated, and if you go back more than 15 years, they’ve appreciated pretty dramatically. I’m just saying that the MONTHLY PAYMENT you need to make to buy the AVERAGE PRICED HOME is lower right now than it’s been in a generation — if you control for the effects of inflation.
If you look at the graph below for Westchester County, you’ll see what I mean.
On that graph, as we’ve done before, we’ve plotted the monthly payment that a purchaser in the county would have to make to purchase the average-priced home at various points over the years. After all, affordability is not just a matter of the sales price – it’s a matter of the monthly payment you’re going to have to make, which is partly a function of the prevailing interest rate. And then to measure the change in the monthly payment over time, we factored in the effects of inflation.
So we took the following data points:
•The average price of a single family home up to the end of 2017 – from the local MLS data.
•The average interest rate for a 30-year fixed-rate mortgage for every calendar year up to 2017 – from Freddie Mac.
•The prevailing inflation rate for every calendar year up to 2017– from the US Department of Labor.
You can see the results on the graph. The monthly payment you have to make to purchase the average-priced home in Westchester is just about as low as it’s been in years. We saw the slightest uptick from 2012-2014, partially because of a slight increase in pricing and a slow inflating of interest rates. But the payment came down again over the past two years, with rates falling and prices stalling.
Generally, though, we’re talking about a monthly payment that is as low as anytime in the past 35 years – and as low as it was in the mid-1990s, during a crippling buyer’s market.
So why are monthly payments lower than they’ve been in a generation? A couple of reasons:
1) Prices. Part of it is that we have not seen prices go up in any measurable way in almost 10 years. Home prices peaked in 2006-08, lost about 25-30% of value from 2008-2010, and have bounced around a little since then. But they’re still around 2004 levels — without controlling for inflation.
2) Inflation. Ah, yes, inflation — the value of money goes down a little bit each year as inflation takes a bite. Now, inflation rates have been pretty low over the past 15 years from historical standards, but that little bit each year does add up.
3) Rates. But the biggest reason we’re seeing monthly payments lower than they’ve been in a generation is that rates are still at historic lows. After all, about ten years ago, the average interest rate was about 6%. For the past few years, it’s been below 4%. That’s a huge difference in your monthly payment.
And the same is true throughout the Hudson Valley. I showed you Westchester first because we have good data on prices for the county going back all the way to 1981. In other counties, our data doesn’t go back as far, but if we look at each of those counties you can see that it’s pretty much the same story for the time period we have.
Orange County. Here’s Orange County, where we have data going back to 1994:
You can see that the monthly payment to buy an average-priced home in Orange County is lower right now than it’s been in over 20 years.
Rockland County. In Rockland, we have data going back to 2002, over 14 years of data.
Again, you can see that even with a slight rise in the past few years, the monthly payment you have to make to buy the average-priced home in Rockland is lower right now than it’s been since at least 2002, and probably for quite a bit of time before that.
Putnam County. Similarly, we have data going back to 2002 in Putnam, and the story is the same:
Dutchess County. Again, same story in Dutchess County for that same period:
And although we don’t have data for Orange, Rockland, Putnam, or Dutchess going back as far as Westchester, the fact that the curve over the recent decade or so is very consistent with Westchester’s results suggests that, like in Westchester, the monthly payment you need to make throughout the Hudson Valley is lower right now than it’s been since the Carter administration.
Condos and Coops. All that’s for single-family homes. What about condos and coops? Well, we don’t have data going back as far, but in each county, condos (and coops in Westchester) show the same trend — the monthly payment to buy an average priced condo or coop in the region is lower right now than it’s been at any time since the 2005 era. Here are the graphs:
You can see that except for Westchester and Putnam condos, which have seen some pricing changes in the past two years, the monthly payments are lower than any time since 2005. And even in Westchester and Putnam, they’re lower now than at any time in the last decade, just a little higher than the last two years.
We wrote this up last year, and predicted that 2016 would be the last time we’d be able to say it. And we were mostly correct, since prices throughout the region went up a bit, and rates started to creep up. So it’s not quite right to say that 2018 is the best year to buy a home in a generation, since 2917 and 2916might have been better. But you have to otice the trend — the real monthly payment you have to make to buy the average-priced home in our region is lower than it’s been in years.
Again, I HATE it when real estate professionals say that “this is a great time to buy,” because at many times in our history that has been bad advice.
But if you measure a “great time to buy” by looking at the monthly payment you’ll have to make to buy a home, then we’re talking about as good a time to buy as any in the past decades. Prices have been flat for almost 10 years, and they’re down significantly if you factor in the effects of inflation. And interest rates are still as low as we’ve ever seen them. Unless we see some major shock to the economy, I think we’re looking at a near-decade of reasonable price appreciation coupled with increasing interest rates – both of which are going to drive that monthly payment up over the next few years.
So I’m not going to tell you what to do. That’s not my job. But if you’ve been thinking about buying a home, I think these graphs speak for themselves.
Joe Rand is the Chief Creative Officer of Better Homes and Gardens Real Estate | Rand Realty, and compiles and writes the Rand Quarterly Market Report.