Better Homes and Gardens Rand Realty Quarterly Market Report For 2016Q4 – Westchester County, New York
The Westchester housing market in the fourth quarter of 2016 started to show the impact of tightening inventory, with sales flattening out and prices rising as buyers chased fewer available homes for sale.
Inventory. The story in Westchester as 2016 ended was about the declining inventory. We calculate the “months of inventory” by measuring how long it would take to sell out the existing available homes at the current rate of sales. Anything below six months is considered a “tight” market, and Westchester has now crossed over that line in all property types: down to 3.8 months for single-family homes, 4.5 months for coops, and a sizzling 2.6 months for condos.
Sales. Westchester sales remain strong, with 2016 single-family transactions up over 8% for the year. Indeed, yearly sales hit their highest total since 2004, and are up 85% from their 2009 bottom. But you can see that the rate of growth is slowing if you look at the quarterly numbers, where single-family home sales were up just a tick and condo and coop sales were down sharply. Why? Because the market needs fuel for the fire, and the limited inventory is providing buyers with fewer options to purchase.
Prices. The flip side of limited inventory, of course, is rising prices, as buyers chase fewer options and get into multiple-offer situations and bidding wars that drive prices up. And we are finally starting to see the impact of limited inventory on Westchester pricing, with quarterly prices up over 3% for single-family homes, 10% for coops, and 3% for condos. For the year, prices were mostly down or flat, and they remain close to their 2004-05 levels, but we believe they are poised to rise in 2017.
Negotiability. The negotiability indicators also showed the impact of declining inventory, with listing retention up and days-on-market down. Simply put, homes are selling more quickly, and for closer to the asking price. Indeed, for single-family homes, the yearly listing retention rate of 97.5% homes was the highest since 2005, and the yearly days-on-market of 161 was the lowest since 2006.
Going forward, we believe that the fundamentals in the Westchester market are tremendous. With inventory tightening, pricing at 2004-05 levels, interest rates still near historic lows, and a generally improving economy, we expect that buyer demand will stay strong and eventually drive meaningful price appreciation in 2017.
Better Homes and Gardens Rand Realty Quarterly Market Report For 2016Q4 Overall: Westchester and Hudson Valley
The story of the housing market in Westchester and the Hudson Valley at the end of 2016 was all about inventory. The number of homes on the market continues to decline, which is already negatively impacting the rate of sales growth, but is likely to positively impact price appreciation in 2017.
Inventory throughout the region continues to fall. As we have explained before in the Rand Report, we measure the “months of inventory” by looking at the number of available homes on the market, and then calculating how long it would take to sell them all at the current rate of absorption. In the industry, we consider anything below six months of inventory to be a signal of a tightening market that will tend to drive prices up. So it’s notable that region inventory at the end of 2016 was down to 6.2 months. But the decline was more striking if you look at the individual counties, with inventory down to 3.8 months in Westchester, 5.0 in Putnam, 4.9 in Rockland, and 6.4 in Orange. Indeed, if you take Dutchess (which is still in the double digits) out of the calculation, the overall regional average is down to 4.2 months of inventory. That’s extraordinarily low, especially when you consider that regional inventory was over 10 months just two years ago.
The lack of inventory is starting to have an impact on sales. Sales are still relatively strong, but the pace of growth is slowing. Single-family transactions were up for the region, rising 6% from the fourth quarter of last year, which now marks nine straight quarters of year-on-year sales growth. And regional sales were up sharply for the calendar year, rising over 14% from 2015 and crossing over the 15,000 transaction mark for the first time since 2005. Indeed, yearly sales are now up 78% from the market bottom in 2011. But we see some troubling signs. For example, that 6% rise in sales from last year is the smallest year-on-year sales increase in eight quarters. Moreover, although regional sales were up, individual counties were flat or down: Westchester was up only 1.4%, and Rockland was down 3.6%. Essentially, the market needs more fuel for the fire — without more listings on the market, we are likely to see sales flatten or even decline in 2017.
Prices continue to struggle throughout the region. The regional average sales price was down just a tick for the quarter, but fell almost 4% for the calendar year. How can that be? We are seeing sustained buyer demand coupled with declining inventory over the past few years, and sales totals that approach the tail end of the last seller’s market. Basic economics tells us that increasing demand and falling supply should drive prices up. And, well, they will. It’s just a matter of time. At some point soon, these high levels of buyer demand, along with the low levels of inventory, will start creating the kind of multiple offer situations and bidding wars that will drive prices up. In turn, as prices go up, homeowners watching and waiting from the sidelines will be tempted into the market, which will moderate the potential surge in price appreciation. In other words, we’re about the witness “Economics 101” in action.
Going forward, we remain confident that the market conditions are ripe for meaningful price appreciation in 2017. Demand is strong, bolstered by near-historically-low interest rates, prices that are still near 2004-05 levels (without controlling for inflation), and a generally strong economy. And supply is tight, at least until some price appreciation brings more sellers into the market. So in the short term, we might see some declines in home sales off the highs set in 2016. But over time, as high-demand-and-short-supply starts driving prices up, inventory will come back. And we will eventually see the return of sales growth, this time coupled with meaningful price appreciation.