Yesterday I wrote about the low inventory and the challenges buyers face with supply not measuring up to demand. I did not address the reason why buyers have so little to choose from, and that’s what I’ll attempt to tackle.
There is no single factor for such a dramatic shortage. It is more of a perfect storm of circumstances at play, and that makes for a conundrum that isn’t very easy to solve.
- We aren’t building. In 2007, almost 1200 new builds were entered into the MLS in Westchester County, with another 263 up in Putnam. In 2022, only 263 New builds were listed in Westchester, with a paltry 63 added in Putnam.
- Foreclosures and Distress have dropped dramatically. When the pandemic hit in 2020, a moratorium was made on banks foreclosing on delinquent mortgages that lasted until last year. There were 356 bank owned foreclosures listed in Westchester in 2019, the last year before the pandemic. In 2023 there have only been 114 listed. Foreclosure is a judicial process in New York, which means that new cases will be meandering through courts for years before that number goes up appreciably. Foreclosures do more than present a possible bargain. They also have a check and balance effect on values of non-distressed properties. That effect, and the option for buyers, is largely absent.
- The Golden Handcuffs. I wish I made up that term. What it means is that the “move up’ sector of the market is ostensibly trapped in properties bought or refinanced when rates were half of what they are now. If you bought a $500,000 house in 2016 with a 3.5% mortgage, buying a more expensive move up type of home with rates at 7% today adversely affects your mobility. This is the case for millions of potential buyers. People expect a higher payment when they buy a bigger, more expensive home but this is a far bigger case of sticker shock than any market we’ve ever seen. A $400,000 mortgage at 3.5% is a principle and interest payment of just under $1800. A $600,000 mortgage at 7% is almost $4,000. Millions of people who might otherwise move are staying put simply because the math doesn’t work.
- The Paralysis of Uncertainty is now greatly enhanced. In normal times when the vast majority of people list their house for sale, they may not know exactly what they are going to buy, but they trust that they’ll find their next home with a high level of certainty. The prevailing wisdom has always been to make sure you have a buyer for your home before you start making offers on your next place. Now that narrative is flipped. People who might otherwise list their home for sale are staying on the sidelines because they simply have no idea where they are going to go. With no evident options, more people are staying put.
You’ll note that rates should adversely affect demand and cool things off. When rates rose it did have an effect, but as my C.C.O. Joe Rand has often said, when you slow down from 100mph to 65 mph, it’s still pretty fast. Bidding wars that had a dozen offers now have 3 or 4. That’s still a strong seller advantage.
So, with move up buyers staying put, other potential sellers not knowing where they will go, an 80% drop in new builds compared to 15 years ago and a dearth of bank foreclosures, we have a monster with many heads to slay. How does this get fixed?
I’ll opine on that in my next post.
How Slow is the Market in December and the Holidays?
The cyclical nature of the market is a long discussed topic. It’s no secret that the traditional “busy season” is the spring, with the key word “traditionally.” In typical market cycles, the summer remains active, transactions tail off in the autumn, and things get quiet around the holidays and winter time.
But we aren’t in a typical market here in Westchester and the surrounding areas, and we haven’t been since the Covid pandemic. Right now, the low inventory has resulted in a significant amount of pent up demand, and homes listed around the holidays are enjoying attention that makes it feel like spring despite the temperature. There are legions of prospective home buyers who didn’t have much luck in the spring or summer who are still looking in earnest.
Before I explain why inventory is so low, let me draw a picture of what buyers are dealing with by looking at history.
In November of 2019, 365 single family homes were listed for sale in Westchester County.
In November of 2023, 292 single family homes were listed for sale in the county. That’s not an insignificant difference, but let’s look at May of both years:
May 2019: 1285 new listings
May 2023: 733 new listings
522 fewer listings going active in the traditional busy season is going to have a domino effect. The law of supply and demand is unforgiving, and even though rates virtually doubled from the same time last year, it remains a robust seller’s market and with good reason. People still prefer to live indoors. Westchester is a destination for many reasons, not the least of which is that big city a short train ride south of us. Yet this is not just a Westchester thing; inventory is low everywhere, with similar dynamics challenging buyers.
Instead of winter hibernation, buyers remain on the hunt until they can find something they can buy. We’ve always said that anyone looking this time of year is typically more serious than average, and their numbers have grown. Low inventory does that; unsatisfied demand remains until it is satisfied.
Why is inventory so low? I’ll dive into that in the next post. Suffice to say, if you want to need to sell, waiting isn’t necessary. The buyers are active and looking like Easter, not Christmas, is around the corner.