Lexington 2017 Mid-Year Market Review
In this blog we detail the mid-year market summary that covers the period Jan 2008 through June 2017 and provide projections on how we see home sales for the rest of 2017. The full 20-page Lexington 2017 Market Summary will be available in January 2018. Please contact us if you would like to get a copy of the Lexington 2016 Market Summary that was published in early 2017.
Lexington Market Summary
The key finding of an analysis of the 2017 year-to-date real estate sales is the continued drop in the number of single family homes sales. There are two reasons for this drop:
- A marked increase in the number of rentals caused by an increase in the number of investors entering the market. These investors are drawn to Lexington by the promise of high returns. Also, existing homeowners renting their home when they move instead of selling as they look to continue to take advantage of the home price appreciation we have seen in recent years.
- Price increases in traditionally more affordable towns. The real estate market is dominated by first-time/entry-level buyers and they are moving into the more affordable towns because they are priced out of traditionally more popular towns like Lexington and Arlington. This causes a rise in prices, and for residents of the more popular towns "downsizing to a more affordable town" becomes more difficult.
Housing inventory is a monthly snapshot of the number of homes available to buy. The bottom of the market was in 2009 when the number of homes available for sale were at historic highs. The available inventory dropped to the lowest levels seen in a decade in 2013, and this trend continued in 2014, 2015, 2016 and 2017. With such low inventory, this raises the question; "Is this caused by low supply (fewer sellers in the market) or high demand (increasing numbers of buyers wanting to buy a home in Lexington)?" The following graph (Home Sales) shows that this is caused by increased demand because we have seen only minor changes in the number of homes selling in Lexington.
The total number of homes sold per year has been relatively static since the Lexington housing market recovered from the downturn in 2008/2009. Since 2012, the number of homes sold that come on the open market via MLS, was approx. 360-380 per year. It is important to note that 12% of sales in 2016 were direct-to-builder off market teardowns; we do not anticipate this will change appreciably in 2017. With such high demand in the market, especially at the lower price points, these sellers would be better off selling on the open market. With relatively static supply, it is increased demand (highly rated schools, convenient to Boston, community dynamics) that is the reason for the reduced inventory levels we are seeing in today's housing market.
Average Home Prices
High demand leads to appreciating prices, and average home prices in Lexington are at an all-time high. Home prices are rising in almost all towns in Eastern Massachusetts - in the 'in-demand' towns (towns with strong school systems and close-in towns) prices started to rise immediately after the lows of 2009; whereas in towns with less demand (towns with not as strong a school system, and further out from Boston) we saw prices remain flat and only begin to rise in 2013. In Lexington, after rising steadily since the downturn in 2009, the average home price peaked in 2014 and remained flat in 2015 (for technical reasons due to the impact of the severe winter experienced that year). 2016 and the year-to-date 2017 data show a return to rising prices with average home prices at an all-time high of over $1.275 million.
Luxury Home Sales
The number of luxury homes($2M+) sold in 2017 is projected to be 30 compared to 28 in 2016. The number of new construction homes sold in this price range rose sharply in 2014 but decreased to half the number in 2015. 2016 and 2017 now show a return to the high numbers seen in 2014. At the end of 2016 there were 14 luxury homes available for sale, with 28 having sold in the whole of 2016. A balanced market is considered to be 6 month's supply - at 6 month's supply at the end of 2016, the luxury market is considered to be balanced, but tending toward being a buyers' market.
New Construction Home Sales
The number of new construction homes being built in Lexington has risen steadily since the downturn in 2009 - many would argue as a consequence of Lexington having a more relaxed implementation of zoning regulations than nearby towns. The number of new construction homes increased dramatically in 2014 to 70 homes, but decreased slightly to 66 in 2016. The number of homes is projected to rise to 74 in 2017. Given this projection; and that the number of off-market teardowns, average lot size and average new construction home size have all remained static in the 2015-2017 time-frame, it is questionable whether the implementation of the Floor Area Ratio (FAR) regulations has had any significant impact on the new construction market.
We have seen a dramatic increase in the number of rentals - 2015 was 25% higher than 2014 and 2016 was 30% higher than 2015. We project a slight reduction in the number of home rentals in 2017 but still higher than we saw in 2015. This has been driven by two factors. Firstly, an increase in the number of investors entering the market driven by the promise of high returns because of the popularity of the town and the difficulty in buying (buyers are resorting to renting while they find a home to buy). Secondly, existing homeowners renting instead of selling as they look to continue to take advantage of the home price appreciation we have seen in recent years. The increasing number of rentals is having a dampening effect on home sales which have plateaued since 2013 as these homes are just not coming on the market for sale.
Statistical Information about other towns can be found on our website under Statistics. The full 20-page Lexington 2017 Market Summary will be available in January 2018. Please contact us if you would like a copy of the complete Lexington 2016 Market Summary.