Lexington Market Report for January - June 2019
Whether you’re buying or selling in Lexington, it is critical to have a good understanding of what’s going on in our market.
In 2017 and 2018 the Lexington real estate market saw a reduced supply of homes for sale (as can be seen by the total number of homes sold) along with strong buyer demand. In 2019 we are seeing an increase in the number of homes for sale, but at a higher rate than there are serious buyers in the market, resulting in a net increase of homes for sale at any point in time.
We have seen an 8% increase in home sales over the same period last year. But, we have seen a 15% increase in the number of listings in the same period. It is this discrepancy that is causing the net increase in the inventory levels.
In 2019 we have seen a reduction in open house attendance the first weekend a home is on the market. More worrying, we have seen a more dramatic reduction of buyers in subsequent open houses. The follow-on open houses are typically dominated by buyers who are just starting their home search. These buyers will be ready to buy a few months after they start checking out Open Houses, but they are not 'serious' buyers when they first begin. Thus we are seeing an indication that buyer activity in 2020 might be weaker than 2019.
Home sales decreased in 2016 - 2018 caused by existing home owners remaining in their home to take advantage of the predicted home price appreciation, and because of the difficulty in finding a home to downsize into because of competition from first-time home buyers. 2019 breaks this trend with a 15% increase in the number of listings in the first half of 2019.
Two key reasons for this increase are the uncertainty with the general US economy and the prospects for the housing market, specifically the prospect of a price correction and decreased appreciation in the medium term.
Home buyers are worried about the same uncertainties and are now more focused on the value of a specific home. They are reluctant to pay more than the market value of the home, anticipating that the reduced price appreciation will not compensate for paying over the market value.
The sale price to list price ratio (a key indicator of buyer confidence in the market) decreased in 2019. Given that the first half of the year is dominated by the Spring Market it is likely that we will see an overall sale price to list price ratio in the range of 98-99% as the second half of the year generally has less competing offers (which are the typical cause of the sales price being higher than the list price).
The first half of 2019 showed a slight increase in the average sale price. This is not necessarily indicative of a strong market but rather a change in the sale price distribution with the median price increasing. In 2019 we saw fewer homes in the $750K-$1M price range selling, and more homes in the $2M-$2.5M selling.
The luxury market (homes sold over $2M) is on track to match or exceed sales in 2018. This sector of the market is dominated by move-up and foreign buyers. Overall these buyers are less concerned by medium-term price corrections because of the time they intend to remain in the home. Worryingly, the number of luxury homes either available for sale or under agreement in July 2019 was 40 - comparing this with the 2019 projection means it is very likely that we have an excess of supply in this sector.
The new construction sector follows the luxury sector with almost 40% of new construction priced over $2M. But, even with a strong 2019 this will be far below the new construction homes seen in 2014-2016. Mirroring the luxury sector, the 2019 projection indicates there will be a excess of supply. This excess will put downward pressure on home prices as developers reduce prices to move inventory.
Sellers: There is an increasing number of sellers wanting to sell their homes. This is caused by sellers anticipating a correction in the housing market, and weaker appreciation for the next few years.
Buyers: Buyer demand is still strong but with their concern about a correction in the housing market, and perceived weaker appreciation for the next few years, they are more focused on value than buying 'at any cost'. The reduction we are seeing in open house attendance means that we anticipate that buyer demand will not increase in the remainder of 2019, or 2020.
Both the new construction and luxury (homes priced over $2M) sectors currently have more supply than the 2019 demand projections. This over-supply will lead to downward pressure on home prices as developers look to sell inventory.
The market is transitioning from a sellers market to a more balanced market. Buyers are laser focused on value and to succeed in this market sellers must:
- Create a 'product' today's buyers want (this means move-in ready).
- Expose the home to the maximum number of potential buyers across all marketing channels (print, digital and social media).
- Price realistically - today's buyer's know the value of a home and will NOT buy an over-priced home.
For more information on the real estate market please don't hesitate to reach out to any of us on the MA Properties Online team.
You’re invited to attend a Sellers Seminar on Top 10 Mistakes Sellers Should Avoid. In this FREE seminar we'll cover:
- Is my home a teardown?
- What does selling in 2019 look like?
- The top 10 mistakes sellers should avoid
- The local real estate market