Lexington Market Review 2022/2023

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Summary

In prior Market Reviews we have defined the luxury market as homes which sold for $2 million or above. With the rapid rise in average prices recently seen this year we have raised this threshold to $2.5 million.

In recent years, the luxury market in Lexington has been very strong. This is shown by the key performance metrics Days on Market and Sale Price to List Price Ratio strengthening, and by an increase in the number of homes sold. The number of homes sold in the luxury market in 2022 was 55 compared to 52 in 2021 – a 5% increase. This should be viewed against a market that saw a 20% reduction in the number of home sales below $2.5 million and so the luxury market clearly outperformed the overall market.

There were 8 luxury home sales in 2019, this jumped to 27 in 2020, to 52 in 2021 and 55 in 2022. Normal price appreciation would tend to increase the number of homes in the luxury market, but the almost 7-fold increase seen since 2019 is extraordinary. Consistent with historic trends, new construction accounts for about 50% of the luxury market.

Many sellers of existing homes worry about the impact of new construction on the luxury market. The primary impact of these new homes is that buyers of existing homes will expect a similar quality to new construction. Given the characteristics of the luxury market and the new construction component of it, it’s important to focus on the fundamentals – home preparation, great staging, a comprehensive marketing plan, and the right pricing strategy are key to having buyers consider an existing home versus new construction and obtaining the maximum price for your home.

Home Sales

The number of homes sold in the luxury market in 2022 was 55 compared to 52 in 2021 – a 5% increase. The luxury sales in Lexington follow the trend of increasing luxury sales across MA. In 2022 934 luxury homes sold, a 16% increase over 2021. In 2021 806 luxury homes sold, a 42% increase over 2020. In 2020 566 luxury homes sold a 43% increase over 2019.

The large increase seen in 2020 and 2021 can, in part, be explained by two aspects of COVID. Working from home and remote schooling has forced families to spend more time in their home than previously, putting a premium on larger homes. This, when combined with historically low interest rates, made larger homes both desirable and relatively more affordable.

Average Days on Market

The Days on Market for the luxury market is relatively high at 40 days when compared to the overall market but has been steadily declining since 2018. In 2018 it was 105 days and in 2022 it had decreased to 40, a 62% reduction. What makes this decline more significant is that it occurred at a time of increasing sales and is a clear indicator of market strength and not caused by limited supply. A further indication of market strength can be seen in the change in the Sales Price to List Price Ratio. In 2018 this was 95%, in 2022 it increased to 101%. For comparison the average Sales Price to List Price Ratio for the overall market was 107%. Whilst the overall market saw a reduction in the Sales Price to List Price Ratio in the second half of the year the luxury market remained at approximately 101% throughout the year. Indicating that this market was not impacted by the increase in mortgage interest rates.

Sale Price Distribution

The overall strong performance of the luxury market masks a worrying trend. 39 $3+ million homes were listed in 2022. 18 $3+ million homes were sold in 2022, 11 of these were listed in 2022, the remaining 7 were listed in 2020 or 2021. This means that 28 $3+ million homes listed in 2022 did not sell. In January 2023 there were 14 $3+ million homes on the market – about 9 months’ supply. If the homes that remain off the market come back, then this increases to 18 months’ supply. Remember this does not include any homes that come on the market in 2023 that have not been listed before, which will increase this number even further.

If we break this out by construction date, 7 new construction homes expired or cancelled in 2022. In January 2023, 9 new construction homes remain on the market. If we see a similar number of $3+ million home sales in 2023 this 7 (expired/cancelled) + 9 (currently on the market) = 16 homes, will account for almost all the $3+ million home sales. Remember also that developers are very motivated to sell the homes that they have built, and this over-supply will inevitably lead to a softening of prices at these higher price points.

In summary, at the higher price points we have more supply than demand, even at the elevated home sale levels we have seen recently.