At first glance at the Market Overview page for 1st quarter 2022 Greenwich single family market stats, the outlook looks rather dismal, with inventory, unit sales, pending contracts, sales volume and Days on Market all down versus last year. Upon closer inspection, however, there are some very positive trends underway in our market, if you compare 2022’s numbers so far this year to the previous 5-year average instead of to only 2021.
Because of the abnormal impact of the pandemic on real estate, 2021 is likely to go down in Greenwich history as one of the best market years ever, if not THE BEST year ever. So, ANY other year would pale in comparison to 2021. We have been battling the inflated numbers from the 1st quarter of 2021 so far this year and will likely continue to do so for the rest of the year. We are still well above average, however, when compared to normal, pre-pandemic years. Hence, a 5-year comparison—2017-2021— will give us a more realistic view of how our 2022 market is performing.
Inventory is down all over the country and Greenwich and Fairfield County are no exceptions. Our current inventory as of the end of March was down -46.5% to 151 homes for sale versus 282 homes at the same time last year. As of today, our inventory is 160 homes for sale, which is where we were in December 2021. While we have attained some of the lowest inventory numbers ever in 1st quarter 2022, it has remained essentially flat as new listings were counterbalanced by sales. This stabilization of inventory has been a welcome change to the consistent decline that started after inventory peaked at 342 in April of last year at and, then, dropped pretty consistently until February 2022 when it bottomed out at 148 homes for sale.
If you compare this year’s inventory as of the end of 1st quarter (151 homes) to the average of the previous 5-year inventory (509 homes), you will see that this year’s inventory is -70.3% LESS than average. This is the only stat where the 5-year average is WORSE than the year-to-year comparison. As you go through the report, you will see that the average numbers for 2017-2021 have been added to the monthly pages for inventory, pending contracts and sales.
While pending contracts were down -24.5% year-to-year as of the end of March 2022, we actually finished 1st quarter with more pending contracts (182) than homes for sale (151)! This is what some would call “an upside-down market” and is likely unprecedented because inventory numbers have never been this low. And, while 1st quarter ended down -24.5% versus last year with 182 contracts vs 241, it was —in fact— +33.4% higher than the average of the last 5 years!
So, it is safe to say that contracts— as of the end of 1st quarter 2022 —are +33.4% higher than average and that there are more contracts than homes available for sale. In fact, when you look at the Homes Under Contract by Price Range page where we compare 2022 numbers to the 5-year average, you will see that EVERY price range is up. This is a very strong indicator for the Greenwich market since contracts are the predictors of future sales. It is not very often that we can make this astoundingly positive claim!
Similarly, single family home sales are down -29% as of the end of 1st quarter 2022 vs 2021 (142 vs 200 sales), but are up +17.4% when you compare the total number of 2022 1st quarter sales (142) to the average number of 1st quarter sales for the past 5-years (121). And, we achieved these above average sales numbers for 1st quarter 2022 while we were working with record-low inventory levels! In fact, home sales in EVERY price range except for the under $1M range and the over $10M range were up this year when compared to the 5-year average. It is hard to believe that the Greenwich market was able to achieve this feat with such a challenging supply.
Not surprisingly, due to the impact of the pressure caused by our diminished inventory, prices have been rising. Our 1st quarter 2022 % Sale Price/ List Price ratio was up +1.4% over last year to 97.5% versus 96.2%. The average sale price was up +1.9% Jan-March 2022 to $3.024M vs $2.966M Jan-March 2021. And, the median sale price was up +12.8% to $2.525M for 1st quarter this year versus $2.238M last year.
Is this rapid growth causing a bubble that will burst??
This is a question that is on the minds of many right now. According to a 3/25/22 article in Forbes Magazine, “2022 Housing Market: Will It Continue to Bubble or Will it Burst?”, Mike Maher, CEO of Houwzer, says that he doesn’t think so. Maher said that bubbles aren’t “just about high prices; investment needs to be driving demand way beyond where it should be”. He doesn’t think that prices will fall dramatically over the next few years, which happens when a real estate bubble bursts, but “will rise more slowly, at a rate that outpaces inflation”.
In his article, Maher reminded readers that housing bubbles are uncommon and that the financial elements that engendered the 2008 crisis no longer exist today. These elements included “unscrupulous” lending standards, adjustable rate mortgages, lack of home equity and an over-supply of new home construction, he said.
“Buyers today are extremely qualified” and have a median FICO score of 742, which is 42 points higher than buyers had in 2007, Maher pointed out. There are many regulations enacted as a result of the 2008 financial crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act. This was a series of federal regulations passed to prevent future financial crises. Many banks, he said, were fined millions of dollars or more for lending fraud and learned their lesson the hard way.
Adjustable rate mortgages were also popular and unregulated in the early 2000s: a dangerous combination. This type of mortgage “tempted buyers with low introductory interest rates that rose dramatically once homeowners were locked into paying them”, according to Maher. Since mortgage rates are already rising, this will “discourage overly-speculative investing” which, in turn, will lower the chance of a bubble forming.
The lack of home equity was a major cause of the 2008 financial crisis , Maher continued, because many obtained mortgages with no downpayment and no qualification as to their ability to make monthly payments. Foreclosures became rampant after the collapse because many homeowners owed more money on their loans than their homes were worth.
Prior to the 2008 collapse, new home construction superseded demand so that there was more supply than demand. This caused a steep decline in home prices. This is not the situation now, however. According to Maher, housing starts in the United States “went from averaging between 9 -11 million…per decade throughout the 1960s to 2000, to just under 7 million homes during the 2010s.” Factors contributing to this were increased building regulations, the high cost of lumber, labor and building materials due to global supply chain issues and the fear of another collapse. And, as homes became more costly to construct, new luxury homes outpaced starter homes. It is very difficult to find a new construction starter home, especially in the Greenwich market.
Two of the main reasons why this high housing demand will remain high, thereby staving off the formation of a bubble, are: 1) urban dwellers will continue to relocate to the safety and fresh air of the suburbs and 2) millennials are transforming from renters into buyers. According to a 1/6/22 article in the Washington Post by Mark Zandi, chief economist at Moodys.com, “well over half a million more people have moved out (of New York City) than have moved in since the pandemic began.” And, because these urban dwellers have been indoctrinated by the exorbitant real estate values in the city, lower priced homes in the suburbs look like a really good deal, even though they are paying more for them than ever before and driving prices up!
Another factor influencing this intensified housing demand is the mobilization of the millennial generation, the largest adult cohort worldwide. In 2019, the millennial generation “surpassed baby boomers to become the largest living adult generation in the US” and have “reached a housing milestone”, accounting for more than half of all home purchase loan applications last year, according to a 12/14/21 article, “Millennials are Supercharging the Housing Market”, by Nicole Friedman in the Wall Street Journal. Prior to the pandemic, millennials were nicknamed “the renter’s generation” because they have generally been slow to join the ranks of homeowners due to fallout from the 2008 financial crisis.
As of 2022, millennials will be turning 26-41 years of age. Typically, people become first time homebuyers in their early 30s and the “largest cohort of millennials turned 30 in 2021″, according to Friedman. While millennials have been slow to make a home-buying commitment due to student debt burdens and career paths being interrupted by the “2008 financial crisis and housing market collapse”, the trend towards homeownership among them was accelerated by the pandemic and the expanding opportunities for remote work. This “generation’s growing appetite for homeownership is a major reason why many economists forecast home-buying demand is likely to remain strong for years to come,” she added.
According to Maher, “prices are unlikely to experience a notable dip within the next 5 years.” We will eventually experience an evening out between buyers and sellers, he said, once either some or all of the following take place:
- New construction starts increase.
- New technologies like “home printing” lower building costs (this is the creation of a 3-D object through the use of computer-generated designs).
- Urban governments revise outdated zoning regulations to encourage population growth.
- Baby boomers- who currently occupy a significant percentage of housing stock- become too old to continue to own.
The moral of this story is: if you are planning on waiting to buy a home to avoid the current frenzy and to wait for prices to drop, DON’T!
Contact your realtor or me at 203 273-3668 to discuss options and strategies for how to buy in this seller’s market and/ or for a complimentary home valuation. We are still in desperate need of new inventory!
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