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Covid-19 data update: June appears to boost May numbers

Steve Poltorzycki, an Arlington resident writes about what he sells -- local real estate. This column updates his fact-based views of the pandemic-affected market. Read his May column >>  

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My recent newsletters discussed the impact of Covid-19 on the residential real estate market during March and April. The story then was that the supply of homes on the market (as measured by new listings) was down as compared to the same time period last year, sales were still solid (meaning that there were a large number of buyers still out there shopping), and the real estate industry had adapted its processes for transactions so as to conduct them in a Covid-19 safe manner.

This report provides an update on the real estate market situation based on data from May and June, corresponding roughly to the period 45 to 75 days after Covid-19-based restrictions were put in place. In sum, May was very much like March and April (low supply, high demand), while June showed a resurgence of new listings (higher supply), continued high buyer demand, and record high prices. If the rest of the year looks anything like June, we will be able to say that the real estate market has bounced back from the impact of Covid-19.

The Real Estate Market Starts to Rebound From Covid-19--June 2020 Update (Corrected)
 
First a couple of caveats. While the data presented in this newsletter show the situation in a number of the towns in which I work, the focus of the discussion will be on the data relating to the Greater Boston area as a whole, because in many cases town-specific data represent too small a sample size from which to draw meaningful conclusions. Also, things are changing rapidly in response to Covid-19, each day sometimes bringing new developments, so the information presented here is simply my best understanding at the time of sending this newsletter (July 12, 2020). Please feel free to contact me at the email address at the bottom of this newsletter if you would like an update on any specific item.
 
Warm regards,
 
Steve Poltorzycki
 
Note: “Greater Boston” refers to the 64 communities in the Greater Boston Area Associations of Realtors (GBAR) jurisdictional area, from North Reading to the north, Hudson and Hopkinton to the west, and Mansfield to the south. These communities are virtually all within the I-495 belt. See www.gbreb.com for the complete list.
 
Inventory Is Coming Back on the Market at Pre-Covid Levels
 
The onset of Covid-19 had a deep impact on the greater Boston real estate market this spring. Sellers were hesitant to put their homes up for sale and some started taking their homes off the market, thereby reducing inventory available to buyers. Buyers were reluctant to tour homes, some communities banned in-person open houses, and even in communities where this was still allowed the larger brokerage firms, as a matter of policy, prohibited their agents from holding in-person open houses.
 
But there was still interest by some sellers in marketing their homes and interest by some buyers in continuing their search. So the real estate sector found ways to market homes that took Covid-19 concerns into account. There were video tours and virtual open houses, strict procedures for in-person private showings, and processes for remote appraisals and closings. It turned out that some buyers were serious about finding homes and going through with deals. That, combined with historically low mortgage interest rates caused the prices fetched by sellers to continue to climb.
 
In June things began to look a bit more normal. All the practices put in place to address Covid-19 concerns continued to be in force, of course. And sellers started having more confidence that their homes could be marketed safely.
 
Greater Boston Real Estate Market (Single Family)
 
Inventory levels started to bounce back. The number of homes newly coming on market (new listings) during June 2020 was up slightly (2%) versus June 2019, a stark change from the previous two months when depressed new listings levels resulted in a significant drop in supply.
 
Also, there were far fewer homes taken off market (listings cancelled or withdrawn) in June 2020 than during June 2019 (down 19%). That's an important indicator that sellers had much more confidence that the Covid-19 risk associated with selling their homes would be properly managed than they had in March and April, when there was a 75% rise in the number of homes taken of market versus the comparable period in 2019.
 
Still the drop in supply in March, April and May this year had an impact on the number of closings. Less supply mean fewer transactions.
 
But buyer demand was very high. More homes went under agreement in June 2020 than in June 2019 (up 13%). In fact, more homes went under agreement in June than came on market, further depleting an already low inventory. This set the stage for one of the strongest sellers' markets in recent memory. Particularly for homes at the lower to mid price points in a given community, there was a resurgence of multiple offer scenarios, offers at well above asking price, and all kinds of contingencies (inspection, mortgage) waived by buyers to try to get a leg up on the competition.
 
On the mortgage interest rate front, June saw record low rates, 3.13% for a 30-year fixed rate mortgage (and then rates dropped to 3.03% in early July).
 
Historically low mortgage interest rates, tight supply, and high demand resulted in record high prices, up 5% over June 2019.
 
It's a very strong sellers' market right now.
 
More detail below.
 
Supply Is Lower Than Usual, New Listings Have Picked Up
The pace of new listings coming on market in Greater Boston during June 2020 picked up versus June 2019 for the first time since Covid-19 restrictions went into place in mid-March (up 2% for single-family and 20% for condo). In the case of single-family homes, June 2020 new listings were at the highest monthly level this year.
 
After a period when some sellers were understandably reluctant to put their homes on the market, it now appears that sellers have become more comfortable with the processes the real estate sector has devised to promote Covid-19-related safety. And, of course, it doesn't hurt that buyer demand has continued to be strong and prices have risen to record levels. As a result, homes are coming on market at typical seasonal levels. June results are the first indication that the real estate market has successfully navigated through the obstacles posed by the pandemic. The next few months will show how sustainable this situation will be.
 
When the pandemic crisis began to heat up, sellers who already had homes on the market faced the decision whether to keep their homes on the market or take their homes off the market until things improved. In March and April, a number of those sellers took their homes off the market. But in May 2020, at least for single-family homes, the trend reversed and fewer homes came off market than did in May 2019. And this continued through June. It seems clear that most sellers have factored the pandemic situation into their decision-making and once their homes have been put on market they generally stay on market until they are sold.
 
The situation appears different with regard to condos. Condos keep getting withdrawn from the market at higher levels than usual. No doubt the high concentration of condos in more urban areas has something to do with this, as Covid-19 concerns are heightened there and the procedures put in place with respect to Covid-19 safety are more restrictive in those settings. How this all squares with the uptick in condo new listings in June is an interesting question. The condo market appears to taking some time to find its equilibrium.
 
Buyers Keep Buying
Supply is lower than usual, but what about demand? One measure of demand is the number of homes sold (closings). The number of single family homes closings in Greater Boston during June 2020 dropped 31% versus June 2019. And condo closings dropped by 42%. Keeping in mind that closings reflect deals agreed to four to six weeks prior to the closing, a drop of 31% in June single-family closings is consistent with the 45% drop in new listings in April through May 2020. It is no surprise that lower supply resulted in fewer deals.
 
But given that closings happen well after an offer has been accepted, closings are more a measure of what demand may have been a month to a month and a half ago than what it is today.
 
A more current measure of demand is the number of properties that go under agreement. Properties typically go under agreement a week or so after an offer has been accepted.
 
After a drop in homes going under agreement in April through May 2020 versus April through May 2019, June 2020 saw a 13% rise in single-family homes under agreement versus June 2019 (condo rise was 4%). This was a very impressive jump, particularly given the lower than usual supply of homes on the market. Buyers are starting to snap up the available inventory.
 
Note that the 1,964 single-family homes going under agreement in June 2020 exceeded the June 2020 new listings (1,911), so homes are selling faster than they come on market. This reflects the strength of current buyer demand. And real estate agents report a resurgence of multiple offer scenarios for homes in the lower and mid-level price points in many communities in the Greater Boston area. Competition between buyers is heating up.
 
Days on market (DOM), another measure of buyer demand, is consistent with DOM levels of the last few years, during which time there were unprecedented degrees of buyer demand. Note that these charts show year-to-date data instead of data just for the month of June.
 
Prices Keep Going Up
Prices have reached historical highs. Year-to-date sales of Greater Boston single-family homes were up 5% versus 2019 (and up 3% for condos). Year-to-date data are used here so that a more comprehensive picture can be shown of the situation in individual communities (monthly data for most communities does not provide enough of a sample size from which to draw conclusions in which one has confidence). Prices are up in virtually all communities tracked in this report.
 
It stands to reason that when supply decreases and buyer demand stays strong, prices go up. Some buyers may have hunkered down, but there are still plenty of buyers out there who want to buy a house. Right now there is no reason to believe home prices will not continue to climb.
 
Mortgage Rates Are at All Time Lows
Buyer demand has been fired up by the extremely low interest rates now available for mortgages. According to Freddie Mac, the average 30-year fixed mortgage rate at the end of June was 3.13%, the lowest rate in the 49 years that Freddie Mac has been collecting and sharing mortgage data (and it went down to 3.03 % in early July).
 
While the historic low mortgage rates are good news for buyers, the not so good news is that mortgages can be somewhat harder to obtain. Some lenders have put in place tougher credit score requirements, are checking job status of applicants much more frequently, are increasing reserve requirements (the minimum amount of cash borrowers need to have left after they close), are jacking up interest rates for certain types of loans, and are deferring rate locks. Practices vary among lenders, so it pays to shop around not just for the best rate, but for the optimum set of eligibility requirements that best suit the borrower's situation.
Real Estate Transactions Are Mostly Virtual Now
In recent newsletters I detailed how the real estate sector has taken a number of steps to ensure the safety of all parties to a real estate transaction.
 
Most large real estate firms have discontinued in-person open houses. Prerecorded video tours and live virtual open houses (the listing agent shows the house via Zoom or similar video communication platform, answering questions real time) have mostly taken the place of in-person open houses.
 
In-person private showings are still taking place, but have become more restrictive, with sellers limiting access to the house to decision-makers only, and then only after receiving a pre-approval letter, and in some cases a filled out questionnaire aimed at determining Covid-19 risk. Limitations are typically imposed on the number of visitors allowed in a house at one time and, of course, everyone must wear protective equipment (mask, booties, gloves).
 
It has not become unusual for sellers to move out of a house to make it easier to sell. A vacant house minimizes risk for buyers and virtually eliminates risk for sellers.
 
Home inspections are still taking place following sensible precautions, including appropriate personal protective gear, having only the buyer present for the inspection (if at all), and maintaining social distancing.
 
Bank appraisals are being performed largely via drive by, with physical inspection of the interior of the house more the exception than the rule.
 
The need for interpersonal interactions during a closing have been pared down to the absolute minimum and much of the closing can take place remotely.
 
Thoughts for Sellers
It's understandable if potential sellers want to wait until the pandemic is more under control before they put their homes on the market.
 
But sellers should understand that it's perfectly feasible to sell right now. Procedures have been put in place by the real estate sector to address safety concerns. Serious, well-qualified buyers are looking for houses and entering into deals. And there's less competition in terms other houses coming on market, so buyers have less to choose from.
 
And if a potential seller would prefer to wait there is a middle course. Take all the steps needed to prepare a home for sale right now so that when things open up you can be as fast out of the gate as possible beating the competition by a crucial two or three weeks while a host of buyers come into the market looking to satisfy their pent up demand. That means taking steps such as completing those projects that will most improve the appearance and marketability of the house, de-cluttering, staging, and getting professional photographs and videos of the property.
 
Thoughts for Buyers
As with sellers, there are some buyers who would prefer to wait, and of course that too is perfectly understandable.
 
But potential buyers may want to keep a few things in mind about the market right now. The sellers who have kept their homes on the market or who have recently listed are motivated to sell. There are deals to be had. And mortgages can be obtained at the lowest rates they have been at in over 50 years. If a buyer has confidence in his or her job security, from a financial point of view right now is a great time to buy.
 
When things open up there's a good chance there will be circus-like feel to the market. While it's possible that prices might soften as new listings flood the market, it's also possible that lots more buyers will be back in the hunt, maintaining prices at current levels or even driving prices up. Buyers who have been keeping tabs on the market by participating in virtual open houses, taking video tours, cleaning up their credit scores and making sure they are well-qualified for mortgages will be that much further ahead of the competition when they are ready to buy.

 Data were collected from MLS PIN, National Association of Realtors, Massachusetts Association of Realtors, Great Boston Association of Realtors,US Bureau of Labor Statistics (BLS), US Bureau of Economic Analysis (BEA), Freddie Mac, and Conference Board Consumer Confidence Survey. Data do not reflect private transactions. Berkshire Hathaway Home Services Commonwealth Real Estate and its sales agents make no representation as to the accuracy of the data and are not responsible for any actions taken as a result of use of or reliance on this information.


This column of information by Steve Poltorzycki was published Monday, July 13, 2020. He is a Realtor with Berkshire Hathaway HomeServices Commonwealth Real Estate. Email him at steve at stevepolt.com if you would like to receive his real estate newsletter and see his website >> 

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