In this newsletter we outline the key findings in the analysis section of the 2016 Lexington Market Review. Contact us for the full 20-page version for either Lexington or Arlington.
Analysis of the Lexington real estate market for 2016 has one clear finding: NOT ENOUGH INVENTORY. Demand was very strong and multiple offers were common in some price ranges resulting in an average sales to list price ratio of 99%. After a flattening of the average sales price in 2015 the average sale price rose 5.6% in 2016.
It is worth noting that although 50% of homes sold at asking price or more, 50% of homes sold for below asking price. New construction continues to be a large component of the market. As in prior years, the luxury market is not as strong as the lower price points. With the economy remaining strong and consumer confidence continuing to grow, demand in the town is likely to remain strong although political uncertainty and projected increases in the mortgage interest rate in 2017 may dampen price appreciation.
Housing inventory is a monthly snapshot of the number of homes available to buy. The bottom of the market was in 2009 and 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 into 2016. The extremely low inventory in the initial months of 2015 was due to the severity of the last winter. 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 shows that this is caused by increased demand.
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 are direct-to-builder off market teardowns. 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 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.
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 the result of an increased number of lowerpriced homes (less than $1 million) and fewer higher-priced homes (over $2 million) selling. 2016 saw a return to rising prices with a 5.6% increase in average home prices to an all-time high of $1.2 million.
The number of luxury homes sold in 2016 was 28 compared to 20 in 2015. The number of new construction homes sold in this price range rose sharply in 2014 but decreased to half the number in 2015. 2016 saw 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.
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. Clearly long-time Lexington builders, and increasingly out of town builders, see Lexington as a very profitable town in which to build. The number of new construction homes sold increased dramatically in 2014 to 70 homes but decreased slightly to 66 in 2016. The Floor Area Ratio (FAR) regulations came into affect early in Q2 2016 and so it is too early to say if this is the reason for the slight decrease in the number of new construction sales.
2017 will see more sellers entering the housing market as they capitalize on the higher prices. This increase in supply will be partially offset by an increasing number of home owners renting their homes rather than selling. Demand will remain high as a flow-on effect of the large number of Millennials enter the housing market. Mortgage interest rates will rise in 2017 and this will put downward pressure on the level of price appreciation we have seen recently. The popularity of Lexington is highly dependent on the school system remaining highly ranked. The increasing number of school-age children entering Lexington (caused in part by empty-nesters departing the town and the large number of new construction homes) and the associated pressure this puts on class sizes means that a reduction in Lexington's position in national school rankings, and the resultant slowdown in the Lexington housing market, has a high probability of occurring within 3-5 years unless remedial action is taken. As an indication of this Lexington High School has declined in the Newsweek "Americas Top Public schools" ranking - from 19 in 2014 to 80 in 2016.
If you would like an estimate of what your home would sell for in today's market I would be more than happy to come by, have a look at your home, and then provide a CMA (comparative market analysis) which will provide you with an estimate of what your home should sell for, along with a marketing plan to get maximum exposure for your home.
If you'd like to chat more about the topic presented here, or the Real Estate market in general, then please call me on (617) 997 9145, or email me at Dani.Fleming@MAPropertiesOnline.com.