Single Family Homes Sales Price Distribution
In 2023, single family homes sold in the Lexington market consisted of new construction (16%), off-market teardowns (11%) and existing homes (73%).
Platform
Home > Communities > Lexington > Lexington Market Review > Analysis and Predictions
Analysis and Predictions
The 2022 Lexington housing market was dominated by two factors. The COVID effect (changing housing requirements) declined and was replaced by the normal cycle of downsizing, move-up, and relocating sellers. In mid-2022 mortgage interest rates increased dramatically. The 2022/2023 predictions for a declining mortgage interest rate were wide of the mark with the rate at the end of 2023 at almost 8% compared to the prediction, 12-months earlier, of 5%. As we write this in January 2024 the prediction for the end of 2024 is 6%.
These continued high mortgage interest rates abruptly put the brakes on the housing market for buyers (unable to afford the monthly payments) but also for sellers (reluctant to take on a new mortgage 3-4% higher than their current one). The overall effects were a decrease in the number of homes both listed and sold to levels not seen since the housing crash in the mid-2000’s and price appreciation at 1-2%, a value lower than we have seen in recent years.
Turning our focus to 2024 and beyond we predict the following.
- The normal cycle of downsizing, move-up, and relocating sellers will continue with slightly higher number of homes sales than we saw in 2023. This is dependent on the downward trend we are currently seeing in mortgage interest rates continuing throughout 2024.
- Early indications are that some home buyers that were unsuccessful in 2023 are already active in the market. There is some hesitancy with buyers with mortgage rates still over 6% and uncertainty over the medium-term market condition and price appreciation. This hesitancy will subside as mortgage interest rates decline as the year unfolds. As such, we anticipate sales at slightly higher levels than in 2023 and slightly positive price appreciation for single family homes in 2024.
- The luxury market (homes sale prices over $2.5 million) performed well in 2023. But there is over-supply, in part, driven by the dramatic increase in new construction home prices. With almost 1 year of supply already built or previously listed in 2023, 2024 will be dominated by this unsold inventory and new construction homes being completed in 2024. This will put downward pressure on prices in this market. One question we have is “how will developers react to this?”. The answer is uncertain, they should “build cheaper homes” but given the fragmented nature of the developer community this is not certain to occur.
- The condominium market will return to the market conditions seen pre-COVID. The high condominium association fees, when compared to surrounding towns, will dampen demand in this market. We predict condominium sales to remain at 45-55 sales per year and price appreciation to remain slightly positive.
Demographic Changes
The major demographic changes we are seeing are an increase in the number of Millennials entering the housing market for the first time and an increase in the number of downsizers as the baby boomers reach retirement age. In 2020 and 2021 these demographic shifts were overshadowed by changing housing requirements as buyers reacted to the new normal of, for example, hybrid work models. 2022 saw a return to the pre-COVID environment with homes sales declining to the 2018/2019 levels.
Having stated, along with major mortgage analysts, for the last few years that mortgage rates are anticipated to remain at a low level, 2022 broke this trend with rates rising rapidly in mid-2022 and this trend continued into 2023. As we have shown this had a major impact on the second half of 2022 and all of 2023. The mortgage rate is projected to decline throughout 2024 and, if this occurs, we can anticipate both buyer and seller hesitation to diminish over this period.
Sale Price to List Price Distribution
The real estate market outlook in Lexington is relatively positive with many homes selling with competing offers and selling for at, or above, the asking price. Why then in the strong sellers’ market seen in January - June did 43% of homes sell for less than the asking price? The answer lies with three factors – the presentation, marketing, and pricing strategy in selling the home. Buyers are highly educated about home values and listing a home at too high a price is a clear red-flag to buyers, who then ignore the home until the price drops below market value. A focus on the fundamentals is critical to attain a sale price equal to, or over, the asking price when selling a home in 2024 and beyond. The fundamentals include preparing the home to be move-in ready, presentation of the home including staging, marketing the home including all digital aspects of video, photos, floorplans, 3D tours and multi-channel advertising campaigns, and realistic pricing are critical.
