The New Tax Law Raises High-End Sales and Lowers Mid-Range Sales
by Mark Pruner
The Tax Cut and Jobs Act of 2017 passed by the U.S. Congress has had two major effects on the Greenwich, CT real estate market. The first is to accelerate the sale of high-end houses, those over $4 million. The second is to increase inventory and reduce sales for houses in the $1 – 3 million price range.
|As of 4/1/18||Inventory||Contracts||Last Mo. Solds||Tot. Solds+ Contracts||YTD Solds||YTD+ Contracts||Mos Supply||Mos w/ Contracts|
In the high-end Greenwich market, inventory has dropped by 39 listings or 18% to 179 listings. At the same time that we have fewer listings, we have significantly increased sales and contracts. For the first quarter, high-end contracts and sales are up to 40 houses over $4 million. This is a jump of 60% in activity and this totals over a quarter billion dollars of high-end transactions in the first quarter of 2018; this in a town of only 62,000 people.
While Connecticut is thought of as a high-tax state, the Town of Greenwich has the lowest property tax rate in the New York metro area. As a result, high-end buyers are flocking to Greenwich in 2018. Greenwich’s grand list of all properties is the largest in the state and that along with prudent fiscal management has resulted in the lowest mill rate in the metro area.
This prudent fiscal management is a bipartisan effort in town. The Board of Estimate and Taxation just switched control from the Republicans, where it had been for 100 years to the Democrats. Despite the change in control, the BET is proposing a 0.00% increase in the present mill rate of 11.37. While there were several factors that went into this no tax rate increase, one factor was an effort not to further burden town residents who saw the effective cost of their property tax rise as a result of the Tax Cut and Job Act’s $10,000 limitation on the deduction of property and state taxes.
Once the town budget of $424 million is approved by the Greenwich Representative Town Meeting and the new mill rate becomes official, we may well see even more buyers snatching up high-end homes in Greenwich.
While the federal tax act has had a positive effect on high-end sales, it appears to have had a negative effect on sales from $1 million to $3 million. In that price range inventory is up 42 listings while sales and contracts are down 15. Two provisions in the new tax act have their greatest impact in this price range. The drop in deductibility of property taxes and state taxes, has spurred more people to list their homes for sale. While on the buyers side the benefits of buying were reduced somewhat with the reduction in the mortgage deductibility from $1 million to $750,000.
A bigger factor however is the increase in mortgage rates. Most buyers in this price range, unlike at the high-end, have mortgages. The reduction of mortgage and property tax deductibility along with the increase in interest rates has been a significant factor in reduced sales and contract. Overall, however, the economy is doing well and contracts in this price range are also up from last year despite a snowy March. Only time will tell how the various contending forces will impact this price range.
The market from $1 – 3 million represents about half of the inventory and sales in Greenwich so changes in this market segment greatly effects the total sales in the town. Total sales of single family homes in Greenwich was down 23 houses or 18% from last year.
We also saw a reduction in sales under $800,000, but this was due more to a lack of inventory at the low end. Demand for houses under $1 million is always strong in Greenwich and the result has been price appreciation pushing most houses above the $800,000 price range. Some of the drop in sales from $1 – 3 million was offset by the increase in sales over $4 million. The $1 – 3 million dollar price range has seen an increase in contracts this year, so the downturn in sales in the first quarter may be reduced in the second quarter of 2018.
As you might expect with high-end inventory down and sales and contracts up in the first quarter Greenwich saw dramatic drops in months of supply. Over $10 million months of supply is only 2.5 years. This compares to 2016 where Greenwich had over 10 years of supply in its ultra-high-end price range. With contracts included Greenwich has barely a year’s supply of houses from $4 -5 million. This is down from over 3 years of supply in the first quarter of 2017.
In 2018 high-end sales represented 20% of the market in the first quarter compared to only 14% of the market in the first quarter of 2017. On the contract side the high-end market had 19% of high-end contracts compared to 12% last year.
In the middle of the market from $1 – 3 million, sales this year were 47% of the market compared to 62% last year. On the contract side this price range had 49% of the contracts compared to 47% last year, so we should see some recovery in the second quarter.
Clearly, the new tax law is having a significant effect. At the high-end low property tax rates are encouraging people to move to Greenwich. In the mid-range from $1 – 3 million, limitations on state and property tax deductibility is encourage more people to list their house for sale, while higher interest rates and these same deductibility limitations are decreasing the number of buyers slightly. Greenwich’s fiscal prudence going forward will pay off in increased sales in the future as other areas are seeing tax increases.