A Guide to Using Real Estates Statistics to Your Advantage

What Statisics are Useful and which Statistics are Misleading

by Mark Pruner

There are a lot of statistics in real estate and they can be manipulated to tell different stories. Gleaning the gold from the lead is not always easy.

Overall house sales by month

One graph you see quite a bit in my Greenwich Sentinel column is the number of single-family home sales by month. The graph I usually use has home sales for each of the last two years, the current year and the 10-year average. What is not included in, but you often see presented elsewhere are sales numbers that include all types of real estate; co-ops, condos and sometimes even multi-family and land. If you are the Town Clerk and you want to see if conveyance taxes are going up or down the whole market is fine, but it’s not so good if you want to know how each type of property market is doing.

Condos, land and multi-family all have different types of buyers with different demand curves. There is some overlap, but generally house buyers don’t look at condos and families looking to buy land and build a new house don’t look at multi-family investment properties. Lumping them together muddies the state of the house market, and due to the size of the house market size, the other markets stats are overwhelmed by the housing market. So, when you see a sales number check and see what types of property are included.

The other thing you often see are month over month comparisons. These also are not very useful as we have a major seasonal element to our sales as you can tell by the 10-year average line for single family homes in Greenwich. The odds are very good that nearly every year in your lifetime, May sales will be higher than April sales and that November sales will be lower than October sales. Saying that sales are up or down from the prior month generally doesn’t tell you very much, because of this seasonality. If the change is different than the 10-year would predict, then something likely is happening. A good example are our July sales this year. This year and last July sales were higher than June sales and not just by a little.

If 2020 is the third year with higher July sales than June sales, we may well have a new sales curve and this may be to our detriment. If sales are moving to later in the year as they did this year and last year, then pundits are likely to see the market as weaker than it is by assuming second half sales will be similar to the first half of the year.

It’s going to be harder to say just how well the market is likely to do for the whole year by the end of the first half of the year. In 2007 56% of our sales were in the half of the year, while in 2018 it was only 46%. A 10% difference doesn’t seem like a lot, but it means that sales as a percentage of the whole are down 20% in the first half of 2018 compared to the whole year percentage in 2007.

As of 9/30/2019 Inventory Contracts Last Mo. Solds Last Mo Solds+ Contracts  YTD Solds  YTD+ Contracts Mos Supply Mos w/ Contracts Last Mo. Annlzd
< $600K 4 4 4 8 15 19 2.4 2.2 1.0
$600-$800K 24 5 4 9 26 31 8.3 8.1 6.0
$800K-$1M 22 4 5 9 37 41 5.4 5.6 4.4
$1-$1.5M 65 15 8 23 80 95 7.3 7.2 8.1
$1.5-$2M 90 11 9 20 65 76 12.5 12.4 10.0
$2-$3M 122 16 6 22 90 106 12.2 12.1 20.3
$3-$4M 105 7 2 9 40 47 23.6 23.5 52.5
$4-$5M 55 3 4 7 19 22 26.1 26.3 13.8
$5-6.5M 49 2 1 3 15 17 29.4 30.3 49.0
$6.5-$10M 53 1 2 3 14 15 34.1 37.1 26.5
> $10M 33 1 1 2 6 7 49.5 49.5 33.0
                   
TOTAL 622 69 46 115 407 476 13.8 13.7 13.5

Pundits are going to be making dire prediction in early July unless they adjust the 1st half sales up to account for our shift to second half sales. This will be particularly so as our sales over $5 million shifted to later in the year several years ago.

Months of Supply

Months of supply is also another very useful way to look at the overall market and at particular segments within the market. The good thing about this metric is that it includes not only sales, but the current inventory. It sets out how long it would take to sell our present inventory based on the prior sales rate. For an easy example if we had sold one house a month so far this year and you have 9 house in inventory then you have 9 months of supply.

You can also look at months of supply in different ways; such as only actual closed sales, sale and contracts, or just last month’s sales annualized. If I am representing the seller, I like to see each of these number decline. For example, our September closed sales numbers show that from $600K – 800K we have 8.3 months of supply, not particularly good for an under a million-dollar price range in Greenwich. That however includes the poor first half and the good third quarter.

When you add in contracts and assume they will all close in 45 days you get 8.1 months of supply. A little lower, but the buyers aren’t as active as we’d like given the inventory we have on the market. The good news is that when you annualize the four September sales in this price category you are down to 6 months of supply so as of September this part of the market is looking up even though inventory is up 50% over last year.

Days on Market

Months of supply sometimes gets confused with days on market. If you total up the number of days each house was on the market and take the average, you get days on market for the whole market. If each house came on the market and sold on average in 45 days, then you have 45 days on market (DOM). The lower the days on market, the hotter the market, as buyers snatch up houses within weeks of coming on the market.

If you had 45 days on market for the average time a listing was on the market you would have a very hot market. Right now, we have 141 days on market for our sold properties and 169 days on market for unsold listings. This is generally pattern as the well-priced, nice house sell quicker than the over-priced houses that sit on the market.

Curiously, the average days on market initially goes up in a hot market as houses that have been on the market for months and years are finally finding buyers. This is a number where the difference between the average and the median can be quite large. All you need is for a couple of houses that have been on the market for 1,000+ days to sell and the average days on market will jump while the median will barely budge. (BTW: In the prior paragraph I didn’t tell you whether I was using the arithmetic average or the median for the 141 DOM sold and the 169 DOM inventory. The better number is the median and that what these number area. The median is as affected by the long tail of days on market. The average DOM for solds is 238 days on market and the DOM for our inventory is 262 days. We have some people that have listed their houses for a really long time.)

Days on market varies significantly by price range. The lower the price range the lower the days on market. We also see the same effect in months of supply. The rough rule of thumb is that months of supply under 6 months are a seller’s market, but your get over $5 million and sellers start feeling good when months of supply drops below 12 or ever 18 months. (Sellers haven’t been feeling good for a few years now in those price ranges.)

So, if you are thinking about listing your house or considering buying, what numbers should you look at? Here’s a quick 5-point check list:

  1. Overall are sales and inventory up or down?
  2. How are sales and inventory changing in your area and your price range?
  3. What is the months of supply for sales, what about with contracts and for the prior month annualized?
  4. What is the difference in median sales DOM and inventory DOM? Is it getting better or worse?
  5. How is your market doing on a year over year basis and against the 10-year average?

For the seller, months of supply and days on market are significant factors in how aggressively you have to price your house. When these numbers are high you want to be at the lower end of price per square foot and have better staging than your competition. For buyers, you can afford to be more aggressive in your negotiating, particularly where you have  other options that are satisfactory.

But numbers are just numbers, when it comes down to one-on-one sales negotiation. When you are negotiating you want to know the needs of the other persons, there personalities and their stress tolerance. In negotiations these are often more important than how soft or weak the market is. Knowing the numbers and knowing how to negotiate in the Greenwich market is what gives you the best result, a sense of control and can even make buying or selling a house fun.

Greenwich, CT Sales Looking Good Particularly Compared to NYC

Inventory Down, Contracts Up, Sales Unchanged

by Mark Pruner

The market for homes in Greenwich in the third quarter was good in Connecticut particularly compared to a major slump in sales and prices in New York City. We had 181 home sales in the third quarter of 2019 which was about the same as 185 home sales in the third quarter of 2018 and 184 sales which is our ten-year average for home sales in the third quarter.

Our inventory was down a little bit, 3% lower, as of the end of the third quarter. We had 622 listings down from 643 listings at the end of Q3 2018. This is after we had a poor first and second quarters in 2019 where inventory was up, and sales were down in Greenwich.

On the sales price side, the median sales price for a house in Greenwich, CT is up 2.7% to $1.90 million from $1.85 million last year. At the same time the average sales price for a house in Greenwich is unchanged at $2.43 million. I wouldn’t however get too excited about this sales price increase.

Lots of people like to focus on these numbers as indicative as to what the value of individual houses are doing, but as I have written before the main thing that drives changes in the average and median prices is not a change in house values, but a change in the mix of what is selling.

The sales slump in the first half was more concentrated in the under $2 million market. As a result, median prices went up, while at the same time prices for high-end houses in mid-country and backcountry are continuing to see resistance from buyers. The result in higher end house prices have declined while our median price has gone up.

As of 9/30/2019 Inventory Contracts Last Mo. Solds Last Mo Solds+ Contracts  YTD Solds  YTD+ Contracts Mos Supply Mos w/ Contracts Last Mo. Annlzd
< $600K 4 4 4 8 15 19 2.4 2.2 1.0
$600-$800K 24 5 4 9 26 31 8.3 8.1 6.0
$800K-$1M 22 4 5 9 37 41 5.4 5.6 4.4
$1-$1.5M 65 15 8 23 80 95 7.3 7.2 8.1
$1.5-$2M 90 11 9 20 65 76 12.5 12.4 10.0
$2-$3M 122 16 6 22 90 106 12.2 12.1 20.3
$3-$4M 105 7 2 9 40 47 23.6 23.5 52.5
$4-$5M 55 3 4 7 19 22 26.1 26.3 13.8
$5-6.5M 49 2 1 3 15 17 29.4 30.3 49.0
$6.5-$10M 53 1 2 3 14 15 34.1 37.1 26.5
> $10M 33 1 1 2 6 7 49.5 49.5 33.0
                   
TOTAL 622 69 46 115 407 476 13.8 13.7 13.5

 

So, the third quarter was pretty average for sales, but this is excellent when you see what higher taxes have done to New York City. While Greenwich sales chugged along in the third quarter, New York City saw sales fall 11.5% overall and a huge 31.5% over $2 million according to a report by Josh Barbanel in the Wall Street Journal this week. The median sales price dropped from a high of nearly $1.4 million in the second quarter to $1 million in the third quarter or a drop of 25% in just one quarter.

This is because Gothamites with money are now getting soaked with an expanded transfer tax to once again stick it to their wealthiest NYC buyers. Gordon M. Summer, aka Sting, had signed a contract before the new tax kicked in and didn’t pay any increase in tax on his $65.8M condo purchase. Stanley Druckenmiller, who bought after the new tax kicked in, paid $2.4 million on his purchase of a $53 million co-op according to the WSJ.

We shouldn’t get too self-congratulatory as our own legislature passed their version of a mansion tax that will kick-in on sales over $2.5 in July next year. Even at the new higher rate, we are still talking about only a 2.25% conveyance tax on. This is a fraction of NYC transfer tax on higher end properties. Having said that you can expect that June 2020 will be a record month for high-end sales and July 2020 will be a bust for sales. Still, we are looking forward to welcoming more tax refugees from New York as Greenwich with its extraordinarily low property tax has done for decades.

We may actually be seeing a little of that right now as our sales from $6.5 – 10 million are up 75% compared to last year with 14 sales compared to only 8 sales last year. A significant part of this increase is the drop in prices of houses over $10 million to the next price range down. This has resulted in some real bargains for those at the high-end and who are fleeing NY’s higher taxes.

I like to take a positive, but realistic, view of the market and what I’ve been touting as good sales is essentially unchanged from last year for the third quarter and this is after a slow first two quarters. This looks good in comparison to NYC, NYS and other parts of the state. Still we are seeing the changes of the federal tax law ripple through Greenwich and the rest of the northeast. The loss of the SALT deductions at the federal level and also the limit on mortgage deductibility have clearly had an impact.

You can see the mortgage deduction limitation If you look at the $1.5 – 2.0 million market. Most years our months supply is a smooth increasing curve with very low months of supply under $600K with ever increasing months of supply to the over $10 million market. We have a kink in the curve at $1.5 – 2.0 million. That price range has 1.25 months of supply, actually a little higher than the months of supply from $2 – 3 million. The $1.5 – 2 million price range has lots of young families buying who are particularly sensitive to the loss of deductibility on mortgages over $750,000. Since the mortgage interest payments aren’t deductible for mortgages over $750K, inventory accumulates, and sales are somewhat lower.

Summary

Overall, it’s good being average right now if you live in the northeast. Here in Greenwich, we are also seeing significant building activity. I drove a client down Sumner Road in backcountry Greenwich this week and there are three large houses under construction on this prestigious street just off prestigious Round Hill Road. People are investing some big bucks in Greenwich real estate not only for custom homes, but also for spec homes.

As for October we’ll have to see. Our contracts are up 15% over last September, but it’s only 9 houses to 69 houses. Still our 10-year average for sales in October is only 42 houses so stay tuned to see just how much NY and NYC can help out Greenwich real estate.