GREENWICH REAL ESTATE AFTER THE PANDEMIC – The Benefits of Xenophobia & Is Nesting Dead?

The COVID-19 pandemic is a sea change event for the world and for the Greenwich real estate market. We will have a B.C. market, before COVID-19 and an A.P. market, after the pandemic. The change in our market may even be greater than that wrought by the Great Recession.

I moved here in 1967 and it wasn’t until the Great Recession that we saw the Greenwich real estate market turned on its head.  The Great Recession brought on what I call the nesting phenomenon in Greenwich. No longer was a huge house on a large tract of land on a cul-de-sac in backcountry the ultimate house. Post-recession people wanted live to closer to town and transportation. They wanted to be part of a community where they could see people walking by on the sidewalk in front of their house and their neighbor’s kids in the back behind them. The result was increased values in Old Greenwich and Riverside and decreased values in backcountry and mid-country.

There is a very good chance that this pandemic will kill the nesting phenomenon and bring a new normal, A.P. that in some ways is reminiscent of what we saw in the 20th Century.

I.        The Pandemic, Renters and Lower Property Taxes

So far, the pandemic has had its greatest effect on rentals and particularly short term rentals. Lots of New Yorkers want to get out of the city to a safer place. Most of them see this as a short-term housing issue and would ideally like a three month rental, but this attitude as evolved this month. As we get further into April many of the prospective renters are saying let’s make it a full summer rental with an early start. Many renters are now looking for 5 month rentals and staying in Greenwich through Labor Day.

The short-term renters maybe able to help lower our property tax rate. They will be a major factor in how our real estate market will do in the A.P. world. They are the ones that are going to tell their friends what kind of reception they got in Greenwich and whether their friends in NYC should be looking in Greenwich.

I wrote an article back in 2018 proposing a “Greenwich card” that would let residents use all of our facilities; beaches, tennis courts, the golf course and our libraries all with just one card rather than the balkanized system that we have now. This summer would be a great time to package all of our cards into one for summer renters and let realtors or landlords apply for the package. Right now, the first thing rather than make the first thing a tenant do. People coming to Greenwich for the summer don’t want to stand in line at Town Hall and the Eastern Greenwich Civic Center.

Many of these summer renters will buy in Greenwich and likely in mid-country and backcountry. This would be a great way to add back value to our Grand List that has disappeared in north Greenwich. More of these people buy the lower the taxes for everyone.

II.      Greenwich the New Sweet Spot for Second Homes

The pandemic has exacerbated the animosity that some people in rural areas have for people who own vacation homes. In Nantucket the locals call them wash-a-shores, though usually with a smile on their face. In other parts of the country there is no smile. To see a blatant display of this, check out a Buzzfeed article entitled, “This Pandemic is Not Your Vacation”. The writer who lives in Montana blames the spread of the coronavirus on wealthy people from the cities relocating to their vacation homes. She says, the rich don’t only bring the virus with them, but they “often don’t work at all”, don’t honor social distancing, have a “sense of entitlement”, “are not respecting locals” using all the local Internet bandwidth and eat up the limited food supply, and are “overwhelmingly white”.

This article is clickbait, a Buzzfeed specialty. It is designed to get lots of clicks, forwards and social media posts. Clickbait emphasizes an “us” versus “them” mentality. Instead of uniting people and emphasizing an “all in this together” mentality it emphasizes division. In this case, what the article is saying is that wealthy, white, New Yorkers should stay home and die quietly in their Manhattan co-ops. (Okay, that last sentence was click-bait, but it does illustrate a growing issue in many vacation areas, that this .) As Dr. Fauci said, this pandemic will not end like turning off a light switch, we are going to see continued restrictions for months and even into next year. Some vacation homes in these rural communities may not feel so “vacationy” this summer.

A good point that the article’s author does make is that these rural areas do not have the medical facilities to handle a major COVID-19 outbreak. This is another area where Greenwich shines. We have a great hospital. I want to thank all the doctors, nurses, staff and volunteers that keep it that way. They have done an excellent job of handling this crisis. Our hospital will give Greenwich a major leg up in an A.P. world.

And, my favorite reason to live in Greenwich is a recent study published in the International Journal of Environmental Health and Public Health, that “found a strong correlation between low exposure to nature during childhood and higher levels of nervousness and feelings of depression in adulthood.” So, if you don’t want your kids to have a lifetime of depression that are better off in Greenwich. (OK, that was clickbait too.)

III.    What’s next

The consensus among most agents here in town is that we are going to see a good second half of the year. The first quarter of this year saw sales, contracts and rentals significantly above last year. Even March sales during the pandemic were up 29% over March 2019. For April, the number of transactions flattened last week, but houses sales are still happening.  In the first 17 days of the month we have had 17 sales spread fairly evenly throughout the town. This compares to 34 sales for all of April last year.

We will likely see better sales in mid-country and backcountry as people want more space. With luck, and some proper marketing, we may also see the return of our 20th Century pattern of people buying weekend house that they use year round and occupy full time in during the summer months as they commute into the city. We could see a revival of the term “summering in Greenwich.”

I also expect that we will see buyers looking at local healthcare as a factor in deciding where to live. (It would be great if Greenwich Hospital had a tour for prospective home buyers.)  Not only has Greenwich Hospital done well with handling the COVID-19 crisis they also have excellent maternity care. (One of the questions on admittance is, “Would you and your husband like steak or lobster for your post-partum meal?”)

IV.    The Environment for Sellers and Buyers

Interest rates are low and both buyers and sellers are motivated. Buyers are looking for houses outside of the hot zone and can buy with low financing costs. Sellers have the uncertainty of knowing what is happening in the future and many want to get deals done now.

If you are a seller, now is a good time to talk to your real estate and financial advisors. About a quarter of my time is spent discussing with people what they should do, whether to wait or list. For the pessimist, or as the like to be called, the realist, who see the market going down, now is the time to list. Before real estate I was in the petroleum business and the rule for oil drilling companies is when times are bad sell your rig now, because you will get even less in the future.

For the optimist, who sees demand and prices going up, a major question becomes will we see a return of “the house as an investment asset” its use as way to diversify assets. Much of what drove the housing bubble were sellers buying more house than needed because of the double digit appreciation they could get on the additional investment. We may well see, house prices increase, this year and next if demand is great enough, but is that a reason to hold the asset waiting for additional appreciation. We are in an economy where many assets have single digit returns, but thinking to hold on to your house, because of any expected double-digit appreciation in the future may well result in a long wait.

 

So, we almost certainly see major, and potentially long-lasting, changes in our market this year and next year. If we as a town take a proactive approach, we can make what happens better. A V-shaped recovery could leave us even better off than last year. Even in a more prolonged downturn, we might see sale rise as we are a small oasis in a large metropolitan area. Let’s pray for everyone and especially those people on the front lines.

Mansion Global Looks at future of New Yorkers moving to Greenwich post-COVID-19 (MP quoted)

Virginia Smith has a good article in Mansion Global, As Wealthy New Yorkers Flee the City for Suburbs, Will the Exodus Be Permanent? It discusses what is happening in the New York Suburbs. As Ms. Smith mentions Greenwich sales are up for the 1st quarter and for the month of March. (Contracts are are up and deals are still being done.) This increase in sales is nice change from 2019 when the combination of the $10,000 SALT tax cap and the reduction of the mortgage interest deductibility resulted in lower home sales in Greenwich. Despite COVID-19, sales and contracts are doing better 2020 than in 2019. Interest rates are down, NYC buyers are more motivated due to the virus and in the perfect storm, Greenwich sellers are more amenable to doing deals as the future is uncertain.

The question is what happens A.P., after the pandemic. As I say in the article, the general consensus is that we are going to see a surge in sales as these factors encourage buyers to pull the trigger. One additional benefit Greenwich now has, that wasn’t a significant factor, before COVID is Greenwich Hospital. Greenwich has an excellent and large hospital that is affiliated with Yale-New Haven. It has performed well in the pandemic. Before the pandemic, second home buyers didn’t really consider the size and quality of local medical facilities. Going forward having a well run medical facility will likely be a factor in where home buyers locate.

Stay tuned, we live in interesting times . . . .

GREENWICH 1ST QUARTER 2020 – HOME SALES, CONTRACTS & RENTALS UP

Greenwich had a much better 1st quarter for home sales this year than we had in the 1st quarter of last year.

                Sales & Contracts Up

As of 3/31/2020 Inventory Contracts Last Mo. Solds Last Mo Solds+ Contracts  YTD Solds  YTD+ Contracts Mos Supply Mos w/ Contracts Last Mo. Annlzd
< $600K 6 2 0 2 2 4 9.0 6.8  –
$600-$800K 23 7 4 11 9 16 7.7 6.5 5.8
$800K-$1M 25 5 5 10 8 13 9.4 8.7 5.0
$1-$1.5M 53 17 10 27 25 42 6.4 5.7 5.3
$1.5-$2M 62 15 2 17 15 30 12.4 9.3 31.0
$2-$3M 103 28 7 35 18 46 17.2 10.1 14.7
$3-$4M 78 12 2 14 14 26 16.7 13.5 39.0
$4-$5M 48 1 1 2 5 6 28.8 36.0 48.0
$5-6.5M 42 3 2 5 5 8 25.2 23.6 21.0
$6.5-$10M 39 2 0 2 0 2  – 87.8  –
> $10M 29 2 0 2 0 2  – 65.3  –
                   
TOTAL 508 94 33 127 101 195 15.1 11.7 15.4

 

Our sales were up 36.5% in the 1st quarter from 74 sales last year to 101 sales this year. The coronavirus caused a slight dip in transaction in the third week of March, but transactions came back last week. For the month, we had 33 sales up from 27 sales in March 2019. This an increase of 22.2% despite the coronavirus and contracts are also up. We ended the quarter with 94 contracts waiting to close compared to 67 contracts at the end the first quarter in 2019 for a Y-o-Y increase of 40.3%.

                Inventory Down

One area that clearly has been affected by the coronavirus is inventory. Last year at the end of the quarter we had a 608 single family homes in inventory and this year we only had 508 homes available as of the beginning of April. Many homeowners are  keeping their houses off the market. Many owners just don’t want people in their houses right now. Also, without public or realtor open houses traffic is down, but the buyers that are out there are serious buyers.

Our inventory is down by 100 listings and that is pretty much across the board all the way from $800,000 up to $10 million inventory is down as fear has no price range. On the sales side, our sales are up by 27 houses for the quarter and that is also nearly across the board. Sales are up from $600,000 all the way up to $6.5 million. Above $6.5 million we did not see a sale so far this year compared to 3 sales last year. We do have 4 contracts at the high-end and this compares to only 3 contracts last year.

High-End Sales Shifted to 4th Quarter

For the glass half-empty types, this shortage of high-end sales in the first quarter is seen as a sign of a weak market, and there a little truth in that. What it is more indicative of is the way Wall Street awards bonuses and the timing of purchase. Before the recession, Wall Street firms and Greenwich hedge funds used to give out large cash bonuses early in the year. The result was a spike in high-end sales in February and March giving Greenwich a nice glow for the rest of the of year.

Now bonuses are given out later in the year and often in restricted stock that vests over several years. The post-recession result is that the peak for high-end sales has shifted to the September to November period. I wouldn’t start worrying about a “weak” high-end market in the first quarter, when it’s just as likely a typical post-recession temporal shift.

                Showing Houses Carefully

Realtors that are willing to show houses are taking precautions with everyone wearing gloves. Some agents will make the house ready for showing and stay outside while the buyers and their agent go through the house. Social distancing is very much the rule.

                Rentals Up, Particularly Short Term Rentals

We are also seeing an explosion of rentals, which are up 44% over last year. Rentals went from 68 in the first quarter last year to 98 rentals this year. We normally only have a handful of short-term rentals, but with the coronavirus short-term rentals are way up, particularly at the high-end. Snowbirds are staying in Florida and people with second homes are heading out to those places. A bunch of these folks have made their houses available for folks that want to get out of NYC and it’s not just in Greenwich. This week, I’m putting on a 12,900 s.f. house in Westport for a 2 month rental at $25,000 per month. We already have two showings scheduled, before we can even get it listed.

                Comparing 2020 to a “Normal” 2018

If you’ve read this far you might think things are pretty rosy in Greenwich real estate and in many ways they are. The issue is the year over year comparisons. Last year was not a good year for Greenwich real estate with sales down 11.3% in 2019 compared to 2018. In Greenwich, unlike in the Westchester County, our sales drop due to the $10,000 cap on SALT taxes was delayed by a year. Westchester cratered in 2018 as our sales went up 4% that year. This unusual 2018 sales increase was partially due to the BET freezing tax rates in 2018 at 2017 levels. By 2018, the impact of the Tax Cut and Jobs Act income and income and sale tax deduction limitation caught up with us.

If you compare first quarter of 2018, when our sales went up, to the first quarter of 2020 you see the same sales 101 in the first quarter of 2020 compared to 102 in the first quarter of 2018. March sales were about the same with 33 sales in 2020 and 35 sales in the first quarter of 2018. As you might expect inventory was higher in 2018, a time when most people outside of Greenwich Hospital had never heard of a coronavirus.

Bottomline, the coronavirus effect has essentially balanced out sales to a normal year. Fewer people are looking, but a larger percentage are buying. With inventory down and sales up our months of supply is also down from $600,000 to $6.5 million and the same when you add in contracts. While not a tight market it is a competitive market.

                May You Live in Interesting Times

What will happen going forward is anyone’s guess. No one alive today has ever experienced this type of global pandemic and we don’t have medieval real estate records for the Black Plague. The last time something like this happened in the U.S. we were in World War I.  If the virus peaks in April and declines, we may well see an even better rebound in the second half of the year. If it hangs on, we could be up, we could be down. Stay tuned.

 

Escape from New York: City dwellers fleeing coronavirus are flocking to Connecticut – (MP quote)

Hartford Courant

Jesse Leavenworth of the Hartford Courant has a good article surveying how short-term rentals are doing in Litchfield County, along the Connecticut shoreline and in Fairfield County. (I got quoted about the Fairfield County activity.) It seems rentals are busy just about everywhere in Connecticut. For the year so far Greenwich rentals are up 44%. High end rentals are going particularly fast.