Work From Home (Wfh) Drives 427% Increase in High-End Sales
In the first quarter of 2021, Greenwich home sales were up 93% to 195 sales compared to 101 sales in the first quarter of 2020, and it’s going to get better. Our contracts are up 115%, so you can expect that April 2021 will be much better than last April. The first quarter would actually have been even better than that if we only had had more inventory.
At the high-end, transactions (sales and contracts) over $4 million are up 427% from 11 houses last year to 58 house this year. Homeowners at the high-end are adapting quickly to the Covid-driven once in a century change in work patterns and lifestyles. Changes that were already underway in the work/life balance that would have happened over the next 10 years happened in one year.
March 2021 Inventory, Contracts, Sales and Months of Supply
WFH is driving home buyers at all price levels to upsize their houses and if the buyers can do an all-cash deal this transition happens a lot faster. This trend will likely continue for years as millions of homeowners rightsize their living needs. We are seeing Covid driven buyers who are moving from the high-density, and unfortunately high crime rates in NYC, to the suburbs, but also lots of buyers in town that just need more space as everyone is home most of the time. Buyers want more space, more land, more rooms and more amenities.
Change in Inventory, Contracts and Sales From 1ST Quarter 2020 to 1ST Quarter 2021
Inventory Is Way Down
I used to lead with sales, now it’s inventory, since that is determining sales. We had 508 single family home listings as the end of March last year. This year inventory is down 45% to only 282 listings. While we added 23 new listings last week, we also had 46 listings go off the market for a net shrinkage of 23 listings. We lost twice as many listings going off the market as we saw come on the market. We normally would be adding dozens of net listings every week at this time of the year.
Last year, we started the year with 432 house listings and by March 31st we were up to 508 listings or an increase of 17.5% in the first quarter of 2020. This year we started at 293 listings and by the end of March we were down to 285 listings a drop of 2.7%. If there is any good news in this, it’s that the drop isn’t greater. Our inventory has been essentially flat since the beginning of the year. What this means is that our new listings, for the moment, are essentially matching our demand.
A Tough Time to Be a Buyer, but Maybe Not Quite as Bad as You Think
The low inventory makes for a very challenging time to be a buyer. When you are ready to buy, there is a good chance that what you want won’t be there, so you have to wait for new listings to come one. So far this year, we’ve had 302 listings come on the market, which is actually up 4.1% from last year. So, all the harping by agents that we need more listings have gotten us 9 more listings. The result is a very tight market with only 4.3 months of supply down from 15.1 months of supply last year.
As a buyer in this market, you wait and check the new listings multiple times a day and finally something comes along, that while not perfect looks pretty good. You call your agent and start driving hoping that he or she can set up an appointment to see this rare, though slightly flawed, gem. Your agent amazingly is able to set up an appointment in only 2 hours. You meet your agent and find out they are running behind and it’s going to be another hour before you can get in. You get in line with the other buyers’ cars and wait your turn.
You have 10, maybe 15, minutes to walk through the house and to make a million dollar plus decision with your agent. It’s a tight market and who knows when something else this good will come along, so you decide to put in a bid. Your agent checks with the listing agent, who informs her that yours was the 10th showing and they already have 3 offers. You decide to up your bid from full list to 108% of list. (The kids cannot stay in that apartment another year.) You scribble out your offer on the offer form your agent brought. She hands it to the listing agent who glances at it while showing out the people behind you and showing in the next people. The listing agent tells your agent that at 108% of list you are in second place and he has 15 more showings, two more than when you arrived.
The Odds of Getting Into a Bidding Battle
The whole experiencing is exciting and dreadful all at the same time; and it’s mostly not true. Even though our inventory is down 45%, and we do have bidding wars, only 22 of our 195 sales so far this year have gone for over list price. We have had another 38 listings go for the full list price. This means 60 listings or 31% have gone for full list price or better. Of the 22 listings that went for over listing price only 4 went for more than 5% over list price. For those with particularly nervous spouses, it’s actually a little bit better than that.
Also, to provide more reassurance to those who see the glass as half empty and draining fast, 11 of the 34 sales that went for what appears to be full list price actually were for “reporting purposes only”. These sales were private sales that are posted on the GMLS so we can point out to our fellow agents that we did it. They are also very helpful to me, and everyone else that follows the market closely, to know what things are selling for in these private transactions.
After all that, how many of our 195 sales this year went for (a) over list price, (b) without a price reduction and (c) were in contract in less than 21 days? (hey, some of these negotiations, inspections and due diligence really drag out.) The answer is 6, only 6 of our sales were super-hot and even for these hot houses the median amount over original list price was only 4% over list price. So, don’t panic.
Our Inventory in Three Segments
When you look at our inventory overall:
33% of our listings have been on for less than 30 days (86 houses)
37% have been on for 30 – 180 days (105 houses)
30% have been on for more than 180 days (86 houses)
So two-thirds of our listings have been on for a while. You can probably wait till the weekend to see many of these houses, but make a phone call first as I frequently find, that properties listed as active have accepted offers. This is not a time for a slow and measured pace, move quickly, but most of the time you have time, if the listing has been on for a couple of weeks.
Now, don’t get me wrong. It’s a tight market our months of supply are ridiculously low. If someone lists a nice house in a desirable neighborhood at a good price it will get a lot of showings and probably also multiple offers, but the statistics so far say that happens less than half the time. Also, what the above analysis can’t see are houses that are priced fairly and have a bidding war, but none of the bidders go over list.
These bidding wars can also happen at any time and it’s not unusual to have a house sit on the market for several months and then have a bidding war when the price is reduced. So being prepared, particularly if you don’t like what is on the market is crucial. My article on how to be the winning bidder in a hot market
is one of my most popular articles.
What I am saying is we have a hot market, it’s just not the market that you often read about in the press, not everything is going for over list with multiple offers. For sellers, this means that if you significantly over price your house, it’s going to sit on the market even in the hot market. Our buyers today are very knowledgeable about price and know when something is too high.
What About Contracts
Contracts also show that a little anxiety is due. We have 195 sales, but we have more contracts waiting to close and we won’t know until they close just how competitive the market is right now. Last year at this time we only had 94 contracts. Our contracts have more than doubled and of those 202 contracts, 51 or 25% were on the market for less than 21 days and 34 were only on the market for 14 days or less. For all practical purposes listings that went to contract that quick were only on the market for days. Over list price sales are going up when we finally seen these price close.
Economics 101 Finally and Increasing Prices
Is the hotter market and these bidding wars driving up prices? Definitely and also, it’s about time. We actually didn’t see much price appreciation in 2020. Yes, our average and median sales prices went up for single family homes, but that was mainly because of a big increase in sales of high-end homes, pulling these averages up.
If you look at the price/sf in 2020, it went up from $501 at the end of the first quarter to only $525 by the end of the year. This was an increase of only of 4.7% in possibly the hottest Greenwich real estate market every. We’ve had many years where the appreciation was in double digits. Lots of shadow inventory coming on market in the second half of 2020 kept the amount of appreciation down last year.
This year it looks like there is not much more shadow inventory left to go through. High demand with low inventory means prices increase. Our median price/sf is up 9% from the first quarter of last year and is up 4% from the end of 2020. Does this mean we are going to see 16% appreciation this year (4% x 4 quarters)? Last month I would have said that’s too high, but it’s not looking so crazy now.
May You Live In Interesting Times
We are seeing a once in a century lifestyle change. Not since the invention of the car, the telephone and the radio are we seeing so many changes in the home. The work from home movement is not going away, even when Covid does. WFH means that people need bigger houses; at the moment they need much bigger homes because of remote learning and remote work. People also want more amenities and more property as well as more rooms.
This plays right into Greenwich’s forte. Our 4-acre zoning I believe is the largest in the state. We have more houses with more rooms. We have a great hospital and excellent schools all factors that bode well for us. I do think we will evolve from WFH to WOFH where the “O” stands for either “occasionally” or “often”. Even after Covid is gone, people will still want a home office.
The concept of the home office is also evolving. It’s no longer just a desk and some bookshelves. It now comes with a whole set of accoutrements. You have copiers, scanners, supply closets, and printers. The old 3-in-1 device is just too limited. People who can afford it are not going to scan a 20-page document one page at a time.
The Evolution of the Master Office Suite
We are also going to see Zoom rooms for video conferencing. You should not negotiate $100 million deals with barking dogs and crying babies in the background. I think we’ll also see more assistants work in the home office and not just remotely. The next step is a master office suite and also guest offices. I can even see the Biden administration giving carbon credits to businesses for people not to commute. (At the same time, former presidents with lots of commercial office space being freed up will need excellent deal making skills.)
The Covid era is not like Hurricane Sandy or 9/11. The world pretty much went back to a gradual evolution, after a year or so had passed. Covid could have been like that, but ubiquitous connectivity, smart phones and a whole series of technologies that were just maturing allowed us to quickly morph to new ways of living and working. At the same time, people really want to get back together to facilitate teamwork, I just don’t see them doing that 10 hours a day, 5 days a week as many workplaces had become.
While the future is rapidly evolving around us, let’s wear masks. Covid is at another inflection point, which really needs to be a downward inflection this time. Having a low Covid rate is a real competitive advantage.
Mark Pruner is a Realtor in Greenwich, CT with Berkshire Hathaway. He can be reached at email@example.com or 203-969-7900.