Column: Nov. Sales Way Up 80% – Contracts Down 13%
By Mark Pruner
Greenwich home sales were up dramatically in November. Last month, we had 43 sales compared to only 24 sales in November 2016, or a jump of 80%. It seems a lot of people may have been waiting for the Connecticut budget issues to be resolved before closing.
Now, you would think that events that happened after the contracts were signed would not affect the number of sales in any particular month, but this is often not the case. People wait to see what is going to happen before setting a closing date. The result is that this October was only an average month while November was up almost double from last year.
The 80% jump in sales number this November compared to last November is mathematically accurate, but a little deceptive. November 2016 had the same time-shifting problem with sales way down that month followed by a big jump up in December 2016. If you compare our November 2017 sales to last year, you look at our 10-year average, our 43 sales are up 23% from our 10-year average of 35 sales. A nice jump, but not as dramatic as a year-to-year comparison.
It is interesting to note the prices where these sales increases are. In November, we saw 12 more sales from $800 thousand to $2 million price range. The $1.5 – $2 million price range had been slow this year even with higher inventory available for purchase, so to see these additional sales was a nice November gift.
The high-end above $5 million continued to do well with 15 more contracts waiting to close compared to last year. Our high-end inventory has also been down all year, and, as of the end of November, we had 39 fewer houses on the market than last year at this time. Our sales for this category are also 21 sales.
The result of lower inventory and substantially increased sales is massive drops in months of supply for the high-end compared to previous years. Months of supply are down from $5 – $6.5 million by 1.5 years, and from $6.5 to $10 million we are down by 3 years of supply. Over $10 million we are down by an amazing 6 years of supply from 121 months, or 11 years of supply to 48 months, 4 years of supply.
If you follow my months of supply charts at GreenwichStreets.com, the over $10 million months of supply has literally been off the charts for years. It is still much higher than other price categories, but people are buying very high-priced houses in Greenwich. We doubled our record for over $20 million houses, with four houses over this sky-high price.
These four houses alone represent $88 million in sales in Greenwich. So far this year, our total sales come to $1.33 billion dollars, and this is in a town of 62,000 people. This compares to total sales last year of $1.15 billion. Due to the big jump in sales in November, our number of house sales this year is down only 4 houses to 517 houses, while our high-end sales have increased our total volume by $180 million. The result is that our average price has gone from $2,206,908 to $2,575,130.
So, sales and inventory are about the same as last year, while high-end sales, and hence the average price, are up substantially. Unfortunately, December promises to be another month of whipsawing sales. If you look at contracts, December sales should be down as contracts are down 12 from last year with most of that decline being in, what had been up until November, our most popular price range from $1 – 1.5 million. Contracts are down 16 from last year in our prime market.
The great imponderable is the pending tax bills in the U.S. Congress. With both the House and Senate having passed recent bills, we are only waiting for the compromise bill to come out and President Trump is waiting with his pen to sign the bill.
The general consensus is that property values are going to drop in states with high income taxes, high property taxes and lots of mortgages over $500,000 or $1,000,000, depending on whether the House or Senate mortgage limitation amount passes. The effective costs of property taxes and the other lost deductions will be higher as they will have to be paid with after-tax dollars. As a result, there is a good chance we may see property values drop in Greenwich, but there is also a scenario in which Greenwich house prices might actually go up.
Presently, you can deduct all property taxes from your federal income tax, and both the House and Senate are proposing to limit this deduction to $10,000. So, anyone who has a property tax bill over $10,000 will see the real cost of those taxes go up next year. In Greenwich, the $10,000 tax bill equates to a house value of about $1.2 million.
Westchester has some of the highest tax rates in the country, so this reduction in property tax deductibility is felt more strongly there. For decades, downsizers and retirees have moved from Westchester to Greenwich for the substantially lower taxes. Once the tax bill passes, Westchester homeowners whose jobs are in the NY metro area, and thus can’t easily relocate to Florida, may decide to move to Greenwich to avoid the higher taxes that will be paid with after-tax dollars.
Compounding this effect is that inventory may drop as some homeowners decide to stay in their homes to keep their grandfathered mortgages with their full interest deductions. A second, though less widespread effect, reducing inventory in our hottest areas is that homeowners will have to occupy their houses for five years rather than two in order to avoid capital gains tax on the sale of their primary residence, so expanding families may stay put longer.
Lastly, the lower income tax rates and lower taxes on pass-through entities, may mean that Greenwich buyers will not be as sensitive to the loss of deductions for SALT, higher mortgage amounts and property taxes.
We have so many moving parts in this bill and so many different household circumstances that it is going to take a while before the factors in the tax bill pushing up and lowering demand create a new equilibrium of supply and demand for Greenwich houses. The bottomline is that there is no way of knowing how the tax bill will affect Greenwich. What is clear, however, is that our low property taxes are a major boon in a changing world and will ameliorate whatever effect the loss of property tax deductibility will have when compared to other towns.
Mark Pruner is an award-winning real estate agent with Berkshire Hathaway. He can be reached at 203-969-7900 and firstname.lastname@example.org