Dear Friends,

Here's my newsletter recapping the Arlington residential real estate market for single family homes and condos, year to date through April 2019. I try to send this recap out quarterly, but real estate activity in the first quarter in the calendar year is typically quite slow, with limited data from which to identify trends and patterns. Because activity picks up significantly in April, April data are included in this first recap of the year so we can get more insight into what's been going on.

The top line summary: Arlington single family prices were up a bit, condos down a bit, other indicators were mixed, but generally showing a leveling off of the market. It still remains very much a seller's market, with inventory tight and prices at or near historical highs.

If you have any comments or questions on this or any other real estate-related matter, please contact me . I'd love to hear from you.

Warm regards,

Steve Poltorzycki
Arlington Real Estate Market Cools Off a Bit in the First Four Months of 2019

Highlights:
Market Data Summary:

Arlington Single Family Homes
Arlington Condos
The indicators don't all point in one direction and there seems to be a difference between the situation in the single family and condo markets, so let's take a closer look at what happened to supply, demand, and prices in the first four months of 2019 to see if we can get a better sense of what's been going on.

Not Much Change in Supply
There were a handful more new single family listings and a handful fewer condo listings. At this point in the year a 5% or 6% change in new listings versus the previous year is not particularly significant.
But when compared to the rate of rise of new listings in other nearby towns, it becomes clear that Arlington is lagging behind. What is the significance of this? Just that when buyers find not so much inventory on the shelves in Arlington and check out other nearby towns, they might find more to choose from there. As a result of this competition, Arlington sellers could find it takes longer to sell and therefore may need to drop their asking price.
How about months’ supply of inventory as a measure of supply? Keeping in mind that six months’ supply represents a balanced market, where the respective bargaining positions of sellers and buyers are roughly equal, we see that Arlington single family homes had less than two months’ supply at the end of April 2019 (1.3 months). This was up a bit from end of April 2018 (0.6 months), but still shows a strong seller's market. Months’ supply of condos hardly changed in April 2019 versus April 2018, and remained at less than one months’ supply (0.6 months). Arlington supply has had trouble keeping up with demand for some time now.
Arlington single family months' supply of inventory in April 2019 was lower than that of most other nearby towns (and the greater Boston area as a whole), showing Arlington still to be among the most favorable towns for sellers. But unlike some of these towns where months' supply declined year over year, Arlington's went up somewhat. We'll keep our eye on this over the course of the year to see if this will be a sustained trend or a momentary blip.

Months' supply of inventory in the greater Boston condo market and in many nearby towns went up year over year. When there are changes afoot in a local real estate market, the changes tend to appear first in the condo segment of the market, so this increase in inventory may be significant. We'll know more as the year progresses, but at least as far as Arlington goes, condo inventory remains unchanged year over year.
Buyer Demand Softened
What about the demand side of things? There are three useful measures of demand. There’s days on market, which is a measure of the time between when a property is listed and when it goes under agreement. The more demand, the shorter the days on market, as properties don’t stay on the shelves very long in the face of very high levels of demand. Then there’s the difference between the price at which a property sold and the original list price. If properties sell for more than their original list price, it’s fair to say there’s a high level of demand. Buyers don’t pay more than asking price unless they face stiff competition from other buyers. And lastly, there’s the size of price reductions. Higher price reductions can be a sign of softening demand.
 
Through April 2019 Arlington single-family and condo days on market both increased versus the same period last year (36 DOM vs. 20 DOM for single family homes, and 31 DOM vs. 25 DOM for condos). On the surface, this would appear to be is a clear sign of some softening of demand.
However, two things should be mentioned. One is that 36 or 31 DOM is still a very short amount of time for a property to be on market, reflecting continued high demand. The other is that Arlington single family and condo DOM was shorter than DOM in almost every other nearby town, shorter than even red-hot Cambridge (48 DOM single-family/42 DOM condo), Medford (48/54 DOM), and Belmont 38/46 DOM). Demand for homes in Arlington continues to be stronger than in many other nearby (competing) communities. But it should also be mentioned that in virtually all other neighboring communities, DOM did not increase as much as in Arlington (for single-family homes), and in some cases, DOM decreased, showing that demand in these communities may be on its way to catching up to Arlington. This is also the case, to a lesser extent, for condo DOM in these other communities.
Arlington single-family homes and condos sold for over original list price, but by not nearly as much as during the same time period in 2018, with single-family homes selling for 100.8% of list in 2019 vs. 103.8% of list in 2018, and condos selling for 101.4% of list in 2019 vs. 104.6% of list in 2018. Demand has slipped from red hot to just hot.
However, demand for homes in Arlington as reflected by the premium over list price (100.8% for single-family and 101.4% for condos) is still higher than demand in many other nearby towns. Single family homes sold for a higher premium over list price only in Cambridge (103.7%) and Somerville (101.3%), whereas homes in nearby upscale communities such as Lexington (99.1%), Belmont (98.8%), and Winchester (96.8%) sold at a discount to list. Similarly, for condos, only Belmont (102.7%) and Cambridge (101.5%) sold at a higher premium to list price than Arlington, while condos in communities such as Winchester (100.0%), Medford (97.7%) and Lexington (97.8%) sold at a discount to list. What all this may mean is that demand may be softening across the board in the greater Boston area (as reflected in the data for greater Boston in the tables below). Nevertheless, it is also the case that the drop in sold price versus list price in communities near Arlington was not as large as the drop in Arlington (and in some cases, sold price versus list price actually increased year over year), indicating that demand is not softening as much in these communities as it is in Arlington.

One caveat should be noted about this metric. It relies on sellers (with the help of their agents) setting a realistic original asking price. Only then can we read any significance to the market showing a variance from that asking price. But in the hottest sectors of the market, it is not unusual for sellers to set an asking price below what they expect the property to sell for in the hope that a lower than market value asking price will attract a larger pool of potential buyers who will submit multiple offers, thus creating a bidding war that will drive the final selling price to a point beyond what it would otherwise reach. Even with that in mind, it's still a useful metric, particularly when looked at to corroborate other metrics of demand.
The magnitude of price reductions is another measure of strength of demand. The amount by which asking prices need to be lowered so as to attract offers can be seen as a reflection of the level of buyer interest in the properties on market.

The average amount of single-family price reductions increased by 7% year over year (from 4.2% through April 2018 YTD to 4.5% through April 2019 YTD), hardly a significant amount, but condo average price reductions decreased by 39% (from 4.4% through April 2018 YTD to 2.7% through April 2019 YTD), showing a strength of buyer demand that was not evident in the days on market and sold price vs. list price data.
As with sold price vs. list price data, some caution needs to be exercised when determining the significance of the price reductions data. If the magnitude of price reductions went up it could because buyer demand went down. But it could also be because some sellers, seeing how hot the Arlington market has been of late, became overly optimistic about the prices their homes would fetch. They might have overshot the market and needed to adjust their price when the market spoke. There is no magic formula for setting an asking price. Sellers, with the advice of their agents, decide what price to ask, and emotion often plays a significant role in the decision.

Let's look at Arlington's situation compared to that of other nearby towns. While this might not shed light on whether sellers overshot the market when deciding on their list prices or on whether price changes were due to changes in buyer demand, it still might tell us how buyer demand in Arlington compares to nearby (competing) communities.

Arlington single-family homes, with average price reductions of 4.5% in April 2019 YTD, did not require the same level of price reduction to get sold as did homes in the greater Boston area (7.0%), or in nearby towns such as Medford (8.3%), Cambridge (6.2%), Lexington (5.3%), or Belmont (5.0%). Similarly, the average price reduction needed to get Arlington condos sold (2.7%) was less than the reduction needed in the greater Boston area (4.4%) or in nearby towns such Medford (7.8%), Cambridge (6.2%), or Belmont (4.9%).

And yet in many of these nearby communities, unlike in Arlington, the price reduction needed to get single-family homes sold decreased, suggesting a growth in buyer demand. We can conclude that while buyer demand in Arlington remained strong, year over year, demand in a number of nearby communities was on its way to catching up.
Summing up the demand side of things: demand for Arlington single-family homes and condos softened a bit through the first four months of 2019 versus the same time period in 2018. In comparison to the situation in many nearby communities, the demand for homes in Arlington is still quite strong. But the strength of buyer demand in a number of those communities where demand has not been at the levels seen in Arlington is starting to catch up to Arlington's.
Single-Family Home Prices Reach All-Time Highs
Changes in supply and demand affect price. But in the first four months of 2019, the changes in supply and demand in Arlington were fairly small, and the resulting impact on price was also small. Single-family home median prices rose by 4% over the first four months of 2018 and by 2% over 2018 as a whole. While the median price achieved ($819,000) was an all-time high it is clear that the rate of price rise has slowed.

And there was a similar situation in the Arlington condo market. The median price for the first four months of 2019 fell by 3% versus the same period in 2018. And while the $606,000 median price achieved was an all-time high (compared to annual median prices), it was only a 1% price rise over the 2018 median price.
 
So the rate of price rises has slowed. Nevertheless, it can't be denied that both single-family home and condo prices have risen every year since 2012, and over that period prices have risen by 57% for single-family homes and by 68% for condos, a rate of price rise that makes Arlington one of the strongest real estate markets in the Boston area.
Still, the "hotness" of a market is a relative thing. And while the rate of price rise of Arlington single-family homes during the first four months of 2019 versus the same period in 2018 was the same as the price rise in the greater Boston area, it was not nearly as steep as the price rises in a number of other nearby communities. The strengthening of demand in these communities has manifested itself in a rise in median prices.
It is useful to check the median price rise data against price per square foot figures. If there is not a close correspondence between the two it would suggest some price band is having an outsized influence on the results. Typically, the larger (and more expensive) the house the lower the price per square foot. A number of factors go into this, including house value to land value ratios, marginal cost, and so on, but the rule of thumb holds true.
 
Per square foot prices in 2019 through April for both Arlington single-family homes and condos dropped versus the same period in 2018. Given that single-family median prices went up in 2019 versus 2018, this would only make sense if more larger homes sold in 2019 versus 2018. And that was in fact the case. The average square footage of homes sold in 2019 was 2,194 sq. ft., while in 2018 it was 2,017 sq. ft., a 3% increase. Still, prices per square foot declined for the first time since at least 2012, yet another sign that the Arlington market may be leveling off.
And when we look at the situation in neighboring towns, we see that there were healthy rises in prices per square foot in most of these towns, pointing to the conclusion that the strength of the market in these towns is improving versus Arlington's.
 
The silver lining in all this is that buyers may find the market in Arlington more favorable than in some other towns. For example, the average per square foot price for Arlington single family homes ($424/sq. ft.) was lower in the first four months of 2019 than in neighboring communities, such as Cambridge ($859/sq. ft.), Belmont ($537/sq. ft.), Somerville ($515/sq. ft.), and Lexington ($434/sq. ft.).
 
As for condos, the average per square foot price ($459/sq. ft.) was considerably lower in the first four months of 2019 than in neighboring Cambridge ($822/sq. ft.) and Somerville ($652/sq. ft.) and not far off average prices in nearby upscale Belmont ($440/sq. ft.) and red-hot Medford ($430/sq. ft.).
 
This shows that, from a buyer’s point of view, Arlington single-family homes and condos are a good value in comparison to homes in some nearby towns, and, from a seller’s point of view, that the Arlington market will continue to attract buyers priced out of some neighboring markets. Many residents of Cambridge and Somerville have found Arlington an attractive place to move to when their growing families needed more living space and they could not afford what it would take to move up in size in their current towns.
Arlington home owners should be aware that the average size of single-family homes sold in Arlington has been considerably smaller than in all other nearby communities that have had higher median sales prices. It may be that the lower sales prices in Arlington are more due to house size than to other factors, such as location. In that case, it may be advantageous for owners of smaller homes in Arlington to consider investing in renovation and expansion projects that could pay off when the home is sold down the road.
 
There is one last measure to examine related to the interplay between supply and demand: number of housing units sold. Number of sales is driven by both the number of new listings (supply) and the ability of the market to absorb those new listings (demand). If the number of sales goes down, this could be just as much due to a reduction in supply as a decrease in demand. So it’s important to look at what is going on with new listings in determining the significance of changes in number sold.
 
The number of single-family homes sold in the first four months of 2019 (58) was virtually identical to the number sold during the same period in 2018 (57). And though the number of condos sold in 2019 went down to 50 versus 59 in 2018, this may be at least partially due to the 6% reduction in condo new listings in 2019. This appears to be yet another indication that the Arlington market may be plateauing.
And sales seem to have picked up on a number of neighboring towns (and the greater Boston area as a whole), confirming what we have seen in some of the other metrics: the market in a number of neighboring towns is strengthening while the Arlington market, at least for now, is leveling off.
Mortgage Rates Are Dropping
Mortgage rates went up in 2018, peaking at about 4.9% for a 30-year fixed mortgage, causing some to conclude that the real estate market would slow down and cool off. But rates went down again in the first four months of 2019, and the rates were at about 4.1% at the end of April.

As rates go down, homes become more affordable, and the real estate market strengthens.
In historical context, the current 30-year fixed mortgage rate of 4.1% is close to a 50-year low. It is no surprise that we are in the midst of one of the strongest real estate markets in recent memory.
Implications for Sellers
Sellers of single-family homes and condos in Arlington enjoy one of the stronger seller's markets in the Boston area. While 2019 has started out slower than some other recent years, the fundamentals suggest the market will continue to be strong and that home prices will continue to go up. But homeowners thinking of selling may want to minimize the risk of a market downturn and sell sooner rather than later so as to lock in gains.
 
Certainly tailwinds, such as if interest rates should start rising again, a stock market correction, and local factors, such as a potential Proposition 2 1/2 override (raising Arlington property taxes in the face of an anticipated budget shortfall in 2020) and the large debt exclusion that will be needed to pay for the high school building project, could have a chilling effect on Arlington home prices (in the near term), though a new high school would likely make Arlington an even more attractive place to live, which could increase home prices down the road.
 
Nevertheless, as we get deeper into 2019 and Arlington prices begin to rise, getting closer to the price levels of Lexington, Belmont, and Winchester (towns whose median home prices suggest they are viewed as more desirable than Arlington), potential sellers of Arlington homes may want to think about whether it makes sense to invest in additions or improvements to their homes to make them more competitive against homes in these other towns. The average square footage of an Arlington single-family home is significantly smaller than the average square footage in these other towns, and some Arlington homes have not had the recent kitchen and bath updates that buyers have come to expect in Lexington and Winchester.
 
The same holds true for condos. While there is not much an owner can do to increase the size of their condo, they can certainly make sure that is has been updated and, when time comes to sell, that it is staged for maximum appeal.
 
Implications for Buyers
Buyers looking for a home in Arlington will continue to face a seller's market, often with several buyers competing for the same property. Buyers need to be prepared to move fast and put in competitive offers with as few strings attached as feasible. But, despite rising prices and tight inventory, 2019 Arlington single-family per square foot prices ($424/sq.ft.) were a relative bargain compared to Cambridge ($859/sq. ft.), Belmont ($537/sq. ft.), and Somerville ($515/sq. ft.).
 
And if Arlington prices are too high, buyers may want to consider other nearby towns. In 2018 the median single-family home price in Bedford ($760,000) was 7% less than that in Arlington ($819,000), in Watertown ($715,000) it was 13% less, in Medford ($635,000) it was 22% less, in Waltham ($600,000) it was 27% less, in Burlington ($594,500) it was 27% less, and in Woburn ($473,000) it was 42% less.
 
Arlington 2019 (April YTD) per square foot condo prices ($459/sq.ft.) were not as steep as those in Cambridge ($822/sq.ft.) or Somerville ($652/sq.ft.). And if Arlington prices are too high, buyers may want to consider alternatives such as Burlington, where the 2018 (April YTD) median price ($551,000) was 9% less than that in Arlington ($606,000), in Winchester ($540,000) it was 11% less, in Medford ($535,000) it was 12% less, in Waltham ($505,000) it was 17% less, in Bedford ($456,000) it was 25% less, and in Woburn ($424,670) it was 30% less.
Data were collected from MLS PIN, Massachusetts Association of Realtors, Great Boston Association of Realtors,and Freddie Mac. Data do not reflect private transactions. Berkshire Hathaway Home Services Commonwealth Real Estate and its sales agents make no representation as to the accuracy of the data and are not responsible for any actions taken as a result of use of or reliance on this information.
Steve Poltorzycki is a Realtor® with Berkshire Hathaway Home Services Commonwealth Real Estate. Email him at steve@stevepolt.com.
 
Steve Poltorzycki
617-308-6828

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