I hope this finds you and your families well. We have quite a few new subscribers this month. Thank you Hudson Valley Magazine for including The Brick in the February issue. Welcome new subscribers to The Brick community!
The Spring Market Smart video series follows market commentary to help best prepare for the market ahead. The most recent "Getting a Mortgage During Covid" received great reviews and included guest panelists Vince Aurigemma, VP of Residential Lending with Rhinebeck Bank and Jackie Fellin, Chief Lending Officer with TEG Federal Credit Union.
No one knows with absolute certainty what lies ahead this year, but we have enough to establish a solid hypothesis on certain issues as they relate to housing. I called the tsunami that hit from the City well before it happened and prepared my clients accordingly. What surprised me was how long it took. Housing market predictions for 2021 are all the rage. Let's take a breath and peel back the onion. Here we go...
Is the City going away?
The pandemic brought on a massive shift for many in how we work. There was also a shift in home for many. It is a statistical fact that this was not just in the Hudson Valley, but throughout the country. There is also an underlying reality that metropolitan areas still provide a lot of benefits, including labor markets for future job opportunities. Net net = is the City going away? No, but if you're looking to rent or buy in NYC, I'll bet you could still do some cherry picking in the immediate moment. Let me know if you're interested in NYC and I'll introduce you to colleagues that can help.
Strong Sellers Market Continues
As noted in prior editions of The Brick, the Hudson Valley was already on a steady incline with tight inventory prior to Covid, particularly Dutchess County. How quickly a home is absorbed back into the market (absorption rates) is a key indicator of whether we are in a seller, buyer or neutral market. Absorption rates were explained in detail in the November, 2020 edition of The Brick. If you are a new subscriber or did not catch that issue, you can read more detail on absorption rates in the November, 2020 edition by clicking here.
Suffice to say, 2020 was a strong sellers market with inventory in nearly every price point in every town averaging far below the six month "neutral market" mark. Many price points in many towns saw 1-3 month absorption rates. That means if a house is on the market it will sell through (or be absorbed) back into the market in a 1-3 month period. That also means if new properties do not enter the market during that cycle then new options will not be available for buyers. Classic supply and demand.
As of January 31, 2021, Westchester County was down 13.9% in new single family detached listings. Putnam County down 26.4%. Dutchess County was down 30.8%. Conversely, Dutchess County was up in closed sales volume January 2021 versus January 2020 by a whopping 42.9% (go Dutchess!) What does all that mean? Low inventory and high demand. Spring Market 2021 is poised to be another strong seller's market.
I worked the early 2000's bubble and burst. The notion of comparing 2008 to projections for 2021 seems a stretch considering 10+ month absorption rates in 2008 just for starters. The current tight inventory and contained interest rates do not support such comparisons. We may see a level of relief from the current inventory squeeze with the addition of inventory by some homeowners listing their homes to leverage the market and avoid foreclosure. More on foreclosures and forbearances further down. Timing will most likely depend on whether Biden further extends the moratorium. There is no doubt there are issues brewing in the sidelines, but my focus in that regard is more on investment properties with tenants.
Normally, elevated prices and low inventory trigger a new construction boom, but many communities in our area tightly (like seriously tightly) regulate new construction. Take the Town of Rhinebeck as one example. Kirchhoff Development slid in the last condo community allowed without special zoning designation (ie: extensive approvals) for an "Active Senior Housing Floating District." Getting that approved designation is the only way to even be considered for another condo community in the Town of Rhinebeck under current code and trust that's just the start. Another community in Red Hook took over ten years to gain approvals prior to start.
Does this mean no new construction in Dutchess? Absolutely not. For a few examples, multi-use Eastdale Village can't build their luxury rentals quick enough. Sleight Farm with LMD Homes starting in the mid $300,000's can't either. The Bellefield project is a large scale project coming to Hyde Park that was already well underway before Covid. I wrote an article about the Bellefield project for the February, 2020 issue. If you missed the article and would like to know more about Bellefield, click here. The article was written just before Covid with timeframes and other elements shifting post article due to Covid, but it still provides solid information on the project. I haven't even touched on all the new construction in the City of Poughkeepsie, much of which for incoming medical staff expected to exceed 200 over the next three years with the new hospital extension. Dutchess was already bustling before Covid.
With all this "Bobcat buzz" I'm certainly not suggesting there is no new construction in Dutchess. What I am saying is new construction starts specifically to fully meet the immediate Covid induced level of demand is not realistic. Part of the art of development is forecasting ahead as the approval process can take a considerable period of time. New construction that was not already under way does not have the ability to offset the immediate buyer influx as it could be years off before such construction would come to fruition versus shovel in ground now as needed if it were to offset current demand. The lack of adequate new construction absorbing into the market to adjust inventory levels and meet current demand further feeds a continued seller's market for 2021.
Single family homes built on vacant lots is a different scenario than the above noted builder/developer communities. I have noticed an uptick in land interest and purchases by single family home buyers this past year. There are a noticeable amount of buyers that cannot find a home opting to buy a parcel and build their own. The approval process is noticeably truncated for a single parcel versus a builder gaining subdivision approval. I expect continued interest in land purchases in 2021.
Pricing and Marketing
As with single family resales, land that is not priced to market will sit as a noticeable amount of both resales and land did in 2020 that did not hit the mark with pricing and/or were not effectively marketed. If you are planning to leverage this market with a sale, Spring Market 2021 is not a market to miss by "testing the waters" with ineffective pricing and marketing. The buyers have grown very sensitive to overpricing and will most often walk before subjecting themselves to an overpriced listing, even in this heated market. The multitude of price reductions and expirations that quietly went on in the sidelines in 2020 and have continued in 2021 are testament to that fact. My clients fared quite well in 2020 with two of my clients' sales setting records in Dutchess County among all agents and brokerages. I leveraged the reality that buyers are willing to climb the pricing ladder against each other for a well priced and marketed listing,
I'll wait for the foreclosures...
Pack a lunch as there could be a wait of up to six years after the process is formally under way in New York State before a foreclosed house actually hits the market. Here's the low down with this forbearance and foreclosure situation...
Forbearance was provided to homeowners in need during Covid. It is best to speak with your lender to understand expectations when the forbearance lifts as lenders can vary in requirements and offerings. There is actually an interesting tidbit that I heard from multiple sources but could not get national confirmation on. It is my understanding certain national banks put people into forbearance without specifically requesting to be in the program as a "safeguard". That can skew numbers of people in actual need for the program, but at the end of the day, forbearance is allowing homeowners to hold off on resuming their mortgage payments until the end of June, 2021. If Biden kicks the can further down the road that will extend. A homeowner in forbearance does not necessarily lead into foreclosure. As a sidebar, selling your home while in forbearance is further addressed by bank execs during the "Getting a Mortgage During Covid" video below.
Let's look at the picture logically. We are in a seller's market. Homeowner's equity has increased pretty much across the board in our area. Let's use the end of June as "end game" for the forbearance moratorium. March-June are historically the highest sale volume months in real estate in our area. If a homeowner in forbearance knows they will not be able to fulfill bank requirements once the moratorium lifts it seems logical to deduce most homeowners will opt to sell their homes during not only a strong sellers market but Spring Market no less, cash out on the additional equity in their home and pay off their mortgage before foreclosure comes anywhere near the picture.
This is not to say there will be no foreclosures. According to Black Knight, the national mortgage delinquency rate fell to 5.9% in January, 2021, dropping below 6% for the first time since March, 2020. While delinquencies continue to improve slowly and steadily, approx. 2.1 million homeowners remain 90 or more days past due but not yet in foreclosure - five times pre-pandemic levels. At the current rate of improvement, 1.8 million mortgages will still be seriously delinquent at the end of June when foreclosure moratoriums on government backed loans are currently slated to lift. New York is in the top five states for non-current percentages according to data extrapolated by Black Knight's loan-level database of mortgage assets. As of the January, 2021 report, 7.93% of mortgaged homeowners in New York are non-current.
That being said, let's address those that go into foreclosure and those already in the foreclosure process before Covid. New York is a judicial state. It can take all the way up to the Statute of Limitations - SIX YEARS - to have a foreclosure be a done deal. Net net - I do not see a tsunami of foreclosures entering the 2021 market that weren't already slated to be on the market. Any foreclosures that do enter the market near term will most likely end up in a bidding war between single family home buyers and investors.
New Yorkers are leaving New York
Yes, there is an outbound migration, but that was going on long before Covid. Among multiple other sources, United Van Lines noted in a 2017 data report "Three states in the Northeast - New Jersey, New York and Connecticut landed among the top five places from which people are moving out." MarketWatch further confirmed this in a December, 2019 article while citing LendingTree as the source. In a 2020 migration report from North American Moving Services, Illinois, New York and New Jersey were noted as the three states with most outbound moves. Interestingly, the report also noted that despite the pandemic, people continued to move at rates comparable to 2019.
The top three reasons cited for migration: 1) taxes/cost of living 2) job availability and 3) weather. Regardless of outbound migration, it is nowhere near an "exodus" when the actual number of people who have maintained residence in New York City and New York State are considered.
Where are they going?
Arizona and South Carolina have been in the top inbound states since 2015. The current Top 5 inbound states according to North American Moving Services 2020 Migration Report:
3) South Carolina
5) North Carolina
Americans move south and west for several reasons, most of which align with the trend of migration out of the Midwest and Northeast:
1) Lower state income tax
2) Job growth
3) Warmer weather
Here is a visual of US migration from North American Services 2020 migration report: