After defying economics and reason for several years, the housing market in New York’s northern suburbs is coming back to reality.
Prices are stabilizing, properties are taking longer to sell and buyers are exercising increasing caution before they buy. In virtually all areas of Westchester, Putnam and Rockland counties, real estate agents are preparing for a modest cooling of a red-hot growth cycle.
However, they insist there is no reason for panic and stress the market remains healthy. The consensus is that sales and price increases have slowed, but the market is in no danger of collapse.
P. Gilbert Mercurio, chief executive officer of the Westchester County Board of Realtors Inc., described the residential real estate market as still healthy. “There are no burst bubbles, no sudden price or volume deflations in our area’s immediate future. The basics for a sound real estate market are in place,” he said.
Liz Lindsey, manager of the Pelham and Bronxville offices of Houlihan Lawrence, agreed. “Our market is still going strong. Buyers are there, but the homes of their dreams are not. From where I sit, the rumored death of the housing boom is simply the result of too much bubble-bursting hype,” she said.
Real estate professionals predict the housing market in the tri-county area will stabilize in 2006, but remain a driving force in the local economy.
“The market is in transition,” said Kevin Joyce, president of Joyce Realty and a former president of the Rockland County Board of Realtors. “It is regaining some balance, and returning to more normal conditions.”
For the past few years, the residential housing market in the metro area has operated without regard to benchmarks like supply and demand. Although economic theory maintains that increased supply leads to lower prices, that wasn’t the case in the housing market.
“Prices are ridiculous,” complained Lauren Laffer of Congers. She and her husband Alan are considering purchasing a larger home, but have been unable to find what they want for a price they want to pay.
“We started out looking in Westchester but ended up in Rockland because the cost was lower. Now we’re looking for something larger, and would still like to be in Westchester. But we’re waiting for prices to level off.”
So far, it has been a frustrating experience. Slight increases in the inventory of homes for sale have created slightly greater increases in demand, and even higher prices.
Only now does the pendulum seems to be swinging back.
Nick Wolff, broker/owner of Century 21 Wolff in White Plains, for example, said there are signs the market is slowing down.
“Inventory has increased because home sellers expected to sell their homes for as much or more than their neighbors did in the spring and summer,” he said.
“Unfortunately, due to interest rates, higher gas prices and projected higher home heating costs, buyers are becoming more cautious and wary. We are already seeing many price reductions across the board in all price ranges.”
Given the market conditions, sellers will need to price more realistically, negotiate more aggressively and realize the market will generally be flat next year compared to the past four years. But not all sellers are convinced.
Frank Yurcan of Brewster said he can’t figure out which way the market is going. “If you talk to four different Realtors you get four different estimates on how much your house is worth. The estimates aren’t even close.
“They vary as much as $50,000,” he said. In frustration, Yurcan decided to put his four-bedroom Dutch Colonial up for sale himself. The list price: $599,900.
“The only way to tell how the market is going is to see how much someone will be willing to pay,” he said.
Matt Rand, managing partner of Prudential Rand Realty’s Rockland County and Orange County operations, said, however, that both activity and prices are settling down. “Buyers are more careful, and prices are settling into a more predictable pattern.
“Two years ago, there could be wide disagreement between agents on the market value of a house. We’re not seeing that today. There is generally agreement on the value,” Rand said.
Real estate agents note that a cooling down of the market is neither an unexpected nor an undesirable change. Markets, they explain, are cyclical.
“If we have a correction or a return to more classic times, it will be a positive move for the market. It will entice buyers back to take another look,” Lindsey said.
The residential market started at a torrid pace in 2005. In Pelham, for instance, a record price was set last spring with the $2.47 million sale of a seven-bedroom, four-and-a half bath Colonial.
In the first quarter, Mercurio said, the market in Westchester and Putnam Counties had a shot at surpassing the record sales volume set in 2004. Then it cooled.
“However, by the third quarter it was fairly clear that 2005 would be posting merely second-best results, and further, that the fierce pace of sales and price increases of the past two years would ease off into 2006,” he said.
Much the same thing happened in Rockland, Rand said. But like Mercurio, Rand said there is no sign of a price bubble. “Prices aren’t going to drop next year. There just won’t be the same frenzied price of appreciation,” Rand said.
There are multiple positive factors at work. Unemployment is low, businesses are still creating new jobs and office vacancy rates are dropping slightly.
Marc Goloven, retired senior regional economist for JPMorganChase, said he expects Westchester, Rockland and Putnam counties to have continued increases in population, business expansion and new residential development, even in formerly distressed urban areas.
All three counties are benefiting from the rapid growth of small and medium size businesses in five critical economic sectors: technology, education, entertainment, tourism and healthcare. As a result, he said, the overall economy is good in the tri-county area as well as in New York City, a major driver of the suburban real estate market.
The inventory of homes on the market in many areas has increased in recent months but remains quite lean by historical standards, reflecting the longstanding excess of demand over supply.
Experts agree that the only negatives on the horizon are higher mortgage interest rates and the already high cost of housing throughout the area. Mortgage rates are creeping up in response to lenders’ expectations of inflation, and housing prices are at all time highs.
“Each quarter point of interest makes a big difference on the jumbo loans needed to finance the area’s expensive housing, and we can expect to see a slow but steady erosion of the pace of sales in 2006 as a result,” Mercurio said.
According to statistics from the New York State Association of Realtors, the median price of a house peaked at $730,000 in Westchester and $486,000 in Putnam in August. Median prices were $520,000 and $283,000 in 2002, respectively.
The September median price in Rockland County is its peak — $537,000, up from $409,000 three years ago.
Because prices are so high, large proportions of prospective homebuyers can only afford less abundant condominiums and cooperative apartments.
Mercurio said there is no evidence that prices locally have been puffed up by speculative investment activity. Rather, they are the simple product of high demand in relation to scant supply.
“Now our prices have reached a self-limiting level and will climb much more slowly in the next year or two until household incomes in the region catch up,” Mercurio said.
Although higher interest rates are a factor, Sheila Siderow, president of Siderow Kennedy Real Estate in Chappaqua, said the levels have not climbed anywhere near historically high levels. In 1980, for example, mortgage rates were as high as 18 percent.
In addition, mortgages continue to be easily obtainable, she said. As a result, she expects sales to continue to be strong in the towns where schools and good commuting are the strengths.
A recent study by the Urban Land Institute (ULI) found that higher gas prices are causing Americans to alter their driving habits and to either use or consider using public transportation if the option is available. Respondents of all ages, in all regions and all locations (urban, suburban and rural) said gas prices had caused them to make some changes in both commuting and non-commuting travel — and may be the “tipping point” that causes consumers to rethink how far they are willing to commute each day.
Siderow said sellers would have to adjust their expectations, and set prices more realistically to reflect the market.
“Sellers with less than perfect houses will need an advantage,” she added. Knowing that, Siderow Kennedy is now offering free architectural consulting to its clients. The goal is to enable prospective buyers to evaluate possible structural changes and get an idea of the ballpark costs of renovation.
But well maintained and well-priced homes will continue to sell — no matter how much the market slows.
Linda Viglietta, associate broker at Joyce Realty in New City, said some homes still draw crowds. One, for example: a three-bedroom ranch in New City with a new kitchen, two custom baths, central air, Pella windows with built in blinds and a freshly painted interior. The house, listed at $559,500, is drawing heavy interest.
Nancy Blaker Weber, an agent at Baer & McIntosh in Nyack, said demand would also be strong in areas like the river villages. “There is a limited supply of Victorian homes by the river and a great demand for them.
“Higher interest rates will obviously make some buyers a bit more cautious, but the unique community that exists here will ensure a continuous stream of interested buyers,” she said.
Arthur Scinta, associate broker at Houlihan Lawrence in Pelham, said supply is still a problem in high demand areas. The average price in Pelham is now about $950,000, up almost 15 percent over a year ago.
There are only four houses on the market in the $1 million to $2 million range, including a 786-square-foot cottage with two bedrooms and two baths. “I think this partly explains why there has been a bit of a drop-off in the number of buyers looking: there is nothing to advertise to draw them and nothing to show if they are looking,” Scinta said.
In the coming year, Mercurio predicts inventory will increase slightly but not excessively.
“Prices will inch up a little,” he said. “2006 will likely be the closest to a normal year that we’ve seen in the entire past decade.”