Regional Home Sales Demand Remains Strong, SALT Cap Having Some Impact on Markets

John Jordan | July 2019

WHITE PLAINS—The residential home sales market in the Hudson Valley continues to be a tale of two markets. Due in part to the impacts of the SALT deduction cap imposed by federal tax reform, and low for-sale inventory, sales declined in the second quarter in most markets serviced by members of the Hudson Gateway Association of Realtors.

According to the “2019 SECOND QUARTER RESIDENTIAL REAL ESTATE SALES REPORT Westchester, Putnam, Rockland, Orange, Sullivan Counties, New York” released earlier this month by the Hudson Gateway Multiple Listing Services, Inc., overall sales were down in Westchester (-1.5%); Rockland County (-0.5%); Orange County (-9.2%) and Sullivan County (-9.3%). Putnam County’s homes sales in the second quarter were flat as compared to a year earlier.

Editor’s Note: For the full text of the HGMLS report and detailed data on the regional housing market.

Residential brokerage firms in their respective analyses of the second quarter market all agreed that the luxury market continues to struggle, while moderate or entry level home sectors are posting much stronger sales and demand.

The single-family home sales statistics do not provide a true portrayal of the market forces driving sales and pricing. Westchester County single-family home sales in the second quarter were 3.9% lower than last year, while its $705,000 median sale price was 0.7% less than a year earlier.

Putnam County single-family home sales and prices both rose 4.3% in the second quarter of this year. The single-family median home sale price in Putnam is now $365,000.

Single-family home sales and pricing were down in Rockland County with sales off 2.3%, while the median single-family home price fell 4.0% to $450,000.

Orange County’s home sales market was mixed, with single-family home sales down 11.1%, while the median single-family home price rose 6.0% to $265,000. Sullivan County also had mixed results, with single-family home sales down 8.5% in the second quarter, while the median price for a single-family home posted a notable increase at 17.8% to $147,200.

In the more affordable condominium sector, while sales were mixed regionwide, prices rose sharply in key markets. The HGMLS report noted that there was a 3.6% increase in condominium sales in the second quarter in Westchester County while the median price shot up 8.3% to $400,000. Rockland County suffered a nearly 10% decline (9.6%) in condo sales in the second quarter, but posted a 14.1% increase in the condominium median price to $250,950.

The condo market in Orange County saw a slight 1.8% increase in sales, while the median price of a condominium there shot up 16.9% to $195,000. The median price of a condominium was $135,000 three years ago in Orange County.

Ron Garafalo, HGAR President

HGAR President Ron Garafalo said the residential sales market in the Hudson Valley remains strong, noting that the recent sales declines are based on previous near record-high sales activity in the respective counties.

Garafalo, who is sales manager for John J. Lease Realtors in Newburgh and Middletown, said that in the pricier markets in the lower Hudson Valley, the luxury market is indeed struggling, due in part to the SALT cap.

“In my opinion, the SALT Cap is having an impact on the market,” Garafalo said. “The higher-end markets are starting to see a slight slowdown in both sales and prices.”

He added that overall, he considers the home sales market in the HGAR region as “healthy.”

“There is still a lot of activity, there are still scenarios where we have multiple offers on properties. Condos, co-ops and multis (2-4 family residences) are all doing well,” Garafalo said. “I think it is starting to level off and maybe the shift is beginning from a seller’s market, but we are still in the early stages of that transition.”

Besides the SALT cap influence, low inventory is also having an effect in many areas. He cited low inventory levels as a chief culprit for the decline in single-family home sales in Orange County in the second quarter.

Garafalo said that Orange County’s for-sale-inventory two to three years ago was 25% to 30% higher than it is today. With the low inventory have come higher prices for both single-family and condominiums.

“In Orange County, we are still seeing a lot of buyers not able to get a home because of the low inventory and high sales (volume), even though sales are down,” he said. “We have many examples of multiple offers and buyers not being able to get a home for months because they don’t have an offer accepted.”

The end result has been that some buyers have been priced out of the market, while others have become frustrated with the process and abandoned their home search, Garafalo said.

Houlihan Lawrence reported the number of luxury homes sold north of New York City continues to decline. The brokerage firm blamed the consequences of tax reform, a soft New York City market and a generational shift in buyer preferences and attitudes for the slowdown.

In Westchester County, the second quarter marked the third consecutive quarter of luxury home sales ($2 million and higher) declines. From October 1, 2018 through June 30, 2019, the number of homes sold in this sector dropped by 28% compared to the previous time period in Westchester.

In Greenwich, CT, luxury sales ($3 million and higher) weakened for four consecutive quarters, registering a 20% year-over-year decline. Putnam and Dutchess counties sales ($1 million and higher) were down 30% year-to-date. Sales in Darien and New Canaan, CT ($2 million and higher) were down year-over-year 30% and 12% respectively, according to the Houlihan Lawrence luxury market report for the second quarter.

The bright spot is pending sales, which are level with the same period last year in most areas, the report stated. In fact, this time last year the market was stronger, making this a meaningful comparison, and a hopeful sign that the third quarter could reverse the trend of declines, Houlihan Lawrence noted. In Dutchess County, luxury pending sales rose dramatically and may prove to be the first luxury market to rebound.

Luxury sales in the ultra-high end of the market (sales $5 million and higher) suffered the steepest losses in the first half, down by about half or more in Westchester, Greenwich, Darien and New Canaan. Supply is inching up in some markets and the number of years it will take to absorb these listings is increasing. Westchester County has seven years of $5 million or higher inventory; Greenwich has more than three years in the ultra-high end. A balanced market typically has six to 12 months of inventory.

“The bigger conundrum facing our luxury markets is quantifying the changing tastes and attitudes of the new generation of luxury buyers. Bigger is not always better and renovating or restoring a period home is the desire of scant few,” said Houlihan Lawrence Senior Vice President Anthony Cutugno. “Their expectation about the future value of real estate influences demand for luxury homes. Though this shift is in its early stages, its impact is tangible.”

He added that the softness in the luxury market is not just a Westchester-Fairfield County, CT problem.

“Luxury home sales have declined not only north of New York City, but in many luxury markets, including New York City, the Hamptons and Miami. We bang the drum with the same message in this seller-challenged market—listings that represent value and appeal to buyers’ aesthetic will capture their attention and have the greatest chance of selling,” Cutugno said.

Joseph Rand, managing partner, Better Homes and Gardens Rand Realty, said the housing market in Westchester and the Hudson Valley continued to be a “tale of two markets” in the second quarter of 2019. During those three months, sales for more expensive single‐family homes continued to struggle while sales for lower‐priced condo markets soared.

“We attribute this divergence to the 2018 Tax Reform cap on state and local tax deductions, which is suppressing what should be a strong, growing seller’s market,” he stated in the report.

He said that the SALT Cap is having a disproportionate impact on middle- and high-end buyers because these are taxpayers that elect to itemize their taxes rather than take the standard deduction.

“The SALT Cap is suppressing sales and price appreciation in the higher‐priced markets but having little or no impact on lower‐price markets… The SALT Cap hasn’t caused anything like the devastation of the market correction in 2008‐09, but it is still hampering the growth of what should be a robust seller’s market.”

Rand believes that the overall residential market is still poised for growth this summer and into the fall.

“At some point, the impact of the SALT Cap will get priced into the market, and the single‐family market will start behaving like the condo market. Again, the seller market fundamentals are very strong: the economy is growing, interest rates are near historic lows, inventory is relatively low, and homes are still priced at attractive levels well below their historical highs,” Rand concluded.

Westchester Real Estate, Inc. in its second quarter market report on Westchester County also stated that the SALT cap is starting to play a part in homeownership decisions.

“Westchester County has some of the highest average property taxes in the country, meaning the cap hits us hard. In some communities such as Greenburgh and others that have recently done full-value reassessments, the combination of the SALT cap and the revaluation has changed the market,” said Somers-based Westchester Real Estate Inc. in its report. “Homeowners who may have stayed in the area previously are now opting to sell and move on, and buyers are choosing other options where the tax burden is lower.”

The brokerage network queried in its report, “Would more buyers feel differently about the taxes if they were still fully deductible? While anecdotal evidence and past practice would suggest yes, there’s no question that the combination has exacerbated the concerns.”

The firm in its report noted that there are a host of economic forces driving sales activity.

“On the horizon, we anticipate that new statewide rent control measures contained in the Housing Stability and Tenant Protection Act passed in June will have a negative impact on the market for investment properties. In addition to imposing stricter rules on rent increases, other sweeping measures contained in these new landlord-tenant laws will make it harder and less financially enticing for landlords to own investment properties,” the brokerage network noted.

The new act will also impact co-op inventory. Westchester Real Estate predicts sponsor-held co-op units may start coming to market as the new rent control laws limit raising the rents up to market value, making it less desirable for sponsors to hold onto them.

While some economists are envisioning a possible recession in the near term, Westchester Real Estate stated in its report that even if a recession does take place, “it’s expected that housing will continue to do well because the interest rates will make it attractive to buy and homes will still gain equity even if it’s at a slower pace.”

Members of the Westchester Real Estate network include: J. Philip Real Estate Inc. (Briarcliff Manor, Pelham and Mahopac); Mancini Realty of Somers, Sterling Realty of Bronxville; Peter J. Riolo Real Estate of Hastings-on-Hudson; and The Michael Shapot Team, Compass Real Estate NYC of New York City.

John Jordan
Editor, Real Estate In-Depth