Struggling Luxury Market a Drag on Region’s Home Sales

John Jordan | April 2019

Tale of Two Markets

WHITE PLAINS—Home sales activity in the Hudson Valley in the first quarter of 2019 was mixed, with Rockland County leading the way with a 7.1% increase in overall sales, while Westchester, Putnam and Sullivan counties posted sales volume declines of 3.5%, 13% and 14.5% respectively.

Orange County also posted a sales increase of 1.3% in the first quarter.

Editor’s Note: It should be noted that there have been a number of media reports that stated Westchester County residential sales were higher in the first quarter of this year, however, those reports were not based on figures released by the Hudson Gateway Multiple Listing Service, Inc.

The HGMLS report, released earlier this month, had Westchester County’s single-family home sales falling 5.6% in the first quarter of 2019 as compared to a year earlier. Condo and cooperative sales in Westchester County during the first three months of this year declined by 1.5% and 1.3% respectively. Rockland County single-family home sales increased 8% in the first quarter.

Single-family home sales in Putnam fell 10.1%, in Orange County single-family home sales fell 3%, but condo sales rose 24.5% in the first quarter in Orange County.

Prices of single-family homes in the HGAR market area increased in every county with the exception of Westchester. The Westchester market’s single-family median price at the end of the first quarter of 2019 of $605,000 was 1.2% below the first quarter of 2018. The decline in the median price was driven largely by a weak luxury market, which was impacted by the $10,000 SALT deduction cap imposed by the federal tax reform law, according to Realtors interviewed by Real Estate In-Depth.

The following are the first quarter 2019 median single-family home prices in the HGAR region: Putnam: $329,000 (+2.4%); Rockland $445,000 (+2.3%); Orange $248,950 (+3.7%) and Sullivan County $130,000 (+18.2%).

To review the full HGMLS 2019 First Quarter Residential Real Estate Report for Westchester, Putnam, Rockland, Orange and Sullivan Counties and detailed sales data turn to pages 2 and 3 of the Focus on Hudson Valley Special Supplement.

Realtors point to continued high demand for residential housing in the region and increased for-sale home inventory in many markets as positive signs of a continued strong market going forward for the region.

The one caveat is the luxury market of homes priced over $2 million in Westchester County.

Houlihan Lawrence recently issued a first quarter report on the luxury market in Westchester and Fairfield (CT) counties that indicated the number of luxury sales in New York City’s northern suburbs fell 33% over the last six months. Westchester County led the way with a 38% decline in sales of homes of $2 million and higher. In Fairfield County, sales of homes priced at $3 million or higher in Greenwich and more than $2 million in Darien/New Canaan saw quarterly sales declines that averaged 28%, the brokerage firm stated.

Houlihan Lawrence said that there are a number of reasons for the weak luxury market. The real estate market in New York City has softened, resulting in fewer buyers leaving the city to head north because their apartments remain unsold. This important feeder market was robust just 18 months ago. Condos, co-ops and townhomes appreciated in value, sold quickly, and reliably drove buyers leaving the city to the area. Now, listings are sitting on the market longer as inventory grows, selling for less than expected, the brokerage firm stated.

“Another factor in the luxury market dip are new limitations on property tax deductibility stemming from the new federal tax law, making home ownership less affordable,” Houlihan Lawrence stated. “Many would-be move-up buyers, an important sector in the luxury market, are now more likely to stay in their current home, perhaps adding a bedroom or renovating the kitchen, rather than trade up to a larger and more expensive one.”

“Luxury buyers have high standards—they want a turnkey property that represents value,” said Anthony Cutugno, senior vice president and head of private brokerage at Houlihan Lawrence.

A strong stock market and stable interest rates could bolster the luxury market going forward, he noted. “The spring market had a late start and the next eight weeks will be pivotal during this important selling season,” Cutugno said. “Our agents are busy and we are anticipating deals will come together at a faster pace in the second quarter than these past six months.”

J. Philip Faranda, Broker/Owner of J. Philip Real Estate of Briarcliff Manor, explained the current environment in the Westchester residential market in a blog entitled “A Tale of Two Real Estate Markets- in the Same Place” simply as: “If you’re selling a starter or affordable home, it’s the best of times. If you are selling a more expensive property, it’s the worst of times.”

Faranda noted that while there continues to be a shortage of starter and market-rate homes in relation to demand, the luxury market in Westchester is struggling.

“Tax policy has put that sector into a tailspin. In Westchester, where million-dollar homes are relatively commonplace, tax laws have changed to neuter the advantages that once came with the mortgage interest deduction and the ability to write off property taxes.”

He explained that for a home that costs $1.1 million, the purchaser has to pay an “absurd mansion tax,” has a lower amount of interest they can deduct, and their property tax deduction is capped at $10,000.

“That has created a ‘wait and see’ attitude among would-be purchasers, inventory has piled up and gotten stale, and the dynamic is the exact opposite of starter homes—it is in fact very much a buyer’s market in most (not all) places,” Faranda stated.

HGAR President Ron Garafalo agreed with his colleagues that the luxury residential market has slowed in the region, due at least in part to the SALT cap.

“Overall, I think the market is still very strong,” said Garafalo, an Associate Broker with John J. Lease Realtors in Middletown and Newburgh. “Even though we have had a little bit of a leveling off or a decrease (in some areas), I think the numbers are very positive as far as the number of sales and pricing.”

He said one of the bigger issues affecting the market at the moment is the inventory of homes on the market. While there has been an increase in for-sale inventory in the region, there is still not enough homes available that would lead to a more stable environment for both buyers and sellers.

Overall inventory in Westchester rose 5.1% in the first quarter as compared to a year earlier, while the number of homes on the market in Putnam rose 12.1% during the same period. Inventory increased 13.4% in Rockland and 1.0% in Orange.

Garafalo said that there are still buyers having difficulty finding homes in the region. He said it continues to be a “seller’s market,” but there are some signs that it could become a more neutral market going forward.

Joseph Rand, managing partner, Better Homes and Gardens Rand Realty, said that when the SALT cap was first announced he expected a “modest but meaningful impact” on the luxury market with a slight uptick in listings and a decline in buyer demand.

He said that scenario seems to be playing out. “What you are seeing is not that it (the SALT cap) has crashed the market, but it is definitely holding the market back,” Rand said.

He agreed with others that the current sales environment is a tale of two markets with sales and price appreciation higher in the lower-priced segments of the market and property types.

Rand related in his quarterly market report on the region that the SALT Cap is suppressing sales and price appreciation in the higher-priced markets like single-family homes in Westchester, but having little or no impact on lower-price homes—including single-family homes in the other counties and condos throughout the region.

He noted that similar market conditions exist throughout the metropolitan region. In the Northern New Jersey suburbs, for example, prices were down in higher-priced markets like Hudson, Bergen, Morris, and Essex but up in lower-priced area like Passaic and Sussex.

“The SALT Cap is not devastating the high-end markets,” he said, noting that the rolling year average price in Westchester was basically flat in the first quarter. He said the SALT cap hampered what would otherwise have been a fairly robust seller’s market in Westchester County in the first quarter.

“Going forward, we still believe that the market is poised for growth. At some point, we expect the impact of the SALT Cap to get priced into the market, because otherwise 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 well below their highs,” Rand stated. “Accordingly, we expect a relatively robust spring market throughout the region.”

John Jordan
Editor, Real Estate In-Depth