Luxury Market in Massachusetts Crashing?

Is the Luxury Market in Massachusetts Crashing?

Check out this recent article on Yahoo! Money that a friend of mine sent me asking for my commentary on… Luxury home sales plunge as mortgage rates rise.

“It says that affluent homebuyers aren’t immune from this year’s rough housing market”. And that “Sales of luxury homes plummeted 28.1% year over year in the summer months”.

I have said it once, so it only makes sense that I will say it again… REAL ESTATE IS LOCAL. So let’s jump into the Massachusetts housing numbers and see if that article really holds water here in the Bay State.

Hi, it’s Jeff Chubb. I am a recovering investment banker turned Real Estate Agent that has sold more then a 1,000 homes and is one of the state’s top real estate agents. I believe in data rather then feelings… So here is the data!

To the end of August in 2022 we have had 33,640 homes sold in the state. This is compared to the 38,023 houses that we saw in the same time period of 2021. This means that sales are down by 11.5% in the state year over year. Okay, so there is our baseline.

Let’s take a look at the different price ranges.

In the up to $400,000 price range we have seen a 30.88% decrease in sales year over year. We had 6,572 units sold in the first 8 months of 2022 vs the 7,195 units sold in the same time period of 2021. Now, let’s add a little caveat to this price range. The average sales price in the state of Massachusetts for a Single-family home was $531,000 for the first 8 months of the year in 2021. This is compared to the median of $585,000 in the same time period of 2022. For those keeping track at home, that is a 10.1% increase in the average sales price! My thought process in putting a caveat on this price range is that quite a few houses are literally appreciating their way out of the lowest price band in our state. In other words… There just simply are not as many houses to sell under 400,000.

In the $400,000 to $600,000 price range, we had 12.075 houses sell through August of 2021 vs. the 10,200 houses sold in the same time in 2022. So that is a 15.53% decrease in the amount of homes sold in this price range.

I know… I know… This isn’t the luxury segment lie they said in the article. But we are getting there! And I think seeing the data laid out like this really shows why you need to look at LOCAL data and not read a rag of some publishing that is just looking to use scare tactics to get more and more clicks.

In the $600,000 to $800,000 price range, the amount of home sales are up… Slightly, but they are up. Through August of 2,021, we had 7,252 Single Family homes sell in Massachusetts. This is compared to the 7,254 units in the same time period of 2022. It’s an additional 12 units sold for an increase of .17%.

We saw a 2.19% increase in the $800 to $1 million range. We had 3,418 houses sell through August in 2021 vs. the 3,493 that sold through August of 2022.

I think it’s safe to say that over a million is the luxury market, no? So if this article is correct and stands any basis of not being complete trash… Then this is where the ceiling will fall and we should see huge sales decreases.

From $1 million to $1.5 million, we had 2,701 Single Family homes sell in the first 8 months of 2021 vs. the 3,000 that sold in 2022. If my math is correct and 3,000 is great than 2,701, then that would mean sales were up about 11.1%.

That price range must just be an outlier. In the $1.5m to $2m price range we had 1,147 homes sell in 2021 vs. the 1,257 houses in 2022 for a 9.6% increase in sales.

In the $2m to $3m price range we saw a 25.9% increase in sales as there were 675 homes sold in 2021 vs the 850 sold in the first 8 months of 2022.

Then there is the $3m plus price range where we had 355 Single Family homes sell in the first 8 months of 2021 vs. the 391 homes sold in the same time period of 2022.

If we just look at the $1m or more price ranges, then that means we saw a 12.7% increase in the amount of sales activity in the first 8 months of 2022. This is compared to the panic porn Yahoo article where they are saying there has been a 28.1% decline in luxury sales.

But Jeff, the article specifically said in the Summer months… You are comparing the entire year.

Sure, let’s just do a snapshot of June, July and August and look at the data there.

But by the way… Don’t be that guy… Hit Subscribe!

In the 0 to $400,000 price range we saw a 30% decline in sales. Just like in above, I believe we need to put a caveat on that one.

In the $400,000 to $600,000 price range we saw a 15.5% decline in the amount of sales year over year. This was the exact number that we saw when looking at the entire year.

In the $600,000 to $800,000 price range we saw a 3.94% decline in the amount of sales… This is compared to the .17% increase that we saw when looking at the entire year… So yes, I think we can truly say that this price range has seen an effect of what is most likely an increase in interest rates. But not for the reason that most would think… I will talk about my theory in a couple moments.

In the $800,000 to $1 million we saw a decrease in sales activity of .17% for June July and August year over year. This is compared to the 2.19% increase in activity that we saw when looking at the entire year. So, yes… There is a minor decline in sales activity in this price range as well.

But how about those luxury segments like they said in the article… They must be falling by a lot here in Massachusetts, right?

In the $1m to $1.5m price range we have seen a 10.7% increase year over year. In June, July and August of 2021 we had 1,400 homes sell vs. the 1,550 that we had this year.

The $1.5m to $2m price range saw a 7.69% increase in sales activity with 644 units sold in 2022 vs. the 598 in 2021.

Meanwhile the $2 to $3 million price range saw an increase of sales activity of 23.3% in the summer months of 2022 vs. 2021.

And in the $3 million plus price range we saw an increase of 18.3% year over year with 181 units selling in June, July and August of 2022 vs. the 153 that sold in the same time period of 2021.

As for the entire luxury segment of $1 million plus in June, July and August? Home sale activity was up 12.2% in the state of Massachusetts.

REAL ESTATE IS LOCAL! Every single one of these journalists that publish a national headline report like this should be… Well, I don’t know what a just punishment should be… But they should actually do their job and put it into context and stop trying to scare everyone to the hills.

YES. In many markets throughout the U.S we are seeing a down market on pricing as well as sales activity. Many of these markets had a lot of institutional buyers… For example, 32% of all Single Family home sales in 2021 in Atlanta Georgia was an institutional buyer buying that house. What is an institutional buyer? Think of private equity firms like Black Rock. And these guys have stopped buying. So just right there, that is like 32% of all buyers just walking away and disappearing overnight in that market.

We did not have institutional buying at scale here in Massachusetts. We were not a favorable housing market due to our higher sales prices. Yes, sales activity as a whole is down here. There is little doubt that the market has slowed from the absolute craziness of 2020 and 2021… BUT THAT IS A GOOD THING!

The previous market was not sustainable.

I mentioned a theory of mine a couple moments ago that I want to touch on. I actually saw for the first time someone else talking about this ‘Golden Handcuff’ theory the other day. I believe that where interest rates are really going to affect the market is in the Move-Up segment.

1st time home buyers will become accustomed to these new rates. There are also incentives out there for many first-time home buyers that will help stimulate this part of the market. For example, there is a program in the state of Massachusetts where first-time home buyers can get up to $50,000 in grants when buying a house. As a side note, if you are wanting to find out more, then shoot me an email… It’s an incredible program.

The move-up buyers are locked into low interest rates and I really think it is going to take a lot to get them to move. Either they REALLY need to be busting out of the seams and need more space, or maybe they are moving from the city to a suburb. But for the people already established, many are going to look at that 3% rate and say it is not worth it.

In my mind because of this golden handcuff, you will see a lot of decreased sales in the $600k to $1m price range. And this will then begin to affect the $1m to $1.5m price ranges. I believe this middle market freeze will ultimately cause stagflation in the Massachusetts marketplace where you will just see home prices go sideways for a while. And for the record… Sideways is a lot better then going down!

Plus, even if the asset value price isn’t’ going up… The house is still working hard for you through a decrease in your taxes by being able to write off interest and property taxes. Plus, the kind of built-in savings account of paying down your mortgage a little bit each month and creating more equity as well as the stability that owning a home provides you. Then there is the opportunity cost. You lose 100% of your rent payment as there is no chance of appreciation and you can’t write off anything!

So, there you have it. To date, the Massachusetts Luxury Market is not crashing. Stop paying attention to the national headlines and stick to the local ones. 

And to be clear, I am not saying that the sales numbers in Massachusetts are not going to decline. Heck as of now when we look at all price ranges, we are seeing just that. I even said it moments ago that because of the Golden Handcuffs, it’s my opinion that the slowdown will continue to spread.

It’s my belief that in the years ahead, there will be less sales. But keep in mind that less sales do not necessarily mean prices tumble. You need a big swing in inventory to make sales prices go down. The video above and the one at the end screen breaks down all the stats on whether there will be a housing crash here in Massachusetts. If you haven’t watched it, then you should!

Now my friend Tyler may have just gotten a lot more then he bargained for when he sent me the text with this article… But I figured if he had the question, then you may have as well!

If you are interested in the Massachusetts Real Estate market and would like to get weekly video updates, then be sure to hit that like and subscribe button. Each week I dig into the data and go over Massachusetts Real Estate trends as they are happening.

Do you have any comments or questions on this market data? Then throw them in the comment section below. I thank you for taking the time in watching this video so I always take the time in answering all of your questions and comments.

Are you looking for to buy or sell a home in Massachusetts? If so, then I would love to chat about your real estate goals and see if it makes sense to work with one another. As a heads up, I do not work with everyone and do limit the amount of people that I can work with at once. If I can’t help, then I can promise you that I will point you in the right direction!

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