As we entered 2022, our primary concern was inventory. Surprisingly, even with record low inventory, we were able to work hard and close out our 2nd best year ever with over $163 million in sales. We thank our clients and the team for their hard work in helping to achieve these results.
As we head into 2023, we are at an inflection point on housing sentiment and the economy overall. Here are our thoughts on how things might play out.
The Bullish Case
The pandemic has cemented Litchfield County as the premier country getaway for NYC weekenders.
The newer residents of the area are absolutely loving it here and are busy signing up for camps, completing renovations, and joining clubs. They will be hosting their friends in full force this summer. We have only resold 2 of the over 400 houses we sold in 2020, 2021 and 2022. No one wants to sell their houses and seemingly will only do so under a major life change. New inventory is largely back to the “3 D’s” - Death, Divorce, Downsizing, as the primary drivers. However, lack of inventory has made downsizing challenging.
There are a variety of new high-end Inns in the pipeline (3 in Litchfield alone are already approved and under renovation) as well as some hotels and spas about to enter the application process in several towns. These will allow more people to enjoy and “try out” our communities and lifestyle.
Summer rental demand is off to a brisk pace with our highest end listings already scooped up. New calls are coming in daily for rentals and inventory here will be diminishing quickly over the next month. Pricing is down from pandemic heights, but still very solid.
Our area has never looked better, many hundreds of millions of dollars have gone into renovating homes, public spaces, and businesses in the last few years. Our towns are vibrant with low taxes, healthy businesses, and dynamic social, artistic and entertainment calendars. Our land trusts are expanding and preserving more land for future generations. Our schools are excellent, our environment is clean.
These factors will combine to form the next generation of demand. We think it’s quite likely that those who are waiting on the sidelines now will find themselves in the next round of bidding wars when they realize that interest rates alone will not crash pricing in an area where inventory is so low. The inventory of single family homes on 12/31/22 was about half of what was available on 12/31/21, and only one quarter of the availability on 12/31/19. We have also seen inventory drop another 10% in the first 11 days of January. This is astonishing. With limited speculative building in the pipeline, we just do not see a potential for excess supply developing in the near to medium term. Buying an existing home still represents tremendous value if you compare it to replacement cost. The higher up the price spectrum, the more this is true.
Luxury building costs are now in the $800+ per square foot range. This puts building from scratch out of reach for most customers and will increase demand for existing homes. Sales prices per sq ft remain well below this number.
The Bearish Scenario
While inventory remains our primary concern, interest rates and employment are, of course, a close second. We live in an area where many of our buyers are not obtaining mortgages, and are not particularly interest rate sensitive, though they are using the interest rate change, or recession excuse, to slow decision making. Some have pulled away temporarily. How long will they hold out?
Our market remains very closely tied to NYC and the financial markets. With lower bonuses expected, some buyers will delay purchases. To date, financial firm layoffs have been limited, but if those become wide-spread, or we head into a prolonged recession, perhaps that will shake out some additional inventory and effect both the supply and demand sides of the equation.
Affordability is a concern if you think about those in the lower and middle economic strata. 1mm+ listings now make up 25% of all listings in the county. This is a new high. It is a well discussed fact that affordable housing is becoming a crisis everywhere. Some of our friends are trying hard to put a dent in this problem and we are working with several clients on specific projects trying to address this issue. Our practice is spread across the entire spectrum and our agents are attuned to hyper local market dynamics at all price points. Will we be able to build enough affordable/workforce housing to provide growth and allow for a diversity of residents for our area? It is a serious question.
We are busy sourcing new inventory, trying to make sure our buyer clients are educated and ready when the right property comes along, and helping our sellers stay competitive to the other offerings in the market. If sellers are reasonable and willing to take higher rates into their pricing assumptions, they will still be able to sell in a reasonable time frame. As always, please reach out if you are curious about our thoughts on your property.
It’s been a pleasure getting to know all our customers, both new and past, as we continue in our quest to help those with real estate needs in our communities. We have grown our practice to include agents working in Litchfield, Fairfield and New Haven counties, as well as border towns in NY State.
Our greatest appreciation goes to our clients who have put their trust in us and continue to be our greatest source of business. Thank you, and here’s to a healthy and successful 2023.
Stacey and Pels Matthews
Interested in learning more about Litchfield County real estate? Contact William Raveis Lifestyles Realty to speak to a real estate expert today.