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Steve Poltorzycki, an Arlington resident writes about what he sells -- local real estate. This column updates his fact-based views of the pandemic-affected market. Read his column from last May >>
Here’s my newsletter recapping the Arlington residential real estate market for single-family homes and condos for 2020.
In a nutshell, Covid-19 hit the market hard early on, but things fully recovered by the end of 2020, with prices reaching all-time highs.
The Covid-19 pandemic hit the Boston area (including Arlington) real estate market very hard during the second quarter of 2020. Many homes that had been listed for sale were withdrawn from the market (due to seller concerns about buyers bringing the infection in with them while viewing the home) and buyers scaled back or deferred their house hunting to reduce risk of exposure.
The real estate industry adjusted to the new reality and found ways to minimize Covid risk for sellers, buyers, and service providers through virtual open houses and showings, drive-by appraisals, and social-distanced inspections.
As a result, the real estate market bounced back during the third and fourth quarters of 2020 and by the end of the year the health of the market (as measured by new listings, sales, days on market) looked very similar to what it was 2019 (a very good year for local real estate).
Continuing the trend of recent years, 2020 saw prices reach all-time highs, a result of strong demand, historically low mortgage rates, and tight supply.
Assuming no major change in the fundamentals that underlie the market (strength of the local economy, low mortgage rates), there is every indication that 2021 will be another banner year for the Arlington real estate market.
IMPACT OF COVID-19
These charts very clearly show that Greater Boston area real estate transactions dropped sharply during the second quarter of 2020 compared to the same time period in 2019. Data are shown for Greater Boston instead of focused only on Arlington because Arlington data comprise a relatively small sample size and the same factors that influenced the Arlington market apply to the region as a whole. As it turns out, Arlington data very closely track the Greater Boston results.
During the third and fourth quarters the market recovered, with new listings, pending sales, and completed sales surpassing 2019 results for the same time periods. By the end of 2020, the year as a whole looked very much like 2019.
Prices stayed strong throughout the year, exceeding 2019 median prices for each quarter, and up 10% versus 2019 for the year as a whole. This shows that demand never declined, even in the rough second quarter, and that the second quarter drop in transactions was more due to the drop in supply caused by the pandemic rather than softer demand.
The more detailed discussion that follows below of various aspects of the Arlington market will look at 2020 as a whole compared to recent previous years to get a sense of where things trended in 2020 and what that might portend for 2021.
Note: “Greater Boston” refers to the 64 communities within the Greater Boston Area Associations of Realtors (GBAR) jurisdictional area, from North Reading to the north, Hudson and Hopkinton to the west, and Mansfield to the south. These communities are virtually all within the I-495 belt. See www.gbreb.com for the complete list.
Single-Family New Listings Stay Flat, While Condo New Listings Jump Up
Single-family new listings in Arlington in 2020 were down only 1% over 2019. This was barely any change at all and roughly consistent with the number of new listings seen in the last several years. Once the real estate industry figured out ways to reassure sellers that homes could be marketed safely, the market recovered to its previous levels of inventory.
Condo new listings in Arlington in 2020 were up 17% versus 2019. There was very little new construction of condo units in 2020, and 2020 sales prices showed a healthy rise, so the rather large rise in new listings appears due to sellers capitalizing on a rising market.
While single-family supply in Arlington, as measured by new listings, stayed flat, the significant rate of rise of new single-family listings in Cambridge and Somerville suggests a Covid-related flight from these more urban communities to more suburban towns, where there is less population density and more living space available for the money.
The condo market in 2020 saw increases in new listings versus 2019 not only in Arlington, but also in a number of nearby communities. The 6% rise in condo new listings in Greater Boston during 2020 versus 2019 contrasts with a 5% drop in single-family new listings for the same time period. Condo supply grew while single-family supply declined. And yet (as we will see later), the median price of condos in Greater Boston rose in 2020, suggesting that the rise in condo supply was more a response to buyer demand than lack of confidence by sellers in their real estate investment.
Buyers who have some flexibility about home location may want to keep an eye on communities with significant rises in new listings, particularly in the condo market. There will be more to choose from in those communities. In addition to Arlington, Burlington, Bedford, Medford, and Belmont saw double-digit rises in new condo listings during 2020.
Inventory Is Still Tight
New listings only partially account for inventory available to buyers. If new inventory is quickly snapped up, there still may not be very much available on the shelves for interested buyers. Months supply of inventory gives a truer picture of supply. this measure shows how much inventory is on the shelves at a given time.
While the calculation of months supply of inventory is a bit more involved than that relating to new listings, the significance of a given figure for months supply can be appreciated through rules of thumb developed by the real estate industry. For example, six months' supply represents a balanced market, where the respective bargaining positions of sellers and buyers are roughly equal, less than six months' supply represents a seller's market, where sellers have the upper hand, and more than six months' supply represents a buyer's market.
We see that for Arlington single-family homes and condos there was far less than six months' supply at the end of 2020, in fact there was less than one month's supply (0.1 months for single-family homes and 0.7 months for condos). This is about as strong a seller's market as it gets.
Arlington supply has had trouble keeping up with demand for some time now.
Single-family home inventory was very tight all around in the Greater Boston area, and particularly in Arlington. Arlington single-family months supply of inventory at the end of 2020 was lower than in all other nearby towns (and the Greater Boston area as a whole), showing Arlington still to be among the most favorable communities for sellers.
While months supply of single-family inventory in nearby communities decreased across the board in 2020, months supply of condos was more a mixed bag, with inventory rising a bit in some towns (and Greater Boston as a whole), and dropping a bit in others. Still, there was less than two month's supply in virtually all communities, reflecting a very strong seller's market in the area.
Mortgage Rates Are at an All-Time Low
One major driver of real estate demand is the cost of borrowing money to finance the purchase. When the cost of borrowing money drops, renters become more inclined to take the plunge in buying a first home, and existing home-owners are more inclined to move up to buy larger or more upscale homes.
Mortgage rates declined during 2020, dropping to 2.68% for 30-year fixed mortgages at the end of December, the lowest rate on record. Recent year mortgage rates had peaked at 4.87% in 2018, causing some to conclude that the real estate market would cool off significantly. But with rates coming down again in 2019 and still further in 2020, homes became more affordable, offsetting the headwinds caused by rising supply and sluggish demand in some areas. Even if the homes were priced just as high as before, buyers were out of pocket a little less each month when it came time to pay the mortgage.
These historically low mortgage rates might be the single biggest factor in the current strength of the real estate market.
One other thing relating to mortgages bears mentioning. At the beginning of 2021, the loan limit for one-unit FHA conforming loans rose to $724,500 in Middlesex County, the county in which Arlington sits, as well as in several other counties in the greater Boston area (Essex, Norfolk, Plymouth, Suffolk). The significance of this is that loans at or below this limit are easier to obtain and have lower interest rates than jumbo loans. This will be of interest to buyers of just about all condos in Arlington and many single-family homes and will further fuel the demand for Arlington real estate.
Buyers Keep Snapping up Homes as They Come on Market
Days on market (DOM) is a measure of the time between when a property is listed and when it goes under agreement. The more demand, the shorter the days on market, as properties don’t stay on the shelves very long in the face of very high levels of demand.
In 2020 Arlington single-family homes and condos, on average, lasted less than a month on market before going under agreement. Given that it generally takes about a minimum of 17 days from when a home goes on market to when a purchase and sale agreement is signed, 24 DOM (in the case of single-family homes) or 28 DOM (in the case of condos) is extremely short, shorter than DOM for any other nearby community, including red-hot Cambridge (35 DOM single-family and 37 DOM condo) and Somerville (27 DOM single-family and 46 DOM condo). It is fair to say that demand for homes in Arlington surpasses demand for homes in all neighboring communities.
But note that in some other neighboring communities DOM decreased more than in Arlington (in the case of condos, and certainly in the case of single-family homes where DOM actually increased in Arlington) suggesting that demand in these communities may be on its way to catching up to buyer demand in Arlington.
Anecdotally, my colleagues and I saw in 2020 a resurgence in the kind of multiple bid scenarios that were prevalent in 2018 but dipped down in 2019. That's what happens when there is strong demand and tight supply.
Number of Homes Sold Was Similar to Previous Years
Another measure of demand is the number of homes sold. It's not a pure measure of demand, as the number of sales is related to both the supply of new listings and the ability of the market to absorb those new listings (demand). If the number of sales goes down, this could be just as much due to a reduction in supply as a decrease in demand. So it’s important to look at what is going on with new listings in determining the significance of changes in number sold. Also, we need to remember that homes sold is a lagging measure of demand. A home is said to be sold once the deal closes, and this can take over two months from the date that an offer is accepted.
The number of Arlington single-family homes sold in 2020 (264) was not too far off the number sold during the same period in 2020 (280), decreasing by 6%. Given that homes sold is a lagging measure of demand and there was a sharp drop in inventory (new listings) in the spring, it may be that the small decline in homes just reflects that the number of closings has not yet quite caught up to the uptick in the market during the third and fourth quarters (the next measure we will look at, homes under agreement, will support this hypothesis).
The number of Arlington condo sales in 2020 rose 8% over 2019 (239 vs. 222), roughly tracking the increase in condo new listings in 2020.
On balance, a small drop in the number of Arlington single-family sales and a small rise in the number of condo sales in 2020 shows the market regained its footing after taking a step back due to Covid and achieved a level of activity consistent with what it's been in recent years.
Some nearby communities experienced fairly significant rises in the number of home sales, particularly in the case of single-family sales in Lexington and Concord. Homes in these two towns have the largest average square feet of all the communities in the data tables below, suggesting that Covid may have something to do the unusual rise in popularity of these towns. Larger homes in communities with lower population density than urban centers have become more desirable in these pandemic times.
To some degree this phenomenon may also account for the rise in the number of condo sales in Bedford and Winchester. These two towns have condo units among the largest in average size of all communities in the area (two out of the top three).
Number of Homes Under Agreement Track Number of New Listings
The number of homes under agreement is a slightly more useful measure of demand than the number of homes sold because there is less of a time lag between the manifestation of demand (the submission of an offer) and the measure itself (the signing of a purchase and sale agreement). Usually, there are fewer than ten days from one event to the other.
If the number of homes going under agreement aligns with the number of new listings this would indicate that demand has remained steady. And in fact that is what we see in the data. There was a very small dip in Arlington single-family new listings (down 1%) while the number of homes going under agreement rose by 2%. That's a very close correspondence between one and the other, showing a continuation of the very strong demand seen in 2019.
And for Arlington condos there was a 17% rise in new listings and a 13% rise in the number of condos going under agreement. Perhaps this shows a very small dip in demand in 2020 versus 2019, but not enough to be meaningful. Other measures of demand show Arlington to still have a very hot condo market.
The situation in nearby communities with regard to number of single family homes going under agreement is a mixed bag. While Arlington's 2% rise in 2020 over 2019 aligns with the situation in Greater Boston as a whole (also a 2% rise), the change in homes going under agreement in other communities ranged from a 28% rise to an 11% drop. Again, Lexington and Concord were among the leaders in market activity and these two towns have the largest average square footage associated with their homes of all communities shown in the table. Large homes were even more desirable than before.
And condos in suburban locations such as Bedford and Winchester were more popular than condos in urban locations such a Cambridge and Somerville. But truth be told, year over year changes in number of condos going under agreement were all over the map as far as the suburban locations went.
All we can say with any confidence is that in the Greater Boston area there was a bump up in number of single-family homes going under agreement in 2020 versus 2019 and a slight dip in number of condos going under agreement in the same time period. Single-family homes were somewhat more desirable than condos. People wanted more space.
SINGLE-FAMILY HOME PRICES AGAIN REACH ALL-TIME HIGHS
Prices Are at All-Time Highs, but the Rate of Price Rise Has Slowed
2020 saw not only record (median) prices achieved for Arlington single-family homes and condos, but also a return to the fairly steep rate of price rise that we saw in the several years prior to 2019.
Arlington single-family homes sold for the median price of $870,000, up 6% over 2019, and condos sold for the median price of $660,000, up 7% over 2019. This is in line with the degree of price rises seen in 2018 over 2017 (7% for single-family and 5% for condos) and the immediately previous years, whereas the price rises in 2019 over 2018 were smaller (2% for single-family and 3% for condos). The increased rate of price rise in 2020 indicates greater market strength than seen in 2019.
And it can't be denied that both Arlington single-family home and condo prices have risen every year since 2013 and over that period prices have risen by 54% for single-family homes and by 76% for condos, a rate of price rise that makes Arlington one of the strongest real estate markets in the Boston area.
Still, the hotness of a market is a relative thing and varies from market segment to market segment. For example, while the 6% rise in Arlington single-family median prices in 2020 over 2019 bested the 2% rise in 2019 over 2018, it was less than the 10% rise seen in Greater Boston in 2020 over 2019 and less than the double-digit rises in this time period seen in some neighboring communities such as Lexington (+13%), Cambridge (+11%), and Belmont (+10%). These three communities are regarded by many as more upscale than Arlington and the relatively sharp rise in prices there may indicate new growth in the move-up and luxury segments of the market.
As for the condo market, the 7% rise in Arlington condo median prices in 2020 over 2019 was not only steeper than the 3% rise in 2019 over 2018 in Arlington, it was also steeper than the 3% rise seen in Greater Boston in 2020 over 2019. Other nearby suburban communities also saw a large boost in 2020 condo price rises (47% in Winchester, due to a 29 unit new upscale condo development coming on market and selling briskly, 22% in Bedford, and 15% in Lexington). Condos sold in these three suburban communities had the largest average square footage of any communities in the tables below and show that the amount of living space was a great importance to condo buyers in 2020.
Potential condo buyers should note that prices dropped in Concord and Watertown. Perhaps there could be bargains still to be found there.
Prices per Square Foot Rose in Rough Correspondence to Median Prices
It's always useful to check the median price data against price per square foot figures. If there's not a close correspondence between the two it would suggest some price band is having a disproportionate influence on the results. Typically, the larger (and more expensive) the house, the lower the price per square foot. A number of factors go into this, including house value to land value ratios, marginal cost, and so on, but the rule of thumb holds true.
Prices per square foot in 2020 for both Arlington single-family homes and condos rose a bit versus 2019 (4% single-family, 2% condo). While the rate of price per square foot rise was quite not as steep as the rise in median prices (6% single-family, 7% condo), it was not so far off as to suggest anything particularly odd going on. It is worth noting, though, that the 2% rise in condo price per square foot versus the 7% rise in condo median prices tracks with a 5% increase in the average size of condo sold in 2020 versus 2019. Again, the larger the home, the lower the price per square foot. Buyers looked in 2020 to gain living space.
When we look at the situation in nearby towns, we see that there were healthy rises in prices per square foot in some of these towns, indicating that the market in those towns could be strengthening versus Arlington's.
The silver lining in this for buyers is that they may find more value in Arlington than in certain other nearby towns. For example, the average per square foot price for Arlington single family homes ($455/sq. ft.) was lower this year than in Cambridge ($816/sq. ft.), Somerville ($575/sq. ft.), and Belmont ($533/sq. ft.).
As for condos, the average per square foot price ($474/sq. ft.) was considerably lower this year than in Greater Boston ($560/sq. ft.) (weighted heavily by the top-end condos in the City of Boston) and also nearby Cambridge ($827/sq. ft.) and Somerville ($603/sq. ft.).
This shows that from a buyer’s point of view Arlington single-family homes and condos could be a good value in comparison to homes in certain nearby communities, and, from a seller’s point of view, that the Arlington market will continue to attract buyers priced out of some neighboring (more urban) markets. Many residents of Boston, Cambridge, and Somerville have found Arlington an attractive place to move to when their growing families needed more living space and they could not afford what it would take to move up in size in their current communities.
IMPLICATIONS FOR SELLERS
Sellers of single-family homes and condos in Arlington continue to enjoy one of the stronger seller's markets in the Boston area. The market in Arlington recovered fairly quickly from the severe jolt caused by the Covid pandemic (as was the case for the Greater Boston area as a whole) and the fundamentals (strong local economy, very low mortgage rates) suggest the market will continue to be strong in 2021.
Naturally, homeowners thinking of selling who are concerned about the risk of a market downturn might want to sell sooner rather than later so as to lock in gains. There can be no certainty about the direction prices may go. Certainly potential headwinds such as rising mortgage interest rates, a stock market correction, or an economic recession could have a chilling effect on Arlington home prices.
Nevertheless if the rate of price rise in Arlington continues its steep ascent, and Arlington prices get closer to the price levels of Lexington, Belmont, and Winchester (towns whose median home prices suggest they are viewed as more desirable than Arlington), potential sellers of Arlington homes may want to think about whether it makes sense to invest in additions or improvements to their homes to make them more competitive against homes in these other towns. The average square footage of an Arlington single-family home is significantly smaller than the average square footage in these other towns, and some Arlington homes have not had the recent kitchen and bath updates that buyers have come to expect in Lexington and Winchester.
The same holds true for condos. While there is not much an owner can do to increase the size of their condo, they can certainly make sure that is has been updated and, when time comes to sell, that it is staged for maximum appeal.
IMPLICATIONS FOR BUYERS
Buyers looking for a home in Arlington will continue to face a seller's market, often with several buyers competing for the same property. Buyers will still need to be prepared to move fast and put in competitive offers with as few strings attached as feasible. And even then it might take several tries before being successful.
Still, despite rising prices and tight inventory, 2020 Arlington single-family per square foot prices ($455/sq.ft.) were a relative bargain compared to Cambridge ($816/sq. ft.), Somerville ($575/sq. ft.), and Belmont ($533/sq. ft.).
And if Arlington prices are too high, buyers may want to consider other nearby towns. In 2020 the median single-family home price in Bedford ($795,000) was 8% less than that in Arlington ($870,000), in Watertown ($717,500) it was 18% less, in Medford ($672,000) it was 23% less, in Waltham ($670,000) it was 23% less, in Burlington ($621,000) it was 29% less, and in Woburn ($567,500) it was 35% less.
Arlington 2020 per square foot condo prices ($474/sq.ft.) were not as steep as those in Cambridge ($827/sq.ft.) or Somerville ($603/sq.ft.). And if Arlington prices are too high, buyers may want to consider alternatives such as Burlington where the 2020 median condo price ($585,000) was 11% less than in Arlington ($617,000), Watertown ($575,000) where it was 13% less, Medford ($569,000) where it was 14% less, Concord ($549,000) where it was 17% less, Waltham ($533,500) where it was 19% less, or Woburn ($477,500) where it was 28% less.
Data were collected from MLS PIN, National Association of Realtors, Massachusetts Association of Realtors, Great Boston Association of Realtors,US Bureau of Labor Statistics (BLS), US Bureau of Economic Analysis (BEA), Freddie Mac, and Conference Board Consumer Confidence Survey. Data do not reflect private transactions. Berkshire Hathaway Home Services Commonwealth Real Estate and its sales agents make no representation as to the accuracy of the data and are not responsible for any actions taken as a result of use of or reliance on this information.
This column of information by Steve Poltorzycki was published Thursday, Jan. 21, 2021. He is a Realtor with Berkshire Hathaway HomeServices Commonwealth Real Estate. Email him at steve at stevepolt.com if you would like to receive his real estate newsletter and see his website >>
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