Berkshire Hathaway HomeServices Island Properties Co-Principal Broker, Robert Sarkisian
Every day, I am asked what is happening with the market. Has it hit its peak?
One could quickly respond with a yes, but it is a question that needs perspective and discussion. We experienced a two-year epidemic that created a fast, furious rocketing market. Demand was strong, and supply was low. Nantucket had two record-breaking years of sales. The number of sales in 2020 was up 16.55% over 2019, and sales dollars were up by 25.5%. 2021 was even more robust than 2020, with 738 property transfers equating to $2.325 Billion-wow! Rising interest rates, along with rapid home price appreciation and continued low supply, have given affordability a triple punch. Yes, I believe we have hit peak levels in bidding wars, sight unseen offers, same-day sales, perhaps pricing, and hopefully to the chaos. But with prices ranging from $1M to $39M and only 130 available listings, it would not be reasonable to categorize the entire market with one blanket response. Overall, I do feel the wild ride of the last two years is in the rear-view mirror, and we now see a market that is returning to some normalcy, and we welcome that. We anticipate a stabilizing market environment this year, which hopefully adds much-needed inventory for a balanced market. Finding equilibrium will be a process and take time. Sales volume thru May is down 42% as compared with 2021, and sales dollars are down 21%. The market remains challenging for first-time home buyers as there is little to no available inventory under $1M. Although down from 2021, these numbers still remain stronger than 2019 pre-pandemic figures.
Real estate has always been the best long-term investment. Investors feel secure in moving cash to hard assets, and Nantucket is a great place to invest.
What is the relationship between inflation and mortgage rates in the new reality?
Currently, we see inflation at a 40-year high after decades of relative stability. To curb inflation, the Fed has been raising interest rates. The general consensus is that we will see more hikes in inflation in 2022. Because of the rising interest rate, we have seen mortgage applications in June 2022 at a 22-year low. This is also making housing affordability difficult for some, particularly first-time homebuyers on Nantucket, having to spend well above $1M to purchase an entry-level home. Mortgage Interest Rates are now at 6% when they were under 3% last year. The average mortgage payment has been up more than 50% since last year. This is the largest mortgage hike in 35 years, but historically speaking, the rates are still low when compared to the 70s, 80s, 90s, and early 2000s. Nantucket may be more insulated than other markets, but we are not immune to the impact of rising interest rates. Keep in mind that we have benefited from cheap money for a long time which is certainly not sustainable. Transitions take time and may feel painful in the moment, but once things balance out, it will be a healthy change. Today, price reductions are rising, and bidding wars are going down. The housing market is beginning to cool from the fever pitch, which is a response to the overall state of the economy and may be starting to moderate price growth.
How does the current state of the economy and the rising cost to borrow money influence buyer/seller behavior?
The stock and real estate markets tend to go hand in hand. As we have witnessed in the past decade, Nantucket has prospered when there are large gains in the stock market. But now that the market has turned, something must give. It is a business cycle. High volatility in the stock market has created uncertainty and sharp selloffs. Markets year-to-date are down. The Dow Jones is down 17%, NASDAQ down 32%, and S&P 500 down 23%. We are in a bear market after a record-long 11-year bull market ended by the COVID-19 pandemic.
I love Warren Buffett's quote, "Only when the tide goes out do you discover who's been swimming naked."
Many sellers that want to achieve a maximum profit before the market returns to normal have a sense of urgency to sell. They have been in the driver's seat for the last couple of years and, understandably, don't want to lose that leverage.
Buyers who wish to lock in a reasonable rate are feeling a sense of urgency before interest rates increase any further. Rising interest rates will not impact many cash buyers or the highest echelon of property sales. Other buyers currently priced out of the market due to higher prices and interest rates will need to be patient and be prepared to have all their ducks in a row when the right property comes along. Everyone has a different position on the board, which determines their actions in this new environment. Buyers have had a "life is too short" mantra, and even with everything going on, that attitude remains true today.
What am I seeing thus far with the rental market this season?
The 2022 rental market started off very strong, with many homes being fully booked as early as Fall 2021. With the prices of everything on the rise we are seeing n more cancellations than normal with agents and homeowners trying to rebook. In the last few weeks, we have also witnessed rentals' supply increase and availability. One reason for the sudden increase in rental inventory is the attractive income to the homeowner. With added availability and some decreased prices, I hope to see a return of some of the families who may have been blocked out the last two years. Another significant factor for the increase in rental inventory is international travel. People who flocked to the comfort and convenience of Nantucket are now traveling abroad because they can, and Europe is once again a hot destination. They want a change of scenery.
Therefore, it is not too late, and there is an opportunity to be able to rent this summer and enjoy all the beauty Nantucket has to offer.
Will it be a busy summer?
With the triumphant return of Daffodil and Wine Fest, Nantucket enjoyed a bustling spring. Both events were very successful. I expect the summer to be lively but not roaring, and the higher cost of everything may keep some day-trippers away. On the other hand, many large gathering events like weddings that were postponed during the first two years of COVID are now taking place, creating a huge resurgence for those industries.
It is an interesting time on the Grey Lady; stay tuned…