December 2023 Year End Market Update
The year of 2023 ended leisurely on LBI during the month of December. Based on the data results including single-family, multi-family, and land; inventory for the year ended with only 158 homes currently for sale. It is important to realize that about 20% of these properties should not be counted as truly active for multiple reasons. Some of the homes listed as active are actually either currently under contract, in attorney review, or have pending offers already in place. Also, some listings are accidentally being counted twice since some are duplicates in separate categories (for example a knockdown property may be listed as both single-family and land for sale), or are still mistakenly listed active as an agent error. Consequentially, the true number of available properties is below 158 total homes. Other important figures to follow for December 2023 include; closed sales: 25, new listings: 23, months of inventory: 6 months, and average price: $1,615,896. What do these tell us about the health of the market?
Inventory? The theme of the past year and change has been the island’s struggling inventory. The current levels are at about a fifth of the average number of homes for sale at a given time pre-pandemic. Returning to “normal” levels of inventory will be a long road ahead. However, there is hope. While prices most likely will not go down in the near future, price stabilization along with improving borrowing rates should help motivate sellers and buyers alike. Recently, mortgage rates have dropped a little over one whole percentage point between November-now (January 15), hovering around 6.5%. This figure is expected to continue to drop in 2024. Unfortunately, in combination with record low borrowing rates during the pandemic, massive unrealized taxable gains a seller would have to pay at closing (many properties are considered second-homes therefore receive no tax shield), recent purchases (thousands of sales happened over the pandemic with many owners still looking to enjoy their vacation home), and other economic/personal factors have led to sellers holding off listing their home. Simply, selling at this time just doesn’t make sense for a large number of owners. Logically, where would they go once the home is sold? Anything comparable to their home will cost them a larger sum not only on the sales price, but also, a new mortgage would cost them substantially more monthly than their current loan.
Furthermore, when diving into the two figures discussing sales and new listings, inventory cannot noticeably increase if sales outpace the latter. The month of December saw 100% of the new inventory instantly absorbed, selling 2 more homes than what was added to the market. On one hand, it is great to see that despite the low supply, higher rates, elevated prices, and other economic factors that demand is still prevalent. On the other, it is not sustainable if inventory doesn’t increase. As we begin to transition into the second half of winter and early spring, history points to more listings coming on the market, helping to balance out demand while simultaneously adding to the waning inventory. Can supply keep up with demand? We hope so!
Prices? For many of the reasons discussed above, I do not foresee sales prices coming down in the near future. As a result of inventory struggles, persistent demand, new construction properties, and LBI’s location; prices have actually been increasing year-over-year. With the addition of more listings we should see prices begin to stabilize, however, if mortgage rates do drop significantly, many buyers who were waiting will re-enter the market, possibly driving up competition and absorbing inventory. This as you could imagine can easily lead to prices rising once again. While there are many variables that contribute to this, it can be simply chalked up as the basics of supply and demand. As a buyer, I would suggest not waiting for “the drop” because sadly, it may never happen. Purchasing property at today’s price with a higher rate may prove more financially feasible than purchasing at tomorrow’s price and variable rate. Simply put, you can always refinance once rates drop, but you cannot turn back time to get past prices!
In summary, the island is still experiencing a time period of low inventory, considerably high (but dropping) borrowing rates, elevated prices, and overall uncertainty. While this may seem unhealthy, the market is still displaying many reasons to argue against this. Prevailing demand, price stability, and new construction are three major aspects of the LBI real estate market that are helping to keep things moving. Despite the few choices of homes for sale, higher rates, and competition; buyers are still actively searching and purchasing homes at the same relative rate as the past few years. I believe that once we begin to receive inventory the market will balance in a way that is beneficial to both buyers and sellers.
