Blog :: 02-2020

After more than 25 years of living, working and playing on Cape Cod we have a lot to share about the area.  Our blog topics run the gamut from fun things to do, working with contractors, and homeownership tips and tricks, so check back frequently to see what's new.  If you have questions or would like to learn more about Cape Cod or owning property on this beautiful peninsula please contact us for more information and to set up a showing for any listing. 

Cape Cod Affordable Housing Update | Feb 2020

We get a lot of questions from folks interested in the issue of housing affordability here on the Cape, so we thought we’d give a quick overview of the issue and some of the potential solutions being discussed.  

What exactly is meant by “affordable”?  The benchmark for housing affordability is 30% of a family’s income.  Here on Cape, the Area Median income (AMI) from 2014-2018 (per census) was $70,621 (see here for census data).  During the same interval the median home sale price was $367,700.  The total monthly payment on a median priced home comes to approximately 28% of median income if the buyer has a traditional 20% down payment (jump to our math below).

So with a good-sized down payment, the median priced home can be purchased by the median-earning household.  Good news so far.  Now let’s break down housing affordability for households earning below median income.  Take a look at the graph of residential price distribution in 2019.  Here we matched home prices to the income brackets in the next graph to determine how many homes are available to homes in their income price range.  Notice the steep decline in available homes below median income affordability of $367k.  Now compare that to the graph of income distribution.  Notice the mis-match.  If your household earns 68% AMI you may be only 32% away from median in terms of income, but 32% less than median home value equates to $250k, and there are almost no homes available in that price bracket.  

In addition, these graphs don’t account for the quality of the housing at each price point.  A good-quality ‘move in’ condition home can be found around the median price point of $367,000.  However, once you get down to about the $300,000 mark it is extremely challenging to find a home that is not in need of significant repairs or upgrades before it is ready for occupancy.  (If we could graph housing quality against price point, it would show an even sharper peak than the price graph).  On the one hand, this presents an opportunity to a buyer who is willing to buy a fixer upper for a low purchase price, bang nails after work and build equity.  However, it also means that same buyer must budget for repairs in addition to down payment, which further reduces the price of the home they can afford.  And for the less hands-on households, it means a home purchase is a nonstarter.

Ok, so it is a challenge for a household earning less than AMI to buy a home, so they decide to rent and save up to buy down the line.  Good plan – but let’s take a look at rental market first. Per HUD guidelines, fair market rent for a 3 bedroom house in Barnstable county is $1,919/month (reference here).  This is $264/month more than the same household would be paying for a median priced home of their own.  Why the mis-match? Barnstable County has a 1% vacancy rate for rentals, which represents a huge shortage – a healthy rate would be 7%.  This shortage translates to high demand, which translates to – you guessed it, high prices. 

So let’s circle back to the median home value calculation above, which assumed that our median earning family had a 20% downpayment to apply to their median-priced home.  If a renting household is paying close to $300 (16%) per month more to rent than to own, it can be a real challenge to save enough money to put towards a downpayment.  They are stuck in a loop of paying too much for rent, while also pricing themselves out of the possibility of homeownership.

So what is the solution?  There is no silver bullet, but bringing more rental units online is a big part of the answer.  One tool that has gained a lot of traction on the Cape is easing prohibitions on accessory apartments.  This is a minor change which can go a long way to bringing more small, organically affordable, market rate units into the market place.  Other initiatives include property tax incentives for landlords of long-term rentals, form-based code zoning reform to encourage multi-use and multi-family development, and raising density in areas where the infrastructure already exists to service a higher density of homes.  A lot of innovative work is being done to help restore a healthy, balanced real estate market to the Cape (and the nation).  It’s a topic that is near and dear to our hearts – if you ever have questions, please don’t hesitate to reach out.  We’d be happy to discuss in greater detail.


Calculations

Area Median income 2014-2018 (per census): $70,621
    • Average Median home price 2014-2018 (per CCI board of realtors): $367,700

At today's conforming interest rate of 3.375% (CC5 2.06.2020) a mortgage on a $367,700 home looks like this:

    • 20% Down payment = $73,540
    • Loan Amount = $294,160
    • Principal/Interest monthly payment = $1,300.47
    • Taxes = $245 (assuming an imaginary town with 8/1000 mil rate and assessed value equal to purchase price {market value is typically actually 120%-124% of assessment for most towns in the mid-Cape})
    • Insurance = ~$110

-----------------------------------------------------------------------

Total Monthly Payment Estimate = $1,655.47

2019 Cape Cod Real Estate Market Recap

Are you interested in the health of the Cape Cod real estate market?  How it compares to Massachusetts' real estate trends? We have had some time to review the market data from 2019 and have some interesting findings to report.  We'll take a few key points and break them down 

Inventory: What is "month's supply" and who cares?

Month's supply of inventory is a way of describing how much property is currently salable in the market.  It tells us that, if no homes were added to the market, how long it would take for all 'for sale' properties to be sold.  It is based on how quickly homes have been selling over the past few months and how many homes are currently for sale.  When it comes to inventory, 2019 saw a decline and was down nearly 20% from 2018 (see the graphic at right from the Cape Cod and Islands Association of Realtors).  This has been the overall trend since 2015 when months supply of inventory was at 7.9, at 2019 year end it was 4.0.  Who cares?  With inventory so low the market favors sellers.  Generally between 5 and 6 month's of inventory is considered a healthy and sustainable amount.  4 is heavily in seller favored territory and means that buyers may compete against multiple offer scenarios or have difficulty seeing a home before an accepted offer takes it off the market.  The lesson for buyers is be prepared! Contact one of our local agents to see what this looks like.

 

 

Median Sales Price: Why does it keep going up?

2019 median sales price in Barnstable County rose 2.5% to $410,000.  Median price in 2015 was $350,000 and has been steadily increasing since then with the steepest gain in 2018.  Something to note however is that not all markets on the Cape are experiencing an increase in this metric while others are far outpacing the larger area. The question as to why median price continues to increase is multifaceted.  Since 2015, the larger economy has seen cumulative inflation about 8.5%.  The Cape Cod real estate market has seen cumulative median price increase of 17% in this same time leaving us with 9.5% to account for.  Supply and demand plays a significant role in the Cape economy and with inventory decreasing since 2015 and demand remaining high, this places upward pressure on the price of homes.  Additionally with construction costs also quite high new homes are not being built which contributes to the lack of inventory.  Also in order for builders to make a profit, new homes are being built at ever higher price points driving the market up even more.  

Statewide and Larger Trends: Cape in Context

Massachusetts as a whole is also suffering from historically low inventory and increasing median sales prices as well.  According to the Massachusetts Association of Realtors (MAR), even with the rising cost of homes, Massachusetts first-time home buyers comprise 45% of home buyers, way above the national average of 33% of home buyers. This is good news as it indicates the State is a desirable place to live. MAR states that the increasing complexity of buying homes, has 93% of buyers using a real estate agent to assist in the process of buying as opposed to purchasing directly from a builder or owner (for the entire press release, see here). This trend has increased through this decade. Additionally, the historically low interest rates throughout much of 2019 (3.375% at the time of writing), coupled with the 88% of buyers financing their homes, highlights the strength of this real estate market for sellers and buyers.  

As always, to discuss the larger market trends or find out about buying or selling in your market, contact one of our agents today.  

Cape Cod Market Update February 2020

January Review:

After the holidays the January market saw an increase in new listings which was up nearly 14% from January 2019.  We are hopeful this trend will continue and result in more months supply of inventory as we enter the Spring season.  We also note several trends in other metrics that indicate what the Spring may look like.  Days on market has remained largely unchanged since May (with a slight dip in the summer).  This indicates relative balance between quick sales due to under-pricing or motivated buyers and prolonged sales due to over-pricing or a dearth of buyers.  Also months supply of inventory is currently the lowest it has been in January since at least 2017.  If these trends continue the market may look similar to 2019: low inventory and seller favored.  

However, we are seeing something else happening.  The single-family home affordability index, if you have been keeping up with our reports here, remained largely the same throughout 2019 and the trend goes all the way back to the end of 2017 (with a brief decline in the fall of 2018).  This indicates that the median income on Cape Cod has been keeping pace with the median home sale price increases over the last two years.  The trend overall has the affordability index hovering in the 80s and since a score of 100 indicates the median household income can afford the median homes sale price, the Cape is still not as affordable as it could be, but at least the trend is not one of decline.  Contact us today, we are always glad to discuss the market in further detail if you have questions. For more market data check out our blog category Real Estate Trends.

Recent Market Summary

    Nov     Dec     Jan  
    Closed Sales    334     350     270  
   Inventory     1,700     1,346     1,397  
   Median Sales Price   $439K     $436K     $431K  
   Avg Days on Market    109     109     108  
   Avg % of Original Price    93%     93%     93%