I’m always amused by the moments immediately before and after yoga class. We unroll our mats for seventy five minutes to unplug, quiet our minds and breathe, yet minutes before class begins, and the moment that savasana concludes, my fellow yogis are furiously answering texts or scrolling through social media to find out what they’ve missed.
Meanwhile, after burning 500 calories in a studio heated to 95 degrees, I head to the office and knock back a protein drink to wash down the donuts, cookies or birthday cake calling for my attention in our third floor conference room.
Apparently, I’m surrounded by contradictions, which may explain why one involving Rochester’s real estate market caught my attention this past month.
In the middle of August, two widely respected real estate data firms posted stories that, once again, called attention to our community. HousingWire named Rochester the hottest market in America. Like many, I acknowledged the news with a wide mouthed yawn. We’ve been at the top of this list so frequently that the story is no longer interesting.
What is interesting, however, is a story published by Cotality four days earlier: Rochester was named one of five U.S. metropolitan areas at greatest risk of declining home prices over the next 12 months.
How can both stories possibly be true?
Let’s start with our community’s primacy. A few statistics demonstrate that, indeed, Monroe County’s real estate market remains blazing hot. Year to date:
• Median time from list date to contract is only 7 days
• 83.5% of all sales occur within 14 days of listing
• 72.6% of all homes sold above final asking price
Meanwhile, Cotality is speculating that we are among the most likely metropolitan areas to experience a housing downturn. They cite the incredible increase in the value of our housing stock over the course of the past six years as a primary factor.
Unfortunately, this appreciation, coupled with high mortgage rates, comes with a downside. It’s begun to eat into affordability. This, in turn, is beginning to stifle buyer demand. Labor market weakness and inflationary pressures could further exacerbate the situation. They cite the 1.8% decrease in local real estate prices between February and May of this year as a potential harbinger of further deterioration.
In short, HousingWire is measuring scarcity while Cotality is measuring vulnerability. In other words, one is a snapshot of our market as it exists today while the other is gazing into a crystal ball, trying to forecast the future.
This explains the contradiction, which then exposes the irony: the conditions that created Rochester’s extraordinary housing boom may eventually become the conditions that slow it.
Post COVID, homes in Rochester were both affordable and scarce. There was also incredible demand, which laid the groundwork for more than six years of bidding wars and price appreciation.
Today, scarcity remains a defining factor of our market. However, homes are much more expensive and mortgage rates are much higher. The resulting affordability crunch means that there are fewer buyers, creating downward pressure on appreciation.
Personally, I don’t buy into this thesis. The law of supply and demand tells us that prices decline when supply begins to overwhelm demand. In order for their hypothesis to prove to be prescient, demand is going to have to significantly diminish and/or supply is going to have to materially rise.
Currently, there is only one month’s supply of housing available for sale. I just can’t fathom a scenario in which another 1,000 housing units, which would bring current inventory in line with levels last seen in 2017, suddenly come online.
Likewise, I can’t see economic conditions deteriorating so drastically that buyers flee the market en masse. Will fewer buyers be lining up to purchase property? More likely than not. However, in relation to supply, there will probably be more than enough buyers to prevent a price correction.
I do believe that Cotality is correct in anticipating slower local real estate appreciation. However, I think that their thinking about the ultimate destination is flawed. We can lose buyers while, at the same time, still have too many buyers. And that’s the subtlety that I think is missing.
So, if you’re a seller, rest easy that the gains that you’ve enjoyed the past few years are locked in. If you’re a buyer, now may be a good time to purchase. It’s not often that changing market conditions benefit both sides of a transaction.
One final contradiction to consider: Rochester may cool precisely because it has been so hot, and yet remain too hot for prices to actually fall.