Two Very Different Palisades Housing Markets

By MICHAEL EDLEN | Special to the Palisadian-Post

We recently completed a review of the Palisades market that compared 2019 with 2018. Somewhat surprising to many people, it was clear that prices over the last year here were lower than in 2018 by about 5% and the rate of sales was also a bit lower than in the previous year.

By historic measures, the 2019 market was biased slightly in favor of sellers, which logically would have resulted in prices being flat or possibly a little bit higher. This prompted a closer look at the figures to better understand why the overall market seemed to be weaker rather than stable at the least.

Generally speaking, the consensus around the country is that a real estate market segment is stable and balanced between buyers and sellers when the level of inventory is equal to five to six months.

When the level is greater than that—so that it would take more than six months to sell the existing inventory at the current rate of sales if no new homes came on the market—that market is considered a “seller’s market.” When the level is below five months, the market is thought of as a “buyer’s market.”

As of February 1, there were 85 homes for sale in the Palisades. The rate of sales on average for the previous year was 18 per month, which equates to 4.7 months of inventory as of February 1, validating the notion that we are theoretically still experiencing a “seller’s market.”

So how was it possible we were finding prices and sales volume were lower?

We found the answer to this by looking more closely at the sales records for the last year. Although the average median list price of Palisades’ homes is about $5 million, the actual median sales price has been about $3.1 million.

In analyzing the statistics for the market below that price level, we found an enormous difference from the local market above $3.1 million, and this made it quite clear why the overall market has softened even though it has been a market that favored sellers for several years.

The bottom half of our market has been and still is experiencing a very strong “seller’s market,” whereas the upper half has been favoring buyers for many months now. Specifically, at the current rate of sales below $3.1 million, there is now only a two-month level of inventory.

In contrast, above the $3.1 million point, there is currently an eight-month level of inventory, by definition clearly a “buyer’s market.”

A few other observations can be made, further illustrating the differences between these two market segments. There are five times as many homes for sale above $3.1 million and it’s taking three times longer for sales to occur in that higher range than below $3.1 million.

For first-time buyers in the more affordable price range this has become an extremely difficult market environment, with only 15 homes available for sale in all of the Palisades priced under $3.1 million.

Another observation we have noticed is that the “failure rate” of homes for sale here has increased to over 30%, which contributes to the steadily growing inventory of homes for sale especially in the higher range. That failure rate is calculated based on the listings which were withdrawn from the market or allowed to expire and perhaps were re-listed and are still on the market. In 2018, we found that this rate was closer to 25%.

It will be interesting to see what 2020 will bring to pass in our local housing market. This is a critical and emotional political year, combined with near-historic low cost of money that has been the fuel for the relative strength of the market for so long.

Historically we have expected a cyclical four to five years market correction to begin and perhaps the 5% softness in average prices is the start of that phase of the market. Only time will tell if the downward or correction pattern over the last few decades is beginning to repeat itself or if this is only a softness that lasts for a while and then we see a resumption of prices increasing later in the year.