No bubble, no inventory
Why this outrageous real estate market is the new reality
A most rare sighting; new construction on Cape Cod.
The incredible spiral of property values on Cape Cod continues, and what has gone up will not come down.
Drop? Not big, unless there is a catastrophe to the environment or economy even heavier than the Russians in Ukraine or gas at $4.
This is no subprime mortgage madness, bubble, or pyramid scheme. This is who we have become. There are many reasons why, but here’s a key fact:
“There are less than 300 active (residential) properties for sale on Cape Cod,” says Laura Clements, owner of Cove Road Realty in Orleans and president of the Cape Cod and Islands Association of Realtors. “Last year at this time, there was in excess of 2000,” and that figure was historically low. “So that’s a little scary.”
In a typical annual cycle, new listings would be popping up now like early daffodils, school vacation over, sellers figuring this is the time to snag buyers who want to be closed and ready to enjoy summer. “But nothing is happening,” Clements reported last week, though there has been a slight uptick within the last few days.
“In 30 years I’ve never seen anything like it,” adds Laura Usher, who works with Raveis Real Estate. “This is not exactly true given how listings work, but one way to put it is that we have maybe two-and-a-half weeks of inventory, so if we don’t list anything new, in three weeks we’d have nothing to sell on Cape Cod.”
Every student of Economics 101 knows what that means for prices:
In January 2022, the median sales price of a home on the Cape was $660,000. That’s median, meaning half sold for more than that, half less.
In January, 2021, it was $570,000.
In 2018, it was $400,000.
That’s appreciation of almost 16 percent in one year, 55 percent in four years.
In 2021, the average number of days a property was listed before it sold was 36 days.
In 2020, it was 82.
Not long ago, Realtors would say that if you sell for 90-92 percent of listing price, you’re doing great.
Now the average sales price exceeds 100 percent of the listing price because bidding wars erupt as soon as listings appear, sometimes reaching 130 percent over asking. Many sales are cash, and if not, financing has been pre-approved and the deal is done in a hurry.
People thought COVID would hurt the market -- on the contrary. Many new buyers are thinking lifestyle changes that include Cape Cod and telecommuting. What they can afford has nothing to do with our local economy; their incomes far exceed what this little place justifies. The second-home and retiree influx that has long pressured local buyers still exists, but now there is a new layer of wealth piling on.
This means a lot of people who bought homes in the last 30 years are paper millionaires. But if you sell for a million dollars, and need to spend that to move elsewhere on Cape Cod, what good does it do you? Not much. High sales prices don’t necessarily create a glut of new listings.
This drives the “bottom” of the market as well as the “top.” I’ve written about Ronnie Bourgeois before (free market and affordable?), who owns or manages hundreds of “affordable” rental units. He says demand is overwhelming:
“Three-bedroom units are renting for $1750-$1800 a month, if you can find one. You’re working hard, making 25 bucks an hour, that’s good money. But even so, you’re not going much of anywhere.”
Bourgeois still sees opportunity; he has a 24-unit apartment building with affordable restrictions that he’s looking to get up and running in West Dennis, another 10-unit development in Hyannis in early discussion. Far as cash flow on his existing properties, “I’m killing it.”
Ronnie’s Hyannis is a village of Barnstable, which just showed up in “realtor.com” as one of the 10 hottest luxury real estate markets in the United States, joining places like Kahului, Hawaii, San Luis Obispo in California, and Hilton Head, South Carolina. They figured this by looking at the median price for the top one percent of homes for sale. For Barnstable that median was – drumroll please -- $15.9 million. This is insane and deceptive; in 2021, the median single-family home in Barnstable sold for $540,000.
Same town, different worlds.
Interest rates are going up. Usually that cools sales because monthly mortgage payments become higher. But given how many sales are cash, and strong pent-up demand, that’s not likely.
Savvy Realtors like Steve Flynn at Kinlin Grover Compass remember when brokers representing buyers would offer comparisons of previous sales (comps), and unroll market history as context. Sometimes, representing the interests of eager clients, they’d advise not to go over-the-top crazy with an offer. Many did ahead anyway, and in retrospect new owners wound up with property AND a big increase in net worth as prices blew through the roof.
“I suppose I’m glad they didn’t take the best professional advice,” he says wryly.
Laura Clements has a new strategy with buyers she represents:
“I ask, ‘What can you pay? What’s the level where if you don’t get the property you won’t be upset?’ Presenting comps, background information, taking a little time, that’s all gone. It’s a frenzy.”
Speaking of Realtors, how can 300 properties support something like 2700 people who have licenses in the Cape’s Multiple Listing Service network?
It can’t, but the truth is that only a small percentage of those 2700 drives sales. Ryan Castle, CEO of the Cape Cod and Islands Association, says that “the same people are doing the bulk of the business” as total sales diminish but commissions climb. That said, he sees “a flattening of our membership for the first time in a long time.”
One possible consequence is that independent offices might face even more challenges given lack of volume – though those deeply rooted like Clements at Cove Road, with a lot of connections in the community, will weather.
In the end, it circles back to the beginning: No inventory. In other parts of the country new construction might account for 30, 40, even 50 percent of a market, but Cape Cod doesn’t have that kind of developable land, plus local zoning creates expensive hurdles in the name of “community character” and environmental protection. But just relaxing protections is no guarantee of diversity; all it means too often is yet more high-end buildout.
Even as towns grapple with this outrageous lack of affordable housing by relaxing zoning for “accessory dwelling units” (those are rentals, by the way, not for purchase), or targeting older hotels on Route 28 for conversion, it takes time and money. Wave a magic wand today, create the smartest best zoning and opportunities, and we’re still years away from major impacts.
Maybe when the huge swath of owners in their 70s and 80s move through life’s inevitable final transitions, roughly on the same schedule, a large amount of inventory will surface. Raising that notion is a sad, ugly hope, and probably not real anyway; more often Cape Cod properties will pass from generation to generation.
Besides, by then the median home sale on the peninsula may well push even crazier numbers; what’s a chintzy million dollars in bitcoin cryptocurrency anyhow?
NEXT: FEELING A (JIMMY) TINGLE
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