The pandemic era Long Island real estate boom appeared to come to an end in October. The culprit: The average mortgage rate at its highest level in 20 years.
Homes that were in contract in October in Nassau County went for less than they had a year ago, and Suffolk prices for in-contract deals increased only slightly. The number of transactions has plummeted in both counties, as higher mortgage rates have made purchases much more expensive, according to new data released by OneKey MLS on Monday. Low inventory has helped keep homebuying competitive thus far.
The median price for homes that went into contract in Nassau County in October was $650,000, which was 1.6% less than the median among pending sales in October 2021. It was the first year-over-year drop since April 2020.
In Suffolk, the median for pending sales was $532,000, which was a 0.5% increase compared with the same month a year ago.
What to know
- The median price of Nassau homes that went into contract last month fell 1.6% compared with October 2021, to $650,000. It was the first year-over-year drop since April 2020.
- In Suffolk, the median price among pending sales increased just 0.5% in October compared with the same month a year ago.
- Higher mortgage rates helped end the pandemic housing boom but a low supply of houses for sale should prevent a bust, local real estate experts said.
The flattening in home prices, compared with the previous year, occurred as the average rate for a 30-year fixed mortgage reached 6.9% during the month of October. By the end of the month, the average was 7.08%, eclipsing 7% for the first time in 20 years. In October 2021, the monthly average was 3.07%, according to mortgage giant Freddie Mac.
“We definitely appear to be past the frenzy we had for so long,” said Jim Speer, CEO of OneKey MLS. “I think the fact it didn’t decline more, with the interest rates going up, would show that it does not appear it’s leading toward a significant decline in the prices. It’s probably good and healthy that it’s right about where it was a year ago.”
Prices have yet to turn downward, year over year, for deals that have closed. The median price for closings in October was $675,000 in Nassau, or 3.8% higher than in that month a year ago, and $550,000 in Suffolk, which was up 6.2% compared with October 2021. Home sales can take weeks or months to close, so it is likely many of those buyers reached deals in August and September before the latest rise in mortgage rates.
Home prices for closed deals reached record highs in July, when the median price hit $720,000 in Nassau and $575,000 in Suffolk. OneKey MLS reports prices in nominal terms that are not adjusted for inflation.
Higher mortgage rates have made monthly payments unaffordable for some buyers and have made selling a house less attractive for homeowners who bought or refinanced their loans when rates were at historic lows.
There were 1,035 closings in Nassau, which was 24.4% lower than in October 2021. Suffolk closed sales fell by 28.1% to 1,226.
Rising interest rates led some buyers to pause their search, but they are starting to come back, said Maria Wilbur, a real estate agent with Keller Williams Greater Nassau who primarily markets homes in Suffolk County. She said she recently listed a house in Bay Shore that received seven offers, with six above the list price.
“If things are priced properly, they’re still getting enough activity and sellers are getting really good above-asking [price] offers,” she said. “If it’s not, we’re seeing them sit on the market longer.”
The shift in the market follows a period when prices had increased by 10% on a year-over-year basis at times. The explosive growth in prices after the COVID-19 pandemic started was driven by a combination of government stimulus payments to households; mortgage rates at historic lows; the rise of remote work increasing demand for spacious homes; and historically low housing inventory, according to a recent report published by economists at the Federal Reserve Bank of New York.
Long Island’s low inventory has helped keep prices high despite higher mortgage rates. The number of houses on the market at the end of October was 3,050 in Nassau, which was 3% lower than a year ago. In Suffolk, inventory increased 7.6% year over year to 3,561.
Speer said predictions that a wave of foreclosures would lead to a significant decrease in prices haven’t materialized. “I’m not sure in the future what would bring about a large increase in listings,” he said.
By one measure of inventory, the market remains tilted toward sellers. Based on the pace of pending sales, it would take about 3.1 months to sell all homes on the market on Long Island. Five to six months of inventory is typically needed to put buyers and sellers on even footing in negotiations.
George Castera, a real estate broker and owner of Castera Realty Corp. in Freeport, said an influx of buyers from New York City helped inflate local home prices during the pandemic and a leveling off in prices is normal. He said he encourages buyers to find a house that meets their needs and budget and to act quickly once they find it.
“What people don’t realize, and I think it’s because of the abruptness of the pandemic and bluntness of the market change, is that all of this is normal,” Castera said. “This is the cycle of real estate.”
Read More: Long Island home prices hit mortgage rate wall in October