Madison Real Estate Analysis

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It’s spring in the Rose City, so naturally many people are wondering about the value of their homes. After all, this is the time of year when you’re most likely to see “For Sale” signs popping up in your neighbors’ yards.

So what’s happening right now, real-estate wise, in our own little hyper-market corner of the universe? Here’s a rundown.

Madison is fortunate to enjoy a healthy real estate market. We have great schools, a darling downtown and easy access to New York City. For better or worse, it’s quite common to find “starter” homes that cost around $500,000 or $600,000 here. That’s pretty rare anywhere in the U.S., and it’s a good thing if you’re a homeowner here – that means that we have strong incomes and a relatively healthy economy, and it takes a qualified buyer to enter the housing market.

In the first quarter of 2019, homes moved a bit more slowly than they did in the  past year or two. The three-month rate of absorption for the Madison housing market – an important tool for measuring housing market strength – was at 10.71 for the three-month period ending on April 15. (You can see Investopedia’s definition of absorption rate here: https://www.investopedia.com/terms/a/absorption-rate.asp.) This number indicates that the market is tilted toward buyers.

That said, a lot of homes seem to be selling quickly – especially if they’re nice inside and priced attractively. If the absorption rate is over 10, why does it seem so competitive for many buyers?

This is because the Madison market – like many other housing markets – should really be broken down into sub-markets reflecting different homes at different price points, and the buyers pursuing these houses. When you look at the data this way, the numbers tell a different story.

For argument’s sake, I’ll break the housing market into three segments.

The first segment would include first-time buyers and/or buyers coming to Madison from New York or Jersey City for their first suburban home. These people want clean and comfortable homes with at least three or four bedrooms. I work with a lot of people like this in my own real estate practice, and their budgets are usually less than about $900,000.

The second segment would include move-up buyers, or buyers from the city or another region with larger families (and growing kids). This group might also have to consider an in-law or parent who comes and stays with them for extended periods of time. The houses they’re looking for most likely have at least four and sometimes five or more bedrooms and usually cost between about $900,000 and $1.5 million.

The third segment would be the luxury buyer. This person might be doing quite well at work, and may have a bonus or two socked away for a down payment. A lot of them may have inherited money, and may even pay cash (crazy, but true!). These houses are usually quite grand, and for the purposes of this article, let’s say they cost more than $1.5 million in Madison. These people are also pretty likely to be considering other towns, like Harding and Chatham.

Let’s look at the data for each of those groups. Keep in mind that the National Association of Realtors calls an inventory absorption rate of “6” a “balanced market.”

·       Homes up to $899,999 have a three-month absorption rate of 7.76 months of supply. This is slightly higher than the National Association of Realtor’s benchmark of 6 months’ of supply indicating a balanced market.

·       Homes priced between $900,000 and $1,499,999 have roughly double the absorption rate – 14.29 months of supply.

·       Homes priced at over $1.5 million (our luxury homes) have an absorption rate of 45. This means that there is 45 months of supply of these houses.

So what does this mean? If you’re a first-time buyer, you’re probably still competing for the best homes in the best locations, but you might have a little wiggle room in negotiations for some houses that have not sold within a reasonable amount of time.

If you’re a move-up buyer in the next category, you have a lot more choice, which gives you more negotiating power.

If you’re looking to purchase a home in the luxury segment, the world is your oyster. You will most likely have the pick of the litter, and so long as you’re reasonable, you’ll probably get a pretty good deal. That said, some homes are still very desirable and move a lot more quickly than others - especially if they’re in a great location or newer construction.

Of course, every home is different – and price, condition and location must always be considered on a case-by-case basis. And please, please, please talk to your friendly local realtor. We can give you insight about what’s happening in the market on your street, in your neighborhood, in your town and even beyond. (I’m always available to chat – I’m a bit of a data nerd. You can reach me at 973-845-8375.)

Meg Mullin is a Madison mom, realtor and writer. Feel free to reach out to her for information about buying or selling – she has tons of experience helping clients with both. You can reach her at megmullinrealestate@gmail.com or 973-845-8375.