By Cecil Provost
2023 was another “interesting” year in Saratoga real estate and home building… but we haven’t had a “normal” year in quite some time, have we?
In local residential real estate, although interest rates and prices both jumped, the demand continued to exceed the listing inventory in 2023. Homeowners with 3 percent fixed rate mortgages aren’t selling unless necessary (and that won’t change anytime soon). So, when a new listing hit the hotsheet in 2023 we saw immediate activity, multiple offers, rapid sales, and higher prices.
Although the number of closed sales was relatively low due to limited inventory, our median sale price increased nearly 10 percent in 2023, the average market time was only 24 days (in my experience 90 days is “normal” in our area, and I’ve seen it as high as 130 days), and most sellers got full price or better (our historical average is 96.5 percent). In a “normal” year the higher prices and interest rates would have made selling a home more difficult, but demand is so overwhelming in our area that the only listings that don’t sell in 45 days are the ones that are grossly overpriced.
As a result, many potential home buyers turned to my new construction. Every good builder and subcontractor in our region is buried with work. Our company, Saratoga Construction, received an unprecedented number of new customer inquiries in 2023 (well over 100 per month), and shattered our previous records for both number of home sales and total sales volume, despite much higher construction prices and interest rates. (Construction costs were up about 10 percent in 2023). Thankfully, most of the supply chain issues that we experienced during the pandemic have been resolved, but there’s still a huge shortage of skilled workers in our area.
So what’s ahead for us in 2024 and beyond? In my opinion, these trends will continue for several years. The National Association of Realtors and the National Association of Home Builders both predict 30-year mortgage rates will retreat to something like 6.25 percent in mid-late 2024, which will stoke even greater demand. That’s better than the 7.75 percent peak that we saw in 2023, but probably won’t convince most homeowners sitting on a 3 percent mortgage to sell, so resale inventory will remain tight and bidding wars/price escalation will continue. The coming expansions of both Albany Nanotech and Global Foundries will bring another wave of affluent home buyers into Saratoga County. As a result, demand for resale homes and new construction will continue to be “off the charts.”
As I write this on January 10th, Saratoga Construction is nearly booked for 2024 and we have several projects in planning for 2025. We’re now receiving price increase announcements from our material suppliers for 2024. Lumber prices seem to have stabilized but siding, drywall, insulation, roofing, concrete, cabinetry, wire, pipe, etc., are all going up 5 percent-10 percent in Q1. NAHB predicts overall costs to increase 6 percent-7 percent in 2024. (The historical average is 3 percent-4 percent per year). Customers are always asking me if/when I think the construction costs will come back down, and my response is “I don’t see that happening, unless the whole world blows up”.
Affordability continues to be a huge challenge, especially for first-time buyers. I have three children ages 15-21, and if I wasn’t able to help them out as a Realtor and builder I don’t know how they could afford to buy a home or live here after college. Our region is experiencing (and will continue to experience) many of the same challenges as Boston MA, Austin TX, San Jose CA, and other areas where the economy suddenly booms with high-tech jobs. I founded our sister company, Saratoga Modular Homes, in 2008 so that we could offer quality-built homes at affordable prices because as a former software engineer I knew what was coming when it was announced that AMD was coming to Luther Forest. Saratoga Construction now offers all types of home construction (traditional stick-frame, modular, panelized, log and timber, SIP panel), but all of those costs have risen dramatically. I’m hoping that our local and state government leaders will develop some creative programs to stimulate affordable housing development.
So as we begin 2024, welcome to the “new normal” in our region. My advice to our customers is don’t be in a hurry to sell, but if you’re going to be a buyer then sooner is better than later. Prices are going to continue climbing, inventory is going to remain tight, and housing demand is going to outpace supply locally for years to come.