Why Long Island homebuyers can't catch a break in a market where prices are up 86% in 10 years

Bryan and Lenia Rosado saved up for a home for eight years, skipping vacations and car repairs. Jacqueline Franzese padded her savings by moving in with her parents to avoid paying rent. And Kelly Rowland was prepared to cover nearly half of her purchase in cash from a previous sale of a co-op unit.

None of it was enough to insulate them from the reality of the Long Island housing market, and the competition among buyers for too few houses for sale. All spent multiple years searching for a house, and — at least initially — had only a slew of rejected offers to show for it.

As the end of another summer approaches, Long Island homebuyers still find themselves at a significant disadvantage in negotiations with sellers — a condition that has existed since the COVID-19 pandemic.

Home prices are at record highs, and while mortgage rates have fallen some, they’re still about double what they were three years ago, leading to monthly payments that stretch buyers' budgets.

Across Long Island, excluding the East End, the median home price was a record $670,000 in the second quarter of the year, according to data from real estate brokerage Douglas Elliman and appraisal firm Miller Samuel. That data covers single-family homes and condos but excludes sales in the pricier Hamptons and North Fork.

The median price in the second quarter was 86% higher than it was a decade ago in 2014, when it was $360,000.

About 5,000 houses and condos were on the market on Long Island, excluding the East End, as of June 30, according to data prepared for Newsday by Miller Samuel. That is less than one-third of the roughly 17,200 properties that were available in June 2014. The average over the decade, about 11,000, was more than double the current level.

"I have never seen a period in my 30 years of tracking housing markets in various areas of the country like this," Jonathan Miller, CEO of Miller Samuel, said of the post-pandemic period. "Inventory is the defining housing metric of the post-pandemic world, and it is the singular reason why housing prices, despite the more than doubling of mortgage rates, have continued to rise."

Real estate agents, researchers and economists told Newsday that strong demand from homebuyers with plenty of cash, a persistent shortage of for-sale homes and insufficient building have kept prices firm on Long Island, as well as other suburbs in the Northeast.

Those experts said they saw little evidence buyers' fortunes would improve anytime soon.

A four-year search

It took about four years before Jacqueline Franzese, 37, was able to make her own luck and get her offer on a house accepted. 

When the pandemic struck in 2020, she moved from her rental apartment in Manhattan to her parents' home in Massapequa Park to boost her savings and prepare to buy a house.

First in 2020, she agreed to buy a co-op unit in Garden City for about $300,000, but after assembling a 300-page application and paying more than $1,000 in fees to apply, the co-op board wouldn’t even interview her. As she saved more money, Franzese expanded her search to houses, condos and town houses from Merrick to Islip. With a budget of up to $550,000, she spent about five to 10 hours a week on her search.

She submitted more than a dozen offers, including some above sellers’ asking prices, and found she kept getting outbid, at times by investors looking to tear down the type of smaller homes she sought.

One three-bedroom ranch in Massapequa was listed for $609,000 earlier this year. It sold for $670,000. The builder who bought it has relisted it at $1.5 million and renderings show a five-bedroom Colonial with a two-story entryway.

"They knock down this adorable little ranch that could have gone to somebody like me, or somebody else in the middle class, and it's being rebuilt," said Franzese, who works in operations for a biotech firm.

This summer, she finally found her home — a three-bedroom ranch in Massapequa in good condition, unlike other homes she saw that needed extensive repairs.

"It just felt really homey," she said. "It has skylights and a lot of windows and it just seems to be in good condition and gives me the opportunity to put my personal touch on it."

The house was listed for $499,000, and Franzese offered $555,000. The listing agent asked if she could increase her offer by another $20,000 or $30,000, but Franzese’s gut feeling was that the seller didn’t have a better offer, so she stood pat and got the house.

"I did my research. I really put my heart and soul into this, and it was still so tough."

For buyers like Franzese, who have an ample down payment and enough income to make monthly housing payments, the key obstacle is the shortage of available homes for sale.

The result of that drop in available homes on Long Island, and to varying degrees across the U.S., was the "most substantial rise in home prices in modern U.S. history," according to a paper published in May by Harvard University's Joint Center for Housing Studies.

"It’s the lack of inventory that makes it a really difficult homebuying market for pretty much everyone," said housing researcher Alex Hermann of Harvard University’s Joint Center for Housing Studies. "Even if you do have the income, even if you do have the down payment, are you going to be able to find the home that suits your needs? Too often over the past couple of years that hasn’t been the case at all."

Growth in home prices has far outpaced increases in U.S. workers’ incomes. Since 1992, the median price of a home in the United States has risen 252%, while the median income has increased 43%, according to S&P Global Ratings.

Higher down payments

In the past 50 years, the early 1980s stands out as another challenging period for homebuyers. Soaring 30-year fixed mortgage rates, which peaked at 18.6% in 1981, jacked up the monthly cost to own a home, according to mortgage giant Freddie Mac, However, home prices at that time were significantly lower relative to incomes.

In 1980, the median home price was 3.6 times the median household income in the 25-county metropolitan region, which includes Long Island. Last year, that median sale went for 6.6 times as much as the median household earned, according to Harvard’s Joint Center for Housing Studies.

"Rising prices, especially relative to what you’re seeing on the income side mean that there’s this massive disconnect between the price level and what households actually have [to spend], much less what they can afford," Hermann said. "That’s pricing out many first-time homebuyers."

At the median price of $670,000, a buyer would need $134,000 to put down 20% and avoid paying private mortgage insurance. 

"Rising prices, more than anything, mean higher down payments," Hermann said. "As prices rise, significant sums of money are a massive obstacle for many potential homebuyers ... most households, especially most renting households, just don’t have that kind of cash on hand."

Bryan and Lenia Rosado, both 36, first approached a lender eight years ago about buying a house but first needed to improve their credit and save for a down payment.

The couple, who have a 14-year-old daughter, tried to save by skipping vacations, restaurant meals and repairs to the air conditioning in Lenia's car, she said. 

About two years ago, Bryan, a medical assistant at Northwell Health, and Lenia, a home health aide, felt they had saved enough to start browsing, but they ran into plenty of other buyers at open houses. 

"To get there was so stressful," Lenia Rosado said of reaching that point. "Then, we went to see a house, and there's so many people with so much money and better jobs than us."

They looked at houses priced around $350,000 and up in areas, such as Freeport, Roosevelt, East Meadow and Hempstead, where they were living in an rental apartment.

"The types of houses that we were trying to get, investors had their eyes on it because I would try to find houses that have potential ... and then fix it," Bryan Rosado said. 

Earlier this year, after they didn't get offers accepted on two other houses, the Rosados found a two-bedroom house in Freeport listed at $430,000. They agreed to pay $450,000 and received a $10,000 concession from the seller to help cover closing costs. 

Lenia Rosado plans to fulfill her dream of opening a home-based day care center at the house, which has a larger backyard than others the couple saw. Bryan Rosado compared saving to buy a home to threading a needle.

"Once you've got that first step, now you can start to sew," he said. "Just to get there can be a struggle."

The Fed pivots

Although prices started rising rapidly after the pandemic, it wasn’t until the Federal Reserve began its campaign to hike interest rates to tame inflation that monthly payments soared.

The average 30-year fixed mortgage rate was 6.35% as of Thursday, a significant improvement from its recent peak of 7.79% last October, according to Freddie Mac. Three years ago at this time, the average rate was 2.87%, near its all-time low. 

Elevated mortgage rates haven’t changed buyers’ appetites for homes, which has kept the market tilted in favor of sellers, said Jonathan Chandler, a real estate agent at Compass in Rockville Centre.

"I don’t feel that much has changed in regard to the type of market that we’re in since the pandemic," Chandler said. Higher mortgage rates have "not changed the buyer’s urgency to purchase a home one bit."

Bryan Karp, an associate broker who leads a team of agents at Coldwell Banker American Homes in Smithtown, sees it a little differently. He agrees that it’s a seller’s market but has seen buyers start to become more discerning.

"What was happening for the last almost two years was you could evaluate prices in your neighborhood and you could almost choose a price from the sky. Because of the lack of inventory, the market would bear it," Karp said. "Now we’re going back to a more price-appropriate market."

The market remains tight, particularly for those looking for houses from $400,000 to $650,000, said Yadlynd Cherubin, an associate broker who leads the Legacy Team of agents at Keller Williams Greater Nassau in Garden City.

For buyers concerned they’re purchasing when prices are at an all-time high, Cherubin says they should consider the alternative of renting and missing out on future appreciation.

"There’s so many people who say, ‘I should have bought then.’ And every year that they don’t buy, they’re not in it," she said. "If you plan on being in your home for a long time, then that wouldn’t be a concern for me."

‘It’s still impossible’

Kelly Rowland, 46, of Babylon, has been searching for almost three years, preferably for a two-bedroom home somewhere between Amity Harbor and Sayville. She sold her one-bedroom co-op three years ago in North Babylon and moved in with her parents while she searched for a house.

She thought funds from that sale, and the more than 40% she planned to put down, would give her an edge. But she since has given up on finding a bungalow on the water where she could dock her boat.

"I thought I could get a small cottage on the water. Now I’m looking for a small cottage anywhere," she said, while touring a two-bedroom house in Copiague that was listed for about $620,000.

Rowland decided not to put an offer on that house after hearing there were multiple other bidders.

One house she wanted, a three-bedroom ranch with an in-ground pool in Sayville, was listed in May for $549,000. She reasoned that some buyers might be turned off that it was on a double yellow-line road.

She offered about $580,000. The house sold for $691,000, or $142,000 more than the asking price.

"That was my highest [offer] at the time. But because I’m saving, my highest keeps going up, but it’s still impossible," Rowland said. 

After touring 50 homes and making serious bids on 15, Rowland said she’s discouraged.

"I don’t have a positive outlook because I've been doing it so long, but I'm not going to give up," she said.

What's next

Experts interviewed by Newsday say they think it is unlikely the market flips in a substantial way this fall. 

"The best-case scenario in terms of increased affordability over the long run is going to be prices stabilize," Miller said. "Maybe some markets dip a little bit ... It seems unrealistic to expect some sort of correction. I think this is going to be a slog over the long run where prices move sideways as inventory gradually rises."

The Federal Reserve has signaled it plans to begin cutting its benchmark interest rate at its September meeting, which could lead to further declines in the average mortgage rate over time. But the 30-year fixed rate will only fall so far, said Molly Boesel, principal economist at CoreLogic in Washington, D.C. 

One forecast, from mortgage purchaser Fannie Mae, predicts a 6.4% average rate in the fourth quarter and a 6% rate next year.

"Mortgage rates aren't going to come down much to make things affordable," Boesel said.

For other buyers still searching, Franzese, who bought in Massapequa, says being prepared to act fast can make all the difference. She believes a handwritten letter to the seller — and sending her parents to the open house because she was out of town — were key to landing the deal. 

Franzese recently spoke before village officials in Massapequa Park to urge them to pass a moratorium barring investors from buying homes there. The village passed a law in January prohibiting homeowners from offering short-term rentals on sites such as Airbnb.

She worries the situation for Long Island homebuyers will not improve anytime soon.

"There are so many things that are completely out of buyers’ control," Franzese said. "I just can’t see how it’s going to get any better."

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.