This four-bedroom house in Nesconset, zoned for Smithtown schools, is...

This four-bedroom house in Nesconset, zoned for Smithtown schools, is under contract for $650,000. It was listed for $589,000 in April, and the seller received 53 offers. Credit: EPM Real Estate Photography

Long Island home prices climbed to record highs in May, as the region’s shortage of homes for sale helped sellers maintain their edge in negotiations despite the dramatic rise in mortgage rates this year.

The median sale price in Nassau County was $686,000 in May, or 8% higher than the median in May 2021, according to data released Wednesday by OneKey MLS. That shatters a previous record set in July and matched in August when the median sale went for $670,000.

In Suffolk, the median sale price was $555,000 in May, or 11.2% higher than the same figure a year earlier. That price tops April’s record of $540,000. OneKey MLS reports home prices in nominal terms, meaning they are not adjusted for inflation.

The latest record prices come at a time when the real estate industry is closely watching the housing market for signs of softening after mortgage rates rose to their highest point in more than a decade. The average commitment rate for 30-year fixed mortgages in May was 5.23%, according to mortgage giant Freddie Mac. The average hadn’t reached that level since June 2009. The average commitment rate in May 2021 was 2.96%. 

 “I keep waiting, as interest rates have gone up, for that to put a drag on the market, which it may still,” said Jim Speer, CEO of OneKey MLS. “It just has not yet at this point, which really just goes to show how much demand there still is out there in the market.”

The Federal Reserve announced a 0.75 percentage point increase to its benchmark interest rate Wednesday afternoon, the largest such increase since 1994, as it seeks to slow the growth of consumer prices. The Fed’s benchmark interest rate is not directly tied to mortgage rates but can increase borrowing costs for consumers and businesses. The 30-year fixed mortgage rate is more closely tied to the 10-year U.S. Treasury yield, the rate investors get for buying government bonds. The 10-year Treasury yield rose to its highest level since April 2011 on Tuesday, suggesting further hikes in mortgage rates. 

Fears of further increases in mortgage rates add urgency for sellers looking to list their homes while the market is hot and for buyers who want to avoid higher financing costs, Speer said. 

 Eventually, the combination of record prices and higher financing costs could push some homebuyers out of the market, leading to a drop in demand. So far, the Island’s lack of housing inventory has outweighed those factors. 

There were 1,128 closed sales in Nassau last month, or 4.6% more than the number recorded in May 2021. Last month is the first in which closings in Nassau increased on a year-over-year basis since October 2021. The number of homes on the market at the end of May was 21.4% lower than it had been a year earlier, at 3,021. 

Suffolk closings dropped 7.6% to 1,270 in May, the ninth straight month that sales in the county have lagged behind the comparable month in the previous year. There were 3,432 houses on the market at the end of May, a 1.7% increase compared with May 2021. 

 It’s worth noting that it can take weeks or months to close a transaction, so May closings reflect houses that might have first hit the market in February or March, said Taylor Marr, lead economist at Seattle-based real estate brokerage Redfin.

“We’re kind of in that transition period where we’re at the very tail end of buyer demand with low rates," he said. "Even when rates went from 3% to 4%, there were still expectations that rates were rising further and that accelerated a little bit of buyer demand."

Marr said he looks to certain leading indicators, such as asking prices and the number of price drops from an initial listing, for signs of where the market is headed. He noted about 1 in 5 listings on Long Island had lowered their listing price in the four weeks ending in mid-June.

“Demand is stepping back. It’s causing more homes to sit and drop their price,” he said. “We do expect price growth to remain relatively steady even though we expect to see a slowing growth rate. We aren’t expecting a crash, and overall, prices have been fairly resilient, even in real time, to higher rates.”

Pending sales data, for buyers who were in contract to buy a home in May but had not yet closed, indicate relief on prices might not be coming soon. The median price for a pending sale in Nassau was a record $712,000; in Suffolk the median was $560,000. 

The tight market poses challenges for sellers looking for their next house as well. Jovanni Ortiz, an agent with Douglas Elliman Real Estate in Garden City, said he worked with a seller who had several offers on her home but decided not to sell when she couldn’t find anything on the market that met her criteria to buy.

“Those who don’t necessarily have that pressure to move, I think they kind of took a step back,” Ortiz said.

Maria Wilbur, a real estate agent with Keller Williams Realty of Greater Nassau who primarily markets homes in Suffolk County, said she is still seeing multiple offers on homes but she has also seen some shifts in the market over the last few months in buyers’ favor. 

In April, she listed a four-bedroom colonial in Nesconset for $589,000 on a Wednesday and had 56 private showings to buyers before the weekend open house, which 75 people attended. The seller received 53 offers, and is under contract to sell for $650,000. 

But on a listing in Middle Island in May, Wilbur put a four-bedroom colonial on the market at $599,000 but later dropped the price to $575,000, and a buyer is now in contract to purchase the house.

“I feel like there has definitely been change coming down the pipeline,” Wilbur said. “Just from mid-April to now, looking at mid-June, you can see the difference, but it’s still going strong.”

 In some subtle ways, Wilbur sees the market shifting toward buyers. In the past few months, she’s seen fewer offers in which buyers agree to waive an appraisal contingency, which allows them to cancel the contract if the house is not appraised for the amount the buyer agreed to pay. Bidding wars for homes in the past year led some buyers to waive customary contingencies to make their offers more attractive.

“I’m staying cautiously optimistic going forward that it may, by the end of the year, start to become more in favor of the buyer,” Wilbur said of the market. “Right now, I still feel like it’s still in the sellers’ hands.”

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