Friday, July 22, 2016

Rental Rates Reach the Sky in New Haven

A recent article announced that the penthouse apartment in the old Union Trust building has just rented for $6200 per month, a new record as far as we know.  There have also been very high reported numbers for smaller apartments in other buildings.  New Haven is becoming full of luxury apartments, and the parade doesn't look as though it's ending any time soon.  Several more projects have just come on the market, or are on the drawing board.

Despite the increase in supply, New Haven shows up on lists of places where buying is cheaper than renting, because rental rates have gone up at least 50% over the past ten years, while house purchase prices have declined over the same period.  If you include the effect of the current low interest rates, it's really a bargain to buy here.  We are at the top of rental market boom towns, and at the bottom of recent home price appreciation areas.

Of course, buying makes more sense if housing prices stop declining, and there are signs that that is happening.  The signs that Realtors see include lower listing inventories and multiple offers on newly-listed properties.  Over time, we are also beginnnig to see year over year appreciation in certain towns and categories, and problems with purchases "appraising out".  This is an industry term that means that accepted offers are coming in higher than appraisers think fair market value is (always an indicator that prices are rising, since appraisals, which compare recent sales to pending contracts, obviously lag the market when it is rising--if prices were declining, recent sales would be higher, and everything would appraise for more than the contracted price).

If you take these two factors together--rising rents and an improving market for sales--and you throw in mortgage rates as they are today, it seems that any rational person would choose to buy right now, unless they were only going to be here for a short time, unless they didn't have a down payment or a good credit score.  But the bargains will only last for so long, so act quickly!

Monday, July 11, 2016

What Millennials Want

Since the average age of first-time homebuyers is now around 32, we are dealing with millennials now.  The average age of a seller is 57, and the average age of a real estate agent is about the same.  That means  that both sellers and agents have to educate themselves about what's changed in buyer preferences.  I had friends who were the above age, with an agent of the same "vintage", and she told them that their home was perfect.  Although it was highly desirable, and in a great location, selling quickly, millennial buyers most decidedly had opinions on the d├ęcor and finishings.

Millennials want, above all, convenient, walkable locations, and homes that need no work at all.  It would be hard to say which of those things would come first, and they are very different--one you can fix, and one you cannot.  Flippers and investors take note, because you can definitely make money on properties that just need some updating and are in desirable places.

What do they want to see inside a home?  An open floor plan.  Soapstone counters.  Gray walls.  Big, luxurious bathrooms.  Fancy appliances and fixtures.  The list could go on, but you get the idea.  DIY is OUT. 

Where do they want to live?  In cities, near cities, and near town centers.  How much of the purchase do they want to finance?  All of it, or as much as is possible.  At current rates, almost anyone would make that choice.  Who else is involved in the decisions?  Their parents.  I've dealt with more parents in the past few years than in my entire career.  The helicopter parent has landed!

We certainly sell homes to non-millennials, and we certainly sell homes that don't match the above descriptions.  However, it's always worth knowing what the trends are.  But don't wait too long to act, if that's your intent, because tastes will change again; that's the one constant in real estate.

Tuesday, July 5, 2016

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Hamden you can say “If market conditions do not change and if no new listings come on the market it will take 4.6 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

Friday, July 1, 2016

Interpreting Statistics

Yesterday's news for real estate in Connecticut was that unit sales for residential properties rose by 23.9%.  That's the biggest single increase in a few years.  However, the median price of a home dropped by 7.2%, which was also the biggest change in several months.  What can we learn from that, and what are they measuring?

First of all, they aren't usually,in reports like this, looking at the same property being sold and resold.  Some, like the Case-Shiller index, take the value of all of the real estate together in one city, and compare it to the total value in another period.  Others aggregate lots of individual sale prices, but it still isn't apples to apples; that is, it's not the same house being sold at the first period mentioned, and again at the second.

Therefore, most such data can be skewed by the type of properties sold in the greatest amount.  In this case, it's most likely because first-time homebuyers, lured by low interest rates and family formation, are out in greater numbers than high-end buyers.  We know that this is true in general, because the loss of GE alone is causing very high inventory over a million dollars in Fairfield County.  We also would suspect this explanation, due to the constant news about the weakness of Connecticut's economy, and the flight of older, wealthy taxpayers to states with estate tax rates that mirror the Federal ones (which is almost everywhere else).  We also would think this distribution is likely because the first-time homebuyers are driving the market in other states as well.

So what does this mean for the value of an individual home?  Well, it's good news in the sense that demand for homes in general will drive up prices over the long run.  In the short run, it's anecdotally true that most homes purchased within the past ten years are selling for the same or less than they were bought for then.  However, many factors could influence this.  How much work has been done to the home?  Exactly what micromarket is it in, and what's the supply there?  How has the neighborhood changed over the past decade?  Where's the buyer coming from, and how quickly does she/he need to move?  How quickly does the seller need to  move, and how much equity does he/she have? What are the other terms of the sale?

So, as with most things, the final answer is "it depends".  However, the robust demand is cause for celebration!