Monday, May 20, 2019

Five Months and Twenty Nine Days

In my last blog post, I wrote about houses under two million on the Shoreline that were flying off the market.  I speculated that it had to do with the low prices versus perceived value, the stock market recovery, and the length of time since the last hurricane.  All of those things are true, I believe, but I also think that the baby boomer migration may also be a factor.

Baby boomers are turning 65 at an incredible clip, and many of them are retiring.  We know that the taxes, especially the estate tax, in Connecticut, means that many of them here are changing residency to other states.  Although that entails buying property in other states, it doesn't preclude them from buying here also.  When they sell the big McMansions, who's to say that they aren't buying waterfront property for the summers, where their extended families can gather and spend quality shoreline time?  It makes sense.  They want places where their children and grandchildren will want to visit on vacations and weekends, and the prices are attractive enough to be compelling.  They just have to spend six months and a day somewhere else.  And winter is a great time to do that, so it all works out well.

What will happen in the future?  Some of those families will keep those houses for generations, as long as taxes don't make that improbable.  Let's hope that we at least keep people spending their incomes in Connecticut for the warmer months, if they continue to go south in the winters.

Monday, May 6, 2019

A Pause in Rates

Many of us thought that rates would continue to rise, and have been pleasantly surprised.  New buyers, and even those who haven't bought in a while, should be reminded that the price you pay for a property is often less important than the monthly payment you have.  When you get prequalified, you should ask for those numbers, at least the ones around your target range.  You can tell by the monthly amount what you can afford, and that's the number to focus on, when you sign a contract.

Usually rates go up in the spring, and down in the fall.  They are usually at their lowest around Election Day.  However, that's not when most people want to buy--that would be now.  Seize the moment, and capture the current rate.  Don't miss out, and later wonder why you waited!

Thursday, May 2, 2019

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 New Haven you can say “If market conditions do not change and if no new listings come on the market it will take 5.1 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.”

Sunday, April 28, 2019

What Happened to the Middle of the Market?

We just had our Pearce Annual Meeting last week, and we talked about the current state of the market in Connecticut.  Greater New Haven, and especially Middlesex County, are better off than the other counties, since they are both up.  Fairfield is down the most, which is related probably still to the GE move, and maybe to SALT no longer being deductible.  Even in South Central Connecticut, though, we see pockets of hot markets and pockets of slow ones.

First-time homebuyers are clearly out in force, and multiple offers are common below $300,000.  Even things that sold last year can fetch more today, because the supply hasn't increased; in fact, listings are down.  That's what drove the increases across the country in the past few years--lack of supply.  We're seeing it now.

The upper end, especially the areas near Yale or along the coastline, is hopping.  We don't have enough listings to show people, even as we approach the busiest time of the spring.  The waterfront sales, particularly between $1 and $2 million, seem to pop as soon as new properties go onto the MLS.  It could be that it's been seven years since the last major hurricane, or it could just be that, at these prices, waterfront seems very desirable. The volatility in the stock market could also be causing people to rethink their asset allocations, and buy second homes with some of the money that they would otherwise put into stocks, especially since they got back what they lost in the fourth quarter--they may be reaping the gains and reinvesting in real estate.

Between $500K and $1 million, however, we have seen many listings languish, even those that we feel are great properties and priced well.  It's also where there is, therefore and obviously, the most supply.  Part of that is due to baby boomers trying to downsize, with taste and property conditions that make millennials balk. The latter group wants perfect homes, decorated and finished to the latest in trends.  Perhaps the speed with which the upper and lower markets are moving will push some buyers into this price range, and that would be good news for everybody.  In the meantime, it's an anomaly, making market conditions hard to describe in terms that are too generic.

Wednesday, April 17, 2019

Multiple Offers Multiply

Finally, the wave of inventory shortages that has swept the country for several years has made it to Connecticut.  In our case, years of not building new product, and a delayed generation of first-time homebuyers has combined to create a scarcity of homes for sale in South
Central Connecticut.  That means that those looking are jumping on whatever new listings there are, and causing immediate offers to occur on many homes. And we all know what that leads to--multiple offers!

Maybe surprisingly, many real estate professionals find markets like that as stressful as, or even more stressful than, poorer markets,where nothing is selling and sellers are unhappy and sometimes demanding.  In the markets where inventory is scarce, people are forced to make quick decisions on offers, both making and accepting them, and that is difficult as well.  Buyers may get caught up in the thrill of the chase, or may start to bid high in order to stay in the game, often after losing other bidding wars.  This creates a feeding frenzy, maybe not quite like tulips in Holland hundreds of years ago, but the same idea on a smaller platform.  Buyers drive prices up with bidding wars, sometimes using escalator clauses, which I will discuss in another column.  Sellers may counter more than one buyer, and then have to be careful not to sell a home twice; alternatively, they may accept an early offer, then regret it, and try to accept another one later, by getting out of the first one.  Negotiations on inspections and mortgage delays are complicated by backup offers in the wings, and will change the dynamics of any discussion.  That can leave buyers in a situation that they either can't afford, or didn't really want as much as they thought they did.  Both scenarios lead to unhappiness down the road.

If you are a seller, think in advance about the number you will accept, and don't be a pig.  Take that offer if and when it comes along, and don't negotiate with more than one person at a time.  If you are a buyer, decide how high you will go up front, and don't get sucked into going up, if you can't afford it.  Don't then think that you deserve to ask for the moon during inspections, because you may have paid more than you expected.  If all of these guidelines are followed, then both parties should be happy--the sellers with a quick and successful sale, and the buyers with a happy new home.