Thursday, April 27, 2017

Signs of a Changing Market

Finally, finally, Connecticut is beginning to see the indicators of at least a balanced real estate market! This comes so long after other places in the country that some of them have already passed their peaks, and have stalled or declined (e.g., San Francisco).  We are most likely entering a mixed market, as we have some positive signs and some negative signs.

The "seller's market" side of the equation is showing, for the first time, absorption rates just under 6 months for the region as a whole.  Healthy markets have between 3 and 6 months' supply.  Our region varies, with some towns higher, and some around the 3-month mark, but the overall picture shows that demand and supply are in reasonable synchronicity.  If the time gets too long (Denver at 48 hours!), buyers can't find homes and prices start to spike.  If the supply increases to over a year (where we still are in the highest price ranges), sellers can't find buyers for their homes.

Lower supply leads to higher prices, and then to multiple offers, which we are seeing in some neighborhoods and price ranges.  While it's not uncommon to have some variation, we do have a very bifurcated market, since we have slow price ranges and overheated ones.  In other words, either your home is going to sell right away, or maybe not at all, at least at its current price. 

Multiple offers also lead to the problem of sales not "appraising out", meaning that lenders cannot support in some cases the prices buyers are agreeing to pay.  This issue, stemming from the fact that appraisers can't talk to the brokers, and must use recent sales within a very tight radius of the given property, so that their valuations tend to lag market forces, usually only occurs as prices start to rise.  What's odd about our current situation is that we still, on a statewide basis, have declining prices overall, for the most recent periods reported.  That indicates a very quickly changing scenario.

On the other hand, we are still seeing sales falling apart over inspection issues, prices being renegotiated after the initial contract, and buyers looking at many, many homes over a long period of time, all signs of a typical "buyer's market".  So what's the consensus?  We'll know more when the spring market wraps up, but that may not be at the traditional Fourth of July time. It looks as though we'll see surging sales through the summer, pointing to an improving forecast for the year.  We certainly hope so!