Hartford's Buyers' Market

Hartford is currently listed number 9 in the list of the best markets in the country for buyers.  To put that in perspective, Phoenix is listed as one of the hottest sellers' markets.  So what do they really mean?

The people who compile these lists rate as a buyers' market anywhere where prices are not rising, where homes sell below the asking price, and where the median home in on the market longer before selling.  Now think about what that could mean.  In Phoenix, where everyone knows that there are tons of short sales and there was a huge oversupply of homes built, with declining values and high rates of foreclosure, sellers are very realistic.  They may even expect to lose money.  Also, many people have seasonal homes there, in which they are less emotionally invested, and may just be willing to dump them to be done with things.  They may rate outside advice more strongly, since they may not be Phoenix natives.  And they know that they are competing with banks and corporations as non-emotional sellers.

Now compare that to the Hartford area.  Most homes are primary homes, with owners living in them and feeling strongly about their value.  There was not a great deal of building down in the prior decade, nor were there daily articles in national news media about the poor market and the high foreclosure rate.  Most foreclosures, since Connecticut is a law state (meaning that you must go through the legal system to foreclose), are still in the works.  Finally, prices went up in the past decade and a half, but not like they did in the Sunbelt, where jobs were growing and the economy was expanding.

Then, add in the factor that every home is different, so its value is subjective, and it is not a commodity (although it may have gotten close in the Southwest).  It's not like buying a Honda here versus in Arizona; you are not comparing apples to apples.

However, numbers don't lie.  Sellers here have not been as willing to drop prices or make concessions, so their homes have not sold.  Buyers have chosen to rent and wait for values to bottom out.  Also, they have probably been less inclined to put their homes on the market for what they are truly worth, since they are still hoping to get out whole, and, often, to buy another home.

When will things change?  Either the market will get much better, and, like a rising tide, raise all boats, or prices will come down until those homes that have rusty For Sale signs out front are all gone.  But it does seem like a stretch to say that sellers are better off in Phoenix than in Hartford, overall.  Like much of life, it's just not black and white.

Bidding Wars in Phoenix

Everyone knows that certain parts of the country--the ones that were growing quickly--took the biggest hit in the recent downturn.  Arizona and Nevada, along with Florida, are always mentioned as places with thousands of homes for sale at drastically reduced prices.  Now, things are changing, even in those states.  Today's New York Times has an article about the return of bidding wars to Phoenix.  The story points out that this is not necessarily because prices would have risen on their own, but because the supply is finally drying up, and there is more demand for what's left.  That sounds like a normal explanation of supply and demand to me!

Prices in high-end neighborhoods in and around Phoenix are still dropping, but many of the foreclosures in harder-hit areas have moved through the system, leaving homebuyers with little to choose from.  Even new construction, which is finally picking up, cannot keep up with the pace of demand.  One suburban home, a foreclosed property, had 84 offers before the bank closed off further ones.  This illustrates how a glut of short sales and foreclosures can hold down prices, and what can happen when the flow of such properties ends.  

Update from Arizona

It's 37 degrees here in Scottsdale as I write this, so it doesn't seem all that much warmer than at home, but it will get up to 60 by the time I finish my run. My daily path takes me past lots of For Sale signs, and the morning paper gives me news about the real estate market in Arizona.

The good news here is that the number of pre-foreclosures is down from what it used to be last year. That's sort of the silver lining on the cloud, since the total sales went down from 2009 to 2010 in Scottsdale, and the average price declined as well. The experts who were surveyed in the year-end wrap-up in the newspaper expressed a consensus that the big news was their surprise at a lack of improvement in the real estate market. Our driver when we landed said that there are still several thousand bankruptcies a month in the county. Commercial vacancies are sky high, and there are no new buildings planned or under construction.

The surprise at the anemic sales and loss of gains made during the tax credit months is true across the country. None of us expected that the second half of 2010 would be as bad as it turned out to be. The good news, however, for those of us in the snowy Northeast is that we never saw the boom that Arizona did in building. That means that we never got the spike that is now causing the abrupt fall out here. We had steady gains, and some inflated prices, but it was small potatoes compared to sun country.

Even here, there are signs of hope. On my daily running route, I see half as many For Sale signs as I did last year. And it's heartening for me to note that they are almost all local independent companies--another harbinger for us in Connecticut, I hope!

New Year, New Attitudes

Happy New Year! It is clear from watching the stock market that investors in that area have confidence about the future. In our business, we are looking forward to the same sort of sustained rise during 2010. I just returned from Arizona, where the number of sales has gone up quite a bit from the year before, although prices continue to lag and short sales are still very common. Since we are behind Arizona on the real estate curve, we can look there to see what's down the road for us.

What they are worried about is the glut of homes that could come up for sale if owners lose interest in trying to hold on to them while values are low. Moral suasion may not be enough to convince people to continue paying on mortgages that are underwater. There have recently been a number of articles about just that--homeowners moving into rentals and spending the difference in their monthly payments on trips and consumer goods. That's not good for real estate.

We will be somewhat protected from that phenomenon in Connecticut, I believe, since whatever happens on the West Coast and in Florida will most likely cause the government to take steps to prevent the spread of anything that might impede a general economic recovery, and before it gets to us. They took prompt action in the banking crisis, and the recent extension and expansion of the tax credit for homeowners is a good indication that real estate will be treated in much the same way. In addition, since we had nowhere near the amount of speculation and building as the South and Southwest, we are not in the position of having lots of empty houses and condos to fill. Sometimes it's not bad to suffer from slower growth!

In the meantime, we should take heart in the surge of interest in real estate in Arizona and other similar markets. Investors are buying, and there is activity. I talked to one agent who said that her experience there is bearing out what I've been preaching in this blog: Those properties that are priced correctly and are in good condition are hard to get, since they receive multiple bids early on. Although there is a great deal on the market, only homes and buildings considered to be good values are moving. So, if you want to sell, be sure that you are in that category. If you want to buy, get a jump on that trend and buy before the spring market and before the tax credit expires on April 30th.

Declining Markets

We recently received a list of "declining markets", as defined by AIG (some irony there, huh?) for appraisal purposes. Some states--Arizona, California, Florida, Michigan, and Nevada--are considered Severely Declining in their entireties. Our county has a list of declining markets, defined by zip codes, which appears to cover almost every town in our region. Hartford's noted zip codes are listed as Moderately Declining.

What this means is that, when you go to get a mortgage in an area marked as Declining, you are subject to certain restrictions or rate adjustments, in order to protect the lender. Therefore, since a town like Guilford is on this list, everything in Guilford will be subject to a higher rate for the same LTV (loan-to-value) ratio than a property listed in, say, Cambridge, Massachusetts.
I chose Cambridge for several reasons: it's like New Haven in some obvious ways; it's still in the Northeast, where real estate sales are broadly down; and, finally, I knew the zip code. In case you thought New Haven might be spared, 06511 through 06515 are all there as well.

This may make it easier to understand why so many sales are falling apart after the contracts are signed, since people may not be aware of these rules before they actually sign a sales agreement on a particular house. They may have been counting on getting a higher LTV, or a lower rate, both of which may have been advertised, but then are not applicable in the zip code in which they are buying.

It's hard to know how to fix this problem, but it needs to be addressed if we are going to break the cycle of lagging real estate transactions. This rule is not only arbitrary, since there are submarkets within these areas which are selling well and where prices are not declining, but lags in time as well, being based on prior sales. In addition, it punishes those who most need to sell, but throwing another roadblock in the way of their attempts to find buyers.

Hello from Sunny Arizona

We arrived last night in Scottsdale, where it's almost 70 degrees and very sunny. I wanted grapefruit for breakfast, so I went out and picked a couple. I went running for a long time (with a few stops at new retail areas) without worrying about snow and ice. There are lots of real estate signs here--it's pretty much ground zero, along with Nevada and Florida, for the distressed real estate market. Inside my father's gated community, there are signs for the first time, and today there were multiple open houses. The median sales price in Arizona was $232,000 at the end of 2007, and $150,000 at the end of 2008. That makes Connecticut look pretty good!

We had our company holiday party at our house the night before we left--100 people for dinner. It was festive and fun, and spirits were high-enough so that those not in real estate were surprised. I'm not really, because people who come to parties tend to be a self-selected group of those who are going to have a good time under all circumstances, plus real estate agents in general tend to be resilient and optimistic. As Winston Churchill said, "I am an optimist. It does not seem to be of too much use to be anything else." Amen.