Don't Chase the Market Down, Home Sellers

Because of the strength of the current real estate market, largely due to lack of supply, there is still time this calendar year to sell a home.  Even now, buyers are out there.  One agent at our firm listed her home yesterday, and had multiple showings within an hour.  

What's the secret to selling your home quickly?  Don't overprice.  That's it. Many people want to try for more, so they overprice, hoping that a desperate buyer will bite.  That's the wrong way to do it.  The only real way to get more than your home is worth is to list it for at, or slightly below, what it should sell for--then buyers will bid, more than one offer might well come in, and, with luck, a bidding war will ensue.  

When, on the other hand, the seller starts high, s/he misses the best two weeks to sell a home--the first two.  And, since the best offer is often the first, it's important to get that offer in.  Overpricing leads to lowering the price, which in turn leads buyers to try for even less.

It's so simple, and so often violated.  Don't be greedy, and listen to your agent.  You'll be happy you did.

A Pause in the Greater New Haven Residential Market

Every day, those of us in real estate start off with notifications of new listings. In the past few weeks, those have started to include "back on market" houses, meaning that they were under contract, and had fallen through and were once again available.  In addition, we are seeing more "price reduced" tags on listings, which is an indication that sellers may have been too aggressive in their pricing, given what they had heard about the state of the market.

Real estate is like that--it seems as though progression in prices and sales numbers would move more slowly, given the size of the overall numbers, but it often seems--usually in arrears--that there was one day, or one week, when things changed.  That time doesn't always last, but the hiccup is noticeable.

What does that mean for the fall market?  Buyers who were shut out during the spring season--now is your chance!  Offers are more likely to be accepted, especially since fall and early winter sellers are likely to be more motivated.  They can be aiming for a deadline at the end of the year, leaving before winter, or just finished with summer home renovation and improvement projects.  Whatever the reason, sales may well move faster, with less backup for testing, qualifying, and closing.

Sellers, you also have another chance.  Buyers, having often taken a summer break, are back.  They usually mean business in the fall, since looking at houses in the busy days of autumn is not as often a fun activity, like browsing in a bookstore.  They know what they want.  If they have been frustrated with not getting a home in the spring, they know their limits, and they are qualified.  Don't waste your time or theirs, by testing a very high price just to see what happens.  Price realistically, even at or just below what you will accept, and get the transaction done.  Remember that the first offer is very often the best offer, and don't take an early contract as a sign that you should raise the price.  As Nike says, just do it.

Connecticut's Rise in Residential Home Prices

Although we all feel locally that prices are going through the roof, we are not out of line with the rest of the country.  Residential home prices are rising all over, and we are right in line.  So, despite the fact that it has been theorized that our increases are due in large part to a demand from people seeking to leave NYC, it seems to be a broader trend.

The evidence has suggested, even before the pandemic, millennials have been moving toward lifestyles very close to what their parents wanted.  There have been some changes--among them the desire for walkability and smaller lots with smaller homes--the general trend has been for buying homes, often in suburban areas, with outdoor space and good schools.  This was true before the pandemic, and has only increased with remote working and family bubbles during COVID.  Generations before this age group have largely done the same thing, but now the people buying span a bigger age range.  Student debt, poor job prospects after 2007, and protracted adolescences have caused first-time buyers to wait longer.

That cohort is now a broader spectrum, from the 20s to early 40s, and it is colliding with baby boomers who are looking to downsize.  Given the differences brought about by changing tastes, it is putting mid-size homes in walkable neighborhoods at an incredible premium.  This means that the rapid rise in prices would be driven primarily by a lack of supply, fueled by a postponement of sales for a decade prior.  Americans are staying in their homes longer than was customary, and the backing up of the supply chain is causing shortages now, just as it has with paper towels and outdoor equipment.

What will happen next?  Well, it doesn't seem that Connecticut is in a bubble by itself, which is good news.  And the death of cities may not occur, although the trend toward smaller ones may continue, especially with the likely permanent increase in telecommuting, at least for part of the time.  So prices will stay high for the intermediate future, as long as mortgage rates cooperate, and our region will go on doing well.  It won't be about the pandemic, but about lifestyle, normal life cycle changes, and job opportunities.  

If you are a buyer, you will be paying more, but at an affordable monthly cost that is comparable to what has been paid in years past, with higher interest rates.  If you are a seller, now is your chance!

 

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 Branford you can say “If market conditions do not change and if no new listings come on the market it will take 2.0 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”.

Tips For Making Your Multiple Offer Stick

As has been reported in all kinds of media, there is somewhat of a feeding frenzy going on with real estate in Connecticut.  Some of it is outmigration from NY, some is outmigration from cities to suburbs, some is pandemic-related need for more space indoors and out, and some has to do with interest rates and deferred spending.  The result is chaos, as people try to purchase properties that are receiving multiple offers within days of going onto the market, many over the asking price. If you are an interested buyer, how do you help get your offer to the top of the pile?  Here are some suggestions:

1. Eliminate as many contingencies as possible.  Having no mortgage contingency doesn't mean that you can't get a mortgage, just that the sale isn't tentative until you have financing approval.  Other contingencies that you can be flexible on--closing date, inspection requests, or other approvals--should be taken out of an offer, if possible;

2. Don't wait to respond.  Once sellers are engaged in the process, you want them to move quickly to pick you.  In order to aid in that, you should sign or counter as soon as you can;

3.  Consider writing a letter. Say what you like about the house, what you can imagine doing there (raising a family comes to mind), give reasons for the sellers to choose you.  Tug at their heartstrings;

4.  Get all of your checks and approvals in on time.  Dragging the process out, especially when there are viable backup offers, is dangerous.  Remember, to you this may be about you, but to the sellers, it's about them and their timeline;

5.  Avoid trying to renegotiate.  If you go high with an early and enthusiastic offer, don't try to get some of it back during the inspection process.  This is not just an investment, or an arms-length negotiation--it's where you plan to live, and you should let that emotion rule, within reason;

6. Don't sweat the small stuff.  Arguing over the fireplace set or the pool equipment may turn the sellers off, and hurt you down the line;

7. And here's our cardinal rule: Offer the amount you would be sorry to hear that someone else paid for the home.  Forget about what you told the agent your top price was, or what you think you can get with some bargaining.  Pay what the property is worth to you, and don't rethink it, as long as you can afford it.  You will save more with a lower interest rate than you will lose in a few thousand dollars toward the sales price.

Happy hunting!

Don't Discard the First Offer

 In this current market of low inventory and motivated buyers, many properties have been going on deposit quickly.  The national average, I read recently, is 22 days from listing to contract. In that kind of environment, even in the traditional "off" season of the late fall, people can wonder about whether to take the first offer they get.  They often think that they either listed the property for too little, didn't get enough exposure to the market to turn up the most avid bidders, or should wait for more offers, to stimulate a bidding war.

The answers to those potential strategies would be no, no, and no.  The first offer is often the best one.  That's because people are very well versed in the inventory available when they are looking.  They know when the right property comes along, and they frequently jump at the chance to take it off the block with a good offer out of the box.  Secondly, the information flow now, between search parameter feeds and instant posting of new listings, means that the time to get something fully exposed to potential buyers has dropped dramatically.  Those most interested in buying soon are watching closely.  Sometimes, I'm surprised that they may tell me about a new listing Pearce has!  Finally, bidding wars are great, but we should always remember what people say about the stock market:  Bears do well.  Bulls do well.  Pigs get slaughtered.  Don't be greedy.  If an early offer meets or exceeds what you expected to get for your property, grab it.  It's time to sell and move on.  Bidding wars may, in fact, result in a higher price if they occur.  However, they can also turn buyers off, who can feel they are being used, and drop out. The chance of losing everyone isn't worth the chance of finding someone who will overpay to beat out others.  

At this time of year especially, time is fleeting, and taking an early offer means that sellers can turn around and buy something else before the end of the year.  Supply gets thinner as the holidays approach, for many reasons--weather, time, difficulty of showings, and the inevitable decisions to wait until spring.  The sooner you buy, the more choice you have.

This is not an equivocal message.  If you have a number in mind, and it's a rational one, don't ignore an offer that comes close to meeting it, or meets it.  Moving forward when interest rates are this low makes more difference than the last couple of thousand in the price could ever do.  

Elections and Real Estate

 Elections, especially presidential elections, are good for real estate.  It's clear how having the economy strong helps the incumbent to stay in office.  It's not always clear how that can be done, although lowering interest rates is always helpful.

This year, interest rates are already very low.  It's still true, we think, that this time of year is when they are lowest, so it's rarely a mistake to buy or refinance now.  The uncertainty of an election also can make it easier to buy when others are not taking chances.  During this particular season, the stock market has been volatile, meaning that real estate looks safer in comparison.

In Connecticut, we have always associated fall with beautiful colors and changing leaves, but we also see it as a time of renewal.  Crisp air brings the return to school, and often gives people a spring in their steps, after a summer of humidity and heat.  That can be a spur to increased activity, and a return to normal days and weekends at home, perfect for looking at real estate.  

We find that very early morning is a busy time on our website, and cool, dark mornings are perfect for surfing the web.  Why not curl up with an iPad, a cup of coffee, and some new listings?  Then arrange to see them this weekend!

For sellers, we would again remind you that this fall is not like others--the market is still busy.  Just blow those leaves off the driveway, put some pumpkins on the doorstep and some cookies in the oven, and open your doors for buyers to visit.  You can still be in your new dream home by the end of the year!

March Through July Sales 2019 vs 2020 : New Haven & Shoreline County

 

 



Optimistic Thoughts for the Post-Pandemic Real Estate Market

Right now, it's hard to visualize what the world, and the real estate market, will look like after the pandemic is over.  The article below, sent by a friend in Northern New England, provides a rational basis for a booming market in the second half of the year:

With all of the volatility in the stock market and uncertainty about the COVID-19 coronavirus, some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show dramatic differences.

1. Mortgage standards are nothing like they were back then. During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble

2. Prices are not soaring out of control. Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash. There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.

3. We don’t have a surplus of homes on the market. We have a shortage. The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.

4. Houses became too expensive to buy. The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:

5. When it comes to housing, people are equity rich, not tapped out. In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:

During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today. Bottom Line If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.

Business Not as Usual

We certainly understand that not all sellers will choose to allow buyers to view their properties.  However, for those who are eager to sell, and who can work with us to keep everyone as safe as possible during this difficult time, there are actions we can all take to make the process as sterile as we can. I want to thank my real estate friends in Nashville, for passing along this checklist as a guide to sellers, and as information for buyers to understand before going into a home for sale.  

Seller Baskets include: 

Hand wipes

Bottle of counter cleaner or counter wipes

Respiratory blend essential oil for the seller to use

Shoe covers 

Gloves 

Ribbon

Signage for home

Signage posted in home and listing instructions are as follows:

• Please do not touch countertops or open drawers. 
• Please leave lights as you found them.  Do not touch switchplates. 
• Please do not use toilets. (include ribbon in seller basket to tie around toilet seats) 
• Please wipe hands before and after touring. Gloves are also here for your use but please still do not touch countertops or drawers. 
• Please wipe door handle upon leaving. And take your dirty wipes, shoe covers and gloves with you.
• Shoe covers can be used as a temporary face mask if you wish.   

Thank you for respecting this home.

****In addition, remind your sellers to wipe down countertops and all door handles to every room after every showing

Statistics Can Go Either Way

We all have to be careful not to take statistics too seriously, because we can find ones that support more than one point of view about the market.  In fact, we can support opposing points of view with available data.  One side argues that the residential market is pretty good—low supply, low mortgage rates, eager millennials, influx from NY, and improving job reports.  The other shows a bleaker picture—prices still 10% below 2006, job growth in lower level jobs, outmigration to other states among the wealthier boomers, a lagging economy over 20 years, and high State debt.  What’s a person to think?

 

The answer is, as it always seems to be, it depends.  If you are a seller, this is a good time to sell, given low supply, new household formation, low interest rates, and a mild winter.  If you are a buyer, this is a good time to buy, because of those same low interest rates, the improving position of the State, high quality of life, and room for appreciation, with good prices to be had.  When you take those two things together, you see a fairly balanced market, with both buyers and sellers finding points in their favor, and points against.  At the end of the day, the purchase of a home is about your life, and not just your money. Lower interest rates, over time, make much more difference than the price, within some range. The sale of a home involves being ready for next steps, and wanting to reinvest in smaller houses, perhaps in different places.  Those factors very often outweigh strictly economic concerns.  Like any lawyer, I could make an argument for either side.  Instead, I’ll content myself with saying that cognitive dissonance means that, whatever you do, you can convince yourself that you did the right thing.  And there’s evidence to support that idea, no matter what you do this year.  So follow your instincts, and do what’s best for you and your family.

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 Haddam you can say “If market conditions do not change and if no new listings come on the market it will take 5.7 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.”



It May Seem Early, But It's Time To List

Most people think of the real estate market as hibernating for the winter, coming alive in the early spring, and then heating up to a peak in May and June.  That's not necessarily the pattern everywhere, especially in a university town.  I have friends with a second home near Dartmouth.  With my help, they listed with a local agent this past week, and have two offers over the asking price.  They aren't in a true ski location, so why was this the right time?  Because colleges, universities, and even medical centers are making their offers to new faculty and staff now, to begin on July 1st, in many cases.  That makes June too late for many families to buy a home. Therefore, they are looking now.

But why the high price and the quick sale?  Since most sellers list in the spring, there isn't much to look at now.  If you have a well-priced home in a desirable area, you will get lots of buyers checking out your property.  In fact, Connecticut has more internet searches in January than in any other month.  Why not list when the buyers first appear?  You have less competition, and a longer season to sell.  Think of the old days when Christmas advertising would be geared toward the week before Christmas, and how that has crept up over the years to Thanksgiving.  It's the same principle:  Have your product in front of buyers when they are thinking about buying.

This year, it may feel like spring weather now, making it easier to get your home ready to show.  So take our advice, and get going!

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 Branford you can say “If market conditions do not change and if no new listings come on the market it will take 4.3 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.”



Sellers Should Be in a Hurry

Many aspects of the seasonal real estate market have changed over the past few years.  We no longer see as strong a "school year" effect on sales, or at least we've switched to the college calendar.  We have had bad winters with brisk sales, and mild ones where buyers wait until spring.  Shoreline activity is not always predictably summer-oriented anymore.

However, there is one deadline that hasn't changed:  The end of the year is still the end of the tax year for individuals.  In addition, it remains a psychological deadline for lots of decisions and even actions.  That behooves sellers to try to capitalize on those feelings in buyers, and to provide choices in the fall season.  There is always a process for selling that takes time, and the fall/winter holidays can cause delays in financing and other contingencies, so it's important to get ahead of those issues.  Sellers who list now may reap the advantages of the bumper season in the fall.

Like many of the other seasons listed above, the fall season can be iffy.  Weather does play a part, as do elections.  This is not a presidential or gubernatorial year, which mitigates the latter factor.  However, it is a sort of last chance time to get the attention of buyers.  Things that don't get done before Thanksgiving often wait until spring, be they home repairs, trips, or life changes.  There is a long enough period between Thanksgiving and spring so that there is no real harm in listing now.  If a home doesn't sell, it will get a fresh market in the spring anyway.  So go for it!

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.”

 



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 Cheshire you can say, “If market conditions do not change and if no new listings come on the market it will take 6.4 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.”



Here We Are Again at the Sweet Spot for Buying

Every year, I write the same thing at Halloween:  The period between now and Thanksgiving is the best time to buy a house!  People who want to sell before the end of the year for tax reasons, people who have already moved (or are about to move), people who are trying to avoid the increased maintenance and expense that winter brings, and others who may just want to check a sale off their to do list, are all itching to sell before the true cold weather sets in and the calendar turns to another year.

Buyers who have been waiting should gear up when they read this, because it can often be easier to reach agreement when the clock is ticking, even if it's only a psychological clock.  In addition, rates tend to drop around this time (though we may not see that this year, even a pause would help) and go up in the spring season, so there's another reason to buy now.

Even something as mundane as the inspection can be simpler in the time of  year when the heat is on and the hot water is flowing often.  And, since many workers look to earn extra money during the holidays, it may even result in a faster repair or maintenance appointment.  Mortgage brokers as well want to close before the end of December, as results are usually compared by quarter, and bonuses accrued for that period as well.

So what are you waiting for?  Ready, set, BUY.

Handling Multiple Offers

The first thing buyers probably want to know is why we have so many multiple offers, when the real estate market doesn't seem overheated?  The answer is that consumers today know the market very well, often as well as their agents do.  They have been to many open houses and/or showings, and they have a sense of how quickly a home will sell.  We advise sellers, in the pursuit of a high selling price, to price their homes in the sweet spot--i.e., where the buyers will perceive that they need to make a good offer right away, if they want to get that house.  Since many properties on the market are overpriced, those homes priced aggressively stand out, and buyers know that.

So, here we are.  We have a new listing, priced to sell, and three different sets of buyers have made offers.  What do we do now?  The most important realization for most people is that the seller is in control.  The agent advises, but there is no law on how to handle multiple offers, so s/he can accept any of them, ask for each of them to present a new offer, or simply state what they would take, and sign with the first party who agrees.  If I am allowed to give advice, I tell people to negotiate with one party at a time (especially since the only real danger in multiple offers is that the seller might inadvertently accept more than one, or the buyer might have offers accepted on more than one home, if they are not paying attention to the details).  It might be the highest price, but it's also possible that it's the cleanest offer with the fewest contingencies, an offer without a mortgage requirement, or an early closing date.  If you are the buyer, then, you should make the cleanest offer that you possibly can.

Many times the agent asks each of the bidders to come in with their "highest and best" offer.  In that case, I tell people to offer the highest price that they would be sorry not to have bid, if someone else got it for that amount.  That means, of course, that buyers shouldn't be sorry if they went as high as they could afford to go.  In a multiple offer situation, buyers should not expect, however, to be able to renegotiate much, if at all, after inspections.  When there's another buyer, or buyers, in the picture, the advantage here goes to the seller.  Also, in a multiple bidding environment, you should not count on a Hubbard clause to win the bid, since a clean offer will almost always beat it. 

The last important note to strike is that it's very common for buyers to doubt that other offers exist, or that they are being treated fairly.  Agents, in my experience, don't lie about other bidders, nor do they do anything that would interfere with the seller getting the best offer (which may, of course, not be the highest in dollar terms).  Most Realtors are very careful to give the same information and opportunity to all parties, since we are bound by the Code of Ethics to treat all parties fairly, and to act in the best interest of our client.  No one is happy to lose a bid, but it can happen under the best of circumstances, and buyers should learn from any mistakes (like delaying), and move on. 

For Sellers:  Price to sell, and be fair to everyone.  Don't be greedy.
For Buyers:  Do your homework ahead of time--know your limits and your preferences.  Act quickly!

What's an Escalator Clause?

When a property receives multiple offers, some motivated buyers may try to make sure that they are the successful bidders, by putting in an "escalator" clause.  This is a new development, that sometimes replaces the old standard system of going back to all bidders, and urging them to put in their highest and best offers.  That can go on for more than one round, when more than one buyer is still interested, or can be stopped at any time by the sellers selecting one buyer with whom to negotiate further.

The escalator clause circumvents the old system, by including future bids in an addendum to the sales contract.  For example, let's say that the home is on the market for $400,000.  A buyer who expects, or is told, that there will be multiple offers may choose to offer full price, but add an escalator clause, offering to pay, say, $2000 more than the highest bidder.  So, if s/he offered $400,000, and someone else offered $410,000, his/her bid will automatically adjust to $412,000.  There should be, and usually is, a cap above which the buyer will not go; in this case, let's say that it's $415,000.  If the cap had been $410,000, then it wouldn't be triggered, because the buyer didn't consent to go above that, and there is already a bid at that amount.  If the other offer had been lower, then $410,000 might have gotten this buyer the property.  Most clauses require the seller to prove the other offer, which can be done with a copy, from which the names have been redacted (crossed out).

The above paragraph may be a little hard to follow,  without a specific example to plug in.  The basic premise, though, is simple:  you as the buyer offer to go above other offers, up to an amount named.  If that offer is not triggered, you can buy for the amount on the original sales contract.  If it is triggered, the amount offered under the formula stated will be inserted into the addendum, along with a copy of the other offer.  In either case, the seller should get more money, and without the back and forth of multiple offers.  The downside is that, when there are no other offers, the buyer who offered the escalator may feel that s/he overpaid, causing buyer's remorse.  There's no perfect system, but buyers and sellers should be aware of the possibilities that are out there, and know to talk to their agents about the options they have.