Real Estate Advice for Connecticut from Around the Country

I've written many times about my group of friends around the country, who run large real estate companies, and meet regularly to share and discuss trends and ideas.  In many such settings, the learning decreases over time, and the value lessens.  Not with this bunch!  We are now meeting virtually, but we can still teach each other, and we always do.

Our last call focused, of course, on real estate sales during the pandemic so far.  Conditions have been very different at various times throughout the last few months, but all of us have faced lockdowns or restrictions that have affected the way we do business.  And, as it turns out, we've all adjusted to the new normal.  While not all of us are back to work physically, real estate is changing hands just about everywhere.  

One metric that has changed is the calendar.  Usually, 60% of listings come between April 1st and August 1st.  This year, April and May saw very little in the way of listing activity.  The summer seems to be making up for that, as the "spring" season is still going on.  Most of the drop in sales in the second quarter turned out to be from lack of inventory, as much as from the virus.  Sales in many places jumped just as the coronavirus first started spreading, and then dipped way down for some period of time, finally beginning to rise and then approach normalcy. Many areas saw closings up in the first quarter from 2019, then down 20-30% in the second quarter, with nothing left to sell by now.   Who could have predicted that?

New York City, which had somewhat of an exodus during its COVID peak, was another story.  Closings there were down 67% in the second quarter.  As I've reported before, 10,000 people changed their addresses to Connecticut in that time period, meaning that Connecticut could find itself well above the national curve for the rest of the year.  Again, however, inventory becomes the big question mark.  If we don't have anything to sell, there won't be sales.  Will sellers decide that this is their moment?  Some towns are finding that to be true, while others have experienced different results in varying price ranges.  Depending upon the location, the high end of the market is either very strong, or less strong than the rest of the ranges.  Only time will tell whether more listings will change that picture.  There is clearly every indication that Connecticut will see a bump from New York, for either primary residences, or seasonal escapes.  

Mortgage rates dipped below 3% for the first time in recent memory this month, adding fuel to the fire for buyers.  If they can buy, we think they will.  Open space is important, as are commuting possibilities; both of these factors help Greater New Haven.  Occasional commuting with lots of telecommuting put us well within the range for NYC-based employees.  Bidding wars are common, and listings are moving quickly.

Our advice is, for both buyers and sellers, to seize the moment.  Move while you can, sell while you can, and enjoy being outside while you can.  If there is one thing the pandemic has reminded us, it's that life is too short not to live it to the fullest.

Renting in Connecticut? Think again.

A new study has concluded that Connecticut is one of the most expensive states in which to rent, making it a place where people should definitely consider buying instead.  Our vacancy rate for rentals, particularly in New Haven, is one of the lowest in the country, and that, of course, pushes monthly rental costs up. Because our housing prices in general are 20% below where they were in 2006, there are some relative bargains still to be had on the buying front.  The combination of a rapid rise in monthly rents, combined with a still-depressed purchase market, means that renters should think before deciding not to buy.  And, if you combine those facts with current mortgage rates, they should think twice!


Although there are many articles that warn against buying unless you are going to stay put for several years, the combination of factors above would argue that that length of time might be shorter.  If you happen to get really lucky, appreciation on the home price could pay all of the moving costs and more.  There can definitely be valid reasons to rent instead, but everyone now should be doing the math before making up their minds.

REAL Trends Housing Market Report

APRIL HOUSING SALES CONTINUE STRONG SURGE ABOVE PRIOR YEAR

May 13, 2015 – The REAL Trends Housing Market Report for April 2015 shows that housing sales increased 13.2 percent from the same month a year ago. All four regions reported unit sales had increased from a year ago with the Midwest leading the way with an increase of 14.8 percent.

The annual rate of new and existing home sales for April 2015 was 5.659 million units up from a rate of 4.999 million in April 2014. 

Housing prices rose an average of 3.5 percent from April 2014, continuing the moderate price increases of the past twelve month period. 

"April housing sales continued to show extraordinary strong growth that started with the March results. The results were strong in every region with only the Northeast reported less than double digit increases over the prior year.  With pending contracts also reported to be very strong we expect the trend of increasing housing unit sales to continue through the rest of the spring selling season", said Steve Murray, editor of the REAL Trends Housing Market Report. "Reports from industry CEO’s in late April and early May indicate that May business will continue to be stronger than expected just a few months ago. The only cautionary note is that inventory continues to decline and in a large number of markets it is approaching critical levels.  Future month’s sales as we head into the summer may be negatively impacted by the lack of inventory and the decline of affordability.”

Housing unit sales for April 2015 increased 14.8 percent in the Midwest, the best performance in all regions. Sales in the South region were up 14.1 percent, the West saw an increase of 14.0 percent and the Northeast had an increase of 6.8 percent.

The average price of homes sold in April 2015 in the South region increased by 5.0 percent, the best result in the nation. The West saw average prices increase 4.0 percent, average prices in the Midwest were up 3.1 percent, and the Northeast saw average prices rise 1.4 percent.

"While the job market remains strong average household incomes continue to show very sluggish growth. And while the private market for mortgages is less stringent than it was inthe past, many of the major lenders remain wary of adopting looser underwriting standards. So while there has been a pick up in first time homebuyer activity, it is not expected to return to normal historical levels of activity", Murray added.

REAL Trends Housing Market Report 
 
April 2015                                                      March 2015

                  
Closed Sales    AVG Price                        Closed Sales     AVG Price

National                     
+13.2%                       +3.5%                         +15.9%                       +4.9%

Regional Report

Northeast
+6.8%                         +1.4%                        +9.3%                          +7.4%

South    
 +14.1%                      +5.0%                        +16.7%                        +4.6%

Midwest
+14.8%                      +3.1%                         +18.4%                      +9.8%

West               

+14.0%                       +4.0%                         +16.4%                      +3.6%

Where Have All the Buyers Gone?

The national news, as well as area papers, are full of stories about the abrupt dropoff in housing sales for May. Everyone knew that this might happen when the tax credits expired, but the amount of the decline is still surprising to people. After all, many families did not qualify for the credits, which decreased as income increased. Also, although the second round of credits applied to repeat buyers, it was always aimed at first-time buyers. They bought, but probably mostly in the first round, from what we could see. Ordinarily, first-time buyers make up about 45% of the total market for sales. With the tax credit, that percentage had increased to 55%. Even though that means that we have moved 10% of the sales from the future into the present (now the past) with the help of tax credits, there is still almost half of the buying population unaccounted for in these numbers.

Where did they go? It seems that consumer confidence, once again, has reared its ugly head. All the news reports about job losses, retail sales, and the stock market have affected homebuyers negatively. While we knew that this could happen--it's some version of the double-dip theory--it still surprises those of us in real estate, to some extent.

Interest rates are very low. Housing prices are back down, in many cases, to where they were several years ago. Everyone knows that, even if you sell low, it doesn't matter, as long as you also buy low. Consumers have stayed out of the fray for most of the tumultuous recent past. So they should be out in force, and they're not.

One theory is that there's too much on the market, and therefore they have paralysis. Another is that they think prices will continue to decline. It is true that mortgages are harder to get. And, of course, it's summer--hot and humid weather tends to keep people from doing all but the essential tasks of life.

However, we're all watching with bated breath. The housing industry cannot afford a long layoff from sales, as we endured at the beginning of last year. Congress, take note!