Listing Inventory

We spent some time this week going over our listings, to get a sense of what inventory we have for current buyers to see.  While we have more listings than we had six months ago, we found that we had the same distribution--a few new listings that are being shown a lot, a few short sales where the banks are taking so long to approve offers, or simply rejecting all offers, that they won't sell at all, and a bunch of listings that we know are overpriced, and are usually not even being shown.

In addition, we have recent anecdotal evidence matching what we have always known--houses that sell quickly for the highest prices are those that are perceived of as well-priced and likely to disappear if not bought right away.  We just sold a home in four days that had been listed twice before without success.  What was the difference?  This time the owners took the Realtors' pricing recommendation, had a lot of showings right away, started a bidding war, and ended up getting over the asking price.  One more notable fact about this house is that it is in pristine, move-in condition.  That's what buyers want now.  No more DIY projects, or deferred plans for upgrading.  What sells is what's perfect, or close to it.

So the bimodal distribution of inventory continues--a little bit of choice on great, well-priced, new listings, and a lot of signs on properties that aren't going to sell quickly.  Sellers, take note!

Act Now Before the Tax Laws Change

Every time that Congress examines the tax code, Realtors get nervous, and we are probably not the only ones.  Any change causes uncertainty, and any increase causes disruption for those who have planned transactions based on current laws.  We have already been warned that certain taxes are going up next year, including the long-term capital gains tax.  All we need to know really is how big the Federal debt has become, and we can logically conclude that something needs to be done in the not-too-distant future about raising Federal revenue.  The short answer:  Taxes will likely go up in some form, regardless of the outcome of the election.  It's best to maximize income now, especially in the case of capital gains.

One tax change that has not been as widely broadcasted is the expiration on January 1st of the Recovery Act provision allowing people doing short sales to avoid being taxed on forgiveness of debt.  The IRS Code considers income from any source, including the cancellation of money owed to someone, to be taxable, and it will go back to collecting those taxes in 2013.  The short answer:  If you are in the middle of a short sale, or you think you are eligible for one and you can do it very quickly, try hard to get it done before the end of this calendar year.  If you are buying a property, try to take advantage of this by doing everything you can to get your sale closed in 2012, and perhaps you can negotiate for part of this benefit to come to you in some way, by lowering the price, or increasing what you may receive in closing costs.

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.  

Real Estate Around the Country

I just returned from my semi-annual meeting with other large independent brokers from around the country. This time, we met at Lake Lanier in North Georgia. The weather was great, but the real estate climate is, in some respects, sobering. National experts are saying that equal supply and demand and a "normal" market may come as late as 2015. Sales for the first quarter were down around the country, in double digits. Some of that was weather-related, but the rest is still about jobs and financing issues.

There is a silver lining, though, and it's a big one. The interesting news was that prices of sold properties were up by a fraction, 1% or so. This is counterintuitive, if you think about the effect of foreclosed properties and short sales on the value of homes. What it seems to suggest is that it is the best homes (not the most expensive, but the most desirable homes in every price category) that are moving. What that means for sellers is that homes must be put on the market at levels that seem to be good values.

What it means for buyers is even more important. There aren't great bargains out there, at least on homes that are well priced and well maintained. Putting in a lowball offer isn't going to result in a purchase. It goes back to the old saying "You get what you pay for". If you want it, you're going to have to buy it at its value, and not at a fraction.

We just had an offer on a commercial property with a listing price of $2.1 million. Someone submitted an offer of $700,000. That's just wasting everyone's time. The statistics seem to indicate that the short sales and foreclosures aren't yet changing prices on regular properties, and given what we are experiencing in delays on such sales, we can vouch for that. Those things are backed up in the pipeline. What's moving through are the good deals, but they are good deals at good prices, not bargain basement fire sales. Buyers should assume that they won't get what they want if they insist on bottom fishing. It may be a sport, but it's not a strategy.

First Quarter Market Statistics

Our crack internet team has just finished compiling statistics on sales and prices in our region for the first quarter of 2010. Yes, it's true--the market is way up. Sales in New Haven county are up 34% over the same period last year. Prices fell 7%, which was less than they had been falling, and also reflects a shift in the mix of what's selling. The first-time homebuyer tax credit has the greatest impact in the lower price ranges, and that will make a difference. Also, the upper end of the market tends to be the most discretionary, and the lack of consumer confidence has had those buyers continuing to sit on the fence. If you'd like to see the full report, go to http://www.hpearce.com/, and pull down the Services tab to access Market Reports.

I just got back from a meeting of some of my peers, the presidents of other large independent real estate firms. Around the country, the news is much the same. Last year was so bad that we're all feeling better. We're all worried about what will happen when the tax credit disappears on Saturday, but we all agree that this second round has not been as effective in spurring sales. All of us have slashed costs, but know that a healthy company cannot survive in the long run by cutting expenses instead of increasing sales. We are fortunate here compared to markets like Reno, but even my friends there are seeing an improvement. Since 67% of their sales are foreclosures and short sales, that wouldn't be hard! We continue to be encouraged that independent firms are doing so well in competition with the franchises, and know that our ability to move quickly and make decisions has helped us immensely in this downturn. We were meeting in Davenport, Iowa, where the market never spiked the way ours did, so the landing has been much softer. There is a lot of activity there, and the average home price in some offices is about $90,000. That would be quite a bargain here!

Rentals

It stands to reason that there will be many more people looking to rent, if the wave of short sales and foreclosures continues. In fact, it seems hard to believe that in some suburban places there will ever be enough homes for rent. Still, there are houses out there that owners, for many reasons, choose to lease out.

If you have a home you wish to rent, what should you do? First of all, consider leaving some basic furnishings, if the renter needs them. Often corporate transferees rent for a while, before their families arrive. They usually make wonderful tenants, since they typically go home every weekend and work long hours when they are here. Secondly, be open to pets if possible. I never realized how many people have pets! It's certainly understandable that an owner wouldn't want animals, but it is possibly the biggest reason that tenants reject certain options. Finally, be as generous as possible with your appliances. It is a hardship to rent a home without laundry facilities, particularly in a town or region where there are few if any laundromats.

Most people who rent out homes over long periods of time have some story of the "renter from hell", just as most long-term tenants have encountered the "landlord from hell". However, there are many, many examples of positive experiences, and a little flexibility can go a long way.

Short Sales

Will there be more short sales in 2010, or will the market end the glut? I'm betting on the former, as there will still be many, many people who have negative equity in their homes. Our President, and the banks, are hoping that moral suasion will cause owners to continue to pay on mortgages that are underwater. The banks may not be thinking about the fact that they themselves have walked away from bad investments, and therefore it makes sense that homeowners and building owners might do the same. While there is still a degree of stigma in not honoring the debt, that's often weighed against extra money in one's pocket every month.

Now, not every owner is a candidate for a short sale, as banks do have the right to go after the extra amount from other assets. However, the government is leaning on them not to foreclose, which limits their options. Plus, they know that it costs about 15% of the value of a property to foreclose on it, and they don't want to lose more than necessary.

We have begun a joint venture with New Haven Asset Management to get those short sales approved and closed. One of the chief problems with doing one is that it can take up to a year, and buyers often won't, or can't, wait around until the lender or lenders agree. It makes a lot of sense to have somebody specialize in getting those approvals, and using them to make sure that the properties close. We have been doing that for a few months now, and the results are impressive. It's also common for lawyers to tell us, during a short sale handled by NHAM, that they plan to send future short sales to it, rather than reinventing the wheel themselves each time.

Every era in our country has led to new lines of business, and short sale management is one whose time has come. While we'd rather do business the old-fashioned way, where there is enough money to go around, the main thing is that we'd rather do business. Adaptation is often the key to success, and we're doing that.

The Phones are Ringing!

A new year and a new decade have started, and I've never heard so many people say that they were happy to put the old year behind them. We can tell that they've moved on, because our phones, even in Commercial, have taken a big leap from December. It will be a few weeks before we see the results, but, in the meantime, we're busy.

What does that mean for sellers and buyers? It means that people are coming off the sidelines. They've put their lives on hold for long enough. Even in commercial real estate, where there are dire predictions for the next couple of years, business goes on. The leases may be shorter and smaller, but space needs will prevail at some point.

Therefore, there will be competition for well-priced listings. Well-priced is the key here. There are still plenty of listings getting no play, but others go right away. The latter ones are perceived to be good deals. There are also a lot of short sales in the market; i.e., houses where there the proceeds will not cover the debt. Banks are required to get within a certain percentage of fair market value, so don't look for big bargains in that department.

If you're a serious buyer, buy now. You need to leave time to get through the whole sales process, and you don't want to miss out on the tax credits available. And please, don't assume that you can take 10 or 20% off the listed price (see paragraph above!).

If you're a serious seller, be realistic about the price. And list now, to get a jump on the competition.

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.

Underwater Mortgages and Short Sales

Recently, I read that 47% of mortgages in the City of New Haven are "underwater", which means that the home is worth less than the amount of the mortgage on it. If you can afford the monthly payments, and you are not planning to move, that may not be an issue. However, for those who cannot pay, it's important to understand that there are ways to handle the situation that are better than others.

A "short sale" is one where the sellers cannot pay off the mortgage or mortgages and liens with the proceeds of the sale. In some cases, they are able to bring money to the closing and settle the difference. In many cases, however, they cannot afford to do so. It's almost always better to tell the bank earlier rather than later. Many banks are currently offering "forbearance periods", where they are suspending foreclosure actions. When those periods expire, they will have to decide whether or not to foreclose on delinquent borrowers.

Generally, if you have the ability to pay in full with other assets, the bank will expect you to do so. If you have no ability to pay, they will usually foreclose. If you fall in the middle, and it will be a short sale, they can work with you (if you can find someone to whom you can speak) to make the process as bearable as possible. You can also give permission for your Realtor or your attorney to speak to the bank about your property. In some cases, you may be offered money to move out. In others, the bank may offer to pay the closing expenses and/or the shortfall. Their position may have more to do with the amount they are carrying on their books for your mortgage repayment (in other words, if you are delinquent they may already have written down the value of the loan on their books) and their particular capital situation than with your circumstances. If you cooperate and are reasonable, you may even be able to negotiate to some extent about how your transaction will appear on your credit record. Like many things in life, it's an art and not a science.

Summing up 2008

As the new year begins, we're taking stock of how we ended last year. The news is not quite as bleak at H. Pearce as one might have thought. We're down a little over 15% in commissions earned from the year before. Since that takes into account that prices fell, reducing commissions due, plus that numbers of sales fell, we did very well compared to the market as a whole. One of the agents brought in a check on December 31st and told me that 2008 was her best year ever. More agents than I would have thought could say the same thing. In fact, a couple of months ago I checked an earnings report, and noted that 52% of our agents were ahead at that point of their earnings from 2007. That may have changed somewhat by the end of the year, but probably not by that much. It shows that, in this difficult market, whom you choose to sell your property matters. Good agents are more valuable than ever.

We're still waiting to see whether we made a profit as a company in 2008. It's close enough that we can't tell yet. That's good news in this economy! We look forward to making money in 2009, in part by concentrating on the things that will increase: relocation; rentals; appraisals; refinancings; and short sales, in addition to our regular business.

On another note, the running season began with a very cold and snowy Frostbite 5K in Guilford on Thursday morning. The sun was bright, but the snow wasn't all melted and the winds were whipping across the Guilford fairgrounds and the town dock, so all the times were slow. Well over 300 people braved the elements, though. Joel Galvin represented H. Pearce with his wife, Nan, as they helped to man the Guilford Rotary benefit race.