Yesterday's news for real estate in Connecticut was that unit sales for residential properties rose by 23.9%. That's the biggest single increase in a few years. However, the median price of a home dropped by 7.2%, which was also the biggest change in several months. What can we learn from that, and what are they measuring?
First of all, they aren't usually,in reports like this, looking at the same property being sold and resold. Some, like the Case-Shiller index, take the value of all of the real estate together in one city, and compare it to the total value in another period. Others aggregate lots of individual sale prices, but it still isn't apples to apples; that is, it's not the same house being sold at the first period mentioned, and again at the second.
Therefore, most such data can be skewed by the type of properties sold in the greatest amount. In this case, it's most likely because first-time homebuyers, lured by low interest rates and family formation, are out in greater numbers than high-end buyers. We know that this is true in general, because the loss of GE alone is causing very high inventory over a million dollars in Fairfield County. We also would suspect this explanation, due to the constant news about the weakness of Connecticut's economy, and the flight of older, wealthy taxpayers to states with estate tax rates that mirror the Federal ones (which is almost everywhere else). We also would think this distribution is likely because the first-time homebuyers are driving the market in other states as well.
So what does this mean for the value of an individual home? Well, it's good news in the sense that demand for homes in general will drive up prices over the long run. In the short run, it's anecdotally true that most homes purchased within the past ten years are selling for the same or less than they were bought for then. However, many factors could influence this. How much work has been done to the home? Exactly what micromarket is it in, and what's the supply there? How has the neighborhood changed over the past decade? Where's the buyer coming from, and how quickly does she/he need to move? How quickly does the seller need to move, and how much equity does he/she have? What are the other terms of the sale?
So, as with most things, the final answer is "it depends". However, the robust demand is cause for celebration!
