Financial Times Article

Yesterday, I posted an article from Financial Times of London, comparing the New Haven market to the Cambridge, MA one.  We lost.  I thought it was not a fair comparison.  New Haven is a very different place--it's a center city, with suburbs around it.  Cambridge IS a suburb, of Boston.  It seems to me that that makes them very different, with many more low-income areas in New Haven. 

Having lived in both places, I don't find them as disparate as the article would make them appear.  Harvard has always had a very good PR image, and has managed to weather bad news without making as many headlines.  Most people would no more walk through Cambridge Common after dark than stroll across the New Haven Green.  Yet, somehow, the national media has always presented New Haven as a dangerous place in which to live or attend school, while Cambridge comes across as a trendy, high-end metropolis.  Granted, Yale has more high-crime areas within walking distance than Cambridge does, but the subway system in Boston has the potential to deliver crime there as well.  My old dorm had an incident a few years ago, where someone was killed after a student opened the gate for a "townie" (yes, Harvard now locks its gates as well). 

It is true that Cambridge has two major institutions--Harvard and MIT--compared to New Haven's Yale, and that the biotech spinoff effect is therefore twice as great.  It's also true that dual-career couples have a somewhat easier time both finding jobs in the Boston area (although New Haven offers the possibility of NYC).  Real estate values are indeed higher in Cambridge, especially since Massachusetts is undoubtedly further along in its recovery from the Great Recession.  Yet I would argue that both are residential hubs, with lively nightlife, lots of educational institutions, and plenty to do.  I would even give New Haven the edge in the arts, especially if you take Boston out of the equation.  There may be statistical truth to the article, but it presents a very one-sided look at the numbers, in my opinion.

As Cambridge Goes, So Goes New Haven?

We spent last week in Cambridge, and it's easy to see the upside of a big university on its surroundings. As we wound our way through the side streets in an effort to avoid Harvard Square at graduation time, we could see the sprawling evidence of gentrification everywhere--Central Square, Inman Square, Davis Square, Porter Square, etc. The subway has gone farther north, but so has the population. And it's not all students anymore--the same young professionals that we are hoping to retain in New Haven are buying condos in converted triple deckers and apartment buildings, and all of the retail and nightlife that follows such is thriving.

While New Haven isn't attached to a large city, as Cambridge is, you can really see the possibilities of building upon the advantages of a college town. If we can continue to add jobs in the sciences and information-based arenas, and we can still provide the entertainment and dining options that New Haven is known for, then our future will stay bright.

And what do we need to do to help this process along? It's pretty simple--create jobs. Connecticut and New Haven must work together to make it an attractive place to start and expand businesses. The City must also focus on keeping crime low and attractiveness high. Private entrepreneurs, whether in real estate or investment or venture capital, can do the rest.

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.