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".

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 (Single-Family Residential Homes)

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 4.9 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 Westbrook you can say “If market conditions do not change and if no new listings come on the market it will take 8.3 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.”





Handling Inspections

We have come to think of the inspection period in the housebuying continuum as the second negotiation.  If professionals do thorough inspections of homes, they can almost always find things that are wrong, or that could go wrong in the future. In fact, when we bought our home 25 years ago, so many things were given a "D" condition rating that it's a wonder we could live there--and some of them have never needed further attention.  On the other hand, many things needed fixing, some right away, that weren't found in the inspection.

So, let's say that you are the buyer, and you have ten days to get all the tests you want.  You should get a non-relative professional to check the property, and you will then receive a written report.  Keep careful track of the dates, because your right to withdraw without penalty expires at a certain time, if you do not give written notice.  Obtain estimates for fixing the more serious items mentioned, and think about what you really want to ask for from the seller.  In today's tight market, there could very well be a backup buyer, and you are going to lose the house, if you ask for too much.  Remember that you are looking for defects, not aesthetic choices.  The fact that you'd prefer different appliances does not make that an item for the seller to address.

Ok, now you have a list, with costs.  Put the things you feel strongly about into a list, that you keep as short as possible, and send it to the seller's agent before the date of expiration.  Write it so that you are excused from the contract unless agreement on these items is reached.  In our company's contract, we put a limit on that time, and say that the entire contract is null and void, if agreement on the inspection items is not achieved with seven days of the end of the period.  That limits the chances that negotiations will drag on, and that one party can feel that there is still a contract, while the other is ready to move on.

The sellers will often counter with a list of what they will do, and what they will not.  At this point, you should consider the urgency of any repairs, the structural nature (or not) of those repairs for safety purposes, and any work you plan to do, which might make those fixes moot or cheaper.  Consider other ways to resolve the differences, from having the seller throw in furniture or equipment instead, or giving a lump sum of cash, with you assuming the repairs yourself (which will guarantee that they are done in the way that you prefer).  At the end of the day, it's a gut call about what you can live with, and how much you want the house.  Again, pay close attention to the time remaining to decide.  You may have time for another round of negotiations, or you may not.  Don't insist on things that you will later say you could have given up, unless you are sure that you are prepared to walk away, if you get a negative response from the sellers.

The same is true of the sellers, with the additional caveat that you should agree to any repairs that you will have to make in order to sell the house to any buyer, meaning that you will have to do it for the next person, if you don't do it now.  Remember that you will have to disclose any flaws to other buyers, if they are indeed problems.  Don't let a few repairs stop you from selling to a good buyer.  Time is money, and you will have to start the whole process over.  Don't get fixed on a number that you want to receive, because this is a business decision at this point.

To both parties:  Keep your eye on the closing!

Winter on the Internet

This is the time of year when internet searches are most likely to be active.  People use the time when it's too cold to be outside to look at houses.  Surprisingly, the uptick begins before, or right around, Christmas, and continues into the spring. If you combine that fact with the trend toward professional photography and staging, or even virtual staging, you can see that getting your house on the market earlier is a good idea.

We've written many times before about the fact that being in a strong academic market in Greater New Haven changes the selling season, since offers come out in the beginning of the year.  It's always a struggle to find enough to show those early buyers, and those who put their houses on in February get more of that selection period to themselves.  I was talking last week to an agent in Hanover, New Hampshire, and he agreed that the same trends occur there.  So what you may be reading about national trends should be taken with a grain of salt in our region.

For buyers, it means that narrowing your search, and acting quickly when you find something you like, can be key in a successful purchase at this season.  Be willing to overlook boots and winter detritus, snowy yard and streets, and imagining spring and summer also can be helpful.  The sellers who are doing their best to keep houses show-ready during bad weather can use the latitude, and may work out well for both parties.

So, as I write this in the early morning darkness, you can be sure that others are curled up with their coffee, surfing the web for property!  Let's give them more to look at, by listing sooner.

The Ripple Effect of the Government Shutdown on Real Estate by Barbara Pearce

Plenty has been written about the downsides of the current shutdown of the Federal government, but sometimes people get confused about where there are delays or closures, and where business is still being done.  However, I’d like to begin with the big picture:  Uncertainty is bad for business.  If costs go down or stay the same, that’s great for us.  If costs, or interest rates, rise, we can also budget for that.  What people really don’t seem to like to do is guess about the future.  Therefore, politics impinges on real estate sales whenever buyers and sellers are unsure what will happen in the near to medium term.  Interest rate increases are a good example.  When they start to go up, it often spurs sales, because buyers can see that costs are rising, and they act in order to limit those increases. 

Lost wages probably have the greatest direct effect.  Between the worry and the reality, people have enough to think about, and real estate can, and sometimes must, go on the back burner.  In the case of some nonessential and contract workers, the loss of wages may be permanent, in that they will never be paid for the weeks of the shutdown.  Even those who will eventually be paid may clearly have cash flow issues.

Now, let’s turn to ongoing transactions.  Fannie Mae and Freddie Mac are private entities, so they are still doing business, as is the VA, but USDA loans are out for the present. FHA loans are expected to take longer.  But, if you need information or documents from Social Security or the IRS, regardless of loan type, get in line and prepare to wait.  Flood insurance is apparently being processed normally.

For rental properties, Section 8 is a real dilemma.  Each office supposedly will run out of money for vouchers at different times, but all will run out eventually.  Landlords can, I guess, evict tenants, but their replacements won’t have vouchers either, and landlords will still have to plow and heat the premises, among other things.  Cash flow may become a big problem.  Regular tenants may not be able to pay, and that’s even trickier, since they won’t be getting retroactive vouchers when the shutdown is over, so landlords may have to make tough decisions. 

This is not a complete list, or a certain one, but food for thought.

 

Finally a Market in Balance?

There have been some very positive reports about sales in our region recently. I have written about some of the reasons for the Shoreline’s improvement, like the time that’s passed since Hurricanes Irene and Sandy, but the broader market appears to be healthier also. When discussing the Shoreline, I made the point that prices had come down to where the value proposition for many people was just too compelling to wait longer, and that it stacked up well against other places where second homes are also popular. That also seems true in the non-waterfront sector. There are two factors that stand out: one is that inventory has moved, leaving less supply for the same, or increasing, demand; and two, that prices are often more realistic than they were a few years ago.

SMART MLS, our local MLS service, recently published a shocking statistic. Its records show that only 16% of listings entered into the system sell! That number may soon be going up, though, if demand continues to improve; however, it illustrates what happens when sellers price their properties too high. Buyers don’t feel compelled to act, and other sellers follow that lead and also overprice, leading to even more sluggishness in sales, while buyers hang around until prices fall. That dynamic has been playing out in our area, unfortunately, for many years. While it has always been true that a portion of the inventory is overpriced, that rate has accelerated as demand, units, and median sales prices all fell. It becomes a vicious cycle, and owners who need to sell begin to do what we call “chasing the market down”. That means that they start high and keep lowering the offering price, until they ultimately end up closing at a lower number than if they had priced correctly to start. The recent news that sales are more robust and inventory thinned out makes me think that prices are realistic, or more realistic than they were when people could still fixate on what they paid for the house ten or fifteen years ago (a period during which values have overall declined).

Like any other cycle, a good boost can start the opposite effect, where competitive prices lead to more sales, which leads to lower inventories, which leads to higher prices, which leads to more listings, and finally again to more sales. No one could be happier than we will be, if that’s where our market is headed this fall!

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 Old Saybrook 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.”

 

A Different Market

All real estate markets are variable, as are all cycles.  What applies to one property may not apply to another.  Yet there are usually certain truisms that stand out at any given time.  So what are we seeing now?

First of all, inventories have tightened in almost every segment.  There just isn't as much on the market.  Good properties can get snapped up almost instantly, sometimes with multiple offers.  This is particularly true on the lower end of the price continuum.

Secondly, rates have been rising, meaning that time is of the essence.  If you are able to afford a home now, don't wait.  It will cost you more every month in the future, if rates go up further, and inflation is a real fear in this economy.  Even if you are downsizing, money is cheaper to borrow currently.

Thirdly, sellers (who tend to be older than buyers) value different things than do buyers (who tend to be younger).  There is often renegotiation that takes place after the inspections, not because the home is falling apart, but because the buyer intends to do work that the seller might not think is necessary, and which, indeed, may not be.  A seller shouldn't be surprised if a buyer is looking to change the floor pattern, bathrooms, security system, or appliances.  As a seller, you don't have to participate in those choices, unless you want to sell your home to that buyer.  There is an exception here--multiple offers reduce the cost of renegotiation, by changing the power dynamics.

Multiple offers still tend to come on properties that are very well priced, and also on those that are in move-in condition.  Prepping the house well for sale helps with that, as does making your offering price so attractive that more than one party will bid, often above asking.  Not only does that drive up the final sales price, but it cuts down on give backs, since buyers know they are competing.

If you are trading up to a larger and/or more expensive home, you may be better off than those trading down.  Not only is supply more plentiful, but carrying costs are a real concern for many people, and bigger homes can sell at discounts that smaller homes would not have to face.  This provides a real opportunity for those who are willing and able to purchase a large home, and those buyers can end up with a lot for their money.  In addition, they will start with more money, since the smaller home that they are selling is probably increasing faster than the larger one they are seeking to buy.  Every market has pockets of opportunity, and this is one--go over $1,000,000 for the best value.

Finally, don't expect this market to change rapidly.  Every other part of the country has already seen declining and tight inventory, and therefore rising prices.  If it is starting to happen here, remember that it is just starting.  And adjust your expectations--then make your move!