A Pause in the Greater New Haven Residential Market

Every day, those of us in real estate start off with notifications of new listings. In the past few weeks, those have started to include "back on market" houses, meaning that they were under contract, and had fallen through and were once again available.  In addition, we are seeing more "price reduced" tags on listings, which is an indication that sellers may have been too aggressive in their pricing, given what they had heard about the state of the market.

Real estate is like that--it seems as though progression in prices and sales numbers would move more slowly, given the size of the overall numbers, but it often seems--usually in arrears--that there was one day, or one week, when things changed.  That time doesn't always last, but the hiccup is noticeable.

What does that mean for the fall market?  Buyers who were shut out during the spring season--now is your chance!  Offers are more likely to be accepted, especially since fall and early winter sellers are likely to be more motivated.  They can be aiming for a deadline at the end of the year, leaving before winter, or just finished with summer home renovation and improvement projects.  Whatever the reason, sales may well move faster, with less backup for testing, qualifying, and closing.

Sellers, you also have another chance.  Buyers, having often taken a summer break, are back.  They usually mean business in the fall, since looking at houses in the busy days of autumn is not as often a fun activity, like browsing in a bookstore.  They know what they want.  If they have been frustrated with not getting a home in the spring, they know their limits, and they are qualified.  Don't waste your time or theirs, by testing a very high price just to see what happens.  Price realistically, even at or just below what you will accept, and get the transaction done.  Remember that the first offer is very often the best offer, and don't take an early contract as a sign that you should raise the price.  As Nike says, just do it.

Calling All Real Estate Listings

Who thought that prices would actually get stronger during a pandemic?  It's not that surprising, when you realize that life goes on, jobs change, and people retire.  They all need to buy and sell, and there just isn't much out there for them to choose.  We have adapted to the post-COVID world as best we can, and are still selling; however, we need more product in order to sell more houses.

The beginning of May has always been a busy time in real estate.  This year is no exception, except that we haven't seen the burst of listings that usually accompany the first flowers of spring.  With little product coming on, some older listings have even gotten multiple offers, even after long periods on the market.  It's clear that, if we had more to sell, we could sell more.

So, if you've been on the fence, now is the time to get off.  The coronavirus restrictions are not going to go away completely for some time to come, and the spring season should give a boost to thoughts of moving.  In addition, good weather makes it easier to social distance, when the outside of a property can be used for parts of showings.  It's also a good time to do home repairs or sprucing up and painting.  Life goes on, and real estate is going on too.  Don't be left behind--act now!

Current Absorption Rates

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 Bethany you can say “If market conditions do not change and if no new listings come on the market it will take 4.8 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.”

 

 

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 Clinton you can say “If market conditions do not change and if no new listings come on the market it will take 5.4 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 (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.”



New Haven is Finally Normal!

Every month, we post the absorption rates for our region, and compare them to last month, and last year.  What we don't do is compare them to everywhere else.  Around the country, most areas have inventories far too small for the demand they see.  A healthy inventory would be considered 3 to 6 months' supply.  We haven't been seeing those numbers in years, for the most part. 

If you check this week's posting, you will see that New Haven clocks in at a very respectable 4.4 months of supply, meaning that it would take 4.4 months to sell all of the current houses on the market at current sales levels.  That's pretty much dead center in the "healthy" category, and is promising for 2016 sales.  Of course, inventory levels are always lowest at the start of the year, and can go up if people start listing before others start buying, but, for now, let's just rejoice that we are again normal!

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 North Haven you can say “If market conditions do not change and if no new listings come on the market it will take 5.1 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.”



Time to Move Forward?

I just read the report of a study saying that Americans now have the greatest gap between what they think their homes are worth, and what an independent appraisal shows.  You can see the problem here--how can we sell your property for what you want, if you think it's worth more than the experts do?  That doesn't mean that some buyer might not agree with you about value, but the general idea suggests that many homes wouldn't sell for what the owner would agree to take.  Recently, we had one homeowner who wouldn't accept an offer for the full listing price, because it didn't seem worth it to them to move for that amount. 


This brings me back to the old proposition that it doesn't matter whether you sell low or sell high, as long as you are buying in the same type of market.  Therefore, if you sell your current property for 10% less than you think you should get, if you are honest, you are probably buying your new property for the same differential.  At some point, you need to move on with your life, whether that means upsizing, downsizing, changing towns, or just changing.  It's better to do that when rates are (still) historically low, which will matter more in the end than the price you pay.  And it's better to live your life in the present, not the unpredictable future.

Prices Finally Heading Up?

It's been depressing to read the national news, and to see how the real estate market around the country has finally begun to rebound healthily in most areas, while we sat in the state with 3 of the nation's 6 worst markets.  The latest report, however, shows a tiny (0.4%) gain in year over year prices in our area.  That still puts us significantly below 2006 levels, but we are headed in the right direction at last! 


I think I've written about most of the reasons for our lagging performance, and the states around us, with the exception of the Boston area, also pull down the national figures.  Eventually, though, demand will absorb the houses that exist on the market, and encourage owners to sell.  It still takes longer here--Denver measures its absorption rate in hours, while we are at 102 days--but it's coming.
And not a moment too soon for those of us in the real estate business!


I would be remiss if I did not once again remind buyers that the greatest appreciation tends to occur within a fairly short time after prices begin to rise.  Supply tightens, and people get nervous, so they start to bid seriously, and prices go up, and the cycle repeats until something happens to halt the spiral upward.  Those who watch historical trends know to act quickly, and the rest of you have now been warned:  Buy now for best results. 

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 New Haven you can say “If market conditions do not change and if no new listings come on the market it will take 9.3 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.”

Current Absorption Rates

Click on the image to expand data

Absorption Rates

Click on image to view in full scale



Counting Down (or Up) to June 2006 Levels

Although the real estate market everywhere is on the mend, we in Connecticut are proceeding toward normal at a slower pace.  The high for prices in our region occurred in June 2006.  At last report, our median sales price was still 23% below that peak.  Since most of the country is within sight of their previous high, people in our area are among the lucky few who can continue to buy at lower prices.  Even if you are selling, those who are trading up would gain more from buying at those levels than they would lose from selling at current prices.  When you combine the present cost of mortgages with the sales figures, it remains a great time to buy.

And there's even one more factor in include, which improves even further the current climate, and that's the state of the Greater New Haven rental market.  We have the lowest vacancy rate in the country right now, and that tilts the equation even more toward the buying side.  Rental rates have gone up 50% in the period where sales prices have declined 23%, making us one of the clearest examples across the United States of a place where rent vs.buy decisions are so stark.  So don't kick yourself later.  Do it now--buy that property!

Spring is Here!

After a very long, very cold, very harsh winter, there is a great deal of pent-up supply and demand in the real estate market.  Now spring is here at last--let the buying and selling begin! 

Absorption Rates

Conflicting Information on Prices--What to Do?

Yesterday's New York Times Business Section had some very interesting articles on the current state of the real estate market.  One of them took a few homes in different parts of the country, and compared the prices each had sold for at various points over the past twenty-five years or so.  They ranged from homes that had gone up or down very little, to ones which were now above the highest earlier sale, to ones where the value had not regained its earlier level.  This was excellent data, and is measured differently from the more often cited Case-Shiller Index.  The latter index is derived from taking the entire aggregate value of real estate prices in a city or SMSA, and comparing the whole package to the entire aggregate value of sales at another point in time.  That means that you are essentially comparing apples and oranges, although the sheer volume of data would indicate that it might be a pretty good predictor of overall values.

When you look at the history of one home, however, you can clear see the effect of any given downturn or uptick on whatever owner happens to be in place at a particular time, and it's so clear that the market is driving the price up or down, because, of course, it's the exact same house.  The NYT article included pictures, which always tend to make a story more compelling.  What was missing, though, for obvious reasons, was advice about how to apply such information to a personal decision.  How could it say what to do in Connecticut, when sellers all over the country were in such disparate situations?

Perhaps the best answer to the unspoken question of what to do in today's market is to focus on the overall variety of price levels, and conclude that there is no one right answer.  Which is, in itself, good advice:  Don't try to outguess every expert and every real estate seller or buyer.  If all the experts agree, and the whole country is in the same position, you are most likely too late to cash in on the upturn.  If it seems as though results are spotty, you conversely have a better chance, if you're a buyer, of landing a home that will increase in value over the next few years.

By pointing out that similar properties can have very diverse sales outcomes, the article reminds us strongly that a home is, after all, a home.  Buy what you love.  Live there because it enhances your life.  Sell when it's time for a change.  Hope that your timing is good, but don't plan everything on a certainty you can't achieve.  Sometimes people get lucky, and sometimes they don't.  It doesn't mean that you shouldn't be happy where you live.  We don't know what the future will bring, but the present beckons--buying now is a great option if you qualify for a mortgage at current rates, and can buy at current prices.  That's all you can know, and all you really need to know to take that first step!

Why the Fed’s Easing of Stimulus is Good for Real Estate

There are two ways to look at real estate.  One can either see it as a “consumer good”, bought out of a desire to live in a particular style, or in a particular place.  Or, one can instead view it as a “producer good”, and think of it as an investment; in that case, sales would be based on what buyers thought would appreciate the most.  Either way makes sense, but would look at properties through different lenses.  The latter approach would argue that people make rational decisions, through calculating numbers and weighing alternative investments.  The former would say that buyers go largely with their guts, purchasing what appeals to them, in much the same way that they might choose clothes or entrees. 

In fact, I would posit, the truth lies in a combination of the two theories.  I think that people try to make real estate a rational investment, but those who view it purely that way often don’t live where they want to live, or buy when they want to move.  In the end, those who are happiest are frequently those who fall in love with a particular piece of property, and rationalize its logic as a good choice for where to put their money.  People who turn out to make the best choices, from a financial perspective, are to some extent those who are lucky in their timing.  Very few of us choose exactly the right time to buy, if that is our aim.  More likely, we get a job, start a family, or retire at a time that lends itself to a home purchase when prices are low, and end up selling when prices are high, for the same reasons.  In addition, there is one other factor:  it’s best not to be too greedy, because aiming to get the very most out of your real estate investment can lead to waiting too long to buy or sell; in a way, that argues that overthinking a purchase or sale can be a mistake.  Many good decisions turn out to be good in hindsight, even for those of us in the business.

So why does it matter what national fiscal policy is?  Since I believe in the power of the free market, I believe that having the government tell us to buy real estate doesn’t work, most of the time.  In fact, it triggers something in our brains that makes us suspect that, as with some other good reduced too far on sale, there must be some reason NOT to buy then.  What does work, conversely, is for prices to begin to rise, or for rates to begin to climb.  Once buyers see that their purchase will cost more, they acquire a sense of urgency that does far more for the real estate market than really low rates and prices could do.  And, of course, as soon as some people start rushing to buy, prices get bid up, and the sellers’ market conditions begin to feed on themselves.  Soon rates and home values begin to price some buyers out of the market, and lead others to overpay or stretch too far for something too expensive for their incomes.  We all know what happens then….

If people always did the rational thing, they would know that interest rates are almost always lowest near Election Day, and, yet, that’s not a busy time of year for real estate.  Springtime, when rates traditionally rise, is the season that tells the story as to how the market will fare for the rest of the calendar year.  Every year, then, we see the theory that the behavior of others affects our behavior more than logic does.  Other factors certainly matter, but some of them are also emotional.  The single biggest effect on sales, in my opinion, is the consumer confidence index.  One could buy when one believes it is peaking; however, I believe that most people act without knowing the exact number of that index, but because the climate that goes into setting the index affects their behavior.  That certainly happened around the country beginning at the end of August, when sales everywhere seemed to slow down at once, even though the economic indicators didn’t predict a dip. 

Professor Robert Shiller of Yale, winner of this year’s Nobel Prize in Economics, has written extensively on emotions and economic behavior, and we in the industry live it every day.  If the Fed eases up on stimulus, that should make people start to feel as though the economy is heating up, which should send them out to buy real estate.  Maybe not today, but certainly this spring.  So that would argue for a good market in 2014, caused by a combination of irrationality—seeing others buy—and rationality—seeing numbers that point to recovery and growth.  Together, that points to a good year this year, and probably, barring extreme weather, an early start to the spring selling season.  So here’s to a robust 2014, and may the buying begin!

Slow and Steady Wins the Race?

Connecticut continues to wend its way toward the recovery levels now enjoyed by the rest of the country.  It's discouraging for sellers, in particular, to read about strong levels of demand in other places, while sales in Connecticut fell for the period from last year to this year.  The news is not all bleak, however.  The prices of properties sold has gone up in most towns, from 2012 to 2013.  In some towns, sales have also increased, sometimes substantially so.

  All indications are that Connecticut will continue to recover lost jobs and will see slow, but steady, increased demand for real estate over the next few years.  While the pace of growth will be somewhat anemic, in the view of most experts, it's headed in a positive direction.  And, arguably, slow growth is more sustainable.

 Furthermore, the stark contrast between the fortunes of this state and others has emphasized the need for the State, and municipalities, to court economic development, improve infrastructure, and train workers for the jobs of tomorrow.  All of these efforts will be required to make Connecticut competitive in upcoming years, and we should be glad about anything that makes that clear to State and local officials.

If at any point we lose heart, we should take comfort from the tale of the tortoise and the hare.  Doesn't slow and steady win the race?

Hartford's Buyers' Market

Hartford is currently listed number 9 in the list of the best markets in the country for buyers.  To put that in perspective, Phoenix is listed as one of the hottest sellers' markets.  So what do they really mean?

The people who compile these lists rate as a buyers' market anywhere where prices are not rising, where homes sell below the asking price, and where the median home in on the market longer before selling.  Now think about what that could mean.  In Phoenix, where everyone knows that there are tons of short sales and there was a huge oversupply of homes built, with declining values and high rates of foreclosure, sellers are very realistic.  They may even expect to lose money.  Also, many people have seasonal homes there, in which they are less emotionally invested, and may just be willing to dump them to be done with things.  They may rate outside advice more strongly, since they may not be Phoenix natives.  And they know that they are competing with banks and corporations as non-emotional sellers.

Now compare that to the Hartford area.  Most homes are primary homes, with owners living in them and feeling strongly about their value.  There was not a great deal of building down in the prior decade, nor were there daily articles in national news media about the poor market and the high foreclosure rate.  Most foreclosures, since Connecticut is a law state (meaning that you must go through the legal system to foreclose), are still in the works.  Finally, prices went up in the past decade and a half, but not like they did in the Sunbelt, where jobs were growing and the economy was expanding.

Then, add in the factor that every home is different, so its value is subjective, and it is not a commodity (although it may have gotten close in the Southwest).  It's not like buying a Honda here versus in Arizona; you are not comparing apples to apples.

However, numbers don't lie.  Sellers here have not been as willing to drop prices or make concessions, so their homes have not sold.  Buyers have chosen to rent and wait for values to bottom out.  Also, they have probably been less inclined to put their homes on the market for what they are truly worth, since they are still hoping to get out whole, and, often, to buy another home.

When will things change?  Either the market will get much better, and, like a rising tide, raise all boats, or prices will come down until those homes that have rusty For Sale signs out front are all gone.  But it does seem like a stretch to say that sellers are better off in Phoenix than in Hartford, overall.  Like much of life, it's just not black and white.

Seller Concessions

One of the new realities of the current real estate market is that buyers often ask for concessions, monetary and otherwise, from sellers.  It used to be that they asked for things to be included or fixed, based on the inspection.  Now, they also may ask for the seller to pay some or all of the closing costs.  This is often so that the purchase price is higher, and allows them to qualify for a higher mortgage amount.

We have seen some issues at the closing with these requests.  The sellers don't always seem to realize that the purchase price will be the basis for the conveyance tax, the land records, and the commission.  It's the amount at the top of the sales contract that governs all those amounts.  We, for instance,  have other brokers to pay in almost all cases.  Sometimes it's a referral, sometimes a co-broke, either inside or outside the company.  The commission offered is on the full amount, and we are responsible for it, whether or not the seller made concessions.  While I understand why sellers wouldn't always like that, I don't see the difference between a concession made in cash or at closing from a concession made during inspections or even during negotiations.  It happens, and it isn't our fault.  And we shouldn't have to take the co-broke commission difference out of our pocket.

There are a lot of ways to get upset during the length of a sales transaction.  But, please, don't shoot the messenger.  We're trying to help.