Pricing is an Art

I've been writing a lot about pricing--signs of a changing market, appraisal issues, the importance of the first two weeks, and other aspects--but I still feel that there is more to say about this critical piece of the real estate market.  It would be nice if there were a formula to apply, that would spit out the correct number every time.  However, the pricing of property is more an art than a science, for a plethora of reasons.

First of all, nothing about real estate is static.  Things are constantly changing, from stock prices and political fortunes (which do affect real estate) to tastes and preferences among buyers.  In the same way that a video can go viral, a trend can suddenly take off (or end), leaving in its wake all kinds of now outdated homes. Even towns and neighborhoods become trendy or not, and make pricing differences apparent from place to place. In the realm of changes, an election can cast a big shadow, be it local or national, with people waiting for resolution before making decisions.

Interest rates deserve their own paragraph, since they play such a big role in what buyers can afford.  They have ranged from low single digits to almost 20% during the course of the last thirty years or so.  Many buyers, probably most buyers, look at the monthly payments more than the actual price of the home, since that's the true measure of what they can afford.  Strangely, though, more buyers pull the trigger on a purchase as interest rates are rising, than when they are falling, because the rise creates a sense of urgency. 

Demographics also factor into the equation.  Millennials have lagged behind their parents and grandparents in the buying of homes, but they are out in full force now.  They waited longer to get married, longer to have kids, and they owe more in student debt, so it has taken them more time to get around to buying property.  For a long time, we believed that they never would, but that seems to have changed. That increases demand, which affects prices.

Values in other markets come into play when we consider relocating transferees.  Those coming into our market may be coming from places with hotter markets, or higher prices, which inevitably influences what they will pay.  This is especially true if they sold a house in a booming economy somewhere else, and for tax reasons or otherwise, they want to reinvest that same amount here.  It's a good example of the old saying:  "The property is worth what you are willing to pay for it". 

Conversely, people relocating within our region may be faced with a decline in the value of their current properties, and may not be able to spend on a new home what they thought they could.  That puts pricing pressure on in the opposite direction.  In addition, the average person spends double the time between purchases (eight years) than he/she used to do, so that dampens demand as well.

Finally, when is the spring market?  As the world changes, and more households are not tied to a school year move, and more families spend time apart before rejoining forces in a new location after a job change, the traditional spring selling season is less certain.  Weather definitely plays a role, whether it be snow lasting into the spring, or even a rainy month (think this month!).  Often the "spring market" lasts longer, and in 2016, we saw that occurring, with the market staying strong into early August. 

All of this together gives you an idea of what goes into a pricing recommendation.  In the past few weeks, we've seen prices lowered at the last minute before listing, and we've seen others raised.  We've seen many more price reductions within the first month on the market than we used to see, and we've seen some homes fly off the market and others not even get shown. We may bring in a high offer, only to have the home not appraise, which in many price ranges effectively means that it can't sell at that price.  Sometimes we are sure we are correct, and sometimes we have our fingers crossed.  Connecticut is harder to predict than other places, since we are in our own "bad economy" bubble, but other markets can face these uncertainties as well.  Much as a doctor may not know which procedure will be best for an individual patient, or a financial advisor can find his or her stock picks having unexpected outcomes, professionals of all stripes have to offer advice with imperfect knowledge.  So we go forward, together with our clients, combining hope and trepidation, into an evolving market in 2017. 

Expecting an Early Start to the Year

The traditional wisdom in real estate has people talking about the "spring market".  Prices are higher, attendance at open houses goes up, and contracts proliferate.  Sometimes the spring market even becomes the summer market, especially when the winter is lengthy and snowy, as happened last year.

There is another pattern in south central Connecticut, however, that happens for a couple of reasons. One is that we have an unusually high number of colleges and universities, which operate on a July to June calendar (as do most nonprofits, which also exist in large quantities in our region).  That means that offers of employment go out early in the calendar year, with July 1st starting dates. 

Also influencing our timing are the demographics we see.  Our average age in the State tilts high, and our birth rate tilts low (obviously, those two things are related).  That means that relatively fewer households have school-age children, causing their moves to take place according to other factors.  Although we do see many sales occurring in the spring, with closings taking place in the summer, we see lots of people buying at other times of the year.  People buying toward the close of the year are often investors, who are looking at tax considerations.  People buying early are coming into academic jobs or hospital positions.  This is especially true in the city of New Haven.

What that translates to is a paucity of listings in the winter, when the job offers starting coming in.  We are scrounging for homes to show in January and February, especially when we don't have snow on the ground.  We are expecting that to be true this year in spades, since we had activity straight through the holiday season, as well as increased hits to our website. 

We hope that sellers and potential sellers take this information and rush to get their homes ready to show as soon as possible.  While there may be more buyers in the spring, there are very motivated ones now, and the competition is less.  Try it and see for yourself!

Mixed Signals

If you ask more than one real estate professional whether the Connecticut real estate market is good or bad, don't be surprised if you get more than one answer.  The most accurate answer is "It depends". 

What that means is that some of the indicators are positive, like increasing numbers of sales (for the past five months), and some of the indicators are negative (still mostly falling prices, which remain 20% below 2006).  Even supply and demand signals vary.  The absorption rates are dropping, down to the levels considered normal for any market, but they lag behind many other places in the country--Denver, for example, counts time on the market in HOURS, while our latest figure was 102 days on average.  There are some signs of pent-up demand, such as multiple offers, or homes that sell right away, but they are mixed in with other examples of lowball offers and mortgage problems. 

Demographically, the trends also run hot and cold.  Millennials are reaching the age where even they are having children and settling down, but they have postponed homebuying longer than earlier generations, and there are signs that suggest that they don't aspire to home ownership the way that their parents did.  (Parenthetically, this is odd, because they clearly look for work/life balance and healthy, gracious eating and living, so one might think that they would not be so tied to expensive, busy, urban areas). 

So, we aren't sure about what the rest of the year will bring, but there's nothing new about that, is there?

Who Would Have Thought It?

If someone had told us twenty years ago that the center city's residential properties would be holding value better than those in the suburbs--better even than direct waterfront--we probably would have scoffed. It's clear right now that the hot market is New Haven--the closer to downtown, the better.

This isn't by accident. President Levin of Yale, who has been in office for fifteen years, lived in New Haven for many years before he became Yale's leader (and, in fact, has continued to live in his own home, rather than the one that Yale provides). He has made it clear that he would be happy if every new hire lived there as well. The last time that I heard, 47% of Yale's senior faculty lived within the city limits. In today's New Haven Advocate, the stated equivalents of New Haven's municipal police and firefighters were 13% and 17%. Yale's showing clearly represents the payoff of a long-term strategy.

There is another factor at work, however. Current demographics favor the central city, although this is a change from earlier generations. Young professionals have always preferred urban life, but now, increasingly, so do empty nesters. The arts, the dining, the conveniences, and the lack of commuting time have all contributed to make New Haven a popular housing choice. Even those with school-age children, if those children attend one of the city's prestigious private schools, have been moving into the city neighborhoods.

And that's all good news for the region, since a vibrant city makes for healthier suburbs.