What Do You Think About Houses On The Market For Months?

 We had an interesting discussion at a sales meeting today, about what people think when they see a home that has been for sale for a very long time?  Or one that has been reduced in price over and over again?  The consensus answer was that it depends, of course.  

If you are a sophisticated buyer, and you look at the property on Zillow, you can see the history of listings and sales.  People who discover price change after price change often assume that the property was very overpriced, or that there is something really wrong with it. Other homebuyers, especially those who are not as internet-dependent, may never see the history; however, those people may also forget about the house completely, unless it gets brought to their attention by way of advertising a price change.

Sometimes a tortured listing history does mean that is was overpriced.  Because the listing agent is not always known, it could be a reduction due to listing with a new firm.  Sometimes, there is something wrong with a property, although usually a real problem leads in the end to lowered price.  The point is that we don't actually know why the price kept changing, or why the property didn't sell quickly, but we all draw our own conclusions.

Sellers sometimes take properties off the market and relist them, so buyers can see them again at the new price.  That doesn't always work though, thanks to the aforementioned price history.  So what's the answer?  Don't overprice to begin with, because a quick sale is always better.  And the first few weeks are the best time to sell.  And the first offer is often the best.  Need we say more?

Southwestern CT housing prices strain owners and renters (from CT Mirror)

The following article is from the CT Mirror and was written by Schae Beaudoin, please click here to visit CT Mirror online

Almost half of Americans pay too much for their rent, and in southwestern Connecticut those numbers are even higher, says a national study.

Harvard University’s annual State of the Nation’s Housing report says 18 million renters across the nation are burdened by their housing prices. Homeowners and renters are considered “burdened” if they spend more than 30 percent of their income on rent.

In Fairfield and New Haven counties, about 55 percent of renters are considered burdened. Both counties are in the top ten in the nation for percentage of burdened renters. The national average is about 48 percent.

Additionally, over 11 million renters in the U.S. were considered “severely burdened” in 2015 because they paid at least half of their income for housing. The number of homeowners considered severely burdened was at its lowest since 2004, but there still were more than 7.5 million Americans in that category.

In their proportion of burdened homeowners, Fairfield County is behind only the New York City and Los Angeles metro areas. The Hartford metro area, which includes Hartford, Middlesex and Tolland counties; the New Haven metro area; and the Worcester, Mass., metro area, which includes Windham county, also are above the national average for burdened homeowners, which is 24 percent. About one out of every three homeowners in Fairfield and New Haven counties are burdened, according to the report.

Burdened renters and homeowners

Percentage of burdened renters and homeowners in CT, surrounding metro areas and the national average

Area	Percent of burdened renters	Percent of burdened homeowners
Fairfield County metro	55%	35%
New Haven metro	55%	31%
Hartford metro	47%	27%
Worcester metro	46%	27%
New York metro	53%	36%
Boston metro	49%	28%
National average	48%	24%

HARVARD JOINT CENTER FOR HOUSING STUDIES, STATE OF THE NATION’S HOUSING 2017

Rents in Fairfield County are among the highest in the nation, with median rents higher than those in the New York and Boston metro areas.

Pete Gioia, economist at the Connecticut Business and Industry Association, said Fairfield County’s high prices aren’t new, and Connecticut is relatively affordable compared to the larger surrounding cities. In Boston and New York City, housing prices are growing faster than they are in Connecticut. Affordability problems arise when houses in buyers’ desired price range aren’t available.

“Is the housing stock that’s available comparable to what purchasers are looking for? That’s where you get into some affordability issues,” Gioia said. “This is not just true of Connecticut. This is true of other areas. There’s a lot of buyers out there for reasonably priced housing. There’s fewer buyers out there for very high-end, expensive and large properties.”

While median income for renters in New York, Boston and Fairfield County are similar, the median rent in Fairfield County is about $100 higher per month than in Boston and New York, suggesting higher rents, not lower incomes, are behind the burdens on renters in Connecticut.

Fairfield and New Haven counties have some of the lowest percentages of 18- to 24-year-olds heading households. About 10 percent of 18- 24-year-olds are independent heads of households in those counties. The national average is closer to 20 percent.

Gioia said affordability probably keeps some younger millennials from moving out on their own in Connecticut, and many who do leave for other places. Gioia said students who leave the state for college are more likely to stay out of state. Larger metro areas also appeal more to younger people, he said.

“If you’re an unmarried 23-year-old, you want to be where the action is, and there’s a heck of a lot more action in New York City or downtown Boston than there is in Connecticut,” Gioia said, adding many young people come back to Connecticut later in life when they begin families.

However, Gioia said there is economic opportunity here. “If you’ve got the skills, you can make a pretty darn good income in Connecticut, even if you’re fairly young,” Gioia said.

The report found that nationally, higher rents may become a norm. The number of rental units costing less than $800 per month has decreased between 2005 and 2015. In the same decade, units with monthly rents over $2,000 increased by 1.5 million.

Why the Rental Market Matters

We have been reading lately about New Haven's stellar rental market--either the lowest or the second-lowest vacancy rate in the country, depending upon your source.  Why is this?  And how does it relate to other real estate data?

New Haven's extraordinary occupancy rate for apartments has several causes, some of which are unique to New Haven, and some of which apply across markets nationally.  New Haven's own reasons have to do, first of all, with the large number of students residing in the region.  Students are almost always renters, and graduate students rarely live in university housing.  The second driver in New Haven is the nightlife and culture prevalent here, so that young people (and empty nesters) who work in other places in Connecticut will disproportionately choose to rent in New Haven and commute to their jobs. 

Around the country, there are certain trends that are helping rental markets to stay strong.  Of course, high foreclosure rates will result in more renters, as the people displaced from their houses won't be able to buy right away.  Also, the uncertainty of all job security means that many more workers, executives included, leave their families behind and rent in the new city until they are confident that they will stay at the job.  That trend is exacerbated by the difficulty transferees are having in selling their homes in the locations they are leaving; until they do, many must rent.  Even those who sell are renting in many instances, since they worry that housing prices have not bottomed out, and that this may not be the best time to buy a new home.

All of these factors have combined in Greater New Haven to make rentals scarce and expensive.  It also offers an opportunity for investors to buy property and rent it out, and not just the typical apartment building or multi-family house.  Single family homes make good rentals also, particularly when you can buy one for a price that allows you to cover costs with rental income.  It can even be a good alternative for those who have houses on the market that are not selling.  Many people are looking for homes to lease, not just in the center city, and it's a good time to find tenants.  This is especially true if you allow pets!  As with all types of real estate markets, there are ways to make money in this one.

The Power of Low Rates

I have a real estate friend in Madison, Wisconsin--where the market seems a lot like ours much of the time--who thinks that the real estate market will not recover unless and until the government aims directly at our industry with programs designed to improve sales. Although the tax credits did that, they expired and left us, arguably, in worse shape than ever (however, people don't realize that, because they look at the fact that housing prices haven't declined much, and in some cases, they have edged up slightly--that's because all the first-time homebuyers have left the market, leaving higher-priced homes as the only ones selling). The government has focused on the banks, using first TARP money and then foreclosure actions to regulate activity. We probably haven't been helped at all by the foreclosure stoppage, since it just lengthens the period of time where the whole housing system is backed up. Until all those homes, which--foreclosed or not--the owners can't afford, get transferred somehow, there won't be a "normal" real estate market. Appraisers can't even use those transfers in computing value, since they aren't arm's-length transactions, but they obviously have an effect on values and on regular sales.

This same friend, although thinking that we need Federal intervention to improve our market, also has the most compelling argument for buying right now. He has made charts that show that a 10% drop in prices actually has less of an effect on monthly payments (the gold standard by which most buyers decide how much they can afford) than a 1% rise in interest rates. Therefore, buying a home now, with the current rates, costs you less than buying it later, even if prices drop by another 10%. If rates go up, that savings in the prices will be more than offset. Whether that obviates the need for governmental action on behalf of the housing industry, I'm not sure. But I am sure that it makes a compelling case for buying a home now.

Where Have All the Buyers Gone?

The national news, as well as area papers, are full of stories about the abrupt dropoff in housing sales for May. Everyone knew that this might happen when the tax credits expired, but the amount of the decline is still surprising to people. After all, many families did not qualify for the credits, which decreased as income increased. Also, although the second round of credits applied to repeat buyers, it was always aimed at first-time buyers. They bought, but probably mostly in the first round, from what we could see. Ordinarily, first-time buyers make up about 45% of the total market for sales. With the tax credit, that percentage had increased to 55%. Even though that means that we have moved 10% of the sales from the future into the present (now the past) with the help of tax credits, there is still almost half of the buying population unaccounted for in these numbers.

Where did they go? It seems that consumer confidence, once again, has reared its ugly head. All the news reports about job losses, retail sales, and the stock market have affected homebuyers negatively. While we knew that this could happen--it's some version of the double-dip theory--it still surprises those of us in real estate, to some extent.

Interest rates are very low. Housing prices are back down, in many cases, to where they were several years ago. Everyone knows that, even if you sell low, it doesn't matter, as long as you also buy low. Consumers have stayed out of the fray for most of the tumultuous recent past. So they should be out in force, and they're not.

One theory is that there's too much on the market, and therefore they have paralysis. Another is that they think prices will continue to decline. It is true that mortgages are harder to get. And, of course, it's summer--hot and humid weather tends to keep people from doing all but the essential tasks of life.

However, we're all watching with bated breath. The housing industry cannot afford a long layoff from sales, as we endured at the beginning of last year. Congress, take note!