Connecticut's Rise in Residential Home Prices

Although we all feel locally that prices are going through the roof, we are not out of line with the rest of the country.  Residential home prices are rising all over, and we are right in line.  So, despite the fact that it has been theorized that our increases are due in large part to a demand from people seeking to leave NYC, it seems to be a broader trend.

The evidence has suggested, even before the pandemic, millennials have been moving toward lifestyles very close to what their parents wanted.  There have been some changes--among them the desire for walkability and smaller lots with smaller homes--the general trend has been for buying homes, often in suburban areas, with outdoor space and good schools.  This was true before the pandemic, and has only increased with remote working and family bubbles during COVID.  Generations before this age group have largely done the same thing, but now the people buying span a bigger age range.  Student debt, poor job prospects after 2007, and protracted adolescences have caused first-time buyers to wait longer.

That cohort is now a broader spectrum, from the 20s to early 40s, and it is colliding with baby boomers who are looking to downsize.  Given the differences brought about by changing tastes, it is putting mid-size homes in walkable neighborhoods at an incredible premium.  This means that the rapid rise in prices would be driven primarily by a lack of supply, fueled by a postponement of sales for a decade prior.  Americans are staying in their homes longer than was customary, and the backing up of the supply chain is causing shortages now, just as it has with paper towels and outdoor equipment.

What will happen next?  Well, it doesn't seem that Connecticut is in a bubble by itself, which is good news.  And the death of cities may not occur, although the trend toward smaller ones may continue, especially with the likely permanent increase in telecommuting, at least for part of the time.  So prices will stay high for the intermediate future, as long as mortgage rates cooperate, and our region will go on doing well.  It won't be about the pandemic, but about lifestyle, normal life cycle changes, and job opportunities.  

If you are a buyer, you will be paying more, but at an affordable monthly cost that is comparable to what has been paid in years past, with higher interest rates.  If you are a seller, now is your chance!

 

Buy or Renovate? Tips for Deciding

 We all saw the tremendous amount of renovation that went on during the pandemic, as people hunkered down to work, play, and live with extended family in their homes.  Now that restrictions are lifting, the market is so hot that some cannot find new houses to buy.  They may consider renovation instead, although raw materials have skyrocketed and there is a shortage of labor with a backlog of jobs.  What should a person do?

The answer is, as always, it depends.  The first thing to consider is how long you plan to stay in your current home. If you plan to stay a long time, you should spend that money you saved from the vacations you didn't take last year, because you will be enjoying the fruits of your labor for some time to come.  If, on the other hand, you are thinking of retirement and relocation, your horizon is much shorter.

 Along with that calculation, you should think more about the purpose and scope of the work you would do in a renovation--is it mainly for yourselves, or would it improve the resale value of your property?  If so, what percentage of what you spend would be recaptured in a sale?  The usual answers can be found in numerous charts available online, but the general principle is that quick fixes and cosmetic repairs recover total value, while more elaborate or specialized changes bring back less from future buyers.  If your household, for instance, is composed of people all over six feet tall, and your renovation involves putting all of  your kitchen counters up to a height you find comfortable, a new owner would probably figure that he or she had to replace them with lower ones.  If you add a bath downstairs, or a patio to the back of the house, those would be considered safe to count on recovering. Painting and landscaping are almost always smart to do.

Will the pandemic permanently change buyer preferences?  It's hard to say.  Outdoor space may get a big lift, home offices will be much more common, but should that bedroom become a gym?  That's less clear. Tastes do change over time. There are also generational issues to take into account.  Your choices may not resonate with a young family, or your decorating ideas may differ from theirs.  The latter can more easily be fixed, although they will affect how the house shows, when the time comes to sell, if they are extensive.

So, each person's conclusion may be different, but certain steps make sense.  Think about time left in a house, personalization of the work to be done, family needs and desires, and cost of renovation vs. cost of moving.  And then call your Realtor for his/her opinion--we answer these questions every day!

Inventory is the Key to the Housing Market

Everywhere in the country, there is talk of a red hot housing market, for many reasons.  Low interest rates, pent up spending and demand, and pandemic desire for more space.  Supply and demand, therefore, have gotten way out of  whack.  Today, we circulated an article featuring 76 full-price offers on one home.  

That's true in many regions, but what is happening in Connecticut?  Even that needs to be broken down by county.  Fairfield County is booming, and is absorbing many of the 24,000 people that have moved to Connecticut in the past year.  New Haven County is seeing some of that movement.  West Hartford, one of the most popular towns in Hartford County, is actually down 8% in the first quarter.  Of course, this can all be explained by the old adage:  Location, location, location.  The closer to NYC, the higher the price, and, now, the hotter the market. 

Many families moving here are counting on working from home for at least some of the time going forward, but they want to be close enough to commute when necessary. For now, many are avoiding public transportation, but that number will diminish as vaccinations increase.  Prices are rising rapidly in many towns near the NY border.

Despite all the reasons for the increase in prices listed at the beginning of this post, the real driver is inventory.  Many sellers were burned in earlier attempts to sell, or haven't found a place that they can go.  They are tempted by the demand by buyers, knowing that they may get more than they expected.  However, they also know that when you sell high, you usually turn around and purchase high as well.  

That shouldn't matter.  People should make decisions based on lifestyle, personal preferences, and proximity to friends and family, and let the investment side of the equation take a back seat.  Since selling and buying in the same market is a wash as far as prices go, it should come down to individual choice.  And, if you want to choose a new home, this is certainly the time to do so.  The rapidity of the selling cycle may make life intense for a while, but the uncertainty is short lived, and the benefits of moving last as long as you are in the new property.

So the market comes down to the sellers--will they provide a spring season supply?  We very much hope so.  Sales depend on it.  

One Year Later

Many publications are marking the one-year anniversary of the pandemic's start, so here's ours for Greater New Haven real estate.  Connecticut shut down earlier, and more fully, than most other states, so we immediately felt the effect.  While our offices were forced to close until March 23rd, many things were cancelled or postponed right away--except closings.  Attorneys and lenders pushed to get those sales through before the "lockdown", and they largely succeeded.

After that, our offices were largely shuttered until July.  Some agents worked, some did not.  Few had showings at the beginning, and there were no open houses.  New listings slowed to a trickle for those first few months.  Once the weather got warm, and the infection rate declined, things changed again.

We started to see a movement toward open space, yards, home offices and gyms, and the suburbs, beginning in the second quarter.  While most who moved out of NYC were choosing Fairfield County, we did see some sales, especially for vacation homes.  What we also saw were local buyers, moving into space that they could work and live in, for the foreseeable future.  

When the lack of listings combined with the demand for more space, the market heated up.  Prices began to rise, and multiple offers were legion.  Even relocating buyers from other parts of the country, whom we thought were gone, jumped into the action.  Soon, we were selling almost everything we could list.

The third and fourth quarter saw a continuation of that increased activity, with each month outperforming its corresponding month from the year before, and no typical seasonal slowdown.  We worked right through the holidays, and are seeing strong demand as we head into what would have been the typical start of the spring selling season.

Low interest rates, stimulus checks, and continued employment for many have added to the mix.  It's a great time to buy, and our prices are still lower than in many other regions, leaving room for appreciation, even at a higher sales price.  

When will the party end?  When we run out of product.  Just as a social gathering can wind down when the refreshments run out, we need more to sell, if we are going to continue to satisfy buyers.  Connecticut is still third on the list of outmigration states, so people are leaving.  Let's hope enough of them sell property here to keep up  with the demand caused by household formation, upsizing, and transferring in to our beautiful region.  

Millennials Should All Be Buying Houses Now

 Although the rate of homeownership for people 25 to 34 is lower than in previous generations, 1 in 3 millennials owned homes as of the end of 2018.  Many more of them are looking and buying today, in a market with interest rates that should make everyone look up and take notice.  Some rates are now as low as 2.5%, and we all know that what your interest rate is matters more than the price of the home, within reason.  Over the life of a mortgage, you will be saving tens of thousands of dollars by buying when rates are so low.

Even if the economy during a pandemic weren't enough to drive rates down, the presidential election would be.  Every four years, there is a downward spike before Election Day, which gives you six weeks or so to capitalize on that trend and buy.  As our agents know, I remind buyers every year at this time that it's the best time of the year to buy a house, and, every four years, it's slightly better.  My running friend Ray Fair, a Yale professor who predicts presidential elections, has a model that favors an incumbent with a low unemployment rate and a high growth rate.  Presidents instinctively know this, and do their best to improve re-election chances by boosting the economy wherever possible.  This year is no exception, and, if you are in the market to move, it's a great chance for you to do so.

Greater New Haven has also been featured as a region where renting is more expensive than owning, so there's another reason to become a homeowner.  Why pay rents that are higher than in some other places, due to the number of students on top of regular demand, when you could own for a lower monthly outlay?

Not convinced yet?  If you think you might be working from home in the foreseeable future, this is the time to make sure that you have a comfortable place to live and to work.  Demand is high, and supply is low, but our prices are still lower than many other metro areas, and have not really gone up in many years.  While they are rising now, you still can get into the market before you get priced out.

You don't have to be a millennial to buy, and to buy now, so the reasons above apply to all age groups.  While younger buyers are looking to leave cities, start families, and build equity, there are plenty of factors to cause everyone to start searching.  Happy hunting!