Rentals Rule

With the recent news that three of New Haven's newest and fanciest apartment complexes have changed hands at eye-popping prices, it's clear that New Haven has a presence on the national scene for investment potential.  Investors from other places, mainly those priced out of the NY market, have entered our arena with enthusiasm.  Most are institutional investors, who are in it for the long haul, and that shows a confidence in our market that should help us all.

New Haven has, for several years, been at or near the bottom of national lists of rental vacancies, getting as low at one point as 1.5%.  The current situation is not all that different--less than 2% overall, with slightly over 3% vacancy rates at the upper end. Almost every high-end unit that has come onto the market in the past few years is occupied, something that many people doubted would happen.

The really interesting aspect, however, is that the units existing before are still full, and in demand.  In addition, the traditional graduate student housing on Orange Street and environs was expected to fall off in value, as more attractive options lured away those with money, but we haven't seen that occur.  There is still very strong demand for multifamily units in the East Rock neighborhood, as well as in other parts of the city.  Finally, despite all the rental interest, there are not enough condo units to satisfy the demand.  Part of that is because lenders are shying away from financing condominium projects, and that decreases new supply, but, whatever the reason, certain complexes are still in constant demand.

What all of this means is that the number of renters continues to grow.  Some are coming from increasing population, although New Haven is still far from its 1940s peak population.  Student demand is also growing, even as Yale continues to add to its own supply of housing.  We do have a large immigrant influx, and they may be pushing former renters into new areas and developments.  It also appears that New Haven may be achieving its goal of attracting young workers from around the State, who live here for the nightlife and cultural aspects, then commute by train or car to other environs for work.

There is also a heavy influence of baby boomer renters, those who previously owned large homes in the suburbs here or elsewhere, and are downsizing to rentals with amenities.  The traditional stigma against renting, when you could afford to buy, seems to be rapidly disappearing, and the convenience and portability of lifestyle is more important than the tax deduction to many.  We could easily see more of this group if their McMansions in the suburbs would sell more quickly, allowing them to move into the urban core.  While most experts believe that those with young children will eventually choose suburban venues, it does appear that walkability scores may continue to keep those families in cities longer.

What to tell investors?  It's a seller's market for multifamilies and developments, as well as for shovel-ready projects, although there are still opportunities for local people to guess the paths of gentrification, and use them to advantage.  But what about what usually follows?  We haven't yet seen the office and retail that so often accompanies housing, or even precedes it.  While office is years from recovery, and may never reach the pre-telecommuting heights, retail should still be in the wings as a growth opportunity.

And all of this is cause for New Haveners, and those in the region it supports, to rejoice!

Rent or Buy Decisions Now

The New York Times recently had a real estate section cover story about how both sales prices and rental rates were out of sight for many areas of NYC.  There didn't seem to be a good choice for someone looking to move to make.  Here, we see things as being different.  Rentals in our region are increasingly scarce.  New Haven has the lowest apartment vacancy rate in the country.  In addition, we haven't seen the wave of foreclosures that people think may be coming in our state.  If or when it does, that will mean that large numbers of people will go from being owners to being renters, for at least the seven years that they will need to wait before they can borrow again.  Where are they all going to go?

On the other side of the equation, prices for homes are low.  Very low.  And so are mortgage rates.  That makes it a good time to buy, if you believe that prices are going to rise.  In that regard, we got some help from a Trulia article, albeit a backhanded compliment.  Greater New Haven was listed among the ten cities where the number of people looking to move out most exceeds the number of people looking to move in.  It also predicted that prices would go down a couple of percent by the third quarter of this year.  BUT, it went on to say that price increases would average 5.3% per year through 2016, meaning that someone who buys a home and plans to hold onto it for five years, whether living in it or renting it out, will be likely to get quite a bit more for it when he or she goes to sell.

That seems to me to make the rent versus buy decision pretty simple around here.  It's the time to buy.

Summing up 2008

As the new year begins, we're taking stock of how we ended last year. The news is not quite as bleak at H. Pearce as one might have thought. We're down a little over 15% in commissions earned from the year before. Since that takes into account that prices fell, reducing commissions due, plus that numbers of sales fell, we did very well compared to the market as a whole. One of the agents brought in a check on December 31st and told me that 2008 was her best year ever. More agents than I would have thought could say the same thing. In fact, a couple of months ago I checked an earnings report, and noted that 52% of our agents were ahead at that point of their earnings from 2007. That may have changed somewhat by the end of the year, but probably not by that much. It shows that, in this difficult market, whom you choose to sell your property matters. Good agents are more valuable than ever.

We're still waiting to see whether we made a profit as a company in 2008. It's close enough that we can't tell yet. That's good news in this economy! We look forward to making money in 2009, in part by concentrating on the things that will increase: relocation; rentals; appraisals; refinancings; and short sales, in addition to our regular business.

On another note, the running season began with a very cold and snowy Frostbite 5K in Guilford on Thursday morning. The sun was bright, but the snow wasn't all melted and the winds were whipping across the Guilford fairgrounds and the town dock, so all the times were slow. Well over 300 people braved the elements, though. Joel Galvin represented H. Pearce with his wife, Nan, as they helped to man the Guilford Rotary benefit race.