It's Hopping Out There Now!

March certainly came in like a lion, and we haven't seen the lamb yet, but the real estate market thinks that it's spring (which, tomorrow, it technically is).  New listings are popping up, with buyers hot on the trail of the new homes.  Many properties are going under contract very quickly, although there could be impediments arising that haven't appeared yet.

We are finally seeing the lack of supply that the rest of the country has been seeing for the past couple of  years.  Our traditionally slow season has been very busy, with sales much higher than usual for the past four months.  For example, we have closed more than twice as many residential sales in the past two months than we did in the same time period last year.  In addition, the lack of supply is causing prices to rise, at long last.  For the same period, we saw prices increase by 30%.  Even though we are only looking at two months, that is building off of a November and December much above the prior year as well.

If you are a seller, please consider listing as quickly as you possibly can, for the best chance of selling your property at a good price.  If you are a buyer, you should be actively pursuing houses that interest you, and you should assume that time is of the essence on offers and notifications.  We have seen examples of higher offers coming in before earlier offers, which had been verbally accepted, got signed, and we don't want to see that happening to you.  The old paradigm of "take your time, and more will be available next week, and maybe even something you like better" (which I refer to as the Tinder issue), is definitely gone.

So we are all looking forward to a busy and productive spring season!

How Do We Give Pricing Advice Today?

In my last blog post, I wrote about how Connecticut's real estate market has diverged from the rest of the country's situation.  There are many reasons for that, and they've been well documented.  That begs the question, though, of what the real problems in the real estate arena are for professionals now.  We are having trouble getting buyers and sellers on the same page. 


There is definitely a market for well-priced homes, especially those that are within reach of first-time homebuyers.  Although the strength of the recovery varies from town to town, and even from submarket to submarket, a compelling price will often result in multiple bids.  This often confuses buyers, who have been led to believe that they are in a buyer's market, and can offer well below the asking price.  They are happy to believe this, even though it is clear that most of the country is in a seller's market, due primarily to a lack of inventory. 


Here, in many places, we have lots of inventory.  However, it's not always in the same price categories or locations that buyers want first.  And, sorry to say, much of what's been around a long time is overpriced.  Sellers don't accept that in many cases, though, because they often paid more for the home that it is currently worth, and sometimes have also done work.  They can also point to homes that sold for more, even if those properties may not be in the same condition as their own home.  (A note here:  Buyers today want perfection.  They do not want to do any work to a home.  What you may overlook as the current occupants, they will deduct from the value.) 


What should sellers do?  Listen carefully to what you are being told about value.  Write it down, so you don't forget it.  Don't ask "What shall I put my house on the market for?", but rather "At what price will my home sell within thirty days?".  Don't assume that you need to leave room for negotiation.  That's one tactic, but, in my opinion, a compelling price (at or slightly below the expected sales price within 30 days) will have the greatest likelihood of drawing multiple offers, which is your best chance of getting a higher price.  Bidding wars work.  They excite people, and increase a buyer's estimation of a home's value.  Pay attention to early signs.  If your home has been shown ten times, and you don't have an offer, it's the price.  Period.  If you don't sell your home in the first month (or even in the first two weeks), your chances of selling relatively quickly go way down. Period.  This isn't rocket science.  So why is it so hard for people to follow these rules? 


One clear example, as we know from Freakonomics, is to look at what real estate agents do with their own properties.  I heard yesterday that one shoreline agent just sold her own home for $200,000 less than she paid for it.  That should ring a big bell for sellers there. 


And for buyers?  The market now is hyperlocal.  You may find much more competition in some places than in others.  If you love the home, bid what you would regret to hear that someone else paid for it.  If it goes for more than you could afford, or if you didn't like it that much, you won't have regrets.  Otherwise, don't play games.  Understand that there are often back-up offers, and don't go crazy with the inspection requests, or consider them a second round of price negotiations on the property.  Behave fairly.  Tell the truth.  Again, these rules are simple.  And they yield big dividends.


Are we ever wrong?  Of course we are.  But not as often as you would think, since we see so much inventory, and have such a good pulse on market conditions.  Please listen to us.  It will be worth your while.

Do the Math

There is a famous aphorism that says that there is no certainty in life, except for death and taxes.  Taxes turn  out to be a big factor in the purchase of property, although we don't really see the certainty involved.  Yes, taxes go up over time, but do they go up at the same rate in every city and town?  Are they phased in the same way everywhere?  Are the same services included?  Are the school systems comparable?

People buying property care a lot about what the taxes are, since what they are really basing affordability on is the amount of the monthly payment of mortgage, interest, insurance, and taxes.  While they may know the first two calculations, if they get a fixed-rate mortgage, they tend to overvalue the current information available, and overrate the problem of uncertainty going forward, about all kinds of things.  For instance, if you take money out of your savings to purchase a home, and those savings were in the stock market, what are you giving up as an alternative return?  You don't know what the stock market will do over the long haul, although you do know that, like real estate, it's generally cyclical.  If you buy rather than rent, will the price of your home increase over the period that you own it? Again, you don't know, although that is usually true, especially if you hold it for a long enough time, and if you buy when prices are not at a peak.  Will your housing needs remain stable for the foreseeable future?  "Foreseeable" would seem to imply that you know what they will be, but life has a way of throwing curve balls, be it a new job, an illness or injury, another child or children, an aging relative, or any number of other variables.  You can't know up front what the market will be like when you sell.  If you wait to buy, will prices and mortgage rates hold steady?  Although we can't know, it's not likely, especially if you wait for a long time. How quickly will rents rise, especially in New Haven, the country's tightest rental market?

I could go on and on, but I've made my point.  So, what's a person to do?  One of the best things I learned in business school was how to make a decision tree.  Since this column does not include a tutorial in econometrics, I'll simplify.  Make a list of the uncertainties, then put them each in either the "Buy Now" column, or the "Buy Later" column, depending upon which way they are each likely to lead you.  Try to quantify the general risk of each one in monetary terms (e.g., interest rates go up 1% vs. taxes go up 8%), and you will get an idea of what the math tells you.  You should, of course, factor in your own particular risk aversion factor (that is, how much uncertainty will bother you), but the numbers will tell you something.  If you find yourself arguing with the numbers, you will be telling yourself something that way, because you will be revealing your gut instinct.  Whatever you decide, it's time to go with that, and act.

Recent Statistics

There have been new indications that shed some light on what we may expect for a spring market in residential real estate.  It's been a brutal winter, but the February job numbers, which just came out, were not as bad as they might have been, and put Connecticut at 50% of its jobs regained from the lowest recessionary level.  This, of course, compares with 92% of jobs regained nationwide, after awful weather everywhere, but we welcome any good news.

Other recent studies predict that the Northeast is the likeliest region to see multiple bids on property this spring, suggesting that demand has been postponed due to winter storms, and will "pop" when spring arrives (will it ever come??).  Rates are edging up, which is another indication that time is of the essence for buyers, since monthly payments matter more than total cost for most people.

Another report from Zillow suggests that the West Coast is best for sellers, and the East Coast for buyers.  That's not surprising, since prices in Connecticut are still 23% below their peak in June of 2006.  It is yet another indication that our region will see strong buyer demand.  Since the listing inventory is delayed, again by weather, supply may be tight.

In our office, we've been getting reports of greatly increased web traffic to our site, with strong demand for certain types of searches by buyers.  Again, that would seem to indicate pent-up demand.

My crystal ball is a little cloudy, but my outlook, based on all of the above, is positive!

July is Sizzling!

There aren't many holiday times for real estate agents.  People tend to buy real estate when they have time, and that is often when the rest of their lives are slow.  For us, that can mean writing a contract on the hood of a car on Mother's Day, or in a kitchen on Christmas Eve.

Usually, though, we can count on the fact that, once the rush to buy and close in the spring and early summer is over, mostly by June 30th, there will be a break that can last until Labor Day.  Except for vacation-area properties, most homes are not as likely to be sold, or even shown, in the dog days of summer.  Few people choose to list their homes then, either, maybe because they'd rather be at the beach than getting property ready to show.

But not this year!  We're well into the dog days of summer, and we're cranking along at full speed still.  In my opinion, we are still catching up from the time we lost to storms, particularly the Blizzard of 2013 in February.  Closings were slow in March and April, and we're still scrambling to finish what would ordinarily have been the spring market.  And, as anyone who has been outside in the past month knows, it's not spring anymore!

What does this mean for buyers and sellers?  Sellers should reconsider holding off until Labor Day to list, and many people are doing just that.  New listings are surprisingly robust for summer. Buyers should not give in to the impulse to procrastinate.  Mortgage rates have already gone up 15%.  Prices are up in almost every part of the country, and are starting to climb on the lower end of the market here.  Don't make the mistake that so many people do, and spend your summer next year wishing that you'd bought now!

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.

Where Retail Goes, Will Real Estate Follow?

Retailers seem very happy with sales so far this holiday season.  Even booksellers, according to today's New York Times, have been seeing big increases.  Given the lackluster sales in the past few seasons, this seems to indicate that consumers have loosened their purse strings.

What does that mean for real estate?  While the fact that someone will buy a book doesn't necessarily mean that they will buy a house, the fact that someone won't buy a book almost certainly means that they will not make a large purchase like a house.  So it's a prerequisite that consumers have to feel more confidence before the real estate market will improve.  Hopefully, we're almost there.  Given the historic low interest rates, it's hard to believe that we haven't gotten there already.  Perhaps the start of a new year will push us over into a seller's market, or at least into a balanced one.