Don't Let These Interest Rates Go To Waste!

One client we know is refinancing this month, at a rate of 2.34% on a jumbo mortgage. That's hard to believe, but it's important not only to believe it, but to act on it. Rates will most likely go up next year, and they typically go up seasonally as well, with this being the lowest point of the year. Another client, whose primary house we just sold, is going to fix up her second home with a line of credit at these rates. You don't have to refinance, though. We have another client who called about refinancing, and we asked if he had the home of his dreams. When he answered that he would move to the immediate shoreline, if properties in his price range were available, we encouraged him to pursue his dream now. Prices are less important, as we all know, than monthly payments, and it may make a stretch purchase into a doable one. It can also make sense to purchase a home that already has the features you may be lacking, as opposed to doing work on an existing property. Renovations are always cheaper than moving. Another client was thinking about a second home, and this is certainly a great time to acquire one. We advised him to think about a second home as a gathering place for family, and compare it to family travel. Since the latter isn't possible right now, it makes even more sense to invest in property nearby. In fact, a vacation home in Connecticut has never been so appealing, for all kinds of reasons. No testing necessary to visit there! Finally, do you want to buy another pair of leggings, novelty pajamas, or gadget over the Internet? Or would you rather spend your holiday funds on a lasting investment--your dream home? The choice is yours, and the time is now.

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Clinton you can say “If market conditions do not change and if no new listings come on the market it will take 5.4 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

 

 

Sellers Should Be in a Hurry

Many aspects of the seasonal real estate market have changed over the past few years.  We no longer see as strong a "school year" effect on sales, or at least we've switched to the college calendar.  We have had bad winters with brisk sales, and mild ones where buyers wait until spring.  Shoreline activity is not always predictably summer-oriented anymore.

However, there is one deadline that hasn't changed:  The end of the year is still the end of the tax year for individuals.  In addition, it remains a psychological deadline for lots of decisions and even actions.  That behooves sellers to try to capitalize on those feelings in buyers, and to provide choices in the fall season.  There is always a process for selling that takes time, and the fall/winter holidays can cause delays in financing and other contingencies, so it's important to get ahead of those issues.  Sellers who list now may reap the advantages of the bumper season in the fall.

Like many of the other seasons listed above, the fall season can be iffy.  Weather does play a part, as do elections.  This is not a presidential or gubernatorial year, which mitigates the latter factor.  However, it is a sort of last chance time to get the attention of buyers.  Things that don't get done before Thanksgiving often wait until spring, be they home repairs, trips, or life changes.  There is a long enough period between Thanksgiving and spring so that there is no real harm in listing now.  If a home doesn't sell, it will get a fresh market in the spring anyway.  So go for it!

Five Months and Twenty Nine Days

In my last blog post, I wrote about houses under two million on the Shoreline that were flying off the market.  I speculated that it had to do with the low prices versus perceived value, the stock market recovery, and the length of time since the last hurricane.  All of those things are true, I believe, but I also think that the baby boomer migration may also be a factor.

Baby boomers are turning 65 at an incredible clip, and many of them are retiring.  We know that the taxes, especially the estate tax, in Connecticut, means that many of them here are changing residency to other states.  Although that entails buying property in other states, it doesn't preclude them from buying here also.  When they sell the big McMansions, who's to say that they aren't buying waterfront property for the summers, where their extended families can gather and spend quality shoreline time?  It makes sense.  They want places where their children and grandchildren will want to visit on vacations and weekends, and the prices are attractive enough to be compelling.  They just have to spend six months and a day somewhere else.  And winter is a great time to do that, so it all works out well.

What will happen in the future?  Some of those families will keep those houses for generations, as long as taxes don't make that improbable.  Let's hope that we at least keep people spending their incomes in Connecticut for the warmer months, if they continue to go south in the winters.

What Happened to the Middle of the Market?

We just had our Pearce Annual Meeting last week, and we talked about the current state of the market in Connecticut.  Greater New Haven, and especially Middlesex County, are better off than the other counties, since they are both up.  Fairfield is down the most, which is related probably still to the GE move, and maybe to SALT no longer being deductible.  Even in South Central Connecticut, though, we see pockets of hot markets and pockets of slow ones.

First-time homebuyers are clearly out in force, and multiple offers are common below $300,000.  Even things that sold last year can fetch more today, because the supply hasn't increased; in fact, listings are down.  That's what drove the increases across the country in the past few years--lack of supply.  We're seeing it now.

The upper end, especially the areas near Yale or along the coastline, is hopping.  We don't have enough listings to show people, even as we approach the busiest time of the spring.  The waterfront sales, particularly between $1 and $2 million, seem to pop as soon as new properties go onto the MLS.  It could be that it's been seven years since the last major hurricane, or it could just be that, at these prices, waterfront seems very desirable. The volatility in the stock market could also be causing people to rethink their asset allocations, and buy second homes with some of the money that they would otherwise put into stocks, especially since they got back what they lost in the fourth quarter--they may be reaping the gains and reinvesting in real estate.

Between $500K and $1 million, however, we have seen many listings languish, even those that we feel are great properties and priced well.  It's also where there is, therefore and obviously, the most supply.  Part of that is due to baby boomers trying to downsize, with taste and property conditions that make millennials balk. The latter group wants perfect homes, decorated and finished to the latest in trends.  Perhaps the speed with which the upper and lower markets are moving will push some buyers into this price range, and that would be good news for everybody.  In the meantime, it's an anomaly, making market conditions hard to describe in terms that are too generic.

Finally a Market in Balance?

There have been some very positive reports about sales in our region recently. I have written about some of the reasons for the Shoreline’s improvement, like the time that’s passed since Hurricanes Irene and Sandy, but the broader market appears to be healthier also. When discussing the Shoreline, I made the point that prices had come down to where the value proposition for many people was just too compelling to wait longer, and that it stacked up well against other places where second homes are also popular. That also seems true in the non-waterfront sector. There are two factors that stand out: one is that inventory has moved, leaving less supply for the same, or increasing, demand; and two, that prices are often more realistic than they were a few years ago.

SMART MLS, our local MLS service, recently published a shocking statistic. Its records show that only 16% of listings entered into the system sell! That number may soon be going up, though, if demand continues to improve; however, it illustrates what happens when sellers price their properties too high. Buyers don’t feel compelled to act, and other sellers follow that lead and also overprice, leading to even more sluggishness in sales, while buyers hang around until prices fall. That dynamic has been playing out in our area, unfortunately, for many years. While it has always been true that a portion of the inventory is overpriced, that rate has accelerated as demand, units, and median sales prices all fell. It becomes a vicious cycle, and owners who need to sell begin to do what we call “chasing the market down”. That means that they start high and keep lowering the offering price, until they ultimately end up closing at a lower number than if they had priced correctly to start. The recent news that sales are more robust and inventory thinned out makes me think that prices are realistic, or more realistic than they were when people could still fixate on what they paid for the house ten or fifteen years ago (a period during which values have overall declined).

Like any other cycle, a good boost can start the opposite effect, where competitive prices lead to more sales, which leads to lower inventories, which leads to higher prices, which leads to more listings, and finally again to more sales. No one could be happier than we will be, if that’s where our market is headed this fall!

Is the Shoreline Recovering?

For the past few years, we've had a glut of Shoreline properties in the higher price ranges.  Some towns had as much as a five-year supply.  Lately, there have been many sales reported over a  million dollars.  The latest big news, the sale of Rogers Island  in the Thimbles for $21.5 million dollars, has prompted us to wonder whether there is a broader recovery going on.

Hurricanes Irene and Sandy, coming back to back in 2011 and 2012, left many people with a fear of waterfront properties.  One hurricane is a wake-up call for preparation, but two caused many to rethink risk.  Even with global warming, we all know that, statistically, hurricanes will not occur every year.  We also know that many houses are better built and higher up than homes used to be.  And, of course, it's now been 6 years since Sandy hit, and the lure of the Sound is greater again, or so it appears.

The price adjustments that resulted from the cost, or lack of availability, of flood insurance have remained to this day, but the activity, and the interest, in direct waterfront seems higher this year than for the past few.  In addition to risk factors abating, there are also other causes.  Lots of people have made lots of money in the stock market, and are looking for other places to deploy it.  Aging boomers want homesteads where their families want to gather, and may also be splitting time between the Northeast and a warmer location, so a vacation home here makes good sense.  We are in the midst of a great generational wealth shift, so that adds to the likelihood of increased demand.

Perhaps the final factor is that prices have come down, and, especially compared to the Hamptons and other similar locations, the Connecticut shore properties seem like a bargain--and, often, they are.  Particularly for people in Fairfield County, we are closer than other choices, and flexible work schedules and venues make for easier access by road.

So, if you've been watching, and considering a move to the Shoreline, the time has come to act, before you are beaten to the punch by others.  Consider this fair warning!

Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Madison you can say “If market conditions do not change and if no new listings come on the market it will take 6.4 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

Signs of a Changing Market

Finally, finally, Connecticut is beginning to see the indicators of at least a balanced real estate market! This comes so long after other places in the country that some of them have already passed their peaks, and have stalled or declined (e.g., San Francisco).  We are most likely entering a mixed market, as we have some positive signs and some negative signs.

The "seller's market" side of the equation is showing, for the first time, absorption rates just under 6 months for the region as a whole.  Healthy markets have between 3 and 6 months' supply.  Our region varies, with some towns higher, and some around the 3-month mark, but the overall picture shows that demand and supply are in reasonable synchronicity.  If the time gets too long (Denver at 48 hours!), buyers can't find homes and prices start to spike.  If the supply increases to over a year (where we still are in the highest price ranges), sellers can't find buyers for their homes.

Lower supply leads to higher prices, and then to multiple offers, which we are seeing in some neighborhoods and price ranges.  While it's not uncommon to have some variation, we do have a very bifurcated market, since we have slow price ranges and overheated ones.  In other words, either your home is going to sell right away, or maybe not at all, at least at its current price. 

Multiple offers also lead to the problem of sales not "appraising out", meaning that lenders cannot support in some cases the prices buyers are agreeing to pay.  This issue, stemming from the fact that appraisers can't talk to the brokers, and must use recent sales within a very tight radius of the given property, so that their valuations tend to lag market forces, usually only occurs as prices start to rise.  What's odd about our current situation is that we still, on a statewide basis, have declining prices overall, for the most recent periods reported.  That indicates a very quickly changing scenario.

On the other hand, we are still seeing sales falling apart over inspection issues, prices being renegotiated after the initial contract, and buyers looking at many, many homes over a long period of time, all signs of a typical "buyer's market".  So what's the consensus?  We'll know more when the spring market wraps up, but that may not be at the traditional Fourth of July time. It looks as though we'll see surging sales through the summer, pointing to an improving forecast for the year.  We certainly hope so!

Multiple Offers

With supply down and interest up, there are many more multiple offers on houses being seen this spring.  They are, obviously, more complicated for both buyers and sellers (not to mention agents!).  Sometimes, they can lead to a feeding frenzy on a property; other times, buyers can all walk away, not wanting to get drawn in.  So what's a seller to do?

If you price your home correctly, that price will be a call to action.  In other words, buyers, who are very sophisticated about the market in the Internet age, will know that it won't be on the market long.  If they are interested, they will need to act quickly.  They also know that they can withdraw during the inspection process, so they may act, even when they haven't fully committed(sellers should take note of this!).  They also know, pretty well, what the house is worth, so they will bid at least full price, figuring that other people will as well.  In fact, we often tell them to make their "highest and best" offer--I say that people should offer what they would be upset to learn that someone else bought the property for.  This often takes place in a second round of offers, where everyone who has expressed interest has a chance to put in one last contract.

The seller should set a date to consider all offers, and make that soon; most offers are only good for a period of hours or a few days.  With multiple offers, sellers should assume that buyers are continuing to look at other properties, and should not feel that they are in the driver's seat, and can think about things too long.  S/he should choose one offer, using price and terms to pick the best one for them, and negotiate it through to a signed contract.

 Then the inspections begin.  That's where it might be good to have a back-up offer, which often makes buyers less insistent during the inspection negotiation.  Sometimes, if a buyer plans to do enough work to the property, s/he might even waive the inspections.  Often, buyers waive the mortgage contingency, although that doesn't always mean that they don't plan to get a mortgage.  If they don't, they often ask that the house "appraise out", meaning that there is an appraisal anyway, to make sure that they don't overpay, although that's a subjective term.  If they are getting a mortgage, the bank will do an appraisal, so the same vetting process on value will occur.  We don't consider the home sold until the contingencies are satisfied, so keep your fingers crossed both as buyer or seller, and don't let up on the timeline.

This explanation assumes that the sellers proceed with one contract at a time.  While it is legal to ask for all offers, and then sign one, or to negotiate (but not sign!) with more than one buyer at a time, it gets confusing and frustrating for everyone.  Final advice:  Don't be greedy.  If you have an offer at or above what you would have sold for, take it.  Those last dollars aren't guaranteed, especially if it doesn't appraise at that higher amount.  Take the money and run to your new home!

Even With Snow Still on the Ground, the Spring Season is Here

I just went back and looked at the past three months' worth of Trulia leads and visits to our Pearce website from Trulia.  Leads were relatively flat from January through mid-February.  They went up 11% to 20% from week to week after that; in the most recent report, they have doubled. 

Although that's only one site, and the lead time for homebuyers can be long, it's a clear indication that interest in real estate is up, way up.  And, even if some people look at houses online instead of Netflix, many of the lookers will translate into buyers. 

Winter came so late this year that many buyers could begin the process without much interruption from the weather.  Even the recent "blizzard" didn't do much to send people back inside to wait for warm weather.  And sunshine helps--not only because it makes people feel positive, but because so many houses look their best in brighter light.  Of course, we've also switched to daylight savings time, giving us another hour of what feels like daytime at the end of the working day.  Anything that promotes movement and energy will boost traffic to open houses and initiate showings.

With all that happening, sellers should be doing everything in their power to get ready for the market, if they haven't already.  Spring can be fleeting, so take advantage of it while it lasts!

Dynamic Pricing

One of the tools we acquired when we all took Ninja Training was the ability to help sellers by showing them "dynamic pricing", which graphs sales and listings in a town or neighborhood.  It shows, in some cases, a clear advantage for one season over another.  It also allows agents to help owners price correctly, by judging the market as it moves, and putting new listings on at competitive and compelling prices.

This information can be helpful to buyers, too, as there are times when offers will not have much competition, and prices may be lower.  Whether you are a buyer or a seller, we know that the process for deciding to purchase or sell is longer than the lead times for most other consumer transactions.  Our website visits, in fact, peak in the winter months, when people begin to look at possibilities and market trends. 

Therefore, it can make a lot of sense to bring in a professional advisor earlier in the process--in fact, it's one of the data points associated with better real estate transaction results.  So don't feel that you have to wait until you are ready to look or list--we are here year round, and we prefer to gather information over time.  Sellers often need to do work, and consultation ahead of time lets them show their homes to best advantage.  Buyers often need to be qualified, and can come out of that process with a to do list for improving credit scores, or avoiding drops. 

So don't let the winter season pass you by!  As I've written before, our selling season starts earlier in many parts of our market than most realize, and the early bird can catch those sales.  If you are a buyer, you shouldn't even wait that long--rates have already begun to rise.  Should you have a lull in this busy season, give us a call.  If not, then make a note to do so as soon in the New Year as you get the chance.  We're ready to assist you. 

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for North Haven you can say “If market conditions do not change and if no new listings come on the market it will take 5.1 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

Ninja Training

Last week, we closed all of our offices for the day, and took Ninja training together.  It's a sales system that involves listening carefully to clients, keeping in touch with them, and giving them relevant and useful information on a regular basis.  Since the average person knows 12 real estate agents (!), we need to stay top of mind, and it takes a carefully thought-out plan to do that well. 

The goal of the whole program is to work smarter, not harder, and to be able to live a balanced life, something that can be challenging for everybody, but which is particularly difficult for real estate agents, who need to work so many nights and weekends.  We are excited by what we learned, and are looking forward to translating training into action.

Along the lines of working smarter, and listening to our clients, this is a good time to ask readers:  What do you want from your agent or company?  How do you want to hear from us, and how often?  What questions can we ask that will make your buying or selling experience easier and more effective?  How can we best demonstrate our expertise in the field, so that you can take advantage of what we know?

We ate now imbued with a very clear purpose, and will endeavor to work the Ninja way going forward, so expect to hear from us, and for us to be eager to hear from you.  There is a better way, and it's a win-win for all of us!

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Milford you can say “If market conditions do not change and if no new listings come on the market it will take 6.4 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

Single Family Residential Homes Statistics (1/1/16 - 6/30/16)

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Hamden you can say “If market conditions do not change and if no new listings come on the market it will take 4.6 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”



Interpreting Statistics

Yesterday's news for real estate in Connecticut was that unit sales for residential properties rose by 23.9%.  That's the biggest single increase in a few years.  However, the median price of a home dropped by 7.2%, which was also the biggest change in several months.  What can we learn from that, and what are they measuring?

First of all, they aren't usually,in reports like this, looking at the same property being sold and resold.  Some, like the Case-Shiller index, take the value of all of the real estate together in one city, and compare it to the total value in another period.  Others aggregate lots of individual sale prices, but it still isn't apples to apples; that is, it's not the same house being sold at the first period mentioned, and again at the second.

Therefore, most such data can be skewed by the type of properties sold in the greatest amount.  In this case, it's most likely because first-time homebuyers, lured by low interest rates and family formation, are out in greater numbers than high-end buyers.  We know that this is true in general, because the loss of GE alone is causing very high inventory over a million dollars in Fairfield County.  We also would suspect this explanation, due to the constant news about the weakness of Connecticut's economy, and the flight of older, wealthy taxpayers to states with estate tax rates that mirror the Federal ones (which is almost everywhere else).  We also would think this distribution is likely because the first-time homebuyers are driving the market in other states as well.

So what does this mean for the value of an individual home?  Well, it's good news in the sense that demand for homes in general will drive up prices over the long run.  In the short run, it's anecdotally true that most homes purchased within the past ten years are selling for the same or less than they were bought for then.  However, many factors could influence this.  How much work has been done to the home?  Exactly what micromarket is it in, and what's the supply there?  How has the neighborhood changed over the past decade?  Where's the buyer coming from, and how quickly does she/he need to move?  How quickly does the seller need to  move, and how much equity does he/she have? What are the other terms of the sale?

So, as with most things, the final answer is "it depends".  However, the robust demand is cause for celebration!

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for New Haven you can say “If market conditions do not change and if no new listings come on the market it will take 5.6 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”



Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Milford you can say “If market conditions do not change and if no new listings come on the market it will take 5.6 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”