Happy Holidays

As this challenging economic year comes to a close, I'd like to take this opportunity to wish all H. Pearce agents, staff, clients, and blog readers a very healthy and happy holiday season, with best wishes for a prosperous New Year. We value your business, and commit ourselves to providing you with the best in professional real estate services. Please call us with any and all of your real estate needs in 2010!

Open Houses

Even though we are not in the traditional season for open houses, we've been surprised at how many people have been coming to the ones that have been held lately. We think it's a result of the tax credit, and the interest is stronger at the lower end of the price scale, but we're happy for the activity wherever it falls.

The moral of this story is that this may not be the typical holiday season, and that, if you are a seller, you may want to try harder to sell your home over the holidays. Don't make the assumption that the market will be dead until spring. Our November results were 80% ahead of our November results last year--we are clearly in the early stages of a recovery. While prices will lag for a long time after unit sales rise, there are clearly buyers out there.

Are You Losing Value?

Recent reports indicate that residential real estate values in our region are declining at around 10-12% per year. That means that a $400,000 home is worth $4000 less every month. Therein lies the real danger of overpricing.

Since we know from experience that the first two weeks of a new listing are the most important from a marketing point of view (since many buyers--and agents--only check for new listings when they search), it's important to begin that period at the correct price. "Testing the market" at a higher amount for a "little while" can lead to months of delay in selling the property, since it doesn't appear as new to those looking to buy, even when it eventually reaches the best price point. Once you factor in the economics of a market that's declining, you can see the true downside of waiting longer for a house to sell. It isn't just the carrying costs, or putting one's life on hold, it's dollars and cents--1% per month, as a matter of fact. And that doesn't even take into account the number of sellers who turn down the first offer (almost always the most motivated offer, and the highest), because they somehow forget that they are "testing the market", and start to think of the higher price as the dollar amount they expect to receive. If we had a dollar for every time a seller tells us later that they regret not taking the first offer, we might not even be taking listings that are too high!

Last Call

The Wall Street Journal had an article about buying a house for your child for Christmas. I guess it's appropriate that such an article would be in the WSJ, but it's an interesting idea and deserves some thought!

However, for the average person, it's time to think about buying a property as a holiday gift for yourself. If you hurry, and really move on the mortgage and the inspections, you might even get in for the New Year's celebration. We bought our current house that way. We signed the contract around Thanksgiving, and moved in the weekend before New Year's Day. We even thought of the purchase as a present to ourselves, since, at the time, it was our second home. Many people now do that--buying a vacation home now, with the idea that you might retire to it, is increasingly common with baby boomers. After all, how many socks and sweaters do you need? Putting all the gift money together, and doing something big with it, is likely to be the present that you remember--and enjoy--longest of all.

Here's Hoping that Shiller is Right

I saw Bob Shiller in his driveway the other morning, and I asked if we were over the hump. He gave me what I took to be a positive indication, and then I saw the fuller explanation in last weekend's New York Times. It's a version of Franklin Roosevelt's first inaugural speech: The only thing we have to fear is fear itself.

Basically, he was saying that the recession will end if people decide that it's time for it to end, and begin acting as though it has. He cautioned that there are many ways to derail such a phenomenon, and warned that we, or the government, could do that. However, if we all move forward, spending and expanding, we might be able to pull it off.

There are many sticky wickets to navigate in that strategy. For one thing, the banks are certainly not acting--or lending--as though we have returned to normal. The appraisals are low, the terms are high, and the process takes a long time. They also are modifying loans for those who can't pay, but most of those modifications go bad within a year. While we need to think positively, we can't fool ourselves into thinking that we are OK when we are not. My advice to those who have gotten a change in the terms of a loan: Take the deal, then list and sell as soon as you can.

The other big obstacle for a recovery is employment. As long as job creation is low, and layoffs keep going up, we won't have a permanent recovery. It's hard to fool yourself into thinking that the economy is on the upswing if you don't have a job. Whether or not we can fix the jobs conundrum remains to be seen.

Government spending on the national, state, and local level is also a huge block to long term stability. We can't keep spending what we don't have, and it is beginning to look as though our debt could cripple us in the not-so-distant future.

Having said all that, though, we can pull together and pull out of the trench. It takes some faith, some guts, and some hoarded cash. The stakes are big, and each individual action is small, so a lot of us will have to act in order to make a difference on a macro level. But let's hope that we do, so that we can all prosper together.

More Confirmation on Pricing

The lead article in yesterday's New York Times Real Estate section confirmed yet again what real estate practitioners know, but are often unable to convey persuasively to others. It gave examples of sellers who priced their units aggressively in today's market, and kept lowering the prices without success. It contrasted that with sellers who priced so as to seem to be a "good deal", and told about the bidding wars that have been taking place in such cases.

Underlying this phenomenon is a change in the marketplace from the past: Now buyers, who get more information through the Internet and by looking at more places before buying, are more educated about prices than they used to be. They can tell when something is priced to sell, and they know that they have to move quickly. They also know that, often, there will be multiple offers; therefore, if they want to get the property, they may have to bid over the asking price.

This has happened to us so many times that we can all attest to its effectiveness. We cannot, however, seem to convince sellers that they will actually receive higher offers by pricing the property lower. It's not unlike the psychology of pricing store items at sale prices, to stimulate demand and encourage prompt purchases. Of course, the seller can always reject an offer, if it does not meet his or her specifications. The point is to get offers, particularly to get enough offers to assure that fair market value is established.

Separating oneself from the pack is key in this market. Unfortunately for our business, pricing aggressively does that!

A Warmer Winter?

To us, a warm winter is one with a lot of real estate sales! The recent extension and expansion of the homebuyers' tax credit gives us hope for the traditionally slower months. Because of the timing on the new bill, sellers and buyers should realize that they can't wait until the spring market. Buyers who have no home to sell (usually the first-time buyers) can probably put off finalizing a sale, since the contract must be signed by April 30,2010 and must close within 60 days, by June 30, 2010.

Many of the houses listed in the so-called "spring market" are still coming on the market even into May, so it won't be possible to wait until all the possible choices are available for viewing. Of course, if a buyer also has a house to sell, he or she should get started right away, since that could take up the intervening months. In addition, people should factor in extra time for mortgage approval, as we have been finding that the appraisal process in particular is taking far longer than it did before.

All of that leads to the conclusion that buyers who wish to take advantage of the tax credit cannot risk waiting until the spring rolls around. Since sellers certainly need to start soon, that argues for a busier winter than we're used to having. Don't forget that, although the holidays are busy and it's difficult to schedule showings, many homes look their best when decorated. In addition, the snowiest and iciest months are later in the winter, so now is better from that angle. It's also good to remember that it can pay to list when there isn't much around to compete. Once others realize that time is of the essence, you can already be negotiating your sale and moving on to a new purchase.

Busy Time in Relocation

As many people may know by now, we have grown so much in our relocation services business that we spun it off and renamed it Pearce Plus, primarily because we use real estate companies other than our own in areas we don't serve (and, in some special circumstances, in our own area as well). We are serving as advisors and administrators for human resource departments about policies and procedures involved in relocating employees from around the world to New Haven, and, increasingly, from one place to another when New Haven isn't either the destination or the point of origination. For example, we may help a company here do a group move from California to Florida. We are also representing many senior living facilities in moving seniors through our Senior Services division, now also under the Pearce Plus banner. These activities are specialized and deserve to be separated out.

Other companies who do what we do are usually independent entities, although often they are under the umbrella of a real estate company (Cartus, for example) and use their own agencies wherever possible. Although our relocation employees operated indepedently, we thought that renaming our services would make the point more clearly to clients and to the public. We chose this point in time because it's so busy now. After a lull, when corporations were all putting their hiring on hold, we are seeing a spurt of new employees coming into the region. Seniors, of course, are often driven to sell by factors other than market timing, so that market is strong as well.

And, we must admit, it's nice to have something positive to report in these gloomy times!

It's the Buying Time of Year Again

Our agents have heard me say this every year, but it's time to say it for this blog: The best time to buy a house is between Halloween and Thanksgiving. Sellers are ready to sell, as they start to pay heating bills, think about plowing, and head into the holidays. Buyers are mostly settled into new homes or forgetting about buying until spring. It's hard to show houses in the winter. There's snow and ice, not to mention cold. Parking and driveways can make open houses and showings tricky. Although many homes show well when they are decorated for the holidays, most families are busy at that time of year and don't want to have to keep their homes clutter-free and ready to show. Most buildings look better in light, and there isn't much of it in the dead of winter. All of that adds up to the realization that, if you haven't sold your home within the next three weeks, you probably aren't going to sell it until the spring.

Despite that chilling thought, there are sellers who want to move at this time of year. For one thing, some have tax reasons for wishing to close before year end. Some have jobs or commitments in other places. Some are tired of the selling process, and some have another home waiting for them. Some just want to spend the winter in a warmer place. All of those people are competing for the buyers still looking when winter comes. Therefore, if you are an eager seller, you are most likely to compromise on the price at this time of year.

Buyers can capitalize on these factors to negotiate for a better price as the weather gets cold, especially if the home is empty and sellers are worried about freezing pipes and empty oil tanks, or even just heating and plowing bills. This is the time of year when a month of expenses can easily become six months of expenses, and sellers will take that into account.

If you are a buyer, particularly a buyer with cash, here's your chance! Don't waste it--buy now.

Tenant Fit-up Issues

Today our Commercial Department, along with Petra Construction, hosted a panel to teach the ins and outs of tenant fit-up costs, procedures, time lines, and taxes. Tony Santore from Beers Hammerman was our guest accountant.

We had a good turnout, and the group asked lots of questions. It's a big issue for us, since many deals now fall apart over the costs of tenant fit-up. The big lessons: Most people don't start early enough, or leave enough time; he who has the cash is king, and there's never been a better time to build; learning the tax ramifications, and getting your accountant involved early in the process, can save you a lot of money; and Realtors, developers, and construction professionals should all work together, even before the land is purchased or the lease is signed.

After the panel, guests were treated to two presentations, one on BIM (a new way to visualize the space before it's built) and the other on estimating. All agreed that it was a great morning, and those of us in the real estate business look forward to helping our clients understand the questions to ask, and when to ask them.

News from Around the Country

I just got back very late last night from Cincinnati, where The Leadership Council (a group of large independent real estate brokerage firms from around the country) met at Comey & Shepard's offices there. The trip itself was uneventful, except for the US Air flight from Philadelphia to Dayton (no, there's no more direct flight from New Haven to Cincinnati!), where the gate attendant announced that the plane had no working bathroom. Sounding just like someone's mother, she then proclaimed that, if you thought you'd have to go, you should go now, before getting on the plane! A new low in air service---and they're probably working on coin-operated toilets as we speak....

We always learn a lot at these meetings, and this one was no exception. On a beautiful fall Sunday, we sat in a windowless basement conference room all day, and listened to tales of woe from around the country. The brokers in this group were all hoping that the bottom has arrived; indeed, there are some signs that it has passed. Their average sale prices, however, were all down from a year ago, and most had unit declines of 10 to 20% from a year ago, and a two-year decline of more than that. Homes under $200,000 are selling everywhere, mostly to first-time homebuyers. Homes over $700,000 are not selling anywhere, to anyone.

In a twist on the common phrase, there is no broker left behind. All of us have had trouble getting transactions closed in this market. Financing is hard. Closings are delayed or cancelled. There doesn't seem to be any difference in big companies vs. small; all are affected. In fact, so-called traditional brokers are doing better than the discount or 100% companies in percentage of business. All parts of the country have had issues, although the places that didn't go up much (in our group, Tulsa and Des Moines) are much less impacted now. In fact, those companies in our group are chugging along. New construction and commercial real estate were low points for pretty much every firm.

We remained optimistic and, for the most part upbeat, helped by good food and plenty of wine. Next spring, when we meet in Iowa, we'll be hoping to break out the champagne. Until then, it's back to work!

Tough to the Finish

We had a buyer panel a couple of weeks ago, with people who'd bought their houses from us recently. I was surprised at the number of problems that came up right before, or even during, the closing. Two of the three were packed and ready to move before they knew whether or not the other party would be able to perform.

While we in the business all know that the transaction doesn't end with the signing of the contract, even we didn't quite realize that the obstacles in a sale are moving farther and farther down the pipeline. It used to be that the big hurdle was getting the contract signed. Then it was the inspection, and renegotiations after that. Next came the appraisal. Now it's the financing, which is often so problematic that the contingencies last right up until the closing day.

The good news is that all the transactions went through, even though one poor buyer started with six weeks to move and ended with two days. It was also good news that no one thought that his or her Realtor was to blame. It shows, however, that moving (no matter what we tell you) is hard to make easy. Leave plenty of time; expect things to go wrong; don't sweat the small stuff; and keep a sense of humor!

Back Down Again?

It's quiet in our offices this month--really, really quiet. Now we're reading that the national trends say that the uptick ended in about July, which, coincidentally, is what we saw. It was far busier through July than it typically is in the summer. It was slower in August, but that is almost always true. After Labor Day, we usually see a marked increase in activity. That lasts until about Halloween, or maybe Thanksgiving, and then the buyers hibernate like bears until the spring.

We're not quite sure what to make of this latest turn of events. The stimulus program and the $8000 tax credit for first-time homebuyers were supposed to be making the phones ring. Indeed, it did, but the phones have slowed down. I can only speculate, and my guess would be that the market will not stay up until unemployment comes down. I also think that the hoopla over national health insurance has people worried about costs. Whatever the reason, it's not good.

One of the earliest CEOs of General Motors famously said that "what's good for General Motors is good for America". I would argue that the same is true of real estate. The government needs to do what it has to do in order to stimulate the real estate market at all levels, not just at the lowest end. The recovery depends upon it.

Where are the Luxury Buyers?

I thought I should write a little bit more about the information on market inventories that I described last time. As I stated, there is a direct correlation between the price and the amount of months of inventory on the market. So, for properties under $200,000, there is a 1.7 month supply. For each increasing value bracket, that supply goes to between 2 and 3 months, between 3 and 4 months, between 4 and 5 months, and then goes to over a year above $700,000. Only 2.7% of the sales now are above $700,000, and there are more homes on the market in that price range than in either of the two price ranges below that.

This surprises me in some ways. While I know that consumers are cautious, and I realize that the governmental incentives are aimed at a lower price point, one would still think that the combination of low interest rates and a skittish stock market would drive people to spend their savings on real estate. In addition, there are still those who could be downsizing and yet be spending above that amount for a property. Since investing one's assets is so problematic these days, real estate stands out as a tangible asset that is currently selling at bargain prices.

We bought our home at what turned out to be the bottom of the last market cycle, and it has turned out to be our best investment. While you cannot pick the bottom of the cycle without luck, this clearly has to be a time that will turn out to be good, considering the interest rates and prices. Why not take advantage of that, and look back years later with great satisfaction on your best investment?

Market Inventory

We recently received a market inventory study from Madison, Wisconsin, showing that higher-end properties were not selling and lower ones were. Not a big surprise, but we decided to look at our market. What we found was similar, and striking.

Properties over $700,000 are less than 3% of sales now, there are enough homes in that range on the market to represent more than a year's supply, and the sales have fallen almost in half from last year. At the lower end, under $300,000, there exists only a supply of two and a half months, sales have risen by a third, and they represent 41% of all sales. While we knew that first-time homebuyers were driving the current market, it's still fascinating to see that laid out in statistics.

Overall, in our region, prices have fallen 15% since the same time last year. If you put all these facts together, what it tells you is that you are more likely to sell your home quickly if it's in a lower price range and you price it aggressively. But you knew that already!

New Haven's Labor Day Road Race

I just had to do a blog entry about one of my favorite New Haven events--the annual Labor Day 20K road race. As many of you know, I'm a dedicated runner. I run lots of races all year long, but the 20K is a polestar in my running year.

First of all, my running buddy Ray Fair has a model (available on his website, http://www.aginginsports.com/), that computes an equivalent time at every age to your absolute fastest time. That gives those of us older runners a chance to improve; not in actual time, which is very difficult after a certain age and a number of running years, but in relative time. It calculates a regression line for each runner, and allows you to have a goal that incorporates aging, by giving you a factor by which you "should" slow down. Then you try to beat that time.

Yesterday was a near perfect day. It was cool at the start, breezy on Long Wharf, and sunny, but never too hot or humid. Real runners would prefer cooler weather, but, for early September, it doesn't get much better than yesterday. In addition, great weather brings out more spectators, and they always help a lot.

Therefore, many of us had good races. I didn't feel great for the first 3 or 4 miles, but, once I got into a groove, I calmed down and even picked up the pace. Although my time was not my fastest, it was my fastest in age-adjusted terms. That's always something to celebrate! I'm below my regression line for the first time ever, I think. Ray says it's because I train well, but I think it's because I had a lot of improvement and slow times in the earlier years, which brings my average time up. Whatever the reason, I'm happy.

Everyone else who came out to run or to cheer seemed happy as well. That's why it's such a great day for runners, and a great day for New Haven. And the best part? We don't need to do it again for 364 days!

Countdown for Tax Savings

We were talking about the $8000 first-time homebuyer's credit this morning, and figuring out the timeline for the deadline of December 1, 2009. Given the time it takes to get a mortgage and close, we think that a safe deadline for purchase would be October 15th, 2009. That means that anyone who wants to take advantage of the tax credit must buy within the next six weeks!

We further realized that many people (including most of us) have lots of questions about exactly who qualifies and for what, so it's worth talking to an accountant or doing some research on the Web. Many more people qualify than one might expect. Also, the type of property is broader than just single-family homes. I don't want to put in too many details, since that would imply that I know all the answers. I learned in business school, however, that the important thing in life is to know the right questions, and then find someone who knows the answers. That advice may be worth what you just paid for it, but I think you should think about whether anyone in your family might qualify. I'm thinking that parents may want to help their kids purchase homes in the next six weeks.

When the tax credit is combined with positive real estate news--like the article in today's Wall Street Journal, saying that now is the time to buy---we're looking forward to a very busy fall season!

More Good News

The New York Times yesterday had the most positive article on real estate activity that I've seen there in many, many months. My interpretation was that the dreaded "W" or "L" recoveries may be replaced by a more robust resurgence. The "capital letter" recoveries suppose that the recent upticks in real estate and the stock market will be followed by either a second downturn (as happened in the Great Depression) or a period characterized by bumping along the bottom of the economic cycle.

Those who are now more optimistic seem to think that all the stimuli provided by the government will boost real estate sales to levels that are more than were expected. It may be that the stimuli are even too great, or incorrectly aimed, but they may do their job anyway. As most experts will admit, the effect of psychological factors in economics is far greater than its mathematical bases would predict. We have all known for a long time now that there is a crisis of confidence in our country, and that something would have to happen to get us off the fence, and spending again.

I still submit that it's the weather. It's a good an explanation as anything else.

Hazy is the Word

Well, the weather is hazy, hot, and humid every day now, and the outlook for prices in real estate is hazy as well. I just got a report from a real estate owner friend in Wisconsin, showing that activity there is way up, but that median prices are falling as sales rise. That seems to be true pretty much everywhere, and everyone seems to know it except sellers. They are still thinking that recovery means the stratospheric gains of a few years ago.

It's not really clear why they continue to think so. After all, the rapid rise of the stock market in the past few months has not brought stock prices up to where they were when they started to fall, so why would real estate be different? Lower-priced homes are moving because there are tax incentives and new buyers entering the market, but the incentives don't apply to those with higher incomes, so the government isn't going to prop up prices in those brackets artificially. The only things that will get those buyers off the fence are massive, sustained improvements in the economic climate, or perceived bargains. The latter is the only one within the control of sellers. Also, since prices have fallen for all kinds of items, sellers can buy more with the money they get for their homes at lower sales points, even if they are not reinvesting in real estate at the same lower levels.

Although this all makes sense, the psyches of sellers and buyers have never been terribly swayed by logic. Let's hope that this time is different, and that some of them will get real before the weather turns cold.

Vacation!

Wow, it's been a long time since I've posted. I've been on vacation, which has coincided both with the only hot weather of the summer and our new puppy's arrival. That's kept me busy, but I did just finish reading Free by Chris Anderson, which is a book about all the things that we now get for free (mostly on the internet), and how that has changed business. Our industry, of course, is a great example.

When I started in real estate, all the information about all of the properties offered came in a printed book that was published every two weeks by our local Board of Realtors. Customers couldn't take it out of the office, so they had to come in to look at what was for sale. We controlled all the information, and thought that that was our salvation.

Fast forward to today: Our website gives away everything that we know about a property, and it does it without requiring payment or loyalty or even identification. We now map properties, so that you know where they are located, we tell you approximately what your own home is worth, and we post all the things we can think of that you might want to know.

What happened? Our role as Realtors has changed. We are now consultants, negotiating between buyers and sellers. We no longer work only for the seller, and we no longer rely on information as power. And what we've found is that people who use us, which they are no longer almost forced to do, get more for their homes, or pay less as buyers, than those who go it alone. Also, we save time, hassle, and costly mistakes. Are we worth it? You bet! Most people who buy or sell without a real estate agent say that they wouldn't do it again. There certainly is value in experience, expertise, and local knowledge. And we can still put all the facts on the Web. So take advantage of that, and log on anytime!

New Haven is hot!

I'm looking at the figures for June and July in our New Haven office, and they're great! We sold as many units in those two months as we did year-to-date through May, and the two months together were 50% over June and July of last year in both units and volume! This week was the best week they've had in at least two years. What's particularly surprising is that it's happening in what is usually a very slow month, and finally hot and humid to boot. Maybe all the hype about hitting bottom is old news, and we're on the way up!

The Case-Shiller index for last month also showed a halt in the decline of prices, and it corroborates my earlier paragraph. We are also finding our Wallingford Regional office to be running ahead of last year in sales, so it's not just New Haven (although Yale continues to be a driving force in the local real estate market).

I was at the Lexus dealer yesterday, and Dave McDermott and I had a friendly argument as to whose business was worse this year. He has trouble with my argument that at least he has his excellent service department to bring in revenues. Dave says that customers want to buy, and that credit is the issue. I'd say we're both in much the same situation, although, if he reads this blog, he's going to think we're in clover now. I wish...

Market Spike?

We're experiencing a late, late spring market surge, even though it's July. Our New Haven office has posted record sales for the past six weeks, and all offices seem flat out, despite the signs that summer has finally come. The New Haven numbers are still largely driven by Yale, and we hope that continues. All offices say that the strongest activity is in the FHA mortgage range (under $387,500 for a mortgage), and in first-time homebuyers. Lower price ranges, except again near Yale, move much faster.

Our hope for first-time buyer interest is that the national unemployment rate starts to go down. As the parent of twenty-somethings, I hear many stories of lost jobs, postponed starts, and pay cuts. While it may be slightly older people who go into the real estate market, the "last in, first out" theory of human resource layoffs has many newer workers nervous. When they, and their parents, start feeling more secure about their future job prospects, more of them will jump in at these low interest rates.

If we're brave enough to wish for anything else, we're keeping our fingers crossed that sellers understand the fragility of the current market, and respond reasonably and positively to negotiations and problems that occur along the way to the closing. It may be the general national stress level, but I hear a lot of stories about sellers who just won't compromise, even when it's in their interest to do so. Good thing our agents are so talented!

Second Quarter Results

A little silver lining to the real estate cloud--our second quarter results show definite improvement over the statistics of the first quarter. It's still bad, but getting better. The whole Northeast is down about 13%, and this area is about the same. If you multiply that times the decrease in the average price, you get a decline of about 23% from last year. That number includes a lot of foreclosure real estate, which usually transfers at lower prices, so the H. Pearce numbers look better. Our second quarter was less than 10% off from the year before. It tells you something about the past couple of years that such a result would make us happy!

When asked what I thought would happen in the last half of the year, I predicted a further narrowing of the decline. Although prices may fall more in some areas, it looks as though activity will not go down further, due to a combination of consumer confidence and government support.

The numbers also seem to show that people who use a Realtor get more for their homes than people who do not. While this can be explained in a number of ways, I have little incentive to argue with it!

Will Prices Go Down More?

Many media and industry experts are saying that the total price drop on the average home in this economic decline will total 35 to 40%. If that's true, there's another big drop to come. I think the wild card is the effect of the stimulus plan. No economic indicators from the past can be entirely accurate when compared to what we are seeing now. Although, IMHO, there is a great deal to criticize about the way in which the government has gone about randomly helping some people and not others, the result is that activity has been propped up through a combination of relief, tax credits, and a moratorium earlier in the year on foreclosures. It's anyone's guess as to what would have happened to the real estate market had those things not occurred, and it's equally unclear what would have happened had the program been rolled out differently, but it IS clear that billions of dollars have been dumped into the economy. No programs from the past have been as sweeping.

Will everything that has been done keep prices from falling as they would have? It's almost like having a shelf over the side of a cliff, where someone who falls off can land, and keep from tumbling further. Here's hoping that the cliff is big enough and sturdy enough for us all to huddle in safety!

Closings

Yesterday and today are the two biggest closing dates of the year, in no small part because no taxes need to be adjusted, as tax years run July 1st through June 30th. As a result, the tension level around real estate offices is very high these days. Not only are we dealing with all the problems of the current market, but sellers and buyers are under enormous stress, as they try to get into and out of homes quickly. Sometimes they are trying to get in while someone else is still trying to get out, which is one of the situations we've been faced with today.

It's the time I feel sorriest for real estate agents, who often take real abuse from overwrought clients. It's often that the clients disconnect their mouths from their brains, and blast the agent simply because he or she is lower on the food chain (meaning, simply because they can). Agents are usually very good about letting it roll off them, but they may not forget it quickly. I would write some of the things they say, but it wouldn't be family friendly!

In addition, agents often get asked to do the most menial tasks. Again, they usually comply, because they want their clients to be happy, but we have to laugh to ourselves. One agent's husband was amazed that she was driving 50 miles round trip this week at the request of her client, and buying a 6-pack of Coke and 2 Chicken a la King frozen dinners to be left in the refrigerator of a rental home.

It may be all in a day's work for the agent, but it's worth noting that they deserve some kudos for all that they do!

More Bad Commercial News, and a Weather Report

Our latest few weeks of statistics show the problem in commercial real estate in our area. This week's report shows only one sale, of a 15,000 sf building, in all of New Haven County. Last week, there were three small leases, together totaling only 2600 sf. If you are a seller, and you're not selling, or a landlord, and you're not renting, you're not alone!

Maybe it's the weather. Does anyone remember us ever having worse weather for a month of summer? Our pool is still not up to 70 degrees, and I haven't been in it yet. I can't even bike much, since the roads always seem to be slick with rain. It's pretty good running weather, as long as you don't mind getting a little wet. I know that I'll be complaining about the heat soon (maybe even when I run on the track tonight), but I'm ready for some sunshine!

We are hoping that the delay of summer will cause real estate sales to keep happening, instead of slowing down next week, as they normally would. That would certainly be a silver lining to the cloud that's been sitting over New Haven for the last month!

Commercial Real Estate Panel

We had an interesting real estate panel this morning, with the head of commercial real estate lending from Webster, Bill Wrang, our appraisal partner, Marc Gottesdiener, and Mike Morand from the Yale Office for New Haven and State Affairs. There was a lively discussion of how we got to where we are in the national financial mess, what the current state of the Connecticut market is, and what we can expect in the future. We also heard from Mike about Yale's real estate plans.

The bottom line: New Haven and CT are better off than many parts of the country, but we are in the midst of a frozen commercial market. In 2007, 500 billion in real estate changed hands. In 2008, that number was 110 billion. So far this year, it's 9 billion. No wonder we are finding conditions so tough! Over the next couple of years, many loans will come up for refinancing. Values have generally held, and appraisers are finding that bankers are shocked at the low rate of decline over the past year. Retail and apartments are taking the biggest hits in valuation.

Cash is king, and cash flow will determine future ability to borrow. It's better to make a new deal with an existing tenant, including free rent and/or lower rates, than to have a vacancy. Lenders are looking for a lower loan-to-value ratio, although rates are still low. Banks are loath to foreclosure, and relationship lending is the way to go. Balances in the bank are important. There is most likely still another shoe to drop on the commercial side, but, so far, we are not seeing much delinquency in this region.

Compromising

With the recent spate of real estate activity, we were hoping to see sellers more realistic than many are. This is my chance to remind them that, given the current credit climate, it doesn't help them to extract the last dollar in the sales contract, if the home then does not appraise out. Banks are understandably cautious these days, and many people don't have extra money to put down, so they are dependent upon an appraisal that will support maximum financing. Even if they do put plan to put a little more down, buyers will likely balk at paying more than the bank's appraised value for property, particularly in a market less than robust. It's funny (well, maybe that's not the word...) how the problem in getting transactions from A to Z has moved through the process, from listing to offers to inspections to financing. Let's hope that it moves right out of the system!

I'm also wondering whether the spring market will last further into the summer, especially since it seems to rain EVERY day. We got a late start, more due to economics than weather, but often a late start means a longer season for selling. We could use the time to try to catch up to last year throughout the region.

Lagging Statistics

Now that we're finally seeing some increase in the number of buyers and the resulting sales, the statistics for April are out. They show that prices fell and units fell. Not surprising, since that's reflecting activity from the first quarter. It doesn't measure today's pulse, but rather what was happening 60 to 90 days ago.

If we're lucky, the news will convince sellers not to be greedy, and buyers that it's a good time to get a reasonable price on the real estate they wish to own. It will let the government know that it can't stop trying to help the housing market. If we're lucky, it will not send everyone screaming for the hills, or more accurately, back into the cocoons where they have been hiding since last fall.

All of this does show the importance of the consumer confidence index, which is a measurement the government puts out on a periodic basis, to judge the mood of the buying public. Lately, this number has been at historic lows. The most recent results, however, have shown a sharp uptick in consumer confidence. We consider this number, along with personal income levels and interest rates, to be one of the three most important ways to predict the level of real estate sales. We could have told the press that sales would rise in May, after seeing the rise in consumer confidence. Since it's such a subjective measure, though, almost anything can affect it. That's why I'm hoping that the April sales numbers don't send it plummeting again.

National Statistics

In trying to make sense of national statistics on real estate sales, I have been reading a number of different sources. One I received today was from a friend with a real estate company in Madison, Wisconsin. He sent a link to the Fannie Mae/Freddie Mac numbers, which include all resales with conforming loans, and are divided by state and by quarter. These are different from the Case-Shiller numbers, which only cover 20 metropolitan areas. The numbers for CT in the Fannie Mae index indicate that prices fell most sharply last year, and that overall prices have fallen about 15% in total. The numbers for the latest quarter indicate that prices have levelled off for now.

These figures agree pretty well with what the New York Times reported this morning. The article in the Times said that prices in the past month actually crept up from the month before. That could be because of the mix of properties sold, but it does indicate that some people who were on the fence have jumped back into the market.

The third source, the Commercial Record, shows town by town variations in what has sold this year versus last. Again, it shows increased activity lately, although the first quarter was pretty dismal.

Whichever measurement we use, it seems to corroborate that we have at least and at last hit bottom, and are looking forward to heading up!

Commercial Real Estate Update

It's worth a mention about what's happening in the commercial real estate arena these days. The answer is: nothing. The nation's banking woes, and the resulting credit crunch, have brought most real estate transactions to a screeching halt. Traditionally, there is a lag between the residential market performance and the commercial market performance of about nine to twelve months. I had an interesting discussion yesterday with an economist running buddy as to why this should be so, but it has been consistent over the past recessions as well. One might think that jobs and business profits would decline before housing sales, but it's usually the other way around. Residential sales can be predicted if you know personal income numbers, interest rates, and the consumer confidence index. Commercial real estate has more to do with credit, GNP, tax structure, and general business cycles, yet they do coincide and overlap this way.

Given the current state of the economy, pundits are not forecasting an improvement in commercial real estate this year. New Haven is lucky that so much of our space is occupied by Yale, but even mighty Yale has seen the effects of this market cycle, so we may not be as protected as we might otherwise have been. Our best protection is coming from a lack of new product, meaning that we don't have the see-through office buildings sitting empty, the way we did in the last recession. One of the worst problems is that there has been a fundamental shift in the way people work, causing companies with the same revenues to need less office space. That may not change back when the economy improves. Other new companies will have to spring up to take that space, and Connecticut's cost and tax structures have caused it to be at or near the bottom of new business creation. In our area, biotech has made our regional results somewhat better, but we should all do what we can to attract corporations and jobs to our region.

Signs and Selling

We have a few sellers who don't want signs on their properties. Sometimes, they also want us not to mail to the neighbors announcing the listing. Usually, they say that this is because they don't want their neighbors to know that they are selling! Since signs are the number one tool that agents have for selling property, and since many properties are sold to someone who already lives nearby, this is an odd reaction. Would you look for a job, but refuse to give out your resume? Would you try to get a part in a play, but not allow your agent to send information about you? Exposure is the key to successful selling in most cases. Especially since, when you think about it, once you sell these people won't be your neighbors anymore anyway!

The other misconception I find less surprising is that sellers think that they can sell their homes without benefit of a real estate agent and get more money. While it can be true that a seller could get lucky and know of a prospective buyer, he or she is not going to get more money if they do what is often the case. They advertise the property as "x dollars without an agent". In that case, don't you think that a buyer will expect that the money otherwise dedicated to the commission will go to him? Obviously, real estate professionals aren't helped by people selling their own properties, so I'm doubtless biased, but I find the approach unlikely to get more money for the seller. Plus, empirical evidence collected around the country suggests that most independent sellers get too little for their properties.

Now that I've vented, I should end by saying how busy the real estate market is this week. Let's hope it continues unabated!

WTNH Interview with Barbara Pearce

Watch the Video: People owing more than house worth WTNH.com

Updated: Wednesday, 06 May 2009, 7:30 PM EDT
Published : Wednesday, 06 May 2009, 7:05 PM EDT

Story by: Chris Velardi

(WTNH) - It's a tough time for homeowners. The values of their homes are dropping and according to a new report, one in five owes more than the home is actually worth.

The real estate market has been at the center of the economic crisis and a new report from the real estate website Zillow.com is probably gonna make you feel real good about things.

The study estimates home values in the U.S. have fallen $704 billion in 2009 and $3.8 trillion in the last year.

That's the bad news.

The good news, News Channel 8 found some experts who say the numbers don't tell the whole story.

Barbara Pearce, the President of H-Pearce Realtors, doesn't believe they paint the whole picture.

"You're trying to compare something that is a long-term investment, at a point in time, and there's always gonna be a question about; is it a fair point in time?" said Pearce.

The numbers are part of a report from the home value tracking website Zillow.com -- which indicates a sharp drop in home values over the last year.

These aren't selling prices; these are estimated values what your house would be worth if you sold it today.

In Connecticut, the percentage of 'underwater' homes is slightly lower than the national average.

But again, Pearce said the numbers are a bit misleading.

"If the median person, which I've heard, financed in the last few years financed 97-percent of the purchase price, it doesn't take much to put you underwater," said Pearce.

Peter Grabel is a private mortgage banker with Stamford-based Luxury Mortgage Corporation.
He also thinks the Zillow numbers are inflated.

"My understanding is that they used the original mortgage balance and not the balance that someone might have been paid down to, which could be substantially lower and also on home equity lines; they're using the full amount of the line and not the line that's drawn," said Grabel. "And there could be a substantial difference."

But most important -- according to Grabel -- is all real estate statistics are relative. It's a reminder echoed by Pearce who said real estate must be measured very locally.

"Sometimes it's street to street, it's not even neighborhood to neighborhood; it's certainly not even town to town," said Grabel.

Listing Prices and Offers

This morning at our New Haven office sales meeting, agents were saying that people still want to price their properties too high for the current market. We went on to recount numerous stories both good and bad; people who priced too high and ended up with very low offers, and people who went lower and got multiple bids over the asking price. We believe that buyers know the market conditions, and that they will correctly gauge where offers should be. When it looks like a bargain, they know to bid high. When it looks too high, however, most people deduct too much, figuring that they are in for a long round of negotiations. And, of course, that's exactly what that seller was thinking when he listed too high--a self-fulfilling prophecy all around. Agents told stories of people who ended up selling for too little by using this latter method.

We agreed that sellers don't realize that most buyers search by price. That is, they go onto the internet, our website, or Realtor.com, and they enter the sales price they want to pay. Therefore, if you list your property at $400,000, hoping to get around $350,000, a person who can pay $350,000 may never see your home, because they would be searching in a range that would not include your asking price. So, even though you might be willing to bargain, you may never get that chance, because the above buyer will be out looking at houses listed in his price range. Once you realize the way the process usually works, you will understand why Realtors push so hard to get you into the range that will give your property the maximum exposure, and therefore the greatest chance of selling.

Holding Things Together

Well, activity in the real estate market has certainly picked up, but it's very hard to keep the transactions together until the closing. Agents are reporting that people are looking, they're coming to open houses, they're making offers, and they're even signing contracts. After that point, it gets iffy. Inspections are problematic, but at this point the financing clause is proving the most difficult. Sometimes the buyers don't know how much they'll be asked to put down, and they don't have the cash they need. Sometimes the appraisals don't support the sales price, particularly in neighborhoods where demand is highest. Sometimes the rates or mortgage programs have changed, or the buyers don't have the qualifications they need to get the rate they thought they could. Even when the mortgage is approved, buyers can get cold feet if they know that the bank appraised the property for less than they are paying.

All in all, it proves the old adage: It isn't over til the fat lady sings.

Appraisals

Now that consumer confidence has risen back to the point it was when Lehman Brothers failed, and the spring market has begun, we're starting to see some action. The new problem is that the houses under contract are not always "appraising out". That means that, when a buyer goes to get a mortgage, how much the bank will lend depends not only upon his or her credit score and income, but on an appraisal ordered by the bank before granting the loan. Most banks have an approved list of independent appraisers, who are sent out to examine properties with mortgage applications, and value them by comparing them to other similar properties that have recently sold. Therein lies the rub. What's a comparable property? What if nothing nearby has recently sold? What if the appraiser is from out of the area, and doesn't know which streets or neighborhoods are considered prime? All of those factors come into play, and sometimes the appraiser goes back to the bank with a value far below the sales price, even when there have been multiple offers of around the same amount on the property (which almost guarantees that the sales price is at least very close to the true value, since no buyer knows what another is offering).

When that happens, one of three things usually occurs: the bank orders another appraisal, which differs, and its internal processes allow the loan to go forward at the requested amount; the buyer backs out, due to inability to get a mortgage, and the property goes back on the market; or the parties renegotiate the sales price downward. In the current market, any of the three can happen. On a hot property, the first alternative is most likely. If the buyer does back out, it often sells again just as quickly. As Realtors, we hate to see the sale fall through, in part because someone looking won't necessarily know why it's back on the market, and it may decrease the desirability of the property (of course, to be honest, it also means that we are selling it twice for the same fee). This is particularly infuriating when we believe that the appraiser made a mistake. Some banks are more interested than others in taking a second look, and often local banks are more confident of values within their smaller footprint.

Whatever happens, it's just another bump along the road of selling property in today's market.

More on the Market

I just gave a press interview on the results of the first quarter in our area. Those results were dreadful. Very little sold, and what sold did so at lower prices. The activity has picked up since then, although those sales won't show up until the second quarter.

What is interesting to those of us in the business, who believe that we are bumping along the bottom, is to guess when the bump will start trending up. Units always increase before prices, and, while prices may continue to go down for a while longer, units should begin to increase. Once activity improves, pent up demand for new housing may cause houses to flood the market, as homeowners seek to trade up or down. That increase in supply will satisfy the still anemic demand for some time to come.

The lesson here is that there is a window, which has already opened in East Rock and Spring Glen, where those contrarians who seek to sell in the face of awful media reports have gotten or are getting surprising high prices. Not much was on the market, and people who needed to be in place for jobs beginning in the summer or fall, or those who needed to move for one reason or another, were competing for just a few houses. Multiple offers, many over the asking price, were common. That may change as people have more choices.

A word to the wise: He who hesitates is lost. List now.

Underwater Mortgages and Short Sales

Recently, I read that 47% of mortgages in the City of New Haven are "underwater", which means that the home is worth less than the amount of the mortgage on it. If you can afford the monthly payments, and you are not planning to move, that may not be an issue. However, for those who cannot pay, it's important to understand that there are ways to handle the situation that are better than others.

A "short sale" is one where the sellers cannot pay off the mortgage or mortgages and liens with the proceeds of the sale. In some cases, they are able to bring money to the closing and settle the difference. In many cases, however, they cannot afford to do so. It's almost always better to tell the bank earlier rather than later. Many banks are currently offering "forbearance periods", where they are suspending foreclosure actions. When those periods expire, they will have to decide whether or not to foreclose on delinquent borrowers.

Generally, if you have the ability to pay in full with other assets, the bank will expect you to do so. If you have no ability to pay, they will usually foreclose. If you fall in the middle, and it will be a short sale, they can work with you (if you can find someone to whom you can speak) to make the process as bearable as possible. You can also give permission for your Realtor or your attorney to speak to the bank about your property. In some cases, you may be offered money to move out. In others, the bank may offer to pay the closing expenses and/or the shortfall. Their position may have more to do with the amount they are carrying on their books for your mortgage repayment (in other words, if you are delinquent they may already have written down the value of the loan on their books) and their particular capital situation than with your circumstances. If you cooperate and are reasonable, you may even be able to negotiate to some extent about how your transaction will appear on your credit record. Like many things in life, it's an art and not a science.

Good reading

It's interesting that the best articles I've read about the foreclosure crisis have both been in The New Yorker. The first one was a couple of months ago, and was called "The Ponzi State". It was a long article about homes in Florida, and the various reasons that people ended up getting into trouble, or profiting from the trouble of others. This week, there was an article called "Cash for Keys", about a real estate agent in California who specializes in REO (real estate owned) properties being sold by banks. It does a good job of showing why it makes sense for some people to fight foreclosure, and for others to give in and turn the house over to the lender. One banker was quoted as saying that this particular agent was effective because he priced homes aggressively, thereby getting them to stand out among so many others.

Today I heard from a buyer who illustrated why the aggressive pricing policy works. He's been looking at homes in Clinton, and one just came onto the market recently in the neighborhood where several others have been languishing. It seemed to this buyer to be "a lot of house for the money, and $15,000 less than the three others nearby". He reported that there was a lot of action on this newest listing, with little to none on the more expensive ones. One might suppose that a difference of less than 5% would not deter buyers from looking at some homes and not others, but it does appear that such is the case. Sellers, take heed--you may think that you're leaving room for negotiation, but instead you may be causing buyers to leave, period.

Signs of Life

Although the temperature still says winter, it seems to be spring in Connecticut at last! The phones are ringing, people are listing their homes for sale, and buyers are out in force. It's still very hard to keep transactions together, particularly through the inspection and financing stages, but at least we are seeing contracts being written. It's more likely to see them coming in on properties that have recently come onto the market, however, and less likely to see them on properties that have been listed for months or years. Yes, it's still a buyer's market for the most part, even though there are a few neighborhoods where the supply is limited.

We are seeing mortgage requirements steadily rising. It now takes a FICO score of 720 to get a jumbo mortgage, for example, and PMI is sometimes not available unless the buyer is putting down at least 10%. These factors make me think that buyers should feel a little more urgency; after all, it's the financing costs that drive most purchase limits.

This post will be brief, because even my phone is ringing much more, and I have lots to do!

New Careers

The backbone of the real estate industry has always been people who are entering a second career, and this current economic crisis will surely produce folks who are looking for them. There are several factors that make mid-life entrants successful in real estate: maturity; life experience, including often significant personal real estate and relocation experience; savings, pensions, or other financial cushions; contacts; and transferable sales skills. Our history has shown that people who enter real estate in a down period tend to do better over time, probably because they are forced to learn skills and strategies that those entering in boom times don't always acquire. Also, those starting in the profession now will be training and getting licenses now, and will be ready to take advantage of the recovery just down the road.

It may also be possible for those retooling from other jobs to receive economic stimulus money for the interim period. I am looking into this with local job center officials. Both residential and commercial fields are always eager for new blood and new backgrounds, but it takes time to get up and running, and will probably take longer in this economy for new agents to earn a living selling real estate (In case there are readers who do not know this, real estate agents are 1099 independent contractors, who are paid entirely on commission). However, there are many wonderful things about being an independent contractor, and we like to point out that it is one of the original "equal pay for equal work" industries. You eat what you kill, as we also say. Good agents do well in every kind of market, and this one is no exception.

So, if you are reading this during your job search, you might want to consider real estate, where your relationships and prior skills can help you launch a new career today!

The Mark-to-Market Rule

You may have been reading about the mark-to-market rule in connection with the travails of the banking world. It applies to real estate in a very unfortunate way, which helps to explain why appraisals are so problematic these days.

Very simply, mark-to-market means that the value of an asset should be governed by what other similar assets are worth. Since most homes are only valued when they are sold, or refinanced, most people would expect to be unaffected by changes in valuation when they are not in the process of selling. However, the current focus on "stress testing" banks, and the influx of the TARP money, has caused regulators to take a new look at the revaluation of assets already on the books of those banks, and revalue them based on the basis of recent transactions or valuations at other banks.

Let's assume that there's a house on your street that went into foreclosure, or even just got sold to a relocation company when the owner moved. Since either of those scenarios would favor a quick sale, it might well have changed hands at what you would consider a rock bottom price. The mark-to-market rule, however, would then dictate that your home is now worth what the relo company sold your neighbor's home for, at least insofar as they are comparable properties.

You can easily see how things can spiral downward from there. If you then had problems with your mortgage, your bank would be carrying the value of your home at the "new" value, making your home further underwater. If every other bank then writes down the homes they have financed on your street, pretty soon everyone is underwater on their mortgages, and the banks have way more in the way of "troubled assets". All this is true even though perhaps only one or two homes changed hands at the lower value, and maybe not even in an arm's length transaction. The next thing you know, another bank is below recommended capital requirements, and is on the endangered list. At that rate, every bank may end up on the list, when the only thing that happened is that one home in a neighborhood got sold at a bargain price. Scary, right?

Declining Markets

We recently received a list of "declining markets", as defined by AIG (some irony there, huh?) for appraisal purposes. Some states--Arizona, California, Florida, Michigan, and Nevada--are considered Severely Declining in their entireties. Our county has a list of declining markets, defined by zip codes, which appears to cover almost every town in our region. Hartford's noted zip codes are listed as Moderately Declining.

What this means is that, when you go to get a mortgage in an area marked as Declining, you are subject to certain restrictions or rate adjustments, in order to protect the lender. Therefore, since a town like Guilford is on this list, everything in Guilford will be subject to a higher rate for the same LTV (loan-to-value) ratio than a property listed in, say, Cambridge, Massachusetts.
I chose Cambridge for several reasons: it's like New Haven in some obvious ways; it's still in the Northeast, where real estate sales are broadly down; and, finally, I knew the zip code. In case you thought New Haven might be spared, 06511 through 06515 are all there as well.

This may make it easier to understand why so many sales are falling apart after the contracts are signed, since people may not be aware of these rules before they actually sign a sales agreement on a particular house. They may have been counting on getting a higher LTV, or a lower rate, both of which may have been advertised, but then are not applicable in the zip code in which they are buying.

It's hard to know how to fix this problem, but it needs to be addressed if we are going to break the cycle of lagging real estate transactions. This rule is not only arbitrary, since there are submarkets within these areas which are selling well and where prices are not declining, but lags in time as well, being based on prior sales. In addition, it punishes those who most need to sell, but throwing another roadblock in the way of their attempts to find buyers.

Needed: New Listings

Despite the recent blizzard, the spring market is popping. We just have one little problem--not enough to sell! Inventories in most parts of our markets are very low. We're not counting things that are overpriced and have been on the market for a long time, just well-priced and well-maintained homes. If we could list things for first-time homebuyers to move into, those people could move into other houses, allowing those people to move, and well, you get the idea...

We continue to see good listings going to contract within a few days, particularly in the East Rock and Spring Glen neighborhoods. The best ones are going for well over the asking prices, indicating that there is strong pent-up demand in certain price ranges.

It may be hard to believe, but I'm going to end this while it is a wholly positive post!

Optimism

Well, I felt a little ashamed as I read the front page article in today's New Haven Register Business section. I guess I'm more pessimistic than others about the Obama recovery plan, and let's hope I'm wrong. After all, the whole point is to make people WANT to buy; it doesn't even really matter whether or not the incentives even make sense. I also read in the New York Times today that most who listened to the President's speech last Tuesday were left with a positive impression of the government's current handling of the economy. That's good news.

I suppose I should be forgiven for being more down than most, since real estate would be at the bottom of anyone's list of thriving industries right now. However, in the end it doesn't matter what I think--it only matters whether others are spurred to action by the program. I have been saying that I think first-time homebuyers are the ones who least need incentives, since they have no history with which to compare today's conditions. In addition, they don't have houses to sell before they can buy. One could look at it another way, though: If those at the beginning of the chain go out and buy property, everyone further along can then sell and buy another property themselves.

As many have said, much of the current crisis comes from a lack of consumer confidence, which is now at its lowest rate since measurement began in 1967. Every recovery scenario depends upon getting that number up, since economics turns out to be more related to what people think in many cases than to what the graphs say. Most of us realize that a great deal hinges on jobs, since almost no one will buy what they don't need if they think they might not have a job in the near future. Convincing people that jobs will be preserved and created is key, and, unfortunately, can't be done in one location or in one sector of the economy.

The next few weeks, which take us into the traditional spring buying and selling season, will be critical for any hope of a real estate recovery this year. I'm keeping my fingers crossed, but you shouldn't bother doing that--just go out and buy some property!

Spring Inventory

I ran our Wallingford Regional office meeting this morning. We went through the list of every listing we have in that office, and, as usual these days, we thought almost 90% of them were not going to sell at their current price. Sometimes it's not because of what we would consider inherent overpricing, but rather that something about the layout, the condition, the price range, or the location is causing it not to sell; in the end, though, often the only way to fix the problem is by--you guessed it--lowering the price.

At the same meeting, however, we discussed properties that went quickly and with multiple offers. We therefore concluded that, since much of our inventory was going to sit for the foreseeable future, we were short on listings for the spring market. We need more of the homes that people want to buy, in neighborhoods where they want to live.

Before deciding what to do as a seller, then, you need to consider this bifurcated market, and figure out where your home will fall. If you live in an area where employment is stable and newcomers are entering, this is a great time to list. And do it quickly, before the rush begins. There's always something to fix, or clean, or de-clutter, and you don't want to miss the spring market.

What's Selling?

Although it may sound as though nothing is selling in the current real estate market, there are some pockets of strong activity. The market is almost bifurcated, with most homes sitting and a few receiving multiple offers. I checked with two of our offices, our New Haven office and our Wallingford Regional office, to see what common threads exist with the quick sales we've had. There are three factors: price; condition; and location. Price means two things--the price must be considered a good value, and lower prices are more likely to attract first-time home buyers (the most active segment of the market now). Condition usually means that the property should be clean, freshly painted, and clutter-free. Location is the normal location, location, location. The worse the market, the closer you can get to the ideal location, and status does matter.

Having said all that, we are seeing strong interest particularly in East Rock, where demand outstrips supply now. Stefanie Rank has a listing on Livingston Street that has been shown over 50 times since the end of last week, and multiple offers. Fran DeToro sold a Whitney Avenue condo in less than a week. Mary Jane Burt has sold two high-end condos recently.

Hamden is also seeing demand. Eileen Smith has three times cleaned out a house top to bottom, shown it from Thursday to Sunday, and sold it on Monday. She has researched current prices in Spring Glen, and they have decreased by only 1%. The Edgehill team just sold a Hamden house in two days.

Remember that the tax credit can be used for one's 2008 taxes, so time is of the essence. So, if you're thinking of selling in any of these neighborhoods, please consider doing it now!

Interest Rate Update

Now that the weather has moderated a little, we're starting to see some activity in the real estate market. One question on everyone's mind is the forecast for interest rates over the next few months. It's particularly true for those who are refinancing, since some banks allow you to take one "drop" between commitment and closing. Therefore, people want to know whether rates will go down more.

Of course, the correct answer is: Who knows? But I think most betting people feel that the governmental stimulus and drive to improve the economy will result in incentives of every kind that could possibly help the housing market. That would argue for lower rates to come. I don't think they'll be much lower, or for much longer, since banks are paying 5% for the TARP money. So how long can they really afford to loan it out at less than 5%?

So, if they are going to go down to 4 and 1/2, even for a little while, why not wait? The answer to that lies in the fine print. Fannie Mae, which drives a lot of bank lending policy, has quietly been raising the standards on loans. FICO credit scores to qualify for the best rates are rising, and higher rates are imposed when there is a higher loan-to-value ratio being sought. Translation: The rate might be slightly lower for some amount of time, but it will be harder for most people without excellent credit and enough cash for a substantial downpayment to qualify for that rate. When you take those factors into account, you will almost certainly come down on the side of buying or refinancing as soon as possible.

I should point out, in the nature of a disclaimer, that I do not have Obama's private Blackberry address, so these thoughts are my own, based upon reading public materials! And, given all that's going on, I'm sure there will be more news to follow.

Testifying in Hartford

I went up to the Capitol today, to testify before the Finance Committee about its proposed bill to increase fees and extend the sales tax to professional services of all kinds. CBIA sent me information about the bill, and the CT Association of Realtors added more. My testimony, which was the first from the public attendees, basically tried to give them a flavor of what it's like to be running a small business in CT--or anywhere, I guess--these days, and to let them know that I thought that they should cut their expenses, as I have mine, before talking about increased taxes. The last thing we need, or want, now is more to pay! An extension of the sales tax would mean that every seller, on top of paying the bank, the broker, the adjustments, and the conveyance tax (see, they're already getting their share), would now pay 6% of the commission and 6% of the lawyer's closing fees. Why do they always think it's a good idea to tax people who are selling things, as though they necessarily have extra cash to throw around? And what makes them think that I can pay extra license fees now? Or pay people to collect and remit sales tax? Talk about kicking someone when she's down!

Don't make the mistake of thinking that increased fees and professional taxes and other proposals won't affect you--in the end, they will. Maybe they should take away the House and Senate's free family medical care for life, before they come after the rest of us. We all need to do our share, but the way to go about it is to cut your expenses before you say what you need in extra revenue. And I sure wish I could just ask for more revenue!

Time to Reprice that Listing

There's a term in real estate called "chasing the market down", and it refers to people who start out by pricing their listings too high, and then continue to lower them month by month. It's a strategy that many sellers employ, and we agents are not immune to it ourselves, but the results are almost always poor. We can cite example after example of buildings and houses that sold BELOW what they would have sold for, if they'd only started out at the correct price. Now, I realize that "correct" is a term of art, and subject to disagreement. I also realize how tempting it is just to "test the market" at a high number. But you have to understand how the selling process works in order to see what a mistake it is.

A listing receives most attention when it's new, for a number of reasons. We notice signs when they're just erected. We notice pictures in ads when they're different from prior weeks. The same is true of the website. Also, agents and buyers who are receiving notifications of new listings are focusing on the ones that they haven't seen before. Most mailings are done on new listings. Most showings come as soon as something comes on the market. Everyone is motivated to see, consider, and buy something before it gets snatched up by someone else.

What that means for sellers is that you have wasted the most valuable exposure that your listing will receive. It's the same principle as the old saying that "you only get one chance to make a first impression". Every time the price comes down later, agents and buyers will have a subliminal impression that your property is overpriced, or that there's something wrong with it, since it's been on the market for so long. Why would you risk that, when our experience shows that people whose homes sell quickly for a lower price ultimately receive more than people who start out high, in order to "leave room to negotiate" or "see what they can get".

The moral is clear: If you're serious about selling, be serious from the start. Don't waste your time, your agent's time, or the attention span of the buying public. Consumers now are far more educated about prices, with the advent of the Internet. They'll know when you've entered the market with an attractive price, and your chances of selling, and selling quickly, will ratchet up. Take the money and move on. Buy another property while rates are low. Time is money.

Right now, our agents feel that almost 90% of our listings are priced too high to sell right away. Some of that is because, with declining prices, what was a good price 90 days ago may be too high now. Some is because there's just not enough selling right now (for example, only two houses closed in Madison in November). However, a great deal is because people don't understand what I just described above. You will have an advantgage--one you need in a difficult economy--if you do.

Connecticut Commercial Real Estate Now

We had an interesting Commercial Department meeting this morning. One of the agents said that the selection of good commercial properties in our area is the best that it's been in a long time. Well-located, well-priced buildings are now on the market, for buyers who can come up with the financing. Based on what else we are hearing, that may mean that they have to have cash! Even that is not a total bar, as there are many investors around who do have access to cash or capital from others. While some may suggest that it's best to wait until prices fall further, I'm not sure that we know enough about the stimulus plan to know when that will be (or even if it's now!).

Well, it's snowing AGAIN. Since no one buys real estate in the snow, my only question for the rest of the day is whether yoga will be held. Yoga is one of the arrows in a real estate broker's quiver these days--whatever calms you down is good.

Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.

OK, President Obama--Let's Get Moving!

I've been reading a lot about the TARP program (giving capital to banks so that they'll lend it out). One commentator today in the Times was saying that the banks aren't using the money to lend any extra; they're just holding onto it in case they have losses and need to boost their capital ratio. As Homer Simpson would say, "Doh!". If you give me some money to buy a present for myself, and, at the same time, warn me that I may have unexpected expenses over the next year, would you be surprised if I didn't spend it?

I think it's time to bring back the "bad bank" concept, used successfully in the late 80s and early 90s with the Resolution Trust Company, and even used in the Great Depression, as the Homeowners' Assistance Corporation. If the government took the rest of the TARP money and "bought", for some number of cents on the dollar, bad assets of the banks, then investors wouldn't be so skittish about investing in banks, stock prices and confidence would go up, and credit might start to flow a little faster. If you remember, those entities came out fine in the end; it just took some number of years to dispose of the troubled assets. We may not even be talking about a permanent loss, just a fix for the peace of mind of bankers and stockholders.

While we're waiting for something to happen, why not see some theater? We saw the world premiere of Athol Fugard's new play at Long Wharf Theatre this week. Coming Home is a beautifully acted, beautifully directed production. Although it's sad, it tugs at the heartstrings in unexpected ways. This makes two stellar premieres in a row for LWT, following the unforgettable Civil War Christmas, by Paula Vogel. I may not be objective on LWT, but I certainly am in the majority on these two shows. Treat yourself--see something warm on a cold night!

Back to the Cold

Today is my first day back from vacation. I just finished going through my 600 emails and dozen papers, and tomorrow I will start writing articles that I've promised to people. Like a lot of people, I hope that the new President and his administration will bring a new beginning for our industry and others. The government is certainly pumping money into the economy--it just has to find its way down to the real estate market. And, in the Northeast, the weather isn't helping! Every day seems to bring snow, ice, or freezing temperatures. We know from other years that people don't look at property under those conditions. We also know that it can lead to a nice pop as the spring market blooms (pun intended), and never before have we needed that so much.

Vacation post

Just a quick update from Scottsdale. It feels mean to say that it's 77 degrees and sunny here every day, when there is so much cold and snow in Connecticut! But everybody needs a break, and this is mine. I run a lot, read a lot, and just generally chill out. We've played golf, shopped, and fiddled around.

Phoenix has been very badly hit by the economic downturn, and it shows how lucky we are in our region not to have the tremendous overbuilding that exists here. There are shopping centers and restaurants on every corner; it's hard to imagine where all the business can come from to keep them afloat. They've had phenomenal job growth here as well, but now they're just ahead of Detroit in new job growth, so the party's over. Our education and health care-based economy looks pretty good in comparison.

Hello from Sunny Arizona

We arrived last night in Scottsdale, where it's almost 70 degrees and very sunny. I wanted grapefruit for breakfast, so I went out and picked a couple. I went running for a long time (with a few stops at new retail areas) without worrying about snow and ice. There are lots of real estate signs here--it's pretty much ground zero, along with Nevada and Florida, for the distressed real estate market. Inside my father's gated community, there are signs for the first time, and today there were multiple open houses. The median sales price in Arizona was $232,000 at the end of 2007, and $150,000 at the end of 2008. That makes Connecticut look pretty good!

We had our company holiday party at our house the night before we left--100 people for dinner. It was festive and fun, and spirits were high-enough so that those not in real estate were surprised. I'm not really, because people who come to parties tend to be a self-selected group of those who are going to have a good time under all circumstances, plus real estate agents in general tend to be resilient and optimistic. As Winston Churchill said, "I am an optimist. It does not seem to be of too much use to be anything else." Amen.

sale leasebacks

Yesterday we spent some time brainstorming about sale leasebacks, and wondering how to get more companies to think about doing them, to free up cash. We have investors who are interested in buying properties that have long-term tenants in place, and we know that there are companies out there who could profit from such a move, but it's a challenge to reach them. We're hoping that, by getting the word out to lawyers and CPAs, that we will be able to connect the dots.

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.