Where Have All the Buyers Gone?

The national news, as well as area papers, are full of stories about the abrupt dropoff in housing sales for May. Everyone knew that this might happen when the tax credits expired, but the amount of the decline is still surprising to people. After all, many families did not qualify for the credits, which decreased as income increased. Also, although the second round of credits applied to repeat buyers, it was always aimed at first-time buyers. They bought, but probably mostly in the first round, from what we could see. Ordinarily, first-time buyers make up about 45% of the total market for sales. With the tax credit, that percentage had increased to 55%. Even though that means that we have moved 10% of the sales from the future into the present (now the past) with the help of tax credits, there is still almost half of the buying population unaccounted for in these numbers.

Where did they go? It seems that consumer confidence, once again, has reared its ugly head. All the news reports about job losses, retail sales, and the stock market have affected homebuyers negatively. While we knew that this could happen--it's some version of the double-dip theory--it still surprises those of us in real estate, to some extent.

Interest rates are very low. Housing prices are back down, in many cases, to where they were several years ago. Everyone knows that, even if you sell low, it doesn't matter, as long as you also buy low. Consumers have stayed out of the fray for most of the tumultuous recent past. So they should be out in force, and they're not.

One theory is that there's too much on the market, and therefore they have paralysis. Another is that they think prices will continue to decline. It is true that mortgages are harder to get. And, of course, it's summer--hot and humid weather tends to keep people from doing all but the essential tasks of life.

However, we're all watching with bated breath. The housing industry cannot afford a long layoff from sales, as we endured at the beginning of last year. Congress, take note!

New Haven Residential Statistics

After I wrote my last blog on the New Haven residential market, I received a call from a reporter who follows the blog, asking whether my assertions were based in fact. Always an interesting question about a blog...Anyway, our office did some statistics for the East Rock market, using last year and this year, with houses in two ranges: $300-500K and houses over $500K.

Even though I had said that that market area was very healthy, even I was surprised at how true it turned out to be. The median number of days on the market was 55 for the first price range, and an amazing 20 days for the second range. The list to sales price ratio was 95% for the 300-500K range, and 94% over that amount.

It's hard to compare numbers when you are looking at larger areas, such as entire cities and towns, or even zip code regions. This analysis was done street by street, in a relatively small area, and so cannot be extrapolated to other places. Translation: Your home in a suburb, or even another part of New Haven, or even in another price range in the same neighborhood, may not sell that quickly or that close to the asking price! Although it's also true that you cannot say that, even in this small subgroup, these figures will necessarily hold, it's good news for the East Rock section.

Mortgage Changes

We've talked about mortgages before, but it's always worth pointing out when things change. The appraisal issues--time to get one and values obtained--were front and center near the end of last year. Now it's the paperwork and length of time involved in processing an approved loan. I'm not sure that most buyers realize how much documentation is involved in getting a loan from approval to closing. Almost all loans now come approved with contingencies--various types of proof that are needed to substantiate the loan or the loan amount. To many people who have been through the process in the past, what gets requested now can seem absurd. Even to those of us who have been steeped in the industry, the constant changes in RESPA requirements seem bewildering and onerous. There is even a three-day period now between the closing statement production and the closing.

For buyers in a hurry, these rules can be infuriating. Perhaps even more so, sellers--who may not have gotten a loan recently, and may vastly underestimate what's involved today--are often unsympathetic and extremely annoyed. Even attorneys weigh in on the difficulty of scheduling a closing these days.

A good analogy might be the security checkpoints now present at every airport. Comparing them to what was necessary 20 years ago is almost impossible--it would be like comparing a stagecoach journey to a space trip! In addition, many of us feel that we're just trying to avoid a repeat of the last disaster; in one case, 9/11, and, in the other case, the financial meltdown of 2008. Whatever the reason, and whatever you may privately believe about how much the new regulations will prevent similar problems, many of these procedures are here to stay. So pull up a chair, and wait patiently for the closing.

Buyer Brokerage Again

It's time to explain buyer brokerage again. The real estate business has changed a great deal over the years, and buyers don't always understand the changes. It is similar in many ways to the medical field, where privacy concerns have led to the HIPAA law, requiring patients to sign documents each and every time that they see a physician. Even lawyers have gone in this direction; a client must now sign a retainer agreement before any work on his or her behalf can begin.

Well, we have those rules as well. When you begin to work with an agent, he or she is required, at the first significant contact, to present representation forms. Although we are allowed to take you into our own listings, that is because, in those cases, we represent the seller. We cannot take you into someone else's listing without having buyer brokerage. If we do, we don't have to be paid. Would you work at your job without knowing whether you are going to get a check?

These rules are also for your protection. If we don't represent you, we cannot tell you things that it would be in your interest to know. For instance, we are only supposed to tell you the listed price without a buyer brokerage agreement, not what we think you should offer or what we think the property is actually worth. The current regulations arose out of a genuine feeling that everyone deserves his or her own agent, looking out for his or her own interests. Almost all of the time, the seller still pays the commissions to both agents--that's because the seller is the one with the cash, since buyers cannot roll commissions into the mortgage amount. However, even that will probably change some day.

In the meantime, be kind to your agent who asks you to sign a form that you didn't used to have to sign. He or she is just trying to do his or her job in the best possible way, and to help you get all the information you need to make a good decision.

As Cambridge Goes, So Goes New Haven?

We spent last week in Cambridge, and it's easy to see the upside of a big university on its surroundings. As we wound our way through the side streets in an effort to avoid Harvard Square at graduation time, we could see the sprawling evidence of gentrification everywhere--Central Square, Inman Square, Davis Square, Porter Square, etc. The subway has gone farther north, but so has the population. And it's not all students anymore--the same young professionals that we are hoping to retain in New Haven are buying condos in converted triple deckers and apartment buildings, and all of the retail and nightlife that follows such is thriving.

While New Haven isn't attached to a large city, as Cambridge is, you can really see the possibilities of building upon the advantages of a college town. If we can continue to add jobs in the sciences and information-based arenas, and we can still provide the entertainment and dining options that New Haven is known for, then our future will stay bright.

And what do we need to do to help this process along? It's pretty simple--create jobs. Connecticut and New Haven must work together to make it an attractive place to start and expand businesses. The City must also focus on keeping crime low and attractiveness high. Private entrepreneurs, whether in real estate or investment or venture capital, can do the rest.