US Property Sales: Harvard vs. Yale

Two cities home to Ivy League universities are strikingly different from each other

 

Harvard and Yale may be North America’s most famous universities but the east coast home cities of these two “Old Ivies” could barely be more different. Harvard is based in Cambridge, Massachusetts, an affluent and famously left-leaning locale, once named the US’s most liberal city in a study by the Bay Area Center for Voting Research. It is nicknamed, not always admiringly, the “People’s Republic of Cambridge” and was the first city in the US to elect an openly gay, black man as mayor.Yale’s home is in New Haven, Connecticut, a city that has earned the unfortunate reputation of being one of the most crime-ridden and ghettoized in the US.

By Ruth Bloomfield of the Financial Times, click here to continue reading


 

New Construction in New Haven

Around the country, there are locations with much more raw land--and therefore much more new construction--than in our region.  However, we have just listed a new condominium complex on the harbor in New Haven, and we are experiencing some of the excitement that accompanies new projects in this improving real estate market.

There are 31 units listed, and 8 went on reservation as of the first weekend!  Visitors to the complex, called Breakwater Bay, were blown away by the water views and expansive space of the units, which range in size from 1870 sf to 1915 square feet.  All have luxurious fixtures and detailing, and the response has been so good that prices on later reservations have already risen.

New construction tells us a lot about the state of the market, since older homes can usually be gotten for less.  The confidence to buy new shows that buyers believe that prices will rise.  It's really nice to have that feeling again after much too long!

Rent or Buy Decisions Now

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

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

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

Why the Rental Market Matters

We have been reading lately about New Haven's stellar rental market--either the lowest or the second-lowest vacancy rate in the country, depending upon your source.  Why is this?  And how does it relate to other real estate data?

New Haven's extraordinary occupancy rate for apartments has several causes, some of which are unique to New Haven, and some of which apply across markets nationally.  New Haven's own reasons have to do, first of all, with the large number of students residing in the region.  Students are almost always renters, and graduate students rarely live in university housing.  The second driver in New Haven is the nightlife and culture prevalent here, so that young people (and empty nesters) who work in other places in Connecticut will disproportionately choose to rent in New Haven and commute to their jobs. 

Around the country, there are certain trends that are helping rental markets to stay strong.  Of course, high foreclosure rates will result in more renters, as the people displaced from their houses won't be able to buy right away.  Also, the uncertainty of all job security means that many more workers, executives included, leave their families behind and rent in the new city until they are confident that they will stay at the job.  That trend is exacerbated by the difficulty transferees are having in selling their homes in the locations they are leaving; until they do, many must rent.  Even those who sell are renting in many instances, since they worry that housing prices have not bottomed out, and that this may not be the best time to buy a new home.

All of these factors have combined in Greater New Haven to make rentals scarce and expensive.  It also offers an opportunity for investors to buy property and rent it out, and not just the typical apartment building or multi-family house.  Single family homes make good rentals also, particularly when you can buy one for a price that allows you to cover costs with rental income.  It can even be a good alternative for those who have houses on the market that are not selling.  Many people are looking for homes to lease, not just in the center city, and it's a good time to find tenants.  This is especially true if you allow pets!  As with all types of real estate markets, there are ways to make money in this one.

On the Campaign Trail

I was invited this noontime to a lunch for women business owners with Linda McMahon, the U.S. Senate candidate.  We had a very nice meal at Cave a Vin, a new wine bar on State Street in New Haven.  Ms. McMahon is doing a listening tour of the state to hear what problems women businesses are having in the current economic climate.  Several things emerged as themes:  the cost of governmental regulation compliance; taxes; health care costs; and, most of all, the sad state of the economy.  The last item comes down to jobs, of course, and is most evident in what sector?  You guessed it--real estate.  It was surprising how much effect real estate has on the business fortunes of firms in other lines of work.  Real estate matters to everyone. 

It was also clear that many of the businesses represented were not making money at the present time.  Some owners were not paying themselves (this was more common than I would ever have guessed).  Others were retooling their firms, and their skills, to find new and different ways to attract revenues.  Those in retail spoke often about the lack of disposable income among their patrons. 

We didn't expect any immediate or easy answers, and we didn't get them.  To her credit, Ms. McMahon made no campaign promises, took no pot shots at incumbents, and seemed really to be there to listen and learn.  We all learned, and the enduring message we took away was that women needed to be cooperative and help each other succeed.  That is something that men should be able to buy into as well!

News from Tulsa

I just got back yesterday from meeting with The Leadership Council, a group of large independent brokers from around the country.  This time we met at Chenowth & Cohen in Tulsa, where growth is high and unemployment is low.  Tulsa turns out to be almost in the exact center of the country geographically, both north to south and east to west, so it is home to a lot of company distribution and service centers, as well as energy companies and others.  It is just approaching the million mark in population. People are moving from all different parts of the US, and many that I met had come from Texas. Boy, does it seem different from New Haven in those regards!

Tulsa has about two and a half months of housing inventory.  Prices are rising, and units are growing.  Like us, they have problems with mortgages and closing times, and sales are not easy.  However, it's really about jobs.  If people have jobs, and employees are moving into the region to work, then it's obviously easier to sell your home and buy another one, because there is a steady supply of buyers being created.  In addtion, the West has ranches and open land all around, making it much simpler and cheaper for builders to add new product. 

The real estate business has some characteristics in common all over, but there are some differences.  They have centralized showing, so agents make one call to arrange all the properties for a buyer to see.  They also have lots of listings where contact is through the owner, which seems odd to us.  States with title companies owned by real estate companies are more real estate agent driven than lawyer driven.  Towns and cities are farther apart, and many agents I met worked an hour or more from home.  There seemed to be more concentration--one agent I met with had 159 listings!  Advertising has left newspapers in many places, and you don't see the big Sunday ad sections.  Everything is done on line, or directly by real estate companies. 

Other practices were similar to ours, including the work ethic of agents, the changes brought by technology, and the complications of lending and governmental regulations.  It's always refreshing to see both the old and the new, and to step out of the regular daily grind and view it from a distance.

Is Madison, Wisconsin Leading the Way for Us?

As most of you know by now, I belong to a group of large independent real estate companies around the country. Some are in big cities, but most are in smaller cities (although bigger than New Haven or Hartford). For some reason, Madison, Wisconsin seems to be the most like our region. Dave Stark, the owner of Stark Real Estate there, and I have discussed this, and it's likely to have a lot to do with the employment base. They have both the state capitol in Madison, and the University of Wisconsin, and those are the two biggest employers. If you didn't know that before, you weren't watching the state workers picketing the Madison capitol!

Having a lot of non-profit and government workers in a region usually makes the employment situation steadier, as well as the use of commercial space. Universities and governmental bodies think in terms of decades, not months. Also, you don't often have the boom times that you would find in Silicon Valley, say, or Wall Street, or even a smaller place where a large manufacturer might open or expand a facility.

Therefore, I thought it was very good news last week when I received Stark's quarterly mailing. While they had the same horrible first quarter that seemed to prevail everywhere, the recent signs have been encouraging. They see lots of pending activity, and increased interest in real estate. I hope it gets here as fast as a big storm seems to do!

New Haven Rentals

Did you know that New Haven has one of the best rental markets, and lowest vacancy rates, in the country? It's not terribly surprising, given all the students in the region, but it is good news for people who have property to rent. Every year a steady stream of students and faculty comes in, often from places very far from New Haven, and they won't sometimes be here long enough to buy, and of course many students can't afford to buy. We do sell some real estate, however, particularly downtown condo units, to students (or really their parents, in most cases). Grad students these days come in all ages and phases, and some are studying after they retire. In addition, every once in a while, parents follow their children. I once met a woman on a tour of a boarding school with our children and asked where she was from. She said that she didn't know yet, because she and her husband were planning to move to wherever their child decided to attend school! While that is taking helicopter parenting to a new level, it does increase real estate transactions.

This all just goes to show that we cannot make too many assumptions about rentals and students/families, because the demographic group is diverse enough to fall outside the normal parameters we might place on the category. So, if you own property, or are looking to buy investment property to rent, you should certainly consider the educational market. It's real, and it's big.

Statistics from the Region

It's tempting to make you all guess about market trends for 2010, but it would be hard for me to collect the responses in a timely way, so I guess I will just tell you. The latest Commercial Record shows that, for year over year sales from 2009 to 2010, New Haven County as a whole was down almost 8% in the number of sales. For the immediate towns, Guilford, Madison, North Haven, and Bethany had an increase from the prior year. Guilford and Madison were each up 9%, while the other two had smaller increases.

Surprisingly, the median prices were almost identical in 2009 and 2010, with 2010 coming in at 0.8% less. I expect that most of you would have guessed that prices fell about 10%, so the fact that they actually fell less than one percent is very good news. Of course, as I've often pointed out, this is not an apples-to-apples comparison, so it's probably true that only the best houses sold, meaning that most homes would have sold for less in 2010 than in the prior year. As I've discussed in earlier posts, East Rock and Spring Glen did go up in price, showing the "Yale" effect most strongly. North Branford, with 24% fewer sales, had an increase of 10%, and Milford, Wallingford, and Woodbridge had smaller increases. New Haven as a whole crept up 1%.

It is important to recognize, as the issue said in another article, that this is the sixth year in a row that sales have declined. Since prices have also been declining for most of that period, the total decline is larger than what is listed for last year. And, since most homeowners looking to sell haven't been in the market for some time, those yearly decreases can really add up.

However, the fact that we are not in freefall is very good news, and the spring is still ahead of us. Anything could happen, but we're hoping for recovery mode to kick in strongly!

Waterfront Statistics

Since I've been blogging about prices and trends in New Haven compared with its suburbs, I was prompted to look at the shoreline statistics. Since we've been talking about the upper end of the city market, we checked sales of waterfront property since the beginning of the year. Taking Branford, Guilford, and Madison, a dozen homes on the water over $1 million (which we assumed meant all but an anomoly) sold in the first six months of 2010. They stayed on the market anywhere from one day to over 600 days, and none sold for the full listing price. The lowest listing to sales ratio was 62%, although most I calculated were in the 85% range, with only a couple selling at over 90% of the listed price. One was in Branford, three were in Guilford, and the rest were in Madison.

While this is an exceptionally low number of sales in that period of time, it does tend to confirm the idea expressed in earlier pieces that the City of New Haven is outperforming other high-end areas. The surprising thing about this particular comparison is that waterfront is the ultimate example of location, location, location. The most frequent comment on its primacy as an investment choice is that "they're not making any more of it". When even that theory fails to prompt sales, especially during a time when the traditional hoped-for investment bankers are doing well enough to buy waterfront summer homes, there's cause for real concern about the economy. Let's hope that the next quarter shows a different result.

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.

Who Would Have Thought It?

If someone had told us twenty years ago that the center city's residential properties would be holding value better than those in the suburbs--better even than direct waterfront--we probably would have scoffed. It's clear right now that the hot market is New Haven--the closer to downtown, the better.

This isn't by accident. President Levin of Yale, who has been in office for fifteen years, lived in New Haven for many years before he became Yale's leader (and, in fact, has continued to live in his own home, rather than the one that Yale provides). He has made it clear that he would be happy if every new hire lived there as well. The last time that I heard, 47% of Yale's senior faculty lived within the city limits. In today's New Haven Advocate, the stated equivalents of New Haven's municipal police and firefighters were 13% and 17%. Yale's showing clearly represents the payoff of a long-term strategy.

There is another factor at work, however. Current demographics favor the central city, although this is a change from earlier generations. Young professionals have always preferred urban life, but now, increasingly, so do empty nesters. The arts, the dining, the conveniences, and the lack of commuting time have all contributed to make New Haven a popular housing choice. Even those with school-age children, if those children attend one of the city's prestigious private schools, have been moving into the city neighborhoods.

And that's all good news for the region, since a vibrant city makes for healthier suburbs.

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!

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!

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!

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!