Up or Down?

Don Klepper-Smith, our local economist, recently published a press release, quoting the Register, which was quoting the Commercial Record (yes, I know, therein most likely lies the problem).  Anyway, by the time Don repeated this chain of statistics, he reported that the health of the economy in Greater New Haven had gone drastically south in the month of March (of course, most people here wanted to go south last month, but I'm talking numbers now).  He picked out the trends in consumer confidence and job loss as being particularly problematic, and causing our region to buck the national positive trend line.  He went on to say that housing was the single bright spot in the figures, and that the median price for single-family homes had risen by $45,000 last month.  That seemed so improbable to me that I called the Commercial Record to check.

According to them, February's numbers showed a huge increase in the median sales price, combined with a steep decline in the number of sales, so the particular mix of the lesser number of sales seems to have affected the price for that month.  For the year so far, total sales are down, unlike most parts of the country.  When I had them check March, the median sales price had evened out, and was almost the same as it had been in 2012, but the number of sales was again way down. When I asked the reporter what she made of these numbers, she said that most places in the country are now reporting that sales are not increasing as rapidly as they had been, nor are prices rising as rapidly, but she said that Connecticut clearly is lagging behind other states.  She attributed that to state budget woes.

So, to recap this confusing report:  The recovery appears to be sputtering in our region, although it is not as robust in other places as it has been for the past few months.  Here, we are seeing prices that are flat to slightly down, which puts us behind everywhere else, with 2013 numbers that are far below 2012's.  I'm going with weather as the cause of that, although state problems and consumer confidence are quite possible alternative explanations.  Let's hope it gets better soon, and I'm betting that the weather improves before the State solves its fiscal issues!

It's Time for a New Year and a New Attitude

Much of what's been published about recent consumer trends and confidence is very encouraging.  Even the real estate news is improving.  Car sales went up at the end of 2011, and both online and retail holiday sales were very strong, compared to projections.  Can there be any doubt that, in 2012, real estate sales will follow?

So now the question for prospective buyers is:  Do you want to be ahead of or behind the curve?  Once all the signs for improvement are in place, you know that it's only a matter of time before prices start to rise.  You also know that, due to tightening mortgage requirements everywhere, and the hurricane and freak snowstorm locally, there is a lot of pent-up demand waiting to be satisfied.  There are also a lot of folks on the sidelines, just holding off until they know that the economy is on the mend. 

Given those variables, you can put your oar into the water first, and get the best price, or you can stand still until you see other people starting to move, and then try to beat them.  It's your choice, but I think the correct answer is clear!

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!

Be Patriotic--Buy Some Real Estate

Happy Fourth of July! The front page of last Thursday's New York Times showed the results of a poll of Americans regarding their feelings about real estate. Not surprisingly, it indicated that a big majority of those polled believe that owning real estate is still the American dream, and that it would be their choice, even though those same people were more divided as to the safety of such an investment.

It used to be that almost everyone believed that buying a house was the best and safest thing to do with their money. Their faith in the second half of that statement has been shaken by the recent financial crisis, but the first half is undeniably still true. Even those who do not own homes believe in the mortgage deduction's importance, and hope that the primacy of real estate will remain steady.

That's good news for the future of the economy. While we realize that there is still work to be done in convincing people to put down their deposits and buy, it's clear that they wish to be convinced to act. It also seems true that they would be happy to find reasons to do so. When that's the case, it's important to find ways to get people off the fence. Once those who are not absolutely required to sell begin to do so, others will follow. The consumer confidence necessary for that isn't there right now. It's up to government, unfortunately, to find a way to make that so. Jobs have to be created, and the future needs to look a little brighter. But the underpinnings are there. The beliefs remain.

So this Fourth of July, while you are watching the fireworks and soaking up the sun, make plans to get out there soon and buy some real estate. It's the patriotic thing to do!

Financing Woes

There has been plenty of discussion about what's wrong with the real estate market. We've been through a few years where the focus was on what was wrong with the banks, and the government put in a lot of money to make sure that the problem got fixed. Somehow, the banks are now rolling along with big profits. It would be too much to say, however, that they are rolling along just as they did before. There are numerous new rules and regulations, intended to prevent the same thing that happened before from happening again. This time, though, it is the same taxpayers who paid the bill for the last fiasco who are being harmed. The banks are passing the consequences of those new rules along to the consumers. I'm not saying that this is necessarily wrong, but what's happening is that real estate is suffering, perhaps disproportionately, for what went on with the banks in 2008 and 2009. Where before people could, and did, finance 97% of the purchase price of a home (yes, that was the median financing amount in the boom years), now they have to put down 20% in many cases. So, of course, real estate sales have slowed.

The answer is not that we should all go back to financing the whole cost of a real estate purchase. However, our economy will clearly not recover until people have jobs and until real estate, which represents the biggest asset class most people own, bounces back to normal. Not where it was before, but to normal--that's all we're asking. In order for that to happen, we cannot spend all of our time trying to fix the last problem, and we may have to put in some money and effort to boost sales through this period. It's not enough for banks to make money again. The whole system is bogged down, and it has to be jump-started. Now.

The Week of Thanksgiving

It seems ironic, in an economic environment when many have less to be thankful for, that Thanksgiving seems to have become a week-long holiday. I was amazed to find, when I was driving home last Friday night, that I95 North looked much as it did on the Friday before a summer long weekend. Then I came to work yesterday, only to find that a lot of folks did not.

If we weren't so desperate in our industry to get things sold and closed by the end of the year, it might be nice to have a week in which to play catch up. We could do all the things that we haven't had time to do since Labor Day, and take a little extra time to get ready for the holidays ahead. However, when you are trying to finish up deals, recruit, collect bills, track down deposits, and negotiate next year's contracts for services, it's disconcerting to learn that many calls go unanswered and emails bounce back.

Yale gets the whole week off, and my running buddy was amazed this morning to see a school bus, since he thought all schools got the same vacation. Hopkins did, but the public schools are still in session. That should mean that some people must still be around! So where are they? And why aren't they answering their phones?

It's That Time of Year Again

Every year I write the same thing at this season, because every year it's true: the best time to buy real estate is between Halloween and Thanksgiving. Why is that? Because that's when sellers are most likely to accept an offer that makes a transaction either possible or particularly enticing to the buyer. As the weather gets colder, and thoughts of heating oil, plowing driveways, and holiday hiatuses on open houses and offers creep in, sellers weigh, as they should, the costs of carrying a property through the winter (for that is most likely what they will end up doing, if they don't sell by Thanksgiving) against the reality of an offer that is less than they want to accept. In addition, there's no guarantee that prices will even go up in the spring, and a outside chance that values could decline over the quiet months. As a further inducement, some sellers have tax reasons that make closing before the end of the year important or at least profitable. Although some people say that tax considerations could change with a new Congress, I think most would agree that uncertainty generally doesn't favor waiting when one is talking about the chances of taxes going either up or down. Even the economic news, which has seesawed over the past year, should make one cautious about holding out for better times.

This year, with so much inventory on the market, and so little time before the holiday season, it's especially important to consider pricing properties at levels that are not just correct, but compelling. Stand out from the crowd with a price that entices, and get your property sold while others just sit. And do it before the first flakes of snow hit the ground!

Thank You, John Paulson

If any of you have not read reports about hedge fund investor and Wall Street prognosticator John Paulson's recent speech about the economy, I can summarize it this way: Buy real estate. He told listeners that, if they didn't own a house, they should run out and buy one. If they did own one, they should buy a second home. If they already had two, they should buy a third and loan their relatives money to buy homes as well. He called it the best time in 50 years to purchase real estate, mostly thanks to historically low interest rates.

Since we are used to seeing all the stages of a real estate cycle, we know that we are at the bottom, and hope that we may even be starting up. While sales fell badly in the third quarter, due in large part to the expiration of the tax credit, prices in our region only dropped 1 to 2%. That's far less than most people think prices are off, and shows that the underlying value is solid.

Now ask yourself how you will feel next year if you do not buy now, and prices, sales, and interest rates all go up in the intervening time period. If you feel that you have enough house and enough mortgage debt, even with the prices and rates, then you'll be fine. But will you be kicking yourself if that house you coveted is now $100,000 more, and rates are up to 6 or 7%? If so, then you know what you have to do. So, as Nike says, just do it!

Why Does Consumer Confidence Matter?

I like to read the papers as early as possible in the day. As a morning person, I find that I can absorb bad economic news best before 6 AM. This morning, I was challenged to do just that, as consumer confidence hit a low that was unexpected by analysts. That, of course, will make the real estate market worse.

It's somewhat of a chicken-and-egg situation, because the poor real estate market has a lot to do with what happens to the consumer confidence index. Is it so low because recent news about housing sales has been so negative? Or is low confidence causing the level of real estate sales to drop? Although it's hard to know for sure, it's probably some of each.

If you were making a list of what goes into the strength of the real estate market, apart from local issues and demographic trends, you would probably cite three things: household income; interest rates; and consumer confidence. Income is obvious, because the more you earn, the more you can afford to buy. That can occur because your job pays more over time, or for other reasons, such as the run-up in prices caused by two-income families going up dramatically and allowing housing prices to follow. Interest rates also have a clear effect. Since the only thing that really matters to most people is the amount of their monthly payment, lower rates will let them buy more house for the same monthly nut.

Consumer confidence is really the measurement of people's expectations about the near-term future, both of their own situations and the national economy. To translate that into housing prices and sales, the index reflects what they think will happen to their jobs and wages. Unless they feel positive about their prospects, they are most likely not going to take on additional or increased debt. Unfortunately, there is a multiplier effect as well; when they read that others are not feeling rosy about the future, their own opinions tend to drop as well.

The Federal government is charged with raising confidence about all of our futures. Let's hope, for all our sakes, that they come up with something that works, and sooner rather than later.

Stimulus Needs Stimulating

Last year, when the first-time homebuyers incentive plan was introduced by the Federal government, there was a clear uptick in the number of buyers in the market. This year, the plan was reintroduced, along with a second incentive for existing homebuyers. It was obviously another, supposedly stronger, attempt to increase home sales.

Well, this time it doesn't seem to be working. Most brokers, including the one I spoke to this week in Phoenix, don't see the results. There could be more than one reason for this. First of all, most things like this--including big sales at stores--work better when people think that they are limited in time. If they think that deals will be offered again or extended, they are not as likely to move quickly. Secondly, it keeps getting harder for new buyers to get mortgages. This means that there may be buyers out there who want to buy, but who cannot qualify with the higher FICO scores now required. That last point is not necessarily a bad thing. If we can just stop and remember how we got into this mess, we will want banks to think twice before loaning to those who may not be able to repay.

I believe that there is also a fundamental flaw in the stimulus package, however. The government is trying to push demand from first-time buyers, who comprise the one group who will buy in almost any situation where they can. After all, they haven't bought homes at lower prices or with lower mortgage rates. They are generally buying because of changing life circumstances, and graduations, marriages, and babies happen regardless of the economy. Also, there are, in the end, only so many new households being formed. It might have made more sense to give the incentive to folks who didn't have the same motivation to move. After all, isn't it a little like giving a car price break only to teens?

Get off the Sidelines

If you've been waiting for the economy to straighten itself out, and for the real estate market to be clearly on the way up, you're waiting too long. History has shown over and over again that those who act before there is certainty are the ones who make the most money. Since most purchases and sales are, in reality, driven by family issues and not by national ones, that's not so hard to prove.

We bought a condo in 1981, when the economy was bad. We got a great price on it, and we moved in. We were getting ready to have kids, and there were no children allowed, so we put it on the market and bought a house. As soon as we moved into the house (the day we closed, in fact), we found out I was pregnant, and we'd bought a one-bedroom house. Although we planned to renovate, another, bigger one came on the market up the street, so we bought that too. What were we thinking? Anyway, the two houses were both bought in 1983, and the first was sold that year, as well as the condo. We made money on the condo, since we'd been the first to move in. We made no money on the little house. The value of the second house doubled in the the first couple of years, as the market went wild in the mid-80s.

What's the lesson here? You could reasonably say that it is to think ahead before you buy, but that's not my point today. My point is that we made almost all the appreciation on the house that we owned when the market started to rise. We also made money on the condo on that theory. The little house we only owned for a few months, and we would have made money there if we had been willing to own three homes for longer. It's a version of timing is everything, but it requires buying early in a cycle. People who waited until later in the 80s got caught in a declining market after 1988, and weren't able to get out for what they had paid.

The parallel to today's market is: If you wait until everything is rosy, the money will have already been made by those who bought sooner. Buy now.