Consumer Confidence and Real Estate

Real estate sales have always tied closely to the index of consumer confidence.  Buyers' attitudes toward spending in general matter as much as interest rates to our level of sales.  The index has been going up most of the time over the past couple of years, rising even before we noticed an uptick.

Now, although the real estate market is much improved, the consumer confidence index is wobbling.  The past couple of months have seen declines, and, although we aren't seeing its effects directly, we know that the market recovery has always been shaky.  Every change in the stock market or mortgage policy makes us nervous.  We cannot count yet on the rising tide to carry us back to a strong sales climate.

We certainly can keep our fingers crossed that the recent dip is just that--a dip.  Also, it seems as though our improvement has come disproportionately from first-time buyers, who might be less inclined by age (they can't remember past downturns), life status (they are in the peak years of household formation), and risk profile (they tend to be less conservative), to worry quite as much about statistics.  Let's hope so.

Where are the Young Real Estate Agents?

We spent a good deal of the morning brainstorming about recruiting.  Nationally, and for us, the average real estate agent is in his/her late 50s.  Since the market is now being driven by first-time homebuyers, and since they are mostly in their 20s and 30s, there is a disconnect between professionals and  clients.  Most of the agents are digital immigrants, and might have kids the same age as the buyers, so it would certainly be good to develop a pool of younger agents.  Younger buyers, and sellers, have vastly different expectations about technology, about time, about how to shop for anything, and about risk.

When we thought about recruiting agents to match this profile, we realized that there are many aspects of a real estate career that would appeal to Gen Xers and Millenials.  Unlike the Greatest Generation, they aren't expecting one steady career for a lifetime, so the ups and downs of a commission-based agent wouldn't necessarily trouble them.  Unlike older workers, they aren't tied to an office or a standard work day--they could start at noon if they were serving sellers and buyers who shared their hours!  They wouldn't be limited to two weeks of vacation every year, and their dress code would be flexible.  In all those ways, it's a perfect career for a younger person.  And, if their parents have to support them in this job market, as they graduate and look for work, why not enter a field where hiring--and potential--are unlimited?

Are Prices Starting to Rise?

As with many things, prices are local--very local. In addition, price indices are rarely apples-to-apples comparisons.  They usually take prices on one date and compare them to prices as a whole on another date.  For example, the Case-Shiller Index actually takes the total sales of all the property in a city and compares it to the total value of the property sold in that city in an earlier period, to calculate the rise or fall of real estate values over a period of time.  That means that it's hard to know what would happen to one specific property when it got sold or resold.

In the current market, sales are being driven by first-time homebuyers and are strongest at the low end of the price spectrum.  Overall, prices are flat or still falling slightly, although this does lag in time, due to reporting delays.  However, we are beginning to see appraisal problems again, which had not been occurring in recent months.  That indicates that prices are rising, thereby pushing up sales prices above levels of past reported sales, which are used by appraisers to calculate value.

What's the bottom line?  Prices at the lower end are being squeezed by supply and demand factors, and are probably heading up.  Higher-end sales are still waiting for that phenomenon to take place.

Activity Abounds

Finally, spring has sprung, and the real estate market has responded.  I hear stories every day about listings that have sold in one day, listings that have not sold for two years and now have two offers in one week, listings that    are having showings right and left, and buyers that are finally moving off the fence.

The market continues to be driven by first-time homebuyers, and there are still people moving here from other places that are choosing to rent before buying, but the activity is clearly on the upswing, and there is much more of a sense that things are beginning to recover.  While we have more inventory than many other regions of the country, even we are seeing quick turnover in some neighborhoods and price ranges.  For instance, Guilford still has 275 homes on the market, which is a 50% increase over last year, but houses are selling quickly there when they come onto MLS.  East Rock in New Haven has 30 houses for sale, but one of our agents just sold one in a single day.

Have you been waiting for the market to turn so that you could buy or sell?  Have you been waiting for prices to bottom out?  Have you just been waiting?  Wait no more.  The time is now!

First-time Buyers

There are lots of first-time buyers in the market now, and they are driving the action.  It's clear that it's harder to get a mortgage now than it was when those of us who are older bought our first homes, and the qualification standards are stiffer, even though rates are lower.

Because they are buying for the first time, they are often more hesitant to buy in situations where they might not feel comfortable.  Therefore, they often request more in the way of repairs, tests, and allowances for improvements.  In addition, having buyers ask for contributions to closing costs is a trend that we have seen in increasing numbers.  Sellers should not be insulted, since first-time buyers have no history, so no way of knowing that such a proposition might seem aggressive.

Since beginning buyers often look at more options, open houses have been very popular.  There may also be more repeat showings, with relatives and friends coming to weigh in on the potential purchase.  The closing can take longer as well, since documentation requests may be unfamiliar and take more time to fulfill.

Whatever the downsides, there is a great upside:  They are very motivated to buy and own their own homes, and they are out there!

Open Houses Rule

This weekend, despite being at one end or the other of just about every school system's vacation week, was a big one for open houses.  Some had as many as 25 people at them.  The market seems driven by first-time home buyers (proving that they are the one group that probably doesn't need an incentive to want to buy), who want to take advantage of low rates and low prices.  Of course, it is usually their parents who have to let them know how low rates are, since anyone under 35 wouldn't remember high ones.  (Conversely, my husband and I bought our first home in 1982 with an 18.75 % special low rate, that seemed OK to us, given that other mortgages were at 21%---it's all relative!).

Houses are starting to come onto the market at springtime pace, and buyers are out there to take advantage of the rates, the choices, and the weather.  Let's hope it keeps up at this rate!

New Construction

There's another sign out there that things are improving.  We are starting to see new construction again.  When prices go down, new construction has a hard time competing, since the costs of land, site improvements, labor, and materials don't really go down much, so new construction can't compare to the price of a home that was built a few years ago.  In addition, loans are harder to get, and most builders find it difficult to get financing for projects.  Add in the time a completed home could sit on the market before selling, and you don't see much being started.

Lately, statistics from around the country show housing starts beginning to rise.  We're at the end of that increase, since we don't have as much land, as much new employment, and costs as low as some other states.  Even we, however, are noticing activity.  There is always a portion of the buying public that seeks out new construction, especially people moving from other places, who want their new home to look like the home they left behind.  In recent years, many of them have turned to renting, either because they left behind an unsold home, or because they were worried that it was the wrong time to be buying.  Eventually, even the most skittish will want to settle down.  And it looks as though that time may be upon us--good news for everyone!

Playing the Odds

We were doing some research this week, and were startled to discover that, from January 2010 through the present date, only one-third of all listings taken have sold.  That means that, for every seller who put his or her home on the market and sold it, two sellers put their homes on and nothing happened.  If you add those people who haven't bothered to list their properties due to the poor selling climate, there is a big supply out there. 

Since real estate agents work solely on commission, this is obviously a troubling state of affairs.  We only get paid one out of every three times we list a home, and listing always used to be the guaranteed way to make money, since the percentage of buyers who look and don't buy is higher than that of sellers who don't sell.  The combination is deadly.

 It does prove, however, that sellers should be listening to their agents about the price and improvements necessary to attract an offer in today's market.  What's the point of cleaning everything up and making plans to move, only to sit there for two years without a sale?  If you do want to sell, you need to do more than just sign a listing--you actually need to have a property in the top third of all properties, in order to sell it.  That's food for thought.

An Idea to Move the Market

Much thought and discussion went into the enactment and extension of the first-time homebuyer tax credit, and it clearly impacted the market, both while it was in effect, and after it expired. It moved sales for last year into the first half, and the immediate drop in activity and sales beginning last July proved that it motivated people to buy before it ran out.

Although I have my issues with that credit, both in terms of policy and in practice, there is no question that it made a difference while it was in effect, and that the market responded. It is also clear that the jump start that the government must have hoped that it would give to real estate did not occur, as sales fell off as soon as it was over. In retrospect, I think that the government was right in thinking that we needed that kind of stimulus, and I think we need to try again. After all, cash for clunkers helped the auto industry, the TARP money helped the financial industry, and real estate is still lagging. It is hard to imagine any real recovery taking place without our industry improving.

My problem with the first-time homebuyer credit was that it aimed at exactly the people who would buy in any type of market: those forming households; and renters with no homes to sell. One of the main problems with the current market is that it is stopped up, because sellers who can sell refuse to do so, because they feel that they are losing equity, even though that perceived equity may have been phantom gains.

In order to give an incentive for those who can to sell now, and to buy something else, I propose that the government offer a one-time tax credit for sellers who will lose equity when they sell, on the same terms and up to the same amount as the first-time credit. So, for example, someone who paid $200,000 for her house and now is selling for $180,000 could deduct up to $8000 on her tax bill this year. I believe that the market may now be ready for the jump start that such a program could provide, and that it would help even more than the last incentive, since it would both produce a supply of homes for others to buy, and sales for developers and other sellers when those people buy a new place to live. It's time for bold action, and helping the housing industry would be good for everyone.

Still a Divided Market

The real estate market is more complicated than it would appear from reading the papers. There are things that are selling, and selling quickly. There are other properties that are hanging around, some without even being shown. This has been true for a while now, but it's not what people expect in a so-called "buyer's market" (read "bad real estate market").

In more traditional renditions of a buyer's market, there are not enough buyers, and so they can bid low on properties, and sellers will have to take low offers if they want to sell. It tends to be true across all segments of the market, from starter homes to mansions. In a seller's market, the opposite occurs: People who want to get a property need to move quickly and bid high, or they will lose to other, more motivated buyers.

This market has aspects of both. Many people have listed their properties a long time ago, and those places have been sitting around. They are often overlooked by agents and buyers, as they can be considered as tired, and usually as overpriced. Other places come on, attract attention right away, and sell quickly, sometimes with multiple offers. What's the difference? Sometimes it's location, or staging, or size. Sometimes there's just a buyer who needs what a seller is selling, and needs it right away. More often, however, it's perceived value. The market--that amorphous body of economic value judgment--rates the property as a good value, and that sparks interest.

All of this makes it difficult to price properties. However, the possibility of multiple bids and early interest means that it's hard to underprice in today's market, as buyers will bid the price up to where it can/should be. It's easy, unfortunately, to overprice. Many sellers look at what's on the market at the time, and place their home in the range that they feel it belongs, without distinguishing between the overpriced inventory and the value properties that are getting all the interest. And that's a big mistake. Look at what's sold, and do it with a clear eye. Then listen to your real estate agent, and get your property into the sold column. Then you can become a buyer, and use all that knowledge to get a great value!

Real Estate Around the Country

I just returned from my semi-annual meeting with other large independent brokers from around the country. This time, we met at Lake Lanier in North Georgia. The weather was great, but the real estate climate is, in some respects, sobering. National experts are saying that equal supply and demand and a "normal" market may come as late as 2015. Sales for the first quarter were down around the country, in double digits. Some of that was weather-related, but the rest is still about jobs and financing issues.

There is a silver lining, though, and it's a big one. The interesting news was that prices of sold properties were up by a fraction, 1% or so. This is counterintuitive, if you think about the effect of foreclosed properties and short sales on the value of homes. What it seems to suggest is that it is the best homes (not the most expensive, but the most desirable homes in every price category) that are moving. What that means for sellers is that homes must be put on the market at levels that seem to be good values.

What it means for buyers is even more important. There aren't great bargains out there, at least on homes that are well priced and well maintained. Putting in a lowball offer isn't going to result in a purchase. It goes back to the old saying "You get what you pay for". If you want it, you're going to have to buy it at its value, and not at a fraction.

We just had an offer on a commercial property with a listing price of $2.1 million. Someone submitted an offer of $700,000. That's just wasting everyone's time. The statistics seem to indicate that the short sales and foreclosures aren't yet changing prices on regular properties, and given what we are experiencing in delays on such sales, we can vouch for that. Those things are backed up in the pipeline. What's moving through are the good deals, but they are good deals at good prices, not bargain basement fire sales. Buyers should assume that they won't get what they want if they insist on bottom fishing. It may be a sport, but it's not a strategy.

Finally, an Upturn

I was looking at our financial results from last month recently, and I began by just checking our numbers, which didn't seem great. Then I compared them to the column from last year at this time, and I almost began dancing around the office. The numbers that I thought were mediocre (and they were) were 80% better than at this time last year!

This proves the old adage that everything is relative. If something is bad enough, anything else can be an improvement. While that may seem obvious, the effect may not be. If many people--especially buyers--start believing in this upturn, a little improvement can turn into a good market.

It did feel at the beginning of the year that there was a widespread feeling that this recession had gone on long enough. Everyone seemed to be ready to turn the page. Now we can add a little proof that this may indeed be so.

And just in time for spring!