Not the Usual Pattern

It's not just the weather that's unusual these days. The state of the real estate market is abnormal as well. Generally speaking, real estate leads into a recession and out of a recession, with commercial real estate following residential trends nine months to a year later.

This time, we did lead into the recession, with the peak of prices and demand coming in about 2005, and falling every year since then. The big dip in the financial markets didn't happen for another three years, and, while the banks look as though they've come roaring out of the doldrums, real estate has not recovered. In fact, many economists say that only real estate has not begun to recover.

Why was this cycle different? For one thing, it was in many ways the perfect storm. One thing after another conspired to keep real estate from improving. More importantly, the one thing the government did do--the homebuyer tax credit--didn't work enough, and sent things crashing back down. Think of a ball that rolls uphill, but not quite to the top, and the speed with which it then comes back down, and replace that image with real estate. The most important factor, in my opinion, is that the government did help everybody else with actual cash--the banks, the insurance companies, and the automakers--leaving us essentially to fend for ourselves. As a result, we suffered even more than we otherwise would have, since the pain was not spread evenly.

If I sound as though I think that it was all a little unfair, that's true. And I'm more than a little tired of this market, as are all of my coworkers and industry compatriots. Instead of leading the country out of recession, we're still lagging. It looks as though we're in for another year of glacially-paced improvement, and maybe a couple of more years of slow progress before we really see good, or at least normal, times. The spring buying season will tell us a lot more, and, this time, I hope I'm wrong about the pace of recovery!

Good News All Around

We just finished our annual meeting at the New Haven Country Club. It's a beautiful day, and it was a great time to reflect on the past year and celebrate the recovering market! We sign many signs that real estate sales are improving; in fact, our first quarter numbers show a 34% increase in sales throughout our region, and a 15% increase in listings. We are proud to say that we made money last year, although we are looking forward to having it be a little easier this year. Consumers seem to be coming out of hibernation, and activity is definitely up.

Awards were given to our 20-year associates, and to our Chairman's Circle of top producers. Even in a challenging environment, the best agents always find a way to be successful, and we honored their accomplishments. Longevity is also important to us as a company, since we are a family business in its second generation.

We reviewed the many tools that our company has for marketing and sales. We have a first-class website, and are endeavoring to improve individual web pages. Realtor.com is a great resource, and we pay for enhanced service, so we emphasized those advantages, along with real estate tours (now uploaded to YouTube as well). Our agents also have access to a wonderful listing presentation service called Toolkit, as well as Xpress Docs, an online provider of marketing materials.

By focusing on these basic offerings, we have enhanced the service we provide for our clients. We are well-positioned to catch the recovery wave!

Market Statistics

I just gave an interview to a reporter about last year's numbers for the state of Connecticut. The Commercial Record showed that sales were about even with 2008, while prices were down about 10% from 2008 to 2009. She wanted to know whether that surprised me. It did not.

The above results are typical for markets that are in moderate recovery. When they decline, they decline first in units and then in prices. On the way back up, we see units increasing before we see prices returning. This is also because, when the economy is not strong, it's people at the lower end of the price spectrum who are most likely to buy or sell property, either because they are first-time homebuyers, or because they are forced to sell. These reasons account for the decline caused by a change in the mix of units changing hands.

The other piece of the decline is caused by the value of the same house going down in this market. Most houses, especially when they are competing with foreclosure sales, are selling for less than they would have a year ago. That's the part of the decline I would call same-sale price loss.

If you add those two explanations together, you can see that the 1% a month loss in value that I've been blogging about is not going to go away any time soon. On the other hand, we should see unit sales beginning to rise faster than they did in 2009, particularly as long as the government continues to give incentives to homebuyers. And that's good news.