A Generational Shift is Coming

We've long known that the real estate industry is aging, with the average salesperson now in his or her late 50s.  What we also know now is that the recent, long-lasting recession caused an entire cohort of people either to leave the business, or not get into it in the first place.  That leaves us, like architecture and other fields with cyclical demand and incomes, without the next generation ready to step up and lead, or, in this case, even to sell.

That's important to some extent simply because we currently have experienced real estate agents having to adjust to new technology, new laws, new ways of selling, and buyers who are often the age of their children.  While many are up to the task, or even more than up to it, there is a void left for buyers who wish to work with agents who look like themselves.  For instance, there is a shortage of supply among agents who have school-age children.  Also, our industry is less diverse--sometimes much less diverse---than the population we serve.  That is, in part, because the world is becoming more diverse as younger people intermarry, while older groups are often less likely to have done so.  Even our social customs have evolved, with younger groups less inclined to plan ahead, making it more challenging to plan showings and appointments.

What will the future bring?  What we are starting to see now is a much younger demographic entering the sales force, for several reasons.  First of all, there are very few barriers to entry.  You need a license, and some training, and you're good to go.  For kids having trouble cracking an anemic job market, real estate is an increasingly popular choice.  Secondly, it takes some time and some money to get going, since you live from commission to commission, and they don't happen right away.  So many boomers are now supporting their 20-something children, for recessional reasons and others, that they may as well support them to enter real estate, as pay their rent so that they can be an underpaid intern somewhere.  And, unlike that intern, they may be able to become self-supporting without changing jobs, as their skills and contacts increase.  As a parent, you can directly influence your child's income, by sending your friends and coworkers to him or her as clients!  Thirdly, real estate is a low-risk way to be in your own business.  It doesn't take much capital, unless you are the broker, but you are running your own small firm.  That appeals to millennials, especially since it doesn't require being at a desk at all, certainly not on specific days and at specific hours. It uses skills that are second nature to digital natives.  Even going to a party counts as networking, so there are opportunities to sell everywhere and at any time.  Finally, the real estate industry is ripe for change, for growth, and for the advent of a new generation.  In the midst of an entrepreneurial boom, real estate is front and center--everybody lives somewhere!

Judging the Market

One of the time-honored ways to judge the strength of the real estate market is by the months of supply available at any given time. In order to derive this number, we take the houses currently listed, and divide by the average number of sales per month, to get the number of months it would take to "use up" the current supply. During the recession, most parts of the country had a huge backlog of homes listed, including many places with more than a year's worth of homes for sale.

Last week, I was on a call with owners of real estate firms across the country, and recovery was in full swing.  The way they expressed this was in the decline of supply, making their areas more sellers' markets than buyers' markets, meaning that buyers no longer had the advantage of dozens (or hundreds) of homes to choose from, since supply had dropped in most places to a few months' worth at most.

In our market, we appear to be lagging, as I have said in recent posts.  Although our market has improved a great deal, we still have a greater supply than other places.  According to MLS figures, we have 7 months of homes under $300,000 available, 15 months of homes between $300,000 and 1 million available, and 31 months of homes over a million available.  This last number means that, if no new homes over a million went on the market from today forward, it would take over 2 and 1/2 years at the current rate of sales for the current inventory to dry up.

It's not quite as black and white as it may sound.  Many houses listed now may be overpriced, have something wrong with them, or may never sell.  Therefore, a seller putting on a home now should not think that his/her own home won't move for over 2 years.  He or she should, however, realize that aggressive pricing, especially in our area, is still important.

Listing and Buying in the Shadow of Yale

In most national real estate publications, you will read that people buy in the spring and move in the summer. This is largely tied to the school calendar, and buyers want their children to get settled before the new school year starts.  If you back that up, the best time to list a property would therefore be late March or April.  That also coincides, in the Northeast, with better weather for open houses and showings in April and May.

There are some deviations from that, even in our area.  For example, Branford has a big supply of condos, and only 1 in 30 units sends a child to the public schools.  Thanks in large part to the big proportion of condos, there is a relatively smaller pool of single-family homes, and so a lower percentage of spring sales and summer closings. Since condos are often investment properties, and since investments are influenced heavily by tax considerations, we see a jump in condo closings in the last quarter of the year, in part for tax reasons, and partially just because there isn't a school-based reason to prefer summer.

Yale is, of course, the region's biggest employer.  Therefore, the Yale calendar is very important in the decision of when to buy and sell, especially in New Haven and closely contiguous towns.  While offers are made to new employees year-round, and while promotions and local hires can occur at any time, we see a big uptick after the first of the year, especially with the Medical School and Hospital, where July 1st is a traditional starting date.  This moves the optimal time to list up into late January or February, even though there can be weather issues in those months.

If you are a local buyer, therefore, you should consider buying before you have to compete with Yale buyers on short time frames.  In case you haven't done the math on that, you need to be buying now!

Bidding Wars in Phoenix

Everyone knows that certain parts of the country--the ones that were growing quickly--took the biggest hit in the recent downturn.  Arizona and Nevada, along with Florida, are always mentioned as places with thousands of homes for sale at drastically reduced prices.  Now, things are changing, even in those states.  Today's New York Times has an article about the return of bidding wars to Phoenix.  The story points out that this is not necessarily because prices would have risen on their own, but because the supply is finally drying up, and there is more demand for what's left.  That sounds like a normal explanation of supply and demand to me!

Prices in high-end neighborhoods in and around Phoenix are still dropping, but many of the foreclosures in harder-hit areas have moved through the system, leaving homebuyers with little to choose from.  Even new construction, which is finally picking up, cannot keep up with the pace of demand.  One suburban home, a foreclosed property, had 84 offers before the bank closed off further ones.  This illustrates how a glut of short sales and foreclosures can hold down prices, and what can happen when the flow of such properties ends.  

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.

Rates Are Creeping Up

Here's a shout out to all those buyers out there who are waiting to be sure that real estate prices have hit bottom:  You may succeed in buying when prices have passed the bottom, but you may lose on rates.  Although the Fed has signaled that it won't be raising its rates any time soon, the mortgage rates are more creatures of supply and demand, as well as bank appetites for new loans.  Rates also tend to follow a seasonal pattern--lowest at election time (what a surprise!), and higher in the busiest spring buying season).

 I get rates sent to me on a weekly basis, and it's clear that they are headed up.  If you have waited this long to buy, don't make the mistake of continuing to wait.  They may go back down in the fall, but, by then, prices will have risen.  Buyers have increasingly begun to think of the cost of housing as the cost of the monthly payment, since that matters far more to them than the actual price of the home at any given time.  Not only are mortgage rates heading higher, but insurance and taxes have risen in most places as well.  Buy now, or regret it later!

Learning from Ebay

I'm not an Ebay person, but I have lots of friends who are, and I've certainly read enough about the philosophy to get the idea.  You go on looking for something, and then you watch the bidding over a period of time.  In the end, if you want to get something, you pay the price that it takes to get it.  If you can't stand watching others bid, you take the "Buy It Now" option.

There's a real estate theory along the same lines.  When a house is listed, potential buyers look, and note the price.  They often sit back and watch the action, sometimes bidding, but often waiting.  If they really, really want just that house, they will go in early and strong, and close the deal.  If not, they wait and see.  At the end of their search, if that's the house they want, they need to outbid others to get it.

The idea is that things will sell, in most cases, for what they're worth.  There may be times when sellers get lucky, or buyers do, because of circumstances not created by them, but by the other party.  Most of the time, property goes for its fair value, because bidders will eventually come in and pay what they know it's worth. The moral?  It's not the listing price, it's the inherent value.  Put your property on low, and let buyers bid it up.  Just as in Ebay, if you can create a feeding frenzy, you will get more, and much more quickly, than if you list it too high.

More on the Market

I just gave a press interview on the results of the first quarter in our area. Those results were dreadful. Very little sold, and what sold did so at lower prices. The activity has picked up since then, although those sales won't show up until the second quarter.

What is interesting to those of us in the business, who believe that we are bumping along the bottom, is to guess when the bump will start trending up. Units always increase before prices, and, while prices may continue to go down for a while longer, units should begin to increase. Once activity improves, pent up demand for new housing may cause houses to flood the market, as homeowners seek to trade up or down. That increase in supply will satisfy the still anemic demand for some time to come.

The lesson here is that there is a window, which has already opened in East Rock and Spring Glen, where those contrarians who seek to sell in the face of awful media reports have gotten or are getting surprising high prices. Not much was on the market, and people who needed to be in place for jobs beginning in the summer or fall, or those who needed to move for one reason or another, were competing for just a few houses. Multiple offers, many over the asking price, were common. That may change as people have more choices.

A word to the wise: He who hesitates is lost. List now.