Home for the Holidays

As the year winds down toward the holidays, I want to remind people that there's one last push left for the real estate market.  Although fewer people look for property during this season, those who do are generally very motivated.  And, while sellers often don't want to have their homes subject to showings near the holidays, the truth is that some homes never look better than when they are decorated for the season.  There is a weather factor, of course, and much less daylight, but the aroma of baked goods and a display of festive decorations will often do a lot to make a house seem like you want it to be your new home.

The same principle applies to the financing and closing side of a transaction.  Even though people generally miss more working days, and parties and vacations can slow down the wheels of commerce, there is usually a strong motivation to clean off desks at the end of the year, and fewer files that have to be processed.  The tax issues involved can often lend a sense of urgency also, since many times there is a big incentive to close in one year or the next, and many jobs that begin at the first of the new year.

So, before you stop reading the Open House section of the paper, and trolling the internet for interesting homes, take a long look at your goals, and think about whether you can accomplish in less time and with less competition (and maybe even for a lower price) what otherwise will be left until spring.  Maybe a new home is the best present of all!

Cash is King

We heard that last year, across the country, about a third of all sales were closed with cash, or at least did not have mortgage contingencies (that means that the buyers could have gotten a mortgage, either before or after the closing, but didn't require that they have one in order to close).  Given the low interest rates available out there now, that's particularly amazing, and says a lot about the difficulty of getting a mortgage now.  Even at the best of banks and mortgage companies, there are more regulations, requiring more paperwork, effort, and time, than ever before.  Many people who can, therefore, are choosing to opt out of the process.

When it comes to Connecticut, the results are even more surprising.  Last year, 39% of state sales were reported as cash deals.  We were about the same, or even a little higher, at Pearce.  Then we looked at this year's statistics, which were greatly affected by weather and delays, so that sales were down across the region for that period.  We were startled to discover that 56% of all our sales for the first four months were for cash, or without mortgage contingencies! And this in a period when not only are interest rates historically low, but when the stock market is performing very well, leading investors to want to keep their money in the market.  We know credit is tight, appraisals are an issue, and that exceptions are rare, but we still can't get over this fundamental change in the way business is done in our industry.  Will it continue?  Dodd-Frank would argue yes, but the number of buyers out there who can't afford to pay cash would argue no.  I guess we'll just have to wait and see.

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.

Happy Holidays from All of Us at Pearce

It seems fitting to end this year, which has been so difficult for many in the real estate market, whether as client, agent, or vendor, by wishing everyone a happy and healthy 2012, with increased business for all!

Thanksgiving

Despite the woes of the real estate market, there are many things to be grateful for this season, as always.  For those of us who are healthy, most people would rate that as enough to be happy, all by itself.  For those who have family with them, especially at the holidays, ditto.  For those who have enough to eat, a place to live, a job, and friends, that's enough for most of the world.

Could the real estate market be better?  Of course.  Could transactions be easier?  Of course.  Would it be nice for us to be a little higher up on the food chain?  Undoubtedly.  But, every once in a while, and more often for some, we get to feel good, when we help a family, a business, or an individual find the perfect space, especially when they take the time to tell us.  And we get calls from loyal clients and friends who think of us for their real estate needs and those of their colleagues and relatives, and that's nice as well.  Bottom line:  we're in a helping profession, and we're glad to be of assistance.

So Happy Holidays to all of our clients and friends, and may the coming season be full of joy, good cheer, and closings!

Lowest Rates in 60 Years!

Remember this time, folks, because you won't see it again in your lifetime.  CHFA rates are at 3.625% for a 30-year fixed rate mortgage.  Compare that to when I bought my first home--my state-subsidized first-time homebuyers rate in 1982 was 17.75%!  Mortgage rates are the lowest they have been in 60 years.

If you add that to the fact that homes are down 5% in price, with vacation homes down 11% in price, this is a great time to buy.  Counterintuitively for many people, the period after a hurricane is an excellent time to buy property on the shoreline.  Just as with the spring after a bad winter, people often get spooked and decide that it's time to decamp for a condo or assisted living, and they are willing to be reasonable about their price.  If you add that to the discount that waterfront property often goes for in the fall, as well as the general rule that the best time to make an offer is between Halloween and Thanksgiving, everyone should be out scouting right now! 

Do you really trust the stock market more than the real estate market?

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.

Almost Too Late to Beat the Spring Rush

Everyone knows that more homes get listed and sold in the spring season, mostly because of school schedules. People either start jobs at the start of an academic year, or want to have their kids into new schools by September. What isn't as settled by all experts is the ideal time in which to list during that season.

I'm a firm believer in the earlier, the better. It's hard to know exactly when the market will pop, but there are certainly signs already--lots of ads, lots of open houses, lots of calls. If you are a seller, you want to have your home on the market before all of the sales activity really begins. It takes time to get the paperwork processed, get the home ready, and set a price. If possible, you want to list before the vast majority of people do, so that early lookers will see your home when there aren't as many places from which to choose.

We don't know when the snow will stop for good, nor when the temperatures will really start to climb. We do know the school vacation schedule, the holiday schedule (and Easter is very late this year), and the traditional boom times. In our company, we believe this: It's best to begin right now. If you are thinking of selling, call your agent today!

Making Connecticut Business Friendly

Many people don't understand the connection between a business-friendly climate and housing prices. Connecticut is a good example of it. We have ranked dead last among the fifty states in job creation over the past twenty years--for those of you who are counting, that's far longer than the current recession. We export college students, young people, all kinds of people. They go where the jobs are. Lots of you will know where those places are, because it's where your children live.

Without new jobs, there aren't people coming into the state, or staying in the state, to buy homes. Therefore, there isn't a growing market, and there are no buyers for those homes vacated by others who leave, or who downsize, or who transition into assisted living. That also means that new construction competes with existing housing, since relocated homeowners who buy new homes therefore don't buy current ones. All of this explains why low job growth is bad.

But why is it bad? To begin with, we in the Land of Steady Habits tend to believe that everyone wants to live here, and therefore we don't have to make it attractive to do so. We also tend to believe that businesses need to be here. That's true in some cases--like a local real estate firm, or a utility--but is clearly not the case in manufacturing and in more other industries than you would think. So we don't push our lawmakers and state and local officials to do more to attract and retain business. Yes, we want to keep those big defense contracts. But most of the jobs are in small businesses and start-ups. That's where the NIMBY (not in my back yard) folks, the preservationists, the anti-big box protesters, and the knee-jerk city planners and economic development departments lose the race for jobs. Of course, those same people often decry the increases in taxes, but without seeing the connection.

What can you do? Ask your municipality and state officials to be kind to business. Don't jump on the bandwagon to avoid personal tax increases by loading up corporate taxes. Don't let local planning and zoning processes become obstacle courses. Try to think about all sides of the issues. And vote for those who do.

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!

Rate Rise Alert

We've been talking about this for months, but it's finally happening. Interest rates are going up. The latest rates are almost half a percent higher than they were a couple of months ago. What does this mean?

First of all, the cost of owning a home with a mortgage goes up when the interest rates rise, meaning that fewer people can afford to purchase a home. It also indicates that, in most cases, buyers can afford to pay less for the same home, since they will qualify for a lower mortgage amount. In a buyers' market, which we are in now, that burden falls on the seller in large part. So, if you are selling, you will almost always receive less for your home when interest rates are higher.

In the larger sense, it could also mean that we are past the bottom of the market. Mortgage rates generally start to rise when things are starting to improve. Some of that is a signal from the stock and bond market that inflation could be a worry, and part is that the government will stop holding rates down if demand increases.

So, just as people often try to time buying an airline ticket to wait as long as possible to buy a non-refundable ticket at the lowest price, and frequently hesitate just a little too long (as I recently did....), you may already have waited past the point where you should have bought that property. Just don't wait any longer. Once things start to turn around, prices can move quickly. Consider this your warning!

Not Enough Listings?

We were talking yesterday in a couple of offices about the current state of our listing inventory. While the average person might think that every third house is on the market as we speak, much of what is available is either shopworn, overpriced, or needs work. Today's buyers, who believe that they are in a buyers' market, expect that every week more properties will be listed, and that prices may even come down further. Therefore, they think that they can be--and they are--extremely picky about what they want.

While it is true that new properties come on the market each week, many of the new entries suffer from the same problems as the old ones--i.e., overpriced or need work. When we get buyers who are motivated and in a hurry, they often feel that they have surprisingly little inventory from which to choose a property. At the same time, we know that many sellers out there feel that they should wait to list until there are fewer signs in yards (not counting the ubiquitous political kind!). Properties that are in pristine condition, which would command top dollar, thus stay off the market, while their owners wait for a better time to sell.

Ironically, it would be hard to find a better time to list those particular properties. There are buyers out there, and there are more of them all the time that come out to look, as many feel that the recession is over, but rates are still low, and believe what we're all hearing, that this is the best time to buy in 50 years. Yet those buyers cannot get over the fact that they aren't seeing exactly what they want. Given the high inventory, they keep looking. They even think that they can find rooms painted in the colors they prefer. Most don't seem to want to do any work to the place of their dreams.

This mismatch between what buyers want and what sellers are offering leads us to believe that, although inventory is high, there are actually not enough listings on the market, of the type that will sell quickly. If you own a property like that, call us now. You may be pleasantly surprised at the results!

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.

Don't Just Invest, Enjoy Your Investment

Many of you have probably been reading all the dire news about the real estate market lately. It was the worst July in 15 years, and the outlook for the rest of the year isn't great. I think we can safely say that those of us in the business already knew that, just by the lack of calls, sales, and closings. The articles in the papers aren't helping, either. They keep telling people that houses are no longer safe investments, guaranteed to go up each year and to outpace inflation.

But, really, what's so bad about that? Your home should be a place that you enjoy living in, and where you are happy to be without regard to appreciation. Over time, no investment goes up steadily; even ones which are extremely risk-averse do poorly when inflation is high. I recently had a friend tell me about his fancy new wine cellar. He is building it to display his 297 bottles of wine, most of which were bought as investments, after careful research. My friend knows exactly what they are now worth--just over double what he paid for them. As we laughed about his knowledge of the wine collection's appreciation, he downplayed the investment value. After all, he told us, even if their value goes to zero, they will still be available to drink and enjoy!

And what about a similar view for real estate? It's always been true that homes should be bought for more than their investment value, and buyers have always been aware that they shouldn't buy if they might have to sell right away. Although it's not quite the same as the fact that a new car loses its greatest amount of value just as it's driven off the lot, the costs of reselling property mean that there has to be some increase in price just in order to break even on a resale. What it seems that we've all been forgetting lately is the consumption value of living in your investment, and enjoying it in the short run. So try to think of real estate as a consumer good, which you can enjoy and use; while you are at it, maybe you should lay away some bottles of wine as a hedge for your bet!

Signs and Selling

We have a few sellers who don't want signs on their properties. Sometimes, they also want us not to mail to the neighbors announcing the listing. Usually, they say that this is because they don't want their neighbors to know that they are selling! Since signs are the number one tool that agents have for selling property, and since many properties are sold to someone who already lives nearby, this is an odd reaction. Would you look for a job, but refuse to give out your resume? Would you try to get a part in a play, but not allow your agent to send information about you? Exposure is the key to successful selling in most cases. Especially since, when you think about it, once you sell these people won't be your neighbors anymore anyway!

The other misconception I find less surprising is that sellers think that they can sell their homes without benefit of a real estate agent and get more money. While it can be true that a seller could get lucky and know of a prospective buyer, he or she is not going to get more money if they do what is often the case. They advertise the property as "x dollars without an agent". In that case, don't you think that a buyer will expect that the money otherwise dedicated to the commission will go to him? Obviously, real estate professionals aren't helped by people selling their own properties, so I'm doubtless biased, but I find the approach unlikely to get more money for the seller. Plus, empirical evidence collected around the country suggests that most independent sellers get too little for their properties.

Now that I've vented, I should end by saying how busy the real estate market is this week. Let's hope it continues unabated!

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!

Interest Rate Update

Now that the weather has moderated a little, we're starting to see some activity in the real estate market. One question on everyone's mind is the forecast for interest rates over the next few months. It's particularly true for those who are refinancing, since some banks allow you to take one "drop" between commitment and closing. Therefore, people want to know whether rates will go down more.

Of course, the correct answer is: Who knows? But I think most betting people feel that the governmental stimulus and drive to improve the economy will result in incentives of every kind that could possibly help the housing market. That would argue for lower rates to come. I don't think they'll be much lower, or for much longer, since banks are paying 5% for the TARP money. So how long can they really afford to loan it out at less than 5%?

So, if they are going to go down to 4 and 1/2, even for a little while, why not wait? The answer to that lies in the fine print. Fannie Mae, which drives a lot of bank lending policy, has quietly been raising the standards on loans. FICO credit scores to qualify for the best rates are rising, and higher rates are imposed when there is a higher loan-to-value ratio being sought. Translation: The rate might be slightly lower for some amount of time, but it will be harder for most people without excellent credit and enough cash for a substantial downpayment to qualify for that rate. When you take those factors into account, you will almost certainly come down on the side of buying or refinancing as soon as possible.

I should point out, in the nature of a disclaimer, that I do not have Obama's private Blackberry address, so these thoughts are my own, based upon reading public materials! And, given all that's going on, I'm sure there will be more news to follow.

Back to the Cold

Today is my first day back from vacation. I just finished going through my 600 emails and dozen papers, and tomorrow I will start writing articles that I've promised to people. Like a lot of people, I hope that the new President and his administration will bring a new beginning for our industry and others. The government is certainly pumping money into the economy--it just has to find its way down to the real estate market. And, in the Northeast, the weather isn't helping! Every day seems to bring snow, ice, or freezing temperatures. We know from other years that people don't look at property under those conditions. We also know that it can lead to a nice pop as the spring market blooms (pun intended), and never before have we needed that so much.

Hello from Sunny Arizona

We arrived last night in Scottsdale, where it's almost 70 degrees and very sunny. I wanted grapefruit for breakfast, so I went out and picked a couple. I went running for a long time (with a few stops at new retail areas) without worrying about snow and ice. There are lots of real estate signs here--it's pretty much ground zero, along with Nevada and Florida, for the distressed real estate market. Inside my father's gated community, there are signs for the first time, and today there were multiple open houses. The median sales price in Arizona was $232,000 at the end of 2007, and $150,000 at the end of 2008. That makes Connecticut look pretty good!

We had our company holiday party at our house the night before we left--100 people for dinner. It was festive and fun, and spirits were high-enough so that those not in real estate were surprised. I'm not really, because people who come to parties tend to be a self-selected group of those who are going to have a good time under all circumstances, plus real estate agents in general tend to be resilient and optimistic. As Winston Churchill said, "I am an optimist. It does not seem to be of too much use to be anything else." Amen.

I agree with Nelly

Nelly's comment about the weather and 2009 rings true here in Guilford, where the wind is whipping around the house at gusts, they say on the news, up to 60 mph! It's been so windy this winter so far that I'm beginning to think it has something to do with the economy, like the dust storms in the 30s. It feels like winter everywhere. I'm raising my glass tonight to a better '09, a healthier real estate market, and good health and prosperity for all our associates, employees, clients, and friends.