Compromising

With the recent spate of real estate activity, we were hoping to see sellers more realistic than many are. This is my chance to remind them that, given the current credit climate, it doesn't help them to extract the last dollar in the sales contract, if the home then does not appraise out. Banks are understandably cautious these days, and many people don't have extra money to put down, so they are dependent upon an appraisal that will support maximum financing. Even if they do put plan to put a little more down, buyers will likely balk at paying more than the bank's appraised value for property, particularly in a market less than robust. It's funny (well, maybe that's not the word...) how the problem in getting transactions from A to Z has moved through the process, from listing to offers to inspections to financing. Let's hope that it moves right out of the system!

I'm also wondering whether the spring market will last further into the summer, especially since it seems to rain EVERY day. We got a late start, more due to economics than weather, but often a late start means a longer season for selling. We could use the time to try to catch up to last year throughout the region.

Lagging Statistics

Now that we're finally seeing some increase in the number of buyers and the resulting sales, the statistics for April are out. They show that prices fell and units fell. Not surprising, since that's reflecting activity from the first quarter. It doesn't measure today's pulse, but rather what was happening 60 to 90 days ago.

If we're lucky, the news will convince sellers not to be greedy, and buyers that it's a good time to get a reasonable price on the real estate they wish to own. It will let the government know that it can't stop trying to help the housing market. If we're lucky, it will not send everyone screaming for the hills, or more accurately, back into the cocoons where they have been hiding since last fall.

All of this does show the importance of the consumer confidence index, which is a measurement the government puts out on a periodic basis, to judge the mood of the buying public. Lately, this number has been at historic lows. The most recent results, however, have shown a sharp uptick in consumer confidence. We consider this number, along with personal income levels and interest rates, to be one of the three most important ways to predict the level of real estate sales. We could have told the press that sales would rise in May, after seeing the rise in consumer confidence. Since it's such a subjective measure, though, almost anything can affect it. That's why I'm hoping that the April sales numbers don't send it plummeting again.

National Statistics

In trying to make sense of national statistics on real estate sales, I have been reading a number of different sources. One I received today was from a friend with a real estate company in Madison, Wisconsin. He sent a link to the Fannie Mae/Freddie Mac numbers, which include all resales with conforming loans, and are divided by state and by quarter. These are different from the Case-Shiller numbers, which only cover 20 metropolitan areas. The numbers for CT in the Fannie Mae index indicate that prices fell most sharply last year, and that overall prices have fallen about 15% in total. The numbers for the latest quarter indicate that prices have levelled off for now.

These figures agree pretty well with what the New York Times reported this morning. The article in the Times said that prices in the past month actually crept up from the month before. That could be because of the mix of properties sold, but it does indicate that some people who were on the fence have jumped back into the market.

The third source, the Commercial Record, shows town by town variations in what has sold this year versus last. Again, it shows increased activity lately, although the first quarter was pretty dismal.

Whichever measurement we use, it seems to corroborate that we have at least and at last hit bottom, and are looking forward to heading up!

Commercial Real Estate Update

It's worth a mention about what's happening in the commercial real estate arena these days. The answer is: nothing. The nation's banking woes, and the resulting credit crunch, have brought most real estate transactions to a screeching halt. Traditionally, there is a lag between the residential market performance and the commercial market performance of about nine to twelve months. I had an interesting discussion yesterday with an economist running buddy as to why this should be so, but it has been consistent over the past recessions as well. One might think that jobs and business profits would decline before housing sales, but it's usually the other way around. Residential sales can be predicted if you know personal income numbers, interest rates, and the consumer confidence index. Commercial real estate has more to do with credit, GNP, tax structure, and general business cycles, yet they do coincide and overlap this way.

Given the current state of the economy, pundits are not forecasting an improvement in commercial real estate this year. New Haven is lucky that so much of our space is occupied by Yale, but even mighty Yale has seen the effects of this market cycle, so we may not be as protected as we might otherwise have been. Our best protection is coming from a lack of new product, meaning that we don't have the see-through office buildings sitting empty, the way we did in the last recession. One of the worst problems is that there has been a fundamental shift in the way people work, causing companies with the same revenues to need less office space. That may not change back when the economy improves. Other new companies will have to spring up to take that space, and Connecticut's cost and tax structures have caused it to be at or near the bottom of new business creation. In our area, biotech has made our regional results somewhat better, but we should all do what we can to attract corporations and jobs to our region.

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!

WTNH Interview with Barbara Pearce

Watch the Video: People owing more than house worth WTNH.com

Updated: Wednesday, 06 May 2009, 7:30 PM EDT
Published : Wednesday, 06 May 2009, 7:05 PM EDT

Story by: Chris Velardi

(WTNH) - It's a tough time for homeowners. The values of their homes are dropping and according to a new report, one in five owes more than the home is actually worth.

The real estate market has been at the center of the economic crisis and a new report from the real estate website Zillow.com is probably gonna make you feel real good about things.

The study estimates home values in the U.S. have fallen $704 billion in 2009 and $3.8 trillion in the last year.

That's the bad news.

The good news, News Channel 8 found some experts who say the numbers don't tell the whole story.

Barbara Pearce, the President of H-Pearce Realtors, doesn't believe they paint the whole picture.

"You're trying to compare something that is a long-term investment, at a point in time, and there's always gonna be a question about; is it a fair point in time?" said Pearce.

The numbers are part of a report from the home value tracking website Zillow.com -- which indicates a sharp drop in home values over the last year.

These aren't selling prices; these are estimated values what your house would be worth if you sold it today.

In Connecticut, the percentage of 'underwater' homes is slightly lower than the national average.

But again, Pearce said the numbers are a bit misleading.

"If the median person, which I've heard, financed in the last few years financed 97-percent of the purchase price, it doesn't take much to put you underwater," said Pearce.

Peter Grabel is a private mortgage banker with Stamford-based Luxury Mortgage Corporation.
He also thinks the Zillow numbers are inflated.

"My understanding is that they used the original mortgage balance and not the balance that someone might have been paid down to, which could be substantially lower and also on home equity lines; they're using the full amount of the line and not the line that's drawn," said Grabel. "And there could be a substantial difference."

But most important -- according to Grabel -- is all real estate statistics are relative. It's a reminder echoed by Pearce who said real estate must be measured very locally.

"Sometimes it's street to street, it's not even neighborhood to neighborhood; it's certainly not even town to town," said Grabel.

Listing Prices and Offers

This morning at our New Haven office sales meeting, agents were saying that people still want to price their properties too high for the current market. We went on to recount numerous stories both good and bad; people who priced too high and ended up with very low offers, and people who went lower and got multiple bids over the asking price. We believe that buyers know the market conditions, and that they will correctly gauge where offers should be. When it looks like a bargain, they know to bid high. When it looks too high, however, most people deduct too much, figuring that they are in for a long round of negotiations. And, of course, that's exactly what that seller was thinking when he listed too high--a self-fulfilling prophecy all around. Agents told stories of people who ended up selling for too little by using this latter method.

We agreed that sellers don't realize that most buyers search by price. That is, they go onto the internet, our website, or Realtor.com, and they enter the sales price they want to pay. Therefore, if you list your property at $400,000, hoping to get around $350,000, a person who can pay $350,000 may never see your home, because they would be searching in a range that would not include your asking price. So, even though you might be willing to bargain, you may never get that chance, because the above buyer will be out looking at houses listed in his price range. Once you realize the way the process usually works, you will understand why Realtors push so hard to get you into the range that will give your property the maximum exposure, and therefore the greatest chance of selling.