Our Annual Day of Caring

For the past eight years, we have closed all of our offices for one fall day, and volunteered in non-profit settings around Greater New Haven. Tomorrow is this year's day, and we will be at Saint Martin de Porres Academy in the Hill section of New Haven. Some of us do hard physical labor, while others do office work. It's great to work as a team across offices, with coworkers that we don't get to see all the time.

Day of Caring was created by United Way after 9/11. I remember the first year, and how good it felt to be doing something positive on such a mournful day. Agents came up to me and commented on their gratitude, to be able to commemorate sorrow and do good at the same time. Over the ensuing years, it became part of the H. Pearce calendar, that demonstrated our values as a company, and gave back to the communities that nourish us.

This year seems a little different. While we still believe in giving back, and we still support United Way, many agents are hurting economically themselves. They may have taken a second job, or given up luxuries (and maybe necessities), as they struggle to cope with a flailing real estate market. We all have uncertainty and worry about the future.

Ironically, this is the time when we should be helping others the most. It's when you reach out to give a boost to someone needier that you feel best about your own life, your own good fortune, and the future of all of us. We all need a helping hand every once in a while, and it's nice to have given one ourselves.

Finally Some Helpful Press

There was a wonderful article in the Wall Street Journal this week, that actually listed ten reasons TO buy a home. As you can tell by the title, we have come to expect that every article will result in calls from clients who have decided not to go forward with a purchase. Therefore, we were thrilled to get some help from the WSJ.

You would not be surprised by most of the reasons, because you've heard them all before. There were a couple of arguments that were particularly good, however, in the way that they were phrased. One was the perennial issue of whether a buyer should buy before the market hits bottom. All real estate professionals know the answer to that--you cannot predict the bottom, so you should just get somewhere near it and not worry. The article, however, quoted a talking head as saying two years ago that prices had to fall another 17% to reach where they should be, and that the Case-Shiller Index in those two years showed prices down 18%. That's pretty close to the bottom.

The other points I really liked were really variations of the same theme---you get a better home when you buy. That's because better properties get sold and worse properties get rented, but it's also true because you can't (or won't) personalize a rental the way you can or would your own place. It's a version of what I've been saying--that you have to like where you live--but it gives some concrete reasons as to why buying does a better job of providing that.

Low mortgage rates, big inventory, fewer taxes, long-term growth--all of these ideas were listed as well. Let's hope that some of you take the plunge after reading the paper!

Should We Let the Market Fall? Part 2

In my entry yesterday, I blogged about the NYT article talking about what's happening in the current market (very little) and what could or should be done about it. The first issue I discussed was the possibility of a double dip, and whether that would happen. Today I have a suggestion about the type of governmental intervention that might prevent further declines.

All of the efforts to date ($23 billion in tax credits) have been focused on homebuyers, particularly first-time homebuyers. As I have opined before, first-time buyers are the most likely to buy no matter what market conditions might exist at the time they are ready to purchase. Since interest rates are low, and prices have come down somewhat, and since they have nothing to compare those prices to, they should be motivated already. The problem is that there is little well-priced product out there for them to buy, low sales notwithstanding. The inventory lacks homes which are not even being marketed due to current conditions, and many that have been on the market too long and for too much.

Why shouldn't the Federal government consider a one-time tax credit for sellers, maybe as a percentage of the loss in value that they have incurred, or maybe as a credit when they both sell and then buy? Many people would not even qualify, just as many buyers made too much money or bought houses too expensive for the homebuyer credit. Some have lived in their homes for so long that they would never lose money when selling, and some will sell but not purchase again. However, it would be a strong signal from the government that sellers need to lower prices before the market can move again. If that could be accomplished for the same price tag as we incurred giving an incentive to buyers, it might free up the whole sales chain. Buyers who can't buy because they already own a home they can't sell would then trade up or move, and people who just can't stomach not getting what they would have gotten a few years ago might feel that the tax credit made up for that, at least in part. There are many details to be worked out, but something needs to happen, and I don't think that even job creation will change the perception about the current state of real estate without some sort of outside help. Waiting around is costing us all time, money, and sound sleep.

Should We Let the Market Fall?

There's a very interesting article on the front of today's NYT business section about the differing predictions as to future real estate prices, and what to do about the flailing state of demand. Some experts think that real estate has been overvalued for the past couple of decades at least, and that the medium-term future upside will be limited to minor price increases. Those people often believe that we are at the beginning of the dreaded "double dip", and that real property prices will drop again.

Other experts feel that real estate is a luxury good, and that people will spend more on housing if they can. As my most recent prior blog would indicate, I'm in that camp. Especially when you consider the age of the baby boomers, I believe that they will "nest" over the next number of years, spending as much as they can on houses where they feel that they could live in retirement, and where their children will visit them. That would argue for higher values, at least for premium properties. As people spend less on food, they are going to spend their excess income on something, and I'm betting on housing over travel (not as easy as it used to be), cars (not politically correct), and clothing (ditto). Housing is where you can express your individuality without looking like a conspicuous consumer.

If you believe this scenario, then housing will improve as soon as consumer confidence rises and remains higher. For more on governmental intervention, I have an idea about that, too, so tune in next time.

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!

Second Quarter Results

We just released second quarter statistics from the Greater New Haven region, which showed a major uptick from the same quarter of last year. Of course, the homebuyer tax credit was expiring, so there was a rush to close units while that was still in place. Also, however bad the economy still is, there is some national sense that things are better than in 2009, and the base of comparison was therefore low.

Within the region, Guilford and Woodbridge had the highest prices, with Madison coming in third. Prices generally went down from the second quarter of last year to the first quarter of this year, and then climbed in the second quarter of this year. Unit sales went up more sharply, rising 20% from last year's second quarter through this year at the same time.

It would be interesting to know how many of the sales were from properties which have been on the market for a long time, languishing at high prices, where a price reduction sparked an offer. Anecdotally, we know that many of the stories we hear involve sellers who are finally putting things on where they will sell. They are helped in their efforts by mortgage rates, which are so low that they allow for buyers to feel that they are getting a good deal, based on monthly payments. A recent article in a national paper suggested that buyers are trading up as a way to lock in cheap money. Let's hope so!

Stimulus Money

Everywhere I've driven lately seems to have road construction going on, and it seems to be paid for by Federal stimulus money. You certainly can't tell by driving around that towns and cities are in fiscal crisis! The real estate stimulus money is gone, even though closings that were delayed can still take place through an extension bill passed recently.

I was one of those who thought that giving a tax credit to first-time homebuyers was unnecessary. First of all, they are the people most likely to buy under any circumstances. Secondly, interest rates are very low. And lastly, I thought it was repeat and second-home buyers who needed pushing.

I guess I was both right and wrong. Most buyers didn't even qualify for the full tax credit, or even part of it. Although the second version of the credit allowed repeat buyers to participate, many of them earned too much to get the benefit. However, it's clear that sales plummeted as soon as the stimulus money expired. That indicates that even those who did not get the money back were affected by the offer. And, as we all know, perception is reality. Whatever it took to get buyers off the fence was needed, and the tax credit seemed to help. It moved people who would have bought anyway into an earlier closing, which pushed sales up in the first part of the year, and will have a negative effect in the second half.

There is another kind of stimulus available, however, and that's a perceived bargain. Sellers can make their properties attractive by lowering prices. There's a great deal of evidence that that is exactly what's happening in some segments of the market. Things are selling, but at discounts off the asking prices. Even in New York City, long considered exempt from the housing recession, recent articles have referred to big discounts leading to sales. Until the Federal government acts to spur housing again, we'll have to depend upon owners doing it through pricing. And, given the normal seasonal fluctuations in the market, they'll have to do it soon if they want to sell in 2010.