Archive for the 'Contracts' Category
Hartford County Takes a Breather
So it’s been a few weeks since the buyer credit expired on April 30th. How’s the market doing now?
Crickets. Can you hear them?
This graph shows the number of contracts written for residential properties in Hartford County. Data is grouped by week and comes from the Connecticut Multiple Listing Service, which is deemed reliable but not guaranteed. 2004 was selected as the comparison year for three reasons:
1. The days/dates match up with 2010
2. The market was very active
3. There was no outside influence from a tax credit
The number of contracts written in 2010 trailed the number written in 2004 from the beginning of the year until early April. Buyers racing to capture the credit caused a spike in the number of contracts written at the end of April, pushing 2010 above 2004. But now that we’re in May the activity level has decreased precipitously.
The data shows that local real estate markets have not fully recovered. Even with the tax credit encouraging buyers to act, sales this year were below the levels of 2004 for most of the individual weeks and for the total period. The sharp drop-off in the number of contracts immediately following the credit expiration shows that the credit did play an important role. However, that role may have been to simply shift sales forward rather than generate additional sales.
What will happen next? Will the past couple of weeks end up being an unusually low dip, sort of like the last week in April was an unusually high spike? Only time will tell…
After the Home Buyer Tax Credit
As of the first of May, the Federal Home Buyer Tax Credit is no longer part of the American residential real estate landscape. The incentive took various forms since it first went into effect in April of 2008, offering cash to both first-time buyers and existing home owners.
Looking back, two questions immediately come to mind. How did the credit impact the markets over the past few years? And how will the credit continue to influence the markets in the coming months?
The Impact of the Credit
The most obvious impact of the home buyer tax credit was that it gave people in the real estate industry something to talk about. Realtors and mortgage brokers latched on to it as the silver bullet that would fix their suddenly sluggish businesses. We could barely go a day without hearing an ad on TV or radio encouraging us to take advantage of the tax credit before it was too late. Some agents even advertised the credit as a feature of the homes they were selling, as if only certain properties qualified.
Beyond all the hot air, the credit also distorted the markets, especially near the deadlines. Agents, mortgage brokers, and real estate attorneys were extra busy leading up to the expiration dates. Consider the activity around the November 2009 deadline. The number of single-family closings in Hartford County for the month was close to what we saw during the market peaks in the middle of the decade. The number of closings in the following month was far below the peak levels, and more comparable to the trough levels of the previous two Decembers. Buyers were clearly focused on the deadline.
The distortion in early 2010 was to shift demand more than supply. Real estate demand comes from the buyers, who knew they had to negotiate a binding contract by the end of April. They began their shopping early to make sure that there was enough time to find a home that met their needs. This was especially true of first-time buyers looking for properties in the lower price ranges. Real estate supply is provided by the sellers as they list their homes for sale. Although there was some incentive to get their homes on the market early, the benefits were not felt nearly as strongly for the sellers as the buyers. There was not enough supply in some towns, and it was common to see bidding wars for nicely maintained properties at the lower price points during the first four months of the year.
The proponents of the tax credit would probably measure its success by the impact on the number of transactions. Looking at the number of properties that went under contract in the first four months of 2010, we have to agree that the numbers look better. The table to the right shows MLS data for the first third of each year back to 2001. This year we’ve gotten off to a quick start in the county, with the number of transactions approaching the normal sales level from the middle of the decade.
The Credit’s Continuing Influence
Even though the deadline passed, the credit will continue to influence the markets. Our initial expectations, which we shared in January, were that activity levels would remain reasonably high through the end of the traditional spring market. So far that seems to be true. The world did not end once the calendar moved to May, and buyers continue to shop at all price points.
However, we do still expect that the market will slow once we get into July and the summer vacation season. Many buyers accelerated their purchases to capture the credit and there will need to be a corresponding slowdown in activity as the buyer pool replenishes.
Another result of the expired credit may be better deals for the remaining buyers. High demand in certain towns and price bands gave sellers the upper hand for much of the spring. With the credit-seeking crowd out of the way, the current crop of buyers will face less competition and should be able to find interesting opportunities.
Never as Simple as it Seems
The wildcard in the real estate markets is consumer confidence. Home prices are influenced by the optimism of the buyers and the financial strength of the sellers. Local employment trends play an important role, as do the financial markets and the overall economy. The current outlook can’t yet be described as sunny, but it definitely seems far less gloomy than in the recent past. As we exit a period of significant government support, we’re comforted by the fact that the market is more than just the tax credit.
West Hartford Feeding Frenzy
The West Hartford real estate market feels like it’s moving very quickly these days. We’re especially noticing it since we have many buyer clients looking in the town and because the town is traditionally the most active real estate market in the county.
It is common to see new listings sell in a couple of days if they are priced right, and we’ve been seeing multiple offer situations on a regular basis. Despite the bidding wars, buyers still seem to be showing restraint in the prices they offer. We have not seen, or heard about, dueling escalation clause bids or over-the-top Godfather offers (An offer you can’t refuse).
Rather than simply relying on our feel for the market, we wanted to try to put some data behind our anecdotal evidence. We decided to look at all the homes that went under contract between March 1st and March 28th. These are properties that have not closed, but a buyer and seller have agreed to a price. Here’s what we find using residential data from the Multiple Listing Service, which is deemed reliable, but not guaranteed:
The number of signed contracts is up considerably over the same period last year. This reflects the increased activity in the market with buyers hustling to capture the Federal Home Buyer Credit and take advantage of the continued low interest rates.
More interesting is the sharp decrease in the median days on market, from 47 last year to 21 this year. This data more than confirms our observations. Properties are selling very quickly in West Hartford, so both buyers and sellers need to factor that into their plans and expectations. Buyers need to understand that they face a lot of competition right now, so they need to be prepared to act quickly and be willing to pay a fair price – the market is quite efficient.
Homeowners definitely have an opportunity if they are interested in selling a property that shows well. The sweet spot for sellers is in the $200k – $399k price range, which made up a larger percentage of the number of contracts in March than for 2009 overall.
For now, sellers still have to price their home appropriately in order to generate interest, but perhaps we’ll start to see more aggressive bids from buyers as the April 30th credit deadline draws near.