Archive for the 'Contracts' Category
Friday the 13th
The other day we were talking about our current pending deals, and noted that we both have closings scheduled for mid August. Closing in the middle of the month is pretty common, but we discovered that our two deals have something in common. Neither us, nor our clients, wanted to close on Friday the 13th.
Friday is the most common day for real estate closings in Hartford County. In looking at data for over 30,000 single-family and condo closings since the beginning of 2007, there are more than twice as many closings on Friday as any other day of the week. The reason we often hear for a preferred Friday closing is so that people have time to move in over the weekend before returning back to work on Monday.
Are we the only agents with an aversion to Friday the 13? No, no we’re not.
In weeks that contain a Friday the 13th (red bars below), there is a noticeable decrease in the number of Friday closings. Clearly not everyone is afraid of the day, but there are others who would prefer not to risk it. The chart shows that many buyers choose to close on Thursday the 12th, while some push it out to Monday the 16th.
We expected there to be more of an aversion to Friday the 13th closings than the data shows. Especially since many of the agents we know are mildly superstitious (no sense putting clients at risk of bad karma/energy/whatever). Maybe people don’t realize that the closings they schedule on a 13th are also on a Friday. Or maybe they’re too embarrassed to admit their phobia. Or maybe we’re just a little too sensitive to this sort of thing.
Would you schedule a closing on Friday the 13th?
Extending the Home Buyer Credit
The National Association of Realtors (NAR) has been leading a push to get part of the Federal Home Buyer Tax Credit extended. But don’t get too excited – their proposal won’t give allow anyone new to claim the credit.
Before diving into the details, here is a quick review of the current rules of the game:
1. First time buyer or existing owner (extra criteria).
2. Binding purchase contract by April 30, 2010.
3. Closing by June 30, 2010.
In a June 11th press release, NAR argues that 180,000 buyers met the first two rules but are at risk of missing out on the credit because their lenders will not be able to underwrite the mortgage in time. In fact, they state that “as many as one-third of qualified applicants have been notified by their lender that their mortgages will not close before June 30th.” NAR would like to protect these buyers by extending the deadline for closing to September 30th.
NAR’s main concern is that the surge in purchases at the end of April is overwhelming lenders. Others seem to believe that the tighter lending standards and the new appraisal rules that fall under the Home Valuation Code of Conduct (HVCC) are a big part of the delay. A number of articles, including Senator Reid’s press release on the issue, state that there is “growing concern” that short sales will be impacted.
We have heard about mortgage delays with some of the larger national lenders and with special programs (like CHFA) that require additional steps or approvals. However, buyers using standard mortgages with local and regional lenders are seeing their loans go through without much trouble. Appraisals can be an adventure when someone is assigned from outside of the area (like from Rhode Island!), but they have occurred in an expeditious manner. Short sales are a whole different animal, and the concerns identified seem to lead to a discussion about when the purchase contracts becomes binding – not a debate for today.
Buyers in Greater Hartford are seeing some of the same challenges that have been reported in the country overall, especially when they use national lenders. Hopefully we won’t see too many closing delays as the month of June comes to an end. And if the “closing by June 30th” rule is relaxed, that will help ensure everyone gets the incentive they were expecting.
Real Estate Activity Decrease by Town – May 2010
May is a busy real estate month. More deals are done in the spring than in other times of the year, and the month of May is right there in the middle of the spring. In most years, the months of April and May have the two highest totals of contracts written (buyers and sellers agreeing on a sale). May usually edges out April, but not always. It depends on how the holidays fall, and whether there are other major events that distract buyers from the real estate market.
The chart below shows the contracts written by month for single-family homes in Hartford County. Data is shown for all of 2004 and the first five months of 2010. All data comes from the Connecticut Multiple Listing Service, and is considered reliable, but not guaranteed.
May didn’t win this year, which isn’t much of a surprise. Everyone already knows why … tax credit. Nuff said.
But how about the individual towns? Did all of them show the same fall-off in activity? Did the tax credit matter more in some towns than in other towns?
This table shows the number of single-family home contracts written for each town in Hartford County. The percent change in the market activity between May and April is shown in the final column, and is used to sort the table.
There is a huge range of results; from apparently no impact in Burlington all the way down to a 75% decrease in activity in Canton, East Windsor, and Wethersfield. Scanning through the percent difference column, it’s interesting that there are towns throughout the whole range – they are not bunched together.
The results also don’t seem to follow median sales prices. Of the more expensive markets, Farmington, Simsbury, and Glastonbury showed smaller declines than most towns, but Avon had one of the largest. Of the less expensive markets, Bristol, Hartford, East Hartford, and New Britain were pretty evenly distributed throughout the middle of the range.
Despite the broad decrease in activity, buyers and sellers are still out there looking for homes. Buyers may have more of an advantage because there is less activity, but not in all cases. Desirable properties continue to sell with multiple offers if they are priced appropriately – just last week we had listing and buyer clients participate in multiple offer situations.
What’s your take based on your search or sale?
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.