Archive for the 'Housing Prices' Category
Multi Family Property in Distress
I had some downtime last night, so I decided to look through the MLS to see how the multi family markets are holding up in the current environment. Although multi family properties can be found throughout the region, they make up a small fraction of the overall residential market in most towns. I started by identifying the towns in which they represent a meaningful portion of the housing stock, which makes the data more interesting and relevant. I settled on Hartford, New Britain, New Haven, and Waterbury as the focus of the research.
All data was pulled from the CT MLS and reviewed and compiled manually. “Distressed” property to me means that either a bank already owns the property or the sale will require lender approval because it is a Short Sale. This analysis does not include properties going through foreclosure if they are not listed in the MLS because there is no central data source which collects that information. And when I say “reviewed manually” that means me going through every single MLS listing for that type of property and counting it manually. The MLS does not require agents to enter in the owner, nor does it require us to enter in a Short Sale, although those data fields do exist. Some agents fill in the information, but most do not, so the easiest way to gather the data is just to look through and manually count. It is not fun, but is doable while sitting on a couch on Tuesday night, watching TV. I counted a property as Distressed if the owner was listed as Corporate or a bank, if the Short Sale field said Yes, or if anywhere in the listing description or agent remarks it said that the sale needed lender approval, was bank owned, or was a short sale.
Here’s what I found. Remember, data from the MLS is deemed reliable, but not guaranteed. My ability to count correctly while watching House Hunters is deemed fairly reliable, but also not guaranteed…
Some Observations…
1. The levels of distress among multi family properties is consistently above 20%, and in some cases above 30%. In absolute terms, these numbers are higher than we have seen in previous years and show that the Connecticut’s cities have felt some of the impact of the “housing crisis.”
2. The levels of distress among multi family properties is generally higher than among single families. Unfortunately, the data does not give any clues as to why multi families have become distressed at a higher rate. There are many factors that play into a property owner’s decision to default, but the most likely explanation is that investors took on too much debt to buy marginally profitable properties in hopes of continued price appreciation.
3. Inventory levels vary between the towns. This suggests that there are more buyers shopping in New Haven, where the multi family inventory is 7.3 months, versus Hartford. The other side of the coin is that there may be more opportunities for buyers right now in Hartford.
Connecticut is experiencing distress in its multi family markets, and seeing it at a higher rate than the single family properties in the same markets. This creates opportunities for buyers with cash, whether they are looking for investment properties or plan to live in one of the units themselves. Next month’s market statistics post will include updated data for distress in the single family markets of our usual towns.
National Real Estate Data
People generally understand that real estate is local. The markets are driven by regional economies, which ultimately depend on the number and type of jobs in the area. Therefore local data is more relevant than national data in most real estate decisions. Local data is gathered, analyzed and published by diverse groups and individuals that range from specialty firms to local bloggers. Because every home is unique and towns have wide ranges of home types, the analysis of real estate data is not an exact science.
National data is more commonly cited by both media and homeowners despite the general understanding that real estate is local. It satisfies our inherent need for simplicity, and seems to serve as Wall Street’s proxy for the real estate market. One of the highest profile national housing indicators was developed by Connecticut’s own Dr. Robert Shiller, a Yale University economist. He has published data on US housing prices back to 1890, which is illustrated via roller coaster in the video. He also worked to create the S&P/Case-Shiller Home Price Index with collaborator Karl Case.
Shiller’s methodologies for gathering historical data have recently been questioned by another economist, who claims Shiller understates the long-run rate of increase of home prices. The source of the concern is that Shiller’s team used different data sources and gathering techniques for different historical periods, leading to inconsistencies.
But why are we getting so upset about problems with national data? We know that even the current national statistics and indices have limitations, so it doesn’t seem terribly surprising that we need to look at the historical data with a careful eye. Perhaps the issue is that the long-term increase in home prices is THE critical input that drives the “homes are a fabulous investment” argument.
The reality is that residential real estate can be a good investment, or it can be a poor one. The state of the local markets and the characteristics of individual properties are both important factors. While real estate is an investment, it is more than dollars and cents. Residential real estate provides a benefit that stocks and bonds never can - a place to call home.
The first priority when considering a purchase is to find a property that you will enjoy inhabiting. It should be located in an area where you feel comfortable and have the space and features that you need to be happy. The second priority is making sure that you negotiate a fair price for the market and property conditions at that point in time. Since most people only own one home at a time, and moving is expensive, it’s not necessarily worthwhile to try to time the market.
Besides, nobody really knows where the market will go next, though I suppose we could check the futures on the S&P/Case-Shiller Index for a hint…
More on Short Sale Delays
The Courant had an interesting article this morning about a family in Farmington that recently tried to sell their home as a short sale. They had an offer on their home and waited for 3 months for their bank to respond to the offer and authorize the short sale. The bank did not respond. The buyer eventually got tired of waiting and walked away. The house is currently in the process of being foreclosed upon.
Unfortunately this is very common and I was actually involved in more than one of these situations (representing a buyer) last year. Here’s what transpired with just one of the properties from then until now…
My buyer saw a short sale property last spring in Hartford that they liked and put in a bid about 10% off the asking price. We waited for 2 months to hear back from the bank. Repeated calls were made by me and the listing agent to try to get some response out of the bank. Nothing. Frustrated and needing to buy a place, my buyer walked away and pursued something else in Hartford.
Fast forward ahead several months from the spring of 2008. Still no offers accepted by the bank. The property goes under foreclosure and the bank becomes the owner.
This property is now currently listed for sale with the bank as the owner. The listing price is 10% below what my buyer offered last year. I recently showed this property to a current client. The home has been vacant for over a year. There is now water damage on one of the internal walls from a pipe that leaked/burst because no one was properly maintaining the property.
The bank’s inability to respond to legitimate short sale offers is driving down property values through decreased sale prices, as well as a slew of vacant homes. Buyers become frustrated with the short sale process and refuse to look or bid on these homes because they don’t want to waste their time waiting for the bank. Agents also grow frustrated as they try to help buyers successfully purchase short sale properties, but wait for months with no response. Neighbors are upset as they watch homes sit vacant and fall into disrepair, negatively affecting their own property values.
In my experience short sale response time has not decreased recently in our area. It’s unfortunate because if there are buyers willing to buy earlier in the process, it just drags things out unnecessarily for all those involved. The mortgage lender may not be in the immediate area, but they are affecting our property values. In addition, they are hurting their own balance sheets with these delays by incurring foreclosure and carrying costs before being willing to accept an offer for less than the mortgage amount.
Needless to say, it frustrating for all those involved and unfortunately there doesn’t seem to be an easy solution in the near term.