Single-Family Homes
Second quarter sales of single-family homes increased 23.8% compared to the year-earlier period. Although the total number of 2,047 sales improves on the results for the quarter in both 2008 and 2009, second quarter activity still trailed all of the years between 2000 and 2007 for which the CTMLS has data.

The median price for single-family homes in the County increased by 1.3% from $227,000 to $230,000. Sales price per square foot, another valuation metric, remained virtually unchanged at $147/sqft. Finally, the median time on market decreased from 40 days to 31 days.

Condominiums
Hartford County condominiums trended in the same directions as the single-family homes during the quarter. The number of sales was up 43.8% over the second quarter last year, with the 644 total sales running ahead of 2008 — 2009 and behind 2000 — 2007.

The median sales price rose 3.0% during the quarter, from $165,000 to $169,900, and the median price per square foot held steady at $134/sqft. Condominiums also experienced a decrease in sales time, with the median days on market falling from 51 to 45 days.

Residential Real Estate is More Than the Tax Credit
Local residential real estate markets continued to function even after buyers could no longer claim the Federal Tax Credit. As expected, there was a dramatic lull in the number of contracts written in May and June, which should be visible in the number of third quarter closings. However, buyers still made offers even after the credit expired.

Barry Ritholz is one economist we follow regularly, through his posts on The Big Picture blog. Right now, he has a strong negative view on the future of the US housing markets. One of yesterday’s posts broke down his views in more detail.

Looking back at how we got to where we are today, Mr. Ritholz notes that that low interest rates throughout the 2000s caused a credit bubble, which in turn caused a housing boom. Lots of people bought houses they couldn’t afford because poor lending standards and very low mortgage rates allowed them to jump into the real estate markets. Five million homeowners have been foreclosed upon, and he expects five million more foreclosures to come.

His forward-looking thesis is that even after a 33% fall from the peak, prices are still too high when looking at traditional valuation metrics like prices vs income and the cost of owning vs renting. Supply is high, with more waiting in the wings. Demand is well below the inflated peak levels, caused by tighter credit and high unemployment. And when markets correct from severe imbalances, they usually move well below the mean.

How does his thesis translate to Greater Hartford?

Our markets did not appreciate nearly as much as markets in some other parts of the country, which has also meant that we have not seen as severe a correction. However, housing in the northeast is generally more expensive than it is/was in the boom areas, so there is more room to fall. And there is no guarantee it will always be more expensive up here.

Inventory: Real estate inventories in Hartford County checked in at just over 6 months of sales activity at the end of the first quarter. That’s right on the boundary between a neutral market and one that favors buyers, so we’re not seeing any major warning signs here. The number at the end of the second quarter should be comparable, or even better, since the tax credit created a huge spike in deals that will close by the end of June.

Foreclosures: The number of foreclosures has increased dramatically in the past few years. A recent Hartford Courant article focusing on the amount of money marshals earn indicates that “five or six years ago there were 3,000 or 4,000 foreclosures” per year in the state. Compare that to a statistic later in the article stating that 20,000 foreclosures were filed in 2009, which was 40% more than 2008.

Employment: The employment situation in Greater Hartford has improved over the past year. People we talk with say that companies are adding employees, though many positions remain unfilled and may never be filled. We are also seeing more relocation buyers coming from out of town, which of course means that they have jobs waiting for them. That’s the short-term view. The long-term view is more negative. One of our major employers has gone on the record saying that they want to move jobs anywhere outside of Connecticut. The comment made headlines, but nobody seemed especially surprised by the news. The housing market depends on buyers with steady income, which depends on employment.

Credit and Mortgage Rates: Buyers with good credit are able to get mortgages, and are currently seeing very low rates. However, buyers with poor credit are having trouble financing a purchase and often have to sit out of the market for a year or two to repair their credit. We know of numerous buyers in this situation – all of whom are gainfully employed.

Overall, the environment in Greater Hartford is trending in the same direction as the national picture for three out of four areas that Mr. Ritholz identifies as concerns. It’s difficult to know how severe our readings are relative to the national average, but it seems like we may be at risk for falling prices if his analysis turns out to be correct.

We decided to look at all the single family home sales in Hartford County that were input using the Grand List 2009 mill rates. The initial data set had just over 4,000 closed MLS transactions (deemed reliable but not guaranteed) with listing dates between July 1, 2009 and June 19, 2010, which should have been input using the Grand List 2009 mill rates. After eliminating deals with missing data, we ended up with just over 3,800 data points spread across 29 towns.

Next we did some simple calculations and took the median values for everything. Ideally all of this data would have been published in a sortable table embedded in the post, but we couldn’t get it to work right (feel free to send tips or hints). Instead you’re getting the same large table sorted in different ways … our apologies in advance.

The first sort is based on the dollar amount of taxes paid – who wrote the largest checks?

All values are medians

Residents of the more expensive towns wrote the largest checks. Since the values of their homes are the highest, the tax bill – even at a lower tax rate – will he higher.

What if adjust for the home prices? Who pays the highest percentage of their home’s value as taxes each year?

All values are medians

With this adjustment, some towns with low median sales prices have moved to the top of the list, though some of the higher median sales price towns are also paying more than 2% of their home’s value in taxes each year.

Finally, we could adjust for home size to see who pays the most taxes per square foot of house…

All values are medians

This time we see towns with smaller homes and higher median sales prices leading the pack. The results should be very similar to a sales price per square foot calculation. People end up paying the highest taxes per square foot in towns where they also pay the highest purchase prices per square foot.

These results show a slightly different result that simply looking at the mill rates, though the mill rates are helpful as a quick first estimate. Farmington has some of the lowest taxes of the towns with high median sales prices, while Windsor Locks is the least taxed town with low median sales prices.

2010: none

2011: East Hartford, Enfield, Hartford, Manchester, Marlborough, Newington, Plainville, Southington, West Hartford

2012: Berlin, Bristol, East Windsor, Farmington, Glastonbury, Granby, New Britain, Simsbury, South Windsor

2013: Avon, Burlington, Canton, East Granby, Rocky Hill, Suffield, Wethersfield, Windsor, Windsor Locks

2014: Bloomfield

The process is basically the same everywhere. Towns review all the properties to make sure they have the correct stats – beds, baths, size, etc. Next they gather information on sales and feed all the data into the computer. A value is assigned to each property and the owners are notified – generally in the fall of the revaluation year.

West Hartford has an FAQ document on the part of their website related to the 2011 revaluation. Here is their answer to one important question that homeowners often have.

What will happen to my assessment if I improve my property?

While property improvements generally increase the value to your property, they may or may not change the assessment to your property. For example, while replacing a roof covering, a furnace, a water heater or updating your electrical main should have a positive effect on your market value they are not likely to increase your assessment. Landscaping your property should increase its curb appeal and could also increase its value, but would not increase your assessment. There are also improvements that would increase your market value and correspondingly your assessment. Some of these changes include adding central air conditioning, finishing off a basement, building an addition, and possibly remodeling a kitchen or bath(s).

Even after property owners receive their initial letter, they have an opportunity to challenge the new valuation. It usually begins with an informal hearing, which is basically just a meeting in which the owner can present their case. We always advise bringing data to support your argument. If the informal hearing doesn’t produce the desired outcome, then there is a more formal appeals process. This can vary by town, so be sure to check with your assessor to find out the exact process.

Let’s just get this first point out of the way early. If you’re looking for a ridiculous value – a complete steal – then a real estate agent probably isn’t going to find it for you. You need to start pounding the pavement to track down leads on your own. You need to find sellers who are (1) just starting to think about selling their home, and (2) completely out of touch with the approximate value of their home and the real estate market overall. Because once they talk to a real estate agent, or begin to look at what similar homes are selling for, the pricing is going to be far more rational and efficient. You are effectively competing with agents for listings.

Okay, so if we agree that your buyer’s agent is not going to find you the deal of a lifetime, how do you find a good real estate deal?

1. Look at what everyone else is ignoring.
Buyers are currently fixated on fully updated homes. This is a big change from the middle of the decade when sweat equity was all the rage. As a result, there are some interesting opportunities in homes that are in desirable locations but need some work. Sometimes these homes can be money pits, but other times the main issues are cosmetic. Differentiating between the two can lead to very good investments.

2. Be flexible in your requirements.
The wider the range of possibilities that you are considering, the more likely you are going to find a seller willing to compromise on price. Consider multiple towns. Consider different house styles. Consider different bedroom and bathroom configurations. The more options you are open to, the more likely an opportunity will come your way.

3. Be ready, willing, and able to react.
Every now and then we come across a property listed in the MLS that’s a good buy. We tell as many of our buyer clients about it as possible, but most of the time it’s not a good fit for their needs or the timing isn’t right.

For example, last year there was a home in a popular neighborhood in West Hartford that turned out to be a very good buy. According to the group of agents who visited it with us on broker’s tour, it was initially listed about 10% too high. It was also listed late in the spring market. The sellers quickly lowered the price to the point it was fair, but nothing happened. Buyers had checked out for the summer and there were no offers. After lowering the price to about 8% below was we all initially agreed was fair, they got an offer. The property ended up closing more than 12% below what we thought it was worth, and more than 20% below the initial asking price. It was not a distressed home, just one that got lost in the shuffle due to poor timing and pricing.

4. Focus on more than just the price.
Most of the homes in Greater Hartford are more than 25 years old, which means that their original mechanicals are approaching the end of their useful lives. Time for a quiz! You have the choice of buying two houses that are virtually identical. Choice A is a home with fresh, tasteful paint, but older mechanicals. Choice B is a home with hideous wallpaper and shag carpet everywhere, but new windows, roof, and furnace. Both have dated, but functional, kitchens and baths. Both have the same number of bedrooms, baths, and total rooms, and both have the same asking price. Which do you prefer?

Most buyers gravitate towards the tasteful and pretty. They overestimate the amount of time, effort, and money needed for cosmetic issues and underestimate the value of the mechanicals. Not only will newer mechanicals allow you to avoid the cost of replacing them, they will also operate more efficiently and save you money every month.

The average real estate buyer and seller is much more knowledgeable today than ever before. Information available via the internet and traditional media sources help them understand the sales process and pricing, which in turn makes the overall market more efficient. Finding an unbelievable bargain is a real challenge. Most buyers are focused on making sure that they get a good buy if a property needs work, and at least pay a fair price if the home is in move-in condition. The key is to know what else is on the market, so you know if the price is right.

Unfortunately, bargain hunters have a number of misconceptions about the current real estate market. Today we’re going to examine a few of the surprisingly common myths.

Myth #1: You can get a great deal on a fully updated home.
There are two reasons why it is difficult to get a great deal on a fully updated home in Greater Hartford. The first is that most of our housing stock is older. Since we didn’t see a huge boom in new construction, the vast majority of “fully updated” homes are recently renovated older homes. They come on the market regularly, but are a small percentage of the active listings at any point in time.

The second reason why it is difficult to get a great deal is that buyer preference has shifted towards homes in move-in condition. Maybe it’s the fact that the real estate markets are no longer consistently rising, or maybe it’s all the HGTV shows in which everyone buys a fabulous home. All we know is that sweat equity is currently out of favor. Therefore our clients are competing against lots of other buyers when they try to bid on properties advertised as “New, new, new!” It’s difficult to negotiate aggressively when there is a lot of interest in a home.

Myth #2: You can get a better deal on For Sale By Owner properties.
Homeowners that sell their property on their own have a choice to make. They can use the money saved by not using (paying) a listing agent to price their home at a discount, making it more attractive versus their competition. Or they can price it at “full price” and try to net more money on the transaction. Most FSBO sellers try to make more money – they want to capture everything they save by not hiring a listing agent, not give it away to a buyer!

Myth #3: You can get a better deal by working directly with the listing agent.
Here are three facts to get us started:
1. Listing agents are hired to get the highest possible price for a home.
2. Sellers pay the same commission whether the buyer uses their own agent or not.
3. Listing agents have a fiduciary duty to represent their sellers’ best interests.

Listing agents know a lot about their sellers. In some cases they even know the amount the sellers hope to get for their home and the least they’ll accept. The line of thinking behind this myth is that listing agents are willing to undermine the negotiating position of their sellers in order to get a deal together and collect the double commission. Buyers who believe this are essentially assuming that the listing agent is unethical and untrustworthy. Naturally we disagree, but there is actually an even better argument against this line of thinking than drawing on our observations.

Let’s do a thought experiment. Suppose you’re a buyer and you believe that the listing agent for a particular property will give you “inside information” on the sellers. If the agent is willing to stab the sellers in the back to get a deal done, then how would you expect to be treated? Will the agent point out concerns about the property (rather than only playing up the positives)? Will the agent evaluate the price using all relevant comparable sales (rather than selectively choosing comps that support their price)? Will the agent vigorously protect your interests throughout the transaction (rather than try to convince you that with the “deal” you’re getting you shouldn’t expect X, Y, or Z)? If we assume that the agent doesn’t take their fiduciary duty to the sellers seriously, then it seems unlikely they will treat you fairly since they have no contractual obligation to you as an unrepresented buyer. Now who’s the sucker?

Myth #4: Discounts off of the original asking price, or cost, prove it’s a great deal.
Buyers are smarter than this when they sit down to really think. One way the problem shows up is when a home’s price has been lowered significantly from the original list price. Another is when the seller recently bought the home and claims to have put in thousands in upgrades. Every home price needs to be evaluated independently. It really doesn’t matter what the seller paid when they bought, how much they spent to improve it, or how much they were asking when it first came on the market. All that matters is how the home compares to other similar properties. Sometimes homes are priced realistically, other times they aren’t. Buyers, and their agents, need to understand what else is on the market and how they compare to the target property to truly understand the price.

The real estate industry is full of professionals looking for great deals. It is hard work and a full time job. Generally the best deals are only seen in hindsight – the buyer had what turned out to be the correct view on how the real estate market would evolve in the coming years.

To be continued … tomorrow we’ll share some ideas about how to put yourself in position to get the best deal possible.

Single-Family Homes
First quarter sales of single-family homes increased 16.4% compared to the year-earlier period. However, the 1,024 total sales for the quarter were still below Q1 2008 levels and the 1,596 average Q1 sales from 2001 — 2007.

The median price for single-family homes in the County increased by 6.4% from $206,700 to $220,000. Sales price per square foot, another valuation metric, increased 2.2% during the quarter from $137/sqft to $140/sqft. Finally, the median time on market decreased from 59 days to 45 days.

Condominiums
The condominium market trended in the same general directions as the single-family market. The number of sales was up 13.3% over the first quarter last year, though the total of 315 for the quarter was well below the average of 583 from 2001 through 2007.

The median sales price was flat during the quarter, increasing slightly from $172,500 to $173,000, and the median price per square foot fell 2.1% from $139/sqft to $136/sqft. Condominiums also experienced a decrease in sales time, with the median days on market falling from 67 to 55 days.

Trend Towards Faster Deals
The extended Federal Tax Buyer Credit has pulled much of the traditional spring activity forward. Buyers must have a property under contract by the end of April in order to capture the credit, which has motivated them to start looking sooner. Sellers have also gotten an early start by listing their properties in hopes of attracting the credit-seeking buyers. The decrease in days on market is the main result of the credit this quarter, while there will likely be a large spike in closings next quarter.

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.

There is lots of interesting data – here are some observations after poking around the various reports:

- Most projects allow homeowners to recoup between 60% and 80% of their cost. Basically this is saying that it is not appropriate to think about renovations as “investments” since they will rarely increase the value of a home by more than the cost of the project. Sellers sometimes think that they should recover at least 100% of the value of recent projects. Every situation is different, so in some cases that may be true, but in general remodeling projects do not “pay for themselves” except when the owner’s enjoyment of the finished work is factored in.

- Most of the projects with higher payback percentages are structural renovations that have little opportunity to customize. For example, siding and window replacements rank highly. On the other hand, projects that are often very specific to the owners bring a lower payback. Examples here include a sunroom addition or a home office renovation.

- At the national level, payback amounts for most projects have decreased since last year. However in the New England region paybacks have actually increased for most projects, though the report doesn’t try to explain why this might be true. Perhaps the data simply reflects the fact that the housing stock in New England is older than in other parts of the country so renovations are more important here.

- Payback amounts are generally higher in the Hartford metro area than in the New England region, which are in turn higher than the national averages. Renovation projects are apparently very cost effective in our area – good news for us! Three projects return an average of more than 100% in Greater Hartford (siding replacement, converting attic space to a bedroom, and replacing the front door).

Check out the full report to see the specifics for any projects that you’re considering. The key message that the study sends is that each dollar spent on the average remodeling project translates into less than a dollar of increased value for your home. That being said, the payback for every project is going to be different. It will be based on the needs of your home and specific decisions made within the project.

Wall Street Journal, December 23rd: Data from the National Association of Realtors shows that Home Sales, Prices Brighten (subscription required). Though the current data is positive, the author expresses concern about “a continuing flood of foreclosures and the eventual withdrawal of government life support.” They note that the housing has been strongest in “middle-class homes with short commutes,” something that rings true in the Greater Hartford markets.

Wall Street Journal, December 24th: The next day, the headlines reversed to New-Home Sales Drop 11.3% as Impact of Stimulus Fades (Subscription Required). This time the data came from the Commerce Department, which noted that the measure was very volatile (it had risen 7.4% the previous month) and new home sales make up less than 15% of total home sales. And in our area, new home sales are far less than 15% of the total.

Wall Street Journal, December 24th: On the same page, we learn that Resession Alters Migration Pattern in US. Although this story isn’t directly about real estate, it is interesting to consider the implication of people moving around the country on local real estate markets. A large map shows the population changes by state for 2004-2005 and then for 2008-2009. Florida and Nevada showed the most dramatic shifts, from strongly growing to modestly decreasing populations. Connecticut appears to be consistent across the two time periods with both reflecting losses of between 0 and 50,000 people.

Wall Street Journal, December 29th: Everyone who loves a good house hunting story definitely needs to read this tale as A Picky Home Buyer Pursues an Epic Hunt for ‘the One’ in the San Francisco Bay Area. It took over two years and 298 properties for Lidia and Doug Pringle to find the right place to call home. Wow.

Calculated Risk, December 30th: During the past two declines in home values (early 1980s and early 1990s), prices did not bottom until the unemployment rate peaked.

The Big Picture, December 31st: Morgan Stanley released a research piece suggesting that the 10 Year Treasury could rise to 5.5% in 2010. What caught our eye was that they estimated that the higher Treasury rates could push rates for 30-year fixed mortgages up to between 7.5% and 8%. These rates are, of course, much higher than buyers are used to seeing. The commentary basically says that Morgan Stanley must be concerned about inflation increasing, and that the charts the commentators use to look at the market show strong increases in inflation expectations over the past year.

Wall Street Journal, December 31st: The Department of Housing and Urban Development have had Rules to Clarify Cost of Mortgages in the works for a while, tightening the requirements around Good Faith Estimates that lenders give to buyers when quoting mortgage rates. Their overall goal is to force lenders to report all of their fees and rates in a way that allows borrowers to more easily compare rates between lenders. It will be interesting to see how this transition goes as lenders and real estate attorneys adjust to new regulations.

Wall Street Journal Blogs, January 1st: The Five Key Housing Issues to Watch in 2010 are 1. mortgage rates; 2. the future of Fannie, Freddie, and the FHA; 3. loan modifications; 4. more loan resets; and 5. the tax credit.

New York Times, January 1st: Some feel that the Federal Government’s effort to modify loans is Adding to Housing Woes. They argue that allowing homeowners to remain in their homes by modifying their mortgage has been counterproductive. Homeowners have their hopes falsely raised and waste money trying to keep a home they simply cannot afford before finally defaulting on the modified mortgage.

So that’s the word on The Street as the real estate markets move into 2010. The headlines seem to have a negative bias, highlighting concerning data, unsuccessful recovery programs, and the unfortunate reality of many Americans struggling. We’ll have to see how it all plays out here in Greater Hartford. And as always we’ll hope for the best and plan for the worst.