2014 Wrap-Up: Single-Family Results

The headline trend in the Hartford County single-family real estate markets in 2014 was that there was no prevailing narrative. After a few years of uncertainty in the late 2000s following the financial crisis, the markets enjoyed a few years of obvious recovery. The results of 2014 cannot be explained in comparable terms.

The simple way to explain the year is to say it was a repeat of 2013. The number of single-family deals recorded in the CTMLS was nine higher in 2014 than in 2013. That’s a surprisingly small difference for a market with over 7,000 total deals. The chart below shows the single-family deal counts since 2001.

2015-01-15 Hartford County Single-Family Deals by Year

January is the only time of the year when we review pricing in the real estate market. Other analysts look at median and average prices on a monthly basis. We feel that the lumpiness of the market makes it difficult to trust data sampled over narrow time intervals.

The number of homes that close in a month varies wildly throughout the year. The types of homes that are available in the spring market seem different than those available in the winter. All of those factors, and more, could be addressed with a complicated model. And maybe the other analysts have the computing power and creativity to overcome those challenges. We don’t, so we stick with full year data. But I disgress…

Average prices were basically flat in 2014, while median fell by about 3%. The chart below shows average and median prices for single-family homes since 2001.

2015-01-15 Hartford County Single-Family Prices by Year

Why didn’t the average and median prices move in the same direction last year? Looking at the number of deals by price band seemed like a good place to start addressing that question.

There was a 4.9% increase in the number of deals in the $100,000s and a 4.7% decrease in the number of deals in the $200,000s. We believe that this is evidence of falling home prices during the year. Properties that used to sell in the low $200,000s fell into the high $100,000s.

There was an increase in the number of deals that closed at prices above $700,000. In fact, there was a 25% increase in the number of properties that sold for between $700,000 and $1,000,000. This was the second year in a row of strong deal count growth in that price band. It is important to note, however, that the price band only contributed 155 deals to the County’s total, so it is not a fundamental driver of the market.

2015-01-15 Hartford County Single-Family Deals by Price Band

Town-by-Town Sales Data for 2013

Last week we published some charts showing the direction of the overall single-family market in Hartford County for 2013. The quick summary was that sales activity has been increasing nicely for two years, but median prices have been stuck in a protracted valley.

The data tells a variety of different stories when we zoom in to the individual towns. Before we get there though, a quick disclaimer. It’s difficult to take too strong a position about any single data point without looking more deeply into what is happening in the town. We’re going from 7,000+ data points on the year at the County level down to a small percentage of that number for most towns. With that, here is the table showing each town.

2013 Year End Single-Family Stats by Town

The results are incredibly varied:

  • East Granby saw the deal count increase 44% and the median sales price rise by 9%.
  • The towns with the 2nd through 8th largest increases in deal count had median prices either remain virtually unchanged or decrease.
  • Avon and Granby both exactly matched 2012 in terms of deal count, and both saw the median price rises.
  • Simsbury remained basically unchanged in each metric.
  • Only five towns had their number of successful closings decrease in 2013.
  • Hartland, Marlborough and Farmington were the only three towns with negative deal count growth and negative median price change.

The markets in each town have their own story to tell. In order to understand what’s happening, the mix of homes that sold, and the level of distress in the market, must both be considered. One could imagine that the multiple towns with large increases in deal count but falling median prices were highly impacted by distressed sales.

We have a model that lets us more easily visualize the numbers for each town, organizing the raw sales data into various charts and tables. I doubt we’ll post the charts, there are far too many, so please feel free to reach out to us if you have specific questions about what is going on in a particular town. We are happy to share.

2013 Year End Data Review

Most of the year we avoid looking at prices when we analyze market statistics. Considering only a month’s (or even quarter’s) worth of data is risky because the sample size is too small, while making a more sophisticated model to account for the small sample size is beyond our abilities. However we are comfortable looking at a full year of data, and now that the calendar has turned over to 2014 we can look back on the past year to see what happened.

First, we noticed that real estate activity increased during the year. The number of closed transactions in 2013 was about 12% higher than in 2012. Deal count continues to be well below the consistent trend line that was established in the early 2000s, so there appears to be room for activity to increase even further.

2014-01-09 Hartford County Single-Family Transaction 2013

We also noticed that median prices have not shown nearly as much strength over the past two years as the activity levels. In 2013 the median single-family sales price rose less than 1% over 2012, and remains just below the median sales price for 2011.

2014-01-09 Hartford County Single-Family Prices 2013

Pricing traditionally lags behind deal count in the real estate market. We saw this clearly at the top of the market, where prices continued to rise in 2006 and 2007 even though the deal count peaked in 2005 and was already falling quickly. The bottom of the market appears to be following this same trend, with prices more or less stable since 2009.

The Hartford County single-family home market has many individual town markets, and even neighborhood markets, that are all recovering at their own pace. We see some towns that are well into a recovery, with price appreciation. Other towns are struggling to find a bottom and buyers have an opportunity to really negotiate on price for their choice of homes. 2014 will continue this dispersion trend – the differences in the individual markets are likely to increase this year.

The most difficult part of interpreting median price changes is understanding how the mix of homes sold at the various price points impacts the final result. Hartford County has an active single-family market at a very wide range of prices, from less than $100,000, all the way into the millions of dollars. The number of closed deals increased in all of the categories except the $1MM+ bucket.

2014-01-09 Hartford County Single-Family Price Bands 2013

We know that bank-owned homes continued to be listed and sold in 2013. However, it is difficult to know the exact number because not all agents mark them properly in the CTMLS. It appears that at least 787 of the closed single-family deals in 2013 were bank-owned, which represents about 11% of the overall market. There were an additional 332 deals that the listing agent described as a “potential short sale,” bringing the total distressed sale percentage up to nearly 16% of the overall market.

Our view is that high-quality homes are attractive to buyers and seeing rising prices. At the same time, an active distressed market, with associated distressed prices, is putting downwards pressure on properties that are not in top condition. Buyers looking to update a home are more likely to go after the cheaper bank-owned property than a non-distressed house of the same quality.

We expect the local real estate markets to continue to improve in 2014. We’ll postpone our detailed predictions for now, but the big-picture trends are positive in Hartford County. Please let us know if you have specific questions about your town/property – we’re happy to help. Next week we’ll provide specific, town-by-town data for Hartford County.

Zeflections on Zillow

Earlier this week we put up a story about Zillow’s view on the value of our home. It wasn’t the first time we’ve mentioned Zillow, and I’m sure it won’t be the last. Historically we’ve only brought up the site when we we’re frustrated or amused. This mention had an interesting result – Zillow found our article and weighed in directly, and helpfully (see the comments at the bottom). It caused some debate and reflection within the Bergquist household.

City Hall SculptureThere are aspects of Zillow that I genuinely like, despite the periodic venting. For example, they do a better job than most at aggregating information about a property onto a single page. They also present the information in a reasonably clean layout that is accessible to users. I even like the idea of creating a valuation algorithm, though it’s obviously difficult get it right and can produce some weird results. Most impressively, they have done a fantastic job of building a consumer real estate website with a large user base, and we give them our ultimate vote of support by paying to advertise on the site.

As you have previously read, we have mixed feelings about the Zestimates. The main concern is that there is a conflict in how the Zestimate is used by Zillow.

My interpretation of Jay’s point in the comments of the previous post is that Zillow considers Zestimates to be infotainment. Here’s their official explanation of what a Zestimate is. They are not appraisals. They are a starting point. Buyers and homeowners should get additional information from local professionals.

This position reflects reality since the values in our area have a median error of 7.0% and are considered their highest quality estimates. It’s also the smart legal thing to do since it should protect them if a user ever tried to sue after relying exclusively on the Zestimate for a real estate deal.

Despite the company’s effort to disclose the accuracy of their Zestimates, and downplay their role in valuing a property, home buyers we have worked with have not received that message. Buyers LOVE the fact that they can pull up the site and find out how much a home is worth.

The Zestimate was the site’s original hook – it’s how Zillow drew in users and built itself into the empire that it is today. They have since added many excellent features, but the Zestimate continues to be front and center. Disclaimers are there if you look for them, but honestly, how many consumers click through to see behind the curtain?

When navigating via the map, the Zestimate is the user’s first impression of a home. You see the house icon with the color showing its status and the value underneath. Clicking through to the detail page, the Zestimate point estimate (versus the estimated value range) is right at the top, and directly under the asking price for homes that are for sale. People believe what they read on the internet and what they see is the Zestimate.

Because the Zestimate is so central to the Zillow brand, it has to be presented as reliable. Why would anyone use the site (versus a competitor’s real estate portal) if they believe the prominently featured value splashed all over the place was inaccurate?

At the same time they also have to present it as essentially “for entertainment purposes only” for both legal protection and since the algorithm isn’t all that accurate according to the published stats or the real life experience of real estate professionals working in the market every day.

It’s a catch-22 for Zillow. Yet their success shows that they have found a good balance. The site thrives despite questionable accuracy – the consumer has spoken, and they want to be entertained. It’s up to real estate agents to educate the subset of Zillow users who are tying to buy a home and believe Zestimates to be infallible truth.

 

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The Right Offer Price

2013 Predictions

SnowmanWe never made any official predictions for the 2012 real estate market. I’m stunned that we didn’t do it because it’s a fun thing to think about, and after analyzing the year-end data we always have thoughts and ideas. We won’t make that mistake again this year … here are our predictions for the coming year.

Amy

1. Low inventory in the early months of the year is going to result in more multiple offer situations than normal, which buyers may not be mentally prepared for. As I’m fond of saying: You snooze, you lose. Make sure if you’re actively looking that you have your financing in order and make haste when going to view newly listed properties. Don’t think it’s okay to wait until the weekend to go see them. They may be gone by then.

2. The number of transactions is going to continue to increase in 2013. I think there will be at least a 10% increase in the number of transactions over 2012.

3. More urban locations will stabilize on prices, while popular suburban towns will see increases in prices. I believe Hartford, New Britain, and Manchester will see price stabilization, while Glastonbury and West Hartford will see a 2-4% uptick in prices.

4. Short sales will be processed more quickly and there will be fewer new short sale and foreclosure situations.

5. The condo market is going to continue to trend slightly downward on prices. The number of condo transactions will remain about the same.

6. Sellers will become more bullish about the market and will be tougher negotiators than in recent years.

7. Appraisals will become less of an issue as more data points are added for appraisers to use during their price evaluations.

8. We’ll see more move-up buyers this year, as interest rates will remain low, prices for selling their existing homes stabilize and they feel increased job security. This will further help push up sales prices overall as the increased demand for higher end homes raises the median sales price.

Kyle

1. Deal volume will increase again, though not not by another 20%.

2. Buyers at the upper price points ($700,000+) will feel more confident and do meaningfully more deals.

3. Prices for single-family homes will rise noticeably in leading towns, and start to stabilize in lagging towns.

4. Condominiums will continue to look for the bottom in their market.

5. Mortgage rates will rise slightly.

Looks like the two of us have similar expectations for the 2013 real estate markets. And no, we didn’t cheat and just copy each other’s predictions. But we do talk about real estate all the time, so it’s not terribly surprising that our views are similar.

In summary, look for the momentum that the markets built up last year to continue into 2013 as the economy seems more stable and there are no obvious red flags on the horizon.