Archive for the 'Housing Prices' Category
Property Taxes and Revaluations
We’re sensing some confusion over the future direction of property taxes among some of our buyer clients and homeowner friends. We don’t know pretend to know exactly what will happen, but have a theory we thought we should share:
You’ll notice that property values (assessments) do not figure into the property tax calculation. Even though your home, or the home you hope to buy, may have fallen in value since the last revaluation, you should not expect that to automatically translate into lower property taxes in the future.
The manner in which property taxes are calculated can be confusing to people, and revaluations add an extra level of complication. Back in the day, when home values only went up, revaluations were met with a combination of excitement and fear. Excitement since someone would be giving us an estimate of how much equity we had earned by owning a home in a rising market. But also fear because, “If my home actually doubled in value, and the mill rate stays the same, then my taxes are going to double!”
Although that statement it true, the mill rate will adjust any time there is a major change in the Grand List (the total value of all property). Every time there was a major increase in a town’s Grand List during a revaluation, the mill rate would decrease to keep the actual taxes paid roughly in line with previous years. Here’s a good example, the history of the mill rate in Newington. You can see that the mill rate actually falls most years in which there is a revaluation.
The goal of a revaluation is distribute the tax burden fairly across property owners. Properties in a town gain and lose value differently, so the state requires that towns catch up with those changes every five years. The only way a revaluation will make a meaningful impact on your individual taxes is if your property’s value changes in a dramatically different manner than the average property in town.
These days it’s difficult to know if a home has increased or decreased in value since the last revaluation – it depends on home price trends and the revaluation schedule in the specific town. But suppose there is a town where the prices have fallen 10% across the board since the last revaluation. Homeowners there should expect to see their individual assessments fall, but are also likely to see the mill rate jump.
At the end of the day, the town budget determines how much must be raised in property taxes. If the town budget is flat, then next year will be the same total tax as this year. The mill rate will be set to ensure that the appropriate amount of money is collected. Decreasing property values, unfortunately, have nothing to do with the level of municipal spending, which is what actually determines our property taxes.
Our 2011 Predictions
It’s the second half of January, and we haven’t even published any predictions for the year. Shame on us! The point of predictions is to get them out there early so that everyone has already forgotten about them by the time the real action starts. That way you don’t get egg on your face when the exact opposite happens. But if you get it right, then you can smugly point back to your calls and say, “See, should have listened to me.”
Environment
The overall real estate environment can be charitably described as unfavorable over the past few years. It’s been characterized by falling prices, decreasing sales volume, and tightening credit as the overall economy works through a financial downturn. Buyers have been far more reluctant to make a big real estate purchase despite the Federal stimulus and the very low mortgage rates. Part of it is undoubtedly less confidence in their personal financial security, the concern that they could be laid off tomorrow. At the same time people no longer believe that real estate prices will always increase, so they’re less interested in sweating out the first few years of big mortgage payments in hopes of being rewarded with quick appreciation and home equity.
Our research shows that the number of single-family home sales in Hartford County peaked in 2005 at just over 9,000 properties. Sales quickly fell to the lower 6,000s by 2008, and remained about there in 2009 before falling to the upper 5,000s for 2010. Single-family home prices didn’t peak until 2007, fell 14% in two years, and then rebounded a bit in 2010. It’s still not clear to us why the average home price increased this year, though it’s encouraging that they didn’t fall further. Our current theory is that the mix of sales changed to included more larger (higher priced) homes.
Looking Forward
We don’t see any major changes in the big picture story, so we expect 2011 will bring more of the same. Local employers seem relatively stable in that there have not been major layoff announcements recently, but lots of people are still looking for work. And thrift continues to be a virtue, so the rank and file are less likely to reach for a larger home. We think the number of deals will remain in the vicinity of 6,000 for the year, and that prices will be flat-to-down for the region overall. We expect mortgage rates to continue to slowly rise, though not jump so much that buyers feel their purchasing power has been taken away. Basically, we expect that it will be another year in which homes have to be priced and marketed well in order to sell.
That said, we have some disagreement about the specifics. Rather than settle it internally, we thought it would be more fun to have a public airing of differences, so that bragging rights can be established at the end of the year.
Number of Transactions
One of the largest differences in the market between then and now is the number of transactions. Neither of us believe that they will return to previous levels, but we do have a bit of disagreement over the direction they’re heading.
- Amy: Sales volume is going to stay flat or go down versus 2010 for Hartford County … it’s going to get worse.
- Kyle: Sales volume is going to stay flat or go up slightly versus 2010 for Hartford County … we’re stabilized and rebounding.
Mortgage Rates
The Federal Reserve’s current Quantitative Easing program is clearly not holding mortgage rates down. So how high will they go in the coming year?
- Amy: Interest rates will fluctuate between 5% and 6.5% during the year. The slow increase will cause some buyers to pull the trigger sooner than they had otherwise planned.
- Kyle: Interest rates will increase, though it’s not clear to me how high they’ll go. As long as inflation fears don’t take off, they should remain low enough for people to actually get mortgages.
Bonus Predictions
- Amy: Short sales are going to be a lot more common. I am not a fan of short sales because my buyers wait and wait for months to hear back from the bank, never do, and eventually move on out of frustration.
- Kyle: The requirement that all condo associations update their FHA approval will cause delays for buyers. Condo associations are run by volunteers. Ideally their management companies, professional property managers, will make sure the associations understand the benefit of being FHA approved, but I’m sure there will be some complexes out there that just forget to go through the process.
- Kyle: This year there is no obvious real estate storyline, like there has been for the past few with the Federal Home Buyer Tax Credit. But as an industry, selling is easier when there is either a big carrot or a big stick out there, so I have no doubt one will be manufactured. I’m thinking that after a couple years of credit carrot, we’re going to be transitioning to the stick this year. Two leading candidates are “Buy now before prices start to rise” and/or “Buy now before mortgage rates rise.”
We’ll see what happens … it’ll be an interesting year in Greater Hartford real estate!
Readers, do you have any predictions? Related to real estate or in general?
Courant Companion: That Empty Feeling
The cover story of today’s real estate section features an article titled That Empty Feeling about the impact of vacant homes on a neighborhood. The wide-ranging piece provides a lot of interesting and important information about homes that are considered eyesores.
A critical point in the overall thesis, and therefore a focal point of the article, is the example of a dilapidated property that actually hurts the value of neighboring homes. Unfortunately, a very poor example was selected. As agents familiar with the property and the neighborhood in question, we feel the example actually works against the overall angle of the story.
The author quoted a real estate agent about a bank owned home in Hartford’s West End. The agent asserts that the home “significantly and negatively impacts a West End homeowner’s ability to sell.” As evidence, the agent “points to 13 properties in the West End neighborhood listed above $300,000 that have been removed from the market or have had contracts expire since January 2009.”
We have a number of concerns about three short paragraphs in an otherwise well-done article.
We don’t believe that the highlighted property’s exterior appearance rises to the level of “eyesore.” Although the assertion that the “landscaping has not been maintained” is factually correct, the lot is very different than the yards with long grass discussed elsewhere in the article. This property is set quite close to the street for a larger home and has far more plantings than grassy areas in the front yard. Most of the landscaping is hidden behind a brick wall, meaning that it is not visible from the street. Is there neglect? Sure, but the home isn’t sitting in what looks like a hay field. And as a brick building with a slate roof, the neglect has had relatively little impact on the overall exterior appearance.
We don’t believe that the highlighted property has scared off buyers. The house in question is on a short street that constitutes its own little neighborhood with only 18 homes. Three of the homes sold this year, so clearly those buyers were not deterred. One could argue that the bank-owned home pushed the price down on the other homes on the street. However, our experience as active agents in the neighborhood is that prices have fallen equally for all homes in that price range, even those without nearby distress. After little activity in 2009, there has been a much more interest in high-end homes in the West End during 2010.
The assertion that 13 homes priced above $300,000 have come off the market without selling is inaccurate and misleading. The inaccurate portion of the statement is that the correct number is 13. In fact, there have been more than 13 single-family homes priced above $300,000 that have not sold. The number increases when multi-family properties and condominiums are also considered. The misleading portion of the statement is the implications that these failed sales are related to vacant homes. Some of the sellers received offers that they chose not to accept. Others changed their minds about moving because of their personal or professional situations. Still others were simply unrealistic about the value of their home. We cannot think of a single West End property that was unsellable due to a poorly maintained neighboring property. Yet we can think of multiple examples of homes that sold despite the neighboring home needing significant maintenance.
It’s unfortunate that the author did not confirm these West End facts with an agent active in the neighborhood. Especially since there are plenty of agents with West End experience that would be happy to contribute to an article. The last time we counted, there were 18 real estate agents that lived in the (small) neighborhood, many of whom are very successful and are regularly quoted in the Courant. There are also plenty of agents who do multiple deals a year in the West End though they live in other areas.
We felt the need to speak out because the article makes the West End the face of neglected properties. Although it’s true that home values have fallen in the West End, and properties have come off the market without selling, these things have been happening elsewhere in Greater Hartford too. Since real estate values fall for a variety of reasons, suggesting that one bank-owned home is causing buyers to avoid the entire neighborhood (the 13 listings removed from the market) is overly simplistic. It may tie the story together, but it’s just not true.
Similarly, one poorly researched section does not negate all the value of this interesting article. We would definitely recommend reading it – just take the portion about the West End property with a grain of salt.
HCPR: Muted Third Quarter Follows Tax Credit
Hartford County residential sales fell significantly in the third quarter of 2010 versus the third quarter of 2009 as buyers took a breather following the June expiration of the Federal Home Buyer Tax Credit. Median prices rose modestly over the year-previous quarter, while another measure of pricing, the median price per square foot, fell a comparable amount. Most noteworthy was the change in the mix of homes that sold as the Tax Credit phased out of the markets.
Single-Family Homes
Third quarter sales of single-family homes fell 32.5% compared to the year-earlier period. The total number of 1,314 transactions is the lowest tally for a third quarter since the CTMLS began tracking data in 2000.
The median price for single-family homes in the County increased by 4.3% from $232,000 to $242,000. Sales price per square foot moved in the opposite direction, falling 2.9% from $147/sqft to $143/sqft. Finally, the median time on market increased from 37 days to 47 days.
Condominiums
Hartford County condominiums once again trended in the same directions as the single-family homes during the quarter. The number of sales was down 39.0% over the third quarter last year, with the 368 total transactions also the lowest on record for the quarter.
The median sales price rose 2.9% during the quarter, from $170,000 to $175,000, and the median price per square foot fell from $137/sqft to $134/sqft. In contrast to Single-Families, condominiums experienced a decrease in median days on market from 57 to 53 days.
Changing Sales Mix After Credit Impacts Statistics
The Home Buyer Tax Credit pulled a disproportionate number of lower priced sales into the second quarter of the year versus higher priced sales. As a result of the changing property mix, the median sales price for the County increased at the same time that the median price per square foot suggests that home values were falling.
HCPR: Soaring Sales in Second Quarter
Sales in Hartford County soared in the second quarter of 2010 versus the second quarter of 2009 thanks to the Federal Home Buyer Tax Credit. Median prices were up modestly over the year-previous quarter. Median days on market fell meaningfully, reflecting the frenzied pace of the County’s residential real estate market as the tax credit overlapped with the traditional spring market.
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.