Archive for the 'Housing Prices' Category
An Economist's View of the National Housing Market
Economists are divided as to the direction of the national housing market. Some believe that the environment is stabilizing and that prices will increase from here. Others see further price decreases once the government support fades away.
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.
Who Pays the Most Taxes in Hartford County?
So who pays the most taxes in Greater Hartford? It’s not as easy to figure out as it might seem. All the talk of revaluations, budgets, and referendums got us thinking about how we could get at that question using the real estate data in the MLS.
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?
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?
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…
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.
Hartford County Revaluation Schedule
Last week we gave an overview of the 2011 City of Hartford revaluation. Here’s the revaluation schedule for the rest of the towns in the County.
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.
Real Estate Bargains: Getting the Best Buy Possible
Yesterday we highlighted four common myths that sometimes lead buyers to believe they’re getting a better deal than they really are. Today we’re sharing some thoughts about finding true real estate bargains.
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.
Real Estate Bargains: Common Myths
So you’re looking for a home and you want a real bargain? You’re not interested in a fair price, or even a good price, you’re talking about a real steal, right? Join the crowd – there are a lot buyers out there just like you.
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.