Sunday morning – before the eye of the storm arrived – turned out to be the worst of the weather for Greater Hartford. That’s when the bulk of the rain came through, and the strongest wind gusts, though they did not approach hurricane strengths. The rain died out quickly as the storm moved north of us, and the heavy winds that were forecast never materialized.

Our biggest concern before the storm was that massive trees would not be able to withstand the heavy winds, especially with the saturated soil. We were worried about cars and homes getting hit, and were mentally prepared for a power outage. Thankfully, neither happened for us (though we know others in the immediate vicinity that were affected).

Our biggest actual issue during the storm was the heavy rain. Like most homes in the area, our basement has a portion of the foundation floor cut out at the low point to allow water to drain from inside to outside. During especially rainy stretches we sometimes see water collect in the pit, and attribute it to the rising water table. Early Sunday morning we began to see signs that the water may try to use the hole to come into the basement.

Our makeshift solution is shown in the picture – we basically tried to plug the hole using whatever we could find. The key components ended up being over sized garbage bags as a liner, wet kitty litter to mold the the bags to the irregular shape of the hole, a sheet of foam insulation to hold down the perimeter, and then lots of weights to apply pressure and seal the edges. It’s an ugly solution, but we didn’t get any water in the basement.

We feel very fortunate that we seem to have emerged unscathed, and are also grateful that the scope of the damage in the region was much less than expected. Other areas of Connecticut experienced considerably more problems – flooding, trees down, and power outages. Some friends in NYC were evacuated from their high rise apartment and then came back to water damage. Friends further south have also reported major problems.

Worst of all, it seems like just about all of southern Vermont, our home state, was devastated by flash flooding. All the major routes we would take to get from Hartford to Rutland are washed out – Route 103 in Chester and Ludlow (near Okemo). Route 9 in Wilmington (near Mt. Snow). Route 4 in Woodstock and Mendon (near Killington). Other towns sustained major damage away from the primary roads, especially Brattleboro. It’s the worst flooding pictures and video I have ever seen. Please consider taking a trip up to VT this fall or winter for some touristing activities – it’s a wonderful place to explore and their economy is going to need our help.

I’ll be honest, I couldn’t get through the whole thing in the first sitting, but when I finally did, it seemed worth the effort.

The Next Real Estate Boom: How Housing (Yes, Housing) Can Turn the Economy Around
Patrick C. Doherty and Christopher B. Leinberger
Washington Monthly, November/December 2010

Although gadgets are fun, we’re more about the real estate on this site. And this news piece definitely caught our attention – Steve Jobs is going to be building a new home! And the site plans are available on the internet!

The story of this property is too long and complicated for us to fully understand the details, but there seems to be two interesting themes – historic preservation and design.

Jobs bought the estate in 1984, lived in it for a while, rented it for a while, and let it sit vacant for a while. The existing structure is a 30 room Spanish Colonial Revival mansion with 14 bedrooms and 13.5 baths over multiple structures on 6 acres. Although Jobs has wanted to demolish the home for years, local preservationists have successfully intervened on the property’s behalf, working to either save the structure or move the home to a different site. In 2006 someone made their way onto the vacant property and took these pictures, which show significant neglect. There seems to have been rulings in favor of each side, with the most recent victory being for Jobs when the preservationists dropped their lawsuit seeking to prevent demolition. At this point, the demolition is on.

The other interesting subplot is about what the new home will look like. Jobs has the resources to build anything he wants, so what will it be? Conceptual plans for the new home were submitted to the Woodside Town Council, and they have reached the interwebs. I haven’t found images that I can zoom in on (please post a link in the comments if you find some), but these small images and the accompanying commentary give a good flavor for the space. The basic conclusions of those who have studied the plans in detail are that Jobs is sticking with the clean, simplified aesthetic popularized by Apple products. Also, that he won’t be throwing large parties at his house, it’s designed more as a peaceful retreat than a showpiece property.

Jobs has won the most recent battle with the preservationists, but will it be the end of the war? And if he actually follows through with his plan, will the final product truly be as restrained as the current plans? Only time will tell.

It seems to me that in evaluating a city we should be using a similar approach. When comparing our area to others around the country, we need to be comparing like to like. The current dust-up about Hartford being a “dead city” is the most recent, but far from only, example of how inappropriate comparisons skew reality in one way or another.

A wonderfully positive example is Kiplinger Personal Finance Magazine recognizing West Hartford as a town for the coming decade next to Austin and Seattle. The point isn’t that West Hartford is unworthy, or to minimize all the hard work of the town’s leadership, rather that comparing West Hartford and Washington DC (#3 on the list) as equals is not apples-to-apples.

We unfortunately can’t control how other people do their analysis, but we can draw our own conclusions so that we can decide on our own what truly matters and what doesn’t. Amy and I have lived in a few different parts of the country, but we’re going to need help from our readers to find appropriate cities to use as comps for Hartford.

But before we get to that, our first order of business is to define what we mean by “Hartford.”

The word “Hartford” can be used in a lot of different ways, and means different things to different people. In some of the most common uses the speaker means…
- The Downtown neighborhood where all the tall buildings are.
- Everything within the Hartford City limits.
- The general geographic area that is centered on the City of Hartford.
- The seat of the County and State governments.

Normally defining the city wouldn’t be a challenge, but boundary lines are drawn differently in Connecticut than in many other parts of the country. Is it appropriate to compare Hartford to Detroit? Hartford (as defined in the article) is strictly the City of Hartford, which is 17.3 square miles of land. Detroit, on the other hand is 138.8 square miles. In order to make a geographic area of comparable size, we would need to include Hartford, West Hartford, Wethersfield, Newington, Rocky Hill, Bloomfield, Windsor, and half of Windsor Locks. Would the conclusions be the same if the analysis included all of those towns?

I propose that we think of “Hartford” as the region – the general area centered on the City of Hartford, but including all the surrounding towns. There is no right answer, of course, but I think that taking a regional view is most appropriate because we have a regional economy with people frequently traveling between towns for work, to shop, and to have fun. Additionally, taking this view is the only practical way to compare Hartford to other cities since they are usually geographically much larger. The negative of looking regionally is that it will be very difficult to gather data on the Hartford region.

Going back to the article praising West Hartford, I think that Hartford (as a region) would still be worthy of inclusion as a best city for the coming decade. I’m no expert on Washington DC, but if Kiplinger is able to look past their challenges to see the potential, then they should be able to see past our challenges too.

I’d love to have folks weigh in with their take on how we should define “Hartford.” And if we can agree, then we can begin to look for other similar cities to which we can compare our current situation and future ambitions.

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.

Before diving into the details, here is a quick review of the current rules of the game:
1. First time buyer or existing owner (extra criteria).
2. Binding purchase contract by April 30, 2010.
3. Closing by June 30, 2010.

In a June 11th press release, NAR argues that 180,000 buyers met the first two rules but are at risk of missing out on the credit because their lenders will not be able to underwrite the mortgage in time. In fact, they state that “as many as one-third of qualified applicants have been notified by their lender that their mortgages will not close before June 30th.” NAR would like to protect these buyers by extending the deadline for closing to September 30th.

NAR’s main concern is that the surge in purchases at the end of April is overwhelming lenders. Others seem to believe that the tighter lending standards and the new appraisal rules that fall under the Home Valuation Code of Conduct (HVCC) are a big part of the delay. A number of articles, including Senator Reid’s press release on the issue, state that there is “growing concern” that short sales will be impacted.

We have heard about mortgage delays with some of the larger national lenders and with special programs (like CHFA) that require additional steps or approvals. However, buyers using standard mortgages with local and regional lenders are seeing their loans go through without much trouble. Appraisals can be an adventure when someone is assigned from outside of the area (like from Rhode Island!), but they have occurred in an expeditious manner. Short sales are a whole different animal, and the concerns identified seem to lead to a discussion about when the purchase contracts becomes binding – not a debate for today.

Buyers in Greater Hartford are seeing some of the same challenges that have been reported in the country overall, especially when they use national lenders. Hopefully we won’t see too many closing delays as the month of June comes to an end. And if the “closing by June 30th” rule is relaxed, that will help ensure everyone gets the incentive they were expecting.

Detroit has a rich architectural history, as can be seen on sites like Forgotten Detroit and Detroit1701.org. Some of the historical homes are currently in use, and in good condition, while others appear to be abandoned. The city has lost a substantial number of residents over the past 50 years and there are apparently blocks with few inhabited houses. A piece on the Land+Living site from 2006 shows some images of Detroit’s residential landscape.

The WSJ article raises an important question that we face here in Hartford too … how much should we preserve? Is preserving the exterior sufficient? Is bulldozing ever the right thing to do?

Houses are large, and they’re expensive to maintain. This makes preserving them much more difficult than paintings, sculptures, or other works of art. However, like a work of art, each house is often unique since it reflects the site on which it was built and may have been customized for the owner. Therefore homes are different from cars, stamps, or guns, where having one example of each “model” could be considered sufficient.

I like to think of myself as a practical, if not pragmatic, person. Houses need to be functional; otherwise they’re not going to survive. I think that older homes should evolve over time to meet the needs of modern society. They need regular maintenance, and the best way to achieve that is by continuing to serve their primary role as a shelter and an oasis from the outside world. However, in making the updates property owners have a responsibility to make changes within the spirit and character of their home. They should make historically appropriate choices as often as possible.

The larger challenge is when neighborhoods and regions evolve. This is the primary issue that Detroit faces, and is also a relevant topic in the City of Hartford. What happens when it no longer makes economic sense for homeowners to maintain and restore their property? Or a block of properties? Or an entire neighborhood?

Detroit has chosen to sacrifice some of their history in an effort to move their city forward. Without living in the area and experiencing their problems first-hand, it’s difficult to fully understand that decision. I can only imagine the intense debate that led up to the final demolition orders. Mayor Bing’s State of the City address on March 23, 2010 outlines Detroit’s major challenges and initiatives, of which the demolition program is just a small piece.

It’s always sad to see grand old homes in disrepair – you can still see their beauty shining through the years of neglect. At some point taking them down may be the only option. Hopefully here in Hartford we can continue working to protect our historic properties as we confront many of the same challenges as Detroit, just on a smaller scale.

One of the recurring themes of the discussion was Connecticut’s difficulty in retaining our young adults, which is reported regularly via both official statistics and anecdotal experiences. It is a source of concern because of the ratio of workers to retirees in the state – currently 4.5:1 and expected to fall to 2.6:1 by 2030. The baseline assumption for the group was that housing played a critical role in the flight of the youth; our graduates move to other states because they can’t find affordable housing in Connecticut.

We have lived in three different states as working adults, with each move motivated by a specific opportunity. We moved to Boston because of a job, to Charlottesville because of a school, and then to Hartford because of a job. Housing costs only entered the discussion during our most recent move, as we were interested in understanding the cost of living relative to the available salaries. Hartford was more affordable that both Boston and Vermont, the other destinations we considered. So housing was a consideration for us, but it was a secondary factor after the available opportunities, and only became a factor because we expected to be in the area for a long time building a career.

Three other points that were raised during the discussion:
1. Housing costs can influence employment opportunities since companies have an incentive to locate their facilities in low-cost areas.
2. Because Connecticut is so geographically small, and located between Boston and New York, our young adults are often still close to home even if they live in another state.
3. Perhaps many of our young adults will return to the state when they are ready for a more suburban lifestyle.

What’s your take? How important are housing costs to the young adults that you know? What motivates them (you) to choose Connecticut or to choose other parts of the country/world? If you know people who have left the area, what might have kept them here if it had been available?

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.

We hear frequent debate about whether the globe is warming, and if so, whether or not our civilizations and lifestyles are the cause. We also hear about large chunks of ice that break off into the ocean. But we do not hear much about specific consequences of rising sea levels in the news. Satellite images show that the amount of land ice has been decreasing in recent years. Reports from low lying areas tell the stories of societies already dealing with higher water. At some point the issue may become “real” for the rest of the world.

Rising sea levels, attributed to melting land ice, present a different type of challenge than we’re used to facing. Rather than being an acute event that ends as quickly as it began, rising sea levels stick around to create a new equilibrium. Coastal cities around the world will need to adapt if the predicted changes actually occur over the next 100 years.

New York City is already thinking about how they will protect their extensive coastline. The Wall Street Journal’s recent article about their efforts raised a number of interesting points. Most heartening is that City leaders are monitoring the latest studies to proactively plan defenses and countermeasures. Though there is no definitive prediction about what will happen, City leaders are currently expecting a climate similar to Raleigh, NC by 2080 and higher water around the City than in other parts of the globe. Despite the research, their ability to act is limited because they “can’t make multibillion dollar decisions based on the hypothetical.”

Assuming we believe there is a threat, the logical place to look for a plan is the Federal government since rising sea levels will directly impact much of the country’s population. Current government policy is to help regions that are impacted by natural disasters. Leaders declare a state of emergency and bring in help from other areas. What happens if our country’s entire 12,383 mile coastline is threatened? Which portions do we protect? When do we begin the projects? How are these decisions made? Given our tendency to punt on hard questions, we’ll probably see little proactive planning followed by various levels of government addressing problem areas as they arise.

There is little a homeowner can individually do about rising sea levels. Their best option is to be thoughtful about the risk for their properties. Beachfront homes clearly are at a higher level of risk than those at elevation. The recent work by FEMA to redraw flood maps has made more home buyers aware of floodplains, but very few in this area consider rising sea levels in their purchase decisions. Which may be appropriate since the City of Hartford sits at an elevation of 59 feet (18 meters).

The threat of higher seas is decades, and perhaps even centuries away. There is plenty of time to plan our personal and national strategies. Some thoughts…

1. The Federal government needs to take a position early stating what they are willing to do. Because of the persistence of nature, and the massive length of our coastline, the fair and practical response is probably to do nothing.

2. Coastal property will transition from selling at a premium to selling at a discount. This should happen whether defenses are built or not, and is just a matter of degree. Markets adapt as new information is available, and once there is more certainty about when rising sea levels will be a problem, buyers will begin to consider property elevation in their purchase offers.

3. It is common for buildings to last decades, or even centuries. Ideally, real estate development will shift to areas that will be less threatened by rising sea levels. Realistically, it probably won’t since there will still be demand in coastal areas until the point when the problem becomes “real.”

Nature has changed the face of planet earth on many occasions. It is a powerful and persistent force that will prevail despite our best efforts. One way to imagine the potential impact of higher seas is by playing with a simulator. Greater Hartford, as an inland metropolitan region, should not feel the impact directly. Perhaps we’ll even benefit as people and investments move away from the coast. But like everything else about rising sea levels there are no definitive answers.