Last week we looked at the really big picture transactions data for Hartford County in 2011. The main concern we had with how the numbers turned out was that the average single-family home price appeared to rise slightly from 2010 to 2011, which was not what we saw in the market on a house by house basis.

There is no easy way to track the price trends in a region because every house is unique. Repeat sales is the best method I know of, but it’s too hard for us to use. Anyway, we were talking averages in the post. Our hypothesis as to why the average might be misleading in this case is that averages can be influenced by a change in the mix of homes that sold between the two years. They are especially susceptible to sales of expensive homes since one million dollar property contributes as much to the total sales volume as five $200,000 homes.

The first step we took to test our hypothesis was to look at how the mix of sales changed between the two years.

The chart shows that the number of sales increased in the sub-$100,000 price band and also in all three price bands above $500,000. It also shows that the $100,000s remained almost exactly the same. Finally, the number of deals in the $200,000s fell by about 20%, while both the $300,000s and $400,000s fell by about 12%. The chart confirms our anecdotal observation that there is was more interest in high end properties in 2011, but doesn’t address our hypothesis in a convincing manner.

What if we plotted the total sales volume for each price band instead of the number of deals? That would put each of the price points on equal footing in terms of their contribution to the average.

This chart shows that the homes that sold for less than $100,000 matter very little in the average. But otherwise the chart is not conclusive about whether the average remained the same due to prices holding steady between the two years or some other reason.

Maybe we should just throw in the towel on the average as a proxy for home prices and move over to the median. Between 2010 and 2011 the median single-family home price in Hartford County fell 3.3% from $230,000 to $222,500.

Or we can just trust our observations of the market … home prices fell in 2011.

Observations

The total number of single-family home transactions fell again in 2011, decreasing about 8% from the 2010 total. With the latest data point, activity for this type of property is about 41% off the 2005 peak in Hartford County. Last year we wondered whether we had seen a bottom in the number of deals – clearly 2010 was not the bottom.

As sales volume fell, showing a decrease in overall demand, the average sales price was apparently not changed. We don’t put a lot of faith in average prices because they are strongly influenced by the mix of homes that sold in a particular year, so we think something else is going on.

Our anecdotal experience is that home prices are still falling in all the towns and markets in which we do business. We also see more interest in higher priced homes, which will tend to inflate the average, and believe that’s why the average sale price edged up slightly. We’ll work on building the case to either prove or refute this hypothesis and share that result too.

Big picture analysis like this is never especially satisfying since we usually end up with more questions than answers. What are you guys seeing out there as you follow the markets? Michael called 2011 almost perfectly in the comments from last year’s post, so we clearly have knowledgeable readers!

Also, we have this data broken down by every single town in Hartford County. If you’re interested in a specific town, email us and we’ll send you the charts.

Just about everyone I know has strong feelings about the incandescent. Most prefer the light they provide. Most would also agree that they are inefficient compared to compact fluorescent lamp (CFL) and light emitting diode (LED) technologies. Some argue that the newer technologies are inferior due to their color spectrum and their turn on time, though both of those characteristics have been improving with each generation of the technologies. Others are just turned off by the higher prices of the newer bulbs.

Congress got involved with the Energy Independence and Security Act of 2007, which was supposed to take effect at the beginning of 2012. The plan was to gradually halt the production of incandescents starting with the 100W bulb this year. The 75W would have been phased out in 2013, and the 60W and 40W in 2014. However, action by Congress during December of 2011 has effectively pushed out the start date until October 2012.

I have two perspectives on the matter. At the personal level, I think that efficiency is important and have been testing out the various CFL products for years. They were very poor at first, and I think they earned their bad reputation. Some of the newer bulbs I’ve bought have been much better, almost as good as the incandescents. I do still have a problem with the smaller specialty bulbs that are visible. Coiled CFLs just don’t look right in a nice chandelier, and I haven’t been impressed with the performance of “decorative” CFLs I’ve bought.

At the professional level I am a really big fan of incandescents. I’ve shown buyers enough homes to know that they are always more impressed with a property well lit by incandescents than they are by CFLs. One issue is that the quality of the CFLs vary depending on which generation technology the sellers have. So it’s common to see older CFLs that play right into the negative stereotype, which gets a buyer thinking about the lighting instead of the house.

My main recommendation at this point is to sellers. No matter how you feel about the different bulb technologies, you will make your home sell faster, and potentially for more money, by replacing all your CFL bulbs with warm incandescents. Think of it as part of the staging process, and remember that you can pack up your CFLs to bring to your new home.

I’m of the generation that started using computers in grammar school. I died more than once from dysentery while playing Oregon Trail. I’m sure many of you fine readers suffered similar fates. After college I worked for IT consulting firms. Again, surrounded by technology. I used to transfer data from legacy computer systems to whatever new, spiffy software my company was installing. Thrilling, I know.

Today I continue to find myself inundated with technology. My laptop for all of my everyday work. My smart phone (currently a Droid 2-something-or-other) for talking, emailing, texting and surfing the web while I’m on the go. And most recently, an iPad2. I’ve lovingly named it Tiny.

Kyle convinced me that we needed the iPad for business stuff. I’m not going to tell you for what exactly because that’s strategic voodoo and many of our competitors read this blog, so I can’t be letting them in on the goods. Let’s just say he had a compelling argument on why we should have one. So I sent him off to the store to make the purchase. My only input was to demand the sky blue colored cover rather than the apple green one he proposed.

Maybe there is something wrong with me (and I’ve been told by several that there is), but I really have no interest in the latest addition to our family. Tiny, while cute, small and light has no draw for me. I shudder when I look at it. Another device and technology to learn- I’ve been a Microsoft girl since undergrad, some 17 years ago. Another time suck. My laptop and phone seem to do everything that it does. Why the redundancy?

Urgh. I’m all about technology and my job, but it’s getting to a point where I’m starting to feel overwhelmed. I need to keep up with my various devices. I need to keep up with Facebook, Twitter, Linked In, and Google+ (does it even exist anymore? I just don’t know…).

When can I go back to doing my job? After I learn how to use Tiny to make me “better” at my job, I guess… Thanks Kyle!

Traffic was light and we made very good time. The farm stand at Belltown Orchards wasn’t open yet but they were still picking blueberries. We decided some fresh blueberries would be good too so we stopped to pick some.

A quick tractor ride into the orchard and we were happily picking from the bushes. About five minutes passed and we heard the tractor coming around again, dropping off the latest batch of berry enthusiasts.

If you aren’t familiar with blueberry picking, the bushes, at least at Belltown, are arranged in fairly dense rows and the bushes are around six to seven feet tall. You can see the people around you in your row, but not those in the other rows. Although you can easily hear conversations in the other rows when people are around you.

So there I am, picking in my row, minding my own business, talking to my kid. A couple of rows away I hear a group of a few new people arrive, presumably from the latest tractor drop. One person has a distinctive voice and I recognize it. It’s a real estate agent from West Hartford. They start talking about work with the people they’re there with. They are complaining loudly about some clients. The person they’re with, who doesn’t appear to be an agent, is laughing and commiserating with them. The agent continues to talk in this vain for about 5 minutes and is saying some not-too-nice things about their clients.

I’m standing there picking my berries and shaking my head. It’s just totally unprofessional. No wonder people hate real estate agents. Honestly, as agents, and really any profession, we all have some clients that are difficult but it’s important not to talk about our relationships and transactions with others. It’s our job to keep our mouths shut. Clearly this agent had no clue I, and many others picking in the area, were listening, and she didn’t seem to care. She just wanted to tell a good story and entertain her friends.

At this point my daughter is starting to move down our row, she doesn’t stay still for long. I’d say she leads us about 100 feet away, we’ve moved to a new area around new people. No more agent blabbering. Near us a small child that can squirm between the bushes pops out of the row. Then another small child appears. They look at me and say “Amy!”

Do you know who these kids are? The children of one of my clients. Their mom is on the other side of the row. We peer through the bushes and say “Hi! What are you doing here?” Apparently we both had the bright idea to pick blueberries this fine morning. We chat a little bit and continue picking. We finish up around the same time and I see them again at the farm stand.

On my drive home I think about my morning interactions. How ironic is it that I just listened to an agent complaining about a client in a public place and then I run into one of my clients? Small world, isn’t it? What would have happened if I were the agent bad mouthing clients and my client overheard me? How would that make me look?

Professionalism please, people!

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

The basic thesis is that a confluence of trends will lead to more large houses for sale in the suburbs than buyers who will be interested in purchasing them. Supply will come from the Baby Boomer generation downsizing to smaller, lower-maintenance housing options.

However, demand for their properties may not materialize. Household size is increasing as multiple generations of a family are more frequently living together. Financially marginal buyers struggle to get a mortgage in the current environment, preventing them from being homeowners. Factors like smaller home sizes, walkable neighborhoods, mixed-use environments, and shorter commutes are creeping up to the top of buyer wish lists.

Many interesting questions could be asked using this thesis as the set-up. The first one that jumps to my mind is this, which areas of Greater Hartford will benefit most from these trends?

Some of the winners are obvious. West Hartford Center offers exactly the mix of features that Mr. Condon describes. It is an established mixed-use community with smaller homes, in a walkable setting, that is convenient to just about everything in the region. Slam dunk. The Center is currently one of the hottest real estate markets in the area with basically no inventory available. If you want to buy there, then you need to have your act together.

Other areas seem like logical winners, but there is still considerable work to be done. I see Downtown Hartford as a long-term winner. Right now there is a core group of residents excited about Downtown as a neighborhood. Seven recent apartment developments (The Hollander, The Metropolitan, The Lofts at Temple & Main, 915 Main, Bushnell on the Park, 55 on the Park, and Hartford 21) are generally considered successes. Active planning is underway to rehab another building, the former hotel on Constitution Plaza. There are many additional opportunities to add residents in smaller, apartment-style, homes that are in a mixed-use community with major established businesses and legitimate public transit.

Really, the whole Farmington Avenue corridor from Downtown Hartford through West Hartford Center seems like it has a chance to win big in the coming decades. Asylum Hill and the West End have a lot to offer on the Hartford side of the line. Residential density continues on the West Hartford side of Prospect Avenue with numerous apartment buildings and commercial areas transitioning to single-family housing just off the main road.

In the real estate market, we are already seeing buyers from the Farmington Valley come over the mountain to look at our listings in the Elizabeth Park neighborhood of West Hartford and in Hartford’s West End. If Mr. Condon is right, then this could be the beginning of a trend that will play out for years to come.

After bottoming out around 4.25% last fall, mortgage rates for 30-year fixed-rate loans have recently moved above 5% for the first time in about a year. Commentators observe that rising rates will cause some buyers to rethink the advantages of home ownership, but generally conclude that they are not a critical threat to the housing market.

The Wall Street Journal and Zillow reported that median down payments for “conventional” mortgages rose from about 5% at the end of 2006 to 20% in 2008 in a study of 9 cities. The article also notes that mortgages backed by the Federal Housing Administration (FHA), requiring only 3.5% down payments, have increased in popularity and were used in about half the purchases in 2010.

It seems to us that there are two separate things going on here. The first is related to the overall economy and the financial policies of the country. Mortgage rates are based on the yields of the 10-year Treasury Bond. If the creditors of the United States are demanding a higher interest rate, then those higher rates will trickle down to mortgages.

The second factor influencing mortgage terms is the continued evolution of the American mortgage industry. Lenders have taken a lot of losses from their loan portfolios over the past 5 years. Not surprisingly, they’re trying to improve their business practices to make these sorts of situations less likely in the future. What mortgage products should be available? What should lenders require of buyers? What makes a borrower creditworthy? What role will the government play?

We have no special insight into either of these two issues, or the direction of mortgage rates in general. And we suspect that nobody truly knows how they will evolve over the coming months and years. However, we do know that buyers still have an opportunity to secure financing with low down payments. And we can report that while rates are a little bit higher than they used to be, they’re still very low from a historical point of view. Your guess is as good as ours when it comes to where rates move next.

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?

The local MLS that we are members of has been collecting data electronically since 2000. We thought this would be a good opportunity to do a data dump and see what’s happened during the last 10 years with single family real estate sales in Hartford County.

One of us (not Amy) had the enviable task of downloading 83,605 records regarding closed single family sales in Hartford County from the period of January 1, 2001 through December 31, 2010. As always, all of the data we’ll talk about is from the CTMLS and is deemed reliable but not guaranteed.

What was the most expensive home sold (publicly) in Hartford County during the last decade? Well, that sale took place in September 2003 when Mike Tyson sold his Farmington home for $4.1 million. That house, currently owned by the rapper 50 Cent, is now listed for sale at $9.999 million.

Yeah, yeah, we know all about 50 Cent and the smack people talk about his house. What was the second most expensive house then? The second most expensive house publically sold in Hartford County went for $3.92 million in Avon in May 2007.

How many houses sold over $1 million in the last decade? Five hundred twenty six houses sold for $1 million or more since 2001 in Hartford County. The top ten most expensive homes sold were all in Farmington or Avon. Out of the top 25 most expensive homes sold, all but four of them were located in Farmington or Avon. So, if you need a really expensive house in Hartford County, it’s probably best to start your search in Farmington or Avon.

Alright Amy, we’re not all millionaires here. How about some charts about how sales prices and sales volume changed in the county over the decade…

So…
1. Average prices peaked in 2007.
2. Average prices bottomed in 2009 and rebounded in 2010.
3. Transactions peaked in 2004-2005.
4. Have we seen the bottom for the number of transactions?

Why do prices continue to rise in 2006 and 2007 even as sales volume was already falling? We have some theories, but need to do some more research. Is it herd mentality? Was it new construction continuing to come onto the market? Do other markets (like the stock market) also exhibit this behavior?

What does this imply for buyers sitting on the sidelines waiting for the bottom? Have they missed it? Or is the price increase in 2010 attributable to mix of sales?

It seems as though people just aren’t moving as much as they used to. The recent trend of 6,000 deals per year in the County is well below the nearly 9,000 deals per year that were happening from 2001 through 2006. Maybe people used to move hither and thither for jobs, but now they don’t. That’s a lot fewer real estate deals for us agents to divide up amongst ourselves.

As often happens, we came out of this with more questions than answers. What do you guys think – any theories? Maybe we’ll follow up on some of these if we reach any conclusions.

Also, we have this data broken down by every single town in Hartford County. If you’re interested in a specific town, email us and we’ll send you the charts.