Archive for the 'Think Big' 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.
Hartford County Takes a Breather
So it’s been a few weeks since the buyer credit expired on April 30th. How’s the market doing now?
Crickets. Can you hear them?
This graph shows the number of contracts written for residential properties in Hartford County. Data is grouped by week and comes from the Connecticut Multiple Listing Service, which is deemed reliable but not guaranteed. 2004 was selected as the comparison year for three reasons:
1. The days/dates match up with 2010
2. The market was very active
3. There was no outside influence from a tax credit
The number of contracts written in 2010 trailed the number written in 2004 from the beginning of the year until early April. Buyers racing to capture the credit caused a spike in the number of contracts written at the end of April, pushing 2010 above 2004. But now that we’re in May the activity level has decreased precipitously.
The data shows that local real estate markets have not fully recovered. Even with the tax credit encouraging buyers to act, sales this year were below the levels of 2004 for most of the individual weeks and for the total period. The sharp drop-off in the number of contracts immediately following the credit expiration shows that the credit did play an important role. However, that role may have been to simply shift sales forward rather than generate additional sales.
What will happen next? Will the past couple of weeks end up being an unusually low dip, sort of like the last week in April was an unusually high spike? Only time will tell…
Demolition in Detroit
Friday’s Wall Street Journal article about the demolition of historic homes in Detroit came at an interesting time. The previous evening we had attended the Hartford Preservation Alliance awards event, a gathering to celebrate the architectural history of our city and the efforts of community members to restore and reuse buildings rather than knock them down.
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.
Housing and Young People
Yesterday was the first session in a five-part series on public housing policy. Housing: The Hub of Public Policy 2010 is presented by The Connecticut Housing Finance Authority, The Connecticut Department of Economic and Community Development, and The Partnership for Strong Communities; it is hosted by The Lyceum. The pre-event briefing memo touched on many issues and gave examples of what is happening in other parts of the country – it’s an interesting read. We learned about the event through our involvement in HYPE, and stopped by to check it out.
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?
Collaborating with the GHREB
We enjoy writing this blog. It’s an outlet to share our knowledge with a diverse reader base, exercise some creativity, and have a conversation with the Greater Hartford community about real estate.
Lots of different people read this blog; folks curious about real estate in general, those thinking about buying or selling a home, newspaper and TV reporters, other real estate agents, and an occassional friend or relative.
Most of the feedback we get about this blog is positive. We work hard to write interesting articles and take pictures that support our topics. We are in no way trained reporters, but still feel that our product quality is useful to the masses.
Recently I had a reporter from the New York Times contact me. That was an exciting event. She read one of my market statistic blog posts and made note of Newington consistently being a Seller’s market during a good portion of 2009. She wondered why this might be the case when other bordering towns were Neutral or Buyer’s markets. We had a discussion about the town of Newington and its housing market. I gave her the name of a top agent in Newington so that she could get another perspective. The result was this nice article published in the Times last weekend. The author was kind enough to quote me and mention my blog. I really appreciated that.
Now, not everyone that reads our blog is that great about giving credit where credit is due. I’ve had instances where reporters have clearly used my market analysis information and not attributed it to me. Additionally, people take my pictures and reuse them without asking permission or citing any type of source. Not cool. We always try to give credit where credit is due and we would just ask that others do the same.
On Monday we’ll be launching a new publication which we’re excited about. It’s an extension and enhancement of the market statistics information which our audience seems to find valuable. On a quarterly basis we’re going to look at the single family home and condo data for every town in Hartford County and the County overall, providing our thoughts and market commentary.
We really hope that you enjoy our blog and learn something new every now and then. If you’d like to talk with us about anything we’ve written about, or the market in general, please feel free to contact us. We’re always happy to speak with you and collaborate on your projects. If you see a picture that you’d like to use, please ask us and we’ll consider your request.