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.

Richardson Building in Downtown Hartford

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.

National Real Estate News Roundup

There have been a few interesting real estate stories and announcements around the nation this week. But first, the changing seasons along tree-lined Farmington Avenue in West Hartford Center.

Changing Seasons in West Hartford Center

Today’s Wall Street Journal has a piece on Shadow Inventory (Subscription Required), which are homes that are not currently on the market but are expected to be listed for sale in the near future. They focus on foreclosures, and found about 1.5 million mortgages currently in the foreclosure process and an additional 1.2 million delinquent enough that banks could initiate foreclosure proceedings. To put this in perspective, a recent National Association of Realtors press release announced that the seasonally adjusted rate of existing home sales was about 5.24 million in July. So lenders could potentially take ownership of enough homes (2.7 million) to represent more than 6 months of inventory at the pace of sales today. Presumably this would impact other areas more than Greater Hartford. However, it’s difficult to track distressed properties until they are listed for sale, so we can’t be sure.

The Mortgage Bankers Association (MBA) reports that mortgage rates have been falling. Their latest survey shows that rates for 30 year fixed mortgages have fallen below 5.00% nationally for loans with 20% down. Our local rates seem to be just above 5% when looking at the annual percentage rate (APR), and have also been falling.

Money Magazine wrote a quick piece about the basics of FHA mortgages. We’ve been seeing a lot of buyers using these types of mortgages since it’s just about the only way to buy a home with less than a 10% downpayment (you’re allowed to do 3.5%). Specifically, they touch on the more difficult home inspection and the increased fees/expenses associated with the program. Both are important considerations, though for buyers that don’t have the cash to qualify for a conventional loan they are just another part of the cost of buying.

Finally, there is much speculation and debate about whether or not Congress will extend the First Time Buyer Tax Credit. Financial blog Calculated Risk gathered up the opinions of various economists, painting the program as a poor use of taxpayer resources. The essence of the argument is that many of the people claiming the credit would have bought a home anyway, so also giving them $8,000 is a waste of money. Supporting the position is a National Association of Realtors press release stating that of the 1.8 million to 2.0 million that will claim the credit this year, only 350,000 of them would not have purchased without the credit.

Revisiting Greater Hartford's 2009 Spring Real Estate Market

The summer is essentially over, so we’re closing the books on the spring/summer real estate market. How did we compare to last year? As always, data came from the CT Multiple Listing Service for single family homes only and is deemed reliable, but not guaranteed…

June-August Greater Hartford Real Estate Statistics

My observations…

1. Aggregating the towns, closings this year were just about even with June through August 2008, up just 1.1%. Some towns saw wild fluctuations though. South Windsor, Vernon, and Newington took nice increases in the number of closings. I did check to verify that new developments did not have multiple closings that affected these numbers. It appears the numbers were driven by resales, which indicates that these markets were truly “up.”

2. The Median Sale Price was down in every single town covered. This may be driven more by the fact that there is a lot of first time buyer activity so the mix of lower end and higher end houses selling is different, rather than it all being attributable to actual price decreases.

3. If you’re thinking about selling your house in Newington, you might want to get on it! There is very little inventory available at this point and there are still lots of first time buyers out there. So if your house is in good shape, price it realistically and it should go…

Thoughts and comments are welcome…

Greater Hartford July 2009 Real Estate Market Statistics

The July real estate market statistics for Greater Hartford are ready and they look better than they have in many months. As always, data came from the CT Multiple Listing Service for single family homes only and is deemed reliable, but not guaranteed…

July 2009 Greater Hartford Real Estate Market Statistics

My observations…

1. Twelve of the seventeen towns covered actually saw an increase in the number of closed sales when comparing July 2008 to July 2009. Also, when aggregating these towns, the number of sales increased 7.3% when comparing May 2008 to May 2009, which is the first increase we’ve seen since I started reporting these statistics over a year ago.

2. A few of the towns that saw increases in the number of closings (Manchester, Newington, and South Windsor) also saw an increase in Median Price. Sellers will see this as a positive note. As always, I’ll caution that Median Price is more relevant on a quarterly or yearly basis when there is more data taken into consideration.

3. Months of Inventory continued to drop in most towns during the past several months. 10 of the 17 towns are a Neutral market (between 3-6 months of inventory), Newington is a Seller’s market (less than 3 months of inventory), and the remaining towns are Buyer’s markets (6+ months of inventory).

Once August data is available I’ll run a post on the June-July-August numbers so we can see how the spring market of 2009 compared to the same timeframe in 2008. Enjoy the last few weeks of summer!

Greater Hartford Q2 2009 Real Estate Market Statistics

We’re past the Fourth of July holiday and agents have entered in the last of their closings for June, so it’s time to take a look back at how we fared with real estate sales in the Greater Hartford area during the second quarter.

All data was compiled from the CT Multiple Listing Service for single family homes only and is deemed reliable, but not guaranteed.

Q2 2009 Greater Hartford Real Estate Market Statistics

My observations…

1. The number of closed sales for the second quarter of 2009 decreased from the same time period for 2008. Aggregated, the number of closed sales in these towns decreased by 8.1%. Not great, but not terrible by any means.

2. Median Sale Price also decreased in most towns. If you look at the largest decreases, and compare it to the column with Closings that were Bank Owned or Short Sales, it appears in most cases that distressed property sales are contributing to the drop in Median Price in several towns.

3. Months of Inventory has dropped in most towns during the past several months. Six of the 16 towns are a Neutral market (between 3-6 months of inventory), Newington is a Seller’s market (less than 3 months of inventory), and the remaining towns are Buyer’s markets (6+ months of inventory).

4. I noticed while I was looking through all of the Closed Sales for those that were Bank Owned or Short Sales, that there were several properties which I showed about 16 months ago in various towns. Originally these properties were not distressed sales. The owners were simply trying to sell. At some point the owners fell behind on payments and the bank stepped in. It was disappointing to see homes that I remembered as nice now advertised as having frozen pipes, extensive mold problems, or copper pipes removed. More troubling is what happened to the families that lived in these homes? Where did they go? How have their lives changed?