Real Estate Predictions 2009

We made it. We’ve reached the end of 2008 a bit bruised, but still intact.

By sorting out my desk, files and piles of stuff, I’ve decided to get ready – mentally at least - for 2009. In doing this end of year clearing, the famous turban once owned by the one and only, “Carnac the Magnificent”, was discovered folded neatly amongst my collection of Richard Nixon face masks, Screaming Mirrors and Perot for President campaign buttons. Carnac’s turban remains the one, reliably useful object. Let’s give it a try to see what may be in store for 2009:

• Mortgage money will continue to be freed up by more banks and brokers as pressure mounts from both Congress and the public.



• Interest rates, currently around 5.3%, will remain historically low – at least until April.



• Home prices will probably continue to decline through June or so, but less dramatically than the previous 12 months. There may be some areas of the country, mostly in the South, that will continue to see steeper declines, especially for condos. When home prices eventually go flat they will remain so for quite some time - until housing inventories lessen. Bargain hunters and savvy Buyers will be out in force by early March.



• Multiple-family homes will again be popular as owner-occupied options and investments. See my earlier Blogs about this type of housing.



• Smaller, more affordable homes will attract Buyers, both first timers and down-sizers.



• Homes close to amenities will out-sell their more rural counterparts. City and town governments will be open to reasonable re-zoning proposals to lessen the need to drive for even basic commodities. “Neighborhood” will be the new buzz word. Buyers will want to get the scoop on specific areas more than just looking for the features of a specific home. Location, location will mean more than acreage or square footage.



• Families will again expect children to share bedrooms – fewer “en-suites” for junior.
  
  For my part, I intend to continue helping my clients by keeping my eyes and ears open for trends and home values, by adding extra services and in… helping them to get home.
  
  Not to worry – Happy 2009!

Certified Value…the real deal

Several days ago Jonathan Miller of The Matrix blog (see the Other Blogs I Follow link) wrote an article regarding the oft-quoted real estate mantra, “Now’s a good time to buy”. Miller was correct, of course, in stating that when is a good time to buy is very subjective, depending upon the personal circumstances of the Buyer. Whether the market was going up or down was irrelevant, says Miller. But, what if something could be done in marketing a home that did – even if just a bit – make it a “better time to buy”?

Enter the Transition Team of Coldwell Banker’s Fairfield, Connecticut office. We have been charged with developing marketing ideas that deal especially with this current economy and into the future. There are few parameters for our working group; each team member already knows that the days of gimmickry are long gone.

At our most recent meeting, two principle reasons for Buyers holding back from making offers to buy were identified. First, Buyers have serious concerns about their immediate financial future and are awaiting some reassurances from their employers. Second, Buyers expect the market to continue to go down and are unsure about the real current and near-term value of homes. The longer - term value of a home does not appear to be as great a concern to most Buyers as much as affordability (read optimism). It’s the present and near-future real value that worries them. After all, nobody wants to pay too much for anything, especially now.

Regarding the first concern of Buyers, they should wait. Buyers need to know what their financial picture will look like and then make an appropriate decision. For the second concern, the concept of Certified Value was proposed.


Once a Buyer makes an offer on a property, the banks will send in an appraiser to certify the property’s real value. With many banks making Scrooge look like a philanthropist, that appraisal will be dead-on. Banks absolutely do not want to be holding a mortgage for an overvalued property. So, why not cut to the chase and certify the value of a property by having an independent appraiser perform an appraisal prior to marketing. Then, take it one step further – factor in market direction. This Certified Value program will likely be in place by early January 2009, once some of the details have been finalized.

I’ve been using this concept of identifying a property’s true value for my clients for the past 15 years. But, by bringing in an independent appraiser and factoring in market direction, both Buyers and Sellers can be assured of the true, certified value of a home. Both parties deserve nothing less than the real deal.

Investment Properties

Investment properties, or more precisely, multi-family units had been the albatross of many real estate firms and banks. And it's no wonder. With the Ponzi-schemes rampant during the later 1990's until about fall of 2005, serious investors liquidated or stayed away from that segment of the market. They knew something was afoot and for many, having survived the downturn of the 1980's, they sensed the impending bursting bubble. That banks refused to act on all the warning signs remains a question to be answered.

These last several months have seen an interesting development. Too early to yet call it a trend or turnaround, nonetheless, multi-family units are again selling. And, many of the buyers seem to be following what I've referred to these past 15 or so years as "Uncle Pete's Rule of 10". Simply put, multiply the yearly income of a property by 10 and that is the upper limit of what an investor should pay. Slice and dice the formula any way you want, Uncle Pete was right. The lower the multiple the better but paying over 10 times yearly income and a Buyer went from being an investor to a speculator: "Say, high-roller, baby". A lot of would-be investors came back from the "real estate casino" of speculative buying with just enough pocket change to make a call to a bankruptcy attorney.

But, there are signs that enough Buyers are again seriously looking at multi-family homes as sound investments to take notice. Some, looking to be owner-occupants may pay a bit more than the 10 times ratio to live in an area they find more desirable. The rest, however, seem to realize that Uncle Pete was right.

A Recycling Life

Early one morning last week before heading into work I was enjoying the last of my coffee while reading another chapter from Tom Wolfe’s, Bonfire of the Vanities. Not sure why I never read it when it was first published, but 20 or so years later it seems few things have changed – at least on Wall Street.

Morning has a pace all its own. Looking out my front window I’ve noticed when the traffic for Fairfield University and Prep starts to increase, when certain joggers or walkers pass by on their daily routines and even when the activity at my side yard bird feeders builds to a noisy, but controlled frenzy. All sorts of things. So when the yellow van nosed into my driveway, parked and two men got out and picked up my and my neighbor’s recycling bins I took notice. Times must really be getting tough if the trash people are downsizing to Econo-vans, I thought. But when these two guys kept glancing up and down the street furtively as they rummaged through the bin it dawned on me – they’re looking only for the deposit bottles and cans. I wondered, are they being more efficient than the shopping cart guys…or just more desperate. These men looked as if only a few months ago they may have been pushing lawnmowers or paint brushes. This winter has already brought a lot of changes.

It’s been a while since I’ve seen grown men, of apparently sound mind, rummaging through trash with the idea of getting a little money from the recyclers. I’m not talking about picking up odds and ends left at the curb and giving them a new coat of paint. No, I’m talking about actually going through garbage.

Bridgeport’s dump in the 1950’s was a marvelous opportunity for junk pickers. My younger brother, Brian, and I would sometimes get to go there with our father to search for copper. We’d climb the huge mounds of garbage along with a handful of other men and boys looking for the tell-tale signs of a pay off – the tangled BX electrical wiring stripped from old buildings during remodeling or demolition and just dumped. We’d take hold of the cables, twist them counter-clockwise and reveal their inner strands, one being the coveted copper. After a few hours we’d take our buckets full of wire to the junk yard across town. Who knows how much it was worth or what it bought for our household – it was worth something and we – my brother and I – had the time of our lives making money from what we considered play.

Fifty years later, because there’s no more dump, men drive to my house to go through garbage. Somehow, judging by the looks on their faces, I don’t think they are having much fun.

Change

Change. While we may not have much control over what happens around us, we can control how we react.

In doing research these past few weeks my initial focus was on how deeply housing prices have been effected and if any serious prognostication might be offered regarding when prices might hit bottom and level out. For the first question, as detailed in an earlier posting, our area – greater Fairfield County in Connecticut – has seen housing prices, with few exceptions, 22-25 % lower than last year. Of the second question, when will prices level out, I don’t know. No one does.

One question often leads to another and in the searching for answers an unexpected twist sometimes emerges. In researching the historic ups and downs of housing costs I wanted to somehow keep things in perspective. Merely factoring in inflation to determine the relative cost of housing didn’t seem quite enough.

In the years 1945-1950 the cost of buying a modest existing house was the equivalent of approximately one year’s gross salary for a workingman. In 1950, a modest, newly built, home could be obtained for little more than a years gross salary – under $8,000. By 1975 relative prices had gone up, yet, a modest, existing home could be obtained for about 2 years gross salary of a single wage earner– under $35,000 – even within the cities of Fairfield County, Connecticut. By the beginning of 2006, that salary - to - purchase ratio had climbed to 4 to 5 years of gross family income or 6 to 8 year’s gross salary for a single average wage-earner. For a modest home!

Something terribly wrong has happened to the American homebuyer during these past 30 years or so. Whatever changes are coming, let’s hope they are for the better. Maybe, we all need to take a step back.