Light on the Horizon
It’s a Great Time to Buy
The troubles in the financial markets are certainly serious. At the time this is being written, the following major events have taken place: The U.S. government has taken control of Fannie Mae and Freddie Mac, made a massive loan to AIG, seized Washington Mutual and sold the bank assets to Chase, and is now constructing a $700 billion rescue package for the financial system. Wachovia looks like it will be sold to Chase and Citicorp and the stock market doesn’t seem to know which way to go (with a definite preference to go down when in doubt). Not doubt, there is a lot more to come!
There are many opinions and thoughts on the wisdom of these moves that will not be debated here, but one item is very important to us and what we do in the real estate, building and mortgage industries: The availability of credit. In my opinion, if the government had not stepped in, we would now be facing much more serious issues in the availability of credit, both in terms of the ability to obtain it as well as cost. No matter what we think, the bottom line is that this needed to happen.
Media bombardment promotes panic. For those of you who remember the ‘80s, when homebuyers faced 17% mortgages, surging energy prices and “panic gripping the globe,” (according to Time Magazine that year) you’ll also remember those times were followed by incredible economic prosperity. Today, once again our confidence is shaken. Maybe more so simply because we have “breaking news” 24 hours a day channeled right to our radios, televisions, desktops, laptops, cell phones and PDAs. There is no “down time” during which to gather our wits and think intelligently. Consequently, panic has more of an opportunity to take hold and take action: Bad idea for consumers and investors. Now is a good time to breathe deeply and consider opportunity.
Seek out and spread the good news. There actually is some good news for the real estate market. Mortgage interest rates have fallen substantially since the takeover of Fannie and Freddie and are in the upper 5 percent range for 30 year fixed rates. The tax credit/stimulus package for first-time purchasers is beginning to develop momentum and we have seen a number of first-time buyers get off the fence over the past month and purchase a property using the $7,500 benefit offered. Also, let’s not forget the ultimate real estate truism: people have to live somewhere. They may not need an SUV, or a gas grill, or a country club membership, but they do need a home, and homes have always been -- and will continue to be -- a sound long-term investment.
The real estate picture in Connecticut
In light of all that has been going on, there has been little positive or negative change to the real estate markets here. In fact, Connecticut has actually done well when placed in the context of all the national economic news unfolding over the past year. Sales are still running about 70% of last year’s levels. Marketing times have not increased much year over year. Inventory levels have not shown any large increases, and median sales prices have moderated, but are not in a downward freefall. In truth, the picture may appear grim in states like Florida, California, Nevada and Arizona, but that is not true of Connecticut.
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We need to say a few more words about inventory levels here. First, there is no oversupply in Connecticut of new or existing homes and condos. Second, inventory levels have been very consistent over the past three months with no significant changes, either up or down.
Limited supply will fuel demand. New housing permits are down by 29 percent from last year and almost 55 percent from two years ago. Soon there may not be enough new inventory to meet demand, and considering the length of time it takes to get a development approved, this could become a pressing issue in the future.
While sales have declined from last year, the real barometer on the market is the supply of homes compared to the rate of sales and deposit activity. This gives a good picture of what is really going on.
There is about a seven-month supply of inventory In Connecticut based on sales and current deposit levels. This is a hypothetical estimate of the time it would take to sell everything. Obviously, inventory is replenished, so it would not happen in the real world. We were conservative in calculating these numbers and did not include 100 percent of the deposits.
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The Connecticut Real Estate