The State of Real Estate
Slow, steady, even as expectations lean hard on the spring market
Mary Lopiano, a Darien real estate agent for more than twenty-five years, stands in the kitchen of a 2,600-square-foot 1940s Colonial-style home on one-quarter acre on Colony Road. She has listed the four-bedroom home at $1.4 million—a figure that is, by Lopiano’s estimate, about 15 to 20 percent less than what it would have listed at a few years ago. “This is the lowest-priced house in this neighborhood in the last five years,” says Lopiano, a sales agent with Halstead Property.
That’s because the Colony Road home has undergone a pricing adjustment that reflects the dramatically changing face of residential real estate in the town. This week, as the spring real estate market begins in earnest, Lopiano and other real estate agents from Darien, New Canaan, and Rowayton say they are guardedly optimistic that buyers will begin purchasing homes whose prices have come down substantially from just a few years ago.
Though wary of declining single-family home prices and unknowns such as bonus pay-outs to finance professionals, Realtors say that late 2009 showed signs of life. Buyers who have been feeling for the bottom of the market are showing interest and—for the first time since early 2008—the total number of single-family home sales in both New Canaan and Darien began rising on a year-over-year basis last quarter.
Bill Taylor, a Realtor at New Canaan’s Brotherhood and Higley, predicts that the upturn will be very gradual. “Units appear to have stabilized, but we’re not expecting a big bump in 2010,” he says. “We appear to be flat. I think we’ve got to fasten our seat belts here for several years when it comes to the velocity of the market.”
Pricewise, things have slowed down considerably for New Canaan, Darien and Rowayton—like everywhere else in the rest of the state—since peaks in 2006.
Agents, brokers and analysts who study real estate prices say it’s difficult to follow trends in housing prices when markets turn from strong to weak or vice versa. The reason is that homes sold in different markets represent vastly different samples. That’s why the University of Connecticut School of Business’s Center for Real Estate and Urban Economic Studies created “constant quality” price indexes for sixty-nine towns in the state. Going back to 1999, the figures neutralize market demand by estimating what homes with specific characteristics would fetch in a given quarter.
According to the UConn figures, the prices of low-, mid-, and upper-tier homes in New Canaan have fallen virtually every quarter, on a year-over-year basis, since 2007. The same is true in Darien, though in both cases, the fourth-quarter of last year showed a leveling off in the rate at which those prices are falling.
The trend will continue in 2010, with slow and steady recovery in employment this year, according to Marc Louargand, co-director of the center. “If we see some recovery here this year and see employment start up again, then we’ll see some activity in the single-family home market,” he says. “I’m expecting us to see job growth through 2010. We just have a long way to go to get back to December 2007 levels.”
For Gene Kelly, president of Kelly Associates Real Estate Inc. of Darien, there’s no economic evidence to say that local real estate will regain recent peak levels any time soon. “It was totally, totally a sellers’ market, and buyers were lucky to find a house to buy before someone else bought it,” he says. “I mean, we went through almost eight years of that. It’s hard for me to believe we’re going right back to that, but I do think it should be a decent year in 2010, just by the evidence we have here.”
That evidence includes binder agreements, figures that provide a better real-time look at the health of the market than total sales, which generally lag the market by sixty to ninety days.
Since 1985 the total homes “bindered” in Darien in a given year, generally, has exceeded 300, so the past two years (178 and 197, respectively) are “aberrational,” according to Gene’s son, agent Jeff Kelly. “So on a reversion to the mean theory, we have to go back somewhere to the order where transaction volume increases,” he says. “Having said that, I could have made the same argument [in 2008] and been dead wrong about .”
So if 2009 marked a true bottoming-out, the question becomes: How quickly will things turn around in 2010?
For Rita Kirby, a Realtor in the New Canaan office of William Pitt Sotheby’s International Realty, the recent rise in total home sales, leveling prices, and sustained low interest rates should convince prospective New Canaan buyers to start spending money. “Recovery is underway in real estate, but what we’ve seen are moderating trends,” Kirby says. “We’re seeing there is pent-up demand, because people haven’t been buying. They’ve wanted to know that we are at the bottom, and there’s everything to suggest that the bottom happened last summer if not early fall, and people are buying again. There are opportunities to buy.”
And there are buyers waiting to be unleashed, including young Manhattan families who began looking last fall, says Ruth de Villiers, a Realtor with the Barbara Cleary Realty Guild in New Canaan. “As soon as they have a little bit more confidence, the market is going to be encouraged here, because that’s our base of people,” de Villiers says. “These are young couples who have their first child and a second one on the way, and they’re ready to make a move, to come take advantage of our school system and amenities.”
One unknown that’s figuring into potential buyers’ decisions to purchase homes across the nation is how long interest rates will remain low. Patrick Hoey, assistant vice president of residential lending for People’s United Bank in New Canaan, Darien, and Rowayton, says he believes that rates will stay constant in 2010. “We might see a quarter shift here or there, but I don’t think we’ll see any big drop,” he says. “We won’t see the rate jump from 5 to 6 percent.”
Jay Tolisano, producing sales manager for Atlantic Home Loans of Westport, says those rate increases might be imminent.
“I think that as we start getting into the second quarter rates will start to climb,” he says.
Lower rates are a motivator for buyers, but unless sellers list their homes at “realistic” prices—those that Realtors calculate will garner immediate interest and give owners the best chance to get maximum value—the market will continue to drag, agents say.
Finding that realistic home price isn’t easy. For Carolyn Clark, president of Carolyn Clark & Associates Inc. in New Canaan, the first challenge is to reconcile a seller’s wants and desires for a lot of money, and the second is to determine what a buyer will pay. In a change from a few years ago, discerning buyers now are only willing to pay for what they perceive as a good value. As a result, Clark says she’s expecting 2010 to be a popular year for more traditional houses, those with a good location, updated, newer, in good condition, with a conventional floor plan.
One interesting feature of the 2009 market that could signal what’s to come this year is that 56 percent of single-family homes in New Canaan sold for less than $1.5 million, Clark says. “That’s a piece of good news,” she says. “Even though prices have dipped, that created a sub-$1.5 million market much larger than we had, and people that are buying are seeing the market as an opportunity.”
The same is happening in Darien, says Edward Saunders, Halstead’s vice president of operations in Connecticut and sales manager for Darien and Rowayton. In years past there were no starter homes for less than $1 million, but in 2009 41 percent of houses sold for less than that, with an additional 41 percent selling for $1 million to $2 million.
Saunders joins Lopiano at the Colony Road property, whose owners began renting it out when they moved overseas recently, into another house they had purchased. Renting out a home instead of selling is a trend Saunders says he has been seeing for a while now. “Because, quite frankly, [sellers] weren’t able to stomach the reality of the pricing,” he says. “But what you’re beginning to see is that people are seeing it, and we’re able to communicate effectively what the statistics are in town, and why if you want to sell your house, this is the price the market will bear.”