Tag Archives: Real Estate Market Changes

The Wait Is Over

by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

Let’s take it by the numbers.

I’ll show you, with raw market data, that prices are AT THE BOTTOM in our marketplace.  There’s little point in waiting any longer for prices to drop .  You’ll see comparisons from 2011 to 2010 that will prove we are at the beginning of the upswing in real estate values.  If you look at real estate for the last 50 years in the US you’ll see 5 year cycles of boom and bust.  We had an artificially elongated boom cycle from 1996 to 2006 because of 9/11.  The loosening of regulations that resulted from the government panic brought on by that tragedy gave us another 5 years of boom.  The market should have deflated in 2001.  Instead, it did so in 2006.

Most people think the “bubble” burst at the end of 2008 with the overall financial crisis in the US.  Actually, if you tracked the numbers, town by town, in the market every month (which I’ve been doing in my market area for the last 10 years) you would have seen prices slipping during 2006, the amount of inventory rising and the differences between asking and selling prices moving downward.  Those trends continued during the period 2006-2008 and the financial crisis made it more obvious and accelerated the downward spiral.  It’s a very clear 5 year cycle: 2006 to 2011 and, now, as you’ll see, the real estate market has been improving for the last year – not dramatically and there’s still lots of distressed properties weighing on prices – but improving nonetheless.  The graph at left shows existing home sales for from the National Association of Realtors (NAR). It shows a very clear upswing lasting from 1996 to 2006.  It also shows the very clear dip beginning in 2006 and the beginning of another upswing now.  The consensus of this graph is for sales of 4.80 million at a Seasonally Adjusted Annual Rate (SAAR) for late 2011.  If you click on the graph you’ll see a more readable full-sized version.

 I understand that different parts of the country are performing differently.  On February 1st there was an article in The New York Times about the Atlanta, Georgia market which is still experiencing a depressed downward slide in prices.  There are other hot spots (cold spots?) in the country like Las Vegas and Phoenix where their lofty highs in real estate made them the first to fall and the hardest to recover.   The figures I’m going to present are for Essex County, NJ.  This data is from the Garden State Multiple Listing Service.  It’s not conjecture.  Let’s see the numbers:

Town

  Avg. Sales

Avg. Sales

Sales Price
    Price 2011

Price 2010

% Change
         
Bloomfield  

$260,102

$291,230

-10.69%

Caldwell  

$399,051

$389,581

2.43%

Cedar Grove  

$463,011

$467,615

-0.98%

Essex Fells  

$799,580

$845,799

-5.46%

Fairfield  

$443,031

$500,872

-11.55%

Glen Ridge  

$609,263

$551,086

10.56%

Livingston  

$574,620

$648,104

-11.34%

Montclair  

$630,787

$625,957

0.77%

North Caldwell  

$831,572

$740,701

12.27%

Nutley  

$329,211

$362,032

-9.07%

Roseland  

$479,471

$503,985

-4.86%

Verona  

$386,059

$408,120

-5.41%

West Caldwell  

$431,056

$446,060

-3.36%

West Orange  

$367,941

$393,782

-6.56%

         
Totals  

$430,735

$446,967

-3.63%

This is a comparison of average sales prices for all of 2010 vs. all of 2011.  You’ll notice Caldwell, Glen Ridge, Montclair and North Caldwell all had IMPROVING prices year to year.  Cedar Grove, Essex Fells, Nutley, Roseland, Verona, West Orange and West Caldwell had drops, but not by much, some less than 1%. certainly not the town by town 10% to 15% drop in prices we’ve seen year to year over the last few years.  Only Bloomfield, Fairfield and Livingston did not fare well.  Bloomfield has a lot of diverse neighborhoods from upscale suburban to heavily urban which translate into lackluster overall performance.  Fairfield and Livingston are slow markets, even in the best of times.  The overall year to year price comparison was a loss of 3.63%.  I regard this small number as a sign of stability.  It’s well below the recent average 6% to 7% declines.  It’s certainly not the gloom and doom we hear every day in the media.  Even in The New York Times – which I believe hates real estate based on its coverage – there have been stories of improving consumer confidence, rising numbers in new construction of housing and glimmers of hope in real estate in general.  As lately as January 21st The Times Business Section ran a Reuters piece called “Markets End Day With Slim Gains”  where it was said, “In economic news in the United States, home sales hit an 11-month high in December and the number of properties on the market was the fewest in nearly seven years, pointing to a nascent recovery in the housing sector. The National Association of Realtors said on Friday [January 20th] that existing-home sales increased 5 percent to an annual rate of 4.61 million units, with all four of the nation’s regions recording gains. Sales of both multifamily and single-family homes rose…There were 2.38 million unsold homes on the market last month, the fewest since March 2005.  That represented a 6.2-month supply at December’s sales pace, the lowest since April 2006 and down from a 7.2-month supply in November.” (Copyright 2012, The New York Times and Reuters).

Don’t forget, markets are partly psychological.  When more people feel good about purchasing homes, an improving market becomes a self-fulfilling prophesy.  The market will improve, and is doing so now, based partly on the positive perception we’re beginning to see in the media.  When you consider, also, that whatever you see or read in the media about real estate has already happened, you see that the confident trend is not just starting but is well under way.

Let’s read our next set of tea leaves:

Town

 

# Sales

# Sales

   

Closed 2011

 Closed 2010

       
Bloomfield  

218

236

Caldwell  

59

46

Cedar Grove  

85

86

Essex Fells  

20

17

Fairfield  

48

36

Glen Ridge  

84

76

Livingston  

247

266

Montclair  

305

317

North Caldwell  

56

56

Nutley  

185

187

Roseland  

65

51

Verona  

131

140

West Caldwell  

79

83

West Orange  

371

367

       
Totals  

1953

1964

The numbers of closed sales between 2010 and 2011 are an obvious sign of improvement.  Most towns had more sales or an almost identical number and even in the slowest town markets, where there were less sales, the difference was slight.  This is not dramatic improvement, as I said before, but it’s no longer a downward trend.  Think of the market cycles like a roller-coaster (and there has never been a more apt comparison).  The car shoots downward to the bottom of a curve and then slows, stops and begins to slowly ascend the next curve.  These numbers of sold units show the roller-coaster car slowing at the bottom and beginning, slowly, to trudge up the other side.  I believe the sales prices in the previous graphic show the same thing.

Here are some more telling numbers:

Town

 

Avg.

# Listings

Avg.

# Listings

    DOM 2011

12/31/2011

DOM 2010

12/31/2010

           
Bloomfield  

97

291

79

285

Caldwell  

87

33

116

42

Cedar Grove  

123

69

71

85

Essex Fells  

141

19

115

29

Fairfield  

97

96

195

90

Glen Ridge  

65

36

67

30

Livingston  

56

144

69

144

Montclair  

83

181

73

196

North Caldwell  

95

70

97

64

Nutley  

98

170

79

194

Roseland  

114

45

97

55

Verona  

83

110

76

115

West Caldwell  

82

58

62

39

West Orange  

103

397

92

452

           
Totals  

80

1,719

74

1,820

The DOM or days on market numbers are about the same or a little higher in 2011 which can be a continuing reflection of consumer reluctance and non-awareness of  the continuing improvement in the  market or the fact that there has been more protracted negotiation in housing sales.  The significant issue is the number of listings on the market.  For the most part, these numbers are shown to be in decline or virtually the same.  Over the last few years the number of listings on the market has steadily increased, inflating the overall inventory and increasing the time it would take for that inventory to be absorbed through sales and putting more pressure on price.  Now there’s a sign of stability and decrease in those numbers which will bring down the absorption rate and will be another factor contributing to the stability and, then, rise in prices.

Here’s my favorite set of stats:

Town

  List Price/Sales
    Price Ratio – ’11
     
Bloomfield  

96%

Caldwell  

97%

Cedar Grove  

95%

Essex Fells  

95%

Fairfield  

95%

Glen Ridge  

99%

Livingston  

96%

Montclair  

97%

North Caldwell  

95%

Nutley  

96%

Roseland  

95%

Verona  

96%

West Caldwell  

96%

West Orange  

95%

This is the percentage of what sellers got in sale price in 2011 vs. what they asked in listing price.  In fairness, these percentages may reflect the final sales price as compared to a price reduction.  There’s no way to ascertain how much of a factor price reductions play in these percentages.  It’s also unlikely that every sale used in these averages had a price reduction.  That aside, no town’s sellers got less than 95% of what they asked, even in the worst performing markets.  The overachiever, Glen Ridge, had a whopping 99%.  In the good old days we’d see lots of numbers in the 100% to 105% range in the best towns.  What’s interesting, however, is that underperforming towns could be in the 75% to 85% range in the best of times and now are joining their better performing brothers and sisters in the mid 90’s.  This, to me, is a sign of overall strength where all results are about the same.

If you want to see results on a national basis go to: http://www.realtor.org/wps/wcm/connect/b810d08049dae5a8972adf7393f1335d/RELEHS.pdf?MOD=AJPERES&CACHEID=b810d08049dae5a8972adf7393f1335d where the National Association of Realtors has published a chart of existing home sales and sale prices since 2009 with a detailed recap of the last year.   All the results for numbers of units are in the plus column with the exception of the Midwest and the sales prices, while showing declines, are no more than 3.2%, except, again, in the unfortunate midwest.

Well, there you have it.  If your butt is sore from sitting on that fence maybe it’s time to jump off and get on with your hopes and dreams.  There has never been a better time to be a housing consumer and there may never be a better time if these trends continue resulting in higher prices and less inventory.  Certainly this trend can be halted or reversed with some political, financial or natural disaster but assuming normal conditions (normal being current conditions) there’s no reason to believe this improvement won’t continue.  We’re not falling anymore so time spent waiting is time spent watching your purchasing power decrease.  You may think you’ll wait another 6 months and maybe prices will fall another 1% to 2%.  I don’t believe that will happen, over all, and, in 6 months, when everyone is finally convinced that we’re at the bottom, there will be more competition for less inventory.  Competition always means higher prices which can negate any falling prices, assuming those decreases occur in the first place.  Also, I hope mortgage rates stay low forever but, normally, improvements in the economic picture lead to higher rates.  Mortgage money is available for well qualified buyers and has not been this cheap for 60 years.  There are even reports that lenders are loosening their underwriting standards in order to lend more.

As is the case with most trends of this nature, we don’t become fully aware of them until they have matured and burst into view.  Wouldn’t it be smarter to take the knowledge these statistics provide and act before the herd gets wise and tramples this opportunity?

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Filed under Improving Market Conditions, Market Changes, Market Conditions

Small Ball

by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

I was wracking my brains trying to come up with a connective piece of wisdom between the New York Yankees’ collapse in this year’s American League Divisional Series and real estate.

Detroit Tigers celebrate eliminating the Yankees to move on to the American League Championship Series

Let’s get the obvious and trite out of the way first and fast:  “Pick yourself up after a defeat and face the next day”  “The best laid plans….” “Sports is like life – a compressed version of our lives”  “Even heroes have bad days”

There are probably many more vacuous and un-original sentiments to be gleaned from baseball but I don’t want to clutter my mind with any more.

The reason this Yankee loss resonates with me is that I’ve been their fan since I was 10.  I’m always saddened when their season ends, be it in the first round of the playoffs, as in the last two years, or at the end of the World Series because, for me, it’s the end of baseball until next spring.  There’s no particular joy in watching teams play that I don’t care about if the Yanks are gone and there’s no more baseball with winter approaching even if they win the Series.  The days are shorter, colder, less forgiving and won’t be amiable and gentle again until the next crack of the bat at Yankee Stadium in April.

I think I have a clue of a connection between the 2011 Yankees and the real estate market in general.  By all accounts, the team ultimately failed because they ignored or didn’t try to correct some glaring weaknesses in pitching and their lineup.  These are pretty fundamental deficiencies. 

A.J. Burnett - Pitching Enigma

We real estate practitioners are enduring a market on its knees and I think that a lot of us are just marking time, waiting for buyers to come flooding back and prices to rebound to past levels.  We’re ignoring the fact that neither will probably happen.  Our past expectations of market conditions are, most likely, gone forever as are the type of buyer and seller we became accustomed to. 

So, like the Yankees, we need to deal, head on, with the glaring deficiencies in our thinking.  Neither the Bronx Bombers nor real estate agents can rely on a storied and successful past.  The percentage of home ownership has dropped, nationwide, from 66% to 65%, the largest 10 year drop since the Great Depression.  Even the Obama Administration has opined that home ownership is not as important as it once was and renting is the way of the future.  This is a seismic shift in government position.  Washington has always been a home ownership cheerleader, encouraging us all to take our destiny in our own hands through the autonomy of ownership.

Well, not any more.  And I think a lot of people are heeding this message which is why the rental market is so hot and the residential and multi family markets are so flat.  Paradigm shift is the best way to view this, in my opinion.  To illustrate this, for example, the Yankees have always relied on slugging veterans to win.  By contrast, in the 80’s, Manager Whitey Herzog introduced the concept of “small ball” to the St. Louis Cardinals, another slugging club with shifting fortunes. 

Whitey Herzog - Hall of Fame Manager

Also called “Whiteyball”, this paradigm change from home run slugging  to small hits, speed, stolen bases, bunts, pinpoint pitching, defense and smart base running, manufactured enough runs and victories to propel that team forward.  They shifted their thinking to acknowledge certain realities and succeeded.  Maybe the Yankees should try a paradigm shift, rely more on youth, speed, reliable pitching, and find another bunting coach as good as Phil “Scooter” Rizzuto who taught their players a thing or two before he died.  It appears to me they need to fundamentally re-examine their approach to the game.  Their starting pitching was cobbled together and, ultimately, unreliable but the team put the best face on it all season. They had the highest number of home runs this past season but a miserable percentage of productivity with runners in scoring position, especially in the playoffs. 

Yeah Robbie, we feel the same way...

The big producers in the middle of their batting order had a puny average during the playoffs, underscoring the futility in relying on a few big hitters to carry the team.  In fact, the bottom of their lineup was much more productive.

It always takes time for humans to react in any productive way to a paradigm shift.  Our situations shift under our feet and it’s a while before we realize the world has changed.  Then there’s usually some lag time while we comfort ourselves by denying that anything is different.  By the time we are ready to act it’s often late in the game, the fans are headed for the exits, the pitcher is throwing high and tight to our heads, the umpires are ringin’ us up and we’re slinking back to the dugout.  I see real estate offices closing or consolidating into smaller quarters, brands disappearing, agents leaving the business.  The membership of the National Association of Realtors has dwindled from its highest point a few years ago.  The pitcher threw “bean balls” at these folks and they didn’t think to duck.

We REALTORS need to learn to play our version of “small ball”, a new way of practicing real estate which includes skills attuned to our new reality, just like big-leaguers need to learn how to bunt and steal bases.  We need to acknowledge that buyers have changed, gotten younger, become more tech and information savvy and are certainly more demanding.  We can’t rely on the same old scripts.  It’s always been unbelievable to me that the profession pushes “scripts” or pre-written responses to objections, etc.  Whatever happened to honestly listening and answering our clients’ concerns from the depth of our knowledge and experience?  The “back to basics” approach that covers most real estate training must shift from pre-recorded palaver to genuine leadership.  We must acknowledge that buyers are insecure as well as informed, sellers are VERY insecure and angry and we all need to be better informed, faster on our feet and – dare I say it? – charismatic.  More than ever before, we need to be our customers’ “muse”, a wise man (or woman) that they can rely on and learn from.  The old methods of customer relations where clients are merely handled will only set up adversarial relationships.  We need to inspire and lead and beat the catcher’s throw to second as we steal the bag.

Back to the drawing board, Joe?

If this all seems pretty obvious, I’m sure you won’t be surprised to know that some real estate agents are clueless to all of the above.  They are hard-working, honest, diligent – and dull.  They couldn’t inspire a leaf to fall from a tree.  I don’t want to come across as superior but I hope I can muster a better attitude than that.  We in the business all need to aspire to an appreciation of another paradigm where our cleats are clean, we have a big lead off of first and we’re catching the ball with the bat (that’s a bunt, for the rest of you).  Otherwise, the end of the season will be fast approaching and the days will become shorter and shorter and colder.

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Filed under Market Changes, Paradigm Shift