Still More Rentals Needed

We are starting to see the effect of slightly rising interest rates and rapidly rising home prices on the Greater New Haven real estate market.  First-time homebuyers, many of whom have burdensome student debt, are beginning to be priced out of the tight sellers' market we are currently in.  More houses are going under contract and then returning to active status. Many homes now sell without contingencies, but those go to buyers who know that they will have the cash, or the easy availability of mortgage funds, to close.  

Houses going back onto the market are often ones where the buyers need to sell, or be qualified, before they can lock themselves into a contract.  Sometimes they don't qualify for the lowest rates, or those rates have risen.  Sometimes they don't calculate fees, insurance, and other costs.  Sometimes they just get cold feet.  When that happens, what will they do?

They will continue to rent.  As we have discussed before, there seems to be a bottomless demand for rental housing in our market.  Some is caused by one of the scenarios above.  Some is caused by COVID, because student housing cannot be as dense as it used to be.  Some is demographically driven.  Whatever the reasons, people are still filling up what's out there.

That's an opportunity for investors and developers.  Buy a home, convert a building, or build from scratch.  It's a good time to go into the rental market as an owner, and make a living from the proceeds.  We're here to help!

What Will the Biden Administration Bring to Commercial Real Estate?

 We've been through four years with a real estate owner and investor as our President, and we are about to transition to a very different administration.  Whatever we thought of President Trump, many in the field thought that he would help us, and, in some ways, he did.  Now we are moving forward with another team, and the jury is out.  What should we expect?

While taxes will likely rise, it won't be instantly.  It also may well focus more on income in general, and not on the type of income that you have, meaning that real estate would not be targeted.  Would we expect that business meals will continue to enjoy complete deductibility?  I'd guess not.  That may help us slightly now, but removing it isn't aimed at real estate, and it won't be a big surprise.  

Some of the tax advantages that real estate has had are pretty obscure for the population as a whole, and maybe even for Congress.  Are there enough 1031 exchanges to have a focus on eliminating them, or tightening the rules?  Again, probably not.  

What could help us?  First of all, interest rates.  There are signals that they won't be increasing any time soon, and that helps real estate more than anything else could ever do.  After all, it's the payments that matter, more than the price.  

Biden will also be helping those who have been impacted by the pandemic, and they have to live somewhere.  It seems plausible that rental properties will do very well in the upcoming year, and that tenants will get enough help to be able to afford the rents.  This may be particularly true in Connecticut, as a blue state.  We have been at the bottom of the list for so much federal aid in recent years, and the new administration should change that.  Cities may benefit, which is where the bulk of renters live.  

Once we achieve herd immunity from COVID-19, or when a majority of the population receives the vaccine, there should be a big upswing in retail, restaurant, and entertainment activity.  In fact, it may well exceed the norm for some period of time, as people revel in getting out and doing things.  Travel will help hotels, as well as the other categories listed above.

All in all, it's a new day, and one that savvy investors will use to determine where to place money.  More of us may switch from stocks to real estate, and those who have moved to Connecticut for the open space will often stay, and spend money here.  Prices for real estate will continue to rise, and only supply will limit growth.  Since there is more supply on the commercial side, that's even better news for investment property owners.  

Happy New Year!

Don't Discard the First Offer

 In this current market of low inventory and motivated buyers, many properties have been going on deposit quickly.  The national average, I read recently, is 22 days from listing to contract. In that kind of environment, even in the traditional "off" season of the late fall, people can wonder about whether to take the first offer they get.  They often think that they either listed the property for too little, didn't get enough exposure to the market to turn up the most avid bidders, or should wait for more offers, to stimulate a bidding war.

The answers to those potential strategies would be no, no, and no.  The first offer is often the best one.  That's because people are very well versed in the inventory available when they are looking.  They know when the right property comes along, and they frequently jump at the chance to take it off the block with a good offer out of the box.  Secondly, the information flow now, between search parameter feeds and instant posting of new listings, means that the time to get something fully exposed to potential buyers has dropped dramatically.  Those most interested in buying soon are watching closely.  Sometimes, I'm surprised that they may tell me about a new listing Pearce has!  Finally, bidding wars are great, but we should always remember what people say about the stock market:  Bears do well.  Bulls do well.  Pigs get slaughtered.  Don't be greedy.  If an early offer meets or exceeds what you expected to get for your property, grab it.  It's time to sell and move on.  Bidding wars may, in fact, result in a higher price if they occur.  However, they can also turn buyers off, who can feel they are being used, and drop out. The chance of losing everyone isn't worth the chance of finding someone who will overpay to beat out others.  

At this time of year especially, time is fleeting, and taking an early offer means that sellers can turn around and buy something else before the end of the year.  Supply gets thinner as the holidays approach, for many reasons--weather, time, difficulty of showings, and the inevitable decisions to wait until spring.  The sooner you buy, the more choice you have.

This is not an equivocal message.  If you have a number in mind, and it's a rational one, don't ignore an offer that comes close to meeting it, or meets it.  Moving forward when interest rates are this low makes more difference than the last couple of thousand in the price could ever do.

Too Early to Plan Around the Election?

I've heard a lot of discussion lately about planning real estate decisions vs. a vs. the next presidential election.  While we all realize that speculation is often just that, it is true that people do try their best to suss out what they think will happen to the economy, and therefore to real estate, if one or another person becomes President.  Obviously, many thought that Trump, as a real estate developer, would make choices that would be good for real estate investment on every level.  While that has not been universally true, it does seem true that, even in Connecticut, where 47% of those polled recently said that they were thinking about leaving the State within the next five years, there is a feeling of being better off than four years ago.  Is that because we are four years further from the last recession, or because interest rates and unemployment are low? Or is the scary stock market leading to moving money to "safer" places?  It doesn't really matter.  Real estate seems to be in favor as an investment again.

I've written about the opportunities buyers are finding along the Shoreline, now that hurricane fears seem more distant, and summer family gathering places more important.  I've also talked about the potential for real estate investment, especially in warehouses and flex spaces, based on location, and the type of needs that follow residential apartment expansion.  All of those things are true.  It does seem to me that our market in general is somewhat better than in other places, mostly due to the lack of a run up causing a subsequent downturn.  Whatever the cause, we are behind the curve, as we have been for a long time, and for now that is a good thing.

Should you wait for November of 2020?  It's a long way away.  Weigh your personal life goals against the choices, and make a plan.  Personally, I think there are too many unknowns, and the knowns tend to favor real estate investment now.

Election Pause?

Many real estate professionals claim that there is always a hiccup in the market before an election, as people try to figure out what will happen in either scenario. It's not clear to me that it's happening this time, although you couldn't have a starker contrast between two candidates than we are being presented with this time!

One thing that is clear is that interest rates are never lower than before an election, especially in a presidential election year.  This time is certainly no exception, and that should spur action under any vision of the future.  Over the long run, it matters more what your interest rate is than what you pay for the property, within a certain range. 

Besides, how do we even know which candidate Wall Street will favor?  Hillary has most of their contributions, and Trump is a businessman, like most of those running big companies.  Either one should have their fair share of support, meaning that the stock market should not react wildly to either outcome. 

Well, here's one time when I'm clearly on the line, since we only have two weeks to go, before we find out what happens.  In the meantime, go forth and buy or sell--you should be fine, in any event!

New Year, New Start

It's a new year, we have had a lot of good news about our region's economic recovery at last, and our Governor has started a new term. Things are looking up, and doing it while interest rates are still low. What are we still waiting for? Product! We still need well-maintained, well-priced buildings for sale, especially in the 5,000-10,000 sf range. Although some sellers may be holding back in the hope of greater appreciation, there are lots of reasons for selling when the buyers are around. There has been a spate of job recovery in the greater New Haven region, so we know that businesses are expanding. We also know that our rental market is bursting at the seams, and has the lowest vacancy rate in the country still, so there are consumers out there, who would utilize retail and other services. We just need a little push, and the simplest way to get it is to find some sellers either to sell out or to list and move. How about it?

Heading into the Election

Some things change from election to election, but some things don't seem to vary.  One constant is that the sitting President, and his party, try to make the economy look as good as possible, for obvious reasons.  My friend Ray Fair, in his economic research, has a regression model showing that the incumbent is heavily favored, and statistically almost certain to win, if the economy is good or improving.  By those odds, Obama would seem to have the advantage, at least if you are talking to real estate professionals (although they are much more likely to be Republicans in general!).

And how does a President, or the legislative branch, go about making the economy look better?  One way is to make sure that interest rates don't go up.  As we have seen, they have just gone down again, and are now at their lowest rate in 60 years.

For commercial real estate, that means that both investors and users should be looking for product now.  They cannot count on getting the kind of financial help that low interest rates provide for much beyond the election.  Given the length of time that it's been taking to close a commercial transaction, time is of the essence.  Act now!