This home at 74 Arrowhead Road in Brookfield has remained on the market since June.
Nick Errico very nearly became the envy of home sellers everywhere.
After putting his Brookfield home up for sale in June, “we actually got an offer within the first three days,” Errico said. And why not? His 1,850-square-foot home at 74 Arrowhead Road has a two-car garage, wood and marble floors, a fireplace, and access to Candlewood Lake.
“It was a fixer-upper that I bought about five-and-a-half years ago,” Errico said. “I gutted the whole thing, so it’s essentially a brand new house. There’s nothing that I haven’t redone – from windows to floors to the kitchen – everything.”
But there was a problem.
“It turned out the guy just didn’t have the money,” Errico said. “What we were told is that maybe a couple months earlier, he would have been able to get the mortgage. But since the rules on mortgage lending are changing pretty much weekly, he was not able to get the financing.”
So Errico’s house, which was listed at $529,000 and since has been reduced to $509,000, remains part of the large inventory of homes currently on the market.
“I’m in a neighborhood of about 75 houses,” Errico said. “And it’s typically been a neighborhood that’s very hard to get into. Normally, if you’re seeing two houses for sale at the same time, that’s unusual. Now I think we have about seven houses for sale, so it’s just been a general slowdown. Houses are not moving as quickly as they used to, but I think it’s nationwide. It’s everywhere.”
Data from the Office of Federal Housing Enterprise Oversight supports his point.
“As we’re seeing nationally, there’s been a tremendous amount of for-sale inventory that’s come onto the market in the past two years,” said Andrew Leventis, senior economist with OFHEO. “And the months’ supply nationally is between 10 and 11 months, which is far above what a ‘normal’ market would have.”
The months’ supply of inventory is the estimated number of months needed to sell all of the homes on the market at a given point in time.
“Usually folks think of six months as the norm,” Leventis said. “The more stuff that’s in the inventory for sale, the more the buyers have bargaining power in their interactions with sellers.”
‘Nominal Numbers’
With the high level of inventory, prices appear to be struggling to stay flat with last year.
The national OFHEO House Price Index, which is based on data from sales and refinance transactions, was 0.4 percent lower in the third quarter than in the second quarter of 2007. In Connecticut, the decline was only 0.06 percent. The index also showed that the year-over-year price change – which compares the third quarter of 2007 to the same period last year – had an increase of 1.8 percent at the national level and a 0.97 percent gain in Connecticut.
Data from The Warren Group, The Commercial Record’s parent company, also shows that Connecticut’s housing prices may be losing ground as the year wears on. The median sales price for a single-family home in October slipped 0.75 percent from the same month last year to $265,000. The year-to-date median price, however, remains 1.11 percent above last year at $283,000.
“There are a lot of people who aren’t strongly motivated to sell or who postpone that decision to sell – and they’re reluctant to cut their prices,” said John Clapp, a professor at the University of Connecticut’s Center for Real Estate and Urban Economic Studies. “So they’re anchored in some value that they thought they had in their house, even though the market’s dropped down below that. So the volume dries up, and the prices sort of hang at the top.”
The statewide sales volume fell sharply in October, dropping 17.45 percent compared to the same month last year, according to The Warren Group. The year-to-date number of single-family sales is down 7.44 percent compared to last year.
While prices appear to be relatively flat, “the problem is a lot of houses aren’t selling,” Clapp said. “Their actual market prices would be lower if they actually did sell.”
Fortunately for Errico, he has the luxury of being able to wait.
“I work out of the house, and I can work out of any house I want in the country,” Errico said. “For me, it doesn’t matter. I don’t have to move.”
Leventis said he understands that position.
“Historically, folks are very wary about losing money on their houses,” he noted. “And so they’ll hold off until they get what they deem to be an appropriate price.
“This is a constant source of consternation for housing market economists: the phenomenon that folks don’t like to sell for a loss. And so we have a limited glimpse at what’s going on in the marketplace, even with the tremendous amounts of data that we do have,” Leventis added. “And we hope that that glimpse is truly representative of what’s going on.”
While sellers may be reluctant to come down in price, some potential buyers seem to have unrealistic ideas about pricing, too.
Many shoppers are looking for people in a desperate situation, such as facing an expensive reset in their mortgage rate, according to Errico.
“They sort of think everyone is in that boat,” Errico said. “You get some of these low offers where you just have to laugh. But that’s what you see a lot of. Not everyone selling is in the mortgage crunch [or a] desperate type of situation that you see on TV all of the time.”
Even if prices continue to remain flat with last year, sellers could still be losing money.
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But there could be good news for sellers, as better mortgage rates may prompt prospective buyers to make a move.
“Long-term rates are really low now,” Clapp said. “The 10-year [U.S. Treasury] bond is below 4 percent. That’s a huge decline. That suggests [lower] mortgage rates for people who can qualify and have a down payment, [and] they’ll have cheap money again.”
And for buyers waiting for housing prices to hit the bottom, Errico said, waiting that long could prove costly.
“If you’re waiting to time the exact bottom of the market, and you spread that cost over 30 years – so you save $20,000 on a house – over 30 years, what is that extra payment per month?” Errico said. “You might lose your shot at getting the house. That’s the sort of thing I think people need to think about.”
Though the first deal fell through, Errico continues to get traffic at his house.
“It’s on and off,” Errico said. “We see people coming by in droves, and then sometimes you have a dry spell. What we’ve found is that our house is very much geared toward a vacation home. It’s 90 minutes from New York City, and about a half-hour from lower Westchester, so we’re getting a lot of vacationers looking for weekend homes or summer homes.
“I compare it to buying a convertible. When do people buy? It’s in May and June. So it’s the same with homes that are near the lake – they’re the prettiest in the summertime, obviously.”
That reality, coupled with the buyers’ perception that all sellers are facing financial disaster, makes the market a challenge, Errico said.
“It’s just a game of when it’s going to turn around,” Errico said.
