The importance of our school system to real estate values

15 Meyer Place

This Riverside home is directly on I-95. It’s ugly, on a noisy  (okay, deafening) street and quite dated. Its original price was $920,000, its  ( 2005 ) appraisal was $860,000, and it’s reported sold today at $560,000. I’m speculating here, but I’ll guess that the buyers are parents of young children who were willing to pay even that much because they wanted access to Riverside Elementary and Eastern Middle School, (plus, maybe., Tod’s Point.). In most towns, this place is a $100,000 house, at best.

But Greenwich no longer has an excellent school system and certainly not anything comparable to our competitors. Erecting a $29 million music studio at the high school will do little to correct this decline. We’re still better than NYC, where half the students are deemed “not college ready” and we’re certainly better than Syracuse, where only 1% of Spanish-American kids are, but those aren’t our competitors Westport, Darien, New Canaan – are, and we’re not doing a good job. Adding oboe rehearsal space isn’t going to cure that. I don’t know the answer to improving our schools, but I’m pretty sure building frills isn’t it.

All real estate is local but …

Nationally, these guys say we have at least another 20% to drop. If California and Nevada are close to bottoming it’s because their prices have already dropped so far. Late bloomers, like Greenwich and New York City, were the last to feel the housing collapse and I, at least, think we’re still falling. You may disagree, in which case I invite you to come shopping for a new house with me. We’ll offer 95% of asking price, the (manipulated and deceptive) “historical” selling percentage in Greenwich, according to the realtor board, and I guarantee you’ll have your choice of every house out there, including Mad Monkey’s.

UPDATE: Miami isn’t Greenwich, although many of Greenwich’s more prominent felons end up there, but the logic of prices falling until buyers and sellers reach a balance would seem applicable here, too. And in both Miami and Greenwich, there is still a gross imbalance. Here in the land of Leona, we’re looking at at least a three-year inventory and as for $5,000,000 + houses, well, what are you doing in 2050?

Greenwich real estate doings this week

Almost non-existent. We’re up to five single family houses going to contract for the month, which is awful. 80 Perkins Road, new construction by Jordan Saper, will close on Monday and the revelation of its selling price should be telling. Saper asked $7.950 million and in the past, a Saper house usually commanded close to full price. In the past. This time, I’m betting $6.5 high, $5 million, low. More on Monday.

There is another spec house closing next week, for an astonishing price. Can’t tell where or how much, now, but it’s going to be a lot of fun for some folks to laugh at, if they’re brave enough. I may set up another blog under a pseudonym and do just that.

The late Kit Wright’s Belle Haven home at 52 Pear Lane came up for sale today, listed for $16.5 million. It’s an acre and a half, direct waterfront with a deepwater dock (or so the listing says – I never looked), with a view more of Greenwich Harbor than Long Island Sound. It is a nifty cottage – as unique as its former owner – but I don’t know what the market is for a rambling little place that looks like an illustration from the times of Shakespeare. It was actually built in 1900, and the listing says it’s been “renovated at various times.” I suppose it has, although the last time I visited I saw no sign of renovations that I would have described as “recent”. Cool place though.

There was a neighbor, Egyptian I think, who lived in the original mansion for which this served as the gate house. He had a standing offer to Kit to buy the place back to restore the original grounds, but the fact that it’s being offered for sale would indicate that either he’s no longer there or interested or perhaps didn’t offer enough. In any event, his loss is your opportunity. Goldman boys need not apply, but maybe one of you hedge fund types described below in the Greenwich Avenue post as still having tons of money would like to jump in.

Check your competition

I spent a good portion of this weekend showing houses to two different families. There was one good house for each family -no, I won’t identify them here because they did like them and I’ll keep my mouth shut until they decide how they want to proceed. There were many more houses that were grossly overpriced and I didn’t have to tell my clients that. No buyer can see a house priced well at, say, just under $2 million and then walk into another house a few minutes later asking the same price but 1/3 smaller, much dingier, with an inferior location, without asking, “are these people out of their friggin’ minds?” Mad Monkey would have you believe that sellers who are cutting their prices are engaged in a mad dash to the bottom and will rue their haste, someday. Perhaps he’s right but if you want to sell your house in the foreseeable future, ask your agent to pull all the competing listings in your price range and neighborhood and then go see them. If you are capable of employing an objective eye and you see a better house priced lower than yours, cut your price. Right away.

Open house dreaming

I think that our market is still being filled with new listings that are over-priced. Part of that is the refusal of sellers to get real, some can be attributed to agents “buying” a listing by deliberately lying to would-be sellers (okay, let’s use the softer term and say, “letting their optimism get the best of their judgment) and, in some small part, the complete lack of certainty of what’s coming at us. I was at a house today with another agent and, after we’d seen the place and were walking back to our cars, I said, “asking price should be $500,000 less: $2,495,000.” The other agent, a very good one, said, “oh, no, that’s much too low,” so I asked her what she thought it should be priced at and what it would sell for. After a certain amount of consideration, she finally concluded (a) that it was going to be on the market a long time, (b) that maybe $2.650 was a better asking price, and that it would probably sell at $2.495. So she ended where I began – my guess, today, is that it will sell for $2.3 million but here’s the rub: neither of us know. Not long ago, I could make a pretty good estimate of a house’s value, with the occasional whopper of a miss. Today, I’m sort of, kind of confident about guessing present value (limited, of course, by the lack of 15 recent nw to use) but I really have no idea what the market will look like in June. My fear is that it’s going to look really, really ugly. But I don’t know that.

So I’ll keep an eye on this place and report back when, and if, it sells. Then we’ll know.

Tire Kickers

Just to follow up on the last post, here’s what I’ve learned from the buyers I’m working with – and I suspect mine are typical: they have absolutely no intention of offering full asking price, especially for new listings that haven’t had time to mellow. They (and I) shy away from listings with ridiculous prices; they don’t even use them for comparison purposes because they are comparable only to other over-priced houses, which is useless knowledge. But even you, wise seller that you are, who have knocked your price down by hundreds of thousands (or even millions) of dollars should not expect an offer that comes close to your desired price. It’s not happening.

Okay, that was the broad brush approach, and there have certainly been a few exceptions, but I hate to give you that out because, invariably, any seller reading this will say, “well I’m the exception!”. Chances are, you’re not – we just aren’t as special as we’d like to think we are.

What, me worry?

Spain’s debt downgraded.

Stocks in Europe, Canada and Brazil decline

EU drops economic outlook for 2009

Fiat threatens to return to U.S.

These four headlines were just collected from today’s news (alright, the last one about Fiat is, although true and undoubtedly frightening confirmation of our impending status as a Third World country,, mostly included as a joke). Just as gloomy news was around last week, for those who bothered to look, but you’d never know it from current real estate prices. I was working this morning on finding some reasonably priced properties and was struck, yet again, with how many sellers are still convinced that their houses and land have increased dramatically in value since 2006. What are they drinking?

I would guess that these people are just holding on, part of the mass-hysteria that believes that the Obama will pull the country from its economic malaise and return us right quick to prosperity. Last through the spring, the reasoning goes, and we’ll be back where we were when times were good. Even the EU itself seems to believe this – its depressed forecast for 2009 is followed by a stated belief in a come-back in 2010. This might be more encouraging if today’s communication hadn’t been  issued to correct its more optimistic forecast made just two months ago. If they can’t get it right over 60 days, do you trust them to predict accurately what conditions will be like in 450?

I don’t wish to add to another hysteria, the one that fears the sky is falling, but if I were trying to sell my house now I would price it based on an assumption that property will be worth less a year from now, rather than more. Certainly, that’s what buyers are figuring. If you and the buyer aren’t on the same page of that expectation, there will be no meeting of the minds and no sale. So either reduce your price and sell, or pull your place from the market and wait for the rebound that will prove buyers wrong.

Or just keep your house in showroom condition and let tire-kickers disrupt your schedule. Some would-be sellers are happy with seeing that kind of activity because it lets them pretend that something’s happening. It doesn’t work for me, but we’re all different.

Advice to 240,000 fired Wall Streeters: Grow up and get a real job

Harsh reality from the head of Heidrick & Struggles.

Q. How bad is it for people working on Wall Street?

A. We haven’t seen anything like this in the financial services industry, particularly in investment banking but also in the capital markets area. The numbers change every day, but at the end of 2008 the number was that 240,000 had been laid off on Wall Street in an 18-month period. If you’re talented — and there are a finite number of individuals across every organization who are A-plus players — you won’t have any trouble getting a job. If you’re newer to the investment banking field, you’re going to have to look at different types of employment.

Q. Is it just people in investment banking losing jobs or is it also happening in other areas, like private equity and hedge funds?

A. It’s across the board. You haven’t seen private equity being hit as hard as investment banking or the hedge funds. I don’t think a day goes by when you don’t pick up a newspaper and see another hedge fund that’s closing. A lot of these individuals will either reinvent themselves in different areas of the hedge fund world or retire or do something completely different. Therein lies the challenge. What type of industries do you want to go into when you’re being compensated fairly heavily now?

Q. Where do those 240,000 people go?

A. There are a couple of things happening. When I say retool or reinvent yourself, some of the local investment banks in Chicago are recruiting people from New York. That just wouldn’t have happened a couple of years ago.

You’re also seeing people moving abroad. —

But it’s a supply and demand issue. The demand simply isn’t there for all 240,000.

—-

Q. If many of these people were skilled at building complex financial instruments that are no longer in demand, how can they use those skills in other industries?

A. You see a number trying to go back to school. You see a number trying to get into different areas. If you’re intelligent, there will be opportunities. It will just take much longer than it used to. At this time, it could take six to eight to nine months.

But it’s tough because the areas that are looking to recruit and grow right now are energy, things that deal with the environment, pharmaceuticals and some parts of high tech. It’s tough to make a transformation from trading credit-default swaps one day to going to work for a health care company the next. They have to discover what they want to do when they grow up.

Q. Are business schools teaching people to become investment bankers when the world doesn’t need investment bankers any more?

A. There is truth in that. I’m on the board of the Fuqua business school at Duke University, and we were just having this conversation at a board meeting. If you look at all the analytical tools they’re teaching at the University of Chicago or at Wharton, they’re teaching people how to become a great investment banker, but not necessarily how to manage and lead.

Those readers who have argued that Greenwich needs huge salaries to support last year’s prices and who warned that those jobs are disappearing would seem to have a point, eh?

Gretchen Morgenson: The end of banking as we’ve (recently) known it

Her prediction – financial services will return to the dull old boring days when the good ones traded at 1 to 1.5 X earnings  book value.  No more leveraging 30X, no more out-sized salaries and, by the way,higher interest rates. My manager tells me that our office saw a large number of house viewing appointments today so maybe buyers are ahead of those pundits who think mortgage rates are going to fall lower and stay lower.

But sellers might want to consider what will happen if the financial services jobs and multi-million dollar bonuses disappear, especially if accompanied by higher mortgage costs. Nothing good.

And hedge funds? They’re not doing so well either. These guys charged 20% of the profits they earned: no profits, no 20% and no 20% until they earn back their losses, if they ever do. Citadel’s  Kenneth Griffin, whose fund lost 55% this year, says he’s trying to stay open. “But he acknowledges that for several years, he will be working mostly for ‘psychic income.’ ”

Griffin will survive, but a lot of junior hedge funders will not be buying $4 million homes in Greenwich in the near future. Looks like the only ones who will will be Greenwich town employees.

Statistics

A reader has sent me a very thoughtful letter about Greenwich real estate prices and our expectations, which I will post below. Before I do, I thought it would be useful to post some statistics compiled by Shore & Country Real Estate, culled from SearchGreenwich.net, a private service that mines our MLS data. These don’t reflect non MLS sales but they do capture about 95% of the market.

I’m hopeful that clicking on the image will enlarge it. But here’s the scoop:

1999: average price, $1,330,518; median: $861,125

2003: average price, $1,757,020; median: $1,175,000

2005: average price, $2,470,118; median: $1,750,000

2007: average price, $2,973,201; median: $2,100,000

First 9 months of 2008: average price $2,824,166 (-4%), median: $1,962,800 (-7%). The last quarter will show a larger decline, but so few sales that it may not be useful.

So where are we headed: 2005, 2003, 1999? Jury’s still out, I think. Now to my reader’s letter:

Chris:

 

I am of the opinion (and have been for some time) that the news coverage of economic events will start to improve on Wednesday of next week. Yes, I believe that the media that helped elect Mr. Obama has a huge vested interest in his performance, particularly in first 100 days. Thus, I think we will begin to see some modestly more positive coverage and spin on statistics than we have seen over the past eight years. The item linked below is just one example of the media piling on the negativity. Perception sometimes become reality but if you can move the perception a bit more toward the positive, the reality may follow on as well.

 

http://bondtangent.blogspot.com/2009/01/bond-buyer-state-bankruptcy-fears-may.html

 

As much as you may not want to see it, I think your blog runs the risk of doing similar things to Greenwich RE. No, I am not saying you are a god nor that you are making potential homeowners list their homes at unrealistic prices. However, in a market that has been hurt economically and is experiencing a very serious “buyers’ strike”, focusing on the misguided home sellers only makes potential buyers think that they would be chumps to come into the market. Or, if they are ready to buy, that they come to any home thinking that any price that is not down 40%+ from the original asking price is mispriced. However, when there are no transactions, there is no price discovery, so sellers can only work with anecdotal evidence provided by presumed experts, etc. In case you don’t realize, you are one of those experts (real) and your commenters, irrespective of knowledge or seriousness, gain a sense of legitimacy by commenting on your site.

 

As in other markets, feedback loops are created and, with no information or transactions to the contrary, a consensus can build and the loop can begin to feed upon itself. It happens in the financial markets all the time, both on the way up as well as on the way down. Thus, markets get overbought and oversold with regularity when the market starts really moving. As we have seen, this happened in real estate and risk assets over the past decade (on the way up) and is now operative on the way down.

 

I am not blaming you and I am not suggesting that your observations about the market receding to levels of a number of years ago are neither correct nor misguided. However, have you noticed that you are starting to draw commenters who seem to subscribe to the Rubini/Schiff/Faber/Whitney world view and wish doom upon the world. Several comments lately (mostly anonymous or with silly names) have not only been downbeat, but I would characterize them as mean as they seem to relish the collapse of the Greenwich RE market. I have seen this before and it usually starts on blogs when an entry is linked on another popular site and draws new viewers (as you have of late). These permanently negative basement dwellers see an opportunity to be heard and become regular visitors/commenters. I see them all the time on other blogs like Clusterstock, Dealbreaker and others and, when they become regular visitors, they can really skew a site’s view to the perpetually negative. Le cages aux folles, even vultures.

 

No, I am not suggesting that the messenger should be shot for delivering bad news or pointing out inconvenient or uncomfortable facts. However, without transactions, current musings about the floor are simply conjecture as a lack of buyers and realistic sellers prevents proper price discovery. Sure, one can drag out the home affordability index and point out how overbought real estate became and assume that reversion to the mean is necessary. However, that works mostly in liquid financial markets where the transactions costs are low, transaction speed is high and the participants don’t have to live in the traded good. It works for tulips but I am not sure it works for 4-bedroom colonials. That said, yes, I am a homeowner and I have a view, a bias and, maybe, delusions.

 

Finally, in my opinion, anyone wishing/hoping that Greenwich RE prices revert to mid-90’s levels is unlikely to be a current homeowner nor someone who really wants to live in the Greenwich that implies. That is, if you are hoping that the Grand List shrinks to 50% or less of its 2007 peak, you have not given much thought to the impact on the Town vis-à-vis its tax base and budget nor the impact on the quality of life, services and mil rate that such a compression implies. Yes, we all happily lived in Town in the mid-90s and never thought we were not blessed. However, the contraction such price levels suggests, along with a changed tax burden that has relied more heavily on commercial and office properties, would come very quickly rather compared to the 15 years that has brought us to this point. The deflation in services and/or increase in taxes will leave many of us shell-shocked which will then have an impact on housing turnover, etc. Another feedback loop of sorts.

 

Of course, it is your blog at the end of the day and you are entitled to write what you want, how you want and publish comments as you see fit. However, as a relatively long-time reader, I felt the need to share my observations with you.

 

Chris, feel free to post or quote this in part or whole or not at all. I would be interested in the comments it draws. However, be mindful of attribution to me specifically. Thanks.

Comments?

Mort Zuckerman : sell now, buy in six months

Just saw an interview with Mort Zuckerman who seems to know a thing or two about Manhattan real estate. Asked about residential properties, his advice to buyers was to wait at least six months because he’s convinced that prices have still farther to fall. Conversely, he advised sellers to sell now because prices will only get worse in the coming year. So how do you get around this if you’re a seller and buyers aren’t buying? He didn’t say but I would think that the answer lies in cutting your price now, dramatically, so that buyers will feel protected if prices around them do continue to fall (which they will).  If your competitors are still holding out for 2006 prices and you’re down to 2003 or, better, 1999, you’ll stand out like a beacon, and buyers will appear.

Another point in a really low price – it will put the full power of Greenwich’s MLS behind you. Most agents I talk to are doing nothing these days (hey – they can’t or won’t blog). There’s nothing going on to excite their buyers and the agents are desperate to find something that will. If you, like 317 Stanwich, slash your price to the bone I guarantee you that every agent who isn’t brain dead (5? 10? Just kidding) will be emailing and calling their clients. They won’t be doing that for other listings.

22% off, still available

I can’t remember whether I’ve seen 520 North Street but from its pictures it looks appealing. A renovated 1840 barn on 4 acres with a pool, it started last spring at $5.0 million and is down now to $3.9. Not too long ago, the new price would have seemed appropriate – I’m not vouching for the original price, in any market – but today? We’ll see.

Here’s a nice little house

15 Concord Street, in Glenville off Pemberwick, was reduced today to $850,000 from its original price of $895. The seller paid $785,000 for it in April, 2005 and has probably been reluctant to take a loss (he’d just about break even at the current price) but it’s been on since April, so he probably should have cut deeper, sooner. Maybe this cut will do it; the spring market, if it still exists, begins soon.

I don’t think so

If 6.6 acres on Round Hill Road, complete with a renovated 1745 farmhouse, sells for $3.4 million, how much is a building lot at 543 Stanwich with a 3,000 sf 1960’s ranch worth? The seller says today that its proper price is $4.225 million. Gosh!

Round Hill Land Values

384 Round Hill Road

When this property, priced at $5.2 million went to contract in November, I reported the rumor that the owners had accepted an offer in the low 3s. That seemed low for 6.6 acres and a renovated 1745 farmhouse, even if it did overlook the Round Hill general Store. But its selling price was reported today as $3.4 million, proving again, as I suggested in the original post, that in this town, rumors about real estate are often more accurate than any other kind (well, the Noel/Alzheimer’s rumor seems pretty solid, but forget about that). 62% of the original asking price is arresting; for those taking notes, you may want to know that the sellers paid $2.6 for this place in 1999 and put in a substantial amount of money into renovations. Oh – and the original price back in 1998? $3.5 million. My my.

Decline and Fall in Greenwich Real Estate

14 River Lane, Cos Cob

This modest house in Cos Cob sold four years ago (February, 2005) for $1.570 million, or 87% of its original asking price of $1.799. In March, 2008 the new owners listed it for sale at $1.795 but it didn’t sell. A relocation company took over this summer and after a total of nine price changes, finally dropped it to $1.2 million – 67% of that original ask and 76% of what they paid for it. It was reported as under contract Friday; no price reported yet, but I’m guessing it will be well under $1.2. $975? $1.1? Whatever, it won’t be providing much cheer for those hoping to see a bottom in our local prices.

Take a tip from the big boys

So corporate bean counters are under pressure from their PR departments to dump the private jets. But Chairman Preposterous loves his jet and is going to be some pissed at the moron who deprives him of it. What to do, what to do? Simple: put the thing up for sale at a price that ensures no one will buy it.  You and the company look good to the public and your shareholders and the Chairman keeps flying – a win-win solution!

Many Greenwich homeowners seem to have already figured this strategy out and have adopted it for use on their residences. And that’s great, so long as they want to keep owning it.

Goldman Sachs is bearish on NYC real estate

Another 58% decline before reaching pre-boom levels. It’s all about income, as Retired IB’r points out in a comment below. My working theory: as Manhattan real estate goes, so goes Greenwich. Al is not lost however – Greenwich, unlike NYC, has already seen a fairly large decline, at least for houses that have actually sold this fall. Owners who have refused to believe their eyes may have to take the full whack – others may get away with just another 20-30% shaving. And doesn’t that just warm you to your toes!

Good article in Greenwich Post

My old paper, Greenwich Post, has a good article today written by Sara Poirier on what’s happening in our local real estate market. Once you get past the silly and misleading headline (Market Resurgent!) you’ll see that Poirier interviewed two knowledgeable people and got intelligent quotes from both of them. With the exception of some “I’m a professional realtor so I have to sound optimistic here” lines, the two agents present a cautious view of what may happen this year. One quibble is Poirier’s invention of the word “influxing” – or at least, I don’t think that’s a word.

The Post hasn’t figured out permalinks yet so there’s no way to link to the article. So here it is:

Thursday, January 08, 2009

Last year, 2008, was an emotional roller coaster for Americans, many of whom rang in the new year with lighter wallets and a grim outlook on 2009’s economic future.Real estate experts say even though it’s “just like somebody slammed the door” on the Greenwich market this fall when the economy took a nosedive, the new year will usher in a new wave of interest and consumer confidence sure to spark a fire in town.“I’m really a firm believer that people can only wait so long before they buy a house,” said Nancy Healy, partner at Shore and Country Properties in Riverside and president of the Greenwich Multiple Listing Service (GMLS).Ms. Healy said there is “pent-up demand” for housing in Greenwich and “people want to get on with their lives.” According to John W.M. Cooke, a licensed broker with Prudential Connecticut Realty, single-family home sales in Greenwich went from 44 in January 2008 to 11 in November, taking the biggest monthly hit in September, when 26 houses were sold compared to 56 in August. That happened while inventory seesawed from 428 homes on the market in January to 623 in June and then 588 as of Dec. 1, according to GMLS statistics. By the end of the year, said Eric Bjork, vice president of Prudential Connecticut Realty in Greenwich and Old Greenwich, inventory in town was up 26% from 2007, with 536 single-family homes on the market Dec. 31 compared to 426 the previous year. That means the market’s good for buyers and more competitive for sellers, he added. Mr. Bjork’s advice in today’s market: If you see a home you absolutely love, buy it. Mr. Bjork told the Post he’s seeing more first-time homebuyers walk through his firm’s doors. A lower median single-family home price — at about $1.85 million (down by about 8% to 12%), and a 5.75% jumbo mortgage rate for 20% down — is allowing those buyers to put less down than when the median price was $2.1 million, and keep monthly payments lower than they would have been had the house been more money. Ms. Healy said with President Barack Obama taking the lead later this month, she hopes the country will move in “a more positive way” and have the confidence and security she said has not been had in a while. “People are ready,” she said about potential buyers. “There are some fabulous buys out there.” She added, “You can’t live in the stock market. You can live in what I consider pretty good value right now.” Mr. Bjork and Ms. Healy agreed that when it comes to pricing, it’s hard to tell how homes in Greenwich will go. “Greenwich is a blue-chip town,” Ms. Healy said. “It has so much to offer. It’s an expensive town but it’s always been.” She added that the market is returning to a “more normal” state, and while houses are now staying a bit longer on the market before they sell, it’s no time to panic. “People need to feel secure in their purchase and it takes time,” she said. For sellers, “the news looks bleak, but it’s not,” Ms. Healy said, adding that when buyers get their confidence back, more houses will be sold. “Nobody can time the bottom,” Mr. Bjork said, “and if we’re not there we’re really close.” He added, “One of the benefits of Greenwich is it’s very stable. People can afford not to sell their homes. They take them off the market and wait.” He said doing this may make the market freeze, but it means buyers are likely to have their investment be safe when they buy it. “They look at it less as a financial play but as a quality of life opportunity,” he added. With the government influxing money to stimulate the economy, Mr. Bjork said inflation cannot be far behind, making the case for owning property stronger. “You can’t put a trillion dollars into the economy and not have inflation,” he said, “and at times of inflation, you want to own hard assets because they appreciate.”

Buyers to your checkbooks

Things are beginning to look a bit more realistic all of a sudden. Yesterday I mentioned 317 Stanwich Road, a very nice house on 3 acres marked down from $3.950 (or close to that) to $2.225. That’s a bargain.

While I wouldn’t call 11 Quail Road a bargain, it’s a nice 11,400 sf new house built in 2004 on land purchased for $3.0 million in 2002. The place was listed for $8.875 last Spring, dropped to $7.875 in November and today chopped again to $6.875. I admire a frustrated seller who thinks in millions. 2 acres, round Hill Road neighborhood, under $7? Maybe next year that will look ridiculously expensive – today, it looks a lot better than $8.75 did.