Presentation Transcript

1. Where are we going today? Trends in Connecticut’s residential markets. What is a constant quality price index? Why does it give different signals than a median price index? Risk management: planning for a range of future outcomes. John M. Clapp, Center for Real Estate, University of Connecticut p. 2
2. 1. Trends in Connecticut’s residential markets. John M. Clapp, Center for Real Estate, University of Connecticut p. 3
3. Overview through 2010, 1st quarter:some signs of stabilization, but price increases are still elusive Existing single family: On average, prices in the first quarter declined by roughly 5% year-over-year at a time when consumer prices are about 1% higher than a year ago. Bright spots: The real rate of decline is not accelerating. Number of transactions is rising – from very low levels. The level of house prices has been rolled back to the last half of 2003. I.e., two and a half years of unsustainable double digit price increases in 2004-2006q2 have been erased by declines during the last three and a half years. John M. Clapp, Center for Real Estate, University of Connecticut p. 4
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5. Why does UConn’s house price index show declines?Ans: UConn’s index is adjusted for location, age and size Uconn’s constant quality index John M. Clapp, Center for Real Estate, University of Connecticut p. 6
6. Drilling down to submarkets Metropolitan areas centered on Danbury, Bridgeport-Stamford, and New Haven had the fastest rates of decline, about -9%. Prices were stable in Enfield and Torrington. A relatively few transactions suggested that prices increased in the New London area. The Hartford and Waterbury areas are declining at a relatively modest 3% pace. John M. Clapp, Center for Real Estate, University of Connecticut p. 7
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10. 2. Risk management: planning for a range of future outcomes. John M. Clapp, Center for Real Estate, University of Connecticut p. 11
11. Overview of Risk Managementfor Real Estate Professionals Most likely scenario is for slow economic growth leading to stabilization of house prices and more normal levels of housing transactions. But there are lots of risks internationally: e.g., inflation and speculative excesses in China, deflation in Japan, too much government debt in the US and Europe. How much of the recovery is based on investment in the future vs. placing bets on government largess? You have heard today about banking sector risks. Best to plan a conservative business strategy. John M. Clapp, Center for Real Estate, University of Connecticut p. 12
12. Will number of housing transactions increase? How much? Uconn’s Real Estate Center compared transactions volume to numbers from a more normal period in the housing market: 1998 and 1999 when prices were rising at single digit rates. Applying this standard to single family markets, the average level of transactions over the past year might be able to grow by between 5% and 30%. These scenarios will leave us well below the numbers from 2002-2007. For condominium markets, the upside potential is between 10% and 50%. Again, there are risks to these scenarios. John M. Clapp, Center for Real Estate, University of Connecticut p. 13
13. Likely trends in home buying patterns First time buyers have reason for optimism! Focus on their needs when planning business strategies – the rest of the market will follow. Smaller homes likely to do better as consumption expectations moderate. Homes closer to metropolitan centers and mass transit are likely to sell better than the distant suburbs. Careful market analysis-add value in good locations – e.g., benefitting from federal $s invested in transportation. John M. Clapp, Center for Real Estate, University of Connecticut p. 14