Greenwich Home Sales, Interest Rates, TRID and the CFPB

TRID RegulationsHigher End Sales and Contracts Looking Up

So far this year, the 2017 Greenwich real estate market has been very interesting, particularly at the high end. We have an even dozen properties that have either closed or are under contract for over $5 million. Much of this hasn’t been reported, because only two of those properties have actually closed. Of the 10 other properties waiting to close; one of the houses under contract is listed for $17.5 million, and two listings are between $8 and $10 million. This is after a year where we only had 28 properties sell between $5 and $10 million for all of 2016.

Year-to-date, we have 48 sales of single-family homes, plus another 78 contracts waiting to close. Sales from $1 to $2 million have been the strong point in this market. On the inventory side, properties have been going off the market just about as fast as they have been coming on so our inventory continues to be low with only 448 house listings.

Will Higher Interest Rates Hurt Sales – Not in the Short Term

Despite the snow this week, it’s been a mild winter and buyers have been more active than in the harsh winter years. In addition to the mild winter, increased buyer activity is attributable to expectations by buyers of rising interest rates. Interest rates perked up earlier, but only a little and they seem to have settled around 4% or a little under. (Interestingly enough, the non-conforming, so-called jumbo loans/larger loans, have lower interest rates than the conforming and often government-insured loans.)

Now micro-economics say rising interest rates will result in lower real estate sales, however, the National Association of Realtors, did a study of interest rate increases and house sales. What they found was that usually when interest rates increase it’s because the economy itself is expanding and people have higher incomes and feel wealthier. The result is that the expanding economy tends to increase sales and interest rates are more an indicator of this. So, higher interest rates, provided they are accompanied by an expanding economy, don’t necessarily correlate to lower home sales.

What we have seen in each of the last few years are pundits at year-end predicting higher interest rates in the coming year. This has resulted in a jump in January contracts followed by a drop in February as interest rates don’t continue their rise and people dial back their expectations of increasing interest rates. With the Trump administration, this may well change. We have had a long period of expansion and are due for a correction, however, the expansion has been a fairly lackluster one, but slow growth and certainty are better than no or negative growth.

TRID is Hindering House Sales

While higher interest rates may or may not mean lower house sales depending on the economy, one thing that clearly has hindered the housing market are the Dodd Frank and TRID mortgage regulations and the thousands of pages of regulation that have been created. Along with all of the regulations came thousands of compliance officers that had to be hired to interpret and enforce these new regulations from the Consumer Financial Protection Bureau. To see just how bad it is, just take the name of the massive new TRID regulations. TRID is an acronym that contains two other acronyms; TILA-RESPA Integrated Disclosure rule. Now TILA stands for Truth in Lending Act and RESPA stands for Real Estate Settlement Procedures Act so just the title should be the Truth in Lending Act – Real Estate Settlement Procedures Act Integrated Disclosure Rule and the regs themselves are worse.

These regulations lead to silly real world results that actually hurt buyers. Buyers with “preapproved” mortgages can be denied by the bank at the last minute. Compliance issues can prevent funding, for a buyer that doesn’t fit neatly within the requirements of a particular type of mortgage and its regulations. Most Greenwich buyers’ finances don’t fit neatly within the regs. They have unusual and often complex financial situations. As a result, some really outstanding loan officers have to jump through hoops to get the buyer a mortgage. Too often it turns out there is a brick wall on the other side of the last hoop.

Another example of how this increased complexity has made closings take longer and be more difficult, is that the standard Greenwich purchase agreement now provides for a ten-day extension for failing to close on time rather than a three-day period for delayed closing that had been in place for decades. This is directly related to the complexity of the new regulations and the uncertainty that the regulations have generated.

Mortgage Regulations Need to Be Redone

The result is more problems for buyers in getting loans, more expenses for banks that are passed through to consumers, fewer community banks that can afford the compliance costs and fewer people qualifying loans. Now I’m not against regulations, but the system that we have now is not working and it is holding back the economy and the housing market. It is badly in need in rationalizing.

 

January Sales in Greenwich Up – Very Competitive Price Ranges

January 2017 was an excellent month for sales in Greenwich. The really promising thing about it is that sales from $1 million all the way up to $5 million were up significantly over January 2016.

Last month we had 42 single-family home sales in Greenwich and 33 of those 42 homes were between 1 million and $4 million. The segment from $1-1.5 million was particularly outstanding with 12 sales, up from only two sales in January 2016. The even better news for that price range is that we have 16 contracts that have been signed waiting to close.

02/01/2017 Inventory Contracts Last Mo. Solds Month Solds+ Contracts  YTD Solds  YTD+ Contracts Mos Supply Mos w/ Contracts Last Mo. Annlzd
< $600K 7 0 1 1 1 1 7.0 17.5 7.0
$600-$800K 20 3 0 3 0 3 16.7
$800K-$1M 12 4 4 8 4 8 3.0 3.8 3.0
$1-$1.5M 31 16 12 28 12 28 2.6 2.8 2.6
$1.5-$2M 49 6 8 14 8 14 6.1 8.8 6.1
$2-$3M 75 18 7 25 7 25 10.7 7.5 10.7
$3-$4M 67 8 6 14 6 14 11.2 12.0 11.2
$4-$5M 44 6 2 8 2 8 22.0 13.8 22.0
$5-6.5M 54 3 1 4 1 4 54.0 33.8 54.0
$6.5-$10M 53 5 0 5 0 5 26.5
> $10M 35 0 1 1 1 1 35.0 87.5 35.0
TOTAL 447 69 42 111 42 111 10.6 10.1 10.6

When you look at contracts in all price ranges, the other area that jumps out at you is the $2-3 million price range where we have 18 contracts that have been signed. This is 11 more contracts than we had in January of last year. Sales in the $2-3 million price range will continue to be busy in February 2017, which has traditionally been our month with the lowest sales for the year.

Greenwich Real Estate Months of Supply by Sales and Contracts - January 2017

Greenwich Real Estate Months of Supply by Sales and Contracts – January 2017

Our January sales showed strong sales from $2 million all the way up to $5 million. We had had 15 sales in this price range this January compared to only 6 last January. We may actually be seeing a little evidence of a Trump Bump here as this is the second consecutive month with better high end sales and contracts.

January 2017 Greenwich Real Estate Inventory, Sales YTD, January Sales and Contracts

January 2017 Greenwich Real Estate Inventory, Sales YTD, January Sales and Contracts

 

Our total inventory is down to 447 houses which is 13 lower than last year at this time, while total sales are up 16. In fact, every aggregate category; whether inventory, contracts, sales, or months of supply are moving in a pro-seller direction.

Curiously, the one exception is the market under $800,000. In that price range our inventory is up 8 houses from last year while total sales and contracts are down 11 from last year. While these numbers aren’t large, they have a big impact in a market with only 27 houses in inventory. This price segment always has low inventory so this is probably only a temporary anomaly.

January 2017 Greenwich Sales and Contracts

January 2017 Greenwich Sales and Contracts

The other big change can be seen when you look at where in town the sales are happening. We are seeing relatively good sales and contracts in the back country and also in the eastern half of mid-country. When you look at the map of sales the dots are more dispersed in the 4-acre and 2-acre zone, but then so are the houses. To get a fair comparison you should double the number of dots in mid-country and quadruple the number of dots in backcountry compared to the one acre zone. Mentally doing that shows how good a month January has been for what had been our two slowest areas.

As you might expect with lower sales under $1 million dollar Byram and Pemberwick, for once don’t show a lot of sales, however Glenville with higher price points is doing fine. Central Greenwich, Cos Cob, Riverside and Old Greenwich also continue to do well.

At the other end of the market, the ultra-high end is looking good. The house with an additional lot at 60/62 Oneida in the Indian Harbor Association sold for $19.25 million. At the opposite end of town, a Conyer’s Farm property that was on for $17.5 million just went to contract.

From $5 – 10M we have 8 houses under contract, which bodes well for first quarter sales in what has been our most challenging price range.

jan2017-4pie-020117

Overall, the Dow Jones Industrials topping 20,000 has really put in a spark in the market. The shenanigans in Washington have been ignored so far while the prospect of heightened interest rates has encouraged sales in our mid-market. If these trends continue 2017 could be a very good year.