State of Real Estate 2014
We explore the biggest market trends, where the key indicators say we’re headed and how to maximize your investment
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3. Trends in design: What’s en Vogue?
For the longest time the favored design style in our town was pretty singular. Designers simply called it “Greenwich Style.”Another description might be “Protect the Investment.” Don’t do anything rash.
But cracks have appeared in the world of Ye Olde Traditional. Indeed, design people up and down the coast have noted that the new generation of buyers is not going for the old formal look. Their brains are wired to contemporary style.
“The house exteriors are still relatively traditional,” says architect Charles Hilton, “but the furnishings are swinging drastically toward modern. It’s traditional, but on the lighter side.”
The word used by Hilton and other designers is transition. Hilton now finds ways of blending tall glass doors and windows with otherwise Georgian shapes.
The old reliance on antique furniture is giving way simply because, as Hilton says, “everybody is in a massive hurry. Collecting items and finding those special pieces, that might take a few years.
“People like things looking natural,” he says. “The materials we use are natural, authentic materials in earth tones, but with maybe a pop of color here and there.” Any new synthetic products must appear to be natural. He has discovered synthetic materials for use in countertops and floor that are better than natural stone, but the point is they have to look as good as stone.
Like all architects, Hilton is going to town with LED lights which, besides presenting big electricity savings, come in small sizes and shapes that can be used in subtle accent positions, contributing to new usages that help create, again, that natural feel.
The Greenwich customer today is, as we’ve noted, an international customer. “Our clients travel the world,” Hilton laughs, “and take snapshots. All the time you hear things like, ‘I was at this hotel bar in Italy, and the lighting, the mood, the texture were so wonderful, I want to recapture it in this space.’”
It is unlikely that there will be a full transition to glass houses or ultra-contemporary houses springing up on Round Hill Road, but at least the interiors are going to new places.
4. The Architects’ View: Going Green
The latest wrinkle in home design makes a powerful statement. It also provides real power. It is a new power producer called electrical co-generation. Architect Douglas VanderHorn is now employing them in his new houses and getting a great response.
“These are like miniature power plants that run 24/7 in the household and run off natural gas, which is vey inexpensive right now,” VanderHorn says. “This generates much of the electricity that the house uses while the family is sleeping. Surplus is directed back to the grid and is purchased by the utility because they’re required to buy excess electricity.” (Additionaly, if a utility buys electricity back from you, then the “peak power usage” surcharge is eliminated from your bill.)
After all the huge storms and freakish power outages of the past few years, everybody wants a built-in generator now, and electrical co-gen would suffice. “For a large house, it probably costs about $100,000, and it would probably take eight years to pay back.” But then, it keeps on giving. If it is used in conjunction with a geothermal system, it merits substantial government rebates.
These new technologies are only part of the growing trend toward the “smart house,” much of which can be controlled by the smartphone. It’s not just a matter of turning on the house lights while you’re riding Metro-North home, but the shades, the phones, cameras, HVAC, all can be manipulated via our phones now. “Nobody thinks they want a techie/smart house,” VanderHorn observes, “but they get quite comfortable doing it.”
5. Mortgages: What’s Happening
There is some conjecture afoot that the quickening of our real-estate market this year is owed to suspicions that interest rates will rise later this year so folks want to get locked down now. This may indeed happen. The new Fed chairman Janet Yellen took office on February 3 and the biggest question before her is whether to keep applying the stimulus that has kept rates so low all these years. Home-buyers are not the only ones who are apprehensive about changes.
What really affected the mortgage business this year were the new strictures mandated by the Dodd-Frank Act. But it wasn’t like everyone started tearing out their hair. The new rules only solidified the caution that had already gripped most local banks in the past five years.
Suddenly the initials “QM” have entered the conversation, as in Qualified Mortgage. Borrowers are in for new, heavier scrutiny. A borrower who has changed businesses or simply reorganized business will be asked to provide rafts of documents. The examiners want to make sure all the W2s line up. A freshly divorced person dependent on alimony will have to collect a year’s worth of alimony payments before getting a mortgage.
“The crux of it,” says Motgage Mater’s Jamie Tyndall, “is your ability to repay.” The so-called “stated-income loan” is a nonplayer now. It’s not enough to tell the bank you own some business—lenders will want to comb through all your assets to make sure.
The hardest hit by the lending rules were people who had reorganized businesses and the self-employed; especially self-employed people who used the tax code to write off their income in the past. “Then when you apply for a mortgage,” Tyndall says, “you’re penalized because you said you didn’t make enough income.”
On the plus side of the ledger, money is a little easier now. The banks are flush with cash, says Michael Daversa of Atlantic Residential Mortgage, and very willing to make loans.
Although jumbo loans have required a minimum of 20 percent down for a few years now, there are loans to be found. Tyndall says 90 percent financing is once again available on loans up to $1,875,000. Banks, she says, have recognized what it takes to get a home here.
“Plan ahead and obtain a loan pre-approval,” says Beckie Hanley, senior vice president of William Raveis. “By having all your documents available, when the property you want comes on the market, you’re prepared to present a stronger offer.”
One very good reason to be ready to strike is that buyers here are facing competition from people who simply do not rely on mortgages.
“Last year, 30 percent of our buyers paid with cash,” says Hanley. “Now, I don’t know if people are closing with cash because they’re taking it out of the market for a sound investment in real estate, or if they’re paying with cash because of tightened inventory. A cash buyer will always attract the sellers’ attention. A clean and quick closing is very appealing in a bidding war.”
6. Key Market Indicators: The Economics of It All
So, what about those mid-4-percent interest rates? One banker reports that some borrowers are already hopping mad that rates might rise. Of course, today’s thirty-year-old buyer has no way of remembering the 13-percent rates of the late ’80s, or even the 9-percent loans of the early ’90s.
Buyers today seem a little more capable of remembering the good times.
“We came out of the economic crisis in a fragile condition,” notes Chris Meyers of houlihan Lawrence. “As we get removed from the shock of the Lehman Brothers fall, the more comfortable people get in their incomes and show more willingness to spend money. The rising stock market is certainly a good driver, and people see real estate as a good place to diversify. You have money to spend, but you want to rotate money out of the market and into hard assets, like real estate. It’s a good way to diversify exposure.”
And when a market gets busy, action begets action.
“People who have been waiting for the bottom are thinking that maybe the bottom has come and gone and they better get in while the tide is rising,” says Meyers. “People see the prices rising and want to be part of it.”
One difference between today’s buyer and the 2004 customer is folks now seem to want to spend serious time studying deals. “These are savvy, smart people,” says Barbara Zaccagnini of Coldwell Banker. “Where they once would get a bonus and wonder how to play around with the money, now they know what they need to do.”
So expect today’s buyer to be well-armed with data and cautionary notes. “We’re not finding emotional buys,” reports Shelly Tretter Lynch, senior global advisor at Sotheby’s International Realty. “I think we’re moving into steady time. People are moving slowly — they’re willing to walk away from a situation that they’re not quite comfortable with.”