Thoughts on the Case-Schiller Index and the Upcoming Spring Market

	EffectiveDate	Index Level	1 MTH	3 MTH	12 MTH
Index Levels
S&P CoreLogic Case-Shiller New York Home Price NSA Index	Sep-2018	199.65	0.23 %	0.78 %	2.62 %

As lower Fairfield County is directly impacted by real estate trends in New York City, I keep an eye on these figures both for looking ahead to get a sense of where we may be heading, and to have a look back at the past to have a sense of perspective. In August 2008, (just after the stock market crisis)  for example, the New York index level was at 161.94 compared to 199.65 today. To get some additional perspective, the levels we are seeing today are quite similar to the July 2005 level of 199.86.  Case-Schiller saw its highest levels in New York in June 2006, at 215.25. After the crisis of 2008 the levels went through a roller coaster of dips and rises through April 2012 when the nadir of 157.95 was reached.  Since that time we have continued to see periodic small swings in the market with a general move upwards. The Fed raised interest rates in September and most of my colleagues in the mortgage business expect them to rise further. What is the likely impact going to be on our real estate market? 30 Year Fixed mortgages (for those with good credit) are still below 5%.  When I entered the real estate business rates were above 8% and we were thrilled when they went down to 7%. Mortgage rates are still historically low, as is unemployment, and inflation. We live in a world where we are bombarded each day with information. So much so, that it can be difficult to see the larger picture. There are some analysts who feel that the real estate market will further correct itself.  Some home sales in our area have been motivated  by sellers who are of that opinion. As mortgage rates are likely to rise slightly, that will make make home prices somewhat more expensive, so I wouldn't be surprised to see a slight adjustment if that happens in the spring.  On the other hand, pricing is also linked with inventory.  If inventory is low and demand is high we should see stable pricing. Inventory levels in the high end of our markets remains high, and pricing for homes over $1.5 million in some markets and higher in others, has been directly impacted by that. Each market is different, but in general, homes in excellent condition under $900,000 have been selling well. Inventory levels are still above the levels that we saw in the period of 2003-2006, though, including on the lower end of the market. In our area, towns that are not directly on the New Haven train line have seen their prices more negatively impacted during the past three or so years.  Rising taxes in those towns have also impacted selling prices. Our values still appear to be relatively reasonable when compared with the cost of New York apartments.  Our great schools, diverse housing stock, great amenities, and beautiful countryside should soon be attracting those millennials reaching their 30s who will soon be having children, and will be reconsidering the costs of living in the city and private schools versus commuting from the suburbs.

Great Time to Sell and Buy

While inventory has been coming to the market slowly we are still at lower levels than we've seen in the past several years.  There have already been signs of movement in some of the new listings that have come to the market since the beginning of the year, an indication of the pent up demand and buyers that have already started to look at homes.

In the meantime, in the past month or so, there has been a shift in the mortgage market as already low rates have come down to truly historic lows. 30 year fixed loans, even Jumbo loans up to $2 million are now well below 4%-I've seen rates of 3.625% today from Skip Wasserman at Atlantic Residential for these fixed rates, and rates as low as 2.625% for 5/1 fixed Adjustable Rate Mortgages.

So what does this mean to the buyer and seller?   For the buyer this is a market where prices have recently been holding steady or even declining slightly in some markets.  Prices, therefore, are at reasonable levels.  There has been talk about the Fed raising the interest rates on mortgages at some point this year.  It's hard to say how much this increase will be, but let's just imagine what that would
mean for someone looking to purchase a home with a $800,000 mortgage (putting 20% down for a purchase of a home selling at $1 million).  At current rates the monthly cost would be $3648 per
month for a 30 year mortgage.  If the rates go back to the levels that we saw only one month ago, at 4.125%, the cost differential would be $229 per month, or $2,748 a year. Looked at in a slightly
different way, this type of change would represent a 12% increase.  Seen in a different way,
if home prices were to go up 12%, a home now selling for $800,000 would be the equivalent of a home selling for $896,000 if the rate was at 4.125%.

For the seller, the fact that rates are so low means that buyers can now afford more than they could even one month ago (see above).  This will increase the buyer pool in different price points, and should therefore may it easier to sell their homes (especially if inventory levels remain low).