Homebuyers and sellers are constantly asking me, why does the market continue to improve? Why are sales prices constantly rising now? And the answer actually causes us to reflect back to last year. Home sellers did not want buyers in their property because of fears due to the pandemic. Second, the Federal Reserve dropped its lending rates down to zero percent, which doesn’t mean that home sellers could get a mortgage for 0%. It simply meant that the centralized banks could actually borrow at more affordable rates and also provide that to the public. Third is the metropolitan areas of our country started to divest so much of their population out and people were constantly looking where is a great place where I could find good school systems, great weather, awesome entertainment, and places to go for my family without prices being sky-high. The answer is Connecticut.

Connecticut, therefore, saw nearly 16% to 30% increases in sales prices as home buyers from all over the country decided to flock to our area. Now that we’re in 2021, we saw slight cool in the market due to the seasonal winter months, but now prices are on the rise again, and I’m going to go into that now. We’re seeing how prices rise due to the lack of inventory. What that means is most of the time due to a stalemate that happens, which is a seller wants to put their house on the market because they want to sell. However, they don’t find a place in order to go, that all of a sudden creates a lack of inventory. Many home buyers are trying to approach sellers completely off the market either with or without a real estate agent which further complicates matters. Those properties that are on the market right now are receiving many offers at the same time. And it’s the perfect scenario for a real estate agent that’s educating the market and is a top in their profession in order to shine and those buyers who are not working with those types of real estate professionals are often finding themselves very frustrated.

Why are prices rising once again?

When you’re a buyer in the marketplace and you have all the cash in the bank in order to purchase a property, you do not need a mortgage, many times sellers look favorably on your offer simply because it’s one contingency that another buyer may have that you don’t have. Well if you’d be shocked to realize that many of the home purchases not only in the state of Connecticut but also in the country are cash purchases within the 100,000 to 200,000 dollar price points. Recent studies show that over 67% of home purchases under a hundred thousand dollars are actually bought in cash. Now, why is that? This relates to another point that we want to talk about here in our April market update, which is that investors are also flocking to the marketplace. Why is this? Many times we want to ask ourselves, wouldn’t investors want to buy properties at low prices in order to see them actually improve, or wouldn’t they want to see them at low prices and then they could renovate them and sell them for more?

Actually, think of it this way. This is like one of those rising stocks in the stock market that just seems to keep going up right now and it’s fueled in my opinion by need rather than greed, which we’ll get into just very shortly. As investors are looking at the real estate market, they see the actual profitability from purchasing homes in their existing condition or in remodeled condition and either renting them or remodeling them or creating some sort of value add, as one Economist put, it the market is thirsty for yield. They want to see the yield on their investments and that’s why they’re pouring so much investment money. Not only private money but also institutional money into the real estate market. This is causing prices to also inflate, so it’s not just your homeowner that wants to live in that property. It’s also the institutional buyer that’s buying up many properties at the same time. One-third aspect is these iBuyers that are coming into the marketplace. These are buyers that may never actually see the property but may utilize a real estate agent in order to see the property virtually and then place an offer on it and complete either a renovation on the property, some sort of fix and flip or it’s a buy and holds situation which they rented out to another party. This is becoming more and more popular and also causing prices to increase.

So why is this Market really increasing?

When you put all of this together, we can now start to talk about why this Market is really increasing. Yes, it’s due to the demand for people not wanting to just be out of their houses, but need to be out of their houses. It’s also due to rising prices of new construction and building materials, but it’s also due to the presence of more cash buyers as investors continue to flood into the marketplace. Let’s talk for this one last segment here about the difference between a need market and a greed market. Back in 2007 and 2008, homebuyers thought to themselves that they should upgrade for a variety of reasons. Many times, it was because they could get a loan and it was out of the ability to purchase rather than the necessity to purchase. I remember growing up, I had a collection of Beanie Babies and my family would run around to the different stores in order to find a specific one because the thought was that is if you bought this particular Beanie Baby that maybe in a year or two years it might be worth five times that amount. Nobody actually needs a beanie baby. And that is a need Market that actually caused the price of Beanie Babies to go up. Well, eventually that market collapsed and Beanie Babies today you can pick them up at a thrift store for a dollar.

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