Bidding wars are at an all-time high throughout the New York metro area, but as you can see in the chart, Fairfield County’s level of 61.7% is higher than that of the luxury markets around us and significantly higher than that of Greenwich (42.9%) and Westchester County (53.5%). Why? What’s the difference? At first blush it seems there are two factors at play. First, in the urban markets of Manhattan, Queens, and Brooklyn, we have not seen as significant a reduction in inventory levels as compared to normal levels as we have in the suburbs. Second, can we draw the conclusion that the more expensive ultra-lux markets of Greenwich and the Hamptons have fewer bidding wars than less-expensive county-wide markets? I’m not prepared to say that ultra-lux is weakening; it’s too soon to make that call. Prices have fallen in Manhattan, Queens and Brooklyn, according to Zillow, while they are rising everywhere outside the city.

The median age of a repeat homebuyer is about my age, 55, and the median age of a first-time home buyer is 33. The largest age cohort of Millennial buyers is 32. They’re buying houses later in life, but there are a lot of them, and they are finally buying. I think we can see from this chart that demand for homes will continue for the next decade, both from first time and repeat buyers

The Fed Is Finished

 The Fed is done raising rates. You heard it here first. Well, maybe you heard it elsewhere, but the next change in rates is more likely to be down than up. Why? We’ve just experienced the fastest rate rise in decades in an effort to get inflation to 2%. Based on the attached chart, 2% inflation is an unrealistic goal. 3% is more typical and in fact, 4% is favored by a number of leading economists. Raising rates further will create new problems and make three existing problems worse: the lack of homes, the low-mortgage handcuff, and owner’s equivalent rent. Let’s break them down:

 Lack of homes

As the chart shows, 3.4 months’ supply is the lowest level of homes in 40 years. In Fairfield County, that number is 2.6 month’s supply of single-family homes and 2.0 month’s supply of condos. We experienced 15 years of underbuilding followed by five years of overbuilding, roughly 2008-2013. Raising rates continues to discourage new home starts

Low-Mortgage Handcuffs.

About 60% of Americans have a mortgage under 4%, and rates of 7% to 8% make the monthly costs of moving too expensive, regardless of the purchase price. We shared the mortgage rate chart last week showing the number of low-interest loans outstanding and when they were issued. Many of our neighbors who were considering downsizing are finding their monthly payments would go up if they did. So, they’re stuck..

Owner’s Equivalent Rent (OER).

This is the amount of rent that would have to be paid to substitute a currently owned house as a rental property. About 24% of the consumer price index is linked to OER. We show a graph of the Consumer Price Index over the last 20 years. When rates rise, rents must rise, and inflation rises. We are in that cycle. In the mid-2000s, when many people moved from renting apartments to buying single-family homes, it seemed like inflation was going down when it was actually going up. Nowadays, with little availability of houses for sale, this is causing the opposite effect: People who can't afford to buy homes are renting instead, driving the cost of renting up, which is called Owner's Equivalent Rent (OER).

Notes from the Monday Meeting

The Engel Team meets each Monday. This is still a team sport. It makes me a better realtor to hear what happened in other people’s listings and what is the mood out there. This week we were joined by a NYC agent and a mortgage expert. I learned this week that three things contributed to bonds rising and mortgage rates falling half a point from 8.0 to 7.5%: the Fed pause on rate hikes; a lousy jobs report; and Fed refunding of Treasury debt. This “refunding” caused a rally in the bond market and had a greater impact than any Fed action. 

One thing we noticed this first week of November is that with a cold weather snap, sellers in Connecticut are pressed to make decisions. I discovered the electricity was off in one of our listings. There is no oil in the tank in another. Two others have a water problem in the basement. Another called to say the house is locked up and they’re heading to Florida, and we’ll talk about listing in the Spring. Another has an overflowing bucket of water in the basement ceiling. My editor thinks that’s a mistake but no, there was a bucket of water above the ceiling tiles positioned below a leaky pipe.

This is a particularly challenging time of year, which is one of the reasons buyers wait until Spring. I think more than any other season, Autumn is when we’re all reckoning with the real cost of home ownership. We are getting our estimates on home heating oil, closing the pool, buying firewood, and maybe are motivated to take care of some of that critical deferred maintenance. The Fall leaf cleanup is a major undertaking in properties all over town, not just the four-acre zone. Two months after the Labor Day inflection point, sellers are asking themselves, Have I missed the market or can I make a deal? Do I have to make these repairs and carry this house through the winter to a better market? The answer is yes, you do in any case. Even in a high-demand Spring market, leaky buckets are a big problem.

John Engel is the real estate editor of the New Canaan Sentinel, a Realtor, the son of a Realtor, the husband of a Realtor, and the father of a ballet dancer, a film editor, a college student and a clothing historian. You can find him in the Symington land trust property walking his golden retrieve Callie most mornings, or seated on the right side during Planning & Zoning hearings. He graduated New Canaan High School in 1985

 Check out John Engel’s Podcast, Boroughs & Burbs, the National Real Estate Conversation here.