Where are we going today

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Where are we going today?

• Trends in Connecticuts residential markets.
• Major drivers behind these changes.
• Risk management planning for a range of future
  outcomes.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 2
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1. Trends in Connecticuts residential markets.
John M. Clapp, Center for Real Estate, University
of Connecticut p. 3
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Overview through 2009, 1st quarter house
prices decline in all submarkets

• Existing single family On average, prices in
  the first quarter declined by roughly 10
  year-over-year at a time when inflation is near
  zero. Bright spots
• The real rate of decline is not accelerating.
• The national rate of decline is about the same
  and much higher in many metro areas.
• The level of house prices has been rolled back to
  the first quarter of 2004. I.e., two years of
  unsustainable double digit price increases in
  2004-2005 have been erased by declines during the
  last two years.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 4
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John M. Clapp, Center for Real Estate, University
of Connecticut p. 5
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Drilling down to submarkets

• The Bridgeport-Stamford Labor Market Area (LMA)
  was down nearly 11 the rate of decline was
  similar in the last half of 2008. It is likely
  that Wall Streets layoffs have reduced demand.
• The Norwich-New London LMA experienced a
  relatively models 7 decline.
• Danbury only -1.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 6
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John M. Clapp, Center for Real Estate, University
of Connecticut p. 7
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John M. Clapp, Center for Real Estate, University
of Connecticut p. 8
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John M. Clapp, Center for Real Estate, University
of Connecticut p. 9
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2. Major drivers behind these changes.
John M. Clapp, Center for Real Estate, University
of Connecticut p. 10
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National and CT Economies

• You have already heard about declining employment
  and rising unemployment in Connecticut and the
  US.
• Higher mortgage default rates have a dampening
  effect e.g., first time buyers benefit from
  federal tax incentives, but they may buy vacant
  properties. This does not stimulate the chain of
  moves.
• Inflation rate has declined in the last year
  from about 4 to 0.
• Many financial institutions fail or need
  government help. Nonfinancial corporations line
  up at the government trough.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 11
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Structural changes to the economy

• Heavy government involvement with financial
  institutions
• and with the auto industry, health care, and
  beyond.
• politics will inevitably influence allocation of
  federal aid.
• Mortgage financing MBS will likely be
  simplified for the foreseeable future. Less money
  flowing to housing.
• The Connecticut data suggest that the number of
  transactions is unlikely to increase
  substantially
• A 10 increase over the past year is possible,
  but 0 change is more likely.
• Large government subsidies continue?

John M. Clapp, Center for Real Estate, University
of Connecticut p. 12
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3. Risk management planning for a range of
future outcomes.
John M. Clapp, Center for Real Estate, University
of Connecticut p. 13
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Likely trends in home buying patterns

• First time buyers have reason for optimism! Focus
  on their needs when planning business strategies
  the rest of the market will follow.
• Smaller homes likely to do better as consumption
  expectations moderate. Note that condominiums
  have done relatively well so far in this cycle.
• Homes closer to metropolitan centers and mass
  transit are likely to sell better than the
  distant suburbs.
• Careful market analysis-add value in good
  locations e.g., benefitting from federal s
  invested in transportation.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 14
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Overview of Opportunities for Professionals

• Adjust business model to get into foreclosure
  financing, short sales and workouts
• Learn about federal programs
• e.g., for first time home buyers
• Invest or provide investment advice emphasizing
  long term use value
• Form an investment fund tap international money
• Conservative financing
• Property management will be a big growing area
  requiring local information on tenants and
  competing property. Investment consulting.

John M. Clapp, Center for Real Estate, University
of Connecticut p. 15