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A Tight Housing Market Sends Prices Up
Published Wednesday, April 26, 2017

Real estate, particularly single-family housing, is a bad place to be if you fear roller coasters. After some ups and downs between the late 1980s and the first half of the 2000s, home sales plummeted during the most recent recession, leaving more than a few homeowners dizzy. The good news is NH’s housing market is climbing once again—a recovery that began in earnest in 2014, and as of November 2016, hit a high point for the past decade. Median home sales hit $249,500 for the year, the highest they have been since 2008 and approaching the 20-year peak of $270,000 achieved in the boom year of 2005, according to the NH Association of Realtors (NHAR).

This surge is a sellers’ market. For buyers, only half as many houses are on the market today as were in 2008, says Russ Thibeault, owner of Applied Economic Research in Laconia. This shortage is edging prices upward to levels the market hasn’t approached in a decade. Median sale prices gained 3.1 percent from last year, the NHAR reported, and are 92.4 percent of the 2005 high.  

Cheryl Kisiday, a real estate agent with Keller Williams in Nashua, adds that only a few years ago, buyers were grabbing bank-owned homes at garage-sale prices due to foreclosures, but that’s no longer the case.

Finding the Sweet Spot
The increase in housing demand gave Jamie Faucher the confidence to put her Manchester house up for sale this past fall. Faucher bought her three-bedroom, one-bath home with her husband for $230,000 in 2004. Now in her early 30s and the mother of three small children, she craved larger quarters, even if it meant selling close to break-even. A week after the first showing, the Fauchers accepted an offer of $220,000.

Not all homes like Faucher’s fly off the market, but the ones in the $250,000 price range have the best shot, says Kisiday, because they’re on the lower end of the price range for southern NH and target a wide range of buyers, including first-timers and those who want to downsize. On average, a single-family home in NH remains in the listings database for about four months, according to data from the NHAR. For people like the Fauchers, a break-even is the best they can expect. However, those who purchased homes in a different era, especially before 2003, may realize a windfall if they want to sell.

Thibeault says the market is approaching “a sweet spot” as rising prices portend a rosy housing forecast. Low mortgage rates also drive more buyers into the market. However, with interest rates inching upward, buyers may hesitate. On the other hand, the threat of an increase after years of low rates may fuel a sense of urgency.

To forecast the health of real estate, industry watchdogs like Thibeault look at “months of inventory,” or the duration it takes to sell current listings if no new listings become available. In October, that time span was four months in southern NH, a short period compared to the 15 months of inventory in 2007.

Limited housing stock is good news for sellers who put their homes on the market in the dead of winter when inventory plummets even lower. However, that lack of inventory arrests potential growth at a time when other factors like low unemployment and low mortgage rates prevail, says Al Michalovic, president of the NHAR and a real estate agent with Four Seasons Sotheby International Realty in West Lebanon.

Michalovic serves clients in the Upper Valley, where employers like Dartmouth-Hitchcock and Dartmouth College lure transplants from other areas. He feels the housing scarcity’s sting at the beginning of the year when new recruits shop for a place to live.

Lack of New Home Construction
Since 1980, about 5,000 new single- family homes are built each year in NH. As of 2015, the latest data available from the U.S. Census Bureau, the numbers sunk well below that average, with only 2,400 homes built that year. The lack of activity is not due to a dip in demand, says longtime developer John Stabile. It’s more about tighter zoning restrictions and higher costs of labor and materials, as there is a shortage of subcontractors. In 2008, the recession decimated the industry, leading to mass layoffs. Many construction workers left the industry, took up a different trade or simply retired, and a younger crew did not replace them. “We pay more than we used to [for subcontractors],” says Stabile.

Stabile’s company is looking at high-growth areas beyond Nashua, like the NH seacoast and popular retiree communities like Plymouth, Mass. And there are signs that the market is improving for the company. This year, the Stabile Companies expect to sell 68 homes. “We haven’t done that since 2007,” he says. In the last couple of years, the firm only sold 25 to 30 homes annually.

Builders like Stabile are also creating more functional floor plans that economize space, and designing smaller, energy-efficient houses. With more than 30 percent of young adults living with their parents, according to Pew Research, and many of them earning less than previous generations, architects are designing more homes with attached suites for multi-generational families.

David Petropulos, the finance director for Etchstone Properties in Nashua, says that first-floor masters are also gaining popularity, especially for boomers who are downsizing. The company has built homes for several age-restricted communities in NH, and Petropulos says its most recent project sold out quickly.

Its most recent 55-plus community, Hayden Green, with 33 detached single-level homes in north Nashua, includes 48 multi-family rental units. None of the detached units are more than 1,000 square feet, which is the maximum footprint for senior housing in Nashua.

Hayden Green, a 55+ community in Nashua, built by Etchstone Properties. Courtesy Photo.

In the past, zoning ordinances made it difficult for builders to add apartments to existing single-family homes for extended family members. Paul Morin of Tarkka Homes in Hopkinton is hopeful that a new “accessory dwelling unit” (ADU) law, which goes into effect this June, will supersede zoning restrictions on these small additions, often called in-law apartments, and open doors to more affordable housing. The ADU statute also provides opportunities for homeowners to earn rental income, but only if they reside on the premises. “People want more options for extended households,” says Morin, adding the law is a move in the right direction for NH’s evolving demographics.

Generation Gap
Shari and Steve Zedeck are in their late 50s with two grown children. After 29 years of living in the same house in Nashua, and enduring the same number of winters, they decided to relocate to Atlanta. They consulted with realtors, one of whom estimated they could command more than $500,000 for the five-bedroom home they bought in 1987 for $237,000. The Zedecks weren’t convinced. They hadn’t seen a house sell in their neighborhood in 15 months. And they saw a home in their neighborhood with a $500,000 price tag idle for a year. Eventually they listed their home in February in the low $400,000 range. A month later, it sold.

Not all boomers are as realistic as the Zedecks. Many, says Kisiday, expect to rake in steep revenue from the four-bedroom colonials they bought 20 to 25 years ago. Of course, for the right price, there’s always a market for these multi-level colonials. But as a general rule of thumb, their prime customers, the millennials, either can’t afford these homes or don’t want them.  

Counter to previous generations, millennials are more mobile, says Kisiday. They don’t aim to establish roots. Furthermore, student debt and uncertain career paths drift them away from home ownership in favor of high-priced rentals. When they do shop the market, says Kisiday, they want ranches, easy access to transportation and a community vibe. As it turns out, that’s what the boomers want too. Thibeault says this creates a mismatch between housing stock and demand, again running up prices.

Nationally, the supply for starter homes is weak, ratcheting up prices for first-time purchasers and boomers looking to downsize. Since 2012, starter and trade-up homes are down more than 40 percent, according to a recent report from Trulia. The report also says that new homebuyers need to roll out close to 40 percent of their income towards a purchase, a 5.6 percent increase over the previous year.

Despite this shortage and the transience of many young adults, millennials comprise 35 percent of first-time homebuyers, according to the National Association of Realtors.

Marc Paradise of Nashua is one of them. Paradise is 28 and a regional sales manager for a cyber-security company. He lived in Boston for five years, sharing tight spaces with roommates while shelling out high rents. “I saw it as a waste of money,” he says. He checked out real estate in the Greater Boston area, but the half-million-dollar price tags were beyond his reach.

North of Boston, he discovered a more viable path to home ownership. After evaluating more than 20 homes, Paradise eventually settled on a three-bedroom cape not far from the highway in Nashua, where he moved in June. Paradise admits he’s an aberration for his generation. “You have to be all in,” he says. “It’s not something you can walk away from tomorrow.” He expects to live in his new home for 10 to 15 years.

Marc Paradise, a rare millennial home buyer, at his house in Nashua. Courtesy Photo.

Unlike Paradise, large swaths of millennials live from paycheck to paycheck. For them, home ownership remains unaffordable, despite government-backed loans with low down payments.

Regulatory Road Blocks
Jim Knowlton, a real estate agent with Keller Williams in Hopkinton, worries about the fiscal squeeze on first-time buyers. He says the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) of 2010, which tightened lending regulations to prevent another financial crisis from emerging, is making people jump through hoops with reams of employment and income documentation. Buried under paperwork, some would-be buyers walk away.

Other stipulations create more bottlenecks, according to Michalovic of the NHAR. Last October, the TILA-RESPA Integrated Disclosure, also know as TRID, went into effect. The idea behind its design was to ensure lenders disclose information that’s accurate and easy to understand. But Michalovic says the law doesn’t protect consumers; instead, it saddles them with more forms and a lengthier closing process.

Knowlton says he hasn’t seen this many restrictions on mortgages in 20 years. “The Dodd-Frank reforms have hamstrung the mortgage lenders and closers,” he says. “The pendulum has moved way too far.”

Knowlton is hopeful that lawmakers will ease some restrictions and re-introduce progressive programs, such as loans without down payments. He says people with good credit history should be given the opportunity to build equity over time.  

Steve Norton, executive director of NH Public Policy Institute in Concord, says while it is true that home sales have picked up in NH in 2016 and 2017, as evidenced by the increase in real estate transfer tax receipts, they are still well below pre-recession levels. However, “why this is, isn’t necessarily clear,” he says.  “Is it a hangover from the economic security?  Is it Dodd-Frank?  Certainly both explain some part of the decline, but it is hard to disentangle the impacts.”

Location, Location, Location
Home prices increase relative to their proximity to major highways, well-paying jobs and good schools.

You’ve heard it before—it’s all about location, location, location.

In NH, Nashua, Manchester and the Seacoast are on the front lines of the housing recovery, says economist Russ Thibeault. In contrast, the real estate market north of Concord is weaker, he says. For example, in Coos County, the most northern and largest county in the state, single-family homes have been selling for about $100,000.

Thibeault doesn’t see the housing inventory expanding any time soon, and therefore, home prices are likely to continue to rise. Mortgage rates may crawl up too, but if lending regulations ease, first-time buyers may get a crack at their dream homes. But they’ll proceed with caution, Thibeault says. “People are more careful on what they purchase and how much they pay,” he says.

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