State of Real Estate

You’re too late. Phil Donahue and Marlo Thomas just sold their house on Beachside Avenue, and they got the full $25 million asking price, too. Considering that the nine-bedroom Tudor rested on seven acres of prime waterfront land, it was, as real-instate insiders say, a steal.

Although the real-estate market slowed somewhat in 2005, the blistering pace of high-end sales have kept the Realtors in tall grass. And nothing is hotter than waterfront, ranging from Fairfield’s Beach Road area to the suddenly hot East Norwalk water area where several $6 million properties have sold. In Westport? Forget about it. Prudential’s Debra Gailhard is confident she’ll get the full $9 million for a two-acre lot along the Saugatuck that might be one of the last such parcels left. And why not? Wall Street bonuses were very good last year and several factors have come into play to make this very desirable region even more scaldingly hot.

According to Coldwell Banker, house sales in Westport alone last year amounted to $407 million. That figure outstrips sales numbers in Chicago or Honolulu!

Anytime these numbers are reported, of course, it only serves to drive more people into the new national pastime, which is not baseball, anymore — it’s the Real Estate Game. An unlike Monopoly, where the rules haven’t changed since 1934, in the Real Estate Game things are always evolving. And everyone is an authority.

To play this game, you will be drawing cards from two piles: What’s Hot and What’s Not. You will have to brave the mysteries of opponents like departed Fed Chairman Alan Greenspan, whose massive reductions of the prime rate helped inspire the huge national wave of real estate investment. That accomplished, he began to wonder aloud last year (just as he had one foot out the door, having raised the rates fourteen times in two and half years) if we had created a bubble.

That’s a dirty word, according to most area Realtors. Our locale is simply immune. “People see national newspaper stories about real estate and try to apply it to our market, but it’s not relevant information,” says Prudential’s Jim Lanzaro.

In addition to a sharp rise in local people exchanging properties (ncluding the empty-nesters looking for a new dream house), there has been a markedly increased migration to our area by people leaving Manhattan, Westchester and Greenwich, searching for that magic Bigger House for the Buck. “An awful lot of European buyers are coming here, too,” notes Prudential’s Darlene Letersky.

And when people move here, they tend to want the big house. “I see people transferring from North Carolina,” says Eddie Magi of Nicholas Fingelly. “If their old house down south was 6,000 square feet, they want the same up here. And, sure, there is some sticker shock.”

To find out the size of your stack of chips, go online to learn the value of your present property. Call up zillow.com and punch in your address. Then rush to the office of your friendly Realtor or qualified professional with stars in your eyes.

“A lot of people have no idea what their house is worth,” laughs Rick Higgins of the Higgins Group. “They’re throwing a telephone number on their house. But if you’re pricing a house now, you better be right on the number. If it’s one penny more, then your house will sit. Buyers are very savvy now.”

Real estate’s longtime key element, “Location, location, location,” seems to be up for reappraisal. For one thing, the broad willingness to tear down a middling property and throw up a grand new estate has made almost all neighborhoods more, shall we say, malleable.

“Big new houses are being built next to houses of lesser value,” observes Prudential’s Melanie Smith. “It used to be you didn’t want to be the only great house in the neighborhood. That’s not the case now.” The essential element of a good sale, she says, is now newness: “It’s ‘Condition, condition, condition.’ Young families with high incomes, they want all the amenities, the big kitchens, family rooms bigger than living rooms. They’re the ones who don’t want to go through the trouble of fixing houses up. For one, they don’t know how. And both spouses are just too busy.”

“What’s hot,” agrees Michelle Genovesi at William Raveis International, “is a home that’s done. Homes that don’t need work or are new, that’s what people go for first. And I don’t think square footage for its own sake is a factor anymore. The space has to be managed — intimate spaces are more of a trend than large, gargantuan rooms.”

“Charm is the secret,” says Debra Gailhard. “No matter what the price, people want charm.”

And what about those Boomers who grew up in those 1950s split levels, the folks who are now just turning sixty? “Ranches!” says Chris Simmers of Prudential. “Ranches have become very popular again among Boomers. Everybody works out and everybody has joint issues — everyone is afraid of not being able to get up and down stairs. Even town houses, people want them on one floor.”

The Next Very Hot Thing, to be sure, is the luxury condo. A number of them are under construction right now.

Meanwhile, the old “Rule of Thirds” had to be reconsidered in a market where people were getting a million dollars for any battered Cape. In past real-estate games, a builder would get hold of a property, rebuild it and then hope to sell it for three times the purchase price. With the rising inventory of $2 million homes available, some builders are glad to get two-and-a-half times the original price.

“There were some unrealistic expectations from homeowners,” says Carole Cook, senior loan officer at Washington Mutual. “In the last five years we’ve had double-digit appreciation. But where does it end? You’re turning your house over to someone who also expects that kind of price increase?”

Prudential’s Melanie Smith: “In our towns we have 105 houses going for between $2 and 3 million. That’s a lot.” That was after her company sold ninety-seven houses in that prices range last year.

The hunger to buy new, however, guarantees that a lot of cozy old houses will keep falling. “The teardown pace will increase,” says Lanzaro, “because the demand for new construction is only getting stronger. New construction is king.”

The four percent mortgage, however, is likely to be just a memory. The current six-point-something rates may in fact rise to seven by next year, but even this rate will not stop local buyers. “For the past fifteen years it’s been around six percent,” says Carole Cook. “But even when they were eighteen percent, people were still buying homes. There are safeguards now that weren’t in place when the rates were that high. The economy has smartened. When the savings and loan disasters of the ‘80s hit, more safeguards were put in.”

The last time rates were around nine percent, around 1990, there were a lot of unsold houses parked on the inventory list, but that was more likely due to all the local industries then departing the region.

Among interesting new developments is the interest-only loan. For the first five or ten years you simply don’t pay off the principal. “You can afford so much more home,” says Michael Daversa, president of Atlantic National Mortgage in Westport. “The bond traders in this area, they love this loan. When they get their bonus, they can change the principal in a big way.” It also allows people to get in on the big action even faster.

For whats it’s worth, the average loan amount in Fairfield County is now $649,000. But in the upper tiers, of course, mortgages are just not part of the equation. “The people I work with,” says one Realtor who has moved several $7 million properties in the last year, “they have watched their money go from this bank to that bank for years, and now they want to take their money and put it where they can see it — in a house they can enjoy. There is sometimes a sense that life is short, and they want to enjoy life.”

“I don’t think there is a bubble,” asserts Richard Maybruck of William Pitt Sothebys International, “particularly in the Westport area. The world is awash in money and it has to be put somwhere. Where else can you get a million-dollar investment with ten or twenty percent down? Plus tax benefits?”

The national economy has shown a remarkable resilience, considering the pressures of the national debt, the war in Iraq, and sudden spikes in energy prices. Is it just, as New York Times columnist Paul Krugman often asserts, a state of national denial? Or are the safeguards working? As Greenspan points out, real estate has become the primary means of investment for a lot of Americans. In an unstable world, a good house just seems secure. 

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