Connecticut Real Estate, a 'V' or 'W' Recovery?

Connecticut Real Estate is Still Highly Active but is it a ‘V’ or ‘W’ Recovery Ahead?

Over the past few months, the economy has been referred to as a ‘V’ shaped recovery. Meaning once the bottom has been hit, you will see a surge in spending and consumer confidence. But the question is looming, are we (Connecticut) headed for a retraction and, if so, how much of a rebound (or how long) to recovery follows? This conversation is what is leading many economists to describe a ‘V’ and a ‘W’ shape model. Keep in mind, that just before COVID-19, the Connecticut real estate (housing market) was finally starting to rebound (whereas much of the country rebounded a few years ago).

What is a V or W Recovery?

Keeping things simple, a ‘V’ shaped recovery occurs when a peak period is identified (such as January, 2020) followed by a sharp decline (March through most of June of 2020) and then the recovery reaches the previous peak. Now, this isn’t to say that the recovery is on an endless increase. The reference of a recovery type (e.g. V, W, J, U, L…) is to help economists forecast spending, interest rates, etc. So, what is the difference between a ‘V’ and a ‘W’ recovery model? The main difference is that in a ‘W’ recovery model, you have the decline and sharp increase like a ‘V’ model – but it is followed by another sharp decline and then a following increase. The period before that second decline could be the start of a soft, stalling or bear market. Which then leads to that subsequent decline.

We are always in a Growth and Recovery model

One thing to keep in mind, the economy is always in periods of growth and decline. How long the period goes for – such as a strong growth market as we have been experiencing over the past few years – is always a question mark. The economy is always increasing and retracting, but overall it continues to climb. And one area, but not the only one, where that growth has been strong – is real estate.

Connecticut Real Estate Trend

Earlier this year, we started watching property values. As real estate investors, this is a constant component in our business systems and processes for evaluating when, where and how to invest. In the case of single family homes, we have been seeing a very strong increase in home valuations. Over the past 6 months, the Connecticut median price value has increased steadily and is outpacing the national median price value. Part of this is due to a lack of inventory creating a ‘seller’ market. Demand goes up, less inventory is available so value goes up. Many believe this is not going to occur much longer and we will see prices soften. That’s been said for the past couple of years (if not longer).

What we are not seeing, is consumer reluctance. Home buyers of all types, but primarily millennial buyers, are taking advantage of the historically low interest rates. And, with the Fed indicating it will continue a low, near-zero interest rate on federally insured loans, we are going to continue to see strong buying demand.

Some other factors to consider are Sales and Days On Market (DOM). Contrary to expectations and assumptions, Connecticut (overall) market experienced a DOM that beat last year’s best DOM at the height of the COVID lockdown. But, home sales overall are down. This is almost certainly due simply to a lack of inventory. Simply just not enough houses for sale. Sales relative to this time last year are well off the pace. But as you can see in the Median Days on Market chart – when inventory is available it is selling. And fast.

So is Connecticut more like V or W Market?

Whether or not we see a second downfall will be largely due to a few factors. First, and maybe the most talked about, is the upcoming presidential election. A change in administration means a change in policies. Policies that can make the financial markets either feel good or start to pull back and protect assets. Same goes for consumers. If the political outcome gives consumers more or less confidence it has an immediate impact on the country’s economic outlook. Second, is the concern about unemployment. While it is starting to come down, there remains the concern that too many businesses (large and small) have to make major adjustments to help ensure employee and consumer health (in the place of business). If unemployment remains high and jobs don’t open up, we will see economists calling for recession conditions. And, last but not least, you have the health concerns with COVID-19 and the upcoming change in weather and flu season.

In short, too early to tell. Right now, the economy shows all the signs of a ‘V’ recovery. But if politics, unemployment and people’s health (one or all of them) go through changes or declines that create uncertainty – you will see a retraction in consumer confidence. And that will lead to a reduction in home buying.

What if You Need to Sell Your House?

In our next post, we’re going to discuss how all of this affects homeowners of single family houses. In short, selling a house is almost always a stressful and complicated process. There are several stages to selling a home and there is more than one way to sell it. Here are some other posts where we discuss all of these. But, as mentioned, we will be posting a new article looking only at Connecticut homes and what may (or may not) be on the horizon for homeowners and selling a house.

If you have questions or comments, drop a note or call. Always happy to chat. Want to sell your home now?

Thanks,

Connecticut Real Estate, a ‘V’ or ‘W’ Recovery?