Are Shopping Trends a Barometer for Real Estate? The Next New Normal.

‘Tis the Season

The New Normal seems to be on the wane. Reports of Black Friday scrums suggest the retail sector is gaining strength. Could the frugality of the last two years be giving way to looser purse strings? Could be, as Americans have paid down debt and boosted savings rates from 1-2% prior to the recession to 5.7% in October.  So, what does this mean for  Newport’s real estate market, and how will it influence what happens in 2011? Here’s my take:

We’re unlikely to see a Black Friday frenzy for RI real estate. While consumers feel better about smaller purchases, sales of durable goods like cars and appliances (and homes) are down.  Like other parts of the country, real estate inventories are high here, and it’s still hard for many buyers to obtain financing. To be sure, there are bargains out there for willing and able investors, and they will continue until inventories return to normal levels. Frenzy or no frenzy, if you find a property you love at a good price, buy it, and enjoy it. Chances are you won’t have to wait in line, get up at 3:00 am or fend off other shoppers to do it.

Investment Deals: Scooping up electronic and clothing bargains is not the same as scooping up investment properties. For all but a few, buying and flipping is a risky proposition because the price of the home – even an REO/foreclosed home – plus the cost of repairs can quickly exceed the value. Many distressed sales involve deteriorating homes best addressed by professionals with construction crews or accomplished do-it-yourselfers. Their renovation costs are much lower than ours would be. So, if you don’t have the experience or skill to renovate, consider buying a home that someone else is flipping. Often these renovated homes are priced attractively, and you will almost certainly be in for less than if you did the work yourself. 

Luxury Homes: Could increased demand for luxury retail goods bode well for the luxury home market? The Financial Times reports that stores catering to well-off women have the best prospects this season. Such shoppers are “ready to declare the recession over”, says Michael Silverstein, the author of “Women Want More”, a book charting their growing spending-power. Silverstein anticipates a 10% increase over last year’s holiday season. Recent record breaking sales in high end coastal towns like Narragansett, Newport, Middletown and Jamestown suggest increasing confidence among some affluent buyers. If improved consumer sentiment translates into more real estate activity, perhaps we will see a few more signature Newport mansion sales in the coming year.

Winter Real Estate Sales – like a January White Sale: As holiday distractions, lower temperatures and the exodus of “snow birds” depress sales activity, serious buyers should keep looking.  While some Sellers take their homes off the market, those who stick with it during the winter are often more serious, more motivated and, in some cases, more open to negotiation. If you’re a buyer, keep looking. If you’re a seller, take a break if you must, but consider that you will have less competition and fewer “tire kickers” to contend with in the winter. Just take a look at this 2-year chart to see the seasonal ebb and flow of single family inventories.

Real Estate Market Chart by Altos Research www.altosresearch.com

In conclusion, the mood seems a little brighter this holiday season, and perhaps that’s a harbinger of better times to come for RI real estate. That said it would be disingenuous to suggest that everyone will be in a position to increase their holiday spending or even contemplate a real estate move. The bottom 40% of US households is still practicing a recession-induced frugality, the foreclosure crisis is far from over, and unemployment is likely to remain high through 2011. Still, there is a sense that we are slogging through this downturn by reducing debt, saving more and opening our wallets for the first time in a long time. A real estate recovery will follow eventually, and those who can invest in it will help bring about the Next New Normal.  Won’t that make for a fine holiday?