Ripples in Corner from national real estate sag

e national real estate slump has finally begun to have an effect on the Northwest Corner market. Area real estate brokers aren’t panicking, but they are seeing a decline in activity, as interest rates climb and credit tightens in the wake of the lending crisis gripping the nation and the world.

"There’s activity but it’s much more difficult to get credit," said Salisbury broker John D. Harney Jr. "The banks have become very cautious."

"I am seeing a slowdown," agreed Lakeville broker Robinson Leech, who has seen a 30 percent decline in inquiries over last year. "There is so much negativity in the media [about the economy]."

Leech was referring to the subprime mortgage financial crisis that began in 2006 and reached a tipping point this summer. In the last few years rising interest rates caused adjustable-rate mortgages to increase greatly in popularity even as property values declined after years of steady growth. The combination of lower values and rising interest rates left millions of homeowners unable to meet their financial commitments and lenders without sufficient means to recover their losses.

The tightening of credit and the loss of confidence in the volatile stock market have combined to cast a pall over the real estate market that has affected even some higher-end buyers.

"This summer has been slower for everyone," said Lakeville Realtor John Borden.

According to the Dow Jones news service, large lenders such as Countrywide have scaled back risky lending and are focused on the lower-end market, where loans can be guaranteed by government-sponsored housing finance agencies such as Fannie Mae. That has created a situation in which sellers, especially of higher-end properties, are wary of buyers with mortgage contingencies.

The cost for 30-year fixed-rate jumbo mortgages, those exceeding $417,000, has increased more than one percentage point since March to about 7 percent, according to data compiled by Bethesda, Md.-based Bankrate.com. The standard fixed-rate mortgage interest rate stood at just under 6 percent earlier this month.

On Sept. 18, the Federal Reserve cut two key interest rates by half a point. That action caused a spike in the stock market and will bring interest rates down (or at least slow the rate of increase) on adjustable-rate mortgages.

"Cash will have much more of an impact," Harney explained. "People who pay in cash can expect a discount in price."

Harney pointed to a pair of recent price reductions in his listings — high-end properties in the town of Salisbury — from $1.2 million to $980,000 and $1.15 million to $985,000. Leech added that he is seeing price reductions of between 5 and 40 percent on some properties.

Sales still strong

According to the National Association of Realtors, existing home sales have fallen 6.8 percent from last year, while prices have come down between 1 and 2 percent nationally. Sales and prices in some Northwest Corner towns, however, appear to be holding their own over last year— or even increasing.

Indeed, up to last month, sales volume of existing single-family homes in the town of Salisbury are identical to the same time last year. Sales volume in 2007 through the end of July remains at 31, according to the Commercial Record, a Boston-based real estate trade publication. The median sale price of a Salisbury home, however, has risen from $420,000 to $495,000, an increase of almost 18 percent.

By contrast, Sharon has seen an increase in sales from 27 to 30 but a decrease in median prices from $394,500 to $367,000, or a decline of 7 percent. Except for Cornwall, where prices rose more than 50 percent, all other Northwest Corner towns report a decrease in sales prices ranging from Kent (down 5.3 percent) to Falls Village (down 28.74 percent).

"Prices are adjusting," said North Canaan Realtor Bob Giumarro. "I think we are seeing a correction."

Giumarro, who sells properties mostly in North Canaan and Falls Village, said he still has plenty of listings and has had lots of showings, but that offers tend to be low, which is hampering sales. He estimates he is selling 40 percent fewer properties than he did at this time last year.

Borden says he expects activity to pick up now, after Labor Day, because "prospective buyers may have taken a hiatus over the summer." Borden added that he does not believe the mortgage crisis is having a profound effect on the Northwest Corner real estate market, especially when compared to the 1970s, when fixed-rate mortgages of 15 to 18 percent were common.

"I don’t see it," Borden said. "This is still pretty much a second-home market."

Richard J. Cantele Jr., president and chief operating officer of Salisbury Bank & Trust, said his bank’s mortgage volume is holding steady.

"In fact, we have seen inquiries into mortgages increase last month in particular," said Cantele, adding that SBT does not participate in subprime or "creative" lending practices.

Cantele concluded that the lending slump that has affected the larger institutions has left SBT unscathed because wary buyers are looking to their local banks as a sign of stability and, perhaps, because "they want to talk to someone they know." SBT has not tightened its borrower qualifications for home mortgages, he added.

"We’ve always been fairly conservative in our lending practices," Cantele said.

As for what the future holds, Harney was optimistic but cautioned that the economic climate in New York City and at the major investment banks could have a significant impact on the Northwest Corner’s second-home market. Those institutions and the companies that do business with them give out bonuses around the holidays that often vary in size depending on the economy.

"You can be sure that whatever happens in Manhattan will be rippling up here," said Harney.