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No Place Like Home
Only problem is, years of inventory stagnation have made
Connecticut real estate a seller's market in 1999
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Business New Haven
4/19/1999
By: Sheila A. LaSella
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In keeping with the nation's strong economic foothold, Connecticut's economic recovery is moving full speed ahead, according to most leading indicators. These include a 3.4-percent unemployment rate in 1998, a 4.5-percent rise in personal income and a two-percent rise in job growth over the past year.
These numbers are the most favorable the state has seen since the late 1980s. And the overall growth is having a ripple affect in the real estate market.
According to National Association of Realtors (NAR) president Sharon A. Millett: “Strong consumer confidence in the nation's economy, continued low mortgage interest rates and sufficient available mortgage funds helped produce the last several months of extraordinarily high sales. Job creation continues at a brisk pace, and inflation is virtually nonexistent.”
These factors are pushing some of the strongest home sales Connecticut has witnessed in a decade, and are marked by rapidly moving listings whose time on the market can be as little as two to three days.
“Now we have a small existing inventory. There is probably the same amount of listings that have been coming out over last 12- to 24-month period, but because things are selling faster, the houses aren't staying on market. There isn't any standing inventory, houses that stay on the market five, six, seven months. Things are moving very quickly,” explains Greg Scott, president of Beazley Co. Realtors in New Haven.
However, this flurry of activity does not make for a pleasant buying experience for some consumers. First-time home-buyers Christina and Billy Keating of East Haven have been house-hunting for more than a year and describe the process in one word: “frustrating.”
This 30-something couple have been searching in the towns of Wallingford, Durham, Branford, North Branford, North Haven and Northford in the price range of $190,000, and have experienced a futile search thus far.
Quick turnover has been one of the biggest impediments to the Keatings in their quest. It has not been unusual for them to drive by a brand new listing only to learn a few days later that the house is already on deposit.
“A house in Northford had an open house two weeks ago and we called four days later for a private appointment and it was already on deposit,” recalls Christina Keating. “This makes it very frustrating. Sometimes the houses we're looking at aren't worth $190,000 because they need work, but the sellers are getting the prices they're asking for. The market isn't what it used to be, where you had room to negotiate.”
Nationally, 1998 was the best year in the history of home-selling, with 4.78 million existing homes sold. That marked an increase of 13.5 percent over 1997, according to the U.S. Bureau of the Census.
Near-record sales are expected in the new-home market this year with 876,000 units expected to be sold, down 2.0 percent from 888,0000 units in 1998. Housing starts are expected to reach 1.62 million units this year, virtually matching last year's volume.
Not too surprisingly, the nation's home ownership rate also set a record in 1998, reaching 66.3 percent. “The recent housing expansion means there are 7.3 million more homeowners today than we had in 1993,” observes James F. Smith, NAR chief economist.
Locally, the real estate market is mirroring the national trend with strong home sales:
NAR's forecast for existing-home sales is for 4.75 million sales in 1999, a dip of 0.7 percent from last year's record of 4.79 million sales. “This essentially matches the unprecedented 1998 market, which was 13.5-percent higher than the previous record in 1997,” Smith says.
New housing permits in Connecticut exceeded 10,000 in 1998, a number that hadn't been seen since 1989, according to the Connecticut Economic Digest. “The Connecticut housing market continues to show strength,” said Commissioner James F. Abromaitis of the state's Department of Economic & Community Development. “The increase in housing starts, especially in New Haven County, is particularly noteworthy.”
New Haven County documented the largest number of new authorized units in January 1999 with 369, compared to 102 in January 1998. Hartford County followed with 117 units, while Fairfield County had 110 units. The city of New Haven led all Connecticut municipalities with 195 units, followed by Milford with 112 and Glastonbury with 21 according to the Connecticut Economic Digest.
While building a new home may be many couples' dream, the Keatings found this avenue to be littered with roadblocks. They considered building on a piece of property or moving into one of the many fast-rising subdivisions, only to discover that these new homes were expensive.
“We see these subdivisions going up everywhere, but most of the homes are $250,000 to $300,000,” says Christina Keating. “We have to wonder where are all these people coming from who can afford these prices.”
So what is prompting this couple to move into a new home? “We presently live in a condo and wanted more space and a yard for our new baby daughter,” Christina Keating says. “And with mortgage interest rates low, this is a good time to try to buy.”
Indeed. Home purchase decisions are being driven for many consumers by low mortgage rates and “in some cases people who are renting can purchase and own a home for the same amount of money that they would be paying for rent given the rates,” explains John Gomes, office manager for Calcagni Realtors in North Haven.
Although 30-year fixed mortgage interest rates moved above 7.0 percent recently, they're expected to trend downward and average 6.7 percent for the year. “The federal government is in the process of retiring $150 billion in debt, which will further reduce pressure on interest rates,” Smith explains.
Freddie Mac reported that the national average commitment rate for 30-year, conventional, fixed-rate mortgages was 6.81 percent in February. This rate was up slightly from 6.79 percent recorded in January, but down from 7.04 percent recorded in February 1998. The marginal rate increase did not appear to deter buyers, Millett noted.
The challenge for home-buyers lies in that there are “so many different mortgages it becomes confusing,” says Christina Keating. “The banks are good at explaining terms and options, but the number of mortgages available is overwhelming. We're probably going to go for an FHA mortgage. It's just as low of an interest rate but it allows you to put three to five percent down instead of ten.”
Shopping around for a suitable mortgage is part of the lengthy home-buying process. And with homes being a major lifetime purchase decision, the footwork often pays off.
The average national home sale median price in 1998 was $130,600, up 5.5 percent from 1997.
“In the late '80s, a lot of false appreciation caused home prices to go up 25 or 30 percent. Homes usually appreciate at the rate of inflation - not 30 percent. Five to six percent a year is more realistic,” says Calcagni's Gomes.
NAR projects the national median existing-home price to rise 6.1 percent this year to $138,100, while the median price for new homes will increase 7.3 percent to $162,600 for 1999. Connecticut can expect a median sale price for existing homes of approximately $122,000.
“One small change we expect is a slight decline in housing affordability, with rising prices somewhat offsetting lower mortgage rates and higher income,” the NAR's Smith predicts. “The biggest impact will be on first-time buyers, so it's important to preserve programs such as FHA (the Federal Housing Administration) that help low- and moderate-income buyers to overcome the down-payment obstacle,” he adds.
Even with price increases, area real-estate professionals expect the market to remain steady in the near future. “Resurgence has come in New London [County] with the casinos and overall it has been positive because of the ancillary activity,” says Beazley's Scott.
“I think with what is going to happen with the New Haven mall and the Patriots coming to Hartford and the Adriaen's Landing [project] that these three major economic undertakings will really position us to be very prosperous over the next three years.”
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