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Raveis: A Record Year for Residential?
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Business New Haven
3/15/2004
By: BNH
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Raveis: A Record Year for Residential?
William Raveis, chairman and CEO of William Raveis Real Estate & Home Services, offers a mixed analysis of residential sales and relocation services in Connecticut, as well as his forecast for the balance of 2004.
Residential Sales
Residential home sales in Connecticut are up. Based on comparative statistics of condos, multi and single-family homes gathered from the Multiple Listing Services (MLS), Connecticut posted a 12-percent sales volume increase and a 3.7-percent increase in unit sales, with average days on the market at 76.
This rise in sales from a year ago is due largely to low interest rates. As of January 30, the interest rate for 30-year fixed mortgages is down to 5.625 percent - the lowest in 47 years.
In analyzing housing data by county, New London County, with sales of $2.1 billion, experienced the highest growth from 2002 to 2003, with units and sales volume up 8.7 and 24.8 percent, respectively. New London County also recorded the greatest increase in average sales price of single-family homes over the past 12 months, from $190,935 in 2002 to $218,945 in 2003 - a 14.7-percent increase.
This growth has been fueled primarily by new construction. New London County is home to the two major casinos as well as Pfizer, which relocate employees into the area. Pfizer itself relocates hundreds of research scientists to new facilities; over the next two years Pfizer plans to build and equip a state-of-the-art clinical research unit. In short, the New London housing market, once considered a laggard, is the shining star.
With $4.7 billion in total residential sales volume, New Haven County posted the second-highest growth with a 19.4-percent increase. This is mainly a result of affordable housing as well as new construction.
Based on November statistics from the state's Department of Economic & Community Development (DECD), housing permits rose 4.2 percent over the year before. The average sales price for single-family homes in New Haven County - $256,548 - is likewise up by 13.6 percent.
Relocation
On balance, the relocation business in Connecticut has declined significantly from last year, for several reasons:
o The cost factor. The average cost of relocating an employee has risen from approximately $45,000 in 1992 to $65,555 in 2002.
o Fear of an unstable economy. Corporations were in a freeze-frame and could not decide to expand, even though interest rates remained low.
o Overcapacity. Too many people in too many firms chasing a shrinking market.
o Employee resistance. No guarantee of permanence or stability at the destination location.
o The general state of the economy.
2004 Forecast
All indicators for 2004 suggest that we are in for a record year in real estate. The National Association of Realtors (NAR) reports that it has never experienced a marketplace with comparably low interest rates - a key component of the housing market surge. However, according to NAR, every one-percent rise in interest rates on average is accompanied by a downturn of four to six percent in sales.
Most economists are predicting a modest rise in interest rates in 2004. We expect 2004 to reflect the same conditions as 2003 at best, and at worst, a fall off of about five percent in sales. Even if the interest rates rise, they are still at a historically low rate.
House appreciation should average five to ten percent for 2004. Connecticut remains a desirable place to live with a great educational system, cultural and recreational activities, amenities and an excellent quality of life. In addition, the state features excellent housing stock.
Conversely, Connecticut has a very constrained supply of land for new construction, which typically spikes demand, triggering appreciation. According to NAR chief economist David Lereah, housing prices in the past 30 years have remained stable even during the worst of economic times - and appreciated significantly in the good times.
Our note of caution, however, is for 2005. Being a post election year and with the nation facing a $400 billion budget deficit, we will have some challenges facing us. We predict interest rates rising in 2005 and therefore resulting in a decrease in the number of sales.
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