Selling

Second Quarter 2011

By Candace Adams, President, Prudential Connecticut Realty
and Terence Beaty, Director, New Homes & Land Division, Prudential Connecticut Realty

Connecticut’s real estate market continues to move forward despite challenges.

Compared to the second quarter of 2010, sales of single family homes dropped an average of 17.5% in the state this year. A total of 10,109 single family homes closed during the first six months of the year compared to 12,254 homes for the same period last year. New financing rules for condominiums put in place by Fannie Mae and Freddie Mac led to a sharp decrease in condominium sales. New contracts written for single family and condominiums ticked up during the quarter pointing to a possible turn in our market.

Pending Sales
Both single family homes and condominiums under contract but not closed, were higher for the second quarter 2011 in almost all areas of the state. The largest increases were found in the Litchfield and Hartford counties at 24% and 16%, respectfully. Middlesex and New Haven counties follow with 15.5% and 14% increases over the first quarter of 2011, respectively. This represents the strongest pending results since the first quarter of 2010; a strong indicator that Connecticut may be bucking the housing trend.

Closed Sales
Closed home sales across Connecticut continued to experience a decline in the second quarter of 2011. New London and Tolland counties experienced the largest declines in single family home sales with declines of 24% and 22% year over year. In condominium sales, New London and Windham counties fared the best, while Middlesex, Tolland, Hartford and New Haven counties were the lowest. New contracts signed during the second quarter should help bolster third quarter’s closing numbers.

Current Inventory
The time it took to sell off inventory, including those homes under contract at the time, remained relatively unchanged for the second quarter of 2011. When compared to the first quarter of 2011, single family homes and condominiums remained static with 11.7 months and 10 months of unsold inventory. In the second quarter of 2010, homes sold in 8 to 9 months. This represents an increase of 32% for single family and 10% for condominiums, and indicates that despite the higher amount of pending sales recorded, more listings remain available year to year.

Median Prices
While median prices single family homes are slightly lower in comparison to last year, prices have picked up in comparison to the first quarter of 2011. This is possibly a reflection of higher pending sales this quarter. Prices of condominiums have also dropped with the most significant counties being Fairfield and New London. In all, the second quarter is slightly better than the first quarter for median sales prices. As the Connecticut real estate market continues to recover, prices are expected to remain flat or gradually rise in the third and fourth quarters.

Days on Market
With lower closed sales thus far in 2011, it has taken longer to sell a home this year. The average number of days to sell a single family home has increased to just over 158 days, up 8% from last year. The same held true for condominium sales, now taking an average of 168 days to sell with an increase of 3.6% over last year.

Rental Market
The rental market is and has been the strongest part of the real estate picture in the last few years. The number of single family homes and condominiums leased in the last year has risen strongly in most markets and median lease prices have jumped by 5% to 15% in many areas. The number of days to lease a property sits at just over a two month average. Look for rent prices to continue to rise through the end of this year as occupancy grows. A strong rental market may prove to be attractive to investors.

New Housing Permits
From January 2011 through May 2011, there were 859 building permits issued across Connecticut; as reported by 128 towns. That comes out to a 44.6% decrease from the same period last year. It is forecasted that the state will issue between 2,400 and 3,400 permits in 2011, therefore potentially trailing the 3,385 permits that were recorded in 2010. If demand for new homes improves, we should see growth in permits in 2012. Keep in mind that Connecticut is considered to be approximately 12% under built when compared to normal conditions.

Luxury Market
Connecticut’s luxury market, considered for our purposes to be over $2M per home sale, increased by 22.75% in unit sales of both single family homes and condominiums, which is a noticeable improvement overall. Luxury home sales totaled 246 units with a majority of the sales in Fairfield County. However, other counties also achieved significant sales counts during the first half of the year.
Litchfield County led the other counties with seven sales with a median price of $2.5M. New Haven had six sales of $2.7M and Hartford, Middlesex and New London Counties each had three sales each with a median price of $4.5M, $3.2M and $3.6M, respectively. Closely watched Greenwich experienced a 42% rise in overall closed sales and saw 14 sales between $5 and $10 million; double that of last year.

Foreclosures
Connecticut has seen sharply lower bank-owned activity in the first half of the year. According to both the Commercial Record and Realty Trac, there were an estimated 5,582 foreclosure filings during the first half of the year. This equates to a 58% decrease when compared to 2010. This is due in part to a federal investigation into potentially improper banking procedures in approving and/or selling mortgages and a relaxation of moratoriums on completing foreclosure work by banks. Based on this information, we predict a slowing of overall foreclosure activity by the end of the year. As the federal investigations ultimately lead to a lifting of the moratoriums, we’ll have to wait and see whether foreclosures resurface in 2012. There may continue to be growth in short sales; the aggressive sale of homes with cooperation with lenders prior to foreclosure, to help aid the flow of sales in this market. We see that as a necessity and remain available to assist our sellers and buyers with this process.

Summary
Nationally, a nearly two year low in consumer confidence and an uptick in the unemployment rate have held the market back from a better recovery. While this may hold true in most cases, the Connecticut real estate market has demonstrated that well priced homes in good condition continue to receive multiple offers. Connecticut’s future real estate market success will be supported, in part, by first-time buyers who are being offered an opportunity to improve the home they purchased, through a specialized 203(k) financing program made available through the Department of Housing and Development (HUD). Other segments of the market that might generate sales activity are the moving up and/or downsizing homeowners. They could benefit from increased finance options available to their buyers in order to get into their next home, thus generating some market momentum. And with mortgage rates still remaining at historic lows, this should help improve sales in the second half of the year. According to a Pew Research Center study conducted in April, 81 percent of adults surveyed either somewhat agree or strongly agree that buying a home is the best long-term investment a person can make. Of homeowners whose homes have lost value during the downturn, 82% still favor owning a home and 81% of renters aspire to own a home in the future.