Third Quarter 2012
By Candace Adams, President, Prudential Connecticut Realty
and Terence Beaty, Director, New Homes & Land Division, Prudential Connecticut Realty
The Connecticut Housing Recovery Continues
Connecticut’s real estate market continues to recover, growing in activity in all areas of the state. At the same time, home prices have slowed their decline and are moving closer to leveling off, providing a backdrop for a more stable recovery. Each of the state’s eight counties saw gains in closed sales and new deposits this quarter, breaking three-year trends. What remains to be seen is how Connecticut residents will fair in the job market and the effects this will have on housing as we finish out 2012.
Connecticut is showing strong signs of growth as deposits continue to rise for single family homes and condominiums. New deposits for single family homes rose for the third straight quarter, up 32% over last year and, towers over last year’s third quarter (5,835 to last year’s 4,419). The strongest single family deposit growth was seen in Windham, New London and Fairfield Counties, respectively. Growth in condominium deposits also continued this quarter with 32% more deposits over a year ago (1,496 to last year’s 1,133). Condominium deposit growth was strongest in Tolland, Litchfield and Middlesex Counties.
Closed sales of single family homes in Connecticut rose 13.1% in the third quarter with Tolland County playing the leading role for the second straight quarter. Tolland closed 25.7% more single family homes than in 2011. Middlesex County was a close second with 17.8% more sales and all counties saw solid growth. This is the first time in the last several years that the third quarter showed such consistent growth. Condominium closed sales rose 5.2% in the state with the most growth again showing up in Tolland and Middlesex Counties. These two counties had the only double-digit condominium sales growth in the State. Rental leasing grew at a slightly lower rate in the third quarter, at 9.1%, with 11,037 leases signed this year over 10,116 last year..
The amount of time it would take to sell the available residential inventory in Connecticut continues to fall to balanced levels. In fact, for the first time in a few years, the number of months of inventory is down 27.4% to 6 months for single family homes and down 29.7% to 7 months for condominium homes. Under normal conditions, these figures would reflect a balanced amount of inventory without either a seller or buyer’s advantage. In fact, falling inventory is a leading indicator of rising prices, something we haven’t seen in recent years. While we still have sliding prices this quarter, these lower inventory numbers suggest a firming of prices in the near future. Tolland County led the state in inventory declines followed by Middlesex, Litchfield and Fairfield Counties, respectively.
Despite recent deposit and closing activity, Connecticut’s median prices have been on a slow decline since its recent high point in the fourth quarter of 2010. Median prices for single family homes in Connecticut fell just 2.2% to $250,000 in the third quarter. This decrease was smaller than the second quarter, which was down 4.7% at $243,000. Condominium home prices slid 7.1% to a median of $157,000. Last year, condominium homes had a median of $169,000. In both cases, prices were up sharply from the second quarter, an additional sign of recovery. Continued closed sales growth should have a healing effect in the fourth quarter of this year and the first quarter of next year as the market continues to improve.
Days on Market
The number of days it normally takes to sell a home or condominium is an indicator of whether those homes are well priced or not. It also reveals how willing the buying public is to purchase homes at current prices. Days on market for single family homes rose 4.7% in the third quarter compared to one year ago. However, the number is lower than in the second quarter of this year. What was an average of 160 days on market in the second quarter is now 155 days. Condominium homes sold faster in the second quarter at 156 days. This quarter the number rose to 160 days but is still 4.2% better than last year. This trend supports opinions that the condominium market is improving now that more mortgage dollars are flowing into the market.
The rental market is part of the broad improvement the real estate market is experiencing. Leasing activity was up 10% in the second quarter but up only 9.1% this quarter compared to last year. While median prices for rent agreements rose 3.6% in the second quarter they only rose 1.7% in the third. Additionally, the number of days on market for rentals now sits at 66 days, up 4.8% from a year ago. There are signs that indicate there are now more people looking to purchase rather than rent, which is likely a result of the strong growth in for-sale properties. Middlesex, New London and Windham Counties saw the largest declines for new lease deposits; however closed leases were up in all eight counties statewide. Rentals will remain an active part of our market as we move into next year.
New Housing Permits
Through August, Connecticut towns have issued 2,451 building permits this year. This is a 40% increase over the same period last year, which was Connecticut’s lowest year of permits in nearly a decade. We are on track to potentially finish the year with 3,677 permits, the highest in four years. This is great news for the state’s home building industry, which has been working hard to clear barriers to improving the housing market. The number of housing permits has been in steady decline since 2004 when over 10,000 permits were issued that year. The need for quality, affordable new homes has never been more in demand than it is today. Builders are looking for ways to provide for this need in many areas of the state with varied success. State and local officials have become more cooperative than ever as they realize the contributions new housing developments can bring to the economy. In addition to the jobs it will create, tax revenues will rise, better education becomes available, and community and economic development are a few of the benefits that result from increased building of new developments.
For luxury single family homes, those valued at $2 million dollars and above, closed sales dropped 7.8% in the third quarter and the median price of those homes fell 3% to $2,745,000. Fairfield County mirrored the overall state numbers this quarter and closed sales in Greenwich fell 11.9% compared to the third quarter of 2011. Its median price, however, rose 7.4% to $3,330,000, a sign of a potential bottoming of prices overall. Darien, in contrast, had three significant homes go under contract in August, nine homes are currently under deposit and a total of 30 homes closed over $2 million in the third quarter. Hartford County had three home sales over $2 million compared to four sales last year. Litchfield and New Haven Counties had 11 and 7 sales respectfully, with a 15% rise in New Haven County.
Connecticut's percentage of homes in foreclosure rose 0.3 percent in August. According to the national real estate tracking firm Core Logic, the state ranked 11 out of 24 judicial foreclosure states in the number of completed foreclosures between August 2011 and August 2012 with 3,578 completed foreclosures. Nationally, 781,898 foreclosures were completed in that time frame. On a quarterly basis, Connecticut initiated 4,160 foreclosure actions, including lender complaint claims, foreclosure sales and auctions in the third quarter. That is a 16% increase over the second quarter, adding fuel to concerns our state is still grappling with lender woes. These conditions have the potential to slow both consumer confidence and the market itself.
Connecticut’s two main economic indicators to watch are job growth and home prices. While median price declines have slowed and sales activity in all other areas has grown, this summer the media has focused on Connecticut’s price declines in July and August. At the same time, concern is growing over the federal government’s inability to be more fiscally responsible. For Connecticut, that translates to defense contractor jobs in Hartford County and Eastern Connecticut markets. As we move towards year-end, a close eye will be kept on our overall jobs picture, as it will be an indicator of growth potential for the housing market in 2013, as home prices are expected to level off early next year.