Buying

Fourth Quarter 2011

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

Connecticut Attempts to Rally in 2011

The year got off to a great start by posting the first two strongest quarters for pending sales since the first half of 2010. It was also the first year, out of the last three years, that we did not have the benefit of a federal tax credit for homebuyers; testing us to see if we could thrive under somewhat normal conditions. Predicting the movement of the market is difficult due to many factors that are out of our control. Such was the case with the “Black Swans” of 2011. At the beginning of the year, record breaking snow fell week after week, drastically slowing the market. The spring thaw brought out enthusiastic buyers and the market rallied for a short time. Typically, we see a strong push going into the third quarter, but the devastating hurricane and the unexpected destruction of the Halloween snow storm contributed to a slow finish for the year.

Pending Sales
Total year deposits for single family homes were down only 3.6% in spite of the turbulence in the economy, political environment and unexpected events. While the first two quarters of 2011 were the strongest, the fourth quarter was down only 2.8% from the same period last year. Pending sales for condominiums paced with single family homes, also with stronger results in the first two quarters of the year. Full year condominium pending sales were down 12.5% over last year, indicating that the condominium market is still struggling to gain forward momentum.

Closed Sales
Closed sales slowed their pace again in 2011, with sales of single family homes down 7.5% on average statewide, while condominium sales were down 11.8% from a year ago. Despite interest rates being at historic lows and average sale prices at their lowest in two years, consumer confidence hovered at around 40 on a scale of 100 through October, according to DataCore of New Haven. It then shot up in November to 56, but had little effect on overall market performance. The State’s budget woes also kept Connecticut residents from spending until late in the year. According to the State Department of Economic Development, consumer purchases of goods and services in Connecticut rose in the fourth quarter; hopefully setting the stage for continued increases in 2012. Investors also continued to enter the market, thus demonstrating another sign of confidence.

Current Inventory
The inventory of available homes for sale in the fourth quarter of 2011 fell 13% from the third quarter, but remained 9.1% higher than last year overall. At current levels, it would take 7.2 months to sell off the existing single family inventory. Typically, in a healthy market, it takes about 6 months to achieve this; hinting that we may be seeing more stability in the market. In fact, condominium inventory ticked down 2% overall from last year and the fourth quarter had the lowest level of supply in 2011.

Median Prices
Single family home prices began to stabilize during the third quarter of 2011. However, median sales prices fell 3.8% to $250,000 from $260,000 in the fourth quarter and condominium median sales prices fell 7%, from $178,000 to $165,500 for the year. Looking at the numbers on a quarterly basis, each of the last two years showed seasonal differences, but represent a fairly stable pricing environment. Median prices should firm up in 2012 as consumer confidence continues to return to the market.

Days on Market
The average number of days required to sell a single family home rose 6.4% to 150 days, while condominiums took an average of 166 Days to sell. In 2010, single family homes took an average of 141 days to sell and condominiums took an average of 159 days. In a relatively healthy market it generally takes 100 to 120 days for properties to sell; indicating that the market is still slowly climbing the hill to recovery.

Rental Market
The rental market remained strong throughout 2011. There were 12,950 leases signed in Connecticut this year, a 5% increase over 2010. During the same period, median rent prices rose 3.6% to $1,450 per month. The average length of time on the market for rental properties dropped another 7.5% to just 62 days; a further indication of a healthy market. Connecticut’s rental market is expected to remain strong as a component of the overall residential market, as short sales and foreclosures temporarily displace homeowners and newly formed households postpone purchasing their first home. However, lower house prices, combined with low interest rates may incent younger, creditworthy individuals to buy rather than rent during the next few years. Either way, housing affordability for both the sale and rental categories should continue to help the market stabilize during 2012 and 2013.

New Housing Permits
Housing permits issued in Connecticut did not keep up with those reported for the full year of 2010. Permits for 2011 are estimated to finish the year at 2,819, 16.7% behind the 3,385 permits issued in 2010. However, the three months of September, October and November posted a 32% gain of 844 permits over the prior three months, showing positive signs of builder confidence in the market. Towns demonstrating the best results in both single family and multi-family permits included Ellington, Bridgeport, Cheshire, Milford, Stamford, Vernon, Old Saybrook and West Hartford. Builders and developers have been waiting for signs that it is safe to begin residential construction. Some have already begun development while others need to see consistent gains in housing starts before they join in. The 2011 full year results will be available in January 2012 and the expectation is for continued improvement.

Luxury Market
Statewide sales of luxury homes, considered to be those transactions valued at over two million dollars, rose 2.1% to 431 in 2011. Median prices for luxury homes however, dipped 3.6% to $2,850,000 from $2,955,000 last year. Buyers of luxury homes in Connecticut have been confident in their purchases, but at slightly lower prices in Litchfield, New Haven and Fairfield Counties. In Hartford County, buyers pushed prices higher by 19.9% in four transactions with a median price of $3,612,000. In fact, the highest sale in Hartford County was in the Town of Avon for $5,000,000. In the affluent community of Greenwich, sales of luxury single family homes rose 10.6% to 229 transactions, while the median price fell 5.2% to $3,175,000. Average days on market fell 10% to 235; a positive sign that luxury buyers are continuing to take advantage of softer prices.

Foreclosures
Foreclosure activity, according to realtytrac.com, the foreclosure-tracking organization, is defined as initial filings, auctions and foreclosure proceedings potentially resulting in bank ownership. They report that in Connecticut, there were 3,368 new filings in the three months ending in November. In addition, one in every 1,145 households in the State received a foreclosure filing in December. On a positive note, the overall level of foreclosures has been trending lower for the last six months. Connecticut ranks 13th among states with under or non-performing loans nationally, positioning it as a state that still offers a relatively safe market to sell a home. However, short sale transactions promise to be a significant measure of all residential home sales in the next few years.

Summary
Connecticut’s residential real estate market performance is expected to recover slowly in 2012. Some economic indicators show that we will begin to see the benefits of patience and persistence. In November of 2011, the State’s seasonally adjusted unemployment rate fell slightly to 8.4%; the lowest level since 2009. Business and consumer confidence rose slightly in Connecticut and around the region, and hopefully 2012 will bring us renewed performance in the residential markets. On a national level, the turbulent political and economical environments will continue to have an impact on the housing markets. Today’s real estate market is no longer as predictable and interest rate driven as it has been in the past. While 2012 will most likely present its challenges, there should be many opportunities for both buyers and investors alike to come back to the market due to lower sales prices, low interest rates and improved market confidence.