Buying

First Quarter 2012

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

A New Year Brings New Activity

This year’s mild winter weather contributed to a warming trend in Connecticut’s residential real estate market. Pending sales rose sharply and closed sales finally showed positive gains from the end of last year. The beginning of a real recovery is evident as buyers are taking advantage of continued low mortgage interest rates as well as attractive home prices. In fact, prices of single family homes dropped 7.3% in the first quarter of this year compared to last year and prices of condominium homes dropped 10.5% from the first quarter of last year. Additionally, the rise in consumer confidence in the housing sector is contributing to the upswing.

Pending Sales
Pending contracts jumped 25.9% for single family homes and 7.8% for condominiums in the first quarter. Every county in the State saw an increase in the number of pended sales for single family homes, with Fairfield seeing a 25.7% increase, Hartford a 30.6% increase, Windham a 38.8% increase, and Tolland 56.6%. Conversely, pending sales of condominium homes dropped in Litchfield, Tolland and Windham Counties, but rose in Fairfield, New Haven, and New London Counties. We have not seen this kind of pending activity since the first quarter of 2011.

Closed Sales
Another positive sign is that the number of single family closed sales is now up by 8.4% from a year ago. New London County had the largest increase of 17.5%, followed by Tolland and Middlesex Counties with 15.1% and 15.4% more sales, respectively and New Haven County had 11.4% more sales. This is the strongest first quarter result since 2010. Tolland County experienced a 53.3% jump in condominium sales, while Middlesex and Litchfield Counties each had a 38% increase. Statewide, there was a 4% increase in closed sales. Condominium sales had been inching lower since the second quarter of last year and this reversal is a welcome sign.

Current Inventory
Inventories of available homes dropped in the first quarter of the year for both housing segments. Months of supply of inventory is measured as the number of months it would take to sell off currently available homes and condominium units. The largest drop occurred in single family inventory with 36%, to 7.3 months. Statewide condominium inventory dropped 5.4% to 9.8 months in the first quarter. These changes were made possible by the high number of deposits taken in the first quarter as well as the above-mentioned increase in closed sales. Clearly we are now in a balanced market.

Median Prices
Connecticut saw sharp declines in the median price of a home or condominium in the first quarter. Single family home prices dropped 7.3%, to $222,500, from a year ago and condominium prices fell 10.5% to $147,000. Every county experienced declines in single family prices with Fairfield, Litchfield and New London Counties leading the way. Six of eight counties saw condominium price declines, leaving just Tolland and Windham Counties with increases. Tolland’s prices rose 4.5%, to $143,000, and Windham’s jumped by 53% to $130,500. One reason for continued overall price declines is the influence of short sales and foreclosures. These types of transactions represent up to 30% of all Connecticut sales, bringing our state closer to national housing trends. Lower prices and declining supply have spurred buyers to get off the fence, while well priced homes are seeing multiple offers.

Days on Market
By the end of 2011, 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 the first quarter of 2012, the time to sell single family homes increased to 165 days. During the same period, the average time to sell a condominium fell 12% to 157 days, showing marked improvement in the market for condominium homes. Combined with higher closed sales and deposits on condominium homes, this is good news for Connecticut.

Rental Market
The rental market continued its strong performance from 2011. In the first quarter of 2012, 3,120 leases were signed, a 13.7% increase over last year. That equates to 41% of all residential transactions. Median prices for those leases have risen 3.8% to $1,350 per month. An early indicator, days on market, has risen 4.1% to 76 days, perhaps suggesting a weaker second quarter for rentals, as renters are turning into buyers.

New Housing Permits
In 2011, Connecticut recorded only 2,837 housing permits; the least issued in a very long time. But, we started off the first two months of this year ahead of last year’s monthly average of 236, with 564 permits issued or 282 per month. If this pace is maintained through December, it is projected that we will attain 3,384 permits, a 19% increase. With a building industry that is striving to find traction, this would prove to be a pivotal component in providing new housing solutions for Connecticut residents.

Luxury Market
The luxury home market in Connecticut considered being those homes selling for $2 million and above, saw a drop in activity in this first quarter compared to last year’s first quarter. Single family closed sales occurred mainly in Fairfield, Hartford and Litchfield Counties. In Fairfield County, there was a 4.5% increase. Hartford County had sales in Avon and Farmington with a median price of $2,413,000. In Litchfield County sales increased by 150%. Sales are being driven by serious buyers as the prices appear to have bottomed. The $5-$10 million segment of the Greenwich market has been showing mixed signs, but months of supply dropped from 65 in February to 42 months at the end of March. The New Canaan $2-$3 million market continues to be heavy with inventory and price is the market driver. Statewide, 62 sales occurred compared to last year’s 82, a 24% decrease. However, the median price remained relatively unchanged and days on market fell 26%. It is early in the year and the luxury market is likely to continue on a steady course of growth in 2012.

Foreclosures
There were 3,510 foreclosure filings in the three months ending in February, representing an increase of 4.22% from the previous three months. Foreclosure activity is defined as initial filings, auctions and foreclosure proceedings resulting in bank ownership. The level of activity has fluctuated since last year, but still remains a concern. Many believe Connecticut is poised for more foreclosed property listings in the near future, but available information is not reliable enough to be able to forecast any predictions. Today, approximately 30% of all home sales that occur in Connecticut are short sale transactions; a transaction where the sale price is less than the original loan amount.

Summary
It is clear that Connecticut is on the road to a housing recovery in 2012. With interest rates remaining at historic lows and well priced inventory, buyers are finally getting back into the market. Connecticut has recovered 33.3% of the jobs lost in the recession, another positive sign of stabilization. National and global news will continue to influence our housing market, however all the major indicators support an upswing. The opportunities in this environment are for investors and first time home buyers to enter a market that is sure to shift back to a seller controlled market; meaning that home prices will eventually see an increase.