As home prices continue to increase in Connecticut, sales are beginning to slow, according to a new report.
The median sale price of a single-family home increased to $250,000 in April, more than 9 percent over what it was at the same time last year, according to the latest real estate report by The Warren Group. But while the price hike is a welcome sign of relief for sellers, it”™s increasingly encouraging them to hold out in hope of a better offer, said Timothy M. Warren Jr., Warren Group CEO.
Single-family home sales in Connecticut decreased 2.5 percent in April compared with the year before, which equates to about 50 fewer homes sold.
The Business Journal recently discussed the trend with Warren.
Business Journal: What are some reasons why sales volume is down?
Timothy Warren: “Statewide, sales volume has decreased for three consecutive months this spring. This comes after a 15 percent gain in sales volume in 2012. In some areas, buyers and realtors are complaining about the lack of homes for sale and attribute the sluggish sales volume to low inventory. We suspect that many homeowners are holding off on the sales of their homes until prices have returned to their previous peaks. Other homeowners may owe more on their mortgages than their homes are currently worth and have decided to hold off on a sale because they cannot sell the home profitably.”
At what point would rising home prices be a bad market indicator? How would we know it”™s gotten to that point?
“When the median price of a home increases by 7 or 9 percent, as we”™ve been seeing all year, you begin to wonder how the market will sustain such steep price gains. In April, the median price of a single-family home was $250,000, which is the highest for that month since 2008. A rebound in home prices in the short run will help the market by generating interest in home purchases from people who have been waiting to see the bottom of the market. But if prices rise and blow by their previous highs without slowing, then I”™m afraid we may create another bubble in the real estate market. Home prices must be tied to personal income. If prices rise at a pace faster than wages, then homes will become unaffordable and we”™ll see another market crash. We aren”™t at risk of that at this time, but double-digit annual increases in prices are not sustainable.”
How does the market recovery in Fairfield County compare to other counties in the state?
“Fairfield County is bucking the statewide trend. It experienced a great month in April ”” a 13 percent increase in sales over last year. Compared to other large counties in the state (like New Haven and Hartford), the market in Fairfield is faring a bit better. This isn”™t unusual for the “Gold Coast.” But it”™s a bit concerning to see prices increase more than 15 percent. As I said earlier, such steep price increases could cause another housing bubble to burst.”
What recovery indicators do we want to see next in Connecticut? How much further in the recovery do we need to go?
“A steady market is a healthy market. Seeing gradual increases in home sales and prices would bode well for the recovery. A combination of things would help with the recovery: strong home sales, slow increase in prices, fewer mortgage delinquencies, promising employment numbers and high consumer confidence. I think Connecticut is well on the way for most, if not all, of these things.”
