The July issue of The Connecticut Economic Digest, a joint publication of the Connecticut Department of Labor and the Connecticut Department of Economic and Community Development, featured an in-depth analysis of the state’s housing market by Nandika Prakash, the latter department’s senior economist.
“Home prices exceeded 2020 levels to reach a new high, and the number of units sold increased year over year as well,” Prakash said in the report, noting that “rising mortgage rates and low inventory may be a headwind that checks the market in 2022.”
Realtors who are facing those market forces firsthand reported that their own experiences largely aligned with Prakash’s findings.
Linda Dunsmore, a Realtor with Keller Williams Luxury in Westport with 11 years of experience in Fairfield County real estate, said that her experiences “absolutely lined up” with the report.
“It’s really the past two years,” Dunsmore said, observing that the trends held constant both before and after the period covered by the report. “We went into Covid in March of 2020 and basically the real estate market stopped. There were transactions that were in progress and many people pulled out of them. It looked like, ‘Oh my God, we’re never going to sell another house!'”
“A surplus of buyers relative to inventory spurred stiff competition,” said Michael Gifford, a Realtor with eRealty Advisors working in both Connecticut and New York. “As a result, homes sold quickly and for high prices.”
“The pandemic and the shift to hybrid or remote work,” Prakash stated, “along with low mortgage rates, continued the 2020 surge.” Drawing from Redfin data, Prakash said that the median home sale prices peaked at $377,400 in June, a 24% increase over the previous year. Citing Berkshire Hathaway data, she concluded that the median number of days on market for a single-family home decreased dramatically from 41 days to only 24.
“In June 2021, at the top of the competitive market, the seller didn’t have to do anything,” said Mid-Fairfield County Association of Realtors President Ken D’Arinzo. “They would just say, ‘well I have another buyer here that’s more than willing to move forward.”
The real estate market, particularly in Fairfield County that attracted an influx of former New York City residents during the pandemic, remains hot, but both Dunsmore and D’Arinzo described a degree of “burnout” among buyers tired of having multiple offers rejected.
However, even as the market cools off, a steep shortage in housing will continue to advantage sellers against buyers and drive rental housing to higher levels as well.
Prakash’s report indicated that while Connecticut saw $1.22 billion in single and multifamily home construction authorized over the course of 2021, the total number of homes was a 15% decline from the 5,471 the market saw in 2020. The majority of the decline came from multifamily housing applications, which were down by 45% from 2020, which more than offset the 17% increase in permits for single family structures.
Combined with higher interest rates, Dunsmore says that she and other realtors have seen their inventories increase from about one month of homes to four months of homes to move.
Homeowners have seen the values of their properties increase, and provided that they have somewhere to live, they will meet no difficulty in trying to sell. Yet the widening mismatch between limited available housing stock and increased demand across the state could lead to 2022 being a very different year.
“While early data shows persisting demand, there are indications that supply-side constraints may lead to a slowdown in the housing market nationwide,” according to Prakesh. There have been some increases in construction, including month-to-month jumps in the number of housing permits granted across the state, but the majority remains for single-family dwellings, which have a smaller impact on meeting demand.
Furthermore, Prakesh pointed out another issue that could slow construction while possibly slightly easing demand: financially burdened millennials.
“Millennials now make up the largest share of homebuyers,” Prakesh said. “This population is raising families while paying off student debt, and higher prices along with rising mortgage rates may lead to their postponing homeownership if they deem it unaffordable.”
Gifford, himself a millennial, cautioned that the market will likely remain heightened for some time as eager buyers may be quick to act in the face of any dip.
“There is still a material shortage of homes on the market relative to buyer demand. This low inventory buoys pricing,” he said. “For some buyers, any reduction in pricing may be viewed as a discount opportunity.”
Dunsmore also said that the future remained to be seen and cautioned that the moment’s trends may see a reversal.
“Right now, people are taking a ‘post-Covid summer,’ traveling and enjoying things. I think we will have a little lull and come Labor Day it’ll come back. But I truly hope it doesn’t go back to the same frenzy we had before,” said Dunsmore.
“The market is changing a little bit,” D’Arinzo said. “But it’s not going to change drastically until inventory increases, and that’s not going to happen until sellers get more comfortable putting their homes on the market if it also means becoming a buyer.”
