Connecticut is one of just 13 states that saw a more-than-20% increase in average house prices over the past year, a climb experts say is tied to heightened demand because of the pandemic.
The average price of a single family home in Connecticut has risen by 20.05% since last year. It was up 4.45% in the second quarter compared to the first quarter of 2021, according to a Federal Housing Finance Agency report issued Tuesday.
Nationally, house prices are up 17.4%, according to the finance agency’s House Price Index report for quarter two. The median new residential sale price was $390,500 in July, according to data from the U.S. Census Bureau and the federal Department of Housing and Urban Development.
For people who left New York City and sought homes with more space during the pandemic, Connecticut presented an appealing option for a place to settle down, said Jeffrey Cohen, a professor of finance at the University of Connecticut’s Center for Real Estate and Urban Economic Studies.
The Mountain division and New England had the highest increases. Idaho had the highest annual appreciation at about 37.1% , and Alaska had the lowest at 8.2%.
“There are people who are living with apartments in other parts of New England who want to use this opportunity to get more space for their families to run around and for themselves to work remotely,” Cohen said.
As workplaces moved toward remote-work options, workers had the option to work from anywhere; they aren’t restricted by the length of a morning commute. So people who only need to go into New York City once a week or less may be moving to Connecticut and other parts of New England, Cohen added.
That rush to purchase homes created a lack of supply, and the prices of existing supply rose.
Additionally, interest rates are at a near-historic low. And Connecticut’s growth could be viewed as the state catching up to the rest of the region; over past years as people migrated out of Connecticut, home prices were typically lower, Cohen said.
The state is also an attractive area for buyers looking to purchase second homes, said Richard Ferrari, president and chief executive officer for real estate firm Douglas Elliman’s northeast and New York City regions.
“Connecticut is a small state, but it’s a large state when it comes to real estate,” Ferrari said.
Properties are flying off the market as quickly as 10 days after listing, if they’re priced correctly. Before the pandemic, it typically took 60 to 90 days to sell a property, Ferrari said.
Tammy Felenstein, president-elect of the Connecticut Association of Realtors, said before the pandemic, she typically had about six months of housing supply available for sale. Now, it’s closer to two months.
She’s seen many millennials looking to purchase a home, some for the first time, as work-from-home starts to appear more permanent than anticipated.
“I think the big question mark was ‘Were companies going to ask people to come back full time?’ We have not seen that yet,” Felenstein said.
Interest rates are another important factor that determines whether people opt to buy a home. Lower interest rates mean that potential buyers can get mortgages for cheaper, Felenstein added.
“Interest rates are a big driver, and then there’s no way to predict exactly when interest rates are going to start to rise again although there’s been some signs the Fed [Federal Reserve] is going to take some action soon to start to increase interest rates,” Cohen said.
Mortgage rates are derived based on a variety of factors including credit scores, inflation and other economic indicators. They usually move in tandem with the Fed’s interest rates.
Ferrari said while changes to the interest rate would likely slow the rise in numbers of people looking to buy houses as well as the price of homes, he doesn’t anticipate any drastic changes anytime soon.
As some homeowners face foreclosure following the end of a federal foreclosure moratorium and expiration of forbearance options, sale prices on those houses could drop, Cohen said.
The Federal Housing Administration’s foreclosure moratorium ended July 31. The government gave homeowners the option to go into forbearance - a temporary freeze on mortgage payments - for up to 18 months, but those options are beginning to expire.
“I think there will be at least a small wave in foreclosures coming up,” he said. “And one of the problems with foreclosures is that people who are in forbearance or on the road to foreclosure, oftentimes they don’t keep them up as well. Those may be sold for less because they need a lot of work.”
But Ferrari said he thinks that will have only a small effect. Many foreclosed houses are sold for a second time within a few months because the initial buyer will renovate the property to sell for a profit, he said.
“I think that there’s enough demand overall that even if there are houses that hit the market that are distressed that they will be bought up quickly,” Felenstein said.
After the Supreme Court’s order saying evictions can begin again following months of a pause on many evictions for nonpayment of rent, more apartments might be empty in the coming weeks, Cohen said.
The Centers for Disease Control and Prevention instituted the eviction moratorium in September 2020, and a Supreme Court ruling late last month allowed evictions to begin again.
As apartments and single-family rentals empty from evictions, some people may decide to wait to buy a home because they can move into the empty units, Cohen said.
Ferrari said as the general economy's welfare improves, he expects to see the trend of housing prices increasing to continue for some time before levelling off and decreasing slightly. He doesn’t anticipate a major drop.
The average house prices have been increasing for 40 quarters straight, since September 2011, according to the Federal Housing Finance Agency.
But uncertainty as case numbers due to the Delta variant rise means the economy is hard to predict, Cohen said.
it’s impossible to tell really what’s going to happen three months from now, six months from now with covid.
“I think the fact that there’s a lot of uncertainty with that means there’s going to be a lot of uncertainty with the housing market,” he said.
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