By now, everybody knows — or at least thinks — that the U.S. housing market has become a howling wasteland of plummeting home values and financial collapse. And those who’ve been paying attention know that Connecticut, in contrast, has been largely sheltered from that turbulence.
Connecticut seems to have avoided serious disturbance partly because the Nutmeg State didn’t engage in the homebuilding frenzy that happened elsewhere. Consequently, it doesn’t have a load of extra inventory dragging down its market.
But hold off on any celebrations.
“In the short term, it’s good news. In terms of the growth of the state of Connecticut, it’s bad news,” said Nick Perna of Perna Associates and a member of Gov. M. Jodi Rell’s new economic task force. “The good news is, we didn’t build a lot of houses. The bad news is, we didn’t build a lot of houses.”
Connecticut built about 9,000 new homes in 2006, putting it 49th in terms of per-capita homebuilding nationally, according to the U.S. Census Bureau.
For the past few years, homes have been climbing in value and buyers were plentiful, so builders — particularly in places like the southwest, the Carolinas and Florida — dove in. The bust has since left them with an overstock of houses. But Connecticut builders never did climb on the development bandwagon.
Incentives Lacking
Economists and housing advocates point to several reasons. David Fink, policy director for the Connecticut Partnership for Strong Communities, a housing advocacy group, mentioned a lack of state subsidies for homebuilding. Perna mentioned the comparative lack of available land. But they and others say the biggest likely factor is restrictive zoning laws, backed by towns who don’t want to see new developments going in.
Those factors were enough to inoculate local developers from homebuilding fever.
“We never got to the point where we saw the amount of growth in other areas,” said Don Klepper-Smith, chief economist for professional services firm DataCore Partners, and another member of the Rell’s economic team. Instead of a crash, Connecticut’s housing market is seeing “an orderly step-down.”
The median price of single family homes in Connecticut rose 4.9 percent during the month from $286,000 in August 2006 to $299,900 this year. The year-to-date median price for single-family homes is up 2.1 percent from $280,000 during the first eight months of 2006 to $286,000 this year.
Single-family home sales fell 1.8 percent in August from 3,921 last year to 3,849 this year. Year-to-date sales are down 3.7 percent from 25,682 last year to 24,727 this year.
Bouncing On The Sidewalk
Although slightly fewer people are buying homes this year, Connecticut real estate’s desirability isn’t faltering,” said Timothy Warren Jr., CEO of The Warren Group. “Prices continue to rise in counties all across the state, although they’re not rising nearly as quickly as they were three to five years ago. It’s the definition of a soft landing.”
But the factors that have helped insulate housing prices could spell serious trouble for the state later, the economists said. Housing costs are staying high, few new units are coming online, and that means fewer places for future generations or potential transplants to the state. Fink worries that such conditions will make more workers leave the state, depressing the economy just as the baby boomer retirement wave hits and creates a major employee crunch across the nation.
“If the rest of the country is going down, then Connecticut home prices are moving further and further out of whack with the nation, and therefore it’s uncompetitive,” Fink said.
Other states’ markets are hurting because of lower residential prices now, he said, but those same conditions may actually help with their recovery as young workers move someplace where they can buy up housing cheaply — and employers will follow, making a bad situation worse.
But Edward J. Deak, another Rell adviser and professor of economics at Fairfield University, brought up a familiar refrain: Connecticut’s fiefdom-like system of towns means each community has a different situation — so while the state’s numbers often look all right, many areas are struggling in the current market.
High-End Homes Still Hot
Connecticut’s high-end homes are still high-value and still selling quickly because those buyers have enough cash to ride out the storm, he said, but other markets aren’t faring as well.
Plenty of real estate agents have had to lower prices, he said. And while the lack of building helped buoy the state’s market, there has been some increase in available housing from foreclosures and homeowners dumping houses on the market after being unable to pay the mortgage.
Klepper-Smith of DataCore Partners said Connecticut’s home market is likely to stay soft through 2008 and possibly into 2009, but that’s no excuse for developers to throw up their hands.
Now is the ideal time to be looking into new developments, he said. Because building cycles take two to three years, projects in formation now will likely come to fruition when the market is on the upswing.
“Now is the time to be planning,” he said.
