Higher rents and pent-up demand for homeownership could help spell some good news for Connecticut’s housing market.
After years of increased rental demand following the 2008 financial crisis, two-thirds of the 600 renters recently surveyed by the Connecticut Housing Finance Authority (CHFA) say they are “very or somewhat interested in owning their own home.”
The findings don’t necessarily mean renters are rushing to buy real estate, but there are signs Connecticut’s housing market is heating up.
Hartford area single-family homes sales, for example, shot up 15 percent in May, following a similar increase in April, according to the Greater Hartford Association of Realtors (GHAR).
Homeownership has long been a goal in the United States and Connecticut, but economic forces since 2008 have kept many people out of the housing market. High unemployment has led to a feeling of insecurity, particularly for recent grads. That, combined with declining home prices and tightened lending standards, resulted in tepid housing and hot rental markets.
But Greater Hartford rents, experts say, may be reaching a tipping point just as interest rates are showing signs of increasing, which could drive unsure renters into the housing market for the first time.
“My sense is that most people that are in a renting situation have some aspiration for homeownership,” said Eric Chatman, president and executive director of CHFA, the state’s housing finance arm.
Chatman said CHFA’s recent first-time survey, which polled 600 Connecticut renters between April 8 and May 2, confirmed his expectations that renters are itching to get back into the real estate market.
He acknowledged, however, since the housing market collapse of 2007, demand for CHFA loan products has declined dramatically. CHFA offers loans to first-time homebuyers that are below market rates, as well as loans to cover down payments so qualified borrowers can finance up to 100 percent of a loan.
When market interest rates were higher, CHFA loans were attractive because they were cheaper. But after the housing market collapse, interest rates fell so low that, “the rate differential declined, so our mortgages have not been as attractive.”
The fact that fewer people were interested in purchasing a home didn’t help either, he said.
Now, however, the housing market is showing signs of life.
In May, there were 922 Greater Hartford home sales, up from 801 sales a year earlier, according to GHAR.
And the median price for a Connecticut single-family home was up 9.3 percent in the first quarter reaching $235,000, according to Boston real estate tracker The Warren Group.
Meanwhile, median rents in Greater Hartford were up 8.1 percent in June reaching $1,200 per month, according to online realty tracker Zillow.com.
The trend lines could point some renters in the direction of buying.
For example, the average home price in the Hartford area is $209,000, according to Zillow’s estimates. That price would equate to a monthly mortgage payment (excluding taxes) of $848 if the buyer has good credit, puts 20 percent down and gets a 30-year mortgage at an interest rate of 4.5 percent.
Of course, in some swankier suburbs, homes list for much more, driving up that mortgage payment and making renting more attractive. Also, saving up enough to put 20 percent down is seen as a major obstacle to a majority of renters in the state, according to the CHFA survey.
Mary Ann Hebert, president of the Connecticut Association of Realtors and broker/owner of Bannon & Hebert Properties of Middlebury, said she is seeing increased demand from first-time homebuyers. But there is also hesitancy among of homeowners to put their houses on the market for fear that they won’t get the prices they need or want.
“The housing inventory is scarce,” she said. “We are not seeing a lot of inventory. Certainly not as much as we can use.”
Hebert suspects that many homeowners have been waiting out the market and turning to refinancing their mortgages to lower monthly payments. That corner of the market has been very active and still makes up a majority of the mortgage business nationally, according to the Mortgage Bankers Association (MBA).
Hebert said she also works with people looking to rent, and has seen competition in that part of the market as well. For example, she said she has a client with a perfect credit history who can’t find an apartment because she isn’t willing to part with her two cats.
Landlords, in many cases, are wielding a lot of power, she said.
Marie Mazzotta, president of Konover Residential Corp., a division of West Hartford’s The Simon Konover Co.), says she still sees a strong rental market, despite what’s happening with interest rates.
“I think when all the interest rates went down (after the housing market crash), we saw a lot of renters opting to buy houses at that time,” she said. “Now, the reason that they’re moving out is not because they’re buying a home. It’s because they are making a move across the country for a job.”
Konover manages 5,000 rental units, including 1,500 to 2,000 in Connecticut. About a quarter of those apartments are affordable, while the remaining units are market rate.
Mazzotta said in areas where the local economy is stable, the rental market is still strong, with high occupancy rates and rental increases. These include Konover-managed properties in Rocky Hill and Manchester.
“We’re no longer doing concessions,” she said. “That’s a nice feeling.”
But in areas where large employers are downsizing, rents are faring more poorly. Konover’s properties in New London have much lower occupancy rates than in the Hartford region because of cutbacks at the two casinos — Mohegan Sun and Foxwoods — and the Groton sub base, Mazzotta said.
