National Housing Trends Echoed in Connecticut
FED RESERVE
The New London Day
Renée Dudley
Boston University Washington News Service
14 February 2007
WASHINGTON, Feb. 14 —Local housing officials say Connecticut is on pace with what Federal Reserve Chairman Ben Bernanke called a “substantial cooling” of the nationwide housing market.
Bernanke, addressing the Senate Banking, Housing and Urban Affairs Committee Wednesday, said the housing market is a mixed bag: on one hand showing signs of “stabilization,” including a steadying of new and existing home sales and an increase in mortgage applications, and on the other hand showing a decline in construction as developers try to unload property already on the market.
Bernanke also said delinquency rates for subprime mortgages, high-interest loans given
to buyers with poor or no credit histories, have “increased appreciably.” Committee
chairman Thomas Dodd (D-Conn.), who held a committee hearing last week on
predatory lending, said during Wednesday’s hearing that he intends to follow-up
with Bernanke on this issue.
Terry Egan, editor-in-chief of Commercial Record, a magazine that tracks real estate, said the housing slowdown could actually benefit consumers.
“One way to look at this is as a necessary correction,” Egan said in a telephone interview. “Prices will pick up once the level is in reach of homebuyers. It’s an overdue cyclical adjustment of the housing market.”
One reason that market has been slumping, he said, is because over the past several years home prices throughout New England have risen faster than incomes, and buyers are being “priced out” of the housing market.
“A lot of buyers are waiting for the market to adjust and to allow home buying to come back in reach,” he said.
Egan said the slowdown in New England home sales has been more dramatic than the national trend because home prices in New England are higher.
“The higher the prices go, the further they have to drop,” he said, adding that the number of home sales in Connecticut has slowed dramatically over the past year and that average prices throughout the state have been flat.
The National Association of Realtors reported that nationwide sales of existing homes dropped 8.4 percent over the past year while the median house price rose by 1.1 percent, which is roughly on pace with the trend in Connecticut.
Jim Cronin, president of Dime Bank in Norwich, said he first noticed the housing slowdown over this past summer. “It’s a matter of supply and demand…. The supply is now growing,” he said in a telephone interview.
But Cronin also noted that an “affordable housing crisis” has resulted in a decrease in the purchasing power of the traditional middle class.
“People can’t afford homes because they are not at a middle-class level,” he said. “It’s a national phenomenon that we in Connecticut are not excluded from.”
Job opportunities at Pfizer and the casinos have over the years contributed to an influx of people to the area as well as an increase in the demand and cost of housing, Cronin said.
“Two years ago, people were giving more than the asking price,” he said, estimating that the average price for a home in Southeastern Connecticut is now about $235,000.
Peter Levine, a New York-based developer,- said the recent slump in the housing market has not discouraged him from investing in New London. “Southeastern Connecticut has the jobs, and they need the housing,” he said in a telephone interview.
The current speculation, Levine noted, is that homeownership became prohibitively expensive, driving people to rent. “Most of the talk about housing has to do with the single family housing market,” he said. “The market for multi-family apartments has not been affected and the rental market has not suffered.”
Egan said that condominiums follow the same trends as single-family homes, with a slight lag.
“After a run-up in home prices, people turn to condos,” he explained. “Then that market heats up and the single-family market cools off and the condo market follows.”
Bernanke said that the “reduced affordability” of owner-occupied housing over the past year led to greater demand for rental housing and therefore a faster pace of rent increases. He said rents should rise less quickly over the next two years, reflecting increased homeownership and an increased supply of rental units.
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