CHFA’s Quarterly Housing Market Rundown: Q1 2023
Apr 21, 2023
The first three months of the year have come and gone, which means it’s time for the Intersect’s next edition of the Quarterly Housing Market Rundown! In this issue, we unpack what we’re seeing so far this year in the single and multifamily markets. We also dive into Home Mortgage Disclosure Act data to understand what might be preventing potential homebuyers from getting a mortgage. Finally, we introduce a new trending topic: helping renters build their savings.
Single-Family Inventory Hits an All-Time Low
Since the introduction of this blog series, CHFA has been tracking and reporting on the continuous decline in residential properties available for purchase. Inventory reached all-time lows in the first quarter, with less than 3,500 residential properties on the market as of February. The lack of inventory on the market has continued to impact the sales prices and turn-times on properties that do become available. Based on sales data from the first quarter, the median residential sales price for a single-family home was $275,000. While down from a high of $330,000 in mid-2022, the median first quarter sales prices still exceed pre-pandemic levels. One month before the onset of the pandemic in March 2020, the median residential sales price was $216,000, or 21% less than in 2023. Further, nearly half of all home sales in the state sold above list price, compared to 22% nationally.
Source: Warren Group
The state continues to see quick turn-times on property sales, with most for-sale properties getting under contract in less than 30 days; nationally the turn time is 52 days. Based on these measures it appears that Connecticut’s housing market continues to cool at a slower rate than other regions. As seen in the map below, the majority of CT counties have seen negative year-over-year inventory growth compared with positive growth in nearby states. Continued cooling will be heavily dependent on what the spring home-buying season brings. If enough Connecticut homeowners decide to put their houses on the market, the increased supply could result in price reductions. However, given that interest rates continue to be high, there is uncertainty as to whether current homeowners, the majority of whom have rates under 4%, will give up their low rates.
Source: Realtor.com -- 2022 vs. 2023
Home Mortgage Disclosure Act
Passed by Congress in 1975, the Home Mortgage Disclosure Act (HMDA) requires certain lending institutions to report on information related to all mortgage loan applications. This law is meant to help regulators assess whether or not a lending institution is adequately serving the community where it’s located and if there have been any patterns of discriminatory lending. HMDA data is released annually by the Federal Financial Institutions Examinations Council (FFIEC) and typically lags behind the current year. Presently, complete data is available through 2021, with full year 2022 data anticipated to be released mid-2023.
CHFA has collected and analyzed ten years’ worth of HMDA data to identify barriers to homeownership. Over the last ten years, just over 9% of all mortgage loan applications have been denied. Historically, the top reason for a home mortgage loan denial has been debt-to-income ratio; indeed, 26% of all denied loan applications listed high debt-to-income ratio as the primary reason for denial. Most traditional lenders look for debt-to-income ratios of less than 30%, which may impose obstacles on low- and moderate-income prospective homebuyers. Millennial college graduates may also face increased likelihood of denials due to higher debt-to-income ratios. In Connecticut, the average student loan debt exceeds $35,000 and a majority of those in debt are under the age of 35-- historically the median age for homeownership in the state. As these graduates begin to seek out homeownership they may find their debt-to-income ratios are a barrier to a mortgage.
Similarly, poor credit history represents the primary reason for about 18% of all loan denials. This number rises when looking at Black loan applications, for which a quarter of all denials can be attributed to poor credit history. To learn more about barriers to homeownership among BIPOC communities, check out CHFA’s 2021 report on Equitable Homebuying.
Source: Home Mortgage Disclosure Act – 2010-2021
Interestingly, insufficient cash for down payment or closing costs represents only 2.49% of all loan denials. This is primarily influenced by two factors. First, Connecticut has many robust down payment assistance programs including those offered by CHFA. These programs enable homebuyers to come to the table with more cash, increasing their competitiveness, particularly in this tough housing market. The abundance of down payment assistance options aside, the other factor influencing the low number of loan denials related to insufficient funds is that households without any savings are less likely to apply for a mortgage to begin with. In this way, lack of down payment or closing cost savings as a barrier to homeownership may be under-represented in the HMDA data.
Stay tuned for a deeper analysis of Home Mortgage Disclosure Act data later this year.
Multifamily Market Spotlight: New Haven
Throughout the year, the Rundown will take a closer look at some of Connecticut’s larger housing markets. This quarter, we are highlighting the New Haven Metropolitan Statistical Area (MSA) which includes Branford, Cheshire, East Haven, Guilford, Hamden, Meriden, Wallingford, Milford, Orange, New Haven, North Haven, Seymour, Naugatuck, Ansonia, Waterbury, Middlebury, and West Haven. For purposes of this section, MSA and market are used interchangeably.
In January, CoStar Group forecasted a steady increase in vacancy rates across Connecticut markets, however the first quarter saw a dip in vacancy across the state. Vacancy rates remain lowest in the New Haven market with 4.8% vacancy, down from 5.7% at the end of 2022. This metro also saw 2% job growth in the first quarter, representing over 7,000 new jobs. This increase in employment activity, coupled with decreasing vacancy rates, emphasizes the strong market activity in the New Haven area and demand for housing across towns.
The asking rent for the New Haven market as a whole in the first quarter was $1,651, up just slightly from year end 2022 but there is some variation within the submarkets of the MSA. For example, asking rent per unit in Milford/Orange is $2,145 per month, significantly higher than in nearby Branford where asking rent per unit was just over $1,600. CoStar predicts that asking rent will rise slightly throughout the year but that year-over-year rent growth will decline from 3% to 2.5% by year end. The New Haven market has the second highest asking rents in the state, behind the Stamford market.
Based on the median asking rents in this market, households earning between 0-30% area median incomes (AMI) are likely to be very cost burdened. In order for a household to comfortably afford rents in this market they would need to earn at least $60,000 a year in order to avoid spending more than 30% of their income on housing costs. The Intersect will be further exploring this concept in an upcoming series called “Affordable for Whom?” where we will dive into Bureau of Labor statistic to understand how housing affordability varies across occupations and incomes in the state.
Trend to Watch: Building Savings for Renters
In March, National Council of State Housing Agencies (NCSHA) held a forum on advancing Racially Just Housing Systems which covered topics from establishing special purpose credit programs to how housing finance organizations and developers can better position renters to build both their savings and their credit. One such program is the Family Self Sufficiency program, operated by HUD and administered through public housing agencies. The FSS program addresses one major pitfall of income driven programs: the fact that as household income rises, so do rents, which can prevent households from retaining increased income. As a result, there is little incentive for a household to try and increase their income. For properties signed up for the FSS program, when tenant income and rent rise, instead of pocketing the rent increase, housing authorities place these extra funds in an escrow account for the tenants. After five years the renters have access to these extra savings.
This is an excellent way to help lower income families build savings. However, speakers at the NCSHA event say this program is vastly underutilized, with only 3.2% of the 2.2 million eligible households across the U.S utilizing the program. Looking to Connecticut, it appears that only ten of the state’s 50 public housing authorities offer this program to their residents who utilize Section 8 vouchers. A recent amended rule from HUD will expand the program to additional non-housing authority administrators who utilize project based rental assistance at their properties, which may enable greater participation. As discussed during the event, the opportunity to build savings shouldn’t be limited to higher income households alone. The development of specific tools to help low-income families create savings and eventual wealth is necessary in the quest for economic and social equity.
Stay tuned for next quarter as The Intersect continues to bring you details on the housing trends to watch. Interested in a personalized presentation on the housing market to your team? Have questions or insights you’d like to share? Send a message to email@example.com to get in touch.
Kayla Giordano is a Senior Program & Data Analyst in the Research Marketing and Outreach department. She holds degrees in Political Science and Economics from Eastern Connecticut State University as well as a MA in Community Development Policy & Practice from the University of New Hampshire.