CHFA’s Quarterly Housing Market Rundown: Q2 2022
May 24, 2022
With the first quarter behind us, the Intersect is back to bring you CHFA’s Quarterly Housing Market Rundown. In this issue we provide an update on Connecticut rental markets and discuss the frenzied single-family market as we enter peak homebuying season.
Demand Remains High
The rental market in Connecticut remains strong over the first quarter of 2022. Since the beginning of the pandemic, the state has experienced significant rent growth, with asking rents increasing from 6.7% in the Stamford market (encompassing all of Fairfield County) to as high as 10.3% in the Norwich-New London market. With the addition of nearly 800 new units (a cumulative inventory expansion of 8.3%) over the past three years, the Norwich rental market has seen rents increase at an average annual gain of 5.7% during that time.
While the rate of rent increases may have potentially leveled off over the last few quarters, the growth remains significantly high. Within the Hartford rental market (which includes Hartford, Middlesex, and Tolland counties) higher-rated properties have seen the highest rent gains. However, even lower classified properties, such as those 1- and 2-star-rated buildings, have seen collective rent gains of 5.6% over the last year. Such buildings are considered below average in quality, with small windows, aging exteriors, and may require significant investment in renovation to prevent obsolescence. According to CoStar, a commercial real estate information firm, all of Connecticut’s rental markets will continue to see rents rise for the foreseeable future.
Multifamily Rental Production
Connecticut’s rental unit development began to rebound in 2012 from the fallout of the Great Recession. Over the last five years, the Hartford and Stamford rental markets have seen the highest number of units under construction with significant growth in the New Haven rental market in the last three years. In addition to the 920 units currently under construction in the New Haven market, some 2,000 units have been delivered over the past three years, second only to the Stamford market in units-delivered during this period.
Indeed, according to CoStar, the Stamford market has one of the fastest-growing multifamily markets in the nation, with inventory expanding by roughly 50% since 2010. Additionally, the Stamford market reached a three-year high with more than $500 million in multifamily rental property sales, with proximity to New York City and easily accessible transit being major factors to the market’s strength.
Single Family Home Prices Soar
In last quarter’s Rundown, the hot home-buying market was flagged as a trend to watch. This tight market shows little sign of slowing down. Zillow data from the first quarter of this year shows home value increases have been widespread in Connecticut, in some places up 50% compared to the value in January of 2020. In its 2022 March Housing Forecast, Fannie Mae predicted that the average median home price in the United States would increase by more than 8% between the first and second quarter of 2022.
Low inventory across the state has made the market that much more competitive. According to Zillow inventory data, the average number of unique CT home listings in the last quarter of 2019 was 20,000. In the first quarter of 2022 that number had dropped to just 6,500. This low inventory has forced buyers into practices normally advised against by experienced real estate agents including waiving inspection periods and offering thousands of dollars over asking price in order to be competitive.
In an effort to cool off the economy and lower inflation, interest rates steadily rose through the first quarter and have peaked at over 5%, the highest rates seen since 2009. Unfortunately, lack of supply mitigates the effectiveness of rising interest rates in bringing down home purchase prices. While the purchasing power for low- and moderate-income homebuyers may be diminished, causing decrease in competition, middle- to high–income buyers are less likely to be deterred from purchasing because of rate hikes. And with supply still so limited in the state, buyers determined to find a home this season can expect steep competition and a market firmly in favor of the seller.
CHFA Lending on the Rise
The first quarter of 2022 saw a significant uptick in CHFA lending activity compared to the same time the previous year. Single family originations for first mortgage programs were up 51% and up 47% for down payment assistance programs over the first quarter of 2021. And despite rising interest rates, the average home price for the CHFA buyer continues to be on the rise. The first quarter saw an average home price of $233,300 for first-time homebuyers, an increase of 5% compared to Q4 2021 and 15% compared to the start of 2021.
Trends to Watch
With predictions that the single-family market will continue heat up throughout the second quarter, the first-time homebuyer profile is certainly a trend to watch. The average age of the first-time buyer at CHFA in the past five years is 35. However, the average age in the first quarter of 2022 is slightly higher, at 37. Consistent with this is an increase in the median income of the CHFA first-time homebuyer. The median income for borrowers is 8% higher in Q1 2022 when compared to the five-year average. Given the competitiveness of the market, it would make sense that older, moderate-income homebuyers would be at an advantage in Connecticut. To follow this trend, and learn more about CHFA’s borrowers, visit the CHFA Homebuyer Profile dashboard.
Stay tuned for the Quarter Three market forecast where the Intersect will provide updates on all things housing. Have questions or insights you’d like to share? Send a message to firstname.lastname@example.org to get in touch with our team.
Get the next report sent right to your inbox! Visit www.chfa.org/signup and select the "The Intersect - CHFA's Housing Research Blog."
Jonathan Cabral is a Manager in the Research, Marketing, and Outreach department where he investigates the intersection of housing policy, planning and economics. He is a certified planner and holds a BA in International Studies and an MA in Public Policy from Trinity College. He is currently a PhD student of Geography, studying urban planning and policy at Birkbeck, University of London.
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.