CHFA’s Quarterly Housing Market Rundown: Q3 2022
Sep 09, 2022
With another quarter behind us, the Intersect presents the third issue of the CHFA Quarterly Housing Market Rundown. In this issue, we reflect on the first six months of the year while providing a peek into what’s to come for Connecticut’s economy and housing landscape.
Low Vacancy & High Demand Continue in the Rental Space
Despite new units being delivered to the rental market, Connecticut continues to see strong rental demand resulting in significant rent growth and low vacancies. New Haven County has added some 2,200 rental units over the past three years, a cumulative inventory expansion of 6.5 percent according to CoStar. Over 1,160 rental units have come online in Fairfield County over the last 12 months, with some 2,700 units currently under construction. Yet with so many units coming online, vacancy continues to remain low across the state.
While pre- pandemic vacancy rates in the Hartford Metropolitan Statistical Area (or MSA, which includes Hartford, Middlesex, and Tolland Counties), hovering around six percent, they have dropped to a just over three percent during the second quarter of 2022. Other rental markets in the state have also experienced lower than average vacancy rates. According to CoStar, New London County has a vacancy rate of 2.4 percent while Fairfield County’s vacancy rate stands at just over 4 percent. New Haven County’s vacancy rate is higher than the rest of the Connecticut's rental markets, however, at 5.3 percent it is still in-line with the county’s 10-year average. While vacancy rate among market rate apartments statewide is low at around 3 percent, the demand for affordable income restricted units is strong, with a vacancy rate at just 2 percent during the last quarter.
Rents Continue to Go Up!
Increased demand and limited rental unit inventory has resulted in some significant increases in what households are paying in rent. According to CoStar, the Hartford MSA’s annual rent growth went from three percent in 2020 to seven percent during the third quarter of 2022. In Fairfield County, over the last 12 months strong demand for rental units has resulted in an 8.2 percent increase on asking rents. However, the highest rent growth in Connecticut over the last year has been in New London County, with an 11.5 percent annual rate increase in the third quarter of 2022. This is despite the county’s seeing nearly 800 new rental units delivered to the market over the last three years and an additional 400 units currently under construction.
One of the drivers for the increased demand for housing in the state has been strong economic growth over the last year. According to the Connecticut Department of Labor, the Hartford MSA gained some 13,800 jobs, a 2.5 percent increase over the last 12 months. New London County has also posted similar rates of job growth of around 2.3 percent. Additionally, the state’s unemployment rate is low at just under four percent. Connecticut’s low unemployment rate coupled with job creation, has resulted in a tight labor market that is attractive to those seeking employment from out of state.
High Prices and Low Inventory Remain for Homebuyers
In the last issue of the market rundown, we reported that Fannie Mae had predicted a continued rise in home prices throughout the second quarter. This prediction has held true as the median sales price of homes in the state rose steadily between April and June. The median sales price for a home in Connecticut was $275,000 in January compared with $332,500 at the end of June; a 20% increase from the beginning of the year. Experts are predicting a slow cooling of prices as we enter the third quarter; however, data on residential sales prices for the first half of July shows prices remaining high.
Source: The Warren Group
Rising interest rates in the 2nd quarter have brought the cost of a monthly mortgage payment up by as much as 50% nationally. However, looking at the median home sale price in Connecticut demonstrates that the state has yet to see quite the same increase. In the 2nd quarter, the median sales price in the state was $315K. At a 2.75% interest rate the monthly payment for such a loan would be approximately $1,500 compared to over $1,900 with current interest rates over 5%. An approximate 27% increase well below the national average. As such, rising interest rates seem to be having an overall smaller effect on reducing prices within the state, at least for now.
Between April and June of this year, Connecticut saw record turnarounds in homes listed for sale, with the median time between a home’s listing and pending sale lower than at any point in the last four years. In the 2nd quarter of 2018, the median time between listing an pending in Hartford County was 33 days; four years later, this number was down to just six days.
The second quarter saw an uptick in inventory, although overall rates continue to be historically low across all Connecticut metros. This uptick is consistent with the traditional spring and summer home buying season which is cyclical in nature. However, as shown in the chart below, inventory has been on a stark decline since the end of the 2019 buying season.
While the news of late has emphasized the pandemics’ effect on record low inventory rates, such a decline was originally triggered by the Great Recession in 2007. At the time, housing prices plummeted, and the next 15 years has seen a very slow recovery in the market. In fact, the number of mortgages originated within the state each year did not reach pre-recession levels until 2020. As noted in the chart below, construction of new 1-4 family units also decreased rapidly in the wake of the market crash and have remained below pre-recession levels ever since. These conditions, coupled with historically low interest rates which enticed borrowers to enter the homebuying market has resulted in historically low inventory and high home prices in recent years.
Trends to Watch
Entering the third quarter, analysts across the industry are anticipating an upcoming cool down for the housing market. According to Selma Hepp, the chief economist for CoreLogic, “With the cumulative impact of higher mortgage rates, increased home prices and fears of recession, housing-market activity has already taken a significant dip. Slower demand is likely to continue throughout the third quarter, which will be characterized by year-over-year declines in home sales as well as slowing of home price growth on a year-over-year basis. We will likely see more price reductions, too, partly due to seasonality, but also as sellers contend with the reality of slower buyer demand.”
Len Keifer, deputy chief economist at Freddie Mac, concurs with Hepp, tweeting that the U.S housing market is expected to see decline in the coming quarter. The number of mortgage applications nationwide had already dropped by about 40% at the beginning of June. However, Keifer does not anticipate a “bubble burst” as some in the industry have feared. Rather, he anticipates a slow and steady decline in home prices as the market begins to moderate itself as a result of rising interest rates.
How quickly this trend might reach Connecticut is up for debate, particularly given the moderating effect of low inventory within the state. A recent analysis of the top 100 U.S metros conducted by RedFin found that Bridgeport and New Haven ranked amongst the slowest cooling metros in the country as relates to changes in inventory and price drops through the first half of the year. As we approach the final months’ of 2022 we will be keeping an eye on key market indicators, such as increased days on the market, listing price drops, and cancelled contracts to assess just how much CT’ housing market is cooling compared to the rest of the country.
Stay tuned for the Quarter Four 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 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.