Housing is anticipated to remain the bright spot in the Connecticut economy, with 2003 home sales only slightly below the record year of 2002. This home at 13 Willow Road in Branford, priced at $299,900, is representative of the state’s booming new-construction market.
While a government agency is reporting that housing permits are down, some parts of the state are showing signs of high activity, and economists are pointing to real estate as a high point of the Connecticut economy.
Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development recently announced that Connecticut communities authorized 856 new housing units in April of this year, representing a 19.3 percent decrease compared to April 2002, when 1,061 units were authorized.
Some Realtors, however, argue that those numbers might not necessarily reflect market demand.
“The new-construction market has been very, very hot,” said Cash Mitchell, manager of H. Pearce Co.’s Guilford office and a vice president of the firm. “If there is a problem with new construction, it’s that it’s extremely expensive. The price of new construction is directly related to cost of land and you simply can’t find building lots that are reasonably priced.”
The DECD further indicated that the 856 units permitted two months ago represent a 42.7 percent increase from the 600 units permitted a month earlier. The year-to-date permits are down 16.9 percent – from 3,057 through April 2002 to 2,539 through April 2003.
Compared to March permit data, the Hartford, New Haven and New London labor market areas showed the highest gains – 82 units, 45 units and 42 units respectively. For year-to-date, the labor market area in Danielson is the only LMA to show an increase in permit authorization.
According to DECD figures, housing permits in Danbury’s labor market area are down 48 percent, followed by the Waterbury area, which saw a drop of 37 percent and the New Haven area, in which permits dropped 31 percent over the last year.
The Hartford labor market area is down 4 percent.
Avon led all Connecticut communities with 37 new units, followed by Wallingford with 22 and Bristol with 21. From a county perspective, Hartford County had the smallest year-to-date loss of 4 percent.
Picking Plums
Mitchell noted that builders are continuing to build larger houses in search of larger profits, and customers are seemingly willing to pay.
“Even big developers who purchase lots [and] do their own subdividing and site work are paying astronomical amounts of money for big tracts of land,” said Mitchell.
He added that his office has a subdivision in Guilford with 12 lots that sold out entirely in less than eight months.
“This was a ground-up development. We sold out without model homes or anything,” said Mitchell. The price range for the homes was between $420,000 and $525,000.
“Although that’s a lot of money, they have sold out like hotcakes,” said Mitchell. “It sounds crazy that it’s affordable, but many of the buildings in this area are going for upward of $700,000 and $800,000 or even higher. And these are buildings off the water, in the interior. They’re nice locations but certainly not premium.”
In the East Shore area much of the land already has been purchased and used for building, while a good deal of the land is utilized for farming or is held in trusts and not for sale.
“They ain’t making any more land, and a lot of the premium land has been picked over the years,” said Mitchell. “What’s left is typically rocky, wet, near major intersections or highways or, in other words, less desirable because all of the plums have been picked.”
Much of the new construction in the area is being developed to the north, away from the coast, because that is where most of the land remains. On the waterside of the Guilford area, land is scarce, and when it is available it’s very expensive. Lots alone typically go for at least $300,000.
Despite rising prices, however, the new houses and parcels are still selling at rapid rates.
“There always has been and always will be a percentage of the buying market that will exclusively want new construction and won’t compromise for anything less,” said Mitchell. “New construction usually sells pretty well. If interest rates went through the ceiling that would have an effect, but price inflation hasn’t slowed things down.
“A few years ago you could buy an affordable house in Guilford with $300,000, but now houses are going for twice that and you wonder where the heck the top is. Clearly we’re not in Fairfield County, but it’s starting to feel like it these days.”
A good percentage of those purchasing new homes in the area are corporate relocations. Many are relocating from Fairfield County, where home prices are already significantly high.
“If you’ve just sold your house in Darien for $2 million, this will seem inexpensive by comparison,” said Mitchell. “The people coming in don’t blink at the prices because they’ve always seen prices like this.”
Realtors are constantly looking for land for builders and developers, and often developers will purchase large lots and hold onto them until the housing cycle is in their favor, as it is currently.
H. Pearce has another subdivision on the Madison side of Guilford that was subdivided roughly four months ago. The subdivision consists of 27 lots away from the ocean. In the first three months of marketing, 20 of the 27 lots were purchased – many of them being sold on paper with renderings and blueprints.
“These things are just going up like dandelions, and I guarantee they’ll all be sold. I’m sure by the latter part of the summer they will all be sold, and they’re starting at [the high end of the] $400,000 and $500,000 [ranges]. A couple are going for $850,000. It’s just amazing to us, the people here in mainstream of real estate, living here and selling here. It’s a sensational time out there for building.”
The DECD also has received a slew of economic indicators to watch out for in the coming quarters. Notably, the unemployment rate is at 5.3 percent, representing a 1.1 percent increase over the same period last year.
New auto registrations are up 12.8 percent, but business starts are down 9.3 percent. There were 1,339 business terminations in April of 2003 – a 191 percent increase over last year.
According to Edward Deak, Connecticut forecast chairman of the Westborough, Mass.-based New England Economic Project and professor of economics at Fairfield University, forecasters have predicted a continuing contraction of Connecticut’s economy through the remainder of 2003, but a modest recovery appears likely in 2004 with an accelerated rate of expansion in 2005.
The state’s employment rate is expected to decline through at least the third quarter of 2003, although employment too should rebound slightly next year.
Deak noted that in individual sectors manufacturing jobs will continue to dip, dropping down by 7,100 in 2003 and 1,400 in 2004. However, strong defense orders and the falling dollar should stabilize manufacturing in 2005. Housing is anticipated to remain the bright spot in the Connecticut economy, with 2003 home sales only slightly below the record year of 2002.
“Overall, our state’s recovery should lag the national expansion by at least two quarters,” said Deak. “The national tax cut favoring investment income will help to trigger a recovery here, but higher Connecticut income and possibly sales taxes, along with more budget cuts, state and local job reductions and higher local property taxes will dampen the rebound.”
Deak believes that although Connecticut’s economy, like those of most states, has been deeply affected by global events in the last 24 months, some influences are yielding positive results in the state.
“Perhaps the best short-run geopolitical occurrence was the quick and decisive end to the war with Iraq, which left oil fields intact and should help ease the price of both gasoline and home heating oil,” he said. “Also, the decline in the trade value of the dollar relative to the euro and yen should yield some domestic pricing and profit relief for local manufacturing firms, while allowing them to sell their products at more competitive prices in foreign markets.”
