Connecticut home prices continued to increase during 2003 and, despite some corrective pricing on the higher end, the city of New Haven was able to rack up its first $1 million sale with the Douglas Orr mansion at 242 Bradley St.

Despite a rocky start due to a harsh winter and muddy spring, Connecticut’s housing market bounced back in a big way, keeping pace with 2002 numbers.

Historically low interest rates and the relative affordability of houses kept the market strong. Throughout the state, average prices increased while market times remained steady, and mortgage bankers could barely keep pace with the amount of business coming through the door.

“For us it was a record year in terms of residential mortgage origination,” said Todd Martin, chief economist with Bridgeport-based People’s Bank, which originated more than $3 billion in mortgages this year. “That was driven primarily by the collapse in interest rates earlier in the year. Since June we’ve seen 10-year treasury yields move up 150 basis points that put an end to the [refinancing] binge, and if you look at [the Mortgage Bankers Association of America’s] refinancing application index, we’re [at] about 80 percent [of] the highs we saw earlier in the summer.”

That trend, he said, reflects activity seen in Connecticut. Refinancings have slowed down toward the last half of the year, but purchase mortgages remain strong for both new- and existing-home sales.

“Nationally it’s a record year, and overall housing has been the strongest sector of the economy,” said Martin. However, he was quick to note that housing won’t have the same impact on gross domestic product growth in 2004.

“The pace is unsustainable, but we’re still looking for [housing] to be a good performer. As long as 30-year fixed-rate mortgages remain below 7 percent, which I think they will, it still bodes pretty well for the housing market,” said Martin.

‘An Interesting Year’

Home prices continue to rise. While still considered “moderate” in Connecticut, prices are higher than the national average. According to Martin, home prices appreciate at a rate double that of inflation.

“Clearly these double-digit gains are over in some pockets where you probably consider them to be, and we didn’t see bubbles like we did in the late to mid-1980s, but certainly some areas like Boston and Fairfield County see the higher end come [down] somewhat and marketing times increased,” said Martin.

“I think the Federal Reserve has made it pretty clear it’s not tightening monetary policy anytime soon. I doubt there will be an increase in the Fed funds rate until at least mid-2004,” said Martin, who added that economic fundamentals are still positive. The unemployment rate is 6 percent, leaving 94 percent still working and gaining real personal income.

“The markets aren’t overbuilt, they’re balanced. Housing is still a very attractive asset of choice in terms of investment and you get the tax benefit from capital gains,” said Martin. “Probably the biggest reason it’s done so well is that housing is relatively affordable.”

Home prices did see increases this year, however, with cities and towns reaching high-price milestones. The state itself was ranked fourth in the nation for number of million-dollar homes, and New Haven, for example, saw a milestone sale this year: The Douglas Orr mansion at 242 Bradley St. become the first house in the city to sell for more than $1 million, raising the bar for the rest of the East Rock neighborhood. A home at 140 Alston Ave. in New Haven sold for $950,000 just two months later.

On the higher end, there was some correction in pricing. Many high-end homes spent extended periods on the market and often were reduced in price significantly before being sold.

For example, in Westport, they came into 2003 with a large inventory of $2 million homes, but during the year the number has been cut in half.

“Part of that is the result of fairly realistic discounting on the part of homeowners,” said John Gray, a Realtor with Re/Max Heritage in Westport. “That trend has actually redirected builders a bit, and we’re seeing more builders trying to keep the product under $2 million. The numbers are obviously higher in Greenwich, where they’re keeping below $4 million, but the trend is the same.”

While 2001 and 2002 saw a trend of building extravagant houses and pricing up in the $2.5 million range, 2003 brought realism to the market.

“Interestingly, I think that also drives basic land price up a little bit. The demand is for the entry-level building lot and those have been extremely hard to come by. I’ve certainly seen the prices escalate from a year-and-a-half ago when you could pick up a lot for below $500,000,” said Gray. “There’s a definite shortage and not any ability to build a subdivision in Westport. That lack of these kind of entry-level plots of land has driven up prices. When house prices are increasing in the 10 to 15 percent range, land prices are up more like 20 to 25 percent.”

That said, people who have bought new construction in recent years have seen exceptional growth in the value of their homes.

“If we look at Lower Fairfield County, the transactions are about the same as 2002, between 5,600 and 5,700 transactions,” said Gray. “The dollars, though, are up about 5 percent this year over last, and the average selling price is up about 6 percent. That’s in line with what happened nationally.”

Gray noted that he has not seen any real change of selling price vs. list price, with homes selling at approximately 97 percent of their list price on average. Market time has also remained consistent from last year to this, with an average of 78 to 80 days on the market being the norm.

“The interesting point is that we have all this positive information, but we actually had a very slow start to 2003. In Westport, where we have an average house value twice the national average at over a million dollars, we saw a year that really only started in May,” said Gray. “It was just really slow, so it was almost like we did the full year’s worth of sales in only eight months.”

The town of Westport highlights trends that were common throughout the year. The town saw a 10 percent drop in total home sales, but it was actually only a 5 percent dip in total dollars because the average home price increased about 11 percent.

“That 11 percent is somewhat brought down by the fact that we saw some inventory of high-priced new construction in the early year that did start to be discounted,” said Gray. He explained in other areas of the county, where price volume ranged from $600,000 to $1 million, the year-to-year increase in price was more like 15 percent.

“Westport tends to lead the group a little bit, but it’s been kind of an interesting year,” said Gray. “Going into 2004, we’re feeling that we could have an even better year. We think that 2003 did start late and we don’t really see any indication that there will be less volume in 2004.

“We’ll see a fairly typical spring market, which usually means prices coming up 5 to 10 percent over [the previous year].”