Greg Scott – Resale market ‘strong’

Strong positive job growth may push existing-home sales across the country to record level this year, according to the National Association of Realtors. In Connecticut, where job growth is expected to lag behind the rest of the country, local real estate experts predict that the lack of affordable new homes will keep existing-home sales strong.

Job growth – which could reach 3 million new jobs this year, according to NAR – could be the factor that will keep residential real estate sales strong in the face of steadily increasing mortgage rates, NAR economists predicted last week. But the New England Economic Partnership expects Connecticut’s job growth to be modest this year, with bigger gains coming in 2005 and 2006.

Those national predictions have very little to do with what will happen in Connecticut, said New Haven-based Beazley Co. Realtors President Greg Scott.

“The housing market is not national,” he said.

National predictions and statistics are largely meaningless for individual states, Scott said. The state of the housing market in California often has little or nothing to do with the state of the housing market in Connecticut, he said.

Connecticut’s residential real estate market is more likely to be governed by simple supply-and-demand principles, Scott said. The state’s supply of homes up for sale is not growing quickly enough to satisfy the need for housing, he said. The housing supply is growing slowly, but not fast enough to balance the market.

“We’re seeing a lot of strength out there,” Scott said.

Scott’s company is up 18 percent in terms of transaction volume for the year so far, he said.

H. Pearce Co. President Barbara Pearce also predicts that sales will stay strong for the rest of this year.

“I don’t see it falling off too much this year,” she said.

There are still many people trying to buy houses in Connecticut while very few new homes are built, she said.

Scott agreed.

“There aren’t enough new houses,” he said.

Connecticut is in a unique position, Scott said. Unlike states in the West, where new home are being built constantly, there is a huge lack of land here, he said. There is a strong demand for affordable new construction that can’t be met. Tough zoning laws in Connecticut’s cities and towns further impede the construction of new homes, Scott said.

“The resale market is very strong because the new-homes market is priced in the higher end,” he said. “I think things look good for [2004].”

The number of sales in the state is continuing to rise, said Dr. John Clapp, professor of finance and real estate at the University of Connecticut, and he expects that to continue.

“With the market strong like this Â… it wouldn’t be surprising to continue to go up,” Clapp said. “The trend is certainly in that direction.”

However, job growth has no direct connection to home sales, Clapp said.

“That, by itself, has no effect,” he said.

Job growth in Connecticut has been slow for years and hasn’t had a direct effect on the housing market, Clapp said. The slow growth is a characteristic of the state, he said.

“Connecticut’s a slow-growing state,” Clapp said.

It is difficult to compare Connecticut with other fast-growing parts of the country like the Sun Belt.

“We’re definitely going to be slower than the rest of the country,” he said.

Sales in the state were slipping a little last year but, as of the end of last year and early this year, are up, Clapp said.

“It’s turned positive,” he said.

A Look Ahead

Strong labor market areas in Fairfield County and central Connecticut also have been strong in existing-home sales over the last few months, Clapp said. Sales in the Bridgeport area were a bit down in the first quarter of this year, but were up in the fourth quarter of 2003, Clapp said. Sales in the Danbury area have been rising for the last three quarters, according to Clapp’s statistics. The Hartford and New Haven areas continue to see lots of activity, Clapp said. New London has been down a bit and Stamford has been up, he said.

NAR also predicted that the 30-year fixed-rate mortgage could reach 6.9 percent by the fourth quarter. The rate was about 6.27 percent in May, according to Freddie Mac. Although that can amount to a substantial increase in payments with many home purchases, a mortgage rate of 6.9 percent isn’t enough to deter people from buying homes, Pearce said. In the past, rates for 30-year fixed rates have soared to 18 percent or above, although rates have been relatively low in more recent years.

The one area that increasing mortgage rates could affect is the market for homes priced at more than $1 million, she said. Many people from out-of-state – mainly from New York – buy investment property in Connecticut, and that could change slightly as mortgage rates increase. Currently, such high-end properties are selling as quickly as lower-priced homes, Pearce said.

But investment properties will still remain popular if the stock market continues to be as volatile as it is, Pearce said. For many, real estate is still a good investment, she said.

Scott also predicts that increasing interest rates will not affect home sales. A recent bump in rate may have even helped sales slightly by prompting undecided buyers to act and more sellers to put their properties on the market, Scott said.

“All that we see everywhere is very strong,” he said.

Clapp makes it a policy not to predict what mortgage rates will do, but he nevertheless views NAR’s prediction of interest rates rising to 6.9 percent as possibly being off base. Short-term rates may increase, but long-term rates tend to be pushed up by inflation, not the Fed overnight rate, Clapp said. The soaring energy costs could contribute to that, but 6.9 percent is still high, he said.

“6.9 [percent] sounds pretty aggressive,” Clapp said.