Despite concerns about what slowly increasing interest rates could do to home sales, new-home construction is still going strong across the state of Connecticut. The state’s cities and towns authorized 1,283 new housing units in June, up 36 percent from May’s numbers, according to the state Department of Economic and Community Development.

“We’re all surprised in our area of the high level of construction,” said Mike Sexton, vice president at H. Pearce Real Estate Co.’s Branford office.

Most counties in the state saw increases in permits with the exception of Hartford County. That county’s number of approved units dropped by 55 percent from June 2003 to June 2004. But that figure is the result of a booming 2003 for the county, said Barry Rosa, director of new homes and land for Prudential Connecticut Realty.

“I’m not surprised to see the fall in permits,” he said.

Hartford County communities issued permits for a whopping 438 units in June 2003. They approved 199 units this past June.

“Hartford was very, very busy last year for permits,” Rosa said.

The county’s numbers will bounce back up again in the coming months, he said, adding that there are several big projects in the planning stages that will push those numbers up.

‘Fairly Uniform’

Overall, June’s numbers reflected healthy building across the entire state, Rosa said.

“It’s fairly uniform across the state,” he said. “The great news is it’s not concentrated in one area.”

New London County enjoyed the state’s biggest increase. The county’s cities and towns issued permits for 104 units in June 2003 and permits for 220 units this year in June, an increase of 112 percent, according to the DECD. New Haven County was second, with its cities and towns issuing permits for 158 units in June 2003 and permits for 319 units in June 2004, an increase of 102 percent.

Windham and Fairfield counties followed, with respective increases of 63 percent and 33 percent. Other counties enjoyed more modest increases and Tolland County stayed the same, with permits for 67 units issued in both June 2003 and June 2004.

Rosa was impressed with the increases in New London and Middlesex counties. Middlesex had a 10 percent increase.

“It’s been nice to see those numbers coming out of there,” he said. “Part of it is just the growth of the area.”

Developers are planning some big projects there in the fall, Rosa added. There also have been several large acquisitions and other parts of the state also will see developments, some with as many as 150 or 200 homes, he said.

“That will continue to grow,” he said. “I think it will continue and we should see a reasonably healthy year.”

Rosa said he expects the state will issue permits for more than 10,000 units and continue seeing growth through the end of the year.

“The one major variable is interest rates,” he said.

Rates for 30-year fixed mortgages could hit 7 percent next year, but Rosa said he doesn’t expect they will have too much of an effect on the new-homes market. The biggest impact will be the tempering of price increases, Rosa said, but higher rates shouldn’t affect sales too much.

“I don’t see a slowdown,” he said.

The permit activity may slow in August, but that is normal for a time of year when most people take vacations, he said. But new construction will continue to do well for the rest of the year and most builders so far have been able to increase prices on new homes, Rosa said.

“That is still showing a good level of strength in the marketplace,” he said.

Sexton, however, worries that rising interest rates will have more of an impact on the market.

“I’m concerned rising interest rates are going to have an effect,” he said.

The high number of permits issued last June was the result of pent-up demand, Sexton said. Many people also are buying homes now in anticipation of rates going up, he said.

“June’s activity is the culmination of ramping up that’s been going on the past two years,” Sexton said.

But different people in the industry are expecting different outcomes from the rising interest rates. One builder with whom Sexton works said he believes higher rates might push down land prices and decided to wait until 2005 to buy land. But another builder disagreed and bought the land the first builder decided not to buy.

But the characteristics of the new-home market will help it weather the interest rate hikes, Sexton said. The market moves at a slower, steadier pace than the existing housing market. In the 1980s, there was a lot of product on the market and buyers had lots of choices, he said. But that changed to a seller’s market and, because there is little supply, that probably won’t change, even with rising interest rates, Sexton noted.

“The supply-and-demand situation is such that there’s not an oversupply,” he said.