PETER HELIE – A ‘healthy’ year

Rising inventories and flatter sales are likely in the cards for Connecticut’s residential real estate market this year, according to some industry experts.

A year of real estate companies merging and acquiring one another also will affect the way companies advertise and do business in 2006, experts predict.

According to the National Association of Realtors, 2005 likely will be a record year, and 2006 will be the second-best in history, despite the slowing of sales. Market conditions will still be favorable for housing, according to NAR.

“The slowdown amounts to a tapping of the brakes on a hot market,” said David Lereah, NAR’s chief economist, in a prepared statement. “Home sales are coming down from the mountain peak, but they will level out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing.”

Local real estate experts say they expect the same thing. There will be some softening of foot traffic in 2006, and there will be a shift toward a buyer’s market, according to Peter Helie, president and chief executive officer of Prudential Connecticut Realty. There was some evidence of the softening market at the end of 2005.

“We’re starting to see some inventories build,” Helie said.

The market may not totally favor buyers in 2006, according to Connecticut Association of Realtors President Robert Fiorito, but there will be a shift in that direction.

“Certainly sellers will see the difference,” he said.

But 2006 will not be a horrible year for sellers.

“I don’t think you missed the boat [if you haven’t yet sold],” Fiorito said.

Sales will still be strong, but sellers may have to price their homes differently, he added. There will be fewer sellers trying to get really high prices on their homes, he said.

Barbara Pearce, president and chief executive officer of North Haven-based H. Pearce Co., said she believes sales will be fairly flat in 2006.

“I don’t think units will be up this year,” she noted. “I think they’ll be flat at best.”

Helie said he expects the market to be more balanced than the seller’s market that has been in effect for the last several years. But with more inventory, buyers can be more selective and can be sure of getting a good deal. Sales will still be strong as buyers rush to take advantage of the still-favorable interest rates before they increase, Helie said. The increases in interest rates may not happen in 2006, however, since it is an election year for the state.

“Buyers will take advantage of the still-favorable interest rate,” Helie said.

Also, Connecticut continues to have fairly stable employment levels and has among the highest per capita income in the country.

“I think things will be healthy,” Helie said.

‘A Different Direction’

NAR is predicting the 30-year fixed-rate mortgage to trend up modestly and reach 6.6 percent during the second half of 2006. Existing-home sales are expected to rise 4.7 percent to 7.1 million for 2005 and likely will decline 3.7 percent in 2006 to 6.84 million. Sales of new homes are projected to increase 7 percent to 1.29 million for 2005, but are forecast to drop 4.8 percent to 1.23 million in 2006 – also the second-best on record. Total housing starts for 2005 should grow 5.8 percent to 2.06 million units, the highest since 1972, and then decline 4.8 percent to 1.92 million next year.

The changes in the market will have some other effects. Sellers who, in 2005, would have told buyers to take the house as is will now have to make repairs and improvements before selling, Fiorito said. Appraisers also will start to look at homes more critically before giving numbers.

Still, NAR experts are expressing optimism.

NAR President Thomas M. Stevens, said that housing has always been the soundest investment for most families. “As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts,” said Stevens, senior vice president of NRT Inc., in a prepared statement. According to the Federal Reserve Survey of Consumer Finances, the median net wealth of a homeowner household is 36 times higher than a renter household.

Stevens said that the national median home price has never declined since good recordkeeping began in 1968. “Although there can always be a temporary decline in a given area if jobs are weak and there is an oversupply of homes on the market, people who stay in their homes for a normal period of homeownership generally see healthy returns over time. There are no guarantees, but there are very good odds.”

The national median existing-home price for all housing types, which is experiencing a surge estimated at 12.7 percent to $208,800 for 2005, is expected to rise another 6.1 percent in 2006 to $221,400. The median new-home price is likely to rise 5.5 percent to $233,100 in 2005, and then grow by 7.3 percent next year to $250,100 as higher construction costs impact the market.

Last year’s mergers and acquisitions also will have an effect on how Connecticut real estate companies do business in the coming year. H. Pearce long has touted its ability to provide services as a large company. The acquisitions by Prudential Connecticut and Coldwell Banker Residential Brokerage over 2005 have left the big players even bigger. So in 2006, H. Pearce will stop talking about its size and start marketing itself as the independent choice, according to Pearce.

“Now there have been so many mergers, we want to go in a different direction,” Pearce said. She compared it to the effects of the acquisition of FleetBoston Financial Corp. by Bank of America. Competing regional and community banks began marketing themselves based on their small size and personal service, and H. Pearce plans to do the same thing.