Experts on Connecticut’s housing industry have spent the past year predicting that the housing market will flatten, and it looks like their crystal balls were right. The median sales price of single-family homes across the state rose less than 3 percent from the end of the third quarter of 2005 to the end of this year’s third quarter. The number is a stark difference from previous years, when double-digit increases in median price were common.

The question now is, how low will prices go? Experts’ opinions differ. The popular prediction is that prices in Connecticut will not fall, but will stay flat until there is an upturn in the market. But not everyone agrees.

“It certainly looks like a slow to declining market here,” said John Clapp, a professor of real estate and finance at the University of Connecticut. “Probably mildly declining.”

The median price did drop when comparing the third quarter of this year to the third quarter of last year. According to The Warren Group, parent company of The Commercial Record, home prices fell just under 1 percent, quarter to quarter. Sales have also been falling for the past couple of quarters, and that trend continued in the third quarter.

Year to date through September 2006, single-family home sales fell by more than 15 percent across the state compared with the pace of sales in the first three quarters last year. The biggest drops came in Fairfield County, where there were more than 2,000 fewer sales by the end of September 2006 than there were at the end of September 2005, a decrease of almost 23 percent.

Many housing experts remain confident, however.

“I think it would take something drastic to happen to see prices falling dramatically,” said Mark Foreman, president of the Connecticut Association of Realtors and founder of Cornerstone Capital Mortgage in Fairfield.

Connecticut has not seen the overbuilding and speculative buying that have been common in other parts of the country, like Florida and around Las Vegas. Those trends are pushing prices down there, but Foreman believes Connecticut’s healthy economy will help the avoid falling prices.

“We really don’t have that in Connecticut,” he said.

Optimism Difficult
Todd Martin, an economist for Bridgeport-based People’s Bank, agreed. Overbuilding and speculative buying were common in the state before the last time the real estate market tumbled, but they are not common now.

“You really did not see [overbuilding] here in Connecticut like you did in the mid- to late-1980s,” Martin said.

There were also more dramatic spikes in prices leading up to the sharp decline of the housing market in the late 1980s. Thirty percent annual increases in price were not uncommon.

“This time around, the peak looked like it was around 15 percent [price appreciation],” Martin said.

Foreman said he has not heard any indicators that prices will fall. Many economists say the market has bottomed out.

“If you believe what the economists are saying, they’re saying next year will be a better market than this year,” he said.

The almost 3 percent increase in median home prices does not represent an outright decline, Martin said, but means prices are slowing down to match the inflation rate, which is around 3 percent. But this is not necessarily the end of prices changing.

“I don’t know if we’re at the bottom yet,” he said.

Moody’s recently issued a housing report that predicts some areas of the country – those that have been overbuilt – might not see real estate markets bottom out until 2009 or 2010, Martin said. Connecticut probably will not see such a long lag time.

“I think for Connecticut, we’re probably looking for at least another six months or so” before the market stabilizes, Martin said.

The good news is that the Federal Reserve Board is probably done tightening the interest rate, he said. Longer-term mortgage rates have come down somewhat, and mortgage applications have picked up.

Clapp, who uses additional statistics to analyze raw data, said he is seeing a price decline in some parts of the state. In the Bridgeport and Stamford area, where there has been a certain amount of speculative buying, prices are falling somewhat, according to his data. They are also falling in the area around Waterbury and Torrington.

Clapp said he believes it could take a year or two before the housing market in Connecticut finishes its decline. He said he predicted the downward turn in the market about a year and a half ago, and would not be surprised to see it continue on a slight downward trend for the next 12 to 24 months.

“It would be hard to be optimistic about housing prices right now,” he said.

After the double-digit price increases of the last couple of years, most real estate industry expected prices to flatten. Still, there are few market watchers experts predicting that housing prices in Connecticut will plummet.

“We’re in a normal market, which I think is healthy for the industry,” Foreman said.

It is also a good time to be looking for a home; inventories are up, but the interest rate is stable.

“It’s a great time to be a buyer,” Foreman said.

Some parts of the state continue to see healthy increases in the median price. New Haven County saw the highest, as prices increased by almost 9 percent from the end of last year’s third quarter to the end of this year’s third quarter.