JOHN CLAPP – Condo sales to drop

The continuing slowdown of the state’s housing market is creating a host of issues for the real estate industry in the new year.

Loan defaults and foreclosures are worrying Realtors, homeowners and mortgage lenders – particularly those who have spent the last few years of the housing boom issuing exotic mortgages. The slowing of the single-family home market could spread to the condo market and, nationally, some experts are predicting the housing market could reach its slowest pace in five years.

Real estate agents also may have to take another look at their commission rates, to make sure they reflect the fact that homes are staying on the market longer and that they may have to spend more time marketing, according to Barbara Pearce, president and chief executive officer of North Haven-based H. Pearce Co.

The news isn’t limited to the single-family sector. John Clapp, a professor of real estate and finance at the University of Connecticut, said he expects sales of condominiums, which have experienced a healthy market for the past few years, to drop in 2007.

“The slowdown in the single-family market will probably spread to condos,” he said. “That would be a reasonably predictable pattern.”

The sales of condos slowed a bit this year, but not as dramatically as the sales of single-family homes. That will probably mean that the demand for apartments will pick up.

“People will be less ready to jump from apartments to ownership,” he said.

The prospect of increased foreclosures and defaults – particularly for homeowners with adjustable-rate mortgages – looms as the interest rates on those mortgages will reset at a higher rate this year. The federal government has even cracked down on mortgage companies that offer loans that do not require verification of borrowers’ income, according to Kim Neilson, senior vice president of McCue Mortgage in New Britain.

“Nobody wants borrowers to lose their houses,” she said.

‘Weakness’ Predicted

The National Association of Realtors recently issued a statement regarding its concern over the rising rate of defaults and foreclosures across the country. NAR President Pat Vredevoogd Combs urged consumers to make sure they understand the risks of all types of mortgages before making a decision on a loan.

“We are committed to helping people buy – and keep – the home of their dreams, and an educated consumer really can make the best decision,” said Combs, a Realtor from Grand Rapids, Mich., and vice president of Coldwell Banker AJS Schmidt Realtors, in a prepared statement. “Realtors help Americans achieve the dream of homeownership. We work to ensure that homebuyers have access to the proper information so they can fulfill their homeownership goals Â… foreclosures can lead to high vacancy rates, which in turn can cause all homes in the neighborhood to lose value.”

And it might be awhile before the housing market recovers and starts to pick up again. Connecticut has so far escaped big drops in sales or prices, but the market continues to flatten and 2007 likely will bring more of the same.

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, according to The Warren Group, parent company of The Commercial Record. Home prices fell just under 1 percent, quarter to quarter.

The New England Economic Partnership is predicting that housing will be one of the sectors that depress the state’s economy in the next couple of years.

“The weakness in the state, not surprisingly, is going to be in the real estate market and in manufacturing,” said Edward Deak, a professor of economics at Fairfield University, at a recent NEEP conference. “You might not want to let your sons and daughters go anywhere near the real estate industry in New England.”

New-home permits in the state fell significantly in 2005, although not nearly as much as permits fell nationwide that year. In 2006, though, Connecticut’s permits dropped by more than 15 percent, compared to about 5 percent nationwide, according to statistics from Deak’s speech.

The magic year for the state will not arrive until 2008, Deak said. That is when he expects positive growth in new-home permits, and when he foresees the state recovering the jobs that have been lost since the recession in the early part of this decade. The state has seen positive job growth since 2004, and that continues.

“We have agonizingly slow, but positive, job growth this year,” he said.

NEEP predicted that new-home starts in Connecticut would decline by 6.2 percent by the end of last year and by 8.3 percent in 2007. The group also forecasted the nominal sales price for existing homes to be up by 3.6 percent in 2006, and by 0.5 percent this year.

Nationally, some analysts expect the slumping housing market to continue to suffer through its correction in 2007, according to the Associated Press.

One analyst, Nariman Behravesh – chief economist at Global Insight, a Boston forecasting firm – told the AP, “The recession in the housing market does not seem to have had much of an impact on the consumer. The bad news on housing has been offset by good news on wages, jobs and the stock market.”

Although the slowdown will cause a rise in unemployment, economists hope that the economy will remain on track to achieve the Federal Reserve’s hoped-for “soft landing,” according to the AP.