Construction of single-family homes in the Northeast finished 2006 at a slower pace than 2005, but residential real estate is finding strength in the multifamily market.
The total number of new housing starts in the region during the month of December jumped 17.4 percent from December 2005 and 25.6 percent from November of last year, according to seasonally adjusted figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Single-family units, however, fell 14 percent versus a year ago and slipped 3.5 percent from November.
The bureau defines the Northeast as Connecticut, Massachusetts, Rhode Island, New York, New Jersey, New Hampshire, Pennsylvania, Maine and Vermont.
Realtors seem to agree that the relative affordability of condominiums is driving the multi-unit market.
“The demand for real estate always exists – it just depends to what degree,” said Cash Mitchell, vice president and Guilford office sales manager for H. Pearce Real Estate Co. “We all have to go somewhere and live. The American dream of ownership is forever.”
Even if the current dream features more condos than picket fences, a condo buyer is still afforded the tax breaks that come with owning real estate, he added.
“As an investment, it’s still as good as gold,” Mitchell said.
That sentiment appears to ring true, especially with Northeasterners. Of the four regions broken out in the report, only the Northeast showed any growth in comparing December 2006 against December 2005. Nationally, the total number of new units fell 18 percent versus December 2005.
One reason the Northeast performed comparatively well is that “we haven’t had an overhang of inventory,” said Barry Rosa, vice president of Prudential Connecticut Realty. “We have not had a surplus in years.”
By contrast, the South and West, in particular, have large amounts of inventory left to absorb, he added. Developers had overestimated how quickly the real estate would be gobbled up by relocating homeowners, and they are now waiting for the migrating population to catch up with previously anticipated demand.
‘Addition by Subtraction’
In places like southwestern Connecticut, however, the demand for new construction appears healthy. And in some cases, the demand is greater than the vacant land available.
In Westport, for example, Prudential Connecticut Realty Realtor Jim Lanzaro estimated that 80 percent to 90 percent of new-home construction involves first tearing down an older structure on the property.
“It’s addition by subtraction,” he said.
Whether they are coming from across the state line or across the country, “we see many people that are relocating to this area,” Lanzaro noted. And the buyers are not interested in buying a decades-old Colonial fix-up project, he said. So for towns like Westport, new construction often begins with a demolition.
For those types of sales, the key is to be able to get both a quick turnaround and up to three times the land cost, he said.
The report showing 17.4 percent growth for the Northeast did not seem to surprise Lanzaro.
“I see a tremendous amount of activity right now,” he said. “I do feel like the market is going to continue to outpace everyone’s expectations.”
His outlook is shared on the eastern side of the state, too.
The year 2006 was the third-best year since 2000, said John Bolduc, executive vice president of the Eastern Connecticut Association of Realtors. After experiencing rapid growth in 2004 and 2005, the market returned to a rate of “normal growth” in 2006, he said.
“It’s a good thing that [the market] slowed down. Otherwise, it might have crashed,” he said.
But far from a crash, Bolduc cited several reasons to expect continuing market demand. One is the demographics, he said, with baby boomers and their children in the market for real estate now. In addition, the unemployment, inflation and interest rates are all low, all of which bodes well for the market, he noted.
“It’s a great time to buy a house,” Bolduc said.
Bolduc, who tracks the sales in New London and Windham counties, pointed out that the median sales price of a New London single-family home rose to $275,000 in 2006, versus $265,000 in 2005. The number of units sold, however, slipped from 2,581 to 2,435. In Windham County, the single-family median dipped to $236,000 in 2006 from $237,500 in 2005, while the number of units sold went from 1,110 to 997.
In the condo market, both counties showed a jump in the median sales price.
The New London County median sales price for a condo rose to $184,950 in 2006, versus $159,900 in 2005. In Windham County, the median sales price hit $183,000 for 2006 compared to $175,000 in 2005.
The number of units sold climbed from 634 to 656 in New London, and fell from 136 to 89 in Windham.
Despite the cool-down in the third and fourth quarters of 2006, Mitchell said he expects the housing market to gain momentum again in 2007.
“Our open houses are busy,” he said. “We have clients that are sincerely looking to buy real estate.”
He added, “I think the first quarter of 2007 is going to be a continuation of the market correcting itself. By June, and the second half of 2007, we’re going to see a very good real estate market.”