Turns out there’s a bright side to Connecticut’s fragile housing recovery. While the National Association of Realtors warns brokers and agents to expect to see their commissions drop, high inventory and low prices will keep those drops in check for Nutmeg State Realtors.

Builders in the Nutmeg State say demand for new homes is way down and will stay that way until Gov. Dannel Malloy and the legislature get the state’s fiscal house in order.
Permits for new homes are far from their pre-crash peaks and a full recovery is not on the horizon, according to Joanne Carroll, publisher and editor of the Home Builders & Remodelers Association of Connecticut’s trade magazine, Connecticut Builder.

“There were around 12,000 permits pulled statewide in 2005,” Carroll said. “Last year there were 4,006. The majority of permits are not for new single-family homes, though those permits are edging upward.”

Few builders will build on spec anymore; there are too many hurdles, she said.

“There are some sweet spots throughout the state,” Carroll said. “But land costs are high and approvals are time-consuming. There’s also a lack of new construction financing. Builders have to have angel investors or have more capital and be more at risk.”

Builders put the bulk of the blame on the state government. People aren’t moving into Connecticut in great numbers because the state is losing good jobs, not creating them, according to Tony Denorfia, president of the Homebuilders & Remodelers Association of Central Connecticut and president of Southington-based AA Denorfia Building & Development.

“You can’t lose 30,000 people a year and expect to see an increase in homebuilding,” he said. “Everything is very spotty. It depends where you are. If you’re lucky enough to be in Southington, you’re selling a few houses. If you’re in West Granby, you’re sitting on your land.

There’s a lot of doom and gloom east of the [Connecticut] river.”

Denorfia has been in the business for 36 years – through four recessions – and while the last one wasn’t the worst, the recovery has been slow. And the situation seems to be getting worse.
“Our state government is not healthy and our material costs are not healthy,” Denorfia said. “But let’s be optimistic: This is where Massachusetts was 15 or 20 years ago. I’m sure we’ll eventually turn it around.”

Denorfia’s firm primarily builds developments, totaling 15 to 18 homes a year, as well as some apartment buildings. This summer was been particularly slow, he said.

Uncertainty Constrains Capital

The homebuying public feels uncertain about political leaders at the state and federal level as well, he said, and lenders feel the same.

“Right now there’s no capital around,” Denorfia said. “Getting financing is impossible unless you’re established. We only rely on the banks for about 20 percent of what we do. You have to keep your overhead low and not leverage yourself. That’s why we’re a family-run business.”

As the market for new single-family homes struggles, developers who also remodel, like Wallingford-based Sunwood Development, are moving in.

“The economy is holding us back,” Sunwood’s President and CEO Robert Wiedenmann Jr. said. “Eventually they will get a budget passed, but not having a budget is effecting people’s trust. Permits are down 15 percent from last year, which was the lowest in 20 years. It’s tough out there. Each year, we say this will be the year it’ll come around. Other parts of the county are recovering much faster than we are.”

Tax increases and the high cost of living are forcing older people on fixed incomes and young professionals to look to other states with lower costs, he said.

“People are saying, ‘The cost of living is so high here, why should we stick around?’ There are a whole lot of places that are less expensive to live than here,” he said. “And there are opportunities all over the country for younger people.”

Wiedenmann doesn’t see a turnaround in the immediate future.

“They’re building rental apartments because young people don’t want to get locked into a house in case they get a better opportunity in another part of the country,” he said. “Until we get job growth, which leads to population growth, we don’t really need any more houses. There’s not a huge need for five to ten thousand new houses to be built in Connecticut right now.”

As a result, his firm has been doing more remodeling, but the margins in that business are getting thin, too.

“People’s houses wear out and they’ll always need roofs, siding and windows,” he said. “But now we’re seeing problems with increasing lumber prices and the cost of construction across the board. Insulation is up. Sheetrock is going to go up. It’s hurting us, but hey, we’re still here. We’re just not making as much as we should for the risk we take every day.”