As the spring real estate market heats up heading into each April, it has become a familiar refrain the past few years: when will those fickle millennials settle down and buy a house? And for those looking around their house, with a listing price top of mind, it’s anyone’s guess whether this might be the year Connecticut’s housing market finally gets moving again.
As many of us head out down the driveway each morning, it is easy to forget that the biggest industry in the U.S. today is in the rearview mirror — real estate. It is an industry that very nearly was in reverse (again) last year in Connecticut, with less than 44,700 homes, townhouses and condominiums selling statewide, despite low mortgage rates and unemployment and a boom stock market, all major considerations for buyers.
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While any number of factors can influence real estate in any given season or year (coronavirus short-circuiting growth, the election, “fill-in-the-blank” beyond April), the biggest influence by far is the inexorable push and pull of population demographics.
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Entering 2020, Connecticut should already have been a few years into a real estate surge that had yet to materialize. Born between the outset of the ’80s and the mid-’90s, the majority of millennials are now past the average U.S. age of 26 for women having their first child, with many of those children reaching school age when parents are choosing school districts. Problem is, Connecticut’s median house is twice as old as many of those millennials — you read that right. And that house is not what millennials are looking for, unless the price is right.
Entering this year, Connecticut’s inventory of entry-level homes was at the lowest level on record, according to Candace Adams, CEO of Berkshire Hathaway HomeServices New England Properties, which has more than 40 offices statewide including its administrative center in Wallingford.
Coming off one of the warmest winters on record, buyer interest was translating into closings at the start of the year. The state saw a 10 percent increase in sales and transactions in January, according to SmartMLS. But new listings in January were slightly off the pace of a year earlier, compounding the inventory-selection issue bedeviling buyers. In February, listings were up 8 percent and sales were running 2 percent ahead of last-year’s pace, according to data from Berkshire Hathaway.
“There are definitely some demographic changes,” Adams says. “People are staying in their properties longer. They used to stay seven or eight years, and now it’s averaging 11 — so it’s really impacting the market because we don’t have houses to sell to buyers who are out there. There’s buyers everywhere at that [entry-level] price point.” Adams adds that buyers have become less picky about the specific town or neighborhood they are targeting — driven often by preferences for a specific school system — and are willing to consider a wider geography that checks off a quality school as only one of multiple criteria they are seeking.
For houses priced at $2 million or more, the opposite dynamics were in play entering this year, with a full, two-year supply of inventory at the rate those properties were selling at in 2019. Long after the Great Recession, it boils down to the fact that sophisticated buyers remain jittery that they will be able to sell a property down the road at an appreciated value. And until they get that value today, they are content to bide their time even at the risk of losing the property to another buyer.
Adams thinks that luxury residential prices are already at a level that buyers are never going to see again, with low interest rates and a peaking stock market also creating a singular market moment in late 2019 and at the start of 2020.
Adams points to a miniboom for sales above $1 million in the second half of last year in the shore region from Guilford to Milford, which she says was partly the result of steep concessions on asking prices. “Sellers realize that in order to push those properties, they have to deeply discount them — and [many] are not willing to at this point,” Adams says. “Those properties that are deeply, deeply discounted at a tremendous value are selling at the high end. But those are the only ones that are selling.”
Paul Breunich, CEO of Stamford-based William Pitt Sotheby’s International Realty, says that Connecticut’s real estate market opened “very poorly” in 2019, with transactions through June down more than a third compared to the year before. But the Connecticut market staged a comeback in the second half of the year, in part due to sellers of upper-end properties finally getting some serious looks from buyers.
Over the past few years, that segment of the market has had the additional wrinkle of a $10,000 cap on IRS deductions for state and local taxes for those who itemize their federal returns rather than taking the standard deduction. Generally, the SALT cap kicks in for those paying local property taxes on residential properties valued in excess of $620,000, with some deviations depending on local mill rates and tax credits. “The state-and-local tax [component] of the tax reform act definitely had an effect on our area, especially in Fairfield County and up in Litchfield County which is a big ‘second-home’ market,” Breunich says. “I think now the market is absorbing [SALT] — whatever the factors are — and I think that’s why we’re having more activity and why the upper-end is normalizing at some level.
“Historically in election years people stall and the markets stall, but I don’t think we can make that determination yet because I think we are in uncharted territory,” he adds. “Prices have stabilized and there’s value out there, as far as what the market says [homes are] worth.”