|
Amidst the economic uncertainty of recent years, Connecticut's housing sector has proven to be a resilient economic workhorse. This was proven once again in 2003, as permits grew for the third consecutive year and reached the third highest total since 1989. In this article, we will review the 2003 housing market in the areas of production, sales prices, interest rates, population and subsidized housing.
Housing production
According to data recently released by the U.S. Bureau of Census, Connecticut issued 10,435 new housing permits in 2003, a 7.2 percent increase from the 9,731 permits authorized in 2002 and a 16.3 percent increase from the 1993 level. The majority of the new units were single-family homes (8,180 units) that accounted for 78 percent of the permit total. Condominiums and apartments totaled 1,863 units, or 18 percent of the total. With 1,275 demolition permits issued in 2003, there was a net gain of 9,160 permits in 2003, which raised the total inventory of housing units to 1,410,962.
Among all counties, New London County showed the largest percentage gain of 27.8 percent. It became the fourth county with over 1,000 units of new housing authorizations after Hartford, Fairfield, and New Haven counties. All four of the largest counties, representing 82.6 percent of the State's population in 2003, accounted for 72.8 percent of all new permits.
Hartford led all municipalities with 335 new units, followed by Bloomfield with 309, Milford with 284, Norwich with 247, and Darien with 222. All combined, the housing units from the top five municipalities accounted for 13.4 percent of the State's total.
Home sales prices and valuations
Using mid-point data for comparison purposes, second quarter 2003 figures from the New England Economic Indicators showed the median sales price for existing single-family homes in the Hartford region was $198,500, up 13.8 percent from a year earlier; the New Haven-Meriden area was $213,500, up 11.8 percent; and the national figure was $168,400, up 6.7 percent. From 1993 through 2003, the Hartford and New Haven-Meriden areas experienced fluctuations in prices, while the U.S. showed consistent growth. The national median home price increased 57 percent in ten years, while the Hartford region price grew approximately 45 percent. The New Haven-Meriden region's median price, on the other hand, grew at a rate that was less than half those totals, nearly 22 percent.
The home valuations recorded on building permits are the costs of construction. This figure excludes the cost of on-site development and improvements, and the cost of heating, plumbing, electrical and elevator installations. The total home valuations reached $1.664 billion in 2003, a 27.7 percent increase from $1.303 billion in 1993. The total construction cost for the 10,435 new units alone represented approximately one percent of the gross state product, a significant contribution to the State's economy.
Housing and population
Based on a three-year moving average of permit data, Connecticut's new housing market grew at an annual average rate of 1.7 percent from 1993 through 2003. About 61 percent of the towns and cities experienced growth while half of the State performed above the average. The Town of Vernon was the fastest growing community with regard to housing permits, with a growth rate of 24.8 percent; followed by Canton (20.1 percent), Hampton (19.4 percent) and Norwich (19.3 percent).
One of the factors that drives the growing housing market is the increase in population. Supporting this conclusion are the population estimates released in June of this year by the U.S. Census Bureau. This new data shows that Connecticut's population grew 2.3 percent on average between 2000 and 2003. Table 2 on page 2 shows the changes in population and housing stock in Connecticut's five largest cities. Stamford's population increase (3,024) exceeded the other four cities combined (2,146).
During the same period, the State's housing inventory increased 1.8 percent. Stamford, Waterbury and Hartford showed housing gains, while New Haven and Bridgeport experienced a net loss of housing stock. The loss of housing inventory was due to a high volume of demolitions that occurred in the last few years.
In comparing the growth rate of population and housing stock, it is noted that population grew at a faster rate than housing by 0.5 percent. This translates into a shortage of almost 6,700 housing units, and suggests that the demand for new housing outpaced supply.
Mortgage rates
Mortgage rates are indirectly related to interest rates set by the Federal Reserve Bank (Fed). In 2003, the Fed left interest rates unchanged. Mortgage rates in 2003 fluctuated between a low of 5.23 percent and a high of 6.25 percent. As chart 2 above shows, permits tended to rise when mortgage rates fell, and vice versa, clearly showing an inverse relationship between rates and permits. Data from the Federal Home Loan Mortgage Corporation showed that mortgage rates in 2003 reached a 33-year low of 5.23 percent. Accordingly, the housing market remained strong in 2003. As interest rates rise in 2004, a slow down in housing activity can be expected. The Fed has already raised rates by 0.25 percent to 1.25 percent in June of this year. This is likely to be the beginning of a series of rate hikes that may have adverse consequences for the housing sector.
Subsidized housing units
The annual Affordable Housing Appeals Procedure List, published by the Department of Economic and Community Development, shows the percentage of assisted housing by municipality. Subsidized housing includes: (1) units receiving financial assistance from governmental programs such as State Rental Assistance; (2) housing currently financed by the Connecticut Housing Finance Authority; and (3) properties with deed restrictions requiring that the property be sold or rented at or below prices which equal less than the 80 percent of area median income. The income limits guidelines are established by the U.S. Department of Housing and Urban Development.
In 2003, there were 152,658 subsidized housing units, 11 percent of the Census 2000 housing stock. The largest five cities shared more than 40 percent of the subsidized units, while the City of Hartford showed the largest number and percentage of assisted units. Connecticut General Statute 8-30g states that municipalities with more than ten percent of their housing stock designated as assisted housing units are exempt from the appeal process. Through the appeal process, developers are entitled to appeal decisions made by a local board or commission in regard to affordable housing projects. Currently, 29 cities and towns are on the exempt list.
Outlook
Will the housing sector continue to grow in 2004? It depends on a number of factors. Certainly, the overall economy plays an important role as do interest rates and personal income. Halfway into this year, new permits have increased almost 18 percent compared to a year ago. That fact, combined with Connecticut's improved economy, leads me to believe that the housing market will keep pace with-if not surpass-2003 levels.
Commissioner James F. Abromaitis of the Connecticut Department of Economic and
Community Development (DECD) announced that Connecticut communities authorized 1,154 new housing units in
July 2004, a 24.4 percent increase compared to July of 2003 when 928 units were authorized.
The Department further indicated that the 1,154 units permitted in July
2004 represent a 10.1 percent decrease from the 1,283 units permitted in June 2004. The year-to-date
permits are up 19.0 percent, from 5,526 through July 2003, to 6,577 through July 2004.
The Stamford Labor Market Area showed the largest increase in terms of units (95) and percentage
growth (215.9) compared to a year ago. Danbury led all municipalities with 90 units, followed by Stamford
with 61, and Southington with 41. From a county perspective, only Hartford County showed year-to-date loss.
Return to Top
|