MERIDEN —The city’s real estate market is expected to continue its upward price trend in 2022, but anemic home inventory and the threat of higher interest rates could slow the pace.
A total of 823 homes were sold in Meriden in 2021, compared to 784 homes sold in 2020, according to a Berkshire Hathaway HomeServices market report. The average sales price increased 24 percent from $176,681 to $219,776 in 2021 and the average days on the market dropped from 49 to 32. But December showed some tightening in the number of listings and sales, possibly indicating a slowdown in activity, although prices remained firm.
“The 2022 inventory is still very low and with plenty of anxious purchasers,” said Joseph Criscuolo, owner of The Home Store. “Interest rates are still attractive for the moment. It appears that we will still experience price appreciation this year but not as high as 2021.”
Rising interest rates will contribute to decreased activity, Criscuolo said. Higher lending rates equate to less buying power and first-time home purchasers will be affected the most.
“They might have to settle for less of a home regarding square footage and amenities,” Criscuolo said. “Key factors for sellers and buyers to watch are increased days on the market and price reductions which could indicate a shift in the market.”
Mortgage financiers and home buyers are paying attention to the Federal Reserve’s Jan. 25-26 meeting after bank officials
signaled they would start raising interest rates in March to curb inflation.
But Jonathan Carbutti of Carbutti & Co. Realtors said if there is any slowdown, it’s because of inventory and not rising interest rates.
“I’m already having one of my busiest Januarys,” Carbutti said. “I would have sold double last year if the inventory was there.”
Cash flush buyers are frustrated, Carbutti said. His company listed one home on Rolling Hills Drive for $439,000 in early January that is currently under contract for $444,500, according to local multiple listing services.
Even first-time buyers are coming in with 20 percent cash down payments and investors are “coming out of the woodwork,” Carbutti said.
“If there is any slowing down it’s because of inventory,” Carbutti said. “The issue (for sellers) is where are they going to go?”
The threat of interest rate hikes will only encourage people to want to buy faster, said Tammy Felenstein, president of the Connecticut Association of Realtors, and strategic growth and sales manager for the William Raveis flagship office in Stamford.
“If anything, it increases the demand,” Felenstein said. “We’re playing musical chairs. There are thousands of buyers looking to buy, and only a few chairs.”
After two years of pandemic-related restrictions, people are saving more, with the savings rate in the U.S. at an all-time high. People who buy a home now are locking in low interest payments for 30 years, she said.
Housing prices are accelerating at a faster rate than most investments and aren’t expected to come down until supply improves. Buyers who wait can only expect to pay more in the future, Felenstein said.
“This is not a bubble,” Felenstein said. “It’s not even close to what happened during the Great Recession.”
In 2008, subprime lenders were giving mortgages to unqualified buyers who eventually defaulted on the loans.
The bad mortgages were backing securities that crumbled in value and sent the housing market and economy reeling.
This latest acceleration is fueled by cash and is also carrying over into diminished supplies and higher prices in the rental market, she said.
“Until we can get a supply, it’s going to continue this way,” Felenstein said.
According to the Berkshire Hathaway report, low inventory in the resale market typically would result in more new development sales, however, homebuilders faced severe supply-side challenges, including a lack of approved and affordable lots, rising building material costs, supply-chain bottlenecks and difficulty finding skilled labor.
“These supply-side challenges existed before the pandemic but compounded tremendously over the last 18 months,” the report stated.
“As a result, in 2021, 946 new single-family homes (built in 2020 and 2021) closed in Connecticut. That number is down 5.5% percent from the 1,001 new homes sold in 2020.
Demand for new construction has also pushed the average selling price up for both new and existing homes. forcing many first-time buyers out of the market.
“It’s hard to get materials, and the cost of materials is skyrocketing,” Greg Ugalde, a Connecticut-based builder and former chairman of the National Association of Home Builders. recently told The Connecticut Mirror.
“And that’s forced some builders to the sidelines waiting for things like lumber to get under control. Prices have doubled or tripled in some areas, and you have to factor that into the price of a house.”
He said lumber is just one commodity whose cost is skyrocketing and affecting the housing market as a whole, including prices.
“For every $1,000 that you add to the price of a home, there are almost 154,000 households that are knocked out of the market. So when you increase prices you have to be on the lookout for families you’re losing,” Ugalde told The Mirror.
“It is a challenge for first time buyers,” said Sandra Maier Schede of Maier Real Estate. “They are being aggressive with their contracts, foreclosure sites, and bank and credit union foreclosures.”
A balanced real estate market is one that has a six- to nine-month inventory, however the state’s average is at 1.3 months for homes priced under $500,000, far lower than usual.
“There will always be listings to a limited degree with changes of life for sellers — death, divorce, financial reasons, retirement,” Schede said. “The market that is holding tight and not moving as normal is the move up to a larger home (no inventory to move to) and the downsized seller who may have had family move back home because of COVID stresses.”
Out of state buyers with cash deposits are also competing with first-time buyers. Schede and other agents have reported buyers from New York and New Jersey and even Fairfield County buying homes in Meriden and Wallingford to take advantage of lower prices.
Any increase in interest rates will primarily impact buyers relying heavily on financing, but Schede doesn’t expect a significant market downturn in the upcoming year.
“The current market will continue through 2022, as there is pent-up demand that hasn’t been met,” Schede said. “It is still a buyers’ market.”