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Connecticut Housing Market - Housing Bubble or Not?
By Greg Scott,
President of the Connecticut Association of Realtors
We are currently
hearing continued comparisons of the stock market bubble to
a potential real
estate market bubble. Is a housing market bubble fact or
fiction? I contend
that there is no statistical or anecdotal evidence that
would suggest the
potential for a substantial decline in housing prices. One
of the more
important distinctions between the housing economy and the stock
market is
the fact the housing market is local in nature and not national.
In fact, it
is not uncommon for one part of the country to be doing
extremely well, while
another may be experiencing difficulties.
There are three important
factors in evaluating the health of the housing
market:
1. Supply and
Demand, 2. Interest rates, and 3. Employment.
1. Supply and Demand - As
I look at the Connecticut market, we are
experiencing unprecedented low
supply with no indication of any meaningful
supply coming in the future.
Builders and developers are being more cautious
due to the sharp housing
decline in the late 80s and early 90s, and
restrictive zoning policies of
local Planning & Zoning Commissions are
making obtaining development
approvals seemingly impossible, in addition to
aggressive acquisition of open
space by state and local governments. These
factors have contributed to the
overall supply problem and will limit the
availability of supply coming from
the new construction sector for the
foreseeable future. Statewide, the
current housing supply is estimated to be
at two to three months. A look back
to 1991 shows supply levels at 24
months.
2. Interest Rates - As
everyone is aware, interest rates are historically
low and at unprecedented
levels. The most recent move by the Federal Reserve
to lower rates even
further should maintain the low mortgage rates we have
been experiencing.
Enough said.
3. Employment. All the factors mentioned above won't have
much impact if
people don't have jobs or are fearful of losing their jobs.
Many of us can
remember the late 80s and early 90s when unemployment rates in
Connecticut
were as high as 10%. The current Connecticut unemployment rate
hovers at 4%,
meaning that 96% of people who want jobs have jobs. There is no
evidence to
suggest that there is a substantial increase in unemployment on
the horizon.
Finally, many people question the increase in overall
housing appreciation
rates, suggesting that the prices are just too high and
that incomes haven't
kept pace with housing appreciation. The balancing
factor is the overall
cost of housing as a percentage of household income.
Currently, monthly
mortgage payments are at approximately 18% of family
income, a 30-year low.
Simply stated, people are able to buy more house for
less money due to low
interest rates. The end analysis is as the national
economy continues to
plod along, the Connecticut housing market will slow its
impressive
appreciation rates and will adjust to a more sustainable 3% - 5%,
but it
would be impossible to conclude that there will be an overall decrease
in
housing prices.
All of the above factors, coupled with the sense
from American consumers
that they would rather put their investments into
something real and
tangible, as opposed to the stock market, positions the
Connecticut housing
market for growth and stability for the foreseeable
future.
Bob Duff
William Pitt Real
Estate
www.cthomesearch.com
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