The housing market in Connecticut has seen significant changes in the past several years, much like other states throughout the nation. But what in particular has been happening with Connecticut housing prices? Where is it going up and where is it going down? Understanding the drivers behind these shifts is critical for sellers and buyers alike. Factors such as median household income, local economic health, lending practices, and back-end ratios also play significant roles in the housing market's volatility.

The median household income is a key factor to consider when examining Connecticut's housing market. The median household income in a town can greatly impact the typical home value. High-income towns like Darien, Greenwich, and Westport generally tend to have higher home values due to the purchasing power of residents. These towns are also typically located near urban centers, such as New York City, further boosting property values due to the ease of commute. Conversely, in towns with lower median household income, home values may be more moderate or lower.

One factor that has an indirect impact on property values is the lending practices of financial institutions. An increase in the back-end ratio from 36% to 43% can significantly affect the market. This back-end ratio is a critical measure used by lenders when approving a mortgage application. It is the proportion of a person's income that would go towards paying all recurring debt payments, including housing costs, student loans, car loans, and credit card payments. By increasing this ratio, lenders are effectively allowing borrowers to have a higher debt level relative to their income. This change can lead to increased buying power for potential homeowners, which can drive up demand and inflate property values.

Now let’s take a deeper look into what towns of Connecticut have been appreciating so far this year compared to last. Many towns have experienced appreciation in median home values, with positive percentages indicating growth. If you are reading this article and looking at the graph in the eyes of a seller, then you should be interested in whether your city is appreciating as this makes it a potentially good time for you to sell. Examples of towns with significant appreciation include Andover (37.50%), Roxbury (33.42%), and Union (30.76%). However, the volume of sales is less than 25 homes, meaning that volatility can impact the accuracy of these overall trends. An educated realtor can help a seller navigate this information and figure out how to position a home in terms of pricing to help capitalize on this appreciation. Moreover, if you are a buyer, you need to understand the impacts of buying a home that is in a town that is appreciating. For example, if you are a buyer that is looking for a home in a town that has appreciated 20% compared to last year, a savvy real estate agent can help you understand the implications. When buying a home at the peak with rapid appreciation, buyers may pay more for it than the market would normally support. It is important to consider the amount of time anticipated in the home. When buying a home that has been appreciated, you will need to live in the home for a longer period of time in order to maintain your value or make a profit. Houses are like the stock market; the value will ebb and flow. If you are buying a home at its peak, it is likely that its value may plateau or decline, before it starts appreciating again. This can be worth it for a long-term investment but can be risky for a short-term option.

In towns that have experienced depreciation in home values, with negative percentages indicating a lower median value of homes sold, such as Litchfield (-15.57%), Scotland (-14.61%), and Sharon (-14.73%), there are different considerations. Unlike the towns with the highest appreciation rates, these towns have a significantly higher volume of sales, with Litchfield recording 60 sales for the past 365 days. Although a depreciating market can feel challenging to sellers, finding homes that are listed below their supported market price can provide a great opportunity for buyers. This is particularly true for properties that show potential for renovation and rehabilitation. For example, in a declining market, a home that is priced lower than the market, investment into the property may help position it to be an ideal home for a lucrative sale when the market reverses. Factors such as local economy, level of demand, change in interest rates, or number of distressed properties are particularly essential to understand when considering investments.

It's important to note that these observations are based on the available data, and additional factors such as housing supply, interest rates, and external events (e.g., economic fluctuations, pandemic impact) can also play a role in influencing real estate trends and impacting the stability and reliability of this data. For example, since some towns may have had few residential sales in the past 365 days, the median value can be more easily skewed. For statistics, the larger the sample size, the more stable and consistent the data will be. Therefore, it will be important to consider the larger context when assessing appreciation and depreciation given the potential volatility in figures based on the limited data given a lack of sold homes/inventory. Real estate agents, who are knowledgeable about the trends in the market, can help identify areas of excellent investment potential, with properties ripe for renovation. They can also support sellers in highlighting the growth of value in their property and in capitalizing on the increased borrowing capacity of buyers to their advantage.

Posted by Nolan Trask on


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