Think creatively and look for opportunities - State of the market for new buyers in New London County

It is no secret that the housing market is in a tough situation right now. The problem is that the majority of Americans, no matter where they live, cannot afford to buy a home in the cities or towns in which they work. Why is that the truth? Looking back on the market, the selling price, along with the price per square foot, were at all-time highs just before the financial crisis in 2008. 

These all-time highs eventually dropped to all-time lows around 2015, before they started to slowly climb back up. Then, we had a global pandemic that decided to take a slow climb and accelerate at an exponential pace, and the slope of median selling prices skyrocketed. Additionally, we are currently experiencing a period in which mortgage interest rates are at 7%, an extremely high level we have not experienced in the past twenty years. Right now, both selling prices are high, as well as interest rates, which is unlike the norm. Usually in the housing market when home prices increase, interest rates decrease. This time it is different, as we have all-time highs in both categories. Now this isn’t to say that we are going to have a housing market crash similar to 2008; however, we should expect some kind of drop within the next couple of years. The economy can not handle prices continuing to rise. As can be seen in the graphs below, for those making the median household income in a town, the median household selling price of homes is completely out of reach.

This is particularly true in Lyme, Old Lyme, and Stonington. Moreover, the cost per square foot is continuing to increase for properties in Lyme and Old Lyme, although it appears somewhat more stable in Stonington when comparing rates from 2022 to 2023.  In contrast, the median cost of homes sold in Bozrah and Griswold have declined in the past six months compared to 2022.

You might ask, how do we solve this problem?  The first thing to consider is where you can get the most space for your money. When looking at New London county, the most affordable towns are Franklin, Salem, and Lisbon. When approaching a home purchase, you need to consider how much money you need to have to get into these towns. When using the median household income as a guide, it will be necessary to be able to put at least 15% down to have any discretionary income left, but more realistically, it would be advisable to put down at least 30% to 40% in order to afford other basic expenses.  

It is also important to recognize that listing prices are not necessarily equivalent to the selling price.  There has been a consistent trend dating back to 2000 of the median listing price being higher than the median selling price. Although this pattern has been disrupted following the onset of the global COVID-19 pandemic, Lisbon and Preston continue to average a lower sales price than listing price.

In addition, another portion of the decision for affordability will be shaped by the mill rate (tax rate) for the area. For example, if the median selling price in one town is exceeding the median household income, and that the town has a higher mill rate, it will not be a reasonable choice compared to an area with a lower mill rate. For example, Lisbon (22.23) and Franklin (22.97) have a relatively lower mill rate compared with Salem (28.80). 

Another thing to consider when choosing a location is the number of homes that are currently available. For example, in Franklin, Lisbon, and Salem, there are currently 14 homes for sale on the market across all three cities, with 35.7% below $400,000. In addition, the typical median house across these three cities have these attributes: 3 beds, 3 baths, 1,987 square feet, 2.09 acres, and built in the 1980s.  

For first time homebuyers, it is essential to think creatively. This includes potential first time home buying incentives, particularly for those with low- to moderate-income levels.  For example, New London is a targeted area by the Connecticut Housing Finance Authority (CHFA).  This means that families of 3 or more people who earn $167,300 or less may be eligible for a reduced interest rate on a mortgage for a home of $588,100 or less  ( In addition, even individuals with less than stellar credit ratings (i.e., 500-579) may still qualify for an FHA loan if they can put at least 10% down.  Many are reporting that individuals can get approved at higher ratios than seen in the recent past.  

It is also important to consider other ways that conditions for FHA loans can be modified.  For example, the front-end ratio, or the ratio of debt based on mortgage payment, taxes, insurance, and mortgage insurance premium (MIP) to an individual’s gross monthly income usually has to be no more than 31% for individuals with credit ratings of 500-579, but this can be increased to 33% to 45% when purchasing an energy efficient home with an FHA loan.  Similarly, there are compensating factors that can apply when looking at the back-end ratio (or total debt to income ratio) for FHA loans.  Although the maximum back-end ratio is typically 43%, this can go up to 50% if there are two or more compensating factors (i.e., high credit score, cash reserves, no credit card debt, other sources of income, etc.). These factors will strengthen your buying power, which may open up other options.

In addition to considerations for traditional mortgages, buyers may want to consider other potential resources.  Are there other sources for a down payment, such as loans from family members?  Can someone serve as a cosigner for the mortgage? Does the property have rental potential, where a portion of the space could be rented to offset the cost? Another solution may be to buy land or a lot initially, and then work to build a home in a second phase.   

No matter what, there is some hope and light in some areas for your first home. For example, Lisbon remains a more realistic option for affordability and is within a 30 minute drive to New London or 40 minutes to Hartford. There are always positives depending on how you look at the situation. It's just a matter of having a well-thought out understanding of the market, being honest about the finances involved, and working diligently to find opportunities. With a knowledgeable agent at Seaport Real Estate Services, you can be confident that we can help locate the most affordable towns. We have additional resources available that allow us to effectively locate affordable towns given someone’s. 

Posted by Nolan Trask on


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