Since the introduction of this blog series, CHFA has been tracking and reporting on the continuous decline in residential properties available for purchase. Inventory reached all-time lows in the first quarter, with less than 3,500 residential properties on the market as of February. The lack of inventory on the market has continued to impact the sales prices and turn-times on properties that do become available. Based on sales data from the first quarter, the median residential sales price for a single-family home was $275,000. While down from a high of $330,000 in mid-2022, the median first quarter sales prices still exceed pre-pandemic levels. One month before the onset of the pandemic in March 2020, the median residential sales price was $216,000, or 21% less than in 2023. Further, nearly half of all home sales in the state sold above list price, compared to 22% nationally.
The state continues to see quick turn-times on property sales, with most for-sale properties getting under contract in less than 30 days; nationally the turn time is 52 days. Based on these measures it appears that Connecticut’s housing market continues to cool at a slower rate than other regions. As seen in the map below, the majority of CT counties have seen negative year-over-year inventory growth compared with positive growth in nearby states. Continued cooling will be heavily dependent on what the spring home-buying season brings. If enough Connecticut homeowners decide to put their houses on the market, the increased supply could result in price reductions. However, given that interest rates continue to be high, there is uncertainty as to whether current homeowners, the majority of whom have rates under 4%, will give up their low rates.
Passed by Congress in 1975, the Home Mortgage Disclosure Act (HMDA) requires certain lending institutions to report on information related to all mortgage loan applications. This law is meant to help regulators assess whether or not a lending institution is adequately serving the community where it’s located and if there have been any patterns of discriminatory lending. HMDA data is released annually by the Federal Financial Institutions Examinations Council (FFIEC) and typically lags behind the current year. Presently, complete data is available through 2021, with full year 2022 data anticipated to be released mid-2023.
CHFA has collected and analyzed ten years’ worth of HMDA data to identify barriers to homeownership. Over the last ten years, just over 9% of all mortgage loan applications have been denied. Historically, the top reason for a home mortgage loan denial has been debt-to-income ratio; indeed, 26% of all denied loan applications listed high debt-to-income ratio as the primary reason for denial. Most traditional lenders look for debt-to-income ratios of less than 30%, which may impose obstacles on low- and moderate-income prospective homebuyers. Millennial college graduates may also face increased likelihood of denials due to higher debt-to-income ratios. In Connecticut, the average student loan debt exceeds $35,000 and a majority of those in debt are under the age of 35-- historically the median age for homeownership in the state. As these graduates begin to seek out homeownership they may find their debt-to-income ratios are a barrier to a mortgage.
Similarly, poor credit history represents the primary reason for about 18% of all loan denials. This number rises when looking at Black loan applications, for which a quarter of all denials can be attributed to poor credit history. To learn more about barriers to homeownership among BIPOC communities, check out CHFA’s 2021 report on Equitable Homebuying.
Interestingly, insufficient cash for down payment or closing costs represents only 2.49% of all loan denials. This is primarily influenced by two factors. First, Connecticut has many robust down payment assistance programs including those offered by CHFA. These programs enable homebuyers to come to the table with more cash, increasing their competitiveness, particularly in this tough housing market. The abundance of down payment assistance options aside, the other factor influencing the low number of loan denials related to insufficient funds is that households without any savings are less likely to apply for a mortgage to begin with. In this way, lack of down payment or closing cost savings as a barrier to homeownership may be under-represented in the HMDA data.
Stay tuned for a deeper analysis of Home Mortgage Disclosure Act data later this year.