With another quarter behind us, the Intersect presents the third issue of the CHFA Quarterly Housing Market Rundown. In this issue, we reflect on the first six months of the year while providing a peek into what’s to come for Connecticut’s economy and housing landscape.
Despite new units being delivered to the rental market, Connecticut continues to see strong rental demand resulting in significant rent growth and low vacancies. New Haven County has added some 2,200 rental units over the past three years, a cumulative inventory expansion of 6.5 percent according to CoStar. Over 1,160 rental units have come online in Fairfield County over the last 12 months, with some 2,700 units currently under construction. Yet with so many units coming online, vacancy continues to remain low across the state.
While pre- pandemic vacancy rates in the Hartford Metropolitan Statistical Area (or MSA, which includes Hartford, Middlesex, and Tolland Counties), hovering around six percent, they have dropped to a just over three percent during the second quarter of 2022. Other rental markets in the state have also experienced lower than average vacancy rates. According to CoStar, New London County has a vacancy rate of 2.4 percent while Fairfield County’s vacancy rate stands at just over 4 percent. New Haven County’s vacancy rate is higher than the rest of the Connecticut's rental markets, however, at 5.3 percent it is still in-line with the county’s 10-year average. While vacancy rate among market rate apartments statewide is low at around 3 percent, the demand for affordable income restricted units is strong, with a vacancy rate at just 2 percent during the last quarter.
Increased demand and limited rental unit inventory has resulted in some significant increases in what households are paying in rent. According to CoStar, the Hartford MSA’s annual rent growth went from three percent in 2020 to seven percent during the third quarter of 2022. In Fairfield County, over the last 12 months strong demand for rental units has resulted in an 8.2 percent increase on asking rents. However, the highest rent growth in Connecticut over the last year has been in New London County, with an 11.5 percent annual rate increase in the third quarter of 2022. This is despite the county’s seeing nearly 800 new rental units delivered to the market over the last three years and an additional 400 units currently under construction.
One of the drivers for the increased demand for housing in the state has been strong economic growth over the last year. According to the Connecticut Department of Labor, the Hartford MSA gained some 13,800 jobs, a 2.5 percent increase over the last 12 months. New London County has also posted similar rates of job growth of around 2.3 percent. Additionally, the state’s unemployment rate is low at just under four percent. Connecticut’s low unemployment rate coupled with job creation, has resulted in a tight labor market that is attractive to those seeking employment from out of state.
In the last issue of the market rundown, we reported that Fannie Mae had predicted a continued rise in home prices throughout the second quarter. This prediction has held true as the median sales price of homes in the state rose steadily between April and June. The median sales price for a home in Connecticut was $275,000 in January compared with $332,500 at the end of June; a 20% increase from the beginning of the year. Experts are predicting a slow cooling of prices as we enter the third quarter; however, data on residential sales prices for the first half of July shows prices remaining high.
Rising interest rates in the 2nd quarter have brought the cost of a monthly mortgage payment up by as much as 50% nationally. However, looking at the median home sale price in Connecticut demonstrates that the state has yet to see quite the same increase. In the 2nd quarter, the median sales price in the state was $315K. At a 2.75% interest rate the monthly payment for such a loan would be approximately $1,500 compared to over $1,900 with current interest rates over 5%. An approximate 27% increase well below the national average. As such, rising interest rates seem to be having an overall smaller effect on reducing prices within the state, at least for now.