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Home prices climb, but gov't shutdown, debt crisis spell trouble

Housing market: Fractured economy would hit consumer confidence
Updated 9:28 pm, Wednesday, October 9, 2013

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  • House for sale on 90 Hattertown Rd. in Newtown, Conn. on Wednesday, Oct. 9, 2013. Photo: Tyler Sizemore / The News-Times
    House for sale on 90 Hattertown Rd. in Newtown, Conn. on Wednesday, Oct. 9, 2013. Photo: Tyler Sizemore

 

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The housing market is improving in the region, but area residential real estate professionals are warning that economic uncertainty created by a long-term partial government shutdown and the possibility of a U.S. debt default could raise havoc for home sellers and buyers.

The Connecticut Association of Realtors says the positive trend in residential real estate as measued in August could be thrown into reverse if Congress fails to pass a budget soon, or if it stops the federal government from raising the debt ceiling, which would render the United States unable to pay its bills.

"Thus far, it has not affected our market. The (Federal Housing Administration) and Fannie Mae are still taking mortgage applications. We've heard from our buyers and sellers that it's more an annoyance at their elected officials," said Mary Ann Hebert, president of the 15,000-member Connecticut Association of Realtors. "For the first time in years, we're seeing improvement in consumer confidence. If this goes on, confidence may pull back."

The loggerhead mentality in Congress could jeopardize the fragile but improving economy, she said, adding that federal officials should take a tip from the real estate industry.

"We're used to negotiating in real estate. It's time for our public officials to negotiate," said Hebert, broker/partner with Bannon & Hebert Properties in Middlebury, and a real estate agent since 1986.

The shutdown comes as unit sales in Connecticut climbed 13.8 percent in August, compared with the same month a year earlier. In Fairfield County, the figure jumped 20.3 percent, according to the most recent figures available from Connecticut Association of Realtors.

The average sale price in Connecticut increased to $434,389 from $422,787 during the same period, as did the median sale price to $285,000 from $270,000. The average sale price in Fairfield County fell slightly to $790,742 from $796,693, but the median price jumped to $525,000 from $502,000.

Another indication that the housing market is improving in the state is that the number of days a house for sale remained on the market dropped to 82 in August from 91 in August 2012. In Fairfield County, it fell to 99 from 112.

There has been a similar uptick in house prices in the New Canaan area, showing a vast improvement over 2012, said Barbara Cleary, president of Barbara Cleary Realty in New Canaan.

"It's amazing what has happened in the first nine months," she said. "There was an 86 percent increase in houses sold in September (28) compared with 2012 (15)."

During the same period, 224 houses have been sold in New Canaan, compared with 172 in 2012, Cleary said, noting that the median price is $1.3 million, compared with $1.7 in 2005.

"Confidence is back. More people are willing to sell. They had been wanting to sell but held back. You're getting very good volume now. I don't know what the next month will bring," she said. "It's a crazy time."

A self-inflicted economic decline would likely torpedo extension of an impressive year-over-year jump in residential real estate indicators, realtors said.

"If the economy takes a hit, it's going to reduce the buyers we have because it's going to reduce their confidence and their ability to qualify for a mortgage," said Warren Schutt of Re/Max Unlimited Real Estate in Danbury.

A recent rise in interest rates has already slowed the market, according to Schutt.

Mortgage processing has indeed been impacted by the shutdown, as lenders wrestle with obtaining tax return verifications from the Internal Revenue Service -- needed to ascertain the accuracy of borrowers' tax returns and W2 forms.

Form 4506T "is a very important (IRS) form. It will cause an interruption (in the mortgage process) with some borrowers, depending on the lender they go to," said Pat McRedmond, a loan officer at Fairfield County Bank.

Because the form is still required, some lenders have adopted policies about how it will be addressed after the shutdown ends.

Besides enduring a hobbled loan process during the shutdown, the crisis could cause home buyers to think twice about making what probably is the biggest purchase of their lives, according to Katherine Pancak, professor of finance and real estate at the University of Connecticut.

"In general, any type of government shutdown brings about uncertainty, and uncertainty hurts the economy," Pancak said. "Potential home owners facing uncertainty are less likely to buy. If the shutdown drags on, reluctant buyers means lower demand, which could translate into lower prices."

The question of raising the debt limit puts the residential real estate market into a quandary, according to Pancak, because a default could have widespread economic repercussions, dramatically impacting the market, but raising the debt limit could increase the perceived or real risk of inflation, leading to increased mortgage rates and a negative impact on real estate markets.

As in Connecticut, there was a national trend of rising home prices year-over-year, according to an Oct. 1 CoreLogic report, which said home prices on a national basis were up 12.4 percent in August, compared with the same month of 2012.

States with the biggest year-over-year increases, CoreLogic reported, were Nevada, 25.9 percent; California, 23.1 percent; Arizona, 16.4 percent; Wyoming, 15 percent; and Georgia, 14.8 percent. Connecticut saw a 3.7 percent jump.

A residential property information provider based in Irvine, Calif., CoreLogic said its pending Home Price Index indicates that September home prices are expected to rise by 12.7 percent on a year-over-year basis.

While real estate professionals said prospects for October are merky because of the budget impasse,

Sam Khater, deputy chief economist at CoreLogic, declined to address the effect of the shutdown.

But he predicted a slight decline in sales as higher mortgage rates deter some buyers.

"The primary driver has been a chronic lack of supply, and demand had been locked up for the past two or three years." he said. "Home prices will rise, but (price increases) will slow down. The market is cooling down, and the supply is beginning to increase."

CoreLogic reported home price improvement of 0.9 percent on a national level, comparing July to August.

"After a strong run, the rate of home price appreciation slowed in August," said Anand Nallathambi, president and CEO of CoreLogic, in prepared comments. "In addition to seasonality, the recent sharp rise in mortage rates off their historic lows was a clear driver behind the slowdown. We anticipate moderate gains in home prices over the balance of this year."

rlee@scni.com