New Haven Register (New Haven, CT)
State sees real estate asking prices drop
To get a sense how hard interest rates are hitting Connecticut home buyers, one need only contrast two homes purchased this year at the median price of $342,500 — one, a three-bedroom colonial in Woodbridge; the other, a two-bedroom ranch seven miles away in Hamden, with both built in the post-war suburban boom.
On a 30-year, fixed-rate mortgage at the average annual interest rate in January when it was purchased, the larger Woodbridge colonial would cost roughly $160,000 less than the Hamden ranch purchased this month, if the latter property carried a similar mortgage but at August’s interest rates.
Put another way, with an extra $160,000 in spending power at January’s interest rates, the buyer of the Hamden ranch might have considered a nearby house that sold this month for $460,000 — with 60 percent more floor space and built only a dozen years ago.
For first-time homebuyers who do not have equity in an existing home they can sell to recoup the cost of a new home, it is a particularly daunting prospect.
With the start of the school year typically dampening the residential real estate market in Connecticut and nationally, sellers are still grappling with the variable of ever-escalating interest rates in the calculus of how to price their properties. As of July, buyers were still bidding above listing prices on average, by 3.5 percent according to Berkshire Hathaway Home Services New England Properties.
But against the expectation of another jump in interest rates in September, some sellers are cutting prices, in some instances for houses that have sat on the market for months, but others doing so after less than a month of open houses.
As of Monday, just over 16,400 properties in Connecticut were listed for sale. Realtor.com reports roughly one in eight Connecticut sellers having cut their asking prices in the past several weeks, ranging from $5,000 off a modest Bridgeport condominium, to a $3 million price cut for a Redding estate once owned by filmmaker Barry Levinson.
The Federal Reserve’s Open Market Committee holds its next meeting on Sept. 21 and the following day. Economists are predicting the Fed will hike interest rates at least a half percentage point, on the heels of two successive increases adding up to 1.5 percent in the past three months.
That ratchets up the cost of purchasing a home for those needing a mortgage to do so, as well as rates for autos, credit cards and other major categories of household debt. As of Friday, mortgage giant Freddie Mac reported the annual interest rate for a 30-year, fixed-rate mortgage at 5.55 percent, up from 3.22 percent entering January.
As of June, the rapid rise in interest rates coupled with pandemic prices had put the cost of home ownership at its highest level since at least 1989, according to a monthly index by the National Association of Realtors.
But today’s buyers have a possible escape hatch down the road — the refinancing market as other lenders offer to take on those mortgages at a lower interest rate. When interest rates were at record lows in the first three months of 2021, U.S. mortgage refinancing originations shot up to their highest level since the 2003, according to Freddie Mac.
In all, homeowners inked $2.5 trillion in refinanced mortgages that year — when interest rates were at about today’s levels, but down from the 7 percent threshold they had crossed in 2001.
The unanswered question is how high mortgage rates might go for the remainder of this year.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Fed Chair Jerome Powell said last week at an economic symposium in Wyoming. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”