Real estate asking prices drop in CT, but rising interest rates hurt buyers

To get a sense of how hard interest rates are on Connecticut homebuyers, just compare two homes bought 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, both built during the post-war suburban boom.

On a 30-year fixed-rate mortgage at the average annual interest rate in January when it was purchased, Woodbridge’s largest settlement would cost about $160,000 less than the Hamden Ranch purchased this month, if the latter property carried a similar mortgage but at August interest rates.

Put another way, with $160,000 of additional buying power at January interest rates, the Hamden Ranch buyer could have considered a house next door that sold this month for $460,000 — with 60 % more floor space and built only a dozen years ago.

For first-time home buyers who don’t have equity in an existing home that they can sell to recoup the cost of a new home, it’s an especially daunting prospect.

With the start of the school year generally dampening the residential real estate market in Connecticut and nationally, sellers are still grappling with the variable of ever-increasing interest rates in pricing their homes. properties. In July, buyers were still bidding above listing prices on average, by 3.5% according to Berkshire Hathaway Home Services New England Properties.

But against the expectation of another interest rate hike in September, some sellers are cutting prices, in some cases for homes that have been on the market for months, but others are doing so after less. a month of open doors.

As of Monday, just over 16,400 properties in Connecticut were up for sale. reports that about one in eight Connecticut sellers have slashed their asking prices in recent weeks, ranging from $5,000 off a modest Bridgeport condominium to a $3 million price cut on an estate. by Redding once owned by filmmaker Barry Levinson.

The Federal Reserve’s Open Market Committee holds its next meeting on September 21 and the following day. Economists predict the Fed will raise interest rates by at least half a percentage point, after two successive increases totaling up to 1.5% in the past three months.

This increases the cost of buying a home for those who need a mortgage to do so, as well as rates for automobiles, credit cards and other major categories of household debt. On Friday, mortgage giant Freddie Mac announced the annual interest rate for a 30-year fixed-rate mortgage at 5.55%, up from 3.22% in January.

By June, rapidly rising interest rates coupled with pandemic prices had put the cost of homeownership at its highest level since at least 1989, according to a monthly index from the National Association of Realtors.

But today’s buyers have a possible escape route – the refinance market, as other lenders are offering to take out these mortgages at a lower interest rate. When interest rates hit record highs in the first three months of 2021, U.S. mortgage refinance issuance hit its highest level since 2003, according to Freddie Mac.

In total, homeowners signed $2.5 trillion in refinanced mortgages that year – when interest rates were around where they are now, but down from the 7% threshold they had crossed in 2001.

The unanswered question is how high mortgage rates might go for the rest of this year.

“While higher interest rates, slower growth and looser labor market conditions will bring inflation down, they will also hurt households and businesses,” the Fed Chairman said. Jerome Powell, last week at an economics symposium in Wyoming. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

[email protected]; 203-842-2545; @casoulman

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