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What would happen to CT home prices if a recession hit?

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Tumble’s home met the definition of quick flip in 2008 when it sold $ 40,000 more than the owner paid $ 330,000 just nine months ago.

Under the 2022 definition of lightning sales, there is a contract to change hands again for $ 439,000 just days after it hits the market, but down $ 36,000 from what the owner originally wanted. I am.

As home sellers guess what buyers will pay In high interest rates Further tackling the cost of mortgages, even closer to the horizon is the impact of the recession. It may put a purchase plan on hold due to unemployment, salary increases, or dissatisfaction with bonuses.

That’s a particularly dangerous outlook for those who buy a home for the first time, and for those who don’t have an existing home that can be sold to help undertake a new purchase. Last year, just over one-third of homebuyers came from first-time homebuyers.

The Connecticut When U.S. economy shows continued resilience Almost half of the economists polled by Bloomberg this month, but in June Predicted a national recession Over the next 12 months, it has increased from 30% of what was polled in June.

“Every recession has its own characteristics,” said John Clapp, a real estate expert and professor emeritus at the UConn School of Business at the University of Connecticut. “The recession of 1981, which was accompanied by rising interest rates at the time, affected the housing market. It wasn’t as much of a recession as interest rates that caused housing to fall sharply,” he said.

Home sales and prices skyrocketed during the 2009 catastrophe, but bubble homes after brokers put together rough “jumbo” mortgages at adjustable rates, allowing people to buy larger homes. Securities for the fast-growing market and banks to resell their loans with rapid profits. Interest rates rose just as the job market began to collapse, so many borrowers could no longer pay and many of them lost their homes due to foreclosures.

If the economy, interest rates and overall inflation are putting sellers and buyers at a new crossroads, the 2022 market will have one major difference compared to 2008. Liquid people have spent fueling the booming employment market.

Also, since the Great Recession, banks have scrutinized the credit of borrowers much more. Since 2009, the credit score for newly formed mortgages has risen significantly on average, including last year’s booming real estate market, according to the Federal Reserve Bank of New York index.

“Consumers are in good shape,” JPMorgan Chase CEO Jamie Dimon said in a telephone conference in mid-July. “They are spending 10% more than last year. This is almost 30% or more, more than before COVID. Business, you talk to them, they are in good shape and they are doing well I’m doing it. I’ve never seen business credit improve like never before in our lifetime. “

“Still well before 2019”

It was taken over by the real estate market in 2022, but more and more sellers Succumb to their asking price After a two-year property bid battle two years ago.

The S & P Core Logic Case-Shiller US National Home Price Index fell slightly in April to a 20.4% year-on-year increase, but remained close to historic highs as a continuous response to the COVID-19 pandemic. The value of Connecticut homes has skyrocketed since March 2000 as New York City families bought replacements, and opportunist sellers have found new bargains in the orbit of their previous homes for family ties and work. Came to purchase in order.

Of the more than 4,000 Connecticut properties that visited the Realtor.com website in the first three weeks of July, about 5% of owners had already reduced their asking prices just a few weeks later. This is compared to 11 percent of all homes currently for sale in Connecticut, regardless of how long they have been on the market.

For the groups listed in July, discounts ranged from a 6-bedroom spread in Greenwich’s Cos Cob district to $ 455,000 and are currently just under $ 3.5 million. Lebanon’s six-bedroom country house is now $ 5,000 off, with prices just below $ 465,000.

However, the majority of sellers continue to stick to the original asking price, and the Connecticut market remains hot by historical standards for more than two years after the launch of the COVID-19 pandemic. This has led more people to abandon their city life due to the elbow room in the green area, freeing them from commuting during the remote work era for the foreseeable future.

Candace Adams, CEO of Wallingford-based Berkshire Hathaway Home Services New England Property, said: “I don’t think we’ll see any significant price cuts. There are some, but not so many.”

Until June this year, the median value of real estate sold in Connecticut (the midpoint of all transactions) was $ 335,000 at an unconstructed ranch at Hebron’s Labrand Farm Development, 20 miles southeast of Hartford. Slightly exceeded. According to Berkshire Hathaway’s mid-year report on the Connecticut housing market, this was about $ 17,000 more than some homes acquired in the first half of 2021 at the median state, an increase of 5%.

Transaction price Already leveled The Federal Reserve has set interest rates high, some buyers have been forced to think twice about mortgage underwriting, and the newly listed pool has shrunk compared to a year ago, heading for the summer months. Bankrate’s online mortgage calculator says that a full percentage point increase in interest rates will add an additional $ 65,000 interest payments to a $ 300,000 fixed rate mortgage for 30 years, given a good credit profile. Suggests.

and Published by Urban Institute, Researchers analyzed the latest period in which the United States absorbed at least a 1.5% rise in interest rates during the period of less than 12 months from 1994 to 1995. House prices are still rising, but are on a low 2.6% track from the previous 3.2%.

Paul Broinich, CEO of William Pitt The Younger’s International Realty in Stamford, said that in Connecticut, wealthy earners can absorb higher interest rates given the plunge from other investments such as bonds. Said that interest rates usually do not significantly affect luxury home purchases.

Paul Broinich, Chief Executive Officer of William Pitt Sotheby’s International Realty, said: “In my opinion, it’s Manhattan and New York money.”

The effect of foreclosure?

Buyers, whether capped or not, want a break after a two-year runaway price, from starter homes to waterfront properties.

According to the US Census and HUD, the last national slump in home prices lasted five years from the peak of the bubble in early 2007 to the end of 2011, in line with the surge and aftermath of the Great Recession.

Earlier this month JP Morgan Chase Research Note He noted that US nominal home prices are now 40% above the valley that fell in 2012, and surprisingly 4% above their previous peak in 2006.

One new source of bargain basement properties-foreclosure properties where lenders are looking for unloading-has not yet affected the Connecticut market in a meaningful way. Under the law passed after the Great Depression, banks must pursue long-term mediation with homeowners to resolve mortgage payment terms that allow families to stay in their homes. ..

And after the Connecticut banks agreed on a moratorium on the launch of a new foreclosure that lasted more than a year, homeowners who were delinquent in their mortgages received extensive bailouts at the start of the COVID-19 pandemic. According to Attom Data Solutions, Connecticut was as of March One of the five longest intervals For banks to complete foreclosure in four and a half years.

“We’re seeing some foreclosure activities starting again — it’s going to be low-end,” Adams said. “The foreclosure has been on the sidelines for two years, and I think banks are catching up with their backlog.”

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