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Market for houses in Connecticut sizzles, but may hit cooling trend

For 18 months, Stacey and Gregory Letourneau made house hunting in central Connecticut a Sunday ritual. They walked through about 60 houses, watching prices rise before their eyes as they looked for a balance between what they wanted and what they could afford.

Along the way, they found out about what it's like to be a buyer in a super-hot seller's market where local prices have soared as much as 34 percent in the past two years and are up as much as 48 percent since early 2000.

Occasional bidding wars have pushed the prices of some homes above the asking price over the past year, according to real estate industry representatives. The pattern is reminiscent of Connecticut's raging home market in the late 1980s, which was followed by a drastic crash in values.

Recent sales include a home in Southington offered at $210,000 but sold for $5,000 more. In Wallingford, a seller received $7,500 more than the $351,500 asking price.

Bubbling beneath the continuing heat of the 2004 market are the initial effects of small increases in mortgage interest rates since last year that appear to be slightly dampening the pace of sales this spring. But single-family housing construction remains near the very high levels maintained since the late 1990s.

The pace has slowed from last year in Meriden, Wallingford and Southington, but single-family building permits are up 35 percent in New Haven County and 22 percent in Connecticut for the first four months of 2004. Southington, site of more new homes over the past eight years than any other town in the state, issued 39 permits. For the same period last year, it issued 66.

Construction hot spots in central Connecticut this year include North Haven, North Branford, Prospect, Oxford, Shelton and Portland. The state leader is Danbury, continuing a construction frenzy that began in the late 1990s. Through April, it had issued 106 single-family permits, more than three times as many as during the same period of last year. The 2004 authorizations already equal three-fourths of all permits issued in 2003.

Finding a good fit

For the Letourneaus, the initial decision about where to buy was easy. Gregory, a remodeling contractor, was set on buying in his hometown of Wallingford. But the couple eventually decided homes with the features they wanted were too expensive.

After they broadened their search, they found an eight-room, 1,700-square-foot cape on a quiet cul-de-sac, where they moved in February. Enjoying life with a baby boy born a month after they moved in, the Letourneaus are happy with their home although their compromise on location gave them what some people consider a less desirable Meriden address.

Despite the city address, their 15-year-old house is solidly suburban, with a 400-square-foot deck and an oversized two-care garage. It stands on a one-acre lot along Country Lane, off Finch Avenue, on the far western edge of Meriden. The Cheshire town line is a couple hundred feet away; the Southington border, a five-minute walk.

"We wanted Wallingford. My husband's parents live there," said Stacey Letourneau, who works as dental hygienist in Wallingford. She laughed about the long, time-consuming search, in which they discarded two buyer's agents, hired a third, then found the home themselves.

"Every Sunday we were out there with the paper looking ... We were looking for privacy. I was looking for a big kitchen. My husband was looking for a big garage," she said. They found that house through word-of-mouth from a friend. They paid $258,000.

At that price, they got much more house than they would have been able to buy for the same money in Wallingford, according to research by the Center for Real Estate and Urban Economic Studies at the University of Connecticut Business School. The center estimates that a typical mid-range house is worth 60 percent more there than in Meriden making a house equivalent to the Letourneaus' home worth approximately $400,000.

Realtor Frank D'Ostilio Jr., president of the Greater New Haven Association of Realtors, remains bullish.

"The market is still going up in price and they're still on the market a very short time," he said. Sales at more than the asking price "are absolutely continuing to happen."

And whether or not interest rates keep rising, he sees a rosy picture over the next five years.

"Connecticut will do well, but we may get outperformed by some areas of the country that have been suffering," he said.

The latest statistics indicate that already may be starting to happen. Statewide, single-family home prices during the first three months of 2004 were up 6 percent from a year earlier, compared to 12 percent the previous year, according to the UConn real estate center. The slowdown occurred mainly in late 2003 and early 2004. National price hikes outpaced Connecticut's for the first time in this decade, increasing 8 percent.

Prices in the central Connecticut region still are advancing faster than the national average. The New Haven metropolitan area, including Meriden and Wallingford, posted the state's biggest regional gain for the first three months of 2004, with prices rising10 percent.

In local communities, real estate industry records show that prices were up 15 percent in Wallingford during the first three months of this year compared to a year earlier. Prices rose 9 percent in Meriden and 23 percent in Cheshire, but in Southington they declined 3 percent. Town-by-town statistics for such short periods sometimes are affected by one-time factors, such as sales of a batch of lower-priced homes.

Southington was the only area town reporting more sales in January-March 2004 89 vs. 80 a year earlier. Sales in Meriden declined from 102 to 84; from 74 to 58 in Wallingford; and from 61 to 45 in Cheshire.

The slowdown turned into a significant drop for parts of Fairfield County. Prices in the Stamford area were 20 percent lower in the January-March period than a year earlier, according to the UConn real estate center.

Condominiums may be the strongest sector of the Connecticut housing market over the next few years, according to D'Ostilio. They will continue their recent surge in value because of high demand from buyers who have been priced out of the single-family market, he said. Average condo prices rose13 percent in Connecticut last year.

Sandy Maier Schede, a Realtor in Meriden and a City Council member, sees a slight softening of the red-hot market recently. "It's still an active market, but people are being a little more cautious." The sales boom for condominiums is helping Meriden, where the housing stock includes a high proportion of condos.

Interest rates are up a percentage point since early this year, according to a national survey by Freddie Mac, a federally chartered corporation that is one of the nation's top mortgage lenders. The average last week was 6.36 percent. Rates were below 6 percent during the first half of 2003, bottoming at 5.1 percent. Then they crept into the 6s before briefly dipping back into the 5s last winter.

Many analysts expect the Federal Reserve to increase benchmark interest rates later in the year, prompting some to turn pessimistic. The expected increases could "spur a round of foreclosures" on adjustable-rate mortgages in the Northeast and other high-priced markets, according to columnist Broderick Perkins, writing last week in the industry journal Realty Times.

Each percentage-point increase in interest rates pushes up the cost of a 30-year mortgage for $200,000 by about $140 per month.

Taxes were the key

At the moment, many buyers remain able to purchase homes despite ballooning prices by taking advantage of what still are the lowest loan rates since the late 1950s. For first-time buyers Robin and David Pascale, property taxes became a bigger issue than price. And they found a lower tax rate in Wallingford.

"We wanted to stay in West Haven," Robin Pascale said. "We always wanted to live down by the shoreline. But the taxes are very high, just too much."

Instead, the Pascales, who are in their mid-30s, paid the asking price of $214,000 for a house near the center of Wallingford with three bedrooms and "the coolest walk-up attic." After looking at about 40 homes in a year-long search, they got the well-kept, charming older home they wanted, a 93-year-old colonial. "We just knew it as soon as we saw it. The interior especially," Robin Pascale said. They moved in six months ago.

Looking back, they're pleased at having been outbid on a Wallingford home they tried to buy earlier last year. "It was a blessing that we didn't get it," Robin Pascale said. "The houses were going like crazy. There was a lot of bids on the house."

She is a strong advocate of using a buyer's agent to help guide a house hunt. "They get you appointments. They find a lot more about a house before they send you to look at it. They find out a lot about you, what you're looking for. They don't just want to sell you something and get the commission," she said. "You don't have time in this busy world. You don't have time to do all that."

The Pascales' search was long, punctuated by what seemed at the time to be a major disappointment. But the aid of a buyer's agent topped with joy about the happy ending is reflected in Robin Pascale's summation of the experience.

"It went very smoothly for us."

By Martin J. Waters, Record-Journal staff

6/6/2004


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