CT real estate plagued by modest price gains, low inventory

By Scott Benjamin

In the Land of Steady Habits, since the recession the real estate market has been in the habit of underperforming.

Dan Keune - the president of CT Realtors, one of the largest trade associations in the state - said since the Great Recession ended in 2010, nationally home prices have increased 43 percent, but only eight-tenths of one percent in Connecticut.

“The market is flat in Connecticut, but it is not dead,” said Keune, who is based in Ellington.

“There just isn’t much appreciation in value for homes in Connecticut,” he added in a phone interview. “That lack of appreciation is largely responsible for foreclosures, short sales and financial duress” among homeowners.

Scott Cooney of Danbury, the CT Realtors’ First Vice President, said in an interview that there is a lack of inventory in Danbury and other parts of Connecticut since, among other things, some homeowners who purchased their residences shortly before the 2007-2008 subprime mortgage crisis are not able to move up to more expensive homes because they have negative equity in their mortgages.

But isn’t there a disconnection between the current economic conditions and the quality of life in Connecticut?

For example, the 24/7 Wall Street web site recently ranked Connecticut fifth – after, in order, Massachusetts, Colorado, New Jersey and Hawaii – among the best states to live in. The Web site explained that Connecticut has higher median income, a higher life expectancy rate and more than 39 percent of the adults have at least a bachelor’s degree compared with about 32 percent nationally.

Yet, Liberty Bank economist Donald Klepper-Smith has stated that on average a net of more than 400 people are leaving the Nutmeg State each month.

Keune points out that the Office of Policy Management, the governor’s budget arm, has reported that over the long term Connecticut’s state government and the municipalities combined have $125 billion in outstanding pension debt.

CT Mirror budget reporter Keith Phanuef said in April that Connecticut’s pension obligations were structurally underfunded for every year from 1939 through 2010, according to a report in Brookfield Patch.

The March 2018 report from the state Commission on Fiscal Stability & Economic Competitiveness stated that the state employee pensions were only 29 percent funded. Both former Gov... Dannel Malloy (D-Essex), who left office in January, and Gov. Ned Lamont (D-Greenwich) have sought to have the municipalities pay for part of the teachers’ pensions, which the state has fully funded since 1939.

Keune said, “In the next three to five years a lot of state employees are going to retire. People realize that there is a pension debt and Connecticut is not producing the jobs with high salaries the way that Massachusetts and other states are. A lot of the jobs that have been added since the recession have been lower paying.”

Klepper-Smith has said that Connecticut is the only New England state that hasn’t recaptured all of the jobs that it lost in the 2008 recession.

Keune said that he agrees with retired Webster Bank economist Nick Perna, who told Ct Mirror in 2017 that resolving the state’s fiscal obligations would do the most to boost the economy.

“The state economy is not on a good footing,” said Keune. “People can’t plan for the future.”

“It is not going to be resolved this year or next year, but the pension crisis needs to be addressed” he exclaimed.

Keune said the state’s economy also has long been stymied by stringent land-use regulations.

“Between local and state regulations, Connecticut has among the longest approval process in the nation,” he declared. “There seems to be more and more people recognizing this and working toward improvements that would make Connecticut more competitive.”

The state also is plagued by traffic congestion to the point that Lamont has said that there are realtors in Stamford that won’t show homes to prospective buyers during the rush hour because of the slowdowns on Interstate-95.

Keune said the CT Realtors have not taken a position on any of the plans from the governor or the legislative caucuses to impose tolls or use part of the rainy day fund to finance an overdue transportation infrastructure upgrade.

Lamont and the House Democrats recently revised their recommendations by endorsing a truck-only toll plan.

“We know that we have to eliminate the bottlenecks,” said Keune.

He said that would help Connecticut attract more “millennials.”

The Boston Globe reported in December 2016, Connecticut doesn’t have the advantage any more by being a suburban state. Millennials are urban oriented, looking for jobs in the innovation hubs – such as the Route 128 corridor in Massachusetts.

State Department of Economic & Community Development Commissioner David Lehman told Brookfield Patch in May that “structurally” Connecticut’s suburban geography is now one of its biggest problems. Unlike the 1970s and 1980s, companies are not as interested in suburban parcels.

Keune said, “Boston is even more expensive than Connecticut, but it has public transportation, a night life, and it has plenty of job opportunities.”

He said that there are pockets of vitality in Connecticut.

Keune said Stamford has attracted many young professionals.

“You look at the skyline in Stamford and you are impressed,” he said regarding the buildings that house NBC Sports, Henkel, Pitney Bowes, UBS and Indeed.

He said young professionals also are buying homes in West Hartford and the New Haven/Milford market, as the city of New Haven and Yale University have fostered an economic partnership over the last 25 years.

Danbury ranks first in sales tax revenue and first per capita in the state in restaurants.

Cooney said that, “On the west side, Danbury’s restaurants are almost full on the week nights and packed on the weekends.”

The Hat City also has one of the few school systems in Connecticut that is adding enrollment.

Keune said he also is encouraged by the economic development projects that Mayor Luke Bronin is planning for Hartford.

The CT Realtors legislative platform includes addressing college student loan debt.

Keune said that fewer people can buy a home within the short term after graduating from college.

Former Trumbull First Selectman Tim Herbst told Brookfield Patch during his campaign for the 2018 Republican gubernatorial nomination that the next Great Recession will result from college student loan debt since so many graduates won’t be able to repay their loans.

Keune said CT Realtors was pleased that the General Assembly and Lamont approved legislations to allow employers to help employees with student debt. 2019 legislation on loans from employers without additional taxes.

“There is no single solution,” said Keune, but he hopes that more attempts are made to restructure the debts so they can become more manageable in the years immediately after graduation.

Sacred Heart University Government Department Chairman Gary Rose – who wrote “Connecticut In Crisis” on the 2018 gubernatorial campaign – has told Brookfield Patch that he believes the future job growth in Connecticut will largely be dependent on the Pentagon budget since the state has made long-term commitments to its major defense contractors – Electric Boat in Groton, Francis Pratt & Amos Whitney in East Hartford and Igor Sikorsky in Stratford.

Keune said, “The defense industry has grown” in Connecticut, said Keune. “It’s a bigger piece than ever before.”

On another topic, there also have been reports that the $10,000 cap on deductions for state and local taxes under the 2017 tax reform signed by President Donald Trump has stifled Connecticut’s mansion market.

Keune said, “I’ve heard anecdotal evidence of people leaving Greenwich and other parts of the Fairfield County Gold Coast, but I don’t have statistics on that” regarding the impact of the tax changes.

The Greenwich Time reported earlier this year that, in general, since the recession although there is still is interest in the back country mansions in Greenwich there has been more activity for smaller homes near the Post Road.

Keune endorsed the recommendations of the report from the state Commission on Fiscal Stability & Economic Competitiveness.

The immediate Past President of CT Realtors, Michael Barbaro, who is based in New Haven, served on that 14-member panel.

The Hartford Business Journal has stated that is revised report in November of last year called for freezing the wages and benefits for state employees, revenue-neutral tax reform and a reduction of $1 billion a year in spending.

It appears that Lamont is seeking to reduce spending since he has invoked a debt diet on bond appropriations that reportedly would cut them by $700 million annually.

Keune said it would be “unrealistic” to expect that the General Assembly would have enacted most of the components in the 2018 report of the State Commission on Fiscal Stability and Economic Competitiveness.

Keune said that Barbaro has been instrumental at making the organization more powerful.

Since holding a rally in Horace Bushnell Park in Hartford in the spring 2017 that featured a keynote speech by University of Connecticut women’s basketball coach, Geno Auriemma, the organization has become highly visible.

It sponsored separate debates for the Republican and Democratic candidates in the 2018 gubernatorial primaries and another in the general election. It endorsed Republican business executive Bob Stefanowski of Madison over Lamont and independent candidate Oz Griebel of Hartford after conducting extensive interviews with each of them.

”We’re one of the largest trade organizations in the state,” said. Keune “We saw that we needed to be louder to benefit the state and benefit our clients.”

“No one is now taking us for granted,” he said, noting that the CT Realtors have also tackled social issues, such as opioid addition.

On recent legislation, Keune said that CT Realtors opposed Lamont’s signing this last June on a new sales tax on services, including real estate commissions, and the expansion of the seller’s conveyance tax on properties over $800,000.

“It really is a regressive tax,” he said regarding the conveyance levy.

“Connecticut will continue to have it,” Keune lamented. “It won’t go away, but it has to be fair and balanced.”

On another state issue, Keune said he believes that after getting “traction” during the 2019 session of the General Assembly, there is a chance that during the 2020 session the legislators and the governor will eliminate the gift and estate taxes.

“We’d love to see that happen so that people would not seek to leave Connecticut to do their estate planning,” he said.

On a separate subject, some observers indicated that Fannie Mae and Freddie Mac, the government sponsored enterprises were partly responsible for the 2007 subprime mortgage crisis since people who couldn’t afford homes were able to get loans because of guarantees made by the two government sponsored enterprises.

In a February 2013 talk at Western Connecticut State University, Danbury Republican Mayor Mark Boughton said that at the height of the subprime mortgage lending – around 2005 - “You could get $400,000 for your dream house. No job, no money, no credit, no nothing. Just sign a paper.”

Fannie Mae and Freddie Mac went bankrupt nine days before Lehman Brothers in September 2008 and were put into conservatorship. Now, 11 years later, they are still in conservatorship.

Washington Post economics columnist Robert Samuelson wrote in 2015 that the two programs were by then, along with other federally-sponsored programs, such as the Federal Housing Administration - still making up a majority of the housing market. This came after former President Barack Obama had announced in 2013 that he wanted more private mortgage lending.

Samuelson stated, “Remarkably, their importance today is unparalleled,” reporting that about 75 percent of new mortgages are guaranteed through a government sponsored enterprise (GSE). He stated that the figure was 30 percent in 2006.

Through the years, officials ranging from former Federal Reserve Board Chairman Paul Volcker to former U.S. House Banking Committee Chairman Barney Frank (D-Mass.) have called for abolishing the two federal mortgage guarantee programs because of the risk they pose on the economy.

Financial writer Beverly McLean stated in “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants” (159 pages, Columbia Global Reports), her 2015 book on Fannie Mae and Freddie Mac, “Without GSE funding, banks have shown little interest in lending to American homeowners even ones with very high credit scores.”

“We need them,” Keune said of Fannie Mae and Freddie Mac.

“They are able to provide the 30-year fixed mortgage,” he added, noting in most countries there are only “variable rate” mortgages.

In her book, McLean stated that in November 2014, according to the Urban Institute, “a stunning” 87 percent of Americans who took out a mortgage to buy a house chose a 30-year fixed rate plan.

McLean added, “The rest of the world offers no evidence that you can have a mortgage market like that in the U.S. without some sort of system to guarantee the risks investors don’t want to take.”

Keune explained, “They are [Fannie Mae and Freddie Mac] one of the greatest wealth builders” since there is a solid opportunity for people to have homes that will appreciate steadily over decades.