Looking for a house in CT? Here’s why so few are for sale and there’s no big building boom

A persistent shortage of houses coming up for sale in Connecticut — a prolonged dry spell not seen for decades — is not sparking a broad-based surge in the building of single-family homes.

Builders say rising construction costs driven by inflation and soaring financing costs tied to higher interest rates are partly to blame. But there also are nagging concerns that a growing number of buyers are being locked out of the market as 30-year mortgage rates now hover near 7%. And rising home prices over the past several years — stoked by a purchasing frenzy in the pandemic — are putting a house purchase increasingly out of reach for many, especially first-time homebuyers.

Wallingford-based Verna Builders and Developers just finished up a subdivision of nearly 100 homes in Southington. But owner Liz Verna said she has no single-family home projects in the development pipeline, unusual for a company that has been in business 30 years.

For the last year, Verna said she has examined potential housing developments, but the numbers just don’t work. Everything, Verna said, is simply more expensive.

“It’s putting in the infrastructure, creating the roads,” Verna said. “I’ve looked at pieces — that even if I paid zero for the land, it still isn’t feasible. So, as someone who would always build or have a subdivision going and overlapping with another, I’m on the sidelines. And I think if you spoke with other builders, they’re doing the same.”

A recent report from the state Department of Economic and Community Development shows that construction permits issued for new houses and apartments in Connecticut surged nearly 30% to 6,496, in 2022, compared with 5,040 in the previous year. The levels in 2022 represented a 15-year high, though still well below building activity in the early 2000s.

But tucked within those numbers showed there was a 25% decline in permits issued for single-family house construction. In 2022, permits were issued for 2,192 single-family dwellings by the state’s 169 towns and cities, compared with 2,881 in 2021, according to the DECD report, which was based on data the agency collected.

And there are early signs there will be fewer single-family houses under construction in 2023.

Through May of this year, according to U.S. Census estimates, towns and cities in Connecticut issued permits for 807 single-family houses, compared with 1,133 a year ago.

The annual permit data is not directly comparable to the U.S. Census estimates because it is based on a survey by the DECD. But the two sets of statistics illustrate a similar direction the construction of the single-family houses in Connecticut.

The shortage of houses for sales was touched off by the pandemic as inventory dwindled and prices were pushed up by strong demand and bidding wars. But mid-way through the pandemic, homeowners who might have sold put it off, worried they might not find another house right away, further constricting the selection of homes on the market, or the inventory.

Now, rising interest rates have compounded the problem. Property owners are reluctant to trade, say, a 3% rate for one now approaching 7%, either for an existing house or a newly-built one, experts say.

“Builders are still waiting to see where interest rates are going for buyers, so there is caution,” Greg Ugalde, president of homebuilder T&M Building Co. in Torrington and a former chairman of the National Association of Home Builders. “And I think that is what is being reflected in the numbers.”

Ugalde said mortgage rates may start to ease next year, but any meaningful change could extend in 2025.

Longtime real estate experts in Connecticut who specialize in the marketing and sale of new homes say the across the board scarcity in both existing and new homes is the longest in recent memory.

“This is something that I’ve not witnessed in my 40 years in the business,” Joel Grossman, new business development director at Calcagni Real Estate in Cheshire, said. “I’ve seen times when we’ve had low inventory, some times when we’ve had high inventory but not such a long period of extremely low inventory.”

‘Buying out of reach’

Even before single-family inventory plummeted in Connecticut, pressures were mounting on the home construction industry. Building requirements, lengthy local approvals, dwindling available land and shortage of skilled workers in trades such as plumbing, electrical and heating and cooling were already emerging.

Bob Wiedenmann Jr., owner of Sunwood Home Builders and Remodelers in Wallingford, has been constructing homes since the 1980s, but recently has turned to apartments where demand has been far stronger.

“Because of the cost of single-family homes, it’s so difficult — even what we used to think of as moderately priced and sized homes,” Wiedenmann said.

Wiedenmann said Sunwood typically would build single-family homes of between 2,000 square feet and 3,000 square feet, priced at $400,000 or $500,000. Now, Wiedenmann said the same house can’t be built for under $600,000, with that figure barely factoring in the cost of land.

“So it’s like we’re not building for the average buyer any longer, just because the costs have gone up so high for single-family,” Wiedenmann said. “And obviously, that’s just affecting so much the inventory of homes, which is sort of a self-fulfilling prophesy where it discourages us from building more. That means there is less out there, which pushes the price higher.”

The boom is apartment construction is being fueled partly by the cost of purchasing a home. Buying a home already was expensive before the pandemic. The Federal Reserve’s aggressive moves to push up short-term interest rates to curb inflation has rippled deeply into the home mortgage rates, also sending them upward.

Last week, mortgage giant Freddie Mac reported that nationally the average rate for a 30-year, fixed-rate home loan was 6.9%, up from last week when it averaged 6.81%. A year ago, the 30-year fixed-rate mortgage averaged 4.99%.

“And that’s putting home buying out of reach for a lot of people,” Jeffrey P. Cohen, a professor of finance and real estate at the University of Connecticut in Storrs, said. “And a lot of people are turning to apartments for longer than they had hoped for or longer than they expected.”

At the same time, there is enough demand in the market for the few houses available to keep pushing sale prices up, Cohen said, but not enough to spur on a major wave of new construction.

‘Only place there is inventory’

Despite the decline in single-family permits, builders emphasize that new houses are still being built.

“We are definitely seeing demand,” Matt Gilchrist, president and partner in E.G. Home in Southbury, said. “But it’s different than what we would have expected.”

The supply of existing houses — those that have had at least one previous owner — has tightened considerably. Homeowners that might have sold to buy a similar-size, but more suitable house or one that was larger are staying put, sitting on a mortgage rate that is far lower than what is available today.

“You really have to hate your house to move out or your dissatisfaction in your current life has been very high to move,” Gilchrist said. “So what we would have expected to see was a total drop off of new construction because it’s expensive to build and expensive to finance.”

But because there are few existing single family houses for sale — in greater Hartford, for example, there was a supply of just 1.5 months, according in industry statistics — that is pushing some buyers who really want a house — and can absorb a higher mortgage rate — to look at new construction.

“So we do see a lot of people needing to build because that’s the only place there is inventory,” Gilchrist said.

E.G. Home, founded in 2013, now has active developments in Southbury, Cheshire, Beacon Falls and Mystic. The builder expects to close on 55 properties this year, and has a backlog of another 51, Gilchrist said.

“We could build more,” Gilchrist said. “But there’s a lot of things in our way of adding single-family homes. I am actively looking for more land and developments. We run into people wanting a lot for the land, thinking that its worth millions and millions of dollars. And then, there’s the high development cost and the cost of getting approved.”

Kenneth R. Gosselin can be reached at kgosselin@courant.com.