It’s no secret that home prices dipped considerably after the recession. But have they dipped too low?
According to Fitch Ratings’ U.S. sustainable home price model, home prices in Connecticut were 21 percent overvalued in 2000. That same model now shows they are 19 percent undervalued.
“In Connecticut, the recovery in the economy has outpaced the recovery in home prices,” said Marc Gilbert, associate analyst in Fitch’s U.S. RMBS group. “In terms of home values and home price growth, it’s been lagging as a state.”
Fitch’s sustainable home price model looks at income, unemployment, population growth, household growth and rent data to determine what home prices an area can sustain. That information is then compared to actual home prices to determine whether an area is overvalued or undervalued.
Home prices in a state, county or city are overvalued if they are higher than the sustainable price. They are undervalued if home prices are lower than what the data shows the area can sustain. In Fairfield County, home prices were overvalued for most of the start of the 21st century, but became undervalued in recent years.
Area real estate agents said there are a number of reasons for the slow growth of home prices.
“What happens is you do your analysis as an agent, you put the home on the market and the bank comes along and appraises it,” said Gail Robinson, an agent with William Raveis Real Estate in Fairfield, who specializes in the Black Rock section of Bridgeport. In many cases, the appraisal will be lower than what the buyer is willing to pay because it looks back 12 months to when prices were lower, she said.
“They are suppressing the appraised value,” Robinson said. “That’s why prices have to rise very gradually.”
Cash buyers can help increase prices more quickly, but there are only so many of those, Robinson said.
“Sellers want to sell. Buyers want to buy,” Palmer said. “But banks as an intermediary they say this is how much we will front you the funds.”
Gilbert said suburban communities, including Stratford and Redding, have seen less growth in home prices than urban areas.
“There’s been a trend to people moving into cities. That could be a trend that’s driving it,” Gilbert said. “When you look at the increased demand with the stagnant supply, you get higher prices.”
Michael Feldman, president of the Connecticut Association of Realtors, said at a time when big companies like General Electric are leaving the state, cities are seeing big business investment and drawing people’s attention. He noted Bridgeport saw the opening of Bass Pro Shops, a major national retailer, last year.
“Real estate is very localized,” he said. “Each area is different.”
The same is true for neighborhoods within cities, Palmer said.
He said he’s not seeing home price growth in Bridgeport, but cautioned that prices are vastly different in Black Rock compared to, for example, the East Side. Overall, though, he said his experience has been that Bridgeport’s recent tax increase is driving prices down.
“Due to the tax situation of Bridgeport, I’m seeing more of a price reduction versus a price escalation in Bridgeport,” he said.
The city recently increased its mill rate significantly due to a multimillion-dollar budget deficit and a property revaluation that resulted in lower home prices.
Robinson said she has also not seen much growth in prices in Black Rock, although she has seen a shift in interest to cities.
“I’m seeing a trend from the suburbs to the urban areas,” she said.
Peg Koellmer, president of the board of directors of the Mid-Fairfield County Association of Realtors, said prices are slowly moving in the right direction.
The association covers Weston, Wilton, Westport and Norwalk.
“They are creeping their way back to some kind of normalcy,” she said. “I think we’re going to see a slow growth to a more predictable market. Right now, it’s not predictable. We haven’t really experienced a normal market since 2009. It’s a healthy market, but it just has not fully recovered.”