Report: Housing Prices Slow In Connecticut

By John Christoffersen

Associated Press

STAMFORD — The sizzling housing market in Connecticut has begun to cool, with prices rising at a rate below the national average for the first time in five years, according to a new federal report.

The quarterly report by the Federal Deposit Insurance Corp (FDIC) found that the housing market remains strong, but said a period of slower growth may begin after years of rapid price increases. There is no evidence of a collapse in housing prices, officials said.

“It looks to us it could be the first signs of an inevitable cooling off of house price appreciation from a fairly long string of double digit increases,” said Richard A. Brown, FDIC’s chief economist.

House prices in Connecticut rose 10.6 percent in the third quarter of 2005 from a year ago, down from a 14.2 percent increase in the second quarter, according to the report. That marked the first time since the beginning of 2000 that Connecticut had a lower rate than the national average, which was 12 percent, the FDIC said.

House prices have risen about 50 percent nationwide since 2000 and have approximately doubled in New England during that time, FDIC officials said.

“Prices can’t go up forever,” said Paul Driscoll, regional manager for FDIC. “People’s incomes aren’t rising as fast as house prices are rising.”

Housing booms are typically followed by a period of stagnant growth, perhaps negative, until incomes catch up, officials said.

“That seems to be the most likely scenario to play out over the next several years,” Brown said.

Sales of existing homes in the state reached a record level in the third quarter of 2005 following strong sales in the second quarter, the FDIC said. Rising mortgage rates may reduce demand for new housing and refinancings, the report said.

Employment growth in Connecticut also remains below the national average, according to the report. Over a one-year period through the third quarter of 2005, payroll employment in Connecticut grew by 1.1 percent, matching the New England average but below the national rate of 1.7 percent, the FDIC said.

High energy prices have affected Connecticut households and prices are expected to remain elevated this year, according to the report. Spending on residential energy in Connecticut may be well over five percent of disposable income in 2005, with lower income households impacted most by the higher prices, the FDIC said.