Connecticut, for 25 years the state with the highest per capita income in the U.S., is now leading the nation in home-price declines as Wall Street trims jobs and bonuses that had driven multimillion-dollar property sales.
Prices in the Fairfield County area, home of the banker bedroom communities of Greenwich and New Canaan, tumbled 12.9 percent in the second quarter from a year earlier, the biggest decline of the 147 U.S. metropolitan areas measured by the National Association of Realtors. While the number of home purchases within the state financed with conventional mortgages rose 8.4 percent in the first half, deals using jumbo loans for pricier properties slid 9.4 percent, according to Warren Group, a real estate tracker.
“We’re in a tough slog here relative to everybody else, which is surprising given where we’re located, near New York and Boston,” said Terence Beatty, director of the new homes and land division of Prudential Connecticut Realty in Wallingford.
The state, which hosts the world’s two largest bank trading floors within UBS AG (UBSN) and Royal Bank of Scotland Group Plc (RBS)’s Stamford offices, is falling behind a U.S. housing recovery after losing 3,900 financial-services jobs since July 2011, the most of any industry. Connecticut also is struggling with rising foreclosures, posting the nation’s second-biggest jump in notices of default and repossession last month.
Prices for single-family houses fell 4.7 percent in the second quarter, the biggest decline of any state, according to the Federal Housing Finance Agency (HPIMMOM%), which measures transactions financed with mortgages backed by Fannie Mae or Freddie Mac. That compares with a nationwide increase of 3 percent, the most since 2006, as record-low mortgage rates and a limited supply of properties for sale provided a foundation after the worst housing crash since the 1930s.
The S&P/Case-Shiller index of home values in 20 U.S. cities gained 0.5 percent in June from a year earlier, the first increase in almost two years, a report showed today.
The median sales price for Manhattan condos and co-ops in the second quarter was $840,000, up 2.4 percent from a year earlier, according to StreetEasy.com, a property listings website. In the Boston area, the median price for a single-family house rose 1.8 percent to $362,100, data from the National Association of Realtors show.
Connecticut doesn’t have as much economic diversity or appeal to international buyers as Manhattan, according to James Aiello, who co-owns about six houses in the Greenwich area that he began purchasing in the mid-2000s.
The state (STOCT1:US) has only regained a third of the about 117,500 jobs that it lost during the recession, figures from the Connecticut Department of Labor show, and the unemployment rate has risen for three straight months to 8.5 percent.
Connecticut’s general-obligation bond rating was cut one level to Aa3 in January by Moody’s Investors Service, which said it’s susceptible to financial market fluctuations because of dependence on taxes on capital gains from wealthy residents and employment in financial services.
Connecticut debt has earned 3.3 percent this year, the least among U.S. states and trailing the 5.3 percent return on the broader $3.7 trillion municipal market, according to Barclays Plc data. New York, which may be get its highest credit rating in four decades after Standard & Poor’s yesterday boosted its outlook to positive from stable, has gained 4.8 percent.
Changes in compensation practices at banks are responsible for pulling down prices in the lower Fairfield County area, said Mark Pruner, an agent with Prudential Connecticut Realty in Greenwich. Wall Street firms have curbed pay and changed formulas to limit expenses, with some giving more stock and deferred cash and less immediate payout.
The average Wall Street bonus fell 13 percent last year to $121,150, the lowest since 2008, and almost 40 percent less than the $191,360 reached in 2006, according to projections by New York State Comptroller Thomas DiNapoli.
A big jump is unlikely for 2012. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. (C:US), Goldman Sachs Group Inc. and Morgan Stanley reported the worst first half revenue since 2008, which they blamed on low interest rates and a reduction in trading and deal-making brought on by concerns about European government finances and slowing domestic growth.
Issuance of jumbo mortgages, which are too large for government-supported programs, is falling in Connecticut amid lower demand and tighter lending standards. The dollar volume in Fairfield County, where the loan limit for Fannie Mae and Freddie Mac loans is $601,450, fell 14 percent to $739 million in the first half from a year earlier, according to Boston-based Warren Group.
Jeffrey Weisz, an executive at a company that invests in green-energy projects, put his five-bedroom house on five acres (2 hectares) in New Canaan up for sale five months ago for $1.2 million. While prospective buyers came to “kick the tires,” he received only one offer, which fell through because the borrower didn’t qualify for a mortgage. He said his neighbor has had three offers fall through because of financing problems.
“I don’t think they have the wherewithal to put down down payments,” he said. “They do have letters from banks that say they’re qualified but that assumes substantial equity.”
In Greenwich, the base for many of the world’s largest hedge funds, the median home price fell 11 percent in the first seven months of the year to $1.55 million compared with the year-earlier period, according to data provided by John Cooke, an agent with Prudential Connecticut Realty. While sales were down 3 percent, they plunged 19 percent for properties above $2 million and climbed 10 percent for below that amount.
“What we’re seeing is a change in the market mix,” Pruner said. “The upper end of the market was been significantly slower. When you have a whole bunch of lower-end sales and fewer higher-end sales, the price has to drop.”
Some bankers are opting to rent because financial firms have raised base salaries and deferred earnings while shrinking cash bonuses.
William Jandrisits, who took a job in Canada in 2010, abandoned hopes of selling his $2.7 million house in Greenwich this summer. A year-long search for buyers garnered two serious offers and several from “bottom feeders,” he said.
He offered the 4,000-square-foot (372-square-meter) house for rent, and a New York-based investment banker agreed two weeks later to take it for $11,000 a month.
“The market just wasn’t there,” Jandrisits, who worked at Starwood Capital Group LLC in Greenwich until 2010 when he became president and chief executive officer of MCan Mortgage Corp. (MKP), a publicly traded mortgage-investment firm in Toronto. “The market was so much a buyer’s market that you were getting twisted through consecutive negotiations to make more and more changes to the offer to the benefit of the buyer after you had agreed on a price.”
Patrick Flaherty, an economist at the Connecticut Department of Labor, said the past year isn’t a clear indicator of the market’s health because the state’s economy and real estate values haven’t been as badly damaged as areas that are seeing the most home-price appreciation. While house prices in Connecticut have dropped 18 percent in the past 5 years, about the same as the U.S. decline, they have fallen 40 percent in California and 42 percent in Arizona, according to the FHFA.
Home sales rose 11 percent in Connecticut in the second quarter from a year earlier, Warren Group figures show. They increased just 1 percent in Fairfield County.
“Some of the issues that were so pervasive and widespread in other parts of the country are now coming here in a milder form,” Flaherty said. “We’re behind in the sense that other states were hit hard, they bled a lot and it looks like they’re getting better.”
There are also some positives. Connecticut reached a deal last year with Zurich-based UBS to keep at least 2,000 jobs in the state in exchange for a $20 million “forgivable” loan. The lender, which had 3,500 people in Connecticut, announced plans last year to cut the same number of jobs globally. It had considered moving U.S. investment-bank staff to Manhattan, a person with knowledge of the matter said at the time.
Bridgewater Associates, the world’s biggest hedge fund with $77.6 billion of those assets under management as of January, said this month that it plans to build a $750 million headquarters in Stamford, financed partially with state aid. The company agreed to create as many as 1,000 “high-level” jobs within 10 years, while retaining its existing workforce of about 1,225 people now based in nearby Westport. Cigna Corp. (CI:US) and NBC Sports Group are among the other firms that are taking advantage of a state tax-incentive program by agreeing to add hundreds of jobs.
Connecticut’s foreclosure backlog poses another challenge to a recovery, especially in poorer areas of the state. It now takes 656 days for a bank to seize a home, the longest after New York, New Jersey and Florida, according to RealtyTrac Inc. Connecticut’s foreclosure filings increased 139 percent in July from a year earlier to 1,544 properties. The jump was second only to Vermont.
Like neighboring New York and New Jersey, Connecticut requires banks to get a judge’s approval to seize a home, a process that has clogged the courts. The state’s supply of properties that are at least 90 days delinquent or in some stage of foreclosure -- known as shadow inventory -- increased more than 6 percent from a year ago while most states are seeing that overhang diminish, according to the Mortgage Bankers Association.
A $25 billion settlement in February with top banks over allegations that they seized homes without proper documentation may have opened the way to more listings of lower-cost distressed properties.
In retirement destinations such as Florida and Arizona, where prices fell much further than in Connecticut, investors have jumped in to buy discounted foreclosures.
“Things are getting worse in Connecticut,” said Daren Blomquist, vice president at RealtyTrac. “As additional foreclosures come online, it could have chilling influence on home prices in Connecticut. If there’s not a lot of demand for houses falling into foreclosure, that’s going to hamper any housing recovery.”
The reasons for Connecticut’s housing weakness aren’t just local. Homebuyers are holding back because of economic crises brewing thousands of miles away, said Nick Perna, economic advisor to Waterbury, Connecticut-based Webster Bank and lecturer in Economics at Yale University.
“For many people in the United States, this whole thing about the Eurozone is an abstraction -- some battle between Germans, Italians and Spaniards,” Perna said. “If you live in Connecticut and work in financial services, it’s very real because it could affect your job, your bonus and therefore your ability to afford a nicer home.”
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