Connecticut Housing Market Outlook for 2023

As 2022 comes to a close, I’m getting questions about what the Connecticut housing market will look like in 2023. Will home prices continue to increase? Will sellers still get multiple offers? Will the market collapse? 

I’m going to give you seven predictions here in my Connecticut Housing Market Outlook for 2023. And I’ll tell you how to capitalize on these market conditions in the year ahead.  

The 2023 Connecticut Housing Market Outlook

Here are seven things to watch for in the Connecticut housing market in the coming year. 

1. Low Inventory

Low inventory has been a factor in the Connecticut housing market for several years now, and it will continue to have an impact in 2023. We simply don’t have enough homes available in Connecticut to meet buyer demand. There are a couple of reasons why. 

The first reason goes back to the Great Recession that began in 2007. In the years leading up to that market collapse, construction companies had been building lots of new homes nationwide. And when the housing bubble burst, many builders lost money because they weren’t able to sell their new homes. Even as the market recovered, builders were hesitant to ramp up construction, so we have seen lower-than-normal levels of new home construction ever since.

Then, during the pandemic years, we saw dramatic supply chain changes that caused construction materials to increase in price and resulted in ongoing under-building.

There is also a recent shift in retirement housing standards to consider. Previous generations opted to sell their family homes and relocated to retirement communities at a certain age. But many of today’s homeowners are choosing to age in place, remaining in their homes for their retirement years. 

As construction remains low and fewer homeowners plan to sell, housing inventory will remain low for 2023.

2. Fewer Sales

Because of the low inventory, we’re likely going to see fewer home sales in 2023. Having fewer homes available to buy naturally leads to fewer homes being purchased. 

In October 2022, around 3,760 homes sold in Connecticut, representing a 26.5% decrease from October 2021. Interestingly, sales for October 2021 were already down 18.7% compared to October 2020. 

We’re expecting even fewer sales in 2023.    

3. Comparatively High Interest Rates

In 2022, interest rates went from 3.45% to 6.90% (according to the most recent data available from Freddie Mac). This means that the cost of borrowing money has gotten more expensive. For home buyers, higher interest rates mean higher mortgage payments and a higher interest expense over the term of the loan. 

Interest rates were raised by the Federal Reserve in 2022 to combat excessive inflation. By making money more expensive to borrow, the Fed is able to slow the flow of cash through the economy, thereby slowing the rate of growth to something more sustainable.

And this strategy is working. Inflation is tapering a bit. But it’s still high, so interest rates will likely stay at this comparatively high rate through 2023. 

For some buyers, this increased cost acts as a deterrent. These buyers don’t want to pay more in 2023 for a house that is worth roughly the same amount it was worth in 2022.  

Other buyers take a bigger-picture view of interest rates. Yes, 7% is high compared to the 4% we have gotten used to over the last few years. But it’s still low compared to the 9% we saw in the 1990s or the 16% we saw in the 1980s. These buyers are willing to work with today’s rates, rather than risk even higher rates tomorrow. These buyers also understand that property values will continue to increase in the long term, and that they can refinance to a lower rate if/when rates drop.  

4. Stabilized Demand

With high interest rates deterring some buyers, you might expect 2023 to bring much lower buyer demand. But that’s not necessarily the case in Connecticut. 

Many states are seeing sharply declining demand, particularly in markets with exceptionally high property values, like Los Angeles and New York City. But mid-range markets like Connecticut are still seeing strong buyer demand. Our solid employment market is one of the reasons Connecticut housing is still in-demand. With so many companies thriving here, especially in the insurance industry, Connecticut still attracts workers from all over the country. 

For 2023, we’re looking for demand to return to “normal” pre-pandemic levels.   

5. Longer Time on the Market

As part of our return to a more stable market, we plan to see homes taking longer to sell than they have in the last few years. 

In 2018, 2019, and 2020, homes listed in June (peak season) would typically sell in just over two months. In 2021, that time was cut to a month and a half. Then, by June 2022, homes were selling in just one month. 

Sellers might need to be a bit more patient in 2023 because of the stabilized buyer demand. Homes listed in peak season might take around 6-8 weeks to sell, while homes listed in the winter might take 8-10 weeks on average.

6. Decrease in the List Price to Sales Price Ratio

The list price to sales price ratio tells us if properties are selling for as much as the sellers are asking; it’s the difference between the price a house is listed at and the price a house sells at. If the list price to sales price ratio is 100%, for example, buyers are paying the full asking price for the average home. If the ratio is below 100%, buyers are negotiating to purchase the property for less than the asking price. This is typical of a stable market.

Since April 2021, Connecticut has had a list price to sales price ratio of over 100%, meaning that buyers have been willing to pay more than the asking price for a home. Because of the low inventory, it’s possible that we will remain over 100% for much of 2023. But we are unlikely to see ratios as high as we saw in 2022. In May and June of 2022, we saw ratios at 104.4%, meaning that the average Connecticut home sold for 4.4% above the asking price. Sellers shouldn’t expect such high offers in the coming year.   

7. Increasing Home Values

With all the talk of high interest rates, stabilized demand, longer times to sell, and lower list price to sales price ratios, you might be wondering if purchase prices are going to come down. In some markets, this is certainly possible. But with the balanced supply and demand that we’re seeing across most of the state, it’s more likely that Connecticut homes will see a modest increase in value in 2023.  

Since the pandemic, the median sales price has skyrocketed from $242,000 in February 2020 to $396,000 in July 2022. Some buyers are wondering how much more prices could possibly increase. But, because Connecticut was undervalued pre-pandemic, our housing market has more room than most to absorb price increases. We’re not going to see the 30% year-over-year growth that we saw in October 2020, but you should expect prices to increase at a more sustainable rate in 2023.  

How to Capitalize on the Connecticut Housing Market Outlook 

There’s no question that the market is shifting in 2023. And changing markets bring fresh opportunities for buyers and sellers!

Buyers

If you’re considering purchasing a home in Connecticut, don’t wait! Some buyers say that want to wait for prices to drop. But there are a few reasons why it’s better to buy now. 

First, there is no guarantee that prices will drop. They might temporarily dip in some markets. But if interest rates continue to rise, any savings you get on a lower purchase price could be offset by higher interest payments. 

Secondly, inventory is getting tighter, meaning you might have fewer options and higher competition if you want another year. 

And finally, you’ll have a bit more leverage in 2023 than buyers have seen since before the pandemic. So take advantage of the Connecticut housing market outlook by planning your purchase for this year. 

Sellers

I talk to homeowners every week who say they wish they would have sold this past summer, and now they’re afraid it’s too late to sell because the all-out buyer frenzy has ended. These homeowners feel stuck in a home that no longer suits their needs because they don’t want to sell for less today than they could have gotten a few months ago. 

Here is my professional advice for homeowners: Remember that perfectly timing the market is more about luck than strategy. Rather than comparing today’s market to last summer’s, compare it to 2019 before the market went wild. How much more is your house worth today than it was in 2019? How much more can you net today than you could have by selling back then? We still have strong buyer demand, and low seller competition. You don’t have to feel stuck in your current house.

Are You Thinking of Buying or Selling in 2023?

As an experienced real estate professional, I’m excited to help you make your move in 2023! I specialize in the Litchfield County and Farmington Valley areas of Connecticut, but I have an extensive network of reputable real estate agents all over the state who can assist you in other Connecticut markets. Simply contact me online or text or call me at 860-307-7436 for a free consultation with me or a referral to one of my partner agents. 

The Connecticut housing market outlook for 2023 is sunny without being scalding, so don’t miss your opportunity to capitalize on the market conditions in the year ahead!