What the CT housing market will look like in 2022

I get asked on a daily basis what the housing market is going to look like in 2022.  In 2020 and 2021, when COVID was in full swing, I made a very non-committal response to this question; “Buy any property you want to hold long term and sell any that you do not.”  With the market so good, selling was a great option, but buying or holding was also a great option.  I told these investors that holding for long enough periods is never a bad thing (I learned that from my father).

In 2022, I’m willing to make a more committal response.  I’m bullish that by the end of 2022, rents and housing prices will be higher than they are today, January 26, 2022, throughout the state of Connecticut (CT).  There are some reasons that housing could go down (especially in hot markets like Las Vegas and Phoenix) but the CT landscape has a lot of things going for it locally that a lot of other markets do not.  Here’s the major reasons, I think CT stays hot in 2022:

1. The CT market never saw a huge uptick in rents and property prices in the 2010s.  With many people either moving out of state or retiring to Florida, we have not seen significant price appreciation since the downturn.  For this reason, housing continues to be and look affordable to people moving in (more on that next).

2. With the movement of work from home, people from New York and Massachusetts are looking for places to live that have some room (both in housing and acres).  With CT being so close and also so relatively affordable, we finally have a big influx of people.  I expect this trend to continue as people that have stayed continue to question why they did when their friends and colleagues are continuing to succeed in work from home arrangements.

3. Because of people and major high paying jobs moving out of the state, it has been unnecessary to build in CT.  We have a lot of towns that have building departments that are understaffed for the houses needed to be built.  New construction takes years not months to get into the market and the stress on the system is happening now.  Many municipalities also have strict zoning codes and vocal opposition to the building of major multifamily divisions in their “backyard”.

4. With inflation going up, the cost to build new houses is going up.  This again makes housing look affordable compared to new construction and could price people out of the market that had intended to build.  It also encourages people to pay more while today’s dollars still have value.  Real estate in general is considered to be a hedge against inflation.  Even the effect of interest rate hikes will only impact the affordability of houses by a relatively small effect.  Don’t believe me, see my other blog post. https://www.ironcladpm.com/blog/how-much-is-interest-rates-going-to-affect-the-affordability-in-the-housing-market-due-to-inflation

5. CT continues to move to a $15 minimum wage ($14 minimum wage on July 1, 2022 and to $15 on June 1, 2023).  As CT is an extremely Democratic state, I expect with inflation they are going to work to pass a $20 minimum wage.  This should give lower income tenants more discretionary income to spend on housing.  I expect this to flow through to higher quality C to B class properties and areas.

6. With the low unemployment rates, people are struggling to find bodies to work construction.  This will delay major projects further.

7. Household formation from the millennial generation is exceeding the population going into assisted living and/or dying.  This is putting lots of stress on the rental stock as there are not enough total rentals for the population needing housing.

While we probably will not see the 15% rises, I would expect 5 or 6% is completely reasonable, even in the face of rising interest rates.