CT homebuyers are caught in a spiraling affordability squeeze. What to know about costs of buying. [Hartford Courant]

Greater Hartford’s home sale prices are reaching new heights, but the increases — nearly 16% in April compared with a year ago — are squeezing out more buyers, forcing them onto the sidelines.

Jeff Bodeau, a real estate agent at William Raveis Real Estate in Glastonbury, estimates that between 20% and 30% of potential buyers that could have reasonably afforded to buy a house just a couple of years ago have now been priced out of the market.

“People ask me, ‘Is it different in each town?’ ” Bodeau, an agent since the mid-2000s, said. “Is there going to be a quote-unquote bidding war in Berlin if I decide to go to Berlin because I can’t afford West Hartford? Unfortunately, right now, it just may be a bit less.”

Soaring home prices coupled with mortgage rates that are double what they were a couple of years ago are at the root of the squeeze, widening the gap between those who can purchase a home and those who can’t.

Rising homeowners insurance rates, increasing property taxes in most towns and cities and the cost of home upkeep also are putting pressure on homeownership, experts say.

At the same time, rising apartment rental rates are making it tougher to save for a down payment.

In April, the median sale price of a single-family house in Greater Hartford — in which half the sales are above, half below — was an eye-catching $385,000. That compares with $332,500 for the same month a year ago, according to the Greater Hartford Association of Realtors, an industry group that tracks 27 area towns and cities, stretching from Suffield to Rocky Hill and Canton to Willington.

Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, has been in the mortgage business in the Hartford area for 35 years, and he’s never seen a median sale price as high as it is now.

Menatian said he estimates that an income of $100,000 would be needed to comfortably make the payment on a house at the median price recorded in April. The median income in Hartford in 2022 was $41,841, according to the U.S. Census. Median income in Greater Hartford in 2023 was $79,579, and statewide that year was $83,572, according to DataHaven.

“So when someone calls me and says, ‘Hey, I’m out of college, making 50 or 60 grand, I want to see if I can buy,’ ” Menatian said. “Well, basically, they can’t. Now, can they buy with someone else? If you’re buying on your own, it doesn’t get you to first base in this area, but with two incomes, say 50, 70 grand, then you’re fine.”

But income is only part of the equation.

Menatian estimates that a 5% down payment on a house at the $385,000 median sale price would come to $34,000 covering not only the down payment but closing costs, required escrows and inspections. At 10%, the total would be closer to $54,000.

“So that’s a lot of money, and that in itself is a hurdle,” Menatian said.

At a 10% down payment, Menatian estimates that the monthly payment with a 7% mortgage rate would be just under $3,000 a month, including principal and interest, property taxes, homeowners insurance and private mortgage insurance.

The scarcity factor

A scarcity of houses up for sale continues to spark intense bidding wars that became common in the early days of the pandemic. Buyers sought bigger houses to accommodate working at home, and there was an influx of out-of-state buyers, particularly from New York.

It is not unusual, experts say, still to see sale prices close tens of thousands of dollars over the initial listing price.

And a year after the official end of the COVID-19 outbreak, the number of houses on the market remains depleted. In Greater Hartford, the inventory of single-family houses, according to the Realtor association, was 585, less than two months supply of houses. A market is said to be healthy — or in balance — when there is a supply of six months.

Few houses are coming on the market because owners do not want to trade a low mortgage rate for one that is now hovering near 7% for a 30-year, fixed-rate loan, according to mortgage giant Freddie Mac. The reluctance to list also is rooted in the worry that a new house won’t be easily found.

Even with a secure down payment, potential homebuyers must still come out on top of any bidding contest.

John Zubretsky Jr., a real estate agent at Century 21 Allpoints Realty in Wethersfield, said the average buyer may put down 10% to 20% “but the problem therein lies that you’re probably not going to get the bid.”

Homeowners that do sell often get the upper hand in bidding wars. They can buy with cash — eliminating the step of obtaining a mortgage — or can make huge down payments, closing more quickly with fewer conditions needed to satisfy lenders.

“Everything does come back to the big problem and a statement that I make all the time,” Michael Weinstock, regional president in Hartford for M&T Bank, said. “There is just a lack of housing stock and available houses for sale that motivate sellers to look for the highest rate of certainty with respect to who they’re willing to accept an offer from.”

A relief valve

First-time homebuyers often caught in the squeeze are getting some relief through assistance programs offered by such organizations as the Connecticut Housing Finance Authority and the federal Housing Development Fund. The programs are aimed at low- and moderate-income borrowers and help fund down payments for those who qualify.

Some of the programs have income limits and others are focused on minority groups. For example, the “Lift Up” program from the Federal Home Loan Bank in Boston makes awards to people of color with incomes of up to 120% of the area median income. The program provides up to $50,000 in down payment and closing cost assistance toward the purchase of a first home.

Matthew Cammorota, head of retail lending at Middletown-based Liberty Bank, said those assistance programs can subtract tens of thousands of dollars from what needs to be financed with a traditional bank loan.

“So that’s how we’re combating it,” Cammorota said. “These customers walked into a home with immediate equity, with a significantly reduced monthly payment.

Here are five costs in purchasing and owning a home that should play a significant role in making the decision to buy:

1. Down Payment

What it is: A down payment is a percentage of a home’s sale price that is paid up front when a purchase is closed.

Why it matters: Lenders often look at the down payment amount as a buyer’s investment in the property. The higher the down payment, the less that has to be financed and that helps keep the principle and interest portion of the monthly mortgage payment lower.

What to know in 2024: Traditionally, 20% down payments on a mortgage were the norm. But with soaring home sale prices combined with borrowing rates that are double what they were a few years ago, 3% and 5% have become far more common, mortgage lenders say.

2. Homeowners Insurance

What it is: A standard homeowners insurance policy insures that the structure and belongings inside are covered up to a certain amount, the event of a fire or other destructive event. Premiums are typically included in the monthly mortgage payment.

Why it matters: Typically, this insurance is sold as a “package policy” covering not only property damage but liability for injuries and damage caused by the property owner and family members, including household pets. Policies often include living expense allowances if a property is uninhabitable. Not all disasters are typically covered by a standard policy, including floods and earthquakes that require separate coverage. Poor maintenance that leads to troubles with a property are the responsibility of the property owner and aren’t likely to be covered, according to the Insurance Information Institute, an insurance research group.

What to know in 2024: Homeowner insurance premiums in Connecticut remain relatively affordable. But a recent report by Insurify, an online insurance marketplace, ranked Connecticut as ninth on a list of the top 10 states where rates are expected to increase the most by the end of 2024. Currently, the average annual home insurance rate is $1,764, but that is projected to increase by 9% to an average of $1,972. According to Insurify, 50% of insurers providing homeowner coverage in Connecticut are expected to boost rates in 2024. Risks in Connecticut include hurricanes, snow and flooding, all heightened by climate change.

3. Local Property Taxes

What it is: In Connecticut, property taxes are levied annually by municipal governments to pay for schools, police and fire and other services. The property tax is based on a property’s value. To calculate the property tax, multiply the assessment of the property by the mill rate and divide by 1,000. Tax rates differ among Connecticut’s 169 towns and cities.

Why it matters: Mortgage loan payments typically include monthly contributions to an escrow account for property taxes. Property tax bills are then paid by the servicer.

What to know in 2024: Connecticut had the third highest property taxes on average for single-family houses in the nation in 2023, according to real estate data tracker ATTOM. The report concluded that the average annual tax bill of $8,022 was pushed higher by inflation. Lawmakers have tried to soften some of the blow with property tax credits for those who qualify. Bodeau, at William Raveis in Glastonbury, advises would-be buyers to be aware of when a town’s next property revaluation is scheduled. A spiking property tax bill can take a new homeowner by surprise a few years in the future, Bodeau said.

4. House Maintenance

What is it: Maintenance extends to the good upkeep and repair of a property.

Why it matters: Keeping up with repairs and making needed updates contributes to the appearance, desirability and value of a home.

What to know in 2024: University of Connecticut finance professor Kristen Haseney recommends that homeowners budget annually somewhere between 1% to 3% of a home’s purchase price for repairs and maintenance. On a $385,000 house at the median sale price, that would range from $3,850 to $11,550. Another way of looking at setting up a reserve is to have six months of what is paid out in bills in hand to deal with repairs and the unexpected, advises Scott Rodgers, managing partner of Northern States Mortgage in Zelienople, Pa.

5. Private Mortgage Insurance (PMI)

What it is: Private mortgage insurance is required by a majority of lenders if a down payment is less than 20%.

Why it matters: PMI protects the lender should the home loan not be paid back. Typically, the premium is paid monthly and rolled into the monthly mortgage payment, but it can be paid in an upfront lump sum. The premium is calculated by multiplying the loan amount by a percentage ranging from 0.22% to 2.25% to get the annual cost, according to mortgage giant Chase. The percentage will depend on the size of the home loan and the borrower’s credit score.

What to know in 2024: Federal law requires lenders to remove PMI from conventional loans — those not guaranteed or insured by the government — once the borrower has 22% or more equity in the property. Borrowers can request to end the PMI coverage once equity hits 20%, Chase said. Home loans with government guarantees often require PMI for the life of the loan.

Kenneth R. Gosselin can be reached at [email protected]. Ed Stannard can be reached at [email protected].

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