Hartford, Connecticut
“New England’s Rising Star” City Could See Falling Home Prices Before 2022
by Carole VanSickle Ellis
Hartford, Connecticut, is home to a lot of long-established locations, including the country’s oldest public art museum, the oldest publicly funded park, and the oldest continuously published newspaper. The city has also served as home to many historic figures, including Mark Twain, John M. Browning (inventor of the automatic pistol), and Alice Young, the first woman to be hanged for witchcraft in America. In 2021, the city is poised to add yet another “first” to its storied history; it may well be the first city in America to experience a post-COVID housing market correction.
“The CoreLogic Market Risk Indicator (MRI)…predicts that metros such as Hartford, Connecticut…are at the greatest risk of a decline in home prices over the next 12 months,” reported 24/7 Wall St. in June. Readers should note the “greatest risk” is no guarantee of a crash or even a true correction; CoreLogic researchers assigned a probability of correction of less than 25 percent to Hartford and other similar markets. However, in a national market with a 2.4-month supply of housing inventory and double-digit year-over-year gains in value, any probability of a change in the temperature of a market is worth noting.
“[Nationally] properties stayed on the market for 17 days in April, on average, and 88 percent of homes sold during that month were on the market for less than a month,” said Marco Santarelli, founder and CEO of Norada Real Estate Investments. “Most homes continue to sell faster, and the total number of homes available continues to be constrained.” Santarelli observed a “hot sellers’ real estate market in most areas of the country,” and added that Midwest and northeast housing markets “are the hottest and, together, make up 14 of the 20 hottest housing markets in the country according to Realtor.com.”
By comparison, Redfin reported in May that Hartford homes remained on the market for an average of 61 days (just six days fewer than the same time in 2020). According to Redfin data, the median selling price in Hartford is currently about $215,000, down very slightly from April. Realtor.com researchers derived similar results, reporting that the 16 neighborhoods included in the metro area had skyrocketed in value by 30.9 percent year-over-year in May. Both sources reported limited inventory but noted that home sales in the area were climbing. Redfin reported 52 homes sold in May 2021 (vs. 46 in 2020), and Realtor.com reported 243 homes currently for sale in the area with 31 listed the last week in May alone.
Edging Toward Equilibrium
In light of this data, the emergence of Hartford on a list of markets most likely to experience a post-pandemic correction should be extremely interesting to real estate investors. Although Hartford, like the rest of the country, has experienced constrained inventory levels in 2021, local real estate professionals say there is a possibility that the market could begin edging back toward “equilibrium” by the end of the summer.
“It is difficult to tell just how much demand exceeds supply,” admitted local agents Amy and Kyle Bergquist, who have been active in the area for more than a decade. They emphasized that investors hoping to make accurate predictions about the Hartford market should watch two indicators in particular: buyer frustration and listing pace.
“We are always looking for clues about two key questions: How many buyers are getting frustrated with the market and opting out, and how will the pace of listing change?” the two explained. They noted that buyers are currently not necessarily “opting out” of the market but, instead, “settling in for a longer search.” This could help restore that equilibrium that might ultimately result in more opportunities for acquisition on the part of investors if there is no longer the same sense of urgency creating bidding wars and an auction mentality every time a property is listed. Given that more than half of the homes in Hartford sold for more than their asking price during Q1 2021, any equilibrium could be a positive sign for investors interested in fix-and-flip deals or long-term rentals.
Hartford has also emerged from the pandemic as a burgeoning destination for remote workers and northeastern tourists. The city offers a vast array of attractions, including the former homes of literary giants like Mark Twain and Harriet Beecher Stowe, Wadsworth Atheneum (the oldest free, public museum in the U.S. and home to more than 50,000 works of art and “curiosity”), and parks like the Elizabeth Park Rose Garden and Bushnell Park. However, owning vacation rentals and short-term rentals in the area can be complicated, so investors should do their due diligence and work with a local expert before getting involved in this asset class (see sidebar).
Hartford Investors Face Ongoing COVID Questions
Like everywhere else in the United States, Hartford has been dramatically affected by the COVID-19 global pandemic and resultant health policy decisions made on state and local levels. In Hartford’s case, however, local policy will affect investing strategy in extremely tangible ways even after the CDC eviction bans and other national-level foreclosure moratoriums have ended. Hartford investors must factor two significant issues into their decisions about where to invest and what strategy to use: employment initiatives and local eviction policies.
Unemployment improvement in Hartford and in Connecticut as a whole has been sluggish, with unemployment rates remaining stubbornly above the national average. According to the Connecticut Department of Labor, Hartford’s unemployment rate in April was still hovering just under 14 percent (not seasonally adjusted). Connecticut’s unemployment rate fell from 8.3 percent in January 2021 to 7.6 percent in April 2021, but still felt bleak compared to the national rate of 6.1 percent.
However, Department of Labor research director Patrick Flaherty emphasized there are many factors in play that could help the city and state in the coming months. “Recoveries are uneven,” he said. “Evidence of increased job postings and openings suggest Connecticut is poised for larger [employment] gains later this year.” He noted that that the state added 176,700 jobs between April 2020 and April 2021, an achievement he categorized as “an enormous and successful feat that would be difficult under any circumstances.”
Unfortunately, one sector that continues to lose jobs is the insurance industry, which lost 700 jobs statewide in April of this year. Hartford is the historic international center of the insurance industry, hosting more than a dozen major insurance companies in the area along with multiple medical care centers, research divisions, and medical education providers. Insurance was one of the four industry “super sectors” in the state that posted employment losses in April 2021. However, with many insurance companies announcing they will extend the opportunity to work in a hybrid or remote setting to many employees for the foreseeable future, Hartford could be well positioned as a “remote-work town” for professionals in the industry.
“There are clear signs that…companies are going to have a more open-door policy to working virtually,” said Keith Werner, president of ThinkSynergy. The company, which bills itself with the tagline “We aren’t consultants; we’re synergists,” offers, among other services, access to co-working space. Werner is currently promoting the space to small and medium-sized businesses based in major East Coast cities. The MetroHartford Alliance, a strategic, investor-based economic development partnership, has also begun actively promoting the city as a satellite location for similar companies, noting that renting 20,000 square feet of Class A office space in Hartford costs about half of what the same space would cost in Manhattan or Boston.
“We are certainly seeing more activity [and] having more conversations about real opportunities,” said MetroHartford Alliance CEO David Griggs. He reported at the end of May that the organization had talked to “at least 100 companies” about establishing remote-work hubs in Hartford. Fourteen of those companies are in the final stages of decision-making, so investors should watch closely for movement on that front.
The other issue that will affect Hartford real estate investors directly will be the ongoing public-health policy evolution as it affects rental property owners and the eviction of non-paying tenants. Both the state house and senate passed legislation in May of this year that would provide tenants facing eviction with the right to counsel. This could extend eviction times dramatically once eviction bans on the national, state, and local levels lift. It appears likely that Governor Ned Lamont will sign the bill, which would directly affect an estimated 30,000 people in Connecticut who are projected to leave their homes in the next two months due to eviction.
Paul Cicarella, the minority republican leader on the state’s senate Housing Committee, warned of the legislation, “This will negatively impact small landlords…The state is literally going to pick a side.” Connecticut is currently overhauling its program to help tenants pay delinquent rents associated with fallout from COVID-19, but both sides of aisle are concerned about this process as well.
Co-chair of the senate Housing Committee Rick Lopes observed that current programs help tenants but do not target landlord assistance. He said, “There are things that are now being put into place to help landlords who have lost rent during that time, and they are a work in progress.” The state currently will pay up to $10,000 per tenant, but many landlords report that this does not come close to meeting the amount owed. Furthermore, if tenants refuse to file rent-assistance paperwork, landlords have little recourse or access to assistance programs. The state also extended its own eviction moratorium again in May, and the governor has said he will continue extending it until Connecticut’s public-health emergency ends.
A Multifamily Comeback in the Making
Interestingly, while many housing experts are predicting that post-pandemic households will overwhelmingly prefer single-family living to multifamily settings, Hartford’s multifamily sector has remained strong. CoStar reported the net delivery of about 1,100 new units in the Hartford market, down only slightly from 1,300 units in 2019. Vacancy rates also remain in the single digits.
Victor Nolletti, an executive managing broker at Marcus & Millichap, said of the trend, “Even as new units are built, the overall occupancy rate in and around Greater Hartford is terrific.” He observed new units are “absorbed quickly” and concluded, “Clearly, the demand remains.”
Developer Randy Salvatore agrees. He built 270 new apartment units last fall and is planning to build several hundred more in 2021. Salvatore said that in Hartford, multifamily property investment has not suffered as a result of the pandemic. “I remain as bullish as ever about the long-term prospects for Hartford and this development,” Salvatore told the Hartford Business Journal in May of this year. He emphasized that more multifamily housing “will bring more restaurants and better retail options…[and] that’s what creates vibrant cities.”
Of course, if the cost of construction materials continues to rise, it could negatively affect developers’ ability to get projects off the ground. It may make more sense for investors to improve Hartford’s existing multifamily stock, much of which was built prior to 1990, in order to keep construction costs down. Salvatore, who is still building new multifamily developments, said he places heavy emphasis on amenities that will attract millennials and empty nesters. His complexes boast swimming pools, exercise and yoga facilities, rooftop decks, and even golf simulators and bowling alleys. Naturally, they also offer co-working spaces for remote work. Most properties built prior to 1990 do not offer these types of amenities, so upgrades could be a good way to force appreciation.
Investors are also investigating creative opportunities in non-residential commercial real estate. For example, two local investors who already own multiple apartments in nearby cities are planning to convert a vacant office building into residential rentals. The building, which most recently provided academic office and classroom space for Hartford Public Schools, is slated for apartment conversion. At present, the partnership has not released information on the number of planned rentals or a timeline for the conversion, but their publicist is calling the project “the first toe in the water for Hartford.”
A Market Primed for Future Investments
For real estate investors looking for opportunities in new markets, Hartford could represent an intriguing option for 2021 and beyond. In addition to the insurance industry, which was responsible for $14 billion in output prior to the pandemic, Hartford’s major industries include aerospace, manufacturing, healthcare, broadcasting, and logistics and distribution. Manufacturing is the source of $2.4 billion in output and currently creates about 15,700 jobs, while the healthcare sector employs more than 103,000. The MetroHartford Alliance notes that Hartford also serves as a base for ESPN, Entercom Communications Inc., and iHeartMedia.
These employers and others in the area benefit from proximity to the New England knowledge corridor, which includes the Hartford, New Haven, and Springfield metro areas and is ranked third in the nation for advanced degrees. Colleges in the corridor, including the University of Connecticut, Harvard, Yale, and Wesleyan University, are home to about 215,000 students and contribute about 15,000 new students each year to the growing workforce in Connecticut. Connecticut is ranked third in the country for percentage of adults with advanced degrees and fourth for labor force productivity.
Investors interested in getting involved in the Hartford market should look to the preferences of this strong labor force when deciding on a strategy. While the market can be tricky, it could represent significant potential post-pandemic if an investor is prepared for the unique challenges associated with investing in this northeastern city.
Sidebar 1:
The Short-Term Rental Conundrum
Although Hartford is an attractive vacation destination, many investors opt to steer clear of the city’s short-term rental market because of stringent guidelines governing these assets. The city of Hartford grants short-term rental zoning permits on properties for no more than three years at a time and requires hosts to limit rental frequency and length, establish owner-occupancy in many cases, permit no more than four adult guests, and prevent properties from becoming “a nuisance to neighbors.” Hartford also requires the property owner “host any short-term rentals” located in single-family home districts, meaning the owner is required to be present during the use of the property as a short-term rental.
Sidebar 2:
Hartford’s Largest Employers
According to the MetroHartford Alliance, about a quarter of local employers are in the insurance industry. However, education, engineering, broadcasting, healthcare, and finance also play a significant role in the Hartford jobs market. The largest employers in the region include:
- The Hartford (insurance)
- The Travelers Companies Inc. (insurance)
- University of Connecticut (education)
- Aetna (insurance)
- Pratt & Whitney (aerospace engineering)
- Cigna Corporation (insurance)
- Hartford Healthcare (healthcare)
- ESPN Inc. (broadcasting)
- UnitedHealth Group Inc. (healthcare)
- Massachusetts Mutual Life Insurance Company (insurance)
- Bank of America Corporation (financial services)
3-Bedroom Single-Family Rental Prices
Hartford is the capital city of Connecticut with a population of 122,105 (2019 Census) and the largest city in the Hartford-East Hartford-Middletown MSA. The MSA has an estimated 2019 population of 1,204,877. Hartford is the 4th largest city in CT at a total area of 18 square miles. The 2021 3-bedroom SFR rental prices averaged $2,021 for the MSA, up from $1,771 in 2020. Top end rent areas in Hartford are in zip code 06103 with an average rent of $2,216 (up 10.8%). The least expensive zip codes are 06120 at $1,604 and zip code 06106 at $1,617.
5-Year Rental Price Appreciation
In the last five years, 3-bedroom SFR average rental prices over the Hartford-East
Hartford-Middletown MSA have increased by 25.8% from $1,606 in 2016 to $2,021 in 2021.
In Hartford, 5-year rental price increases have increased the most in zip code 06105 by 29.63% and in zip code 06112 by 26.56%. The zip codes with the smallest increases were 06106, by 21.03%, and 06120 by 14.57%.
Rent-To-Income
As of the most recent census data available, Hartford has a median household income of $30,444 and a mean of $48,318 and the Unites States overall at $68,703.
Spending 30 percent of monthly income on rent is a good benchmark, and there are not any zip codes in Hartford that fall into that category. There are six zip codes above 30% with 06120 at 70.44% and 06105 at 65.19%. The lowest R/I ratio in Hartford was in 06103 at 31.48 with the next lowest ratio at 53.22%. The MSA R/I ratio is 31.49%.
Yields
The median home price in Hartford County is approximately $260,000.
Gross Rental Yields (GRY) across the top 200 U.S. markets average 8.6%. The current average GRY in the Hartford-East Hartford-Middletown MSA has a current yield of 9.16%. The two highest yield zip codes in Hartford are 06120 and 06112 at yields of 17.0% and 14.5%, respectively. Dark purple sections represent yields at 11%, light purple areas have yields
of 9%-10%. Finally, white shaded areas have yields around 8.0%.
