Destination: Connecticut

If the 2021 home buying market were a card game, the deck would be stacked with wildcards. Talk to any Connecticut real estate agent about the current market and they’ll likely tell you it’s like the Wild West out there. The pandemic has caused seismic shifts in the market, resulting in an influx of buyers and slim-to-no inventory.

For many apartment dwellers, purchasing a second home has become pretty appealing over the last year. Spending more time than ever at home, buyers have reprioritized the features they value in their residence. The overwhelming consensus? They want space.

This sudden interest in the spacious suburbs has prompted a migration out of the cities and into, well, Connecticut. And with the shift to remote workspaces, many New Yorkers have chosen to relocate to the suburbs while still keeping their primary residence in the city on standby for the occasional office meeting.

Two years ago, a secondary residence in Connecticut or the Hamptons likely would have been purchased to be used as a weekend getaway. An easy, close-to-home retreat just far enough away from the hustle and bustle of daily life in the city. But now, the second-home buying trend has flip-flopped and led to a phenomenon Jonathan Miller, a real estate appraiser and consultant, calls “co-primary” homes.

Previously, buyers were mostly looking at second homes as an investment. Now more than ever, people are purchasing second homes that they can utilize immediately, and not just as an investment or for a vacation.

In its assessment of the pre-pandemic real estate market in Connecticut, Wallingford-based Berkshire Hathaway HomeServices New England Properties has seen a luxury home sales boom along the Shore Line East region to New York City, Westchester and Fairfield County, with sales up by double digits on the eve of the coronavirus outbreak in many of those communities.

Over the last year, 74 percent of mortgages taken in Connecticut were second home purchases according to Berkshire Hathaway CEO Candace Adams says.

“We do know that if you look at the postal movement out of New York City, with 110,000 people migrating all over the place out of the city, many are landing here in Connecticut,” says Adams. “Which is interesting because pre-pandemic, Connecticut had more of an exodus, with people moving south or downsizing and buying second homes on the Connecticut coastline to travel back and forth from Florida to. Overnight, Connecticut has become a destination.”

Southern Connecticut is a Hot Spot

Fairfield County is the number one destination for those relocating out of the city, followed by Litchfield County and then the Connecticut shoreline, says Adams.

“People are wanting to flee densely populated urban areas, even into condos. The condominium market is up 90 percent—and condos are necessarily located in sparsely populated areas,” she says. “People are just looking to move to towns and cities for the slice of suburbia.”

Skyrocketing demand coupled with lagging inventory and never-before-seen bidding wars, has resulted in the prices of homes headed for the stratosphere.

“Last year at this time, people stopped putting their homes on the market. Now, 20 to 30 offers on a single property are not unusual. An average property that goes on the market sees 50 to 70 showings each day, showing in 15-minute increments,” Adams says. “We’re seeing every single home sell. Even those million dollars plus listings are flying off the market.”

By the final quarter of 2020, the national median home price rose to $346,800, up from $327,400 one year prior, leaving many buyers on the sidelines. The competition is real.

In an attempt to make an offer seem more appealing to the seller, many buyers are taking away contingencies like the home appraisal or inspection in an increasingly competitive market. Plus, with the largest generation of Millennials entering the home buying market, it’s hard to adequately meet the demand.

Dawn Gagliardi of the Corrado Group serving the West Hartford, Farmington Valley, and Tolland County markets, says the pandemic has changed the way the people think about a secondary residence. More people have lengthened the tether connecting work and home as workspaces as companies have become flexible and embraced remote working, leading to an incredible influx of buyers to Connecticut, Gagliardi says.

Formerly a New York City medical malpractice attorney, Gagliardi says the pandemic has certainly created a more competitive market for the local families she is working with.

Buyers are often coming from out of state, and they have money. It leads to multiple offers on many homes, with some buyers bidding over the asking price and some waiving a building inspection to appeal to a seller,” she says.

Competition Grows, Inventory Dwindles

If you’re still in the game, you’re likely to see only about half as many homes for sale as were available last winter, according to data from Altos Research, a firm that tracks the market nationwide. Following many years of steady erosion, that’s still a record-shattering decline in inventory.

From January of 2020 to January of 2021, the demand for second homes far surpassed the demand for primary homes at 84 percent — outpacing the 50 percent increase in demand for primary homes.

Remote work, virtual learning and travel restrictions have all contributed to the surge in second homes purchases this last year, many of which will likely become a primary home if the homeowners continue to work remotely.

Gagliardi says she has noticed an upward tick of buyers searching for second homes in Connecticut, Maine, New Hampshire and Cape Cod for these very reasons.

“A lot of my clients decided to purchase a second home at the beach or the mountains as a way for them to get away with their families and feel safe,” Gagliardi says. “Especially with people being able to work from home, relocating to their vacation home, even for an extended stay, became much more of a thing over this past year.”

But purchasing a second home comes with unique financial considerations.

“Owning a second home can be an investment, because you can rent it out on Airbnb or VRBO to make a little money out of it. But you should make sure you’re going to actually get use out of it too,” Gagliardi says.

With so many city dwellers in search of a relatively easy drive to either a salty seaside like Madison or Mystic, or a leafy retreat like Kent or Litchfield, the state will likely continue to see an influx in the years to follow of those from New York and other parts who want the weekend getaway.

From the sandy Old Saybrook shoreline to the winding trails of Wadsworth Falls State Park in Middletown, Connecticut is a New England tourist destination for millions of visitors each year. Now, many are extending their weekend drive to a more semi-permanent vacation locale of choice.

These days, the prospect of purchasing a vacation home could hardly be more alluring. Mortgage rates are at historic lows. And after this last year, escaping to a crowd-free area is just what the doctor ordered. If you’ve been dreaming of buying a cozy cabin in the woods, a coastal cottage on the shore or some other sweet escape, there are some pretty compelling reasons to pull the trigger.

But be prepared that many popular vacation spots are no exception to the trend of slim-to-no inventory and pent-up buyer demand.

Buyers are snapping up second homes, especially oceanfront properties and anything with swimming pools, says Rose Ciardiello, a William Raveis agent serving the Connecticut shoreline.

“Anything with a pool is gold,” she says. “And that’s getting harder and harder to find.”

In many well-visited vacation towns, move-in ready homes are flying off the market in a matter of days (sometimes hours. If employers extend work-from-home policies and students kick off the school year with remote learning, increasing activity in the second-home market will likely continue well beyond the pandemic housing boom.

Carefully Consider the Options

A second home is still a house, and houses require upkeep. Take into account not only the price of regular maintenance, including yard work, but also monthly utilities like water, electricity, and trash.

“Buying a vacation home or investment property is a great way to expand your real estate portfolio. If you’re going to buy a second home you should determine your needs, your budget, and then you can figure out exactly what you need to invest in it,” Ciardiello says.

So what are the steps you should take if you want to join the ranks of the second-home-owner?

Rachel Alexander, senior loan advisor at Flagstar Bank in Rocky Hill says the pandemic has actually tipped the scales in favor of buyers actually making a purchase.

“Because the pandemic caused some economic downturn, mortgage rates remained at historic lows, allowing for new buyers who weren’t able to get approved for much money to be able to have a greater purchase power,” she says.

Typically, Alexander says, a second home is simply an alternative term for a vacation home. But, she says, if the property is purchased with the intention of collecting additional income, there are a few additional guidelines to follow when purchasing. The type of property, such as whether it’s a single-family or multiple-unit one, makes a difference.

For those thinking of renting out their home: “The lender would require a bigger down payment and they would require additional cash in the reserve to cover the several months’ worth of mortgage payments to mitigate the potential risk there may be if the tenants leave or can’t pay the rent,” Alexander says.

For those who opt to rent out a vacation home for 15 or more days out of the calendar year, it is then considered a rental or investment property by the Internal Revenue Service. Any real estate used to make a profit, rather than serve as a primary residence, is considered an investment property.

Also, if buyers want to rent out your second home, their lender will likely require them to perform an additional appraisal, as well as produce a rent schedule. Taxes, insurance costs and projected profits from an investment property will all factor into the debt-to-income ratio. On the bright side, buyers can deduct certain expenses, including advertising, property management fees, mortgage interest, repairs, maintenance and utilities.

While it can be a win-win move, particularly in an era of remote work, prospective buyers should make sure to head into the decision with a healthy dose of reality.

“This year we all assumed that people would have been holed up in their homes, isolated. But it actually resulted in people realizing that they needed more space,” says Alexander. “They had more time to consider their long-time financial goals and it has resulted in a huge boom in our business. The market—for primary and secondary residences—has completely changed.”