Hartford Business Journal

14 HARTFORDBUSINESS.COM | AUGUST 7, 2023 PHOTO | MICHELLE TUCCITTO SULLO PHOTO | CONTRIBUTED With mortgage lending volume down, banks pivot to other products, services By Michelle Tuccitto Sullo msullo@hartfordbusiness.com L ower demand for residential mortgage loans and refinanc- ings has prompted Connecticut banks to focus their efforts on other products and services — such as home equity and construction loans or even commercial lending — to weather the downturn. "It's a very cyclical business that you have to be willing to make adjustments in, based on volume," said Christopher Gorman, CEO and chairman of KeyCorp, the Ohio-based parent company of KeyBank, which has a major presence in Connecticut. "And as it happens, a lot of people that are in the mortgage business go from being in the mortgage busi- ness, to not being in the mortgage business, to coming back to the mortgage business." John S. Carusone, president of the Hartford-based Bank Analysis Center, said the slow down in home sales has impacted large and small banks alike throughout Connecticut. "Banks are on the sidelines finding ways to cope with a market they have very little control over, in the short term," Carusone said. "Resi- dential mortgage lending is a major banking product line. Depending on the future direction of the economy, the effect on mortgage lending could be significantly impacted, and hence affect the performance of banks." Higher interest rates and rising home prices have slowed the residential real estate market. For example, Gorman, in a recent interview with the Hartford Business Journal, said KeyBank, like all lenders, has seen refinance activity "completely dry up." However, new housing construc- tion has made up for some of that lost business, bankers said, boosting construction loan demand. In Connecticut, 2,981 new housing permits were issued during the first five months of this year, up 30% from the year-ago period, according to U.S. Census Bureau data. There were 1.4 million new U.S. residen- tial construction housing starts in June 2023. KeyBank has seen strong demand for affordable multifamily housing development, Gorman said, a major focus area for the bank. Overall, Carusone said the banking industry is well capitalized and profitable, with strong reserves against loan losses. But, if inflation and higher interest rates continue, it could mean a further slowdown in mortgage lending, reduced earnings and loan losses, which would force banks to redeploy or cut home loan staff, Carusone said. Carusone said it may be prema- ture for banks to trim mortgage staff right now, but many large lenders — including Wells Fargo, JPMorgan Chase and U.S. Bank — have already done so. Bank pivots Connecticut banks indicated they are focusing on other areas that Slow residential market hurting real estate, banking, ancillary industries By Michelle Tuccitto Sullo msullo@hartfordbusiness.com T he lack of residential homes for sale is having a negative impact on multiple industries, not just real estate. In the financial sector, the slow home loan market has prompted layoffs at some financial institutions, and forced banks to shift their focus to other products and services to weather the downturn. Realtors, lawyers, home inspec- tors and even photographers are also feeling the pinch from a slow-moving housing market being weighed down by low inventory and higher interest rates. The Greater Hartford Association of Realtors recently reported a 33.6% decrease in inventory during the month of June compared to a year earlier, with just 754 single- family homes on the market. New Greater Hartford listings in June dropped 28.3% to 623, while closed and pending sales fell 31.4% and 21.9%, respectively. The one bright spot: The median sales price of a single- family home increased by 11% in June, to $390,000, according to association statistics. David P. Gallitto, president of CT Realtors, said statewide Connecticut inven- tory remains "still extremely low," with only 3,600 single- family homes and condominiums on the market as of late July. "That equates to 2 months of supply," he said, with homes going under contract, on average, nine days from the start of the listing. In contrast, Connecticut had about 22,000 single-family home and condominium listings pre-pandemic. Currently, there are often multiple offers on properties, with final purchase prices going over the original asking price, he said. Gallitto said it has been "hard" on the real estate community, which shrunk in the past year. As of June 2023, Connecticut had 18,752 Realtors, down 2.4% from a year earlier, according to the National Association of Realtors' most recent membership report. "There are not enough listings to satisfy the demand in the market," Gallitto said. "There is only so much one can do when there isn't enough inventory to meet the demand." Lower income Other industries linked to the home-sale market have been equally affected. "Not as many loans written by mortgage companies, not as many closings for attorneys to handle and less homes for inspectors to inspect — it is a true trickle-down effect," Gallitto said. Paula Fahy Ostop, a West Hartford-based Realtor and team leader with the Marshall David Gallitto This Colonial-style home at 84 Tyler Way in Bristol went on the market in June 2023 for $430,000. Ripple Effect Paula Fahy Ostop is a Realtor and team leader with Marshall + Ostop Team at William Raveis Real Estate. Michael Sheahan, executive vice president, chief lending officer at Chelsea Groton Bank. PHOTO | CONTRIBUTED Continued on next page Continued on next page

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