Statistics for Massachusetts single-family median home prices in the first half of each year represented. Source: The Warren Group
Home sales in Massachusetts fell sharply during the first half of the year as the median selling price for single-family homes slipped 3 percent and condominium prices remained flat.
Economists and industry experts anticipated housing prices would ease this year after several consecutive years of a robust market that saw double-digit price gains. The state’s sluggish economy and slow job growth, rising mortgage interest rates and home prices that escalated far beyond the incomes of many households have all helped to put downward pressure on the market, they said.
“We’ve had, over the last several years, a pretty substantial appreciation of housing values to the point where over the last couple of years the housing prices have outpaced income growth,” said Michael Goodman, president of the New England Economic Partnership. The nonprofit research group’s forecast calls for a 1 percent to 3 percent drop in average single-family home prices this year, followed by a gradual increase and stabilization in prices over the next two years.
In an interview last week, Goodman said home prices may decline a bit more in the second half of the year, and eventually flatten and remain steady. However, Goodman noted that market could shift more dramatically if interest rates continue climbing and the economy takes a significant downturn.
“But I think at this point that doesn’t seem to be the most likely scenario,” he said.
Single-family home sales in Massachusetts dropped 10 percent during the first half of the year compared to the same period in 2005, while condo sales fell 6.6 percent. A total of 26,409 single-family homes and 15,196 condos were sold from January through June, according to The Warren Group, parent company of Banker & Tradesman.
As sales plummeted, the median selling price for a single-family home decreased 3 percent to $330,000 during the first two quarters of 2006 from $340,000 at the midway point last year, and the median price for condos sold during the first half of the year remained unchanged from 2005 at $292,500.
Single-family home prices for the first half of the year had consistently registered double-digit annual appreciation from 2001 to 2004. By the first half of 2005, the increase in single-family home prices had moderated to 6 percent from a year earlier.
Richard F. Cahill, president of Norwell-based Jack Conway & Co., said while home prices skyrocketed over the last several years, incomes weren’t rising at the same rate, and buyers began to step back activity.
Indeed, the ratio of median home value to per capita income in Massachusetts has widened considerably since 2000, according to MassBenchmarks, a quarterly journal published by the University of Massachusetts Donahue Institute and the Federal Reserve Bank of Boston. In 2000, median home prices were a little more than 5 times higher than incomes, but by the second quarter of 2005 home values were nearly 9 times higher, according to the journal.
Cahill said Jack Conway & Co. began noticing a slowdown in sales and an increase in the number of homes on the sales block in Southeastern Massachusetts a little more than a year ago.
“We planned for it and realized we needed to adjust our thinking,” he said.
Real estate trends over the last 50 years show that home prices have climbed, on average, about 6 percent to 12 percent annually, with some steep dips and increases along the way, according to Cahill. But Cahill said that real estate cycles in which the market experiences a significant boost and then swings downward typically last only one to two years.
Taking those types of trends into account, Cahill estimates that the current market is pretty “close to bottom.”
“If I was advising my children about real estate I would be saying to them this may not be rock bottom yet,” he said.
“There are some excellent values to be taken advantage of right now. If you’re selling your home, now is not the time to be testing the market,” he said. “If you need to sell your home, you need to ask yourself, ‘How do I make my home different?'”
‘Cautious’ Buyers
The decline in single-family home prices during the first half of the year was more noticeable in central and northern Massachusetts.
In Worcester County, the median price for single-family homes sold during the first two quarters fell 4.5 percent to $253,000 from $265,000 during the same six months in 2005. Sales dove downward by 12.7 percent.
In contrast, condo sales jumped 10 percent in Worcester County during the first half of 2006, and the median condo price climbed 4 percent to $202,397 compared to a year earlier.
Daniel Robertson, president of the Worcester Regional Association of Realtors, said a fall-off in new home construction is helping to push single-family home prices down.
The region experienced a residential building boom over the last five years, according to Robertson, which helped bolster prices.
“Now that [new construction] has slowed, we don’t see the double-digit appreciation that you have with new construction,” said Robertson, who works in the Westborough office of Coldwell Banker Residential Brokerage. “We’re no longer seeing builders jumping at building on speculation.”
According to Robertson, other factors that have affected the housing market are the dramatic increase in the number of homes available for sale in some towns and the fact that many families are leaving the area and relocating to areas where the cost of living is lower.
But Robertson said despite the market shift, properties in towns that are close to Interstate 495 and accessible to public transportation – including Shrewsbury and Grafton – are holding their values.
Dean DaSuta, a district director for ZipRealty, said there is about 8 months worth of inventory across the state, compared to about four months of inventory about a year earlier.
The jump in the number of for-sale properties has taken the pressure off of home seekers, he said.
“They’re taking a little bit longer to make up their mind because they can afford to,” said DaSuta, who oversees sales west and north of Boston.
In Essex County – which includes Peabody, Salem, Lawrence and Haverhill – the median single-family home price dropped 4 percent to $360,000 during the first two quarters compared to prices at the halfway point in the prior year. Sales were down 14 percent compared with the first half of 2005.
Brenda Beaudoin, president of the Northeast Association of Realtors, said buyers and sellers are definitely negotiating more and homes are taking longer to sell.
“Buyers are being really cautious and they’re making much lower offer than they had been,” said Beaudoin, owner of Beaudoin & Assoc. in Dracut.
But like other real estate brokers, Beaudoin doesn’t think market conditions are similar to the downturn experienced in the late 1980s and early 1990s. Beaudoin said much looser lending practices during those years led to many foreclosures.
“[The market] may still go down a little but I don’t see anything like what we saw in the early ’90s,” she said.
Some observers, however, are concerned for homebuyers who relied on riskier loan products in recent years – including interest-only and no-down-payment mortgages – and are closely monitoring the foreclosure rate.
According to The Warren Group, 6,352 petitions to foreclose were filed at Massachusetts land courts in the first half of 2006.
Meanwhile, Federal Reserve Chairman Ben Bernanke indicated last week that the higher mortgage rates and cooling housing market could affect consumer spending.
“With homeowners no longer experiencing increases in the equity value of their homes at the rapid pace seen in the past few years, and with the recent declines in stock prices, increases in household net worth are likely to provide less of a boost to consumer expenditures than they have in the recent past,” Bernanke told the Senate Banking Committee.
