The median sales price of a single-family home in Massachusetts slipped 5.8 percent to $325,000 in 2006. Most counties in the state, as seen in this map, saw price declines of between 3 percent and 4 percent, while at least three counties experienced modest increases.
In what economists and longtime Realtors are calling a much-needed correction of a heated housing market, single-family home sales fell 14.4 percent and prices dropped nearly 6 percent in Massachusetts last year.
A total of 54,203 single-family homes were sold in Massachusetts in 2006, down from 63,350 a year earlier, according to statistics released today by The Warren Group. The median price of a single-family home slipped 5.8 percent to $325,000 from $345,000 in 2005. The Warren Group, parent company of Banker & Tradesman, tracks all sales transactions recorded at the registries of deeds throughout the state.
Economists and real estate experts say a cooling of the market was expected given that incomes had not kept pace with the sharp home price increases in the past four to five years. Prices in the Bay State rose more than 10 percent annually from 1999 to 2004, and 2006 marked the first time since 1993 that year-over-year prices in the state fell.
“If in the past the housing market was too good to be true, it turned out to be too good to be true. It clearly wasn’t sustainable,” said Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies.
Market conditions last year favored homebuyers, who benefited from low mortgage interest rates and a greater number of homes available for sale. The inventory of unsold homes grew substantially during certain points of the year, as properties took weeks or months longer to sell.
The shift was abrupt for some home sellers and Realtors who were accustomed to a short supply of for-sale homes and properties selling within a matter of weeks.
Alan Clayton-Matthews, an associate professor at the McCormack Graduate School of Policy Studies at the University of Massachusetts Boston, said the state’s strong job and income growth during the past two decades helped “bid up” prices because the housing supply was not expanding quickly.
“It was the successful economy that resulted in Massachusetts home prices rising faster than the rest of the country,” he said.
In recent years, low interest rates also helped more consumers enter the housing market, and when the stock market tanked in 2000, many people turned to real estate.
Prices, however, began escalating much faster than incomes. By 2005, the median house price in Massachusetts cost 8.5 times more than per capita income, whereas in the U.S. the median house price was 6.5 times per capita income, according to Clayton-Matthews.
In addition, the state’s economy has been slow to recover from the recession of 2001, and that is putting downward pressure on home prices. “It’s been the slow pace of the economic recovery that has made the market realize that houses here are overpriced relative to other parts of country,” he said.
Clayton-Matthews, a director of the New England Economic Partnership who provides the Massachusetts economic forecast for the group, projects Bay State home prices will fall throughout 2007 into the beginning of 2008, until they are about 7 percent to 10 percent lower than the peak levels seen in 2005. Prices will then level off in mid-2008, he predicts.
Good News, Bad News
Most regions in Massachusetts saw median price declines of 3 percent to 4 percent, while prices in the central part of the state and at least two other counties backpedaled by 5 percent or more last year.
Two counties in the western part of the state – Berkshire and Hampden counties – saw modest price increases. Nantucket saw the largest price gain last year. The island’s median home price jumped 5 percent, nearing the $1.5 million mark, according to The Warren Group.
In contrast, Worcester County saw the steepest drop in single-family median home price. The median price fell 7 percent to $251,000 last year. Unit sales were also off by 17 percent in Worcester County.
Rita Bohan, president of the Worcester Regional Association of Realtors, said prices and sales jumped significantly in Greater Worcester in the last few years as buyers priced out of Greater Boston communities headed west in search of more affordable housing.
“We needed to have a correction because the prices had skyrocketed,” said Bohan, a Realtor with Keller Williams of Greater Worcester.
Bohan believes that many buyers held off on purchasing a home after hearing and reading news reports about a housing bubble. “People were afraid to buy something,” she said.
As far as sales volume, Cape Cod and Nantucket experienced the biggest drops. Nantucket sales were down 27 percent for the year, while in Barnstable County sales plunged 20.4 percent.
“During the latter part of 2005 and into the majority of 2006 the market was poising itself for this adjustment downward in terms of property prices and in terms of number of units sold,” said David S. Drinkwater, president of Grand Gables Realty Group in Scituate.
Drinkwater emphasized that the 2006 market was still fairly strong historically speaking. Last year’s decline is being compared to a period when sale prices reached peak levels, he explained
“The early part of 2005 and the latter part of 2004 was one of the best periods that we’ve seen in the history of the state,” he said. “I think the decline we’ve seen is modest and I think it’s what was expected. It’s taking pressure off the buying public.”
Drinkwater said since Worcester and Barnstable counties saw substantial growth in recent years they stood to have a more noticeable adjustment in sales activity. Barnstable County’s real estate market, for example, has been boosted by demand from baby boomers and retirees seeking second homes.
The western part of the state appeared to weather the downturn a little better. Single-family home sales in Franklin, Hampden and Hampshire counties were down by less than 10 percent. The median price in Franklin County dipped 1 percent to $181,250 from the prior year and in Hampshire County the median price remained unchanged at $245,000.
Hampden County’s median selling price climbed about 3 percent to $174,900.
“It was a good, strong year. This is the third best year out of the last 10 years, in terms of sales,” said real estate broker Susan Renfrew, referring to the Pioneer Valley’s real estate market.
Renfrew attributed the more moderate change in market conditions in the Pioneer Valley to the fact that prices didn’t rise as sharply in the western part of the state as they had in eastern Massachusetts. “We didn’t have the very high levels of appreciation that occurred other parts of the state,” she said.
Still, inventory levels in the region peaked in the middle of the year when homes took four months, and even longer, to sell, according to Renfrew.
The market downturn hasn’t appeared to drag down the overall economy, according to Retsinas of the Joint Center for Housing Studies.
“We’re still seeing income growth and low unemployment. You would have expected it [housing slowdown] would have had more of an impact but it hasn’t,” he said.
Retisnas offers a more optimistic, although measured, outlook about the state of the housing market.
“I think we’re near the proverbial bottom – that’s the good news. The bad news is that we may be there for a while,” he said.
