RICK LOUGHLIN
‘A challenging year’
It is the burning question on the minds of real estate industry experts and concerned homeowners: Will the housing market continue its decline this year or start a comeback?
Some economists are predicting that home sales and prices will continue to weaken through the beginning of the year before conditions gradually stabilize and start to recover toward the end of 2007 and the beginning of 2008. Other experts maintain that the Bay State housing market began stabilizing in the last quarter of 2006, and likely will remain flat in the new year.
But most agree that there are two factors to watch closely in 2007 – interest rates and foreclosures.
“2007 should be similar to 2006,” said Doug Azarian, a Cape Cod real estate broker who is president of the Massachusetts Association of Realtors. “There is still a lot of pent-up demand. There are buyers who are looking to purchase and move up but have been waiting because they need to sell [a home] or waiting for a time when the price is right.”
The New England Economic Partnership, a nonprofit research firm, is forecasting that home prices in Massachusetts will decline about 5 percent through the year because of weak job growth and slow gains in population and the labor force. NEEP predicts that at the start of 2008, home prices will be 7 percent to 10 percent below peak levels seen in 2005, when the median single-family home price reached $345,000, according to statistics from The Warren Group, parent company of Banker & Tradesman.
“None of us knows exactly where things are going,” said Rick Loughlin, president of Coldwell Banker Residential Brokerage of Northern and Southern New England.
Loughlin said he began to see signs of the market stabilizing in the last three to four months as the number of properties available for sale, which jumped sharply last year compared to two to three years ago, dropped throughout 2006.
There was a 10- to 11-month supply of unsold homes toward the end of last year, down from 13.5-month supply a few months earlier, according to MAR.
But heading into 2007, conditions were leaning more toward a buyer’s market than a seller’s market, said Loughlin.
“2007 will still be a bit of a challenging year because we’re still going to deal with higher inventory levels, but as we move through the year, the market [should] start to move in the right direction,” he said.
A lot hinges on mortgage-interest rates. Experts say a significant jump in interest rates certainly would put a damper on sales activity. However, even though some economists anticipate that long-term mortgage interest rates will climb moderately this year, they still expect them to remain at historically low levels.
The Massachusetts Mortgage Bankers Association, for example, has predicted that the average 30-year fixed-mortgage rate will rise to 6.6 percent and the average one-year adjustable-rate mortgage will remain about the same at 5.8 percent. The National Association of Realtors forecasts a 6.7 percent 30-year fixed rate and a 5.5 percent one-year adjustable rate.
As for the rental market, industry watchers are expecting to see rents inch up and occupancy to remain flat or dip slightly as a fresh supply of new apartments become available in Greater Boston.
“Generally, I think we’re looking at a stable rental market with a substantial amount of new production holding down real rent increases to about the 2 [percent] to 3 percent range,” said Thomas Meagher, president of Northeast Apartment Advisors, an Acton-based research firm.
Meagher said continued job growth in Massachusetts and nationally, as well as low inflation, should bode well for apartment demand.
‘A Strong Commitment’
One area that will receive a lot of attention in 2007 is foreclosures. The Center for Responsible Lending, a nonprofit research group that targets predatory lending, expects foreclosure activity to jump significantly this year.
The group predicts that 19 percent of subprime loans made in the past two years in this nation will eventually end in foreclosure, affecting an estimated 2.2 million households. Cities in California, Nevada, New Jersey, New York, Michigan and the Greater Washington, D.C., area are likely to see a high rate of subprime foreclosures, according to a report issued by the center last month.
Some Bay State groups are taking steps to avoid a big tide of foreclosures in Massachusetts. A coalition of groups is gearing up to file a legislative package aimed at protecting homeowners in danger of losing their homes and preventing foreclosure.
The Citizens’ Housing and Planning Association (CHAPA), Massachusetts Affordable Housing Alliance (MAHA), Massachusetts Association of Community Development Corporations and the National Consumer Law Center plan to file a bill that would require the licensing of mortgage loan officers; give homeowners in the foreclosure process at least a month to come up with funds to pay off debt without having legal expenses or other fees tacked on to what they already owe during that period; and provide $10 million for counseling and legal services for consumers.
The bill also is expected to include a provision that would extend the requirements of the Community Reinvestment Act to mortgage companies, according to MAHA Executive Director Thomas Callahan. Currently, banks are covered by the act, which requires lenders accepting deposits from certain communities to reinvest back into those communities and to offer credit throughout their entire market area. Supporters of the measure, which has been proposed by MAHA in previous legislative sessions, believe the legislation would help cut back on the number of subprime mortgage loans to low-income borrowers who might otherwise be able to get more favorable financing.
In a similar vein, Boston Mayor Thomas M. Menino, who established a foreclosure prevention program for residents last year, announced in December that he intended to file a bill that would require the licensing and regulation of mortgage originators and would provide more financial help to homeowners trying to keep their homes.
Other legislative efforts likely to draw attention from those in the real estate industry are proposals on Nantucket and Martha’s Vineyard to create affordable housing banks through real estate transfer taxes. Supporters of the housing banks want to charge a tax on home sales greater than $2 million on Nantucket and greater than $750,000 on Martha’s Vineyard.
The islands’ efforts to get state approval for the transfer taxes failed last year after strong opposition from Realtor groups. While supporters have indicated they plan to re-file similar legislation this year, they’re likely to face opposition from MAR again this year.
In addition, housing developers and property owners in Boston are waiting to see what happens with a proposed ordinance that would require landlords to negotiate with tenant groups over rents and other issues. Critics are calling the ordinance another form of rent control that could have a chilling effect on future residential development in the city, but advocates for low-income tenants say it will give them a chance to bargain for more reasonable rents and better living conditions.
In the affordable housing arena, CHAPA and other advocacy groups will be pushing for a $10 million increase to state’s rental assistance program, the Massachusetts Rental Voucher Program, which helps low-income tenants. Lawmakers approved $27.5 million for the program during the last fiscal year.
They also will be seeing $55 million for public housing operating subsidies, up from $45.1 million that was appropriated last year. In addition, they will be urging lawmakers to approve a $1 billion affordable-housing bond bill. The bill would refund all the existing bond-funded housing programs – including the Affordable Housing Trust Fund – that help to create and preserve housing for low- and moderate-income households.
CHAPA Executive Director Aaron Gornstein said this is the first time that all housing bond bills have been consolidated into one piece of legislation. “Essentially, it’s to put it on a five-year capital plan that has predictable funding,” he said.
Another bill supported by CHAPA would increase the amount of the state low-income housing tax credit to $10 million annually from $4 million and make the tax credit permanent.
Affordable housing supporters are optimistic that with Gov. Deval Patrick taking the reins of the state government, they will have a friend in the corner office. Patrick has talked about adequately funding the rental voucher program, doubling the amount of money set aside for the Affordable Housing Trust Fund, and providing incentives to companies that help employees with housing costs.
“[Patrick] made a strong commitment to affordable housing during the campaign,” said Gornstein.
