As single-family home prices in the Bay State reached record levels in the first half of 2005, beleaguered first-time buyers sought refuge from runaway housing costs by purchasing condominiums, a more affordable option.
“Given the cost of a single-family home, first-time buyers are choosing condos,” said Gary Rogers, a broker with RE/MAX First Realty in Waltham and Greater Boston Region vice president of the Massachusetts Association of Realtors. “When you consider that a modest single-family home in Waltham costs $400,000, a condo for $300,000 looks really good.”
The statewide median selling price for a detached single-family home rose nearly 10 percent to a new record high of $373,500 in June, up from $340,450 in January, according to MAR data. In contrast, the median price for a condo last month was a more modest $287,000.
As a result, demand for condominiums skyrocketed by 18 percent for the first half of 2005 compared to the same period last year, according to the latest numbers from The Warren Group, publisher of Banker & Tradesman. There have been 16,258 condo sales in Massachusetts from January through June of this year, compared to 13,766 for the first half of 2004.
An analysis of The Warren Group data found that nearly every county has seen a double-digit increase in condo sales for the first half of this year when compared to the first six months of 2004. Berkshire County experienced the most dramatic increase as condo sales rose by nearly 70 percent. Franklin County saw a 42 percent increase, and in Middlesex County sales increased by 32 percent.
In stark contrast, sales of single-family homes fell in all counties with the exception of Berkshire County, where sales climbed by a modest 2 percent, and in Franklin County, where sales were flat. Statewide, the number of single-family homes sold in the first half of 2005 was 29,336, compared to 31,245 for the same period last year, according to The Warren Group data.
A major factor that has fueled all sales is historically low mortgage interest rates. For the first half of 2005, a 30-year fixed-rate mortgage averaged 5.74 percent, down from 5.86 for the same period last year, according to Freddie Mac.
While single-family home sales prices continue to astound buyers and sellers, the double-digit annual rate of price appreciation has finally started to moderate – slightly. From April through June of this year, single-family home price increases have been in the single digits – dropping to the lowest rate in June at 4.8 percent, according to the MAR data.
Record Listings
One of the reasons for the slip in price appreciation could be the ample supply of homes for sale across the state. MLS Property Information Network, the region’s largest multiple listing service, said that as of mid-June, the number of listings reached a record high of more than 40,000 single- and multifamily homes and condos, land and commercial properties. About 22,000 of the listings are single-family homes.
Listings are up more than 35 percent from one year ago. MLS attributes the record-high number to new construction and continued record-low interest rates. The total of available listings is the highest recorded since MLS began tracking the information in 1997.
“This is good news for MLS, but perhaps less so for the people that wish to sell their homes,” said Conrad Allen, MLS chairman and broker-owner of RE/MAX One of Webster. “It would appear that supply is equaling demand.”
Maggie Tomkiewicz, broker-owner of Marianne Macdonald Real Estate in South Dartmouth and MAR president, said she expects that by year’s end price appreciation will moderate to the mid to high single digits.
“Record-breaking, double-digit appreciation simply cannot be sustained on an annual basis year after year. That’s just not a healthy market,” she said. “Normal market appreciation is between 3 and 5 percent annually and we’ve been riding the high curve for a long time.”
Some Realtors say the laws of supply and demand are being turned upside-down considering that home prices are still rising despite a nearly 10 percent decline in the number of single-family home sales during the first half of the year. For the first six months of 2005, the volume of single-family home sales transactions was 31,245, compared to 29,336 for the first half of 2004, according to The Warren Group, which tracks sales recorded at registries of deeds throughout the state.
Another factor that should translate into lower prices is the number of days a home stays on the market. MLS reports statewide that days on the market increased from 60 for the first half of last year to 65 for the same period in 2005. But some homes are taking three or more months to sell.
“The whole thing defies basic economic theory,” said Leo Berard, a buyer’s agent at Buyer Brokers of Cape Cod in Barnstable. “When inventory and [number of] days [a home remains] on the market increases, prices are supposed to fall – yet prices continue to climb.”
Still, while Berard believes we are a long way from a buyer’s market, prices should continue to level off as inventory increases.
“Buyers are in a better position now than they were last year. As interest rates increase and supply increases, the better off buyers [will be and] that will [add] pressure to stabilize the market,” he said.
Rogers, the Waltham agent, said if any home has been on the market for more than two months, there’s one major reason: It is priced too high.
“We’re seeing time on the market increase because they were never priced right to begin with,” he said. “Some brokers are so anxious to get a listing, they’ll agree to the seller’s unrealistic high price that isn’t based on anything.”
Despite speculation that the extraordinary rise in home prices has lead to a housing market “bubble,” Federal Reserve Board Chairman Alan Greenspan recently rejected the notion.
In testimony to Congress in July, Greenspan said, “We’ve looked at the bubble question and we’ve concluded that it is most unlikely.” He attributed recent gains in home prices to “the effects on demand of low mortgage rates, immigration and shortages of buildable land.”
Given the local nature of real estate, David Lereah, National Association of Realtors chief economist, said it’s possible for prices to deflate on a local basis, but a bubble “pop” isn’t in the cards. He noted that, even during recessions and periods of declining home sales, home prices nationwide have risen annually. “Over time, the typical home value appreciates at the general rate of inflation, plus 1 to 2 percentage points,” he said.
Noting the “stabilizing force for the overall economy” that residential construction and related consumer outlays provided during last year’s economic downturn, Greenspan said in his testimony that the U.S. housing market continues to perform well in the evolving recovery period.
Echoing Greenspan’s apparent confidence in the industry when he predicted “reasonably strong housing demand,” Lereah affirmed, “The housing market is fundamentally sound: We have a lean inventory of homes, historically low interest rates, good consumer confidence and strong demand from a growing population. The supply/demand situation means we can expect healthy price appreciation to continue.”
